-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KVr9Dna4cfih+uiHWHbFNC7rA/ILyrVt9BN98aByM55cDZZ9yQ/8O1eM1PAH7eno J4n1xarzBLMJ7pjSnO+F3g== 0000927016-97-000192.txt : 19970225 0000927016-97-000192.hdr.sgml : 19970225 ACCESSION NUMBER: 0000927016-97-000192 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970206 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMEDICS DETECTION INC CENTRAL INDEX KEY: 0001012555 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 043106698 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-19199 FILM NUMBER: 97519220 BUSINESS ADDRESS: STREET 1: 220 MILL RD CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P.O. BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254-9046 S-1/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997 REGISTRATION NO. 333-19199 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- THERMEDICS DETECTION INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 3823 04-3106698 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) --------------- 220 MILL ROAD, CHELMSFORD, MASSACHUSETTS 01824-4178 (508) 251-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- SANDRA L. LAMBERT, CLERK THERMEDICS DETECTION INC. C/O THERMO ELECTRON CORPORATION 81 WYMAN STREET P. O. BOX 9046 WALTHAM, MA 02254-9046 (617) 622-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: SETH H. HOOGASIAN, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE GENERAL COUNSEL TESTA, HURWITZ & THIBEAULT, LLP THERMEDICS DETECTION INC. 125 HIGH STREET C/O THERMO ELECTRON CORPORATION BOSTON, MASSACHUSETTS 02110 81 WYMAN STREET (617) 248-7000 WALTHAM, MASSACHUSETTS 02254-9046 (617) 622-1000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement has become effective. --------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE (1) - ------------------------------------------------------------------------------------- Common Stock, $.10 par value.................. $34,488,000 $10,451 - ------------------------------------------------------------------------------------- Subscription Rights..... (2) --
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Calculated pursuant to Rule 457(o). Of this amount, $6,982 has already been paid. (2) Evidencing the rights to subscribe to the above shares. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated February 6, 1997 PROSPECTUS 2,200,000 SHARES [LOGO OF THERMEDICS DETECTION APPEARS HERE] COMMON STOCK ----------- Thermedics Detection Inc. ("Thermedics Detection" or the "Company"), a privately held, majority-owned subsidiary of Thermedics Inc. ("Thermedics"), will distribute to holders of the Company's outstanding shares of common stock, par value $.10 per share ("TDX Common Stock"), of record at the close of business on February 6, 1997 (the "Thermedics Detection Record Date"), including Thermedics, transferable subscription rights (the "Rights") to subscribe for and purchase additional shares of TDX Common Stock for a price of $ per share (the "Subscription Price"). Thermedics, which owns approximately 93.6% of the outstanding TDX Common Stock, will not exercise the Rights it receives from the Company, but is instead distributing all of such Rights to holders of outstanding shares of its common stock, par value $.05 per share ("Thermedics Common Stock"), of record at the close of business on February , 1997 (the "Thermedics Record Date"), including Thermo Electron Corporation ("Thermo Electron"), which owns approximately 55.3% of the outstanding common stock of Thermedics. Each holder of TDX Common Stock will receive approximately .366 transferable Rights for each share of TDX Common Stock held of record on the Thermedics Detection Record Date (or one Right for approximately every 2.73 shares held). Each holder of Thermedics Common Stock will receive 0.10 transferable Rights for each share of Thermedics Common Stock held of record on the Thermedics Record Date (or one Right for every 10 shares held). Thermo Electron will not distribute the Rights it receives to its stockholders, but may exercise its Rights or sell its Rights depending on prevailing market conditions, including in negotiated transactions with the Underwriters. No fractional Rights or cash in lieu thereof will be distributed or paid by the Company or Thermedics. The number of Rights distributed by the Company or Thermedics to each holder of Thermedics Common Stock or TDX Common Stock will be rounded up to the nearest whole number. The distribution of Rights to holders of TDX Common Stock will not be a taxable event. The distribution of Rights to holders of Thermedics Common Stock will constitute a taxable distribution of property. See "The Rights Offering--Federal Income Tax Consequences." Rights holders may purchase one share of TDX Common Stock for each whole Right held. Each Right also carries the right to subscribe at the Subscription Price for shares of TDX Common Stock that are not otherwise purchased pursuant to the exercise of Rights. An election to exercise Rights, once made, may not be revoked. All amounts received by the Subscription Agent pursuant to the exercise of Rights will be held in a non-interest-bearing escrow account until the completion of the Rights Offering. See "The Rights Offering--Subscription Privileges." The Rights are evidenced by transferable certificates. The Underwriters have agreed, subject to the terms and conditions of the Standby Underwriting Agreement, to purchase from the Company on the sixth business day after the Expiration Date (as defined below), at the Subscription Price, (i) 300,000 shares of TDX Common Stock (the "Firm Shares") and (ii) a number of shares of TDX Common Stock equal to 1,000,000 shares less the number of shares of TDX Common Stock subscribed for through the exercise of Rights (together with the Firm Shares, the "Underwritten Shares"). See "Underwriting." The distribution of Rights by the Company and Thermedics and the sale of the shares of TDX Common Stock upon the exercise of Rights or pursuant to the underwriting arrangements are referred to herein as the "Rights Offering." Assuming the sale of all of the Underwritten Shares, Thermedics will beneficially own approximately 77.6% of the outstanding TDX Common Stock. The Rights will expire at 5:00 p.m., Eastern time, on March , 1997 unless extended by the Company (as extended, the "Expiration Date"), except that the Company has agreed to allow the Underwriters to exercise Rights held by them on the business day following the Expiration Date. The issuance of shares of TDX Common Stock pursuant to the exercise of the Rights is conditioned upon the sale of at least 1,000,000 shares of TDX Common Stock in the Rights Offering (excluding the Firm Shares). See "The Rights Offering--Subscription Privileges" and "Risk Factors--Risk of Termination of the Rights Offering Under Certain Circumstances." The maximum number of shares which may be issued in the Rights Offering, 2,200,000, and the minimum number of shares which may be issued, represent approximately 17.1% and 10.8% of the shares that would be outstanding after the Rights Offering, respectively. Prior to this offering, there has been no public market for the TDX Common Stock or the Rights. The TDX Common Stock and the Rights will be listed on the American Stock Exchange. The Subscription Price will be determined by the Company's Board of Directors after consultation with Representatives of the Underwriters. It is currently estimated that the Subscription Price will be between $11.00 and $12.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the Subscription Price. ----------- THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Subscription Underwriting Fees Proceeds to Price (1) and Commissions (1) Company (1) (2) - ----------------------------------------------------------------------------------------------- Per Share (2).......... $11.50 $.43 $11.07 Max. $.77 $10.73 Min. - ----------------------------------------------------------------------------------------------- Total (3).............. $25,300,000 Max. $943,000 $24,357,000 Max. $14,950,000 Min. $997,000 $13,953,000 Min.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (cover page continued on next page) ----------- LEHMAN BROTHER NATWESTSSECURITIES LIMITED , 1997 At the upper left of the page is a graphic image depicting the Company's Alexus system. Immediately to the right of this image is a graphic image depicting the Company's InScan system. To the left of these graphics is the following caption: The Company's Alexus systems (far left), which detect trace amounts of constituents that affect product quality in refillable plastic soft drink, water and other beverage containers, have been installed on more than 200 bottling lines in more than 30 countries throughout the world. The Company's InScan system (left) uses high-speed x-ray imaging technology to detect liquid fill-levels and leakage in containers for the beverage, food and other industries. At the upper right of the page is a graphic image depicting the Company's Flash-GC high-speed gas chromatography system. Below this graphic is the following caption: The Company's Flash-GC is a high-speed gas chromatography system that can analyze chemical samples at speeds 20 to 50 times faster than conventional gas chromatography. (cover page continued from previous page) (1) In connection with the transactions contemplated hereby, the Underwriters will receive (a) standby and management fees aggregating $736,000, (b) additional fees of $.58 for each share of TDX Common Stock actually purchased by the Underwriters, whether pursuant to Rights purchased and exercised or pursuant to the Standby Underwriting Agreement (excluding the Firm Shares); provided that such fees in the aggregate shall not exceed 6% of the Subscription Price for each share of TDX Common Stock purchased pursuant to the exercise of Rights (by the Underwriters or otherwise) or pursuant to the Standby Underwriting Agreement (excluding the Firm Shares) plus an amount equal to the aggregate purchase price of Rights purchased by the Underwriters, up to $100,000 and (c) an underwriting commission of $.69 on each Firm Share purchased by the Underwriters. See "Underwriting." The maximum Proceeds to the Company assumes that only the Firm Shares are purchased by the Underwriters and 1,900,000 shares are purchased upon the exercise of Rights by persons other than the Underwriters; and the minimum Proceeds to the Company assumes that 1,300,000 shares are purchased by the Underwriters and no shares are purchased upon exercise of Rights by persons other than the Underwriters. (2) Before deducting expenses payable by the Company estimated at $660,000. (3) The Company has granted to the Underwriters an option, exercisable within 30 days following the Expiration Date, to purchase up to an additional 195,000 shares of TDX Common Stock at the Subscription Price solely to cover over-allotments, if any. If this option is fully exercised, the total additional Proceeds to the Company would be $2,125,000 and the related total additional Underwriting Fees and Commissions would be $117,000. See "Underwriting." ------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE THERMEDICS DETECTION COMMON STOCK OR THE RIGHTS OR BOTH AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING." ------------- Alexus, EGIS and TEA Analyzer are each registered trademarks, and Flash-GC, InScan, Micro-Quad, Quadra-Beam, Rampart and SecurScan are trademarks, of Thermedics Detection Inc. All other trademarks or trade names referred to in this Prospectus are the property of their respective owners. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and the notes thereto appearing elsewhere in this Prospectus. Except as otherwise indicated, all information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY Thermedics Detection Inc. (the "Company") develops, manufactures and markets high-speed on-line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. The Company's industrial process systems use ultratrace chemical detectors, high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and other technologies for quality assurance of in-process and finished products, primarily in the food, beverage, pharmaceutical, forest products, chemical and other consumer products industries. The Company's explosives-detection equipment uses simultaneous trace particle- and vapor-detection techniques based on its proprietary chemiluminescence and high-speed gas chromatography technologies. Customers use the Company's explosives-detection equipment to detect plastic and other explosives at airports and border crossings, for other high-security screening applications and for forensics and search applications. The Company's principal product lines include: . Alexus systems, introduced in 1992, detect trace amounts of constituents that affect product quality in refillable plastic soft drink, water and other beverage containers at speeds in excess of 600 bottles per minute. Alexus systems have been installed on more than 200 bottling lines in more than 30 countries; . InScan systems, introduced in 1996, detect liquid fill-levels, leakage, foreign objects and product defects at speeds in excess of 2,400 units per minute for the beverage, food and other industries; . Micro-Quad, Quadra-Beam and other products of the Moisture Systems division, acquired by the Company in 1996, measure moisture and other product constituents, including fats, proteins, oils, flavorings, solvents, adhesives and coatings, in the manufacturing processes of a variety of industries; . Flash-GC gas chromatography systems, introduced in 1996, analyze chemical samples at speeds 20 to 50 times faster than conventional gas chromatography systems. These systems can be used in a variety of markets, primarily in near on-line process and quality control applications that require high-speed results; and . EGIS explosives detectors, first sold to commercial airports in Europe in 1991, detect and identify trace levels of explosives in carry-on bags, in checked luggage and on people, and are also used in forensic investigations. EGIS systems are the world's most widely used trace particle/vapor explosives-detection systems, with an installed base of more than 200 units in 21 countries, including more than 100 units installed in airports. The Company's strategy is to build upon its reputation as a technical and market leader in applications requiring complex, high-speed or continuous ultratrace detection and measurement. The Company holds significant patents relating to its chemiluminescent analysis and high-speed gas chromatography technologies, and believes that its proprietary position with respect to these technologies affords it a competitive advantage. In addition, the Company employs highly skilled research scientists and product development engineers who use their intimate knowledge of their customers' production processes to develop new products based on these technologies. 3 THE RIGHTS OFFERING Rights.................. The Company is distributing to holders of TDX Common Stock of record at the close of business on February 6, 1997 (the "Thermedics Detection Record Date"), including Thermedics, transferable subscription rights (the "Rights") to subscribe for and purchase additional shares of TDX Common Stock. Thermedics will not exercise the Rights it receives from the Company, but is instead distributing all of such Rights to holders of record of Thermedics Common Stock, including Thermo Electron, at the close of business on February , 1997 (the "Thermedics Record Date"). Each holder of TDX Common Stock will receive approximately .366 transferable Rights for each share of TDX Common Stock held of record on the Thermedics Detection Record Date. Each holder of Thermedics Common Stock will receive 0.10 transferable Rights for each share of Thermedics Common Stock held of record on the Thermedics Record Date. Thermo Electron will not distribute the Rights it receives to its stockholders, but may exercise its Rights or sell its Rights depending on prevailing market conditions, including in negotiated transactions with the Underwriters. The number of Rights distributed by the Company or Thermedics to each stockholder will be rounded up to the nearest whole number. An aggregate of approximately 1,900,000 Rights will be distributed pursuant to the rights offering to an aggregate of approximately 2,350 record holders of TDX Common Stock and Thermedics Common Stock. Each Right will be exercisable for one share of TDX Common Stock. An aggregate of approximately 1,900,000 shares of TDX Common Stock has been reserved for issuance upon exercise of the Rights (the "Underlying Shares"). The distribution of the Rights by the Company and Thermedics and the sale of shares of TDX Common Stock upon the exercise of Rights or pursuant to the underwriting arrangements are referred to herein as the "Rights Offering." See "The Rights Offering--The Rights." Thermedics Detection Record Date............ February 6 , 1997 Thermedics Record Date................... February , 1997 Expiration Date......... March , 1997, 5:00 p.m., Eastern time, or such later date to which the Company may extend the expiration of the Rights, except that the Company has agreed to allow the Underwriters to exercise Rights held by them on the business day following the Expiration Date. Basic Subscription Privilege.............. Rights holders are entitled to purchase for the Subscription Price one share of TDX Common Stock for each whole Right held (the "Basic Subscription Privilege"). The Rights are exercisable immediately upon distribution. See "The Rights Offering-- Subscription Privileges--Basic Subscription Privilege." Oversubscription Privilege.............. Each holder of Rights who elects to exercise his Basic Subscription Privilege (including the Underwriters) may also subscribe at the Subscription Price for an unlimited number of additional Underlying Shares that are not otherwise purchased pursuant to the Basic Subscription Privilege (the "Oversubscription Privilege"). If an insufficient number of Underlying Shares is available to satisfy fully all 4 elections to exercise the Oversubscription Privilege, the available Underlying Shares will be prorated among holders who exercise their Oversubscription Privilege based on the respective numbers of Rights exercised by such holders pursuant to the Basic Subscription Privilege. See "The Rights Offering-- Subscription Privileges--Oversubscription Privilege." Subscription Price...... $ in cash per share of TDX Common Stock subscribed for pursuant to the Basic Subscription Privilege or the Oversubscription Privilege (the "Subscription Price"). TDX Common Stock Outstanding after Rights Offering........ A maximum of 12,883,500 shares. This number excludes 218,180 shares issuable at a weighted average price of $10.41 per share pursuant to stock options outstanding at December 31, 1996 but assumes the sale of all of the Underwritten Shares. If the minimum number of Underwritten Shares is sold in the Rights Offering, a maximum of 11,983,500 shares would be outstanding after the Rights Offering. See "Capitalization," "Management," and "Security Ownership of Certain Beneficial Owners and Management." Transferability of Rights and TDX Common Stock.................. The Rights are transferable and will be listed on the American Stock Exchange ("AMEX"). The TDX Common Stock also will be listed on the AMEX. The Subscription Agent will endeavor to sell Rights for holders who have so requested by delivering a Subscription Certificate (as defined below) with the instruction for sale properly executed to the Subscription Agent by 11:00 a.m., Eastern time, on the date that is four AMEX trading days prior to the Expiration Date. See "The Rights Offering--Exercise of Rights." Procedure for Exercising Rights...... Basic Subscription Privileges and Oversubscription Privileges may be exercised by properly completing the subscription certificate evidencing the Rights (a "Subscription Certificate") and forwarding such Subscription Certificate (or following the Guaranteed Delivery Procedures (as described in "The Rights Offering--Exercise of Rights")), with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and Oversubscription Privilege, to the Subscription Agent on or prior to the Expiration Date. If the mail is used to forward Subscription Certificates, it is recommended that insured, registered mail be used. Once a holder of Rights has exercised the Basic Subscription Privilege or the Oversubscription Privilege, such exercise may not be revoked. See "The Rights Offering--Exercise of Rights." Procedure for Exercising Rights by Foreign Stockholders... Subscription Certificates will not be mailed to holders of Thermedics Common Stock or TDX Common Stock whose addresses are outside the United States or who have an APO or FPO address, but will be held by the Subscription Agent for their account. To exercise the Rights represented thereby, such holders must notify the Subscription Agent by completing an International Holder Subscription Form, which will be delivered to such holders in lieu of a Subscription Certificate, and sending it by mail or telecopy to the Subscription Agent. Holders located in the United Kingdom will not initially be provided with an International Holder Subscription Form and, if they are interested in participating in the 5 Rights Offering, should contact Lehman Brothers International (Europe), One Broadgate, London EC2M 7HA, England, telephone 011-44-1-71-260-2793, telecopier 011-44-1-71-260-2635, attention: Mr. Adrian Norman. International Holder Subscription Forms must be returned to the Subscription Agent on or prior to 11:00 a.m., Eastern time, on the date that is four AMEX trading days prior to the Expiration Date, at which time (if no instructions have been received) such Rights will be sold, if feasible, by the Subscription Agent and the net proceeds, if any, remitted to such holders. Certain restrictions applicable to the exercise and sale of Rights by persons located outside of the United States are set forth on the inside front cover page of this Prospectus. See "The Rights Offering--Foreign and Certain Other Stockholders." Persons Holding Shares, or Wishing to Exercise Rights, Through Others................. Persons holding Thermedics Common Stock or TDX Common Stock, and receiving the Rights distributable with respect thereto through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding stock certificates personally who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transactions for them. Such holders should be aware that brokers or other nominee holders may establish deadlines for receiving instructions from beneficial holders significantly in advance of the Expiration Date. See "The Rights Offering--Exercise of Rights." Issuance of TDX Common Stock.................. Certificates representing shares of TDX Common Stock purchased pursuant to the exercise of Rights will be delivered to subscribers as soon as practicable after the sixth business day following the Expiration Date. The issuance of shares pursuant to the exercise of Rights is conditioned upon the sale of at least 1,000,000 shares of TDX Common Stock in the Rights Offering (excluding the Firm Shares). See "The Rights Offering--Subscription Privileges" and "--Minimum Sale of Shares." Use of Proceeds......... Research and development activities, and for general corporate purposes, including possible acquisitions. See "Use of Proceeds." Subscription Agent...... American Stock Transfer & Trust Company. Standby Underwriting.... The Underwriters have agreed, subject to the terms and conditions of the Standby Underwriting Agreement, to purchase from the Company, at the Subscription Price, on the sixth business day after the Expiration Date a number of shares of TDX Common Stock equal to 1,000,000 shares less the number of shares of TDX Common Stock purchased through the exercise of Rights (together with the Firm Shares, the "Underwritten Shares"). Subject to certain price and volume limitations prescribed by applicable law, the Underwriters may acquire Rights in the secondary market and may exercise such Rights to acquire TDX Common Stock. All such shares may be offered to the public at offering prices determined from time to time by the Underwriters, including at prices in excess of the 6 Subscription Price. The Company has agreed to pay the Underwriters the fees and commissions set forth on the cover page hereof. The Company has agreed to allow the Underwriters to exercise any Rights held by them on the first business day following the Expiration Date. See "Underwriting." Firm Shares............. The Underwriters have agreed, subject to the terms and conditions of the Standby Underwriting Agreement, to purchase from the Company, on the sixth business day after the Expiration Date, 300,000 shares of TDX Common Stock (the "Firm Shares"). The Underwriters will receive a commission of $.69 for each Firm Share purchased. See "Underwriting." Nature of Commitment.... The obligation of the Underwriters to purchase Underwritten Shares is subject to certain conditions and may be terminated under certain circumstances. See "The Rights Offering--Standby Underwriting Commitment." Proposed AMEX Symbols... Rights: TDX.Rt TDX Common Stock: TDX.WI (when issued) TDX (thereafter) 7 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA FISCAL YEAR (1) COMBINED (4) ----------------------------------------- FISCAL YEAR 1992 (2) 1993 1994 1995 1996 (3) 1996 -------- ------- ------- ------- -------- ------------ STATEMENT OF INCOME DA- TA: Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297 Gross Profit............ 8,032 18,272 25,437 12,718 21,600 22,504 Research and Development Expenses............... 647 1,790 3,895 2,741 4,608 4,608 Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663 Net Income.............. 1,903 5,803 6,380 1,508 362 438 Earnings per Share (5).. .19 .58 .63 .15 .04 .04 Weighted Average Shares (5)............. 10,069 10,069 10,069 10,069 10,320 10,320
DECEMBER 28, 1996 ----------------------- ACTUAL AS ADJUSTED (6) ------- --------------- BALANCE SHEET DATA: Working Capital......................................... $23,358 $36,651 Total Assets............................................ 53,483 66,776 Long-term Obligations................................... 21,200 21,200 Shareholders' Investment................................ 20,910 34,203
- -------- (1) The Company's 1992, 1993, 1994, 1995 and 1996 fiscal years, set forth in this table and referred to elsewhere in this Prospectus, ended on January 2, 1993, January 1, 1994, December 31, 1994, December 30, 1995 and December 28, 1996, respectively. (2) Derived from unaudited financial statements. (3) Includes the results of Moisture Systems and Rutter since their acquisition by the Company in January 1996. See "The Company." (4) The pro forma combined statement of income data was derived from the pro forma combined condensed statement of income included elsewhere in this Prospectus. The pro forma combined statement of income data sets forth the results of operations for fiscal 1996, as if the acquisitions of Moisture Systems and Rutter had occurred on January 1, 1996. (5) Pursuant to Securities and Exchange Commission requirements, earnings per share have been presented for all periods. Weighted average shares for all periods include 10,000,000 shares issued to Thermedics in connection with the initial capitalization of the Company, the effect of shares sold through private placements, as well as the effect of the assumed issuance of the private placements and the assumed exercise of stock options issued within one year prior to the Company's proposed rights offering with exercise prices less than the Subscription Price. (6) Adjusted to reflect the minimum proceeds to the Company from the Rights Offering, which assumes the sale of 1,300,000 shares to the Underwriters at a Subscription Price of $11.50 per share and no purchase of shares upon the exercise of Rights by persons other than the Underwriters, after deduction of underwriting fees and commissions and estimated offering expenses payable by the Company. 8 RISK FACTORS In addition to the other information in this Prospectus, investors should carefully consider the following risk factors when evaluating an investment in the TDX Common Stock offered hereby. This Prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Prospectus. Uncertainty of Market Acceptance of New Products. Certain of the Company's products represent alternatives to traditional detection and analytical methods. As a result, such products may be slow to achieve, or may not achieve, market acceptance, as customers may seek further validation of the efficiency and efficacy of the Company's technology, particularly where the purchase of the product requires a significant capital commitment. The Company believes that, to a significant extent, its growth prospects depend on its ability to gain acceptance of the efficiency and efficacy of the Company's innovative technologies by a broader group of customers. The Company is currently devoting significant resources toward the enhancement of its existing products and the development of new products and technologies, including the Company's Flash-GC high-speed gas chromatography system; a more portable EGIS; SecurScan, a walk-through explosives-detection system; and Rampart, a lower-cost EGIS unit for use in airport screening of carry-on baggage. There can be no assurance that the Company will be successful in obtaining such broad acceptance or that, if obtained, such acceptance will be sustained. The failure of the Company to obtain and sustain such broad acceptance could have a material adverse effect on the Company's business, financial condition and results of operations. Ongoing Product Development Efforts Required by Rapid Technological Change. The markets for the Company's products are characterized by changing technology, evolving industry standards and new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and to develop and introduce new products and technologies to meet changing customer requirements. There can be no assurance that the Company will successfully complete the enhancement and development of these products in a timely fashion or that the Company's current or future products will satisfy the needs of its markets. Dependence of Explosives Detection Market on Government Regulation and Airline Industry. The Company's sales of its explosives-detection systems for use in airports has been and will continue to be dependent on governmental initiatives to require, or support, the screening of checked luggage, carry-on items and personnel with advanced explosives-detection equipment. Substantially all of such systems have been installed at airports in countries other than the United States, in which the applicable government or regulatory authority overseeing the operations of the airport has mandated such screening. Such mandates are influenced by many factors outside of the control of the Company, including political and budgetary concerns of governments, airlines and airports. Of the more than 600 commercial airports worldwide, more than 400 are located in the United States. Accordingly, the Company believes that the size of the market for explosives-detection equipment is, and will increasingly be, significantly influenced by United States government regulation. In the United States, the Aviation Security Act of 1990 directed the Federal Aviation Administration ("FAA") to develop a standard for explosives-detection systems and required airports in the United States to deploy systems meeting this standard in 1993. The standard adopted by the FAA is more comprehensive than standards adopted in most other countries. To date, no system has demonstrated that it meets the FAA standard under realistic airport operating conditions. As a result, the FAA has not mandated the installation of automated explosives-detection systems, and only a limited number of these systems have been deployed, primarily on a test basis, in the United States. The FAA first certified a computed X-ray tomography system for checked luggage in December 1994. However, the FAA has recognized that this system must undergo further testing to resolve whether it can operate under realistic airport operating conditions. The Company's systems are trace detectors for which no FAA certification process for checked baggage, carry-on or personal screening exists to date. In 1992, the FAA approved the Company's EGIS system for use by airlines in screening carry-on electronic items and luggage searches. Each airline must seek this approval for each application. Although the FAA has provided significant funding to the 9 Company in connection with the development of its explosives-detection technology, there can be no assurance that any of the Company's systems will ever meet this or any other United States certification standard. Any product utilizing a technology ultimately recommended or required by the FAA will have a significant competitive advantage in the market for explosives-detection devices. Unless the FAA takes action with respect to a particular explosives- detection product or technology, airlines will not be required to upgrade existing metal detection equipment. Earnings of U.S. air carriers tends to fluctuate significantly from time to time. Any depression in the financial condition of such carriers would likely result in lower capital spending for discretionary items. Moreover, there can be no assurance that additional countries will mandate the implementation of effective explosives screening for airline baggage, carry-on items or personnel, or that, if mandated, the Company's systems will meet the certification or other requirements of the applicable government authority. Even if the Company's systems were to meet the applicable requirements, there can be no assurance that the Company would be able to market its systems effectively. See "Business--Explosives Detectors" and "--Government Regulation." In October 1996, the United States enacted legislation which includes a $144.2 million allocation to purchase explosives-detection systems and other advanced security equipment, including trace detection equipment such as the systems manufactured by the Company, for carry-on and checked baggage screening. There can be no assurance that this legislation will not be modified to reduce the funding for advanced explosives equipment, that the necessary appropriations will be made to fund the purchases of advanced explosives-detection equipment contemplated by the legislation, that trace- detection equipment such as the systems manufactured by the Company will be mandated, or that, even if such appropriation is made and such equipment is mandated, any of the Company's explosives-detection systems will be purchased for installation at any airports in the United States. Further, there can be no assurance that the U.S. will mandate the widespread use of these systems after completion of the initial purchases. Significance of Certain Customers. Sales of process detection instruments to bottlers licensed by The Coca-Cola Company ("Coca-Cola Bottlers") were $32,184,000, $9,974,000 and $10,641,000 in 1994, 1995 and 1996, respectively, or 64%, 36% and 24% of the Company's revenues, respectively, during such periods. Sales to Coca-Cola Bottlers have decreased as these customers have substantially completed full deployment of the Company's Alexus system in existing plant locations. Although the Company anticipates that it will continue to derive revenues from the sale of upgrades and new systems to new plants, as well as services to the Coca-Cola Bottlers, the Company does not expect that revenues derived from these customers will continue at a rate comparable to prior years. While the Company believes that the introduction of new process detection products for the food, beverage and other markets will continue to reduce the significance of the Coca-Cola Bottlers to the Company's results of operations, there can be no assurance that the Company will be successful in the introduction of new process detection products or that any sales of these products will be sufficient to maintain a rate of growth equivalent to prior years. Competition; Technological Change. The Company encounters, and expects to continue to encounter, competition in the sale of its current and future products. Many of the Company's competitors and potential competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than those of the Company. Some of these competitors have large existing installed bases of products with substantial numbers of customers. In addition, other major corporations have recently announced their intention to enter certain of the Company's markets, including the security screening market. The Company believes that many of its products are successful because they are technologically superior to alternative products offered by some of the Company's competitors. In order to continue to be successful, the Company believes that it will be important to maintain this technological advantage. No assurance can be given that the Company will be able to maintain such an advantage or that competitors of the Company will not develop technological innovations that will render products of the Company obsolete. For example, the Company's EGIS system competes against other trace explosives detection systems as well as systems utilizing dual energy X-ray or computed X-ray tomography imaging technologies. There can be no assurance that such technologies will not be enhanced to a degree that would impair the Company's ability to market its explosives detection systems. See "Business-- Competition." 10 Potential for Product Liability Claims. The Company's business involves the risk of product liability claims inherent to the explosives detection business, as well as the food, beverage and other industries. There are many factors beyond the control of the Company that could result in the failure of the Company's products to detect explosives or contaminants in food or beverage containers, such as the reliability of a customer's operators, the ongoing training of such operators and the maintenance of the Company's products by its customers. For these and other reasons, there can be no assurance that the Company's products will detect all explosives or contaminants. The failure to detect explosives or contaminants could give rise to product liability claims and result in negative publicity that could have a material adverse effect on the Company's business, financial condition and results of operations. The Company currently maintains both aviation and general product liability insurance in amounts the Company believes to be commercially reasonable. There can be no assurance that this insurance will be sufficient to protect the Company from product liability claims, or that product liability insurance will continue to be available to the Company at a reasonable cost, if at all. Uncertainties Associated With International Operations. In 1994, 1995 and 1996, international sales accounted for 85%, 73% and 67%, respectively, of the Company's revenues, and the Company anticipates that international sales will continue to account for a significant percentage of the Company's revenues. Sales to customers in The Netherlands accounted for approximately 17% of the Company's revenues in 1996. See Note 8 of Notes to the Company's Consolidated Financial Statements. International revenues are subject to a number of uncertainties, including the following: agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax the Company's foreign income, impose tariffs or adopt other restrictions on foreign trade; fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; U.S. export licenses may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. Moreover, many foreign countries have their own regulatory approval requirements for sales of the Company's products. As a result, the Company's introduction of new products into international markets can be costly and time-consuming, and there can be no assurance that the Company will be able to obtain the required regulatory approvals on a timely basis, if at all. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. Limited Protection of Proprietary Technology and Risks of Third-Party Claims. Proprietary rights relating to the Company's products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. The Company owns 37 United States patents and has filed applications for five additional United States patents. The Company's U.S. patents have expiration dates ranging from 1998 through 2014. The Company also owns corresponding patents, or has filed corresponding applications, in a number of jurisdictions throughout the world. In addition, the Company has an exclusive, perpetual, royalty-free license under ten patents covering the use of near-infrared and very near-infrared emitting diodes for on-line spectral measurements. There can be no assurance, however, that any patents now or hereafter owned by the Company will afford protection against competitors, or as to the likelihood that patents will issue from pending patent applications. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. Although the Company believes that its products and technology do not infringe any existing proprietary rights of others, there can be no assurance that third parties will not assert such claims against the Company in the future or that such future claims will not be successful. The Company could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights, which could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block the Company's ability to make, use, sell, distribute or market its products and services in the U.S. or abroad. Such a judgment could have a material adverse effect on the Company's business, financial condition and results of operations. In the event that a claim relating to proprietary technology or information is asserted against the Company, the Company may seek licenses to such intellectual property. There 11 can be no assurance, however, that such a license could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of the Company's products and, therefore, could have a material adverse effect on the Company's business, financial condition and results of operations. The cost of responding to any such claim may be material, whether or not the assertion of such claim is valid. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. In addition, the laws of some jurisdictions do not protect the Company's proprietary rights to the same extent as the laws of the U.S. There can be no assurance that these protections will be adequate. See "Business--Intellectual Property." Risk of Termination of the Rights Offering Under Certain Circumstances. The issuance of shares of TDX Common Stock pursuant to the exercise of the Rights is conditioned upon the sale of at least 1,000,000 shares of TDX Common Stock in the Rights Offering (excluding the Firm Shares). The Underwriters have agreed to purchase from the Company on the sixth business day after the Expiration Date, at the Subscription Price, the Firm Shares plus a number of shares of TDX Common Stock equal to 1,000,000 less the number of shares of TDX Common Stock subscribed for through the exercise of Rights. However, the obligation of the Underwriters under the Standby Underwriting Agreement to purchase Underwritten Shares is subject to the following conditions, among others: that the Registration Statement of which this Prospectus is a part shall have been declared effective, and that no stop order with respect thereto shall have been issued; that satisfactory opinions of counsel to the Company and to the Underwriters, and certain assurances from the Company's independent public accountants, shall have been received; that the Company shall not have experienced any material adverse change in its business (including the results of operations or management) or properties; and that the Company, Thermedics and Thermo Electron affirm as correct certain representations and warranties made to the Underwriters. In addition, the Underwriters in their absolute discretion may, in the event of the occurrence of any of the following, elect to terminate their obligations under the Standby Underwriting Agreement: if trading in the TDX Common Stock has been suspended by the AMEX or trading in securities generally on the AMEX, the New York Stock Exchange, the International Stock Exchange of the United Kingdom or the over-the-counter market has been suspended, limited or subject to the establishment of minimum prices; if a banking moratorium has been declared by banking authorities of the United States, the United Kingdom, New York State or the Commonwealth of Massachusetts; if there has occurred a declaration by the United States or the United Kingdom of a national emergency or war, or a material adverse change in general economic, political or financial conditions or the effect of international conditions on the financial markets in the United States or the United Kingdom is such as to make it, in the judgment of the Underwriters, impracticable or advisable to proceed with the Rights Offering or delivery of the Underwritten Shares as contemplated hereby. If fewer than 1,300,000 shares are purchased in the Rights Offering (including the Firm Shares) and the conditions to the obligations of the Underwriters contained in the Standby Underwriting Agreement are not duly satisfied or waived, the Rights Offering will not be completed. However, subject to the conditions described above, the Underwriters will be obligated to purchase the Firm Shares. See "The Rights Offering--Subscription Privileges," "--Standby Underwriting Commitment" and "Underwriting." Risks Associated with Acquisition Strategy. The Company's strategy includes the acquisition of businesses and technologies that complement or augment the Company's existing product lines. For example, in January 1996 the Company acquired Moisture Systems. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals, including antitrust approvals. Any acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired businesses. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's stockholders. 12 Difficulties in Managing Rapid Growth. Due to the level of technical and marketing expertise necessary to support its existing and new customers, the Company must attract and retain highly qualified and well-trained personnel. There are a limited number of persons with the requisite skills to serve in these positions, and it may become increasingly difficult for the Company to hire such personnel. Further rapid expansion may also significantly strain the Company's administrative, operational and financial personnel, management information systems, manufacturing operations and other resources. There can be no assurance that the Company's systems, procedures and controls will be adequate to support the Company's operations. Failure to manage growth properly could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management." Potential Fluctuations in Quarterly Performance. Significant annual and quarterly fluctuations in the Company's results of operations may be caused by, among other factors, the overall demand for, and market acceptance of, the Company's products; the timing of regulatory approvals for certain of the Company's products, government initiatives to promote the use of explosives detection systems such as those manufactured and sold by the Company; the timing of the announcement, introduction and delivery of new products and product enhancements by the Company and its competitors; variations in the Company's product mix and component costs; timing of customer orders; adjustments of delivery schedules to accommodate customers programs; the availability of components from suppliers; the timing and level of expenditures in anticipation of future sales; the mix of products sold by the Company; and pricing and other competitive conditions. Because certain of the Company's products require significant capital expenditures and other commitments by its customers, the Company has experienced extended sales cycles. Delays in anticipated purchase orders could have a material adverse effect on the Company's business, financial condition and results of operations. Customers may also cancel or reschedule shipments, and product difficulties could delay shipments. Because the Company's operating expenses are based on anticipated revenue levels and a high percentage of the Company's expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from quarter to quarter. There can be no assurance that any of these factors will not have a material adverse impact on the Company's business and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Dependence on Key Personnel. The Company is highly dependent on the members of its senior management, including the executive officers identified under "Management" elsewhere in this Prospectus, the loss of one or more of whom could have a material adverse effect on the Company. In addition, the Company believes that its future success will depend in part on whether it can attract and retain highly qualified engineering, management, manufacturing, marketing and sales personnel, particularly as the Company expands its business activities. The Company faces significant competition for the services of such personnel from other companies. There can be no assurance that the Company will be able to continue to attract and retain the personnel it requires for continued growth. The failure to hire and retain such personnel could materially adversely affect the Company. See "Management." Lack of Voting Control; Control by Thermedics. The Company's stockholders do not have the right to cumulate votes for the election of directors. After giving effect to the Rights Offering, assuming the sale of all of the Underwritten Shares, Thermedics will beneficially own approximately 77.6% of the outstanding TDX Common Stock. Accordingly, Thermedics will have the power to elect the entire Board of Directors of the Company and to approve or disapprove any corporate actions submitted to a vote of the Company's stockholders. See "Relationship with Thermo Electron and Thermedics" and "Security Ownership of Certain Beneficial Owners and Management." Potential Conflicts of Interest. The Company may be subject to potential conflicts of interest from time to time as a result of its relationship with Thermo Electron and Thermedics. See "Relationship with Thermo Electron and Thermedics." Certain officers of the Company are also officers of Thermedics, Thermo Electron and/or other subsidiaries of Thermo Electron, and are full- time employees of Thermedics or Thermo Electron. Such officers will devote only a portion of their working time to the affairs of the Company. For financial reporting purposes, the Company's financial results are included in the consolidated financial statements of 13 Thermedics and Thermo Electron. The members of the Board of Directors of the Company who are also affiliated with Thermo Electron or Thermedics will consider not only the short-term and the long-term impact of operating decisions on the Company, but also the impact of such decisions on the consolidated financial results of Thermedics and Thermo Electron. In some instances the impact of such decisions could be disadvantageous to the Company while advantageous to Thermedics or Thermo Electron, or vice versa. Although the Company has adopted no formal procedures for resolving potential conflicts of interest, it is the Company's intention to add at least two independent Directors to the Company's Board of Directors within six months after completion of the Rights Offering, and to require the approval of such independent Directors of all material transactions involving conflicts of interest. The Company is a party to various agreements with Thermo Electron that may limit the Company's operating flexibility. See "Relationship with Thermo Electron and Thermedics." Significant Additional Shares Eligible for Sale After the Offering. At the conclusion of the 120-day period following the closing of the Rights Offering, the Company will file a registration statement pursuant to the Securities Act covering the resale of 683,500 shares of TDX Common Stock held by existing investors other than Thermedics. The 10,000,000 shares of TDX Common Stock owned by Thermedics are eligible for resale under Rule 144. In addition, subject to certain limitations described below under "Shares Eligible for Future Sale," as long as Thermedics is able to elect a majority of the Company's Board of Directors, it will have the ability to cause the Company at any time to register for resale all or a portion of the TDX Common Stock owned by Thermedics. Additional shares of TDX Common Stock issuable upon exercise of options granted under the Company's stock-based compensation plans will become available for future sale in the public market at prescribed times. Sales of a significant number of shares of TDX Common Stock in the public market following the Rights Offering could adversely affect the market price of the TDX Common Stock. See "Relationship with Thermo Electron and Thermedics" and "Shares Eligible for Future Sale." Immediate and Substantial Dilution. Purchasers of the TDX Common Stock offered hereby will incur an immediate and substantial dilution in the net tangible book value per share of the TDX Common Stock from the Subscription Price. Dilution per share to investors in the Rights Offering will be $10.06 and $9.36 assuming minimum and maximum proceeds to the Company, respectively. Additional dilution is likely to occur upon the exercise of outstanding stock options. See "Dilution." No Prior Public Market for TDX Common Stock; Potential Volatility of Stock Price. Prior to this offering, there has been no public market for the TDX Common Stock, and there can be no assurance that an active trading market will develop or be sustained after this offering. The Subscription Price will be determined by negotiations among the Company and the Representatives of the Underwriters. See "Underwriting" for a discussion of the factors to be considered in determining the Subscription Price. Many factors, including fluctuations in the Company's operating results, announcements of technological innovations or new contracts or products by the Company or its competitors, government regulation and approvals, developments in patent or other proprietary rights and market conditions for stocks of companies similar to the Company, could have a significant impact on the market price of the TDX Common Stock, and there can be no assurance that the market price of the TDX Common Stock will not decline below the Subscription Price. Lack of Dividends. The Company anticipates that for the foreseeable future the Company's earnings, if any, will be retained for use in the business and that no cash dividends will be paid on the TDX Common Stock. Declaration of dividends on the TDX Common Stock will depend upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements and general business conditions. See "Dividend Policy." 14 USE OF PROCEEDS The net proceeds to be received by the Company from the Rights Offering depends on the number of Rights exercised. The maximum and minimum net proceeds to be received by the Company are estimated to be $23,697,000 and $13,293,000, respectively (a maximum of $25,822,000 if the Underwriters' over- allotment option is exercised in full) after deducting the underwriting fees and commissions and estimated offering expenses payable by the Company. The Company expects to use substantially all of the net proceeds from the Rights Offering to fund research and development with respect to new products. The Company expects to use the balance of such net proceeds for general corporate purposes, including the possible acquisition of one or more businesses. The Company, however, is not currently engaged in negotiations with any companies and it has no agreements, understanding or commitments with respect to any specific acquisitions that would be material to the Company. Pending these uses, the Company expects to invest the net proceeds from the Rights Offering primarily in investment grade interest bearing or dividend bearing instruments, either directly by the Company or pursuant to a repurchase agreement with Thermo Electron. See "Relationship with Thermo Electron and Thermedics--Certain Transactions with Affiliates." DIVIDEND POLICY The Company has never paid any cash dividends on the TDX Common Stock. The Company anticipates that for the foreseeable future the Company's earnings, if any, will be retained for use in the business and that no cash dividends will be paid on the TDX Common Stock. 15 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 28, 1996, as adjusted to reflect the issuance and sale of 1,300,000 shares of TDX Common Stock in the Rights Offering, after deducting underwriting fees and commissions and estimated offering expenses payable by the Company.
DECEMBER 28, 1996 ------------------------ ACTUAL AS ADJUSTED (1) ------- --------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Long-term Obligation: Promissory Note to Parent Company................ $21,200 $21,200 ------- ------- Shareholders' Investment: Common stock, $.10 par value, 15,000,000 shares authorized; 10,683,500 shares issued and outstanding, 11,983,500 shares, as adjusted for the Rights Offering (2)............................................. 1,068 1,198 Capital in excess of par value................... 13,130 26,293 Retained earnings................................ 7,136 7,136 Cumulative translation adjustment................ (424) (424) ------- ------- Total Shareholders' Investment................. 20,910 34,203 ------- ------- Total Capitalization (Long-term Obligation and Shareholders' Investment)............... $42,110 $55,403 ======= =======
- -------- (1) Adjusted to reflect the minimum proceeds to the Company from the Rights Offering, which assumes the sale of 1,300,000 shares to the Underwriters at a Subscription Price of $11.50 per share and no purchase of shares upon the exercise of Rights by persons other than the Underwriters, after deduction of underwriting fees and commissions and estimated offering expenses payable by the Company. See "The Rights Offering" and "Underwriting." Common stock and capital in excess of par value would be $1,288,000 and $36,607,000, respectively, assuming the capitalization of the Company adjusted to reflect the maximum proceeds to the Company from the sale of 2,200,000 shares at $11.50 per share. (2) Does not include 358,333 shares of TDX Common Stock reserved for issuance under the Company's stock-based compensation plans. Options to purchase 218,180 shares of TDX Common Stock had been granted and were outstanding under the Company's stock-based compensation plans as of December 28, 1996. See "Management--Compensation of Directors" and "--Compensation of Executive Officers" and Note 3 of Notes to the Company's Consolidated Financial Statements. 16 DILUTION As of December 28, 1996, the Company had net tangible book value of $3,922,000, or $.37 per share. Net tangible book value per share is determined by dividing the net tangible book value (total tangible assets less total liabilities) of the Company by the number of shares of TDX Common Stock outstanding. After giving effect to the Rights Offering, assuming the minimum proceeds to the Company, which assumes the sale of 1,300,000 shares to the Underwriters at a Subscription Price of $11.50 per share and the sale of no shares upon the exercise of Rights by persons other than the Underwriters, and the application of the estimated net proceeds, the pro forma net tangible book value of the Company as of December 28, 1996 would have been $17,215,000 or $1.44 per share. This represents an immediate increase in such net tangible book value of $1.07 per share to present stockholders and an immediate dilution of $10.06 per share to the investors purchasing shares in the Rights Offering. See "Risk Factors--Immediate and Substantial Dilution." The following table illustrates this per share dilution: Subscription Price per share..................................... $11.50 Net tangible book value per share as of December 28, 1996 be- fore the Rights Offering...................................... $ .37 Increase in net tangible book value per share attributable to the Rights Offering........................................... 1.07 ----- Pro forma net tangible book value per share as of December 28, 1996, after the Rights Offering (1)............................. 1.44 ------ Dilution per share to investors in the Rights Offering (1)....... $10.06 ======
- -------- (1) If all options outstanding as of December 28, 1996 to purchase an aggregate of 218,180 shares of TDX Common Stock at a weighted average exercise price of $10.41 per share were exercised in full, the pro forma net tangible book value per share after the Rights Offering would be $1.60, resulting in an immediate dilution of $9.90 per share to investors purchasing shares in the Rights Offering. The following table sets forth on a pro forma basis as of December 28, 1996, the number of shares of TDX Common Stock purchased from the Company, the total consideration paid to the Company and the average price paid per share by existing shareholders and investors purchasing shares in the Rights Offering, assuming the minimum proceeds to the Company from the Rights Offering:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ -------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- --------- Thermedics (1).......... 10,000,000 83.5% 6,900,000 23.8% $ .69 Other existing investors (2).................... 683,500 5.7 7,123,000 24.6 10.42 Investors in the Rights Offering............... 1,300,000 10.8 14,950,000 51.6 11.50 ---------- ----- ------------ ------- Total................. 11,983,500 100.0% 28,973,000 100.0% ========== ===== ============ =======
- -------- (1) Calculated on the basis of the book value of net assets transferred by Thermedics to the Company in exchange for 10,000,000 shares of TDX Common Stock. See "Relationship with Thermo Electron and Thermedics." (2) Represents the consideration paid for shares of TDX Common Stock purchased for cash. 17 After giving effect to the Rights Offering, assuming the maximum proceeds to the Company, which assumes the sale of 2,200,000 shares upon the exercise of Rights by persons other than the Underwriters and the sale of the Firm Shares to the Underwriters, and the application of the estimated net proceeds, the pro forma net tangible book value of the Company as of December 28, 1996 would have been $27,619,000, or $2.14 per share. This represents an immediate increase in such net tangible book value of $1.77 per share to present stockholders and an immediate dilution of $9.36 per share to the investors purchasing shares in the Rights Offering. See "Risk Factors--Immediate and Substantial Dilution." The following table illustrates this per share dilution: Subscription Price per share.................................... $11.50 Net tangible book value per share as of December 28, 1996 be- fore the Rights Offering..................................... $ .37 Increase in net tangible book value per share attributable to the Rights Offering.......................................... 1.77 ------ Pro forma net tangible book value per share as of December 28, 1996, after the Rights Offering (1)(2)......................... 2.14 ------ Dilution per share to investors in the Rights Offering (1)(2)... $ 9.36 ======
- -------- (1) If the Underwriters' over-allotment option were exercised in full, the pro forma net tangible book value per share after the Rights Offering would be $2.27, resulting in an immediate dilution of $9.23 per share to investors purchasing shares in the Rights Offering. (2) If all options outstanding as of December 28, 1996 to purchase an aggregate of 218,180 shares of TDX Common Stock at a weighted average exercise price of $10.41 per share were exercised in full in addition to the Underwriters' exercise of the over-allotment option, the pro forma net tangible book value per share after the Rights Offering would be $2.41, resulting in an immediate dilution of $9.09 per share to investors purchasing shares in the Rights Offering. The following table sets forth on a pro forma basis as of December 28, 1996, the number of shares of TDX Common Stock purchased from the Company, the total consideration paid and the average price paid per share by existing shareholders and investors purchasing shares in the Rights Offering, assuming the maximum proceeds to the Company from the Rights Offering:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ----------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------------------- Thermedics (1).......... 10,000,000 77.6% 6,900,000 17.5% $ .69 Other existing investors (2).................... 683,500 5.3 7,123,000 18.1 10.42 Investors in the Rights Offering............... 2,200,000 17.1 25,300,000 64.4 11.50 ---------- ----- ------------ ------- Total................. 12,883,500 100.0% 39,323,000 100.0% ========== ===== ============ =======
- -------- (1) Calculated on the basis of the book value of net assets transferred by Thermedics to the Company in exchange for 10,000,000 shares of TDX Common Stock. See "Relationship with Thermo Electron and Thermedics." (2) Represents the consideration paid for shares of TDX Common Stock purchased for cash. 18 THE COMPANY The Company operated as a division of Thermedics until its incorporation as a Massachusetts corporation in December 1990. In connection with the Company's incorporation, Thermedics transferred to the Company its TEA Analyzer and certain other trace detection technologies in exchange for 10,000,000 shares of the Company's Common Stock. In January 1996, the Company acquired substantially all of the assets of Moisture Systems Corporation and the stock of Rutter & Co. B.V. (collectively, "Moisture Systems"). Unless the context otherwise requires, references in this Prospectus to the Company or Thermedics Detection Inc. refer to Thermedics Detection Inc. and its subsidiaries and predecessors. As of December 28, 1996, Thermedics beneficially owned 93.6% of the outstanding TDX Common Stock. The Company's principal executive offices are located at 220 Mill Road, Chelmsford, Massachusetts 01824-4178, and its telephone number is (508) 251-2000. 19 THE RIGHTS OFFERING THE RIGHTS The Company is distributing transferable Rights, at no cost, to holders of outstanding shares of TDX Common Stock of record on the Thermedics Detection Record Date. Thermedics Detection stockholders will receive approximately .366 Rights for each share of TDX Common Stock held by them of record on the Thermedics Detection Record Date. Each Right will be exercisable for one share of TDX Common Stock. Thermedics, which currently owns approximately 93.6% of the outstanding TDX Common Stock, will not exercise the Rights it receives from the Company, but is instead distributing all of such Rights to holders of outstanding shares of Thermedics Common Stock of record on the Thermedics Record Date (collectively, with the holders of TDX Common Stock on the Thermedics Detection Record Date, other than Thermedics, referred to as the "Holders"), including Thermo Electron. Thermedics stockholders will receive 0.10 Rights for each share of Thermedics Common Stock held by them of record on the Thermedics Record Date. Each Right will be exercisable for one share of TDX Common Stock. No fractional Rights or cash in lieu thereof will be issued or paid by the Company or Thermedics. The number of Rights distributed to each Holder will be rounded up to the nearest whole number. Thermo Electron will not distribute the Rights it receives to its stockholders but may exercise its Rights or sell its Rights, including in negotiated transactions with the Underwriters. EXPIRATION DATE The Rights will expire at 5:00 p.m., Eastern time, on March , 1997 unless extended by the Company. After the Expiration Date, unexercised Rights will be null and void. The Company will not be obligated to honor any purported exercise of Rights received by the Subscription Agent after the Expiration Date, regardless of when the documents relating to such exercise were sent, except pursuant to the Guaranteed Delivery Procedures described below. Notice of any extension of the Expiration Date will be made through a press release issued by the Company. Notwithstanding the foregoing, the Company has agreed to allow the Underwriters to exercise any Rights held by them on the business day following the Expiration Date. SUBSCRIPTION PRIVILEGES Basic Subscription Privilege. Each Right will entitle the holder thereof to receive, upon payment of the Subscription Price, one share of TDX Common Stock (the "Basic Subscription Privilege"). Certificates representing shares of TDX Common Stock purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the sixth business day following the Expiration Date. Oversubscription Privilege. Subject to the allocation described below, each Right also carries the right to subscribe at the Subscription Price for Underlying Shares that are not otherwise purchased pursuant to the exercise of Rights (the "Oversubscription Privilege"). The Oversubscription Privilege must be exercised by a holder, if at all, simultaneously with the exercise of the Basic Subscription Privilege. Underlying Shares will be available for purchase pursuant to the Oversubscription Privilege only to the extent that any Underlying Shares are not subscribed for through the Basic Subscription Privilege. If the Underlying Shares not subscribed for through the Basic Subscription Privilege ("Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess Shares will be allocated pro rata (subject to the elimination of fractional shares) among those holders of Rights exercising the Oversubscription Privilege, in proportion, not to the number of shares requested pursuant to the Oversubscription Privilege, but to the number of shares of TDX Common Stock each beneficial holder exercising the Oversubscription Privilege has purchased pursuant to the Basic Subscription Privilege; provided, however, that if such pro rata allocation results in any Rights holder being allocated a greater number of Excess Shares than such holder subscribed for pursuant to the exercise of such holder's Oversubscription Privilege, then such holder 20 will be allocated only such number of Excess Shares as such holder subscribed for and the remaining Excess Shares will be allocated among all other holders exercising the Oversubscription Privilege. All beneficial holders who exercise the Basic Subscription Privilege, including Underwriters, will be entitled to exercise the Oversubscription Privilege. Certificates representing shares of TDX Common Stock purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the sixth business day following the Expiration Date and after all prorations have been effected. Banks, brokers and other nominee holders of Rights who exercise the Basic Subscription Privilege and the Oversubscription Privilege on behalf of beneficial owners of Rights will be required to certify to the Subscription Agent and the Company, in connection with the exercise of the Oversubscription Privilege, as to the aggregate number of Rights that have been exercised and the number of Underlying Shares that are being subscribed for pursuant to the Oversubscription Privilege by each beneficial owner of Rights on whose behalf such nominee holder is acting. Minimum Sale of Shares. The issuance of shares of TDX Common Stock pursuant to the exercise of the Basic Subscription Privilege and the Oversubscription Privilege is conditioned upon the sale of at least 1,000,000 shares of TDX Common Stock in the Rights Offering (excluding the Firm Shares). All amounts received by the Subscription Agent pursuant to the exercise of Rights will be held in a non-interest-bearing escrow account until the completion of the Rights Offering. The Underwriters have agreed to purchase from the Company on the sixth business day after the Expiration Date at the Subscription Price a number of shares of TDX Common Stock equal to 1,000,000 shares less the number of shares of TDX Common Stock subscribed for through the exercise of Rights. However, the obligations of the Underwriters are subject to certain conditions contained in the Standby Underwriting Agreement. See "Underwriting." If fewer than 1,300,000 shares are purchased in the Rights Offering (including the Firm Shares) and the conditions to the obligations of the Underwriters contained in the Standby Underwriting Agreement are not duly satisfied or waived, the Rights Offering will not be completed. If the Rights Offering is not completed, all funds received by the Subscription Agent in payment of the Subscription Price and held in escrow by the Subscription Agent will be returned by mail without interest or deduction as soon as practicable following the termination or expiration of the Standby Underwriting Agreement. EXERCISE OF RIGHTS Rights may be exercised by delivering to American Stock Transfer & Trust Company (the "Subscription Agent"), at or prior to 5:00 p.m., Eastern time, on the Expiration Date, the properly completed and executed Subscription Certificate evidencing such Rights with any required signatures guaranteed, together with payment in full of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. Such payment in full must be by (a) check or bank draft drawn upon a United States bank or postal, telegraphic or express money order payable to American Stock Transfer & Trust Company, as Subscription Agent, or (b) wire transfer of funds to the account maintained by the Subscription Agent for such purpose at Chemical Bank, 55 Water Street, New York, New York 10041, Account No. ; ABA No. 021 000 128. Any wire transfer of funds should clearly indicate the identity of the subscriber who is paying the Subscription Price by the wire transfer. The Subscription Price will be deemed to have been received by the Subscription Agent only upon (i) clearance of any uncertified check, (ii) receipt by the Subscription Agent of any certified check or bank draft drawn upon a United States bank or of any postal, telegraphic or express money order or (iii) receipt of good funds in the Subscription Agent's account designated above. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. 21 The address to which the Subscription Certificates and payment of the Subscription Price should be delivered is: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Telephone: (718) 921-8200 If a Rights holder wishes to exercise Rights, but time will not permit such holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions (the "Guaranteed Delivery Procedures") are met: (i) such holder has caused payment in full of the Subscription Price for each Underlying Share being subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege to be received (in the manner set forth above) by the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form provided with the Instructions as to Use of Thermedics Detection Inc. Subscription Certificates and International Holder Subscription Forms (the "Instructions") distributed with the Subscription Certificates, from a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. (the "NASD"), or from a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"), stating the name of the exercising Rights holder, the number of Rights represented by the Subscription Certificate or Subscription Certificates held by such exercising Rights holder, the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege and the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the delivery to the Subscription Agent of any Subscription Certificate evidencing such Rights within five American Stock Exchange ("AMEX") trading days following the date of the Notice of Guaranteed Delivery; and (iii) the properly completed Subscription Certificate evidencing the Rights being exercised, with any required signatures guaranteed, is received by the Subscription Agent within five AMEX trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the address set forth above, or may be transmitted to the Subscription Agent by telegram or facsimile transmission (telecopy no. (718) 234-5001). Additional copies of the form of Notice of Guaranteed Delivery are available upon request from the Subscription Agent, at the address set forth above. Funds received in payment of the Subscription Price for Excess Shares subscribed for pursuant to the Oversubscription Privilege will be held in a segregated account pending issuance of such Excess Shares. If a Rights holder exercising the Oversubscription Privilege is allocated less than all of the shares of TDX Common Stock which such holder wished to subscribe for pursuant to the Oversubscription Privilege, the excess funds paid by such holder in respect of the Subscription Price for shares not issued will be returned by mail without interest or deduction as soon as practicable after the Expiration Date. A holder of Rights who purchases less than all of the shares of TDX Common Stock represented by his Subscription Certificate will receive from the Subscription Agent a new Subscription Certificate representing the balance of the unsubscribed Rights, to the extent the Subscription Agent is able to reissue a Subscription Certificate prior to the Expiration Date. Unless a Subscription Certificate (i) provides that the shares of TDX Common Stock to be issued pursuant to the exercise of Rights represented thereby are to be delivered to the record holder of such Rights or (ii) is submitted for the account of an Eligible Institution, signatures on such Subscription Certificate must be guaranteed by an Eligible Institution. 22 Holders who hold shares of TDX Common Stock or Thermedics Common Stock for the account of others, such as brokers, trustees or depositaries for securities, should provide a copy of this Prospectus to the respective beneficial owners of such shares as soon as possible, ascertain such beneficial owners' intentions and obtain instructions with respect to the Rights. If the beneficial owner so instructs, the record holder of such Rights should complete Subscription Certificates and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of TDX Common Stock or Thermedics Common Stock or Rights held through such a holder should contact the holder and request the holder to effect transactions in accordance with the beneficial owner's instructions. Beneficial holders should be aware that brokers or other record holders may establish deadlines for receiving instructions from beneficial holders significantly in advance of the Expiration Date. The instructions accompanying the Subscription Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE COMPANY, THERMEDICS, OR THERMO ELECTRON, BUT RATHER SEND THEM TO AMERICAN STOCK TRANSFER & TRUST COMPANY AS REFERENCED ABOVE. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT OR PRIOR TO 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED, PERSONAL CHECKS MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, HOLDERS OF RIGHTS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company, whose determinations will be final and binding. The Company in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. The Company reserves the right to reject any purchases not properly submitted or the acceptance of which would, in the opinion of its counsel, be unlawful. Neither the Company nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. Any questions or requests for assistance concerning the method of exercising Rights or requests for additional copies of this Prospectus, the Instructions or the Notice of Guaranteed Delivery should be directed to the Subscription Agent. NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED. METHOD OF TRANSFERRING RIGHTS Rights may be purchased or sold through usual investment channels, including banks and brokers. The Rights and TDX Common Stock will be listed on the AMEX. The Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights 23 evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Rights holder or, if the Rights holder so instructs, to an additional transferee. However, notwithstanding the foregoing, the Subscription Agent will reissue Subscription Certificates for the transferred Rights to the transferee, and will reissue Subscription Certificates for the balance, if any, to the holder of the Rights, only to the extent it is able to do so before the Expiration Date. To transfer Rights to any person other than a bank or broker, signatures on the Subscription Certificate must be guaranteed by an Eligible Institution. Holders wishing to transfer all or a portion of their Rights (but not fractional Rights) should allow a sufficient amount of time prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent, (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any, and (iii) the Rights evidenced by such new Subscription Certificates to be exercised or sold by the recipients thereof. None of the Company, Thermedics, nor the Subscription Agent will have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. The Rights evidenced by a Subscription Certificate also may be sold, in whole or in part, through the Subscription Agent by delivering to the Subscription Agent such Subscription Certificate properly executed for sale by the Subscription Agent. If only a portion of the Rights evidenced by a single Subscription Certificate are to be sold by the Subscription Agent, such Subscription Certificate must be accompanied by instructions setting forth the action to be taken with respect to the Rights that are not to be sold. Promptly following such sale, the Subscription Agent will send the Rights holder a check for the net proceeds from the sale of any Rights sold. If the proceeds from the sale of Rights are to be paid or delivered to anyone other than the registered holder of the Rights, signatures on the Subscription Certificate must be guaranteed by an eligible guarantor institution which is a participant in a securities transfer association recognized program (otherwise known as the Medallion Signature Guarantee Program). ANY SIGNATURE GUARANTEE NOT MADE IN ACCORDANCE WITH THE MEDALLION SIGNATURE GUARANTEE PROGRAM WILL NOT BE ACCEPTED BY THE SUBSCRIPTION AGENT. If the Rights can be sold by the Subscription Agent, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other direct expenses of sale. Orders to sell Rights must be received on or prior to 11:00 a.m., Eastern time, on the date that is four AMEX trading days prior to the Expiration Date, and the Subscription Agent's obligation to execute orders is subject to its ability to find buyers at a price that would result in net proceeds to the holder of the Rights. Except for the fees charged by the Subscription Agent (which will be paid by the Company), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of such commissions, fees or expenses will be paid by the Company or the Subscription Agent. The Company anticipates that the Rights will be eligible for transfer through, and that the exercise of the Basic Subscription Privilege (but not the Oversubscription Privilege) may be effected through, the facilities of The Depository Trust Company ("DTC"). Rights exercised through DTC are referred to as "DTC Exercised Rights." The holder of a DTC Exercised Right may exercise the Oversubscription Privilege in respect of such DTC Exercised Right by properly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., Eastern time, on March , 1997, a DTC Participant Oversubscription Exercise Form, together with payment of the appropriate Subscription Price for the number of Underlying Shares for which the Oversubscription Privilege is to be exercised. Copies of the DTC Participant Oversubscription Exercise Form may be obtained from the Subscription Agent. 24 FOREIGN AND CERTAIN OTHER STOCKHOLDERS Subscription Certificates will not be mailed to Holders whose addresses are outside the United States or who have an APO or FPO address, but will be held by the Subscription Agent for their account. To exercise or sell Rights, such Holders must notify the Subscription Agent by completing an International Holder Subscription Form, which will be delivered to such Holders (except those located in the United Kingdom) in lieu of a Subscription Certificate, and sending it by mail or telecopy to the Subscription Agent at the address and telecopy number specified above. Holders located in the United Kingdom will not initially be provided with International Holder Subscription Forms. Such Holders who are interested in participating in the Rights Offering should contact Lehman Brothers International (Europe), One Broadgate, London EC2M 7HA, England, telephone 011-44-1-71-260-2793, telecopier 011-44-1-71-260-2635, attention: Mr. Adrian Norman. International Holder Subscription Forms must be returned to the Subscription Agent at or prior to 11:00 a.m., Eastern time, on the date that is four AMEX trading days prior to the Expiration Date, at which time (if no instructions have been received) the Rights represented thereby will be sold, if feasible, by the Subscription Agent and the net proceeds, if any, remitted to such Holders. If the Rights can be sold by the Subscription Agent, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses. Certain restrictions upon the transfer and exercise of Rights by persons located outside of the United States are set forth elsewhere in this Prospectus under the caption "Additional Information." STANDBY UNDERWRITING COMMITMENT The Company and the Underwriters have entered into a Standby Underwriting Agreement, the material terms of which are discussed below. Under the Standby Underwriting Agreement, and except as described in the following paragraph, the Underwriters will be required to purchase from the Company on the sixth business day after the Expiration Date, at the Subscription Price, the Firm Shares plus a number of shares of TDX Common Stock equal to 1,000,000 shares less the number of shares of TDX Common Stock that have been properly subscribed for as of the Expiration Date ("Underwritten Shares"). If Rights to purchase at least 1,000,000 shares are exercised, the Underwriters will not be required to purchase any of the TDX Common Stock issuable upon the exercise of the Rights. However, subject to the conditions described below, the Underwriters will be obligated to purchase the Firm Shares. The Company has also granted the Underwriters an option, exercisable within 30 days after the Expiration Date, to purchase up to an additional 195,000 shares of TDX Common Stock at the Subscription Price solely to cover over-allotments, if any. The obligation of the Underwriters under the Standby Underwriting Agreement to purchase Underwritten Shares is subject to the following conditions, among others: that the Registration Statement of which this Prospectus is a part shall have been declared effective, and that no stop order with respect thereto shall have been issued; that satisfactory opinions of counsel to the Company and to the Underwriters, and certain assurances from the Company's independent public accountants, shall have been received; that the Company shall not have experienced any material adverse change in its business (including the results of operations or management) or properties; and that the Company, Thermedics and Thermo Electron affirm as correct certain representations and warranties made to the Underwriters. In addition, the Underwriters in their absolute discretion may, in the event of the occurrence of any of the following, elect to terminate their obligations under the Standby Underwriting Agreement: if trading in the TDX Common Stock has been suspended by the AMEX or trading in securities generally on the AMEX, the New York Stock Exchange, the International Stock Exchange of the United Kingdom or the over-the-counter market has been suspended, limited or subject to the establishment of minimum prices; if a banking moratorium has been declared by banking authorities of the United States, the United Kingdom, New York State or the Commonwealth of Massachusetts; if there has occurred a declaration by the United States or the United Kingdom of a national emergency or war, or a material adverse change in general economic, political or financial conditions or the effect of international conditions on the financial markets in the United States or the United Kingdom is such as to make it, in the judgment of the Underwriters, impracticable or inadvisable to proceed with the Rights Offering or delivery of the Underwritten Shares as contemplated hereby. 25 FEDERAL INCOME TAX CONSEQUENCES The following summary describes the material United States federal income tax considerations affecting holders of TDX Common Stock and Thermedics Common Stock receiving Rights in the Rights Offering. This summary is based upon laws, regulations, rulings, and decisions currently in effect. This summary does not discuss all aspects of federal taxation that may be relevant to a particular investor or to certain types of investors subject to special treatment under the federal tax laws (for example, banks, dealers in securities, life insurance companies, tax-exempt organizations, and foreign persons), nor does it discuss any aspect of state, local, or foreign tax laws. HOLDERS OF TDX COMMON STOCK AND THERMEDICS COMMON STOCK SHOULD THEREFORE CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND THE TAX CONSEQUENCES OF THE RIGHTS OFFERING UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND UNDER ANY APPLICABLE STATE, LOCAL, OR FOREIGN TAX LAWS. Distribution of the Rights to Holders of TDX Common Stock. A holder of TDX Common Stock will not recognize taxable income for federal income tax purposes as a result of the issuance to such holder of Rights in respect of the TDX Common Stock. Except as provided in the following sentence, the basis of such Rights will be zero. If either (i) the fair market value of the Rights on the date of distribution is 15% or more of the fair market value of the TDX Common Stock in respect of which they are received on such date, or (ii) the stockholder elects, in the stockholder's federal income tax return for the taxable year in which the Rights are received, to allocate part of the basis of such TDX Common Stock to the Rights, then the stockholder's basis in such TDX Common Stock will be allocated between such TDX Common Stock and such Rights in proportion to their respective fair market values on the date of distribution. The holding period of a stockholder with respect to Rights received as a distribution on such stockholder's TDX Common Stock will include the stockholder's holding period for the TDX Common Stock in respect of which the Rights were issued. Distribution of the Rights to Holders of Thermedics Common Stock. The distribution of the Rights by Thermedics to holders of Thermedics Common Stock will constitute a taxable distribution of property, and accordingly, each such holder will be required to include as ordinary taxable income an amount equal to the fair market value (if any) of the Rights as of the date of the distribution (subject, to the extent available, to the 70% dividends-received deduction currently allowed to certain corporate stockholders). The tax basis of the Rights in the hands of the recipient Thermedics stockholder will be equal to the amount so included in income. Thermedics is required annually to notify the holders of Thermedics Common Stock, on Internal Revenue Service Form 1099, of the amount of dividends aggregating $10 or more paid to such holders during the prior year, including, for 1997, the fair market value of the Rights (if any) on the date of distribution. Thermedics and the Company will determine the fair market value of the Rights on that date, after consultation with the Underwriters. It is anticipated that the per share value of the TDX Common Stock represented by the Rights at the date of commencement of the Rights Offering will approximate the Subscription Price, with the result that the Rights should have nominal value for federal income tax purposes. Holders of Thermedics Common Stock should be aware, however, that the Internal Revenue Service will not be bound by Thermedics' and the Company's determination. Tax Basis in Rights. A holder of Rights that purchased the Rights will have a tax basis in the Rights equal to the holder's cost of the Rights. A Thermedics shareholder that received the Rights as a dividend with respect to the stock of Thermedics will have a tax basis in the Rights equal to the amount of the dividend (without taking into account any dividends-received deduction for corporate shareholders). A holder of TDX Common Stock that received the Rights with respect to the TDX Common Stock will allocate its previous tax basis in the TDX Common Stock between the TDX Common Stock and the Rights in proportion to their respective fair market values on the date of the distribution, provided, however, that no such allocation of basis shall be made if (i) the fair market value of the Rights so acquired is less than 15% of the fair market value of the holder's TDX Common Stock immediately prior to the distribution (unless the holder elects to make an allocation), or (ii) the Rights so acquired are neither sold nor exercised. 26 Exercise of Rights. A holder of Rights will not recognize gain or loss upon the exercise of the Rights. A holder of Rights who receives shares of TDX Common Stock upon such exercise will acquire a tax basis in those shares equal to the sum of the price paid on exercise and the holder's tax basis in the Rights. The holding period of TDX Common Stock received on exercise of the Rights will begin on the date the Rights are exercised. Transfer of Rights. A holder of Rights that sells Rights prior to exercise will recognize gain or loss equal to the difference between the sale proceeds and such holder's adjusted tax basis in the Rights sold. Such gain or loss will be capital gain or loss if gain or loss from a sale of TDX Common Stock held by such stockholder would be characterized as capital gain or loss at the time of such sale. Capital gain or loss recognized on a sale of Rights by a Thermedics Detection stockholder will be long-term capital gain or loss if the TDX Common Stock for which the Rights were distributed was held by such stockholder for more than one year; otherwise such gain or loss will be short- term capital gain or loss. Any capital gain or loss recognized on a sale of Rights by a Thermedics stockholder will be a short-term capital gain or loss. Lapse of Rights. A holder of Rights that fails either to exercise or to transfer the Rights prior to the Expiration Date will be deemed to have sold his rights on that date for an amount equal to zero. As noted above (see "Tax Basis in Rights"), holders of TDX Common Stock will have a basis of zero in the Rights and so will not incur a loss for tax purposes upon the lapse of the Rights. Assuming that the Rights are held as capital assets, holders of Thermedics Common Stock who receive Rights will incur a short-term capital loss upon the lapse of the Rights equal to their adjusted tax basis in the Rights. 27 SELECTED FINANCIAL INFORMATION The selected financial information below as of and for the fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996 has been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere in this Prospectus. This information should be read in conjunction with the Company's Consolidated Financial Statements and related notes included elsewhere in this Prospectus. The selected financial information for the fiscal year ended January 1, 1994 has been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, but have not been included in this Prospectus. The selected financial information for the fiscal year ended January 2, 1993 and as of January 1, 1994 has not been audited but, in the opinion of the Company, includes all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly such information in accordance with generally accepted accounting principles applied on a consistent basis.
PRO FORMA FISCAL YEAR COMBINED (2) ----------------------------------------- FISCAL YEAR 1992 1993 1994 1995 1996 (1) 1996 ------- ------- ------- ------- -------- ---------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Revenues................ $17,361 $42,031 $50,343 $27,954 $43,750 $45,297 ------- ------- ------- ------- ------- ------- Costs and Operating Expenses: Cost of revenues....... 9,329 23,759 24,906 15,236 22,150 22,793 Selling, general and administrative expenses.............. 4,229 7,526 11,973 7,487 15,525 16,233 Research and development expenses.. 647 1,790 3,895 2,741 4,608 4,608 ------- ------- ------- ------- ------- ------- 14,205 33,075 40,774 25,464 42,283 43,634 ------- ------- ------- ------- ------- ------- Operating Income........ 3,156 8,956 9,569 2,490 1,467 1,663 Interest and Other Expense, Net........... -- -- -- (72) (878) (934) ------- ------- ------- ------- ------- ------- Income Before Provision for Income Taxes....... 3,156 8,956 9,569 2,418 589 729 Provision for Income Taxes.................. 1,253 3,153 3,189 910 227 291 ------- ------- ------- ------- ------- ------- Net Income.............. $ 1,903 $ 5,803 $ 6,380 $ 1,508 $ 362 $ 438 ======= ======= ======= ======= ======= ======= Earnings per Share (3).. $ .19 $ .58 $ .63 $ .15 $ .04 $ .04 ======= ======= ======= ======= ======= ======= Weighted Average Shares (3).................... 10,069 10,069 10,069 10,069 10,320 10,320 ======= ======= ======= ======= ======= ======= BALANCE SHEET DATA (AT END OF PERIOD): Working Capital......... $ 5,593 $ 447 $ 6,116 $11,273 $23,358 Total Assets............ 12,126 25,544 17,793 20,322 53,483 Long-term Obligations... -- -- -- -- 21,200 Shareholders' Investment............. 7,282 3,822 9,208 13,773 20,910
- -------- (1) Includes the results of Moisture Systems and Rutter since their acquisition by the Company in January 1996. (2) The pro forma combined statement of income data was derived from the pro forma combined condensed statement of income included elsewhere in this Prospectus. The pro forma combined statement of income data sets forth the results of operations for fiscal 1996, as if the acquisitions of Moisture Systems and Rutter had occurred on January 1, 1996. (3) Pursuant to Securities and Exchange Commission requirements, earnings per share have been presented for all periods. Weighted average shares for all periods include 10,000,000 shares issued to Thermedics in connection with the initial capitalization of the Company, the effect of shares sold through private placements, as well as the effect of the assumed issuance of the private placements and the assumed exercise of stock options issued within one year prior to the Company's proposed rights offering with exercise prices less than the Subscription Price. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Thermedics Detection Inc. (the "Company") develops, manufactures and markets high-speed on-line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. The Company's industrial process systems use ultratrace chemical detectors, high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and other technologies for quality assurance of in-process and finished products, primarily in the food, beverage, pharmaceutical, forest products, chemical and other consumer products industries. The Company's explosives-detection equipment uses simultaneous trace particle- and vapor-detection techniques based on its proprietary chemiluminescence and high-speed gas chromatography technologies. Customers use the Company's explosives-detection equipment to detect plastic and other explosives at airports and border crossings, for other high-security screening applications and for forensics and search applications. Historically, the Company's principal product lines were process detection systems, including Alexus systems, and EGIS explosives detectors. The Company expanded its product lines to include moisture analysis equipment through its acquisition of Moisture Systems and Rutter in January 1996, and also introduced its InScan systems and Flash-GC gas chromatography systems in 1996. The Company also performs contract research and development services for government and industry customers and generates service revenues through long- term contracts. The Company's strategy has been to develop proprietary, high-speed analytical technologies to meet the needs of its customers, introduce those technologies to new markets, and finally, employ the process knowledge gained from customers in these markets to develop new proprietary technologies. In 1992, based on technologies used in its EGIS systems and TEA Analyzer, the Company developed its line of Alexus systems, which detect trace amounts of contaminants in refillable plastic bottles for the soft-drink industry. The Coca-Cola Bottlers elected to retrofit all of their existing refillable plastic bottling lines outside of the U.S. with this device, creating a dramatic increase in sales in 1993 through 1994. Sales of Alexus systems to the Coca-Cola Bottlers were $32.2 million, or 64% of the Company's revenues, in 1994. By 1995, the Coca-Cola Bottlers had substantially completed their retrofit, and sales of the Alexus systems substantially declined. Sales of Alexus systems to the Coca-Cola Bottlers were $10.0 million and $10.6 million, or 36% and 24% of the Company's revenues, in 1995 and 1996, respectively. These revenues represent product line upgrades by the Company's installed base, and new bottling lines added by the Coca-Cola Bottlers. The Company has sought to expand its customer base and continues to develop Alexus upgrades and new applications and products. The Company also introduced several new product lines over the last 12 months, including its InScan and Flash-GC product lines. As the Company begins marketing these and other products, including its EGIS explosives-detection equipment, the Company believes that it will become less dependent on its traditional revenue base. No assurance can be given, however, that the Company will be able to significantly broaden the markets for its process detection systems. The Company's sales of its explosives-detection systems for use in airports has been and will continue to be dependent on governmental initiatives to require, or support, the screening of checked luggage, carry-on items and personnel with advanced explosives-detection equipment. Significant terrorist acts, such as the downing of Pan American Flight 103, the World Trade Center bombing and the bombing in Oklahoma City have sparked renewed government initiatives in the screening of people, baggage and packages at high- sensitivity locations such as airports. In October 1996, in response to the explosion of TWA Flight 800, the United States enacted legislation which included $144.2 million allocated for the purchase of explosives-detection systems and other advanced security equipment, including trace equipment, such as the systems manufactured by the Company for carry-on and checked baggage screening. The Company believes that this legislation and potential follow-on legislation will generate significant growth in the market for explosives- detection instruments, including trace- detection systems. 29 Approximately 67% of the Company's revenues originate outside of the U.S. Although the Company seeks to charge its customers in the same currency as its operating costs, the Company's financial performance and competitive position may be impacted by currency exchange rate fluctuations affecting the relationship between the U.S. dollar and foreign currencies. QUARTERLY RESULTS The following table sets forth certain unaudited quarterly financial information for each of the eight quarters in the period ended December 28, 1996. The Company believes that this information has been presented on the same basis as the audited financial statements appearing elsewhere in this Prospectus and in the opinion of the Company, includes all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the unaudited quarterly results when read in conjunction with the audited financial statements of the Company and related notes thereto included elsewhere in the Prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
THREE MONTHS ENDED ------------------------------------------------------------------------------- APRIL 1, JULY 1, SEPT. 30, DEC. 30, MARCH 30, JUNE 29, SEPT. 28, DEC. 28, 1995 1995 1995 1995 1996 1996 1996 1996 -------- ------- --------- -------- --------- -------- --------- -------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues................ $9,050 $7,140 $5,998 $5,766 $9,345 $10,104 $11,117 $13,184 Cost of Revenues........ 4,390 3,866 3,723 3,257 4,725 6,123 5,236 6,066 ------ ------ ------ ------ ------ ------- ------- ------- Gross Profit............ 4,660 3,274 2,275 2,509 4,620 3,981 5,881 7,118 Operating Expenses...... 2,687 2,531 2,347 2,663 5,191 5,933 4,355 4,654 ------ ------ ------ ------ ------ ------- ------- ------- Operating Income (Loss)................. 1,973 743 (72) (154) (571) (1,952) 1,526 2,464 Net Income (Loss)....... 1,202 426 (35) (85) (524) (1,244) 705 1,425 Earnings (Loss) per Share.................. .12 .04 -- .01 (.05) (.12) .07 .14 Weighted Average Shares................. 10,069 10,069 10,069 10,069 10,099 10,342 10,342 10,498 Gross Profit Margin..... 51% 46% 38 % 44 % 49 % 39 % 53% 54% Operating Income (Loss) Margin................. 22% 10% (1)% (3)% (6)% (19)% 14% 19% Net Income (Loss) Mar- gin.................... 13% 6% (1)% (1)% (6)% (12)% 6% 11%
The presentation of the Company's historical quarterly results reflects revenues from process detection instruments of $2.9 million in the first quarter of 1996, compared with $6.4 million in the first quarter of 1995. This decrease was offset by an increase in revenues in the first quarter of 1996 due to the inclusion of $3.2 million of revenues from Moisture Systems and Rutter, which were acquired January 1996. In the first half of 1996, gross profit margin from process detection instruments decreased due to lower sales volume, offset by higher-margin revenues from Moisture Systems and Rutter in 1996. In addition, in the first and second quarters of 1996, the Company recorded significant nonrecurring charges, including those discussed in the results of operations. These write-offs included a reserve for obsolete inventory due to planned product changes, as well as costs for severance and a reduction of leased facilities and other adjustments. The Company's operating results for the first half of 1996 were adversely affected as a result of these charges and the Company incurred an operating loss of $2.5 million for that period. The Company was profitable in the periods subsequent to these write-offs, with operating income of $1.5 million and $2.5 million recorded in the third and fourth quarters of 1996, respectively. RESULTS OF OPERATIONS 1996 Compared With 1995(/1/) Total revenues increased to $43.8 million in 1996 from $28.0 million in 1995. Product revenues increased 69% to $31.3 million in 1996 from $18.5 million in 1995, while service revenues increased 32% to $12.5 million in 1996 from $9.5 million in 1995. - -------- (1) References to 1996, 1995 and 1994 herein are for the fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively. 30 Revenues from the Company's process detection instruments decreased to $16.0 million in 1996 from $18.5 million in 1995, primarily due to a decrease in demand from the Coca-Cola Bottlers, which have substantially completed their initial deployment of Alexus systems. Revenues from the Company's EGIS explosives-detection systems increased to $7.1 million in 1996 from $4.6 million in 1995, primarily due to the sale of eight EGIS units to the U.S. government to provide counterterrorism support in Israel. Revenues from research and development contracts decreased by $2.2 million to $1.8 million in 1996 due to the completion of a commercial contract with the Miller Brewing Company for the InScan system and, to a lesser extent, the completion of various phases of government contracts, which have since been renewed. The gross profit margin increased to 49% in 1996 from 45% in 1995. The gross profit margin on product revenues increased to 51% in 1996 from 46% in 1995, primarily due to higher-margin revenues from Moisture Systems and Rutter, offset in part by an inventory write-down of $0.8 million in the second quarter of 1996 due to obsolescence created by planned product changes. The gross profit margin on service revenues increased to 46% in 1996 from 44% in 1995, primarily due to the inclusion of higher-margin revenues from Moisture Systems and, to a lesser extent, the impact of cost reductions implemented in late 1995 and early 1996. Selling, general and administrative expenses as a percentage of revenues increased to 35% in 1996 from 27% in 1995, primarily due to higher expenses as a percentage of revenues at Moisture Systems and Rutter and, to a lesser extent, $0.4 million of costs incurred in the second quarter of 1996 related to reductions in personnel and a reduction in leased space in response to the lower sales volume of process detection instruments. Research and development expenses increased to $4.6 million in 1996 from $2.7 million in 1995, primarily due to research and development relating to the Company's Flash-GC gas chromatograph and its InScan high-speed X-ray imaging system. These projects are nearing completion and the Company expects that its research and development expenses as a percentage of revenues will decline in 1997. In addition, the Company recorded a nonrecurring charge of $0.2 million in the second quarter of 1996 for the write-off of certain research and development equipment no longer of use. Interest expense, related party of $1.1 million in 1996 reflects the issuance of a $21.2 million promissory note to Thermedics in connection with the January 1996 acquisitions of Moisture Systems and Rutter. This note is due March 1998, and bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. See "Relationship with Thermo Electron and Thermedics." 1995 Compared With 1994 Total revenues were $28.0 million in 1995, compared with $50.3 million in 1994. Product revenues decreased 54% to $18.5 million in 1995 from $40.4 million in 1994, and service revenues decreased 4% to $9.5 million in 1995 from $9.9 million in 1994. Revenues from the Company's process detection instruments decreased to $18.5 million in 1995 from $38.0 million in 1994, primarily due to a decrease in demand from the Coca-Cola Bottlers, which have substantially completed their initial deployment of Alexus systems. Revenues from the Company's EGIS explosives-detection systems declined to $4.6 million in 1995 from $10.1 million in 1994. During 1993 and 1994, large orders from BAA plc, which oversees airports in the United Kingdom, and the German government accounted for a significant portion of EGIS sales. These decreases were offset in part by an increase in research and development contract revenues of $2.1 million to $4.0 million in 1995 due to an increase in government contract revenue and, to a lesser extent, revenue from a commercial contract with Miller Brewing Company in 1995. The gross profit margin declined to 45% in 1995 from 51% in 1994. The gross profit margin on product revenues decreased to 46% in 1995 from 55% in 1994 due to the lower sales volume and, to a lesser extent, the inclusion of lower- margin research and development contract revenues. The gross profit margin on service revenues increased to 44% in 1995 from 31% in 1994 due to higher margins on recent service contracts. Selling, general and administrative expenses as a percentage of revenues increased to 27% in 1995 from 24% of revenues in 1994, primarily due to the lower sales volume in 1995. 31 Research and development expenses decreased to $2.7 million in 1995 from $3.9 million in 1994 due to a shift in the allocation of resources to externally funded research and development contracts. LIQUIDITY AND CAPITAL RESOURCES Consolidated working capital was $23.4 million at December 28, 1996, compared with $11.3 million at December 30, 1995. Included in working capital are cash and cash equivalents of $13.5 million at December 28, 1996 and $1.3 million at December 30, 1995. During 1996, cash of $6.6 million was provided by operating activities. Cash of $1.8 million was used to fund an increase in accounts receivable due to retainage provisions on certain contracts and higher international receivables, which often have longer payment cycles than domestic receivables. This use of cash was largely offset by $1.3 million of cash provided by a decrease in inventories resulting from improved inventory management. During 1996, cash of $22.6 million was used in investing activities. In January 1996, the Company acquired the assets of Moisture Systems and certain affiliated companies, and the stock of Rutter for a total of $21.7 million in cash, including the repayment of approximately $.7 million of indebtedness. In connection with this acquisition, the Company borrowed $21.2 million from Thermedics pursuant to a promissory note due March 1998, and bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. See "Relationship with Thermo Electron and Thermedics." Thermedics has indicated its intention to require the repayment of the principal amount of this note only to the extent that the Company's liquidity and cash flow permit. In December 1996, the Company acquired certain moisture detection product lines for approximately $0.3 million in cash, plus a percentage of the revenues earned by the Company from such product lines. The Company expended $0.8 million on purchases of machinery, equipment and leasehold improvements in 1996. In March 1996, the Company issued and sold 300,000 shares of the Company's common stock in a private placement for net proceeds of $3.0 million. In November 1996, the Company issued and sold 383,500 shares of the Company's common stock in a private placement for net proceeds of $4.0 million. During 1995, cash of $2.0 million was used in operating activities. Uses of cash included $3.2 million to fund an increase in inventories in anticipation of expected higher sales volume in 1996 and $2.4 million to reduce other current liabilities, including accrued employee benefits and accrued warranty, which were reduced as a result of the Company's lower volume of business in 1995. Investing activities used cash of $0.6 million and financing activities provided cash of $3.2 million in 1995 as a result of additional capital contributions from parent company. During 1994, cash of $1.9 million was provided by operating activities. Cash of $3.5 million was provided by a reduction in accounts receivable and unbilled contract costs and fees and cash of $4.6 million was provided by a decrease in inventories, both resulting from shipment of significant orders to the Coca Cola Bottlers. These sources of cash, together with cash provided by the Company's net income, were more than offset by the use of $14.1 million of cash to reduce accounts payable and other current liabilities as a result of the lower volume of business following shipment of the significant orders to the Coca Cola Bottlers. Investing activities used cash of $0.7 million and financing activities used cash of $1.0 million due to the transfer of funds to parent company. The Company expects to use substantially all of the anticipated net proceeds from the Rights Offering to fund research and development for new products. The Company expects to use the balance of such net proceeds for general corporate purposes, including the possible acquisition of one or more businesses. The Company, however, is not currently engaged in negotiations with any companies and it has no agreements, understanding or commitments with respect to any specific acquisitions that would be material to the Company. Although the Company expects to have positive cash flow from its existing operations, the Company anticipates it will require significant amounts of cash for the possible acquisition of complementary businesses and technologies. The Company expects that it will finance these acquisitions through a combination of internal funds, the net proceeds of the Rights Offering, additional debt or equity financing and/or short-term borrowings from Thermedics or Thermo Electron, although it has no agreement with these companies to ensure that funds will be available on acceptance terms or at all. The Company believes that its existing resources are sufficient to meet the capital requirements of its existing businesses for the foreseeable future, including at least the next 24 months. 32 BUSINESS OVERVIEW Thermedics Detection Inc. develops, manufactures and markets high-speed on- line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. The Company's industrial process systems use ultratrace chemical detectors, high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and other technologies for quality assurance of in-process and finished products, primarily in the food, beverage, pharmaceutical, forest products, chemical and other consumer products industries. The Company's explosives-detection equipment uses simultaneous trace particle- and vapor-detection techniques based on its proprietary chemiluminescence and high-speed gas chromatography technologies. Customers use the Company's explosives-detection equipment to detect plastic and other explosives at airports and border crossings, for other high-security screening applications and for forensics and search applications. The Company's principal product lines include: .Alexus systems, introduced in 1992, detect trace amounts of constituents that affect product quality in refillable plastic soft drink, water and other beverage containers at speeds in excess of 600 bottles per minute. Alexus systems have been installed on more than 200 bottling lines in more than 30 countries; .InScan systems, introduced in 1996, detect liquid fill-levels, leakage, foreign objects and product defects at speeds in excess of 2,400 units per minute for the beverage, food and other industries; .Micro-Quad, Quadra-Beam and other products of the Moisture Systems division, acquired by the Company in 1996, measure moisture and other product constituents, including fats, proteins, oils, flavorings, solvents, adhesives and coatings, in the manufacturing processes of a variety of industries; .Flash-GC gas chromatography systems, introduced in 1996, analyze chemical samples at speeds 20 to 50 times faster than conventional gas chromatography systems. These systems can be used in a variety of markets, primarily in near on-line process and quality control applications that require high-speed results; and .EGIS explosives detectors, first sold to commercial airports in Europe in 1991, detect and identify trace levels of explosives in carry-on bags, in checked luggage and on people, and are also used in forensic investigations. EGIS systems are the world's most widely used trace particle/vapor explosives-detection systems, with an installed base of more than 200 units in 21 countries, including more than 100 units installed in airports. The Company's historical growth has resulted primarily from a strategy of developing proprietary high-speed analytical technologies to meet the needs of its customers, introducing those technologies to new markets and, finally, employing the process knowledge gained from the customers in these markets to develop new proprietary technologies. For example, the Company's TEA Analyzer was the first instrument to use chemiluminescent analysis to reliably detect nitrogen-based carcinogens in foods, beverages and other consumer products. Enhanced TEA Analyzer technology is used in the Company's EGIS explosives- detection systems as well as in the Alexus systems used in the beverage industry. In 1995, in response to the needs of its beverage customers for more sensitive, high-speed fill-level and leakage detectors, the Company developed its InScan system based on a proprietary X-ray technology. The Company is currently enhancing InScan to detect foreign objects and product defects in the broader packaged goods markets for the food, consumer products and other industries. The Company's strategy is to build upon its reputation as a technical and market leader in applications requiring complex, high-speed or continuous ultratrace detection and measurement by continuing the technology development and market-application cycle on which its growth has been based to date. The Company holds significant patents relating to its chemiluminescent analysis and high-speed gas chromatography technologies, and believes that its proprietary position with respect to these technologies affords it a competitive advantage. In 33 addition, the Company employs highly skilled research scientists and product development engineers who use their intimate knowledge of their customers' production processes to develop new products based on these technologies. The Company's customers are characterized by the need to improve product quality and consistency while reducing production costs. Effective quality control requires high-speed systems that can test samples on-line, or near on- line, so that adjustments to the manufacturing process can be made quickly and frequently. More effective sampling reduces the amount of unacceptable product produced. Similarly, airports and other security checkpoints are required to screen increasing volumes of passengers and baggage with a high degree of accuracy without causing undue inconvenience and delays. Consequently, the time between the initiation of the testing process and the completion of the analysis must be reduced to the greatest practical extent. The Company believes that its high-speed detection and measurement systems meet the requirements of these demanding applications and, as a result, systems based on its high-speed analytical techniques will become increasingly employed in a wider variety of applications. PROCESS DETECTION SYSTEMS The Company designs, manufactures and markets high-speed on-line trace (parts-per-trillion) measurement, detection and rejection equipment that uses particle-detection, vapor-detection and other technologies for product quality and productivity applications. The Company believes that the current total annual worldwide market for process detection equipment and systems is in excess of $2 billion. The Company currently addresses an approximately $250 million segment of this market, focusing on product content and packaging. Alexus. The Company's Alexus systems detect trace amounts of constituents that affect product quality in refillable plastic soft drink, water and other beverage containers. The Company is the world's largest supplier of quality assurance systems for refillable plastic containers to the beverage industry. The Company's Alexus systems, introduced in 1992, have been installed on more than 200 bottling lines in more than 30 countries throughout the world, primarily in Europe and Latin and South America, by the Coca-Cola Bottlers, Perrier and other major beverage producers. Alexus systems sell for between $150,000 and $500,000 per unit. The Company believes that its Alexus systems are the most accurate, cost- effective and easily maintained systems of their kind. The Alexus A100 system obtains vapor samples from refillable plastic bottles of up to two liters passing along a production line at speeds in excess of 600 bottles per minute. Alexus operates by sending a small burst of air into each bottle and then capturing some of the displaced vapor. Each vapor sample is sent through three different channels for analysis: two chemiluminescence detectors are used to search for both nitrogen-based compounds, such as ammonia and nitrogen organics, and for volatile organic compounds. The third channel, strobe analysis, is used to detect gasoline and other hydrocarbons. In addition, an optical detection module is used to detect nonvolatile compounds such as soaps and detergents. Optical detection is also used to inspect refillable water bottles for fruit juices and other flavor substances. Once the analysis is completed, an electronic signal is sent from the Alexus to indicate the bottle status. Each bottle is tracked and a rejecter module then automatically separates the acceptable and rejected bottles onto separate tracks. The Alexus W10, introduced in 1994, incorporates strobe analysis and a chemiluminescence detector to detect similar compounds in refillable three-, five- and six- gallon water bottles at speeds of up to 3,600 bottles per hour. Refillable plastic bottles are widely used for soft drinks, water and other beverages. The United States permits the reuse of large plastic water bottles used in commercial water dispensers. Certain countries, including Denmark, Holland and Norway, require the reuse of refillable plastic bottles and many countries, including Germany, Finland and Sweden, place a high tax on the use of nonrecyclable containers. In addition, bottlers and consumers often prefer plastic bottles because they are lighter, less breakable and easier to transport than glass bottles. Refillable plastic bottles also provide a significant economic advantage to beverage companies because they may be returned for reuse as many as 30 times. Industry sources estimate that as many as 1% of the returned bottles cannot be reused, even after cleaning, because they contain foreign substances that can chemically bond with the plastic container. Refilling a bottle that contains a foreign substance is of major concern to beverage 34 producers because the publicity associated with an abused bottle can severely damage a brand name and a bottler's reputation. The Company believes that demand for Alexus systems will increase as its current customers expand into new markets around the world, as the technology is accepted by additional beverage producers and as the Company provides upgrades to its installed customer base. InScan. The Company's InScan system uses high-speed X-ray imaging technology to detect liquid fill-levels and leakage in containers for the beverage, food and other industries. InScan uses a low-power X-ray to capture data both vertically and horizontally. This data produces an instant, detailed image of each container that InScan's proprietary software automatically compares to a predetermined profile and generates mathematical algorithms to determine whether the container is acceptable. InScan incorporates a sophisticated, high-speed rejection system that automatically removes unacceptable containers from the line. The Company shipped its first InScan units in 1996 and believes that the current total annual worldwide beverage market for these systems is approximately $60 million. The Company also believes that these systems have applications in the broader packaging inspection market, which industry sources estimate to be approximately $130 million per year. InScan systems currently sell for an average of $35,000 per unit. Bottlers have traditionally detected fill-level and leakage by shooting a pinpoint gamma ray through a bottle or can on a production line. The principal disadvantages of gamma-based systems are their limitations in both accuracy and the scope of detection, as well as their potential for radioactive contamination of personnel and machinery. The wider image generated by InScan's X-ray imaging technology means that accuracy is unaffected by the speed of the line, acceleration or deceleration of the line, sloshing of contents or vibration. Consequently, InScan can be used on lines running at speeds of up to 2,400 units per minute, with an accuracy of +/-0.5 millimeters over the entire range of inspection speeds. Moreover, because the system is designed to image a portion of a can or bottle, rather than a pinpoint, InScan can be used to detect improper or missing lids, caps or tabs, as well as the integrity of the container from the shape of the lid or cap. Other advantages of InScan include reduced health hazards due to the elimination of potential radioactive gamma hazards, simple positioning anywhere on a production line and quick adjustability to fit packages of varying shapes. The Company believes that its InScan X-ray imaging technology is significantly more accurate than traditional single-point gamma-based systems. The Company also believes that the increased accuracy of InScan systems can result in substantially fewer short-filled or over-filled containers, permitting an InScan system to pay for itself in as few as nine months. The Company's InScan systems are currently used by major beer and soft drink companies in the U.S. and overseas, including Miller, Molson, Coors and the Coca-Cola Bottlers. Industry sources estimate that there are currently approximately 5,000 beer and soft drink bottling lines throughout the world, and that the number of such lines is increasing at a rate of approximately 5% per year. The Company believes that demand for InScan systems will increase as additional bottlers perceive the benefits of the technology. The Company is currently developing new applications for InScan, including the detection of foreign objects such as bone fragments and plastic in baby food, and product defects in packaged goods for the food, consumer products and other industries. Moisture Systems. The Company's Moisture Systems division, acquired in 1996, designs, manufactures and markets equipment that uses near-infrared spectroscopy to measure moisture and other product constituents, including fats, proteins, oils, flavorings, solvents, adhesives and coatings, in a variety of manufacturing processes. The Company's systems are used across the food, pharmaceutical, chemical, petrochemical, tobacco, forest products, pulp and paper, paper converting, plastics, textiles, corrugating and other industries. The Company believes that it is the world's largest supplier of near-infrared on-line constituent-measurement products, with an installed base of more than 10,000 units. Principal customers currently include Nabisco, Nestle, Hoechst Celanese, Akzo Nobel, Georgia Pacific, Avery Dennison, Reynolds Aluminum, Procter & Gamble, DuPont, 3M Company and other major manufacturers of consumer and industrial products. With a large installed base over a wide range of applications, the Company has built a base of knowledge and experience that it believes to be a competitive advantage. The Company's systems generally sell for between $10,000 and $100,000 per unit. 35 The Company's moisture-analysis equipment determines the amount of near- infrared light absorbed by a sample at each given wavelength to precisely identify and measure the content of the sample's constituent molecules. The Company's principal products include the Quadra-Beam and Micro-Quad, which are designed to precisely measure moisture and other product constituents at fixed points on a variety of solid materials. Quadra-Beam instruments operate with either one or two sensors, and measure a single constituent per sensor. Micro- Quad instruments operate with up to five sensors, and are capable of measuring multiple constituents per sensor. Both Quadra-Beam and Micro-Quad products can be incorporated into more complex systems. For example, the Company's Profile Video Display Systems measure product constituents across webs for applications in the paper, paper converting, sheet metal, textile and other industries. Similarly, the Company's liquid and gas systems are designed to measure product constituents in liquid or gas streams moving through pipes. Customers for these systems include the petrochemical, chemical, food, beverage, plastics and polymer industries. Manufacturers need to perform precise measurements of moisture and other product constituents to ensure product quality and consistency while reducing production costs. Manufacturers have historically performed such measurements on samples taken from production lines for laboratory analysis. The Company's moisture-analysis products provide continuous, nondestructive analysis, without requiring sample preparation or contact, making information instantly available to the operator or computer controlling the production process. In certain applications, these instruments can be incorporated into closed-loop systems. For example, an instrument detecting insufficient moisture in a product can relay an electronic signal to an oven elsewhere on the production line to decrease the amount of moisture to be extracted during the drying process. Industry analysts estimate that the annual worldwide market for on-line moisture measurement products is approximately $60 million. The Company believes that approximately $35 to $40 million of this market is for near- infrared measurement products. Approximately 60% of the Company's sales are to new manufacturing facilities, facilities expanding by adding new production lines and facilities incorporating on-line systems for the first time, and approximately 40% are to replace existing on-line equipment. The Company sells its moisture-analysis equipment primarily in the United States and in Europe. The Company expects that certain geographical markets for this equipment, including the Asia/Pacific region and Latin America, will grow significantly over the next several years as countries in that region accelerate their industrialization and their production of consumer products and industrial goods, such as paper and cardboard. FLASH-GC GAS CHROMATOGRAPHY SYSTEMS The Company designs, manufactures and markets high-speed gas chromatography systems that can analyze chemical samples at speeds 20 to 50 times faster than conventional gas chromatography. Industry sources estimate that the conventional gas chromatography laboratory and process instrument market is currently $850 million annually. The Company currently markets its systems under the trade name "Flash-GC" to analytical services and quality laboratories and for near on-line process and quality control applications that require high-speed results. The Company also intends to target certain other segments of the conventional gas chromatography market in which access to high-speed analysis would be advantageous. As in traditional gas chromatography, a sample is introduced into the Flash- GC and is separated into its chemical constituents in a chromatograph column under heat and pressure. Traditional gas chromatographs place the column in a heated oven. In contrast, the Flash-GC uses patented or patent-pending technology to dynamically heat the column itself rather than the large mass of air in the oven. Coupled with the Flash-GC's intermediate controlled- temperature trap zones, this technology permits the Flash-GC to separate a sample into its constituents 20 to 50 times faster than a conventional gas chromatograph in certain applications. As in conventional gas chromatography, the chemical constituents enter a detector at the end of the Flash-GC column, which gives off an electric signal corresponding to the identity of each constituent. The Flash-GC is not suitable for all applications because some detectors used with conventional gas chromatographs cannot respond rapidly enough to the output of the Flash-GC. The Company believes, however, that with the detectors currently available with the Flash-GC, and with detectors currently under development, this technology can serve a significant portion of the conventional gas chromatography market in which speed is important. 36 The Company believes that the Flash-GC has potential applications in the food, flavors, fragrance, chemical, pharmaceutical, forensics and automotive industries, as well as for medical and environmental laboratories. The Company believes that the market for high-speed gas chromatography is only beginning to develop and the Company intends to target only those sectors of the laboratory and process gas chromatography market that are expected to place a premium on near-instant analysis. For example, food processors subject to the Food Quality Protection Act use gas chromatography to ensure that packaged foods contain the correct ingredients and in the proper proportions. Today, a typical gas chromatography analysis of the ingredients in packaged foods may require 40 minutes, a time frame in which the food processor continues to produce a large volume of its product that must ultimately be disposed of if the analysis demonstrates nonconformity to applicable standards. The Flash-GC permits food processors to perform the same analysis in less than two minutes. Other customers using the Flash-GC include an automobile manufacturer performing on-line emissions testing, a company evaluating its wastewater during discharge and a beverage company evaluating production ingredients at the point of mixing. In each case, these customers have reported analyses 20 to 50 times faster than with the conventional gas chromatographs currently in use, with significant improvements in both productivity and quality. The Flash-GC, a new technology introduced in 1996, received both the Pittcon Editors' Gold Award for the best new product exhibited at Pittcon '96, a major U.S. analytical instrument conference, and the Most Innovative New Product Award at the Het Instrument '96 Conference, a major European analytical instrument conference. The Company shipped ten Flash-GC units for beta testing in 1996. The Company is currently building a sales and marketing organization to support the Flash-GC, and expects to begin shipping production units in the first quarter of 1997. The Company expects that the Flash-GC systems will be priced at between $60,000 and $75,000 per unit. The Company is continuing to develop the Flash-GC to configure it with additional detectors and to introduce a process-oriented version for additional on-line applications. EXPLOSIVES DETECTORS The Company designs, manufactures and markets explosives-detection equipment that uses trace particle- and vapor-detection techniques for forensics, search and screening applications under the direction of police, border police, transportation authorities and carriers. The Company's principal explosives- detection system is EGIS, a highly sensitive particle- and vapor-detection system for screening people, baggage, packages, freight, and electronic equipment such as personal computers for the presence of a wide range of explosives, including plastic explosives that have proven difficult to detect using conventional methods. The EGIS system is designed for stand-alone use in the detection of explosives in carry-on items and on personnel, and can be used in conjunction with enhanced X-ray and other advanced imaging systems to provide a comprehensive explosives-detection system for checked luggage. Explosives-detection equipment used in security screening applications comprises two distinct categories that are generally combined into a single system: enhanced X-ray technologies, such as computed tomography ("CT") and dual energy X-ray systems, and trace detection technologies, such as the EGIS system. Because of its medium- to high-throughput rate, enhanced X-ray equipment is generally used in the initial screening of checked luggage in multi-tiered systems, with trace equipment placed at the end of the process. X-ray technology, however, is relatively capital intensive and generally requires significant engineering to fit into existing luggage systems. Trace equipment is sensitive to minute quantities of explosive particles, and is generally physically smaller, more portable and less expensive than X-ray equipment. Trace equipment that combines gas chromatography with a detector can simultaneously detect more types of explosives than units employing only a detector. Trace systems currently require hand-held sample collectors. This typically manual process results in a throughput level below that of enhanced X-ray. Trace systems can be used effectively to manually screen checked baggage rejected by X-ray systems, which have a relatively high false positive rate. Trace systems have throughput rates that allow them to be used effectively on a stand-alone basis in carry-on and walk-through screening applications. In response to the crash of TWA Flight 800 in July 1996, President Clinton formed the White House Commission on Aviation Safety and Security, chaired by Vice President Gore (the "Gore Commission"), to 37 review airline and airport security and oversee aviation safety. Both the Gore Commission and the Baseline Working Group, a government/industry panel that was established prior to the crash of TWA Flight 800 to recommend an airport security plan for the United States, have recommended that trace detection equipment be used in series with enhanced X-ray systems for screening checked luggage. The Gore Commission and the Baseline Working Group also recommended the use of trace detection equipment for screening passengers and carry-on baggage. The Company believes that EGIS is the most accurate and most sensitive high- speed trace explosives-detection equipment available today. EGIS utilizes the Company's Flash-GC high-speed gas chromatography technology combined with chemiluminescent detection techniques to detect ultratrace quantities of certain explosives and taggants, and indicate the concentration and type of explosive detected. Because EGIS' chemiluminescent detector responds only to compounds of certain structures in the sample, rather than the thousands of compounds that may be contained in the sample, EGIS is more selective than competing trace detection systems, with fewer false-positive detections. A processor in EGIS compares the chemical profile of the sample to the known profiles of various explosives, including TNT, nitroglycerin, PETN, Semtex and C-4. Within seconds of the introduction of the sample into EGIS, the system determines whether explosives are present, and, if so, identifies the type and amount. The Company believes that it is the worldwide leader in providing explosives trace detection equipment. Initially developed with internal funds and contract funding from the FAA and the U.S. Department of State, more than 200 EGIS units have been deployed to date. The EGIS system is currently operational in 21 countries and is in use in carry-on and checked luggage screening at more than 42 international airports. EGIS is also used in government buildings and embassies, and at border crossings and other locations where there is a high degree of concern for security. The EGIS system has assisted in identifying explosives used in terrorist bombings, including those in Federal Building in Oklahoma City and the World Trade Center in New York, as well as in Israel, Buenos Aires and the United Kingdom. In March 1996, the Company supplied the U.S. government with eight EGIS systems to provide counter-terrorism support in Israel. Most recently, the Bureau of Alcohol, Tobacco and Firearms and the Federal Bureau of Investigation used EGIS systems in their attempt to identify the cause of the crash of TWA Flight 800. Of the more than 600 commercial airports worldwide, more than 400 are located in the United States, 150 are in Europe and 50 are in the Asia/Pacific region. Following the bombing of Pan American Flight 103, various European governments mandated the use of, and purchased, advanced explosives-detection systems. The FAA has approved the use of several trace systems for various applications, and approved the EGIS system for voluntary use by airlines in screening carry-on electronic items and luggage searches in 1992. Although the FAA certified a CT-based system for screening checked baggage in 1994, no CT- based system has yet demonstrated compliance with FAA standards under realistic airport operating conditions. To date, the FAA has not mandated the use of any explosives-detection system. In October 1996, the United States enacted legislation that includes a $144.2 million allocation for the initial purchase of explosives-detection systems and other advanced security equipment. This legislation specifically requires the purchase of 79 advanced X-ray imaging devices for screening checked luggage, together with one trace detection system to be used with each such X-ray imaging system. An additional 410 trace detection systems are to be purchased for use in screening carry-on baggage. The Company believes that approximately $32 million has been allocated to purchases of trace detection equipment such as the systems manufactured by the Company. In December 1996, the Baseline Working Group recommended the expenditure of $1.8 billion between 1997 and 2000 for carry-on and checked luggage and personal screening at larger U.S. airports, and recommended the expenditure of an additional $3.9 billion between 2001 and 2005 to complete the U.S. system. The Company believes that if the United States mandates the installation of explosives-detection equipment in a substantial number of domestic commercial airports, then the market for trace detection systems such as the Company's EGIS system will grow rapidly for several years. There can be no assurance, however, that the Company's systems would meet any applicable FAA requirements or that, even if the Company's systems were 38 to meet applicable requirements, that the Company would be able to market its systems effectively. See "Risk Factors--Dependence of Explosives Detection Market on Government Regulation and Airline Industry." The EGIS system sells for between $160,000 and $200,000. In September 1996, the Company entered into a development contract with the FAA to develop EGIS II, a lower-cost EGIS unit for use in more portable applications such as remote security checkpoints and counter-terrorism activities. In November 1996, the Company introduced its new SecurScan, a prototype of a walk-through trace detector designed to screen 10 passengers per minute, and announced that it intends to introduce Rampart, a lower-cost unit for airport applications, in 1997. SecurScan and Rampart are expected to cost approximately $300,000 and $55,000, respectively. MARKETING, SALES AND SERVICE The Company employs a variety of sales methods for its products and services that are designed to fit the needs of particular customer groups. The Company sells and services Alexus systems, principally outside of the United States, with a small, specialized direct sales force supported by a broader service organization. Alexus systems are also sold through Krones GmbH, a large German turnkey plant contractor for new bottling lines. The Company sells and services both its InScan and Moisture Systems and equipment through a mix of direct sales, manufacturers representatives and original equipment manufacturer relationships around the world. The Company also operates factory service centers for these products. The Company's Flash-GC systems are sold through a direct sales and services organization. The Company is currently attempting to recruit additional direct sales representatives for certain regions of the United States. In addition, the Company intends to use specialized manufacturers representatives in other territories. The Company currently has such representatives in Europe and in the Southern United States. EGIS explosives-detection systems are sold to a few key decision-makers around the world, primarily government agencies or private companies fulfilling government regulations. Accordingly, EGIS sales are made by a small, specialized direct sales force, supported by a broader service organization, from offices shared with Alexus sales and service organizations. The Company's existing sales and service organizations are located in North and South America and Europe. The Company also has distribution and service capabilities in Asia through a combination of direct sales, manufacturers representatives and original equipment manufacturer relationships. INTELLECTUAL PROPERTY The Company's policy is to protect its intellectual property rights, including applying for patents when appropriate. The Company also enters into licensing agreements with other companies in which it grants or receives rights to specific patents and technical know-how. The Company owns 37 United States patents, and has filed applications for five additional United States patents. The Company's U.S. patents, more than 60% of which were issued after 1990, have expiration dates ranging from 1998 through 2014. The Company also owns corresponding patents, or has filed corresponding applications, in a number of jurisdictions throughout the world. In addition, the Company has an exclusive, perpetual, royalty-free license under ten patents covering the use of near-infrared and very near-infrared emitting diodes for on-line spectral measurements. The Company owns several patents covering certain aspects of its chemiluminescent analysis technology and high-speed gas chromatography technology. The Company believes that these patents provide the Company with competitive advantages in the markets for certain of its products. The Company also considers technical know-how, trade secrets and trademarks to be important to its business. See "Risk Factors--Limited Protection of Proprietary Technology and Risks of Third-Party Claims." COMPETITION The markets for the Company's products are highly competitive. Competitors may develop superior products or products of similar quality for sale at the same or lower prices. Moreover, there can be no assurance 39 that the Company's products will not be rendered obsolete by new industry standards or changing technology. There can be no assurance that the Company will be able to compete successfully with existing or new competitors. See "Risk Factors--Ongoing Product Development Efforts Required by Rapid Technological Change" and "--Competition; Technological Change." Process Detection Systems and Flash-GC. The Company's product quality assurance systems compete with detection systems manufactured by numerous companies. The Company believes, however, that these companies are generally focused on particular niches in the process detection systems market, only in some of which does the Company compete. The Alexus system encounters competition throughout the world, but primarily in the German-speaking areas of Europe, with products offered by Walter Grassle GmbH of Germany and Sudtronics S.A. of Switzerland. InScan competes with gamma-based beverage fill-height detectors offered by a number of companies, including Industrial Dynamics Company, based in California, and Heuft Systemtechnik GmbH, based in Germany. Competition in the moisture-detection market is highly fragmented. The Company's principal competitor in this market is Infrared Engineering Limited, based in England. The Flash-GC is a new technology competing in the developing high-speed gas chromatography market segment. The Company's Flash-GC competes principally against high-speed gas chromatographs offered by ChromFast, based in Michigan. Competition in the markets for each of the Company's process detection systems and the Flash-GC is based primarily on performance, durability, service and, to a lesser extent, price. The Company believes that its systems' performance and speed, as well as the Company's reputation for developing superior new technologies and for the innovative application of existing technologies to a variety of high-speed production environments and product quality assurance problems, are competitive advantages. Explosives Detection Systems. In the explosives-detection market, the Company competes with a small number of companies, including other makers of chemical trace detection instruments, and, to a lesser degree, makers of enhanced X-ray detectors. Competition in this market is based primarily on performance, including speed, accuracy and the range of explosives that can be detected; ease of use; service; and price. The Company's principal competitor in the trace detection market is Barringer Technologies Inc., a Canadian firm that has placed several trace detectors in airport applications. To date, no other manufacturers have placed trace detection systems in airports, but the Company expects that the FAA will purchase trace systems from Barringer and such other manufacturers as part of the initial deployment of explosives- detection systems in the U.S. The Company believes that the companies, if any, whose devices are ultimately required by the FAA will have a substantial competitive advantage in the United States. GOVERNMENT REGULATION The explosives-detection systems manufactured and marketed by the Company for use in airports are subject to regulation by the FAA, corresponding foreign governmental authorities and The International Civil Aviation Organization, the United Nations organization for establishing standard practices for the aviation industry on a worldwide basis. Sales of the Company's explosives-detection systems for use in airports have been and will continue to be dependent upon governmental initiatives to require or support the screening of baggage, carry-on items and people with advanced explosives- detection equipment. Substantially all of such systems have been installed at airports in countries in which the applicable government or regulatory authority overseeing the operations of the airport has mandated such screening. Such mandates are influenced by many factors outside of the control of the Company, including political and budgetary concerns of governments, airlines and airports. To date, the FAA has not mandated the use of any explosives-detection system. See "Risk Factors--Dependence of Explosives Detection Market on Government Regulation and Airline Industry." RESEARCH AND DEVELOPMENT The Company maintains active programs for the development and introduction of new products and improvements to existing products. The Company also seeks to develop new applications for its existing products 40 and technology. The Company is currently devoting significant resources toward the enhancement of its existing products and the development of new products and technologies, including: enhancing InScan to detect foreign objects and, in some applications, product defects in packaged goods for the food, consumer products and other industries; developing an advanced generation of moisture- detection products to address recently identified customers needs; adding auto-calibration capabilities to its Alexus system; completing production units of the Flash-GC, as well as beginning to enhance the Flash-GC to broaden its applications; and developing Rampart, a lower-cost unit for use in airport screening of carry-on baggage. The Company also performs contract engineering and/or development on behalf of its customers. Recent contracts have included funding by the FAA of the development of the SecurScan walk-through explosives-detection system as well as feasibility studies and initial development work for EGIS II. The Company believes that its reputation for being able to apply its core technologies to solve production problems of its customers provides the Company with a significant competitive advantage. Company-funded research and development expenses were $3,895,000, $2,741,000 and $4,608,000 in fiscal 1994, 1995 and 1996, respectively. Contract research and development revenues were $1,923,000, $3,987,000 and $1,758,000, respectively, during the same periods. EMPLOYEES As of December 28, 1996, the Company had 216 fulltime employees, of which 6 were engaged in senior management, 25 in administration and accounting, 43 in research and development, 46 in sales and marketing, 47 in product support and 49 in manufacturing. None of the Company's employees are represented by a labor union, and the Company considers its relations with its employees to be good. To date, the Company has been able to attract and retain the personnel required by its business, but there can be no assurance that additional skilled personnel necessary to successfully expand the Company's business and operations can be recruited and retained. BACKLOG At December 30, 1995 and December 28, 1996, the Company's backlog of firm orders was approximately $5,045,000 and $11,955,000, respectively. The Company includes in backlog only those orders for which it has received completed purchase orders and for which delivery has been specified within twelve months. Most orders are subject to cancellation by the customer. Because of the possibility of customer changes in delivery schedules, cancellation of orders and potential delays in product shipments, the Company's backlog as of any particular date may not be representative of actual sales for any succeeding period. FACILITIES The Company operates from two principal facilities: a 113,000-square foot office, research and development, and manufacturing facility in Chelmsford, Massachusetts occupied under a lease expiring in 2006, subject to one five- year renewal option at the election of the Company; and a 40,000-square foot office and manufacturing facility in Hopkinton, Massachusetts occupied under a lease expiring in 1998. The Company also leases approximately 9,000 square feet in Enschede, Holland occupied under a lease expiring in 2000. In addition, the Company leases office space throughout the world for its sales and service operations. The Company believes that these facilities are adequate for its present operations. LEGAL PROCEEDINGS The Company is not a party to any litigation that it believes could reasonably be expected to have a material adverse effect on the Company or its business. 41 RELATIONSHIP WITH THERMO ELECTRON AND THERMEDICS Thermo Electron has adopted a strategy of selling a minority interest in subsidiary companies to outside investors as an important tool in its future development. As part of this strategy, Thermedics has created the Company as a privately held subsidiary, and Thermedics and Thermo Electron, and certain of its subsidiaries, have created several other privately and publicly held subsidiaries. From time to time, Thermo Electron and its subsidiaries will create other majority-owned subsidiaries as part of its spin-out strategy. (The Company and the other Thermo Electron subsidiaries are hereinafter referred to as the "Thermo Subsidiaries.") Thermedics develops, manufactures, and markets product quality assurance systems, precision-weighing and inspection equipment, electrochemistry and micro-weighing products, electronic-test instruments, explosives-detection devices, and moisture-analysis systems, as well as implantable heart-assist devices and other biomedical products. For its fiscal year ended December 30, 1995, and the nine months ended September 28, 1996, Thermedics had consolidated revenues of $175,754,000 and $188,624,000, respectively, and consolidated net income of $15,121,000 and $19,694,000, respectively. Thermo Electron and its subsidiaries develop, manufacture and market environmental monitoring and analysis instruments, papermaking and recycling equipment, biomedical products such as heart-assist devices and mammography systems, biomass electric power generation, and other specialized products and technologies. Thermo Electron and its subsidiaries also provide environmental and metallurgical services and conduct advanced technology research and development. For its fiscal year ended December 30, 1995, and the nine months ended September 28, 1996, Thermo Electron had consolidated revenues of $2,270,291,000 and $2,138,125,000, respectively, and consolidated net income of $139,582,000 and $137,184,000, respectively. See "Risk Factors--Potential Conflicts of Interest." THE THERMO ELECTRON CORPORATE CHARTER Thermo Electron and the Thermo Subsidiaries, including the Company, recognize that the benefits and support that derive from their affiliation are essential elements of their individual performance. Accordingly, Thermo Electron and each of the Thermo Subsidiaries adopted the Thermo Electron Corporate Charter (the "Charter") to define the relationships and delineate the nature of such cooperation among themselves. The purpose of the Charter is to ensure that (1) all of the companies and their shareholders are treated consistently and fairly, (2) the scope and nature of the cooperation among the companies, and each company's responsibilities, are adequately defined, (3) each company has access to the combined resources and financial, managerial and technological strengths of the others, and (4) Thermo Electron and the Thermo Subsidiaries, in the aggregate, are able to obtain the most favorable terms from outside parties. To achieve these ends, the Charter identifies the general principles to be followed by the companies, addresses the role and responsibilities of the management of each company, provides for the sharing of group resources by the companies and provides for centralized administrative, banking and credit services to be performed by Thermo Electron. The services provided by Thermo Electron include collecting and managing cash generated by members, coordinating the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group") to external financing sources, ensuring compliance with external financial covenants and internal financial policies, assisting in the formulation of long-range planning and providing other banking and credit services. Pursuant to the Charter, Thermo Electron may also provide guarantees of debt obligations of the Thermo Subsidiaries or may obtain external financing at the parent level for the benefit of the Thermo Subsidiaries. In certain instances, the Thermo Subsidiaries may provide credit support to, or on behalf of, the consolidated entity or may obtain financing directly from external financing sources. Under the Charter, Thermo Electron is responsible for determining that the Thermo Group remains in compliance with all covenants imposed by external financing sources, including covenants related to borrowings of Thermo Electron or other members of the Thermo Group, and for apportioning such constraints within the Thermo Group. In addition, Thermo Electron is also responsible for ensuring that members comply with internal policies and procedures. The cost of 42 the services provided by Thermo Electron to the Thermo Subsidiaries is covered under existing corporate services agreements between Thermo Electron and each of the Thermo Subsidiaries. The Charter presently provides that it shall continue in effect so long as Thermo Electron and at least one Thermo Subsidiary participates. The Charter may be amended at any time by agreement of the participants. Any Thermo Subsidiary, including the Company, can withdraw from participation in the Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a subsidiary's participation in the Charter in the event the subsidiary ceases to be controlled by Thermo Electron or ceases to comply with the Charter or the policies and procedures applicable to the Thermo Group. A withdrawal from the Charter automatically terminates the corporate services agreement in effect between the withdrawing company and Thermo Electron. The withdrawal from participation does not terminate outstanding commitments to third parties made by the withdrawing company, or by Thermo Electron or other members of the Thermo Group, prior to the withdrawal. However, a withdrawing company is required to continue to comply with all policies and procedures applicable to the Thermo Group and to provide certain administrative functions mandated by Thermo Electron so long as the withdrawing company is controlled by or affiliated with Thermo Electron. CORPORATE SERVICES AGREEMENT As provided in the Charter, the Company and Thermo Electron have entered into a Corporate Services Agreement (the "Services Agreement") under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management and financial and other services to the Company. The Company was assessed an annual fee equal to 1.2% of the Company's revenues for these services for calendar 1995. Beginning January 1, 1996, the fee has been reduced to 1.0% of the Company's revenues. The fee is reviewed annually and may be changed by mutual agreement of the Company and Thermo Electron. During 1995 and 1996, Thermo Electron assessed the Company $335,000 and $438,000, respectively, in fees under the Services Agreement. Management believes that the service fees charged under the Services Agreement are reasonable and that the terms of the Services Agreement are fair to the Company. For items such as employee benefit plans, insurance coverage and other identifiable costs, Thermo Electron charges the Company based on charges directly attributable to the Company. The Services Agreement automatically renews for successive one-year terms, unless canceled by the Company upon 30 days' prior written notice. In addition, the Services Agreement terminates automatically in the event the Company ceases to be a member of the Thermo Group or ceases to be a participant in the Charter. In the event of a termination of the Services Agreement, the Company will be required to pay a termination fee equal to the fee that was paid by the Company for services under the Services Agreement for the nine-month period prior to termination. Following termination, Thermo Electron may provide certain administrative services on an as-requested basis by the Company or as required in order to meet the Company's obligations under Thermo Electron's policies and procedures. Thermo Electron will charge the Company a fee equal to the market rate for comparable services if such services are provided following termination. TAX ALLOCATION AGREEMENT The Tax Allocation Agreement between the Company and Thermedics outlines the terms under which the Company is to be included in Thermedics' consolidated Federal and state income tax returns. Under current law, the Company will be included in such tax returns so long as Thermedics owns at least 80% of the outstanding TDX Common Stock. In years in which the Company has taxable income it will pay to Thermedics amounts comparable to the taxes it would have paid if it had filed its own separate company tax returns. Assuming the sale of all of the Underwritten Shares, Thermedics will own 77.6% of the outstanding TDX Common Stock, and the Company will be required to file its own tax returns for periods subsequent to the completion of the Rights Offering. CERTAIN TRANSACTIONS WITH AFFILIATES As of December 28, 1996, $10,976,000 of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo 43 Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, United States government agency securities, money market funds, commercial paper, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company and have an original maturity of three months or less. The repurchase agreement earns a rate based on the Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. In January 1996, the Company acquired Moisture Systems for a total of $21.7 million in cash, including repayments of approximately $0.7 million of indebtedness. In connection with this acquisition, the Company borrowed $21.2 million from Thermedics pursuant to a promissory note due March 1998, and bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Thermedics has indicated its intention to require the repayment of the principal amount of this note only to the extent that the Company's liquidity and cash flow permit. Pursuant to a subcontract entered into in October 1993, the Company performs research and development services for Coleman Research Corporation ("Coleman"), which is the prime contractor under a contract with the U.S. Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron and was acquired by Thermo Electron in March 1995. Coleman paid the Company $829,000 and $619,000 for services rendered in 1995 and 1996, respectively. The Company purchases an X-ray source that is used as a component in its InScan systems from Trex Medical Corporation, a publicly traded, majority- owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded, majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is purchased pursuant to written purchase orders. The Company paid Trex Medical Corporation $285,000 and $162,000 under this arrangement in 1995 and 1996, respectively. The Company has subleased approximately 8,000 square feet of space in its Chelmsford, Massachusetts, facility to Thermo Cardiosystems Inc., a publicly traded, majority-owned subsidiary of Thermedics ("Thermo Cardiosystems"), under a two-year sublease agreement. Under this sublease, Thermo Cardiosystems will pay the Company base rent of $40,000 in the first year and $44,000 in the second year, in each case, together with an amount equal to approximately $33,000 per year, representing Thermo Cardiosystem's pro rata allocation of the facility's aggregate operating costs, real estate taxes and utilities. The Company believes that the arrangements set forth above are on terms comparable to those the Company would receive from unaffiliated parties. 44 MANAGEMENT The Directors and executive officers of the Company and their ages as of November 30, 1996 are as follows:
NAME AGE POSITION ---- --- -------- John W. Wood Jr....... 52 Chairman of the Board and Director Jeffrey J. Langan..... 51 Chief Executive Officer, President and Director David H. Fine......... 54 Senior Vice President John N. Hatsopoulos... 62 Vice President, Chief Financial Officer and Director Paul F. Kelleher...... 54 Chief Accounting Officer
All of the Company's Directors are elected annually and hold office until their respective successors are elected and qualified. Executive officers are elected annually by the Board of Directors and serve at its discretion. Messrs. Wood, Hatsopoulos and Kelleher are full-time employees of Thermo Electron or Thermedics, but these individuals devote such portions of their time to the Company's affairs as the Company's needs reasonably require from time to time. Mr. Wood has been Chairman of the Board and Director of the Company since its inception in 1990. Mr. Wood also served as the Company's Chief Executive Officer from December 1995 until December 27, 1996. Mr. Wood has been President and Chief Executive Officer of Thermedics since 1984. Mr. Wood has been Senior Vice President of Thermo Electron since December 1995, and, prior to that promotion, was a Vice President of Thermo Electron from September 1994 to December 1995. Mr. Wood is also a director of Thermedics, Thermo Cardiosystems Inc., Thermo Sentron Inc. and Thermo Voltek Corp. Mr. Langan has been President of the Company since April 1996, a Director of the Company since November 1996, and Chief Executive Officer of the Company since December 27, 1996. Prior to joining the Company, Mr. Langan held a number of positions at Hewlett-Packard Company in both its Medical and Analytical Products Groups. He served as General Manager of the Healthcare Information Management Division, and also of the Clinical Systems Business Unit within the Medical Group. In the late 1980s, Mr. Langan was General Manager of the Gas Chromatography/Workstations Division of Hewlett-Packard's Analytical Products Group. Mr. Langan is also a Vice President of Thermedics. Dr. Fine has been Senior Vice President of the Company since 1992 and had been a Vice President of the Company since its inception in 1990 until 1992. Dr. Fine joined Thermo Electron in 1972 and has held the following positions at Thermo Electron prior to 1990: Head of the Cancer Research Department, Director of Special Projects for the Research and Development Center, and Manager and Director of Research for Instrument Research Development. Dr. Fine is also a Vice President of Thermedics. Mr. Hatsopoulos has been Vice President and Chief Financial Officer of the Company since its inception in 1990 and has been a Director of the Company since December 1995. Mr. Hatsopoulos was appointed Chairman of the Board of Thermedics in March 1995, and has served as Thermedics' Chief Financial Officer since 1988 and its Vice President since 1986. In September 1996, Mr. Hatsopoulos was appointed President of Thermo Electron effective January 1997. Mr. Hatsopoulos has been the Chief Financial Officer of Thermo Electron since 1988 and had been an Executive Vice President of Thermo Electron since 1986. He is also a director of Thermedics, Thermo Ecotek Corporation, Thermo Fibergen Inc., Thermo Fibertek Inc., Thermo Instrument Systems Inc., Thermo Power Corporation, Thermo TerraTech Inc. and ThermoTrex Corporation. Mr. Kelleher has been the Chief Accounting Officer of the Company since its inception in 1990. Mr. Kelleher has been Vice President, Finance of Thermo Electron since 1987 and served as its Controller from 1982 to January 1996. He is a director of ThermoLase Corporation. 45 COMPENSATION OF DIRECTORS Directors who are not employees of the Company, Thermo Electron or any other companies affiliated with Thermo Electron (also referred to as "outside directors") receive an annual retainer of $2,000 and a fee of $1,000 per day for attending regular meetings of the Board of Directors and $500 per day for participating in meetings of the Board of Directors held by means of conference telephone and for participating in certain meetings of committees of the Board of Directors. Payment of director fees is made quarterly. Messrs. Wood, Langan and Hatsopoulos are employees of Thermo Electron companies and do not receive any cash compensation from the Company for their services as Directors. Directors are also reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. Directors Deferred Compensation Plan. Under the Company's Deferred Compensation Plan for Directors (the "Deferred Compensation Plan"), a Director has the right to defer receipt of his or her fees until he or she ceases to serve as a Director, dies or retires from his or her principal occupation. In the event of a change in control or proposed change in control of the Company that is not approved by the Board of Directors, deferred amounts become payable immediately. For purposes of the Deferred Compensation Plan, a change of control is defined as: (a) the occurrence, without the prior approval of the Board of Directors, of the acquisition, directly or indirectly, by any person of 50% or more of the outstanding TDX Common Stock or the outstanding common stock of Thermedics or 25% or more of the outstanding common stock of Thermo Electron or (b) the failure of the persons serving on the Board of Directors immediately prior to any contested election of directors or any exchange offer or tender offer for the TDX Common Stock or the common stock of Thermedics or Thermo Electron to constitute a majority of the Board of Directors at any time within two years following any such event. Amounts deferred pursuant to the Deferred Compensation Plan are valued at the end of each quarter as units of TDX Common Stock. When payable, amounts deferred may be disbursed solely in shares of TDX Common Stock accumulated under the Deferred Compensation Plan. The Company has reserved 25,000 shares under this Plan. The Deferred Compensation Plan will not become effective until completion of the Rights Offering. As of the date of this Prospectus, no units had been accumulated under the Deferred Compensation Plan. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table summarizes compensation for services to the Company in all capacities awarded to, earned by or paid to the Company's Chief Executive Officer, former Chief Executive Officer and one other executive officer for the fiscal year ended December 28, 1996 (the Chief Executive Officer, the former Chief Executive Officer and such other executive officer being hereinafter referred to as the "Named Executive Officers"). No other executive officer of the Company met the definition of "highly compensated" within the meaning of the Securities and Exchange Commission's executive compensation disclosure rules during this period. The Company is required to appoint certain executive officers and full-time employees of Thermo Electron as executive officers of the Company in accordance with the Thermo Electron Corporate Charter. The compensation for these executive officers is determined and paid entirely by Thermo Electron. The time and effort devoted by these individuals to the Company's affairs is provided to the Company under the Services Agreement between the Company and Thermo Electron. Accordingly, the compensation for these individuals is not reported in the following table. See "Relationship with Thermo Electron and Thermedics." 46 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------- SECURITIES UNDERLYING ANNUAL COMPENSATION OPTIONS ---------------------- (NO. OF SHARES ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS(1) AND COMPANY)(2) COMPENSATION(3) - --------------------------- ----------- ---------- --------------------- --------------- John W. Wood Jr. Former Chief Executive Officer(4)............. $ 195,000 $ -- -- $6,750 Jeffrey J. Langan Chief Executive Officer and President(5)....... $ 165,000 $ -- 50,000 (TDX) $ -- 75,000 (TMD) 15,000 (TMO) David H. Fine Senior Vice President.. $ 128,000 $ -- 20,000 (TDX) $6,381 3,000 (TMD) 1,950 (TMO) 7,500 (TSR) 30,000 (TLZ)
- -------- (1) Bonus compensation for fiscal 1996 is not calculable as of the date of this Preliminary Prospectus. (2) In addition to receiving options to purchase TDX Common Stock (designated in the table as TDX), Mr. Langan and Dr. Fine have been granted options to purchase the common stock of Thermo Electron and certain of its other subsidiaries as part of Thermo Electron's stock option program. Options have been granted during the last fiscal year in the following Thermo Electron companies: Thermedics (designated in the table as TMD), Thermo Electron (designated in the table as TMO), Thermo Sentron Inc. (designated in the table as TSR) and ThermoLase Corporation (designated in the table as TLZ). (3) Represents the amount of matching contributions made by the individual's employer on behalf of the Named Executive Officers under the Thermo Electron 401(k) plan. (4) Mr. Wood is a senior vice president of Thermo Electron and the president and chief executive officer of Thermedics, and also served as the Company's chief executive officer until December 27, 1996. Reported in the table under "Annual Compensation" and "All Other Compensation" are total amounts paid to Mr. Wood for his service in all capacities to Thermo Electron companies. The total annual compensation paid to Mr. Wood from all sources within the Thermo Electron organization is allocated among the companies based on the time he devotes to their businesses. For 1996, 50% of Mr. Wood's annual compensation was allocated to Thermedics, and included his managerial assignment on behalf of the Company. None of Mr. Wood's annual compensation in 1996 was separately allocated to or paid by the Company. In addition, Mr. Wood has been granted options to purchase common stock of Thermo Electron and certain of its subsidiaries other than the Company from time to time by Thermo Electron or such other subsidiaries. These options are not reported here as they were granted as compensation for service to Thermo Electron companies in capacities other than in his capacity as chief executive officer of the Company. (5) Mr. Langan was appointed President of the Company on April 2, 1996 and Chief Executive Officer on December 27, 1996. 47 Stock Options Granted During Fiscal 1996 The following table sets forth certain information concerning grants of stock options by the Company and other Thermo Electron companies made during fiscal 1996 to the Named Executive Officers. No options to purchase shares of the Common Stock of the Company were granted to Mr. Wood during fiscal 1996. It has not been the Company's policy in the past to grant stock appreciation rights, and no such rights were granted during fiscal 1996. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SHARES OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(2) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------- NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10% ---- ------------ ------------ --------- ---------- -------- ---------- John W. Wood Jr.(3)..... -- -- -- -- -- -- Jeffrey J. Langan....... 50,000 (TDX) 24.2% $10.00 04/02/06 $314,500 $ 797,000 75,000 (TMD)(4) 22.9% $28.13 04/02/03 $858,750 $2,001,750 15,000 (TMO)(4) 1.0% $42.79 05/22/03 $261,300 $ 609,000 David H. Fine........... 20,000 (TDX) 9.7% $10.75 12/17/06 $135,200 $ 342,600 3,000 (TMD)(4) 0.9% $28.13 02/09/99 $ 13,290 $ 27,930 1,950 (TMO)(4) 0.1% $42.79 05/22/99 $ 13,143 $ 27,612 7,500 (TSR)(4) 1.5% $14.00 02/09/08 $ 83,550 $ 224,550 30,000 (TLZ)(4)(5) 7.5% $23.55 09/12/08 $562,200 $1,510,800
- -------- (l) The options to purchase shares of the common stock of Thermedics (designated in the table as TMD), Thermo Electron (designated in the table as TMO), Thermo Sentron Inc. (designated in the table as TSR) and ThermoLase Corporation (designated in the table as TLZ) are immediately exercisable, while the options to purchase shares of TDX Common Stock (designated in the table as TDX) are not exercisable until the earlier of (i) 90 days after the effective date of the registration of the TDX Common Stock under Section 12 of the Exchange Act and (ii) nine years after the grant date. In all cases, the shares acquired upon exercise are subject to repurchase by the granting corporation at the exercise price if the optionee ceases to be employed by the granting corporation or another Thermo Electron company. The granting corporation may exercise its repurchase rights within six months after the termination of the optionee's employment. The repurchase rights generally lapse ratably over a five- to ten-year period, depending on the option term, which may vary from seven to twelve years, provided the optionee continues to be employed by the Company or another Thermo Electron company. Certain options granted as a part of Thermo Electron's stock option program have three-year terms, and the repurchase rights lapse in their entirety on the second anniversary of the grant date. As to the options to purchase shares of TDX Common Stock, the repurchase rights lapse in their entirety on the ninth anniversary of the grant date, unless the TDX Common Stock becomes publicly-traded before that date, in which event the repurchase rights are deemed to have lapsed 20% per year commencing on the fifth anniversary of the grant date. The granting corporation may permit the holders of all options to exercise options and satisfy tax withholding obligations by surrendering shares equal in fair market value to the exercise price or withholding obligation. (2) The amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of the underlying TDX Common Stock, the optionholders' continued employment through the option period and the date on which the options are exercised. (3) Mr. Wood has also served as an officer of Thermo Electron since 1994 and the chief executive officer of Thermedics since 1984 and has been granted options to purchase common stock of Thermo Electron and certain of its subsidiaries other than the Company. These options are not reported in this table as they were granted as compensation for service to other Thermo Electron companies in capacities other than his capacity as the chief executive officer of the Company. (4) These options were granted under stock option plans maintained by Thermo Electron or its public subsidiaries as part of Thermo Electron's compensation program and, accordingly, are reported as a percentage of total options granted to employees of Thermo Electron and its public subsidiaries. (5) The options to purchase shares of the common stock of ThermoLase Corporation granted to Dr. Fine are subject to the same terms as described in footnote (1), except that the repurchase rights are deemed to lapse 20% per year commencing on the fifth anniversary of the grant date. 48 Stock Options Exercised During Fiscal Year 1996 and Fiscal Year-End Option Values The following table sets forth certain information concerning each exercise of a stock option during fiscal 1996 and outstanding stock options held at the end of fiscal 1996 by the Named Executive Officers. No stock appreciation rights were exercised or outstanding during fiscal 1996. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL FISCAL YEAR-END YEAR-END NUMBER OF ---------------- ----------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME COMPANY ON EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE ---- ----------------------- --------------- -------- ---------------- ----------------- John W. Wood Jr.(2)..... Themedics Detection(4) -- -- 0/23,333 $ 0/$268,330(3) Jeffrey J. Langan....... Thermedics Detection -- -- 0/50,000 $ 0/$575,000(3) Thermedics -- -- 75,000/0 $ 0/0 Thermo Electron -- -- 15,000/0 $ 0/0 David H. Fine........... Thermedics Detection(4) -- -- 0/61,667 $ 0/$709,171(3) Thermedics -- -- 87,600/0 $616,979/0 Thermo Cardiosystems 2,445 103,546 1,530/0 $ 42,229/0 Thermo Ecotek -- -- 1,500/0 $ 17,625/0 Thermo Electron(5) 3,038 114,098 54,637/0 $956,232/0 Thermo Fibertek -- -- 4,500/0 $ 27,000/0 Thermo Sentron -- -- 7,500/0 $ 0/0 ThermoLase(6) -- -- 30,000/0 $ 0/0 ThermoSpectra -- -- 1,000/0 $ 1,875/0 ThremoTrex 360 17,838 --
- -------- (1) All of the options reported outstanding at the end of the fiscal year were immediately exercisable, except the options to purchase shares of TDX Common Stock which are not exercisable until the earlier of (i) 90 days after the effective date of the registration of the TDX Common Stock under Section 12 of the Exchange Act and (ii) nine years after the grant date. In all cases, the shares acquired upon exercise of the options reported in the table are subject to repurchase by the granting corporation at the exercise price if the optionee ceases to be employed by such corporation or another Thermo Electron company. The granting corporation may exercise its repurchase rights within six months after the termination of the optionee's employment. For companies whose shares are not publicly traded, the repurchase rights lapse in their entirety on the ninth anniversary of the grant date. For publicly traded companies, the repurchase rights generally lapse ratably over a five to ten year period, depending on the option term, which may vary from seven to twelve years, provided that the optionee continues to be employed by the granting corporation or another Thermo Electron company. Certain options granted as a part of Thermo Electron's stock option program have three-year terms, and the repurchase rights lapse in their entirety on the second anniversary of the grant date. (2) Mr. Wood also holds unexercised options to purchase common stock of Thermo Electron and its subsidiaries other than the Company. These options are not reported here as they were granted as compensation for service to other Thermo Electron companies in capacities other than his capacity as chief executive officer of the Company. (3) No public market existed for the shares underlying the options as of December 28, 1996. Accordingly, this value has been calculated on the basis of an assumed market value of $11.50 per share, which is the mid- point of the estimated subscription price range. (4) Options to purchase 23,333 and 41,667 shares of TDX Common Stock granted to Mr. Wood and Dr. Fine, respectively, were granted pursuant to a nonqualified stock option plan of Thermedics. (5) Options to purchase 45,000 shares of the common stock of Thermo Electron granted to Dr. Fine are subject to the same terms described in footnote (1), except that the repurchase rights of the granting corporation generally do not lapse until the tenth anniversary of the grant date. In the event of the employee's death or involuntary termination prior to the tenth anniversary of the grant date, the repurchase rights of the granting corporation shall be deemed to have lapsed ratably over a five-year period commencing with the fifth anniversary of the grant date. (6) The options to purchase shares of the common stock of ThermoLase Corporation granted to Dr. Fine are subject to the same terms described in footnote (1), except the repurchase rights are deemed to lapse 20% per year commencing on the fifth anniversary of the grant date. 49 CERTAIN TRANSACTIONS On March 22, 1996, the Company completed a private placement of 300,000 shares of TDX Common Stock at a purchase price of $10.00 per share. On November 19, 1996, the Company completed an additional private placement of 383,500 shares of TDX Common Stock at a purchase price of $10.75 per share. Although substantially all of the shares sold in such private placements were purchased by outside investors that are not affiliated with the Company, Thermedics or Thermo Electron, Dr. Fine purchased 10,000 shares of TDX Common Stock in the March private placement and Mr. Langan purchased 10,000 shares of TDX Common Stock in the November private placement, at prices of $10.00 and $10.75 per share, respectively. 50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL STOCKHOLDER The following table sets forth certain information regarding the beneficial ownership of the TDX Common Stock as of November 30, 1996 by Thermedics, which is the only person or entity that owns beneficially more than 5% of the outstanding shares of TDX Common Stock. See "Risk Factors--Control by Thermedics."
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED - ------------------------------------ ------------------ ------------------------- Thermedics Inc.(1)................ 10,000,000 93.6% 470 Wildwood Street Woburn, Massachusetts 01888
- -------- (l) Thermedics is a majority-owned subsidiary of Thermo Electron and, therefore, Thermo Electron may be deemed a beneficial owner of the shares of TDX Common Stock beneficially owned by Thermedics. Thermo Electron disclaims beneficial ownership of these shares. After giving effect to the Rights Offering, assuming the sale of all of the Underwritten Shares, Thermedics will beneficially own approximately 77.6% of the outstanding TDX Common Stock. Thermedics has adopted a stock option plan with respect to the TDX Common Stock that it beneficially owns. Under this plan, options to purchase up to 333,333 shares of such stock may be granted to any person within the discretion of the human resources committee of the Board of Directors of Thermedics, including officers and key employees of Thermedics. MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the TDX Common Stock as of November 30, 1996 as well as information regarding the beneficial ownership of the common stock of Thermedics and Thermo Electron, as of November 30, 1996, with respect to (i) each of the Company's Directors, (ii) the Chief Executive Officer, and (iii) all Directors and executive officers of the Company as a group.
THERMEDICS THERMO ELECTRON NAME(1) DETECTION INC.(2) THERMEDICS INC.(3) CORPORATION(4) ------- ----------------- ------------------ --------------- John W. Wood Jr........... 0 175,347 263,909 Jeffrey J. Langan......... 10,000 75,000 15,300 David H. Fine............. 10,000 110,568 70,003 John N. Hatsopoulos....... 0 65,618 506,768 All Directors and executive officers as a group (5) persons... 20,000 446,758 1,000,978
- -------- (l) Except as reflected in the footnotes to this table, shares of TDX Common Stock and common stock of Thermedics and Thermo Electron beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children, and all share ownership involves sole voting and investment power. (2) Certain officers and directors have been granted options to purchase 135,000 shares of TDX Common Stock; however, these options will not become exercisable until 90 days after the Rights Offering. No Director or executive officer beneficially owned more than 1% of the TDX Common Stock outstanding as of November 30, 1996, and all directors and executive officers as a group beneficially owned less than 1% of the TDX Common Stock outstanding as of such date. 51 (3) Shares of the common stock of Thermedics beneficially owned by Mr. Wood, Mr. Langan, Mr. Hatsopoulos, Dr. Fine and by all Directors and executive officers as a group include 125,500, 75,000, 50,000, 87,600 and 357,100 shares, respectively, that such person or group has the right to acquire within 60 days of November 30, 1996, through the exercise of stock options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors and executive officers as a group include 1,602 and 2,761 full shares, respectively, allocated through November 30, 1996 to their respective accounts maintained pursuant to Thermo Electron's Employee Stock Ownership Plan of which the trustees, who have investment power over its assets, are executive officers of Thermo Electron (the "ESOP"). Shares beneficially owned by Mr. Wood include 2,600 shares held in a trust of which Mr. Wood's spouse is the trustee. No director or executive officer beneficially owned more than 1% of the common stock of Thermedics outstanding as of November 30, 1996; all Directors and executive officers as a group beneficially owned 1.2% of such common stock outstanding as of such date. (4) The shares of common stock of Thermo Electron have been adjusted to reflect a three-for-two stock split effected on May 22, 1996. Shares of the common stock of Thermo Electron beneficially owned by Mr. Wood, Mr. Langan, Mr. Hatsopoulos, Dr Fine and by all Directors and executive officers as a group include 227,658, 15,000, 379,685, 54,637 and 774,554 shares, respectively, that such person or group has the right to acquire within 60 days of November 30, 1996, through the exercise of stock options. Shares beneficially owned by Mr. Hatsopoulos and by all Directors and executive officers as a group include 1,934 and 3,258 full shares, respectively, allocated through November 30, 1996 to their respective accounts maintained pursuant to the ESOP. No director or executive officer beneficially owned more than 1% of the common stock of Thermo Electron outstanding as of November 30, 1996; all directors and executive officers as a group beneficially owned less than 1% of the common stock of Thermo Electron outstanding as of such date. 52 DESCRIPTION OF CAPITAL STOCK The following is a brief description of the principal terms applicable to the authorized shares of TDX Common Stock. As of the date of this Prospectus, the Company had 50,000,000 shares of TDX Common Stock authorized for issuance, of which 10,683,500 were issued and outstanding. Each share of TDX Common Stock is entitled to pro rata participation in distributions upon liquidation and to one vote on all matters submitted to a vote of shareholders. Dividends may be paid to the holders of TDX Common Stock when and if declared by the Board of Directors out of funds legally available therefor. Holders of TDX Common Stock have no preemptive, subscription, redemption, conversion or similar rights. The outstanding shares of TDX Common Stock are, and the shares offered hereby when issued will be, legally issued, fully paid and nonassessable. The shares of TDX Common Stock have noncumulative voting rights. As a result, the holders of more than 50% of the shares voting can elect all the directors if they so choose, and in such event, the holders of the remaining shares cannot elect any directors. Upon completion of the Rights Offering, Thermedics will continue to beneficially own at least a majority of the outstanding TDX Common Stock, and will have the power to elect all of the members of the Company's Board of Directors. Thermedics is a majority-owned subsidiary of Thermo Electron and, therefore, Thermo Electron may be deemed a beneficial owner of the shares of TDX Common Stock beneficially owned by Thermedics. Thermo Electron disclaims beneficial ownership of these shares. The Company's Articles of Organization, as amended, contain certain provisions permitted under the Business Corporation Law of the Commonwealth of Massachusetts relating to the liability of directors. These provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. The Company's By-Laws also contains provisions to indemnify the directors and officers of the Company to the fullest extent permitted by the Business Corporation Law of the Commonwealth of Massachusetts. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors and officers. The transfer agent and registrar for the TDX Common Stock is American Stock Transfer & Trust Company. 53 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Rights Offering, there will be a maximum of 12,883,500 shares of TDX Common Stock outstanding, assuming the sale of all of the Underwritten Shares. The shares issued in the Rights Offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except that any shares purchased in the Rights Offering by affiliates of the Company, as that term is defined in Rule 144 under the Securities Act (an "Affiliate"), may generally only be resold in compliance with applicable provisions of Rule 144. The Company has agreed, pursuant to Stock Purchase Agreements with the shareholders of the Company other than Thermedics, to file a registration statement under the Securities Act covering the sale of the 683,500 shares of TDX Common Stock owned by them (the "Registrable Shares") within 120 days of the closing of the Rights Offering. All fees, costs and expenses of the registration of the Registrable Shares will be paid by the Company. See "Risk Factors--Significant Additional Shares Eligible for Sale After the Offering." As of December 28, 1996, Thermedics owned 10,000,000 of the outstanding shares of TDX Common Stock. Thermo Electron, Thermedics and the Company have agreed, without the prior written consent of the Representatives of Underwriters, not to offer, sell or otherwise dispose of any shares of TDX Common Stock within a 180-day period after the date of this Prospectus, other than (i) shares of TDX Common Stock to be issued in the Rights Offering, (ii) the issuance of options and sales of shares of TDX Common Stock pursuant to existing stock-based compensation plans, (iii) shares of TDX Common Stock which may be sold to Thermedics and Thermo Electron, (iv) the issuance of shares of TDX Common Stock as consideration for the acquisition of one or more businesses (provided that such TDX Common Stock may not be resold prior to the expiration of the 180-day period referenced above) and (v) the sale of Rights by Thermo Electron. So long as Thermedics is able to elect a majority of the Board of Directors it will be able to cause the Company at any time to register under the Securities Act all or a portion of the TDX Common Stock owned by Thermedics or its affiliates, in which case it would be able to sell such shares without restriction upon effectiveness of the registration statement. In general, under Rule 144 as currently in effect, beginning approximately 90 days after the effective date of the Registration Statement of which this Prospectus is a part, a stockholder, including an Affiliate, who has beneficially owned his or her restricted securities (as that term is defined in Rule 144) for at least two years from the later of the date such securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of (i) 1% of the then outstanding shares of TDX Common Stock or (ii) the average weekly trading volume in the TDX Common Stock during the four calendar weeks preceding the date on which notice of such sale was filed pursuant to Rule 144 provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least three years has elapsed between the later of the date restricted securities were acquired from the Company or (if applicable) the date they were acquired from an Affiliate of the Company, a stockholder who is not an Affiliate of the Company at the time of sale and has not been an Affiliate of the Company for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. The Securities and Exchange Commission has proposed an amendment to Rule 144 which would reduce the holding period required for shares subject to Rule 144 to become eligible for sale in the public market from two years to one year, and from three years to two years in the case of Rule 144(k). The Company has reserved 358,333 shares of TDX Common Stock for grants under its existing stock-based compensation plans. As of December 28, 1996 the Company had options outstanding to purchase up to 218,180 shares of TDX Common Stock to certain of its officers and directors at a weighted average exercise price of $10.41 per share. Ninety days after the completion of the Rights Offering such options will become immediately exercisable, subject to the right of the Company to repurchase shares at the exercise price if the optionee ceases to be employed by the Company or another Thermo Electron company. This repurchase right lapses ratably (on an annual basis) over a five to ten year period depending upon the term of the option. As of December 28, 1996, 54 the repurchase right had lapsed as to 16,502 shares issuable upon exercise of outstanding options. The Company has reserved 140,153 shares remaining for future grant under plans. The Company intends to file registration statements under the Securities Act to register all shares of TDX Common Stock issuable under such plans. Shares covered by these registration statements that are not subject to transferability restrictions will be eligible for sale in the public market immediately upon the filing of such registration statements, subject to Rule 144 limitations applicable to Affiliates as noted above. Prior to the Rights Offering, there has been no public market for the TDX Common Stock, and no prediction can be made as to the effect, if any, that market sales of shares of TDX Common Stock or the availability of shares for sale will have on the market price of the TDX Common Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of the TDX Common Stock in the public market could adversely affect the market price of the TDX Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. See "Risk Factors-- Significant Additional Shares Eligible for Sale After the Offering." 55 UNDERWRITING Subject to the terms and conditions set forth in the Standby Underwriting Agreement, each of the Underwriters named below, for whom Lehman Brothers Inc. and NatWest Securities Limited are acting as Representatives (the "Representatives") has severally agreed to purchase from the Company at the Subscription Price the respective percentage set forth opposite its name below of a number of shares of TDX Common Stock equal to (i) 300,000 shares of TDX Common Stock (the "Firm Shares") and (ii) 1,000,000 shares less the number of shares purchased upon the exercise of Rights (together with the Firm Shares, the "Underwritten Shares"):
PERCENTAGE OF UNDERWRITER UNDERWRITTEN SHARES ----------- ------------------- Lehman Brothers Inc. ................................. NatWest Securities Limited............................ --- Total............................................... 100% ===
In the Standby Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Underwritten Shares if any Underwritten Shares are purchased. In the event of a default by any Underwriter, the Standby Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting Underwriter may be increased or the Standby Underwriting Agreement may be terminated. The Company has been advised by the Representatives that the several Underwriters propose to offer shares to certain dealers at a concession initially equal to $ per share. Such concession may be changed by the Underwriters to an amount not in excess of $ per share. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of shares of TDX Common Stock to any accounts over which they exercise discretionary authority. The Company has granted the several Underwriters an option, exercisable not later than 30 days after the Expiration Date, to purchase up to 195,000 additional shares of TDX Common Stock at the Subscription Price. To the extent that the Underwriters exercise such option, each of the Underwriters severally will have a firm commitment to purchase the same percentage thereof as is shown in the above table. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the shares of TDX Common Stock offered hereby. Under current applicable law, the Underwriters may bid for and purchase Rights for certain purposes. Such purchases will be subject to certain price and volume limitations when the TDX Common Stock is being stabilized by the Underwriters or when the Underwriters own Rights without an offsetting short position in the TDX Common Stock. Such limitations provide, among other things, that subject to certain exceptions, not more than one bid to purchase Rights may be maintained in any one market at the same price at the same time and that the initial bid for or purchase of Rights may not be made at a price higher than the highest current independent bid price on the AMEX. Any such price may not be increased, subject to certain exceptions, unless the Underwriters have not purchased any Rights for a full business day or the independent bid price for such Rights on the American Stock Exchange has exceeded such price for a full business day. Effective March 4, 1997, the foregoing restrictions on the bids for and purchase of Rights will terminate. From the date hereof, the Underwriters may offer and sell TDX Common Stock at prices set from time to time by the Representatives, which prices may be higher or lower than the Subscription Price. Under rules applicable prior to March 4, 1997, prior to the Expiration Date, each such price when set will not exceed, if 56 applicable, the highest price at which the TDX Common Stock last sold on the AMEX (plus an amount equal to an exchange commission) or the current asked price on the AMEX (plus such commission), whichever is higher and any such offering price set on any calendar day will not be increased more than once during that day. Any such offering may include TDX Common Stock acquired or to be acquired through the exercise of the Rights or may be made in anticipation of the purchase of Underwritten Shares. As a result of such offerings, the Underwriters may realize profits or losses independent of the underwriting commissions and fees described below. In connection with this offering, the Underwriters may overallot or effect transactions which stabilize, maintain or otherwise affect the market price of the TDX Common Stock, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid, or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of TDX Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits Lehman Brothers Inc. to reclaim a selling concession from a syndicate member in connection with the offering when shares of TDX Common Stock sold by the syndicate member are purchased in syndicate covering transactions. The Company has agreed to pay a management fee equal to $506,000 to the Representatives, a standby fee of $230,000 to the Underwriters and additional fees of $.58 per share to the Underwriters for each share of TDX Common Stock actually purchased by the Underwriters (other than the Firm Shares and the first 45,000 of overallotment shares), whether pursuant to Rights purchased and exercised by the Underwriters or pursuant to the Standby Underwriting Agreement; provided that such fees in the aggregate shall not exceed 6% of the Subscription Price for each share of TDX Common Stock purchased pursuant to the exercise of Rights (by the Underwriters or otherwise) or pursuant to the Standby Underwriting Agreement (other than the Firm Shares and the first 45,000 of overallotment shares) plus an amount equal to the aggregate purchase price of Rights purchased by the Underwriters, up to $100,000. The Company has agreed to allow the Underwriters to exercise any Rights held by them on the first business day following the Expiration Date. The Company has also agreed to reimburse the Underwriters for their out-of-pocket expenses in connection with the Rights Offering. The Standby Underwriting Agreement provides that the Company, Thermedics and Thermo Electron will indemnify the Underwriters against certain liabilities incurred in connection with the Rights Offering, including liabilities under the Securities Act, or contribute to payments the Underwriters may be required to make in respect thereof. The Company, Thermedics and Thermo Electron have also agreed that they will not, without the Representatives' prior written consent, offer, sell, grant any options to purchase or otherwise dispose of any TDX Common Stock within 180 days after the date of this Prospectus, other than (i) sales of shares of TDX Common Stock to be issued in the Rights Offering, (ii) the issuance of options and sales of shares of TDX Common Stock pursuant to existing stock-based compensation plans, (iii) shares of TDX Common Stock which may be sold to Thermedics and Thermo Electron, (iv) the issuance of shares of TDX Common Stock as consideration for the acquisition of one or more businesses (provided that such TDX Common Stock may not be resold prior to the expiration of the 180-day period referenced above) and (v) the sale of Rights by Thermo Electron. See "Shares Eligible for Future Sale." Thermo Electron may sell its Rights from time to time prior to the Expiration Date in transactions on the American Stock Exchange, in negotiated transactions, including transactions with the Underwriters, or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Such transactions may be effected by the sale of the Rights to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from Thermo Electron and/or the purchasers of the Rights for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). Thermo Electron and any broker-dealer 57 who acts in connection with the sale of Rights by Thermo Electron may be deemed to be "underwriters" as that term is defined in the Securities Act, and any commission received by them and profit on any resale of the Rights as principal might be deemed to be underwriting discounts and commissions under the Securities Act. Each of the Underwriters from time to time has performed various investment banking services for Thermo Electron and its subsidiaries. NatWest Securities Limited, a United Kingdom broker-dealer and a member of the Securities and Futures Authority Limited, has agreed that, as part of the distribution of the TDX Common Stock offered hereby and subject to certain exceptions, it will not offer or sell any TDX Common Stock within the United States, its territories or possessions or to persons who are citizens thereof or residents therein. The Standby Underwriting Agreement does not limit sales of TDX Common Stock offered hereby outside of the United States. NatWest Securities Limited has also represented and agreed that as a part of the distribution of the TDX Common Stock offered hereby, (i) it has not offered or sold and will not offer or sell any TDX Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in aquiring, managing, holding or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the Financial Services Act 1986 (the "Act"); (ii) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the TDX Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on, in the United Kingdom any document received by it in connection with the issue of the TDX Common Stock, other than any document which consists of or any part of listing particulars, supplementary listing particulars or any other document or instrument required or permitted to be published by listing rules under Part IV of the Act, to a person who is of a kind described in Article 11 (3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise be lawfully issued or passed on. Prior to the Rights Offering there has been no public market for the TDX Common Stock. The Subscription Price for the TDX Common Stock will be determined by the Company in consultation with the Representatives. Among the factors to be considered in determining the Subscription Price will be prevailing market and economic conditions, estimates of the business potential and prospects of the Company, the state of the Company's business operations, an assessment of the Company's management, the consideration of the above factors in relation to market valuations of companies in related businesses and other factors deemed relevant. LEGAL OPINIONS The validity of the issuance of the TDX Common Stock offered hereby will be passed upon for the Company by Seth H. Hoogasian, Esq., General Counsel of Thermo Electron, Thermedics and the Company, and certain legal matters will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Mr. Hoogasian owns or has the right to acquire 8,900 shares of common stock of Thermedics and 115,927 shares of common stock of Thermo Electron. EXPERTS The Consolidated Financial Statements of the Company, (except the Consolidated Financial Statements of Rutter & Co. B.V. as of December 28, 1996 and for the period from January 25, 1996 (date of acquisition) to December 28, 1996), and the Combined Financial Statements of Moisture Systems Corporation and Moisture Systems Limited included in this prospectus and the related financial statement schedule included in the Registration Statement of which this Prospectus forms a part have been audited by Arthur Andersen LLP, independent public accountants, to the extent and for the periods as indicated in their reports with respect thereto. 58 The Consolidated Financial Statements of Rutter & Co. B.V. as of December 28, 1996 and for the period from January 25, 1996 to December 28, 1996 have been audited by Deloitte & Touche, independent auditors and registeraccountants, as stated in their report included herein. The consolidated financial statements and financial statement schedule of the Company are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing in giving said reports. The combined financial statements of Moisture Systems Corporation and Moisture Systems Limited are included herein in reliance upon the authority of Arthur Andersen LLP as experts in accounting and auditing in giving said reports. The Consolidated Financial Statements of Rutter & Co. B.V. for the two years ended December 31, 1995 included in this Prospectus have been audited by Deloitte & Touche, independent auditors and registeraccountants, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (which term shall include all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act with respect to the securities offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Although statements made in this Prospectus as to the contents of any contract, agreement or other document referred to set forth all material elements of such documents, such statements are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement, although setting forth all material elements of such documents, shall be deemed qualified by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. The address of such site is http://www.sec.gov. The distribution of this Prospectus and the offering of the Rights and the shares of TDX Common Stock in certain jurisdictions may be restricted by law. No action has been taken by the Company, Thermedics or the Underwriters that would permit an offering of the Rights or such shares or the circulation or distribution of this Prospectus or any offering material in relation to the Company, the Rights or such shares in any country outside the United States where action for that purpose is required. Persons into whose possession this Prospectus comes are required by the Company and the Underwriters to inform themselves about and to observe any such restrictions, including the following: The TDX Common Stock may not be offered for sale in the United Kingdom except in circumstances that do not constitute an offer to the public within the meaning of the Companies Act 1985 and therefore offers may not be made other than to persons who, at the date of this document, are (i) persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, (ii) existing registered holders of TDX Common Stock, or (iii) existing registered holders of Thermedics Common Stock, and in the case of (iii), such persons will only be eligible to subscribe for such shares if in so doing they represent that they are subscribing with a view to holding the shares as an investment and that they have no immediate intention to resell the shares. In addition, persons who receive Rights by way of dividend from Thermedics but who do not fall within the categories described in (i) or (ii) above shall, in taking such Rights, be construed as representing that they will not transfer them to a third party. 59 This document may only be issued or passed on to any person in the United Kingdom if at the date of issue hereof such person is either (i) a person who is reasonably believed to be of the kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, as amended, or (ii) a person who is reasonably believed to be an existing registered stockholder of either Thermedics or the Company and therefore a person of the kind described in Article 8(1) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996. The Rights may not be sold, transferred or exercised by any person located in Canada. The Subscription Agent will sell the Rights for the account of each Thermedics or Thermedics Detection stockholder located in Canada and mail the proceeds of such sale to each such stockholder. See "The Rights Offering-- Method of Transferring Rights." No application has been made to the French Commission des Operations de Bourse in respect of this Prospectus or any part hereof. The Company hereby represents and agrees, and each French recipient, by his acceptance of this Prospectus agrees, that neither this Prospectus nor any part hereof constitutes a public offering of Rights or shares of Thermedics Detection Common Stock in France. The Company and Thermedics further confirm that they have not, and each French recipient, by his acceptance of this Prospectus, confirms that such recipient has neither offered for sale nor sold nor will offer for sale or sell (whether by use of this Prospectus or any part hereof, any information contained herein or any connected or related document or otherwise) any of the Rights or shares of Thermedics Detection Common Stock to the public in France. REPORTS TO SECURITY HOLDERS The Company intends to furnish holders of the TDX Common Stock offered hereby with annual reports containing financial statements audited by an independent public accounting firm and with quarterly reports containing unaudited summary financial statements for each of the first three quarters of each fiscal year. 60 INDEX TO FINANCIAL STATEMENTS THERMEDICS DETECTION INC. Reports of Independent Public Accountants............................... F-2 Consolidated Statement of Income for the years ended December 31, 1994, December 30, 1995 and December 28, 1996................................ F-4 Consolidated Balance Sheet as of December 30, 1995 and December 28, 1996................................................................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1994, December 30, 1995 and December 28, 1996.......................... F-6 Consolidated Statement of Shareholders' Investment for the years ended December 31, 1994, December 30, 1995 and December 28, 1996............. F-7 Notes to Consolidated Financial Statements.............................. F-8 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED Report of Independent Public Accountants................................ F-19 Combined Statement of Income for the year ended December 30, 1995 and for the period from December 31, 1995 through January 25, 1996......... F-20 Combined Balance Sheet as of December 30, 1995.......................... F-21 Combined Statement of Cash Flows for the year ended December 30, 1995 and for the period from December 31, 1995 through January 25, 1996..... F-22 Combined Statement of Owners' Investment for the year ended December 30, 1995 and for the period from December 31, 1995 through January 25, 1996................................................................... F-23 Notes to Combined Financial Statements.................................. F-24 RUTTER & CO. B.V. Auditor's Report........................................................ F-28 Consolidated Balance Sheets at December 31, 1995 and 1994............... F-29 Consolidated Profit and Loss Accounts for the years ended December 31, 1995 and 1994.......................................................... F-30 Notes to the Consolidated Balance Sheets and the Consolidated Profit and Loss Accounts.......................................................... F-31 Parent Company Balance Sheets at December 31, 1995 and 1994............. F-35 Parent Company Profit and Loss Accounts for the years ended December 31, 1995 and 1994.......................................................... F-36 Notes to the Parent Company Balance Sheets and the Parent Company Profit and Loss Accounts...................................................... F-37 Supplementary Information............................................... F-40 PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF THERMEDICS DETECTION INC., MOISTURE SYSTEMS AND RUTTER & CO. B.V. (UNAUDITED) Pro Forma Combined Condensed Statement of Income for the year ended December 28, 1996...................................................... F-45 Note to Pro Forma Combined Condensed Statement of Income................ F-46
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermedics Detection Inc.: We have audited the accompanying consolidated balance sheet of Thermedics Detection Inc. (a Massachusetts corporation and 94%-owned subsidiary of Thermedics Inc.) and subsidiaries as of December 30, 1995 and December 28, 1996, and the related consolidated statements of income, cash flows and shareholders' investment for each of the three years in the period ended December 28, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Rutter & Co. B.V. (a wholly owned subsidiary of Thermedics Detection Inc.), for the period from January 25, 1996 (the date of acquisition) through and as of December 28, 1996, which statements reflect total assets and total revenues of 16% and 17% in 1996, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for that entity, is based solely on the report 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 report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermedics Detection Inc. and subsidiaries as of December 30, 1995 and December 28, 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 F-2 INDEPENDENT AUDITORS' REPORT We have audited the consolidated balance sheet of the Rutter & Co. B.V. segment of Thermedics Detection Inc. as of December 28, 1996, and the related consolidated statements of income, stockholder's equity, and cash flows for the period from January 25, 1996 (acquisition date) to December 28, 1996 (all expressed in Netherlands Guilders) (not included herein). These financial statements are the responsibility of Thermedics Detection Inc.'s and Rutter & Co. B.V.'s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in the Notes to the financial statements (not included herein), the consolidated balance sheet of the Rutter & Co. B.V. segment of Thermedics Detection Inc. includes the net assets acquired by Thermedics Detection Inc. in its purchase of Rutter & Co. B.V. on January 25, 1996, after giving effect to the allocation of Thermedics Detection Inc.'s purchase price to the consolidated net assets of Rutter & Co. B.V. and to the changes in the consolidated net assets of Rutter & Co. B.V. subsequent to the acquisition; the related consolidated statements of income, stockholder's equity, and cash flows reflect the results of operations and cash flows of Rutter & Co. B.V. subsequent to such acquisition after giving effect to the allocation of Thermedics Detection Inc.'s purchase price to Rutter & Co. B.V.'s consolidated net assets. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Rutter & Co. B.V. segment of Thermedics Detection Inc. at December 28, 1996, and the results of their operations and their cash flows for the period from January 25, 1996 to December 28, 1996 in conformity with generally accepted accounting principles in the United States of America. Deloitte & Touche Registeraccountants Almelo, The Netherlands January 29, 1997 F-3 THERMEDICS DETECTION INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1995 1996 ------- ------- ------- Revenues (Note 8) Product............................................ $40,436 $18,457 $31,255 Service............................................ 9,907 9,497 12,495 ------- ------- ------- 50,343 27,954 43,750 ------- ------- ------- Costs and Operating Expenses: Cost of product revenues........................... 18,052 9,895 15,417 Cost of service revenues........................... 6,854 5,341 6,733 Selling, general and administrative expenses (Note 6)................................................ 11,973 7,487 15,525 Research and development expenses.................. 3,895 2,741 4,608 ------- ------- ------- 40,774 25,464 42,283 ------- ------- ------- Operating Income..................................... 9,569 2,490 1,467 Interest Income...................................... -- -- 229 Interest Expense, Related Party (Note 2)............. -- -- (1,119) Other Income (Expense)............................... -- (72) 12 ------- ------- ------- Income Before Provision for Income Taxes............. 9,569 2,418 589 Provision for Income Taxes (Note 4).................. 3,189 910 227 ------- ------- ------- Net Income........................................... $ 6,380 $ 1,508 $ 362 ======= ======= ======= Earnings per Share................................... $ .63 $ .15 $ .04 ======= ======= ======= Weighted Average Shares.............................. 10,069 10,069 10,320 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 THERMEDICS DETECTION INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1995 1996 ------- ------- ASSETS Current Assets: Cash and cash equivalents.................................. $ 1,282 $13,484 Accounts receivable, less allowances of $516 and $1,215.... 4,619 9,387 Unbilled contract costs and fees........................... 1,152 307 Inventories................................................ 8,991 8,793 Prepaid and refundable income taxes (Note 4)............... 1,530 2,173 Prepaid expenses........................................... 208 547 ------- ------- 17,782 34,691 ------- ------- Property, Plant and Equipment, at Cost, Net.................. 2,230 1,784 ------- ------- Cost in Excess of Net Assets of Acquired Companies (Note 2).. -- 16,694 ------- ------- Other Assets................................................. 310 314 ------- ------- $20,322 $53,483 ======= ======= LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable........................................... $ 1,558 $ 3,030 Accrued payroll and employee benefits...................... 681 1,375 Accrued installation and warranty expenses................. 1,414 1,413 Deferred revenue........................................... 1,324 1,281 Customer deposits.......................................... 446 637 Other accrued expenses..................................... 1,086 3,436 Due to parent company and affiliates....................... -- 161 ------- ------- 6,509 11,333 ------- ------- Deferred Income Taxes (Note 4)............................... 40 40 ------- ------- Promissory Note to Parent Company (Note 2)................... -- 21,200 ------- ------- Commitments (Note 5) Shareholders' Investment (Note 3): Common stock, $.10 par value, 15,000,000 shares authorized; 10,000,000 shares and 10,683,500 shares issued and outstanding .............................................. 1,000 1,068 Capital in excess of par value............................. 6,114 13,130 Retained earnings.......................................... 6,774 7,136 Cumulative translation adjustment.......................... (115) (424) ------- ------- 13,773 20,910 ------- ------- $20,322 $53,483 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 THERMEDICS DETECTION INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
1994 1995 1996 -------- ------- ------------- OPERATING ACTIVITIES: Net income .................................. $ 6,380 $ 1,508 $ 362 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.............. 1,060 1,159 2,364 Provision for losses on accounts receivable................................ 128 98 582 Other noncash expenses..................... 1,127 727 1,804 Increase (decrease) in deferred income taxes..................................... 81 (40) -- Changes in current accounts, excluding the effects of acquisitions: Accounts receivable...................... 1,862 1,051 (1,776) Unbilled contract costs and fees......... 1,687 (931) 845 Inventories.............................. 4,649 (3,213) 1,254 Other current assets..................... (934) (116) (599) Accounts payable......................... (2,977) 182 758 Other current liabilities................ (11,147) (2,392) 1,045 -------- ------- -------- Net cash provided by (used in) operating activities............................. 1,916 (1,967) 6,639 -------- ------- -------- INVESTING ACTIVITIES: Acquisitions (Note 2)........................ -- -- (21,668) Acquisition of product line (Note 2)......... -- -- (300) Purchases of machinery, equipment and leasehold improvements...................... (722) (608) (766) Proceeds from sale of machinery, equipment and leasehold improvements.................. 448 19 113 Purchase of other assets..................... (471) -- -- -------- ------- -------- Net cash used in investing activities... (745) (589) (22,621) -------- ------- -------- FINANCING ACTIVITIES: Net proceeds from private placement of Company common stock (Note 7)............... -- -- 6,964 Proceeds from issuance of promissory note to parent company (Note 7)..................... -- -- 21,200 Transfers to parent company and additional capital contributions, net ................. (984) 3,170 120 Other........................................ -- -- (15) -------- ------- -------- Net cash provided by (used in) financing activities............................. (984) 3,170 28,269 -------- ------- -------- Exchange Rate Effect on Cash.................. 14 (138) (85) -------- ------- -------- Increase in Cash and Cash Equivalents......... 201 476 12,202 Cash and Cash Equivalents at Beginning of Year......................................... 605 806 1,282 -------- ------- -------- Cash and Cash Equivalents at End of Year...... $ 806 $ 1,282 $ 13,484 ======== ======= ======== CASH PAID FOR: Interest..................................... $ -- $ -- $ 596 ======== ======= ======== Income taxes................................. $ 338 $ 152 $ 618 ======== ======= ======== NONCASH ACTIVITIES: Fair value of assets of acquired companies... $ -- $ -- $ 24,328 Cash paid for acquired companies............. -- -- 21,668 -------- ------- -------- Liabilities assumed of acquired companies................................ $ -- $ -- $ 2,660 ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 THERMEDICS DETECTION INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (IN THOUSANDS)
COMMON CAPITAL IN CUMULATIVE STOCK, $.10 EXCESS OF RETAINED TRANSLATION PAR VALUE PAR VALUE EARNINGS ADJUSTMENT ----------- ---------- -------- ----------- BALANCE JANUARY 1, 1994........... $1,000 $ 2,814 $ -- $ 8 Net income........................ -- -- 6,380 -- Transfer to parent company, net... -- -- (984) -- Translation adjustment............ -- -- -- (10) ------ ------- ------ ----- BALANCE DECEMBER 31, 1994......... 1,000 2,814 5,396 (2) Net income........................ -- -- 1,508 -- Additional capital contribution... -- 3,300 -- -- Transfer to parent company, net... -- -- (130) -- Translation adjustment............ -- -- -- (113) ------ ------- ------ ----- BALANCE DECEMBER 30, 1995......... 1,000 6,114 6,774 (115) Net income........................ -- -- 362 -- Additional capital contribution... -- 120 -- -- Net proceeds from private placement of Company common stock (Note 7)......................... 68 6,896 -- -- Translation adjustment............ -- -- -- (309) ------ ------- ------ ----- BALANCE DECEMBER 28, 1996......... $1,068 $13,130 $7,136 $(424) ====== ======= ====== =====
The accompanying notes are an integral part of these consolidated financial statements. F-7 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Thermedics Detection Inc. ("the Company") develops, manufactures and markets high-speed on-line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. The Company's industrial process systems use ultratrace chemical-concentration detectors, high-speed gas chromatography, X-ray imaging, near-infrared spectroscopy and other technologies for quality assurance of in-process and finished products, primarily in the food, beverage, pharmaceutical, forest products, chemical and other consumer products industries. The Company's explosives-detection equipment uses trace particle- and vapor-detection techniques based on its proprietary chemiluminescene and high-speed gas chromatography technologies. Customers use the Company's explosives-detection equipment to detect plastic and other explosives at airports and border crossings, for other high-security screening applications and for forensics and search applications. Relationship with Thermedics Inc. and Thermo Electron Corporation The Company operated as a division of Thermedics Inc. ("Thermedics") until its incorporation as a Massachusetts corporation in December 1990. In connection with the Company's incorporation, Thermedics transferred to the Company its TEA Analyzer and certain other trace detection technologies in exchange for 10,000,000 shares of the Company's common stock. As of December 28, 1996, Thermedics owned 94% of the Company's outstanding common stock. As of December 28, 1996, Thermedics is a 51%-owned subsidiary of Thermo Electron Corporation ("Thermo Electron"). The accompanying financial statements include the assets, liabilities, income and expenses of the Company as included in Thermedics' consolidated financial statements. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1994, 1995 and 1996 are for the fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively. Revenue Recognition The Company recognizes product revenues upon shipment of its products. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. The Company recognizes service revenues over the term of the contract. Deferred revenue in the accompanying balance sheet consists of unearned revenue on service contracts which is recognized over the life of the service contract. Substantially all of the deferred revenue included in the accompanying balance sheet as of December 30, 1995, will be recognized within one year. Revenues and profits on long-term contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method, including revenues from long-term research and development contracts, were $1,923,000 in 1994, $3,987,000 in 1995 and $1,758,000 in 1996. The percentage of completion is determined by relating the actual costs incurred to date to management's estimate of total costs to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. Contracts generally provide for the billing of customers on a cost-plus-fixed-fee basis as costs are incurred. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. F-8 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its stock-based compensation plans (Note 3). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes The Company and Thermedics have a tax allocation agreement under which the Company is included in Thermedics' consolidated federal and certain state income tax returns. The agreement provides that in years in which the Company has taxable income, it will pay to Thermedics amounts comparable to the taxes the Company would have paid had it filed separate tax returns. If Thermedics' equity ownership of the Company were to drop below 80%, the Company would be required to file its own income tax returns. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share Pursuant to Securities and Exchange Commission requirements, earnings per share have been presented for all periods. Weighted average shares for all periods include 10,000,000 shares issued to Thermedics in connection with the initial capitalization of the Company, the effect of shares sold through private placements, as well as the effect of the assumed issuance of the private placements and the assumed exercise of stock options issued within one year prior to the Company's proposed initial public offering with exercise prices less than the subscription price. Because the effect of the assumed exercise of stock options issued more than one year prior to the Company's proposed initial public offering would be immaterial, they have been excluded from the earnings per share calculation. Stock Split In March 1996, the Company declared and effected a two-for-three reverse stock split. All share and per share information has been restated to reflect the stock split. Cash and Cash Equivalents Cash receipts and cash disbursements of the Company's domestic operations were combined with other Thermedics corporate cash transactions and balances prior to the Company's March 1996 private placement of common stock. Therefore, cash of the Company's domestic operations is not included in the accompanying balance sheet as of December 30, 1995. The Company's cash equivalents in 1995 include investments in commercial paper and short-term certificates of deposit of the Company's foreign operations, which have an original maturity of three months or less. Cash and cash equivalents are carried at cost, which approximates market value. As of December 28, 1996, $10,976,000 of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of U.S. government agency securities, corporate notes, commercial paper, money market funds and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company and have an original maturity of three months or less. The F-9 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value and include materials, labor and manufacturing overhead. The components of inventories are as follows:
1995 1996 ------- ------- (IN THOUSANDS) Raw material and supplies................................... $ 7,089 $ 6,135 Work in process............................................. 784 871 Finished goods.............................................. 1,118 1,787 ------- ------- $ 8,991 $ 8,793 ======= =======
Property, Plant and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: machinery and equipment, three to ten years and leasehold improvements, the lesser of the term of the lease or the life of the asset. Property, plant and equipment is comprised of the following:
1995 1996 ------- ------- (IN THOUSANDS) Machinery, equipment and leasehold improvements............. $ 4,874 $ 5,683 Less: Accumulated depreciation and amortization............. 2,644 3,899 ------- ------- $ 2,230 $ 1,784 ======= =======
Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization was $403,000 at December 28, 1996. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of operations and are not material for the three years presented. F-10 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, due to parent company and affiliates and promissory note to parent company. Their respective carrying amounts in the accompanying balance sheet approximate fair value due to their short-term nature, except for the promissory note to parent company. The carrying amount of the promissory note to parent company approximates fair value based on borrowing rates available to the Company at December 28, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ACQUISITIONS On January 25, 1996, the Company acquired the assets of Moisture Systems Corporation and certain affiliated companies (collectively, "Moisture Systems"), and the stock of Rutter & Co. B.V. ("Rutter") for a total purchase price of $21,668,000 in cash, which included the repayment of $700,000 of debt. Moisture Systems and Rutter design, manufacture and sell instruments that use near infrared spectroscopy to measure moisture and other product constituents, including fats, proteins, oils, flavorings, solvents, adhesives and coatings, in a variety of manufacturing processes. These systems are used across the food, pharmaceutical, chemical, petrochemical, tobacco, forest products, pulp and paper, converting, plastics, textiles, corrugating and other industries. To finance these acquisitions, the Company borrowed $21,200,000 from Thermedics pursuant to a promissory note due March 1998, bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. As of December 28, 1996, the interest rate on the promissory note was 5.77%. In December 1996, the Company acquired certain moisture measurement product lines for approximately $300,000 in cash, subject to certain post closing adjustments. In addition, the Company has agreed to pay a licensing fee on sales of these products through December 2000. These acquisitions have been accounted for using the purchase method of accounting and their results of operations have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of Moisture Systems and Rutter exceeded the estimated fair value of the acquired net assets by $17,326,000, which is being amortized over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired. The following table presents selected financial information for the Company, Moisture Systems and Rutter on a pro forma basis, as if the acquisitions of Moisture Systems and Rutter had occurred as of January 1, 1995.
1995 1996 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues..................................................... $46,485 $45,297 Net Income................................................... 1,796 520 Earnings per Share........................................... .18 .05
The pro forma results are not necessarily indicative of future operations on the actual results that would have occurred had the acquisitions of Moisture Systems and Rutter been made at the beginning of 1995. Additional pro forma information for the Company, Moisture Systems and Rutter is included elsewhere in this prospectus. F-11 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. EMPLOYEE BENEFIT PLANS Stock-based Compensation Plans Stock Option Plan On November 1, 1994, the Company adopted a stock-based compensation plan for its key employees, directors and others, which permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the "Board Committee"), including restricted stock, stock options, stock bonus shares or performance-based shares. The option recipients and the terms of options granted under this plan are determined by the Board Committee. Options granted generally vest and become immediately exercisable on the ninth anniversary of the grant date, unless the Company's common stock becomes publicly traded prior to such date. In such an event, options become exercisable 90 days after the Company becomes subject to the Securities Exchange Act of 1934, but will be subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally will be deemed to have lapsed ratably over periods ranging from five to ten years after the first anniversary of the grant date, depending on the term of the option, which will generally range from ten to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's common stock on the date of grant. To date, all options have been granted at fair market value. Employee Stock Purchase Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by Thermedics. Under this plan, shares of Thermedics and Thermo Electron's common stock may be purchased at the end of a 12-month plan year at 95% of the fair market value at the beginning of the plan year, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the plan year, and the shares purchased were subject to a one- year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Pro Forma Stock-based Compensation Plans Expense In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB 25 in accounting for its stock-based compensation plans. Had compensation cost for awards in 1996 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows:
1996 --------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income: As reported.......................................... $362 Pro forma............................................ 102 Earnings per share: As reported.......................................... .04 Pro forma............................................ .01
Pro forma net income for 1995 was not materially different from historical net income in 1995. F-12 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period, therefore future Pro Forma compensation expense may be greater as additional options are granted. The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1996 ------- Risk-free interest rate.............................................. 6.4% Expected life of options............................................. 7 years
Expected volatility of zero is assumed for options granted in Company common stock due to the Company's status as nonpublic. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Stock Option Plan Activity A summary of the Company's stock option activity is as follows:
1996 1995 1994 --------------- --------------- --------------- RANGE OF WEIGHTED WEIGHTED OPTION NUMBER AVERAGE NUMBER AVERAGE NUMBER PRICES OF EXERCISE OF EXERCISE OF PER SHARES PRICE SHARES PRICE SHARES SHARE ------ -------- ------ -------- ------ -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Options outstanding, beginning of year...................... 25 $ 9.75 26 $9.75 -- -- Granted..................... 207 $10.45 2 $9.75 26 $9.75 Exercised................... -- $ -- -- $ -- -- -- Forfeited................... -- $ -- -- $ -- -- -- Expired..................... (14) $ 9.79 (3) $9.75 -- -- --- ------ --- ----- --- ----- Options outstanding, end of year......................... 218 $10.41 25 $9.75 26 $9.75 === ====== === ===== === ===== Options exercisable........... -- $ -- -- $ -- -- $ -- === ====== === ===== === ===== Options available for grant... 116 309 308 === === === Weighted average fair value of options granted during year.. $ 3.76 $4.15 ====== =====
As of December 28, 1996, the options outstanding were exercisable at prices ranging from $9.75 to $10.75 and had a weighted-average remaining contractual life of 9.7 years. At December 28, 1996, the Company had reserved 358,333 unissued shares of its common stock for possible issuance under the stock-based compensation plans. F-13 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 401(k) Savings Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in Thermo Electron's 401(k) savings plan. Contributions to the 401(k) savings plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For this plan, the Company contributed and charged to expense $159,000, $233,000 and $247,000 in 1994, 1995 and 1996, respectively. Defined Benefit Pension Plan The Company's Rutter subsidiary, acquired in January 1996, has a defined benefit pension plan covering substantially all of its full-time employees. The Company's funding policy is to make contributions within a range required by applicable regulations in the Netherlands. Net periodic pension costs included the following components:
1996 -------------- (IN THOUSANDS) Service cost..................................................... $ 22 Interest cost on projected benefit obligation.................... 45 Return on plan assets............................................ (9) Amortization of unrecognized obligation.......................... (26) ---- $ 32 ====
The funded status of the Company's defined benefit pension plan is as follows:
1996 -------------- (IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefits............................................. $607 Non-vested benefits......................................... -- ---- Accumulated benefit obligation.............................. 607 Effect of projected future salary increases................... 152 ---- Projected benefit obligation.................................. 759 Plan assets at fair value..................................... 965 ---- Excess of plan assets over projected benefit obligation....... 206 Unrecognized net gain......................................... 196 Initial unrecognized net obligation........................... (69) ---- Prepaid pension cost........................................ $333 ====
Significant actuarial assumptions used to determine the net periodic pension cost during 1996 were:
1996 ---- Discount rate.......................................................... 7% Rate of increase in salary levels up to age 45......................... 4.5% Rate of increase in salary levels after age 45......................... 2.5% Expected long-term rate of return on assets............................ 4.0%
F-14 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INCOME TAXES The components of income before income taxes are as follows:
1994 1995 1996 ------ ------ ------- (IN THOUSANDS) Domestic.............................................. $9,379 $2,197 $(1,742) Foreign............................................... 190 221 2,331 ------ ------ ------- $9,569 $2,418 $ 589 ====== ====== =======
The components of the provision for income taxes are as follows:
1994 1995 1996 ------ ---- ----- (IN THOUSANDS) Currently payable: Federal............................................... $2,736 $681 $(350) State................................................. 568 166 (90) Foreign............................................... 116 94 692 ------ ---- ----- 3,420 941 252 ------ ---- ----- Net prepaid: Federal............................................... (188) (25) (195) State................................................. (43) (6) (34) Foreign............................................... -- -- 204 ------ ---- ----- (231) (31) (25) ------ ---- ----- $3,189 $910 $ 227 ====== ==== =====
Provision for income taxes in the accompanying statement of operations differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before provision for income taxes due to the following:
1994 1995 1996 ------ ----- ---- (IN THOUSANDS) Provision for income taxes at statutory rate............ $3,253 $ 822 $201 Increases (decreases) resulting from: State income taxes, net of federal tax................ 346 106 (82) Foreign tax rate and tax law differential............. 51 19 103 Tax benefit of foreign sales corporation.............. (499) (133) -- Deemed dividend from foreign subsidiary............... -- 80 -- Other, net............................................ 38 16 5 ------ ----- ---- $3,189 $ 910 $227 ====== ===== ====
F-15 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following:
1995 1996 ------- ------- (IN THOUSANDS) Prepaid income taxes: Reserves and other accruals............................... $ 556 $ 999 Inventory basis difference................................ 675 643 Accrued compensation...................................... 133 130 Other, net................................................ 28 30 ------- ------- $ 1,392 $ 1,802 ======= ======= Deferred income taxes: Depreciation.............................................. $ 40 $ 40 ======= =======
5. COMMITMENTS The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $413,000, $542,000 and $1,335,000 in 1994, 1995 and 1996, respectively. Total future minimum payments due under noncancelable operating leases at December 28, 1996, are $1,220,000 in 1997; $1,041,000 in 1998; $953,000 in 1999; $880,000 in 2000; $850,000 in 2001; and $3,714,000 in 2002 and thereafter. Total future minimum lease payments are $8,658,000. 6. RELATED PARTY TRANSACTIONS Corporate Services Agreement The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company pays Thermo Electron an annual fee equal to 1.0% of the Company's revenues. The Company paid Thermo Electron an amount equal to 1.25% and 1.20% of the Company's revenues in 1994 and 1995, respectively. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. For these services, the Company was charged $629,000, $335,000 and $438,000 in 1994, 1995 and 1996, respectively. Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). For additional items such as employee benefit plans, insurance coverage and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. Research and Development Agreement Pursuant to a subcontract entered into in October 1993, the Company performs research and development services for Coleman Research Corporation ("Coleman"), which is the prime contractor under a contract with the U.S. Department of Energy. Coleman is a wholly owned subsidiary of Thermo Electron and was acquired by Thermo Electron in March 1995. Coleman paid the Company $234,000, $829,000 and $619,000 for services rendered in 1994, 1995 and 1996, respectively. F-16 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Purchase Arrangement The Company purchases an X-ray source that is used as a component in its InScan systems from Trex Medical Corporation, a publicly traded, majority- owned subsidiary of ThermoTrex Corporation, which is itself a publicly-traded, majority-owned subsidiary of Thermo Electron. Each of such X-ray sources is purchased pursuant to written purchase orders. The Company paid Trex Medical Corporation $18,000, $285,000 and $162,000 under this arrangement in 1994, 1995 and 1996, respectively. Sublease Agreement Subsequent to year end 1996, the Company subleased approximately 8,000 square feet of space in its Chelmsford, Massachusetts, facility to Thermo Cardiosystems Inc. ("Thermo Cardiosystems"), a publicly traded, majority-owned subsidiary of Thermedics, under a two-year sublease agreement. Under this sublease, Thermo Cardiosystems will pay the Company base rent of $40,000 in the first year and $44,000 in the second year, together with an amount equal to approximately $33,000 per year, representing Thermo Cardiosystems' pro rata allocation of the facility's aggregate operating costs, real estate taxes and utilities. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. 7. PRIVATE PLACEMENTS OF COMMON STOCK In March 1996, the Company issued 300,000 shares of its common stock in a private placement at $10.00 per share, for net proceeds of $3,000,000. In November 1996, the Company issued 383,500 shares of its common stock in a private placement at $10.75 per share, for net proceeds of $3,964,000. F-17 THERMEDICS DETECTION INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 8. SIGNIFICANT CUSTOMER AND GEOGRAPHICAL INFORMATION Sales to one customer accounted for 64%, 36% and 24% of the Company's total revenues in 1994, 1995 and 1996, respectively. The Company is engaged in one business segment: developing, manufacturing and marketing of high-speed on-line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. The following table shows data for the Company by geographical area.
1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Revenues: United States................................. $47,098 $22,571 $32,003 The Netherlands............................... -- -- 7,547 Other Europe.................................. 7,454 4,057 5,893 Other......................................... 2,042 2,600 2,588 Transfers among geographical areas (a)........ (6,251) (1,274) (4,281) ------- ------- ------- $50,343 $27,954 $43,750 ======= ======= ======= Income before provision for income taxes: United States................................. $ 9,505 $ 2,933 $ (859) The Netherlands............................... -- -- 1,514 Other Europe.................................. 317 (127) 394 Other......................................... (126) 348 412 Corporate and eliminations (b)................ (127) (664) 6 ------- ------- ------- Total operating income........................ 9,569 2,490 1,467 Other expense................................. -- (72) (878) ------- ------- ------- $ 9,569 $ 2,418 $ 589 ======= ======= ======= Identifiable assets: United States................................. $14,369 $15,806 $31,924 The Netherlands............................... -- -- 8,574 Other Europe.................................. 2,509 2,850 3,506 Other......................................... 915 1,666 1,615 Corporate and eliminations (c)................ -- -- 7,864 ------- ------- ------- $17,793 $20,322 $53,483 ======= ======= ======= Export revenues included in United States revenues above (d): Mexico........................................ $10,416 $ 1,363 $ 2,015 Germany....................................... 6,028 3,914 2,487 Other Europe.................................. 9,200 3,995 4,420 South America................................. 10,892 3,271 3,998 Other......................................... 3,139 2,341 4,437 ------- ------- ------- $39,675 $14,884 $17,357 ======= ======= =======
- -------- (a) Transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Primarily general and administrative expenses. (c) Primarily cash and cash equivalents. (d) In general, export sales are denominated in U.S. dollars. F-18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Moisture Systems Corporation and Moisture Systems Limited: We have audited the accompanying combined balance sheet of Moisture Systems Corporation and Moisture Systems Limited (collectively, the Company) as of December 30, 1995, and the related combined statements of income, cash flows and owners' investment for the year ended December 30, 1995 and for the period from December 31, 1995 through January 25, 1996. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Moisture Systems Corporation and Moisture Systems Limited as of December 30, 1995 and the results of their operations and their cash flows for the year ended December 30, 1995 and for the period from December 31, 1995 through January 25, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 F-19 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED COMBINED STATEMENT OF INCOME (IN THOUSANDS)
DEC. 31, 1995 THROUGH 1995 JAN. 25, 1996 ------- ------------- Revenues (Note 6)........................................ $12,075 $1,141 ------- ------ Costs and Operating Expenses: Cost of revenues....................................... 5,805 563 Selling, general and administrative expenses........... 5,423 495 ------- ------ 11,228 1,058 ------- ------ Operating Income......................................... 847 83 Interest Income.......................................... 24 1 Interest Expense (Note 4)................................ (189) (18) ------- ------ Income Before Provision for Income Taxes................. 682 66 Provision for Income Taxes (Note 3)...................... 47 6 ------- ------ Net Income............................................... $ 635 $ 60 ======= ======
The accompanying notes are an integral part of these combined financial statements. F-20 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED COMBINED BALANCE SHEET (IN THOUSANDS)
1995 ------ ASSETS Current Assets: Cash and cash equivalents............................................ $ 297 Accounts receivable, less allowance of $86........................... 2,264 Inventories.......................................................... 1,978 Prepaid expenses..................................................... 26 ------ 4,565 ------ Property, Plant and Equipment, at Cost, Net............................ 1,006 ------ Other Assets........................................................... 22 ------ $5,593 ====== LIABILITIES AND OWNERS' INVESTMENT Current Liabilities: Notes payable and current portion of capital lease obligation (Note 4).................................................................. $1,157 Accounts payable..................................................... 1,008 Accrued payroll and employee benefits................................ 191 Dividends payable (Note 5)........................................... 120 Other accrued expenses............................................... 597 ------ 3,073 ------ Long-term Obligations: Capital lease obligation (Note 4).................................... 233 Other................................................................ 42 ------ 275 ------ Owners' Investment (Note 5): Common Stock......................................................... -- Capital in excess of par value....................................... 3,128 Accumulated deficit.................................................. (587) Treasury stock, at cost.............................................. (296) ------ 2,245 ------ $5,593 ======
The accompanying notes are an integral part of these combined financial statements. F-21 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
DEC. 31, 1995 THROUGH 1995 JAN. 25, 1996 ------- ------------- OPERATING ACTIVITIES: Net income............................................ $ 635 $ 60 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................ 445 11 Provision for losses on accounts receivable......... 33 2 Other noncash expenses.............................. (2) -- Changes in current accounts: Accounts receivable............................... 495 (160) Inventories....................................... (486) 120 Other current assets.............................. 85 6 Accounts payable.................................. (188) 146 Other current liabilities......................... 256 (9) ------- ----- Net cash provided by operating activities....... 1,273 176 ------- ----- INVESTING ACTIVITIES: Purchases of property, plant and equipment............ (112) (4) Proceeds from sale of property, plant and equipment... 96 -- Increase in other assets.............................. (22) (8) ------- ----- Net cash used in investing activities........... (38) (12) ------- ----- FINANCING ACTIVITIES: Net proceeds from line of credit (Note 4)............. 723 -- Repayment of note payable (Note 4).................... (1,071) -- Repayment of capital lease obligation................. (409) (34) Repayment of related party debt (Note 7).............. (89) (23) Dividends paid........................................ (617) (120) ------- ----- Net cash used in financing activities........... (1,463) (177) ------- ----- Decrease in Cash and Cash Equivalents................... (228) (13) Cash and Cash Equivalents at Beginning of Period........ 525 297 ------- ----- Cash and Cash Equivalents at End of Period.............. $ 297 $ 284 ======= ===== CASH PAID FOR: Interest.............................................. $ 189 $ 18 ======= ===== Income Taxes.......................................... $ 36 $ -- ======= =====
The accompanying notes are an integral part of these combined financial statements. F-22 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED COMBINED STATEMENT OF OWNERS' INVESTMENT (IN THOUSANDS)
CAPITAL IN COMMON EXCESS OF ACCUMULATED TREASURY STOCK PAR VALUE DEFICIT STOCK ------ ---------- ----------- -------- BALANCE DECEMBER 31, 1994................ $ -- $3,128 $(866) $(296) Net income............................... -- -- 635 -- Dividends declared (Note 5).............. -- -- (356) -- ----- ------ ----- ----- BALANCE DECEMBER 30, 1995................ -- 3,128 (587) (296) Net income............................... -- -- 60 -- ----- ------ ----- ----- BALANCE JANUARY 25, 1996................. $ -- $3,128 $(527) $(296) ===== ====== ===== =====
The accompanying notes are an integral part of these combined financial statements. F-23 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Combination and Nature of Operations The accompanying combined financial statements include the accounts of Moisture Systems Corporation (a Massachusetts corporation) and Moisture Systems Limited (a United Kingdom corporation) (collectively, "the Company"), companies under common control. The Company designs, manufactures and sells instruments that use near infrared spectroscopy to measure moisture and other product constituents, including fats, proteins, oils, flavorings, solvents, adhesives and coatings, in a variety of manufacturing processes. The Company's systems are used across the food, pharmaceutical, chemical, petrochemical, tobacco, forest products, pulp and paper, converting, plastics, textiles, corrugating and other industries. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1995 are for the fiscal year ended December 30, 1995. Revenue Recognition The Company recognizes revenues upon shipment of its products. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Cash and Cash Equivalents The Company considers liquid investments with original maturity of three months or less when purchased to be cash equivalents. Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value and include materials, labor and manufacturing overhead. The components of inventories are as follows:
1995 --------- (IN THOUSANDS) Raw material and supplies..................................... $ 1,812 Work in process and finished goods............................ 166 -------- $ 1,978 ========
Property, Plant and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: building--30 years; building under capital lease--ten years; and machinery and equipment--three to ten years. Property, plant and equipment consist of the following:
1995 --------- (IN THOUSANDS) Building...................................................... $ 213 Building under capital lease.................................. 3,058 Machinery and equipment....................................... 1,506 -------- 4,777 Less: Accumulated depreciation and amortization............... 3,771 -------- $ 1,006 ========
Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, notes payable and current portion of capital lease obligation, accounts payable, and long-term obligations. The F-24 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) carrying amounts of these financial instruments, with the exception of long- term obligations, approximate fair value due to their short-term nature. The carrying amount of long-term obligations approximates fair value based on the borrowing rates currently available to the Company. Foreign Currency All assets and liabilities of the Company's foreign operations are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the two periods presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. EMPLOYEE BENEFIT PLAN 401(k) Savings Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in the Company's 401(k) savings plan. Contributions to the 401(k) savings plan are made by the employee. The Company does not contribute to this plan. 3. INCOME TAXES Moisture Systems Corporation has elected to be taxed as an S corporation for federal and state income tax purposes. As an S corporation, taxable income of Moisture Systems Corporation is reported on the individual income tax returns of its stockholders, although certain states require a corporate-level tax. Moisture Systems Limited is taxable at U.K. tax rates. The Company provides for state and foreign income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets or liabilities are computed based on the differences between the financial reporting basis and income tax basis of assets and liabilities as measured by the enacted tax laws and rates expected to be applicable when the differences reverse. F-25 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The components of income before provision for income taxes are as follows:
DEC. 31, 1995 THROUGH 1995 JAN. 25, 1996 ---- ------------- (IN THOUSANDS) Domestic.................................................. $580 $117 Foreign................................................... 102 (51) ---- ---- $682 $ 66 ==== ====
The components of the provision for income taxes are as follows:
DEC. 31, 1995 THROUGH 1995 JAN. 25, 1996 ---- ------------- (IN THOUSANDS) Currently payable: State................................................... $12 $ 2 Foreign................................................. 21 4 --- ---- 33 6 --- ---- Net deferred: State................................................... 14 -- --- ---- $47 $ 6 === ====
The provision for income taxes differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before provision for income taxes due to the following:
DEC. 31, 1995 THROUGH 1995 JAN. 25, 1995 -------------- ------------- (IN THOUSANDS) Income tax provision at statutory rate..... $ 232 $ 22 Increases (decreases) resulting from: Income taxed to shareholders............. (197) (18) State income taxes....................... 26 1 Foreign tax differential ................ (14) 1 ----- ---- $ 47 $ 6 ===== ==== Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: 1995 -------------- (IN THOUSANDS) Prepaid income taxes: U.K. building indexation................. $ 90 Various reserves and accruals............ 12 ----- 102 Less: Valuation allowance.................. (90) ----- $ 12 ===== Deferred income taxes: Capital lease............................ $ 17 =====
The valuation allowance was established by Moisture Systems Limited due to the uncertainty of the realizability of the U.K. building indexation value and the ability to use U.K. loss carryforwards. F-26 MOISTURE SYSTEMS CORPORATION AND MOISTURE SYSTEMS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONCLUDED) 4. LONG-TERM OBLIGATION AND OTHER FINANCING ARRANGEMENTS The Company entered into a building lease that met the requirements for treatment as a capital lease. The future minimum lease payments under the agreement are as follows:
(IN THOUSANDS) 1996.......................................................... $480 1997.......................................................... 240 ---- 720 Less: amount representing interest............................ 53 ---- Present value of minimum lease payments....................... 667 Less: current portion......................................... 434 ---- Long-term capital lease obligation............................ $233 ====
As of December 31, 1994, the Company had $1,071,000 outstanding under a note payable with a bank. Borrowings bore interest at the prime rate plus 1%, which was 9.5% at December 31, 1994, and were secured by the assets of the Company. The outstanding balance on this note was paid in June 1995. In June 1995, the Company entered into a line of credit agreement with a bank. Borrowings bore interest at the prime rate plus 1%, were secured by the assets of the Company and were due in April 1996. As of December 30, 1995, the Company had $723,000 principal amount outstanding under this agreement, bearing interest at 9.5%. Maximum borrowings during the period were $1,400,000. The outstanding balance on this agreement was paid upon the sale of the Company (Note 8). 5. OWNERS' INVESTMENT A dividend to owners of the Company of $381,000 was declared in 1994 and paid in 1995. A dividend to owners of the Company of $356,000 was declared in 1995. 6. SIGNIFICANT CUSTOMER AND EXPORT SALES Sales to one customer accounted for 11% of the Company's total revenues in 1995. The Company's export sales to the Netherlands were 12% of total revenues in 1995. All other export sales were 32% of total revenues in 1995. 7. RELATED PARTY TRANSACTIONS The Company has entered into certain transactions with its owners and affiliated companies. These transactions include sales, purchases, leasing and short-term borrowings. Any amounts related to these related party transactions, which have not been eliminated, have been separately presented or are not material to the financial statements taken as a whole. 8. SALE TO THERMEDICS DETECTION INC. On January 25, 1996, the Company was sold to Thermedics Detection Inc. F-27 AUDITOR'S REPORT Introduction We have audited the accompanying 1995 and 1994 consolidated and parent company financial statements of Rutter & Co. B.V. at Enschede. Our audit procedures also included the disclosures included in the supplementary information under the caption "United States Generally Accepted Accounting Principles (U.S. GAAP)". These financial statements and such supplementary information are the responsibility of the entity's management. Our responsibility is to express an opinion on these financial statements and such supplementary information based on our audits. Scope We conducted our audit in accordance with auditing standards generally accepted in the Netherlands and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the above mentioned financial statements of Rutter & Co. B.V. give a true and fair view of the financial position of the entity as of December 31, 1995 and 1994 and of the result for the years then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the legal requirements for financial statements as included in Part 9, Book 2 of the Netherlands Civil Code. Generally accepted accounting principles in the Netherlands vary in certain significant respects from generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles in the United States of America would have affected net income for each of the two years in the period ended December 31, 1995 and stockholders' equity as of December 31, 1995 and 1994, to the extent summarized in the supplementary information under the caption "United States Generally Accepted Accounting Principles (U.S. GAAP)". In our opinion, such supplementary information when considered in relationship to the basic financial statements taken as a whole presents fairly in all material respects the information set forth therein. Deloitte & Touche Registeraccountants Almelo, The Netherlands March 13, 1996, except for the supplementary information under the caption "United States Generally Accepted Accounting Principles (U.S. GAAP)", as to which the date is December 20, 1996. F-28 RUTTER & CO. B.V. CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994 (EXPRESSED IN NETHERLANDS GUILDERS)
1995 1994 ------------------- ------------------- NLG NLG ASSETS Fixed assets Tangible fixed assets Office furniture and equipment....... 128,504 119,565 Leasehold improvements............... 152,720 5,200 Other fixed assets................... 28,000 309,224 11,630 136,395 --------- --------- Financial fixed assets Participations in group companies.... -- 839,241 Other receivables.................... 17,539 17,539 17,381 856,622 --------- --------- Current assets Inventories............................ 1,430,415 1,548,100 Receivables Accounts receivable, net of allow- ances of NLG 32,640 in 1995 and NLG 33,360 in 1994...................... 2,389,051 1,886,393 Other receivables and prepayments.... 383,728 288,090 --------- --------- 2,772,779 2,174,483 Cash at bank and in hand............... 1,061,735 819,783 --------- --------- 5,591,692 5,535,383 ========= ========= GROUP EQUITY, PROVISIONS AND LIABILI- TIES Group equity Legal entity share in group equity..... 1,795,569 1,259,669 Minority interest...................... 22,063 12,471 --------- --------- 1,817,632 1,272,140 PROVISIONS Pensions............................... 286,313 245,625 Short-term liabilities Accounts payable....................... 1,078,612 831,278 Taxes and social security.............. 121,995 100,899 Other payables and accrued liabili- ties.................................. 2,287,140 3,085,441 --------- --------- 3,487,747 4,017,618 --------- --------- 5,591,692 5,535,383 ========= =========
F-29 RUTTER & CO. B.V. CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (EXPRESSED IN NETHERLANDS GUILDERS)
1995 1994 -------------------- -------------------- NLG NLG Net sales......................... 13,707,261 11,293,027 Cost of materials................. 6,785,566 5,688,601 ---------- ---------- Gross margin...................... 6,921,695 5,604,426 Wages and salaries................ 1,937,551 1,862,455 Social security costs............. 450,089 493,875 Depreciation and amortization..... 101,537 80,154 Other operating expenses.......... 1,476,502 1,448,109 --------- --------- Total operating expenses.......... 3,965,679 3,884,593 ---------- ---------- Operating result.................. 2,956,016 1,719,833 Interest income................... 37,771 26,450 Interest charges.................. 57,729 85,288 ---------- ---------- Result on ordinary activities be- fore taxation.................... 2,936,058 1,660,995 Taxation on result of ordinary activites........................ 1,057,674 572,478 ---------- ---------- Result on ordinary activities af- ter taxation..................... 1,878,384 1,088,517 Minority interest................. 10,522 (7,302) ---------- ---------- 1,888,906 1,081,215 Result non-consolidated companies, after taxation................... (689) 346,467 ---------- ---------- Net income........................ 1,888,217 1,427,682 ========== ==========
F-30 RUTTER & CO. B.V. NOTES TO THE CONSOLIDATED BALANCE SHEETSAND THE CONSOLIDATED PROFIT AND LOSS ACCOUNTS ACTIVITIES The principal operations of Rutter & Co. B.V. (the "Company") are commercial activities including the sale of automatic control systems and machinery- equipment to customers in various industries in Western Europe as well as the development of equipment. The Company is also a sales agent in the Netherlands for a number of foreign suppliers. The Company was wholly owned by Rutter Holdings B.V. during the periods covered by these financial statements. On January 25, 1996, Thermedics Detection Inc. purchased all of the outstanding shares of the Company. ACCOUNTING POLICIES General The Company's financial statements are prepared in accordance with accounting principles generally accepted in the Netherlands, which differ in certain material respects from U.S. GAAP as summarized in the supplementary information. The accounting principles are based on the historical cost convention. Assets and liabilities are stated at face value if not mentioned otherwise at the applicable sheet item. Exchange rate differences due to transactions in currencies other than the Netherlands guilder ("foreign currencies") are reflected in the consolidated profit and loss account. From time-to-time, the Company enters into foreign exchange contracts as a hedge against accounts payable denominated in foreign currencies. The financial statements of foreign subsidiaries have been translated into Netherlands guilders at the exchange rate in effect on the respective balance sheet dates. Consolidation The following companies are included in the consolidation:
NAME PERCENTAGE STATUTORY DOMICILE ---- ---------- ------------------ Rutter & Co. B.V................... 100 Enschede (The Netherlands) SARL Rutter Instrumentation........ 90 Perreux-sur-Marne (France) Systech Instruments B.V............ 50 Enschede (The Netherlands) During 1995 the Company signed a letter of intent with Thermedics Detection Inc., a U.S. company. The letter of intent stated that three of the Company's subsidiaries would be sold before the date of purchase of the Company's shares. Since each of the following such subsidiaries was spun-off by the Company to its shareholder, Rutter Holdings B.V., prior to December 31, 1995, due to the temporary control of these subsidiaries, the Company has accounted for such subsidiaries using the equity method: NAME PERCENTAGE STATUTORY DOMICILE ---- ---------- ------------------ Unitron Systems Terneuzen B.V...... 72 Terneuzen (The Netherlands) Rutter & Eichholzer AG............. 100 Zug (Switzerland) Rutter & Co. GmbH.................. 100 Ahaus (Germany)
All significant intercompany profits, transactions and balances have been eliminated in consolidation. F-31 RUTTER & CO. B.V. VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS VALUATION OF ASSETS AND LIABILITIES Tangible fixed assets The tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. In the case of leasehold improvements, the estimated useful lives of the related assets do not exceed the remaining term of the corresponding lease. The following table presents the assigned economic lives of the Company's equipment and other fixed assets:
CATEGORY ASSIGNED ECONOMIC LIFE -------- ---------------------- Leasehold improvements........................... 6 years Office furniture and equipment................... 3-5 years Other fixed assets............................... 3-5 years
Financial fixed assets Other receivables are stated at face value. Inventories Equipment inventories are stated at the lower of cost or market (first-in, first-out method). Allowances are made for slow-moving, obsolete or unsaleable stock. Receivables Receivables are stated at nominal value, less an allowance for possible uncollectible amounts. Other receivables at December 31, 1995 include the sold participations Rutter & Eichholzer AG at Zug (Switzerland) and Rutter & Co. GmbH at Ahaus (Germany). Provisions The provision for pension liabilities concerns a past-service liability. The past-service liability is calculated proportionally based on market rate and actuarial principles. DETERMINATION OF CONSOLIDATED RESULTS Determination of the consolidated results is based on the accrual method of accounting. Profits are recognized as far as they are realized at balance sheet date, losses and risks are recognized at the moment they can be ascertained. Sales include the fees charged to customers for delivered goods or services excluding value added tax. The cost of materials sold consist of the purchase price of the goods combined with freight, import duties and realized exchange differences on the purchase transactions in foreign currencies. The Company is included in a fiscal unity for corporate income taxes and value added taxes with its parent company Rutter Holdings B.V. and Pover Gemeenschappelijk Bezit B.V. For these financial statements, income and value added tax effects for the Company have been calculated on a stand-alone basis. F-32 RUTTER & CO. B.V. NOTES TO SPECIFIC ITEMS OF THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENT OF OPERATIONS CONSOLIDATED BALANCE SHEET
OFFICE OTHER FURNITURE OPERATING LEASEHOLD AND FIXED IMPROVEMENTS EQUIPMENT ASSETS TOTAL ------------ --------- --------- -------- NLG NLG NLG NLG FIXED ASSETS Tangible fixed assets Book value at January 1, 1994......... 9,695 98,362 19,391 127,448 Additions............................. -- 70,480 -- 70,480 ------- ------- ------- -------- 9,695 168,842 19,391 197,928 Book value of disposals............... -- -- -- -- Depreciation.......................... 4,495 48,974 7,761 61,230 Foreign currency differences.......... -- (303) -- (303) ------- ------- ------- -------- Book value at December 31, 1994....... 5,200 119,565 11,630 136,395 Additions............................. 180,659 66,825 37,395 284,879 ------- ------- ------- -------- 185,859 186,390 49,025 421,274 Book value of disposals............... -- 890 11,630 12,520 Depreciation.......................... 33,139 59,003 9,395 101,537 Foreign currency differences.......... -- 2,007 -- 2,007 ------- ------- ------- -------- Book value at December 31, 1995....... 152,720 128,504 28,000 309,224 ======= ======= ======= ======== Accumulated depreciation at December 31, 1994............................. 83,203 467,416 19,396 570,015 ======= ======= ======= ======== Accumulated depreciation at December 31, 1995............................. 116,342 524,344 9,395 650,081 ======= ======= ======= ======== FINANCIAL FIXED ASSETS Participations in group companies Balance at January 1, 1994............ 600,199 Net income from subsidiaries.......... 346,467 Dividends............................. (107,425) -------- Balance at December 31, 1994.......... 839,241 Net loss from subsidiaries............ (689) -------- 838,552 Less: Sale 72%-participation in Unitron Systems Terneuzen B.V. at Terneuzen.......................... 742,144 Sale 100%-participation Rutter & Eichholzer AG at Zug............... 41,233 Sale 100%-participation Rutter & Co. GmbH at Ahaus...................... 55,175 838,552 ------- -------- Balance at December 31, 1995.......... -- ======== 1995 1994 --------- -------- Other receivables NLG NLG Balance at January 1.................. 17,381 24,489 Addition.............................. 158 (7,108) ------- -------- Balance at December 31................ 17,539 17,381 ======= ========
F-33 RUTTER & CO. B.V. CURRENT ASSETS Inventories The inventories consist of purchased equipment and components. Cash at bank and in hand This item includes cash and bank balances. CONTINGENT LIABILITIES . The companies are mostly accomodated in rented premises. Expiration dates are varying. . At balance sheet dates there were no forward purchase contracts in U.S. dollars. . On the basis of operational lease a number of cars is rented. The yearly charges are NLG 222,480 (1994: NLG 257,700). . The Company has a line of credit with a bank which provides up to a maximum of NLG 2,500,000. As security for borrowings under the line of credit, (assignment of) right of lien is given against: --receivables; --equipment; --company inventories and merchandise inventories; --shares Unitron Systems Terneuzen B.V. At the balance sheet dates, the Company did not draw on these facilities. The Company, Rutter Holdings B.V., Rutter & Co. GmbH and Pover Gemeenschappelijk Bezit B.V. are severally liable. . The company is severally liable for tax liabilities which result from the fiscal unity with group companies for the value added tax and corporate tax. . At December 31, 1995 and 1994, bank guarantees (letters of credit) to the amount of NLG 123,320 and NLG 181,404 were outstanding. The guarantees, originally expressed in foreign currencies, are converted at the rates of exchange at the balance sheet dates. . A former Italian agent has claimed an amount of NLG 200,000 because of the termination of the commercial agency relationship. The concerning contracts were closed by Rutter & Eichholzer AG. No guarantees are given for this subsidiary by Rutter & Co. B.V. Since Eichholzer AG was sold during 1995, management does not believe this matter will materially affect results of operations or the financial position of the Company. CONSOLIDATED PROFIT AND LOSS ACCOUNTS Net-sales The sales have increased by 22.6%. Wages and salaries In 1995, the Company employed 25 people (1994: 24). Under article 383, Book 2 Civil Code disclosure of the remuneration of the manager is omitted. Director's fee Paid director's fees amounted to NLG 10,000 (1994: NLG 20,000). Social security costs The social security costs include pension expenses in the amount of NLG 161,041 (1994: NLG 193,863). F-34 RUTTER & CO. B.V. PARENT COMPANY BALANCE SHEETS AT DECEMBER 31, 1995 AND 1994 (AFTER PROFIT APPROPRIATION) (EXPRESSED IN NETHERLANDS GUILDERS)
1995 1994 ------------------- ------------------- NLG NLG ASSETS Fixed assets Tangible fixed assets Leasehold improvements.............. 152,720 5,200 Office furniture and equipment...... 98,220 83,146 Other operating fixed assets........ 28,000 11,630 --------- --------- 278,940 99,976 Financial fixed assets Participations in group companies... 60,476 951,483 Current assets Inventories Merchandise inventory............... 1,046,160 1,162,111 Receivables Accounts receivable................. 1,904,891 1,494,440 Group companies..................... 812,340 798,524 Other receivables and prepayments... 270,784 141,813 --------- --------- 2,988,015 2,434,777 Cash at bank and in hand.............. 879,865 662,495 --------- --------- 5,253,456 5,310,842 ========= ========= SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES Shareholders' equity Share capital paid up and called up................................. 451,000 451,000 Legally-required reserves........... -- 440,289 Other reserves...................... 1,361,711 353,879 --------- --------- 1,812,711 1,245,168 Provisions Pensions 286,313 245,625 Short-term liabilities Accounts payable.................... 923,165 743,904 Group companies..................... -- 1,909,847 Taxes and social security........... 12,935 14,357 Other creditors and accrued liabili- ties............................... 2,218,332 1,151,941 --------- --------- 3,154,432 3,820,049 --------- --------- 5,253,456 5,310,842 ========= =========
F-35 RUTTER & CO. B.V. PARENT COMPANY PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (EXPRESSED IN NETHERLANDS GUILDERS)
1995 1994 --------- --------- NLG NLG Result of participations after taxation.................... (72,455) 411,519 Balance of other profits and losses........................ 1,963,313 992,762 --------- --------- Result after taxation...................................... 1,890,858 1,404,281 ========= =========
F-36 RUTTER & CO. B.V. NOTES TO THE PARENT COMPANY BALANCE SHEETS AND PARENT COMPANY PROFIT AND LOSS ACCOUNTS ACCOUNTING POLICIES General The accounting principles are mentioned in the notes to the consolidated balance and the consolidated profit and loss account. VALUATION OF ASSETS AND LIABILITIES AND DETERMINATION OF RESULTS Financial fixed assets The participations are valued on the basis of the net equity method. Profit and loss account The financial statements of the company are included in the consolidated annual report. Under article 402, title 9 Civil Code it is sufficient to state a summarized profit and loss account. NOTES TO SPECIFIC ITEMS OF THE PARENT COMPANY BALANCE SHEETS AND PARENT COMPANY PROFIT AND LOSS ACCOUNTS BALANCE SHEET
OFFICE OTHER FURNITURE OPERATING LEASEHOLD AND FIXED IMPROVEMENTS EQUIPMENT ASSETS TOTAL ------------ --------- --------- ------- NLG NLG NLG NLG FIXED ASSETS Tangible fixed assets Book value at January 1, 1994........ 9,695 76,887 19,391 105,973 Additions............................ -- 47,159 -- 47,159 ------- ------- ------ ------- 9,695 124,046 19,391 153,132 Book value of disposals.............. -- -- -- -- Depreciation......................... 4,495 40,900 7,761 53,156 ------- ------- ------ ------- Book value at December 31, 1994...... 5,200 83,146 11,630 99,976 Additions............................ 180,659 65,341 37,395 283,395 ------- ------- ------ ------- 185,859 148,487 49,025 383,371 Book value of disposals.............. -- -- 11,630 11,630 Depreciation......................... 33,139 50,267 9,395 92,801 ------- ------- ------ ------- Book value at December 31, 1995...... 152,720 98,220 28,000 278,940 ======= ======= ====== ======= Accumulated depreciation at December 31, 1994............................ 83,203 404,863 19,396 507,462 ======= ======= ====== ======= Accumulated depreciation at December 31, 1995............................ 116,342 455,130 9,395 580,867 ======= ======= ====== =======
F-37 RUTTER & CO. B.V.
NLG -------- FINANCIAL FIXED ASSETS Participations in group companies Balance at January 1, 1994............................... 647,388 Dividends................................................ (107,424) Results of participations after taxation................. 411,519 -------- Balance at December 31, 1994............................. 951,483 Add: Purchase 50%-participation in Systech Instruments B.V. at Enschede........................................... 20,000 -------- 971,483 Less: Sale 72%-participation in Unitron Systems Terneuzen B.V. at Terneuzen (realizable value).................. 742,144 Sale 100%-participation Rutter & Eichholzer AG at Zug (realizable value).................................... 41,233 Sale 100%-participation Rutter & Co. GmbH at Ahaus (re- alizable value)....................................... 55,175 838,552 ------- -------- 132,931 Add: Results of participations after taxation............... (72,455) -------- Balance at December 31, 1995............................. 60,476 ========
Specification
PART OF THE ISSUED CAPITAL NOMINAL PAID SHARE CAPITAL NAME AND DOMICILE -------------------------- -------------------------- ----------------- % 90 Frfrs 900,000 SARL Rutter Instrumentation at Perreux-sur-Marne 50 NLG 40,000 Systech Instruments B.V. at Enschede
F-38 RUTTER & CO. B.V. SHAREHOLDERS' EQUITY Differences exist between parent company shareholders' equity and group equity included in the consolidated financial statements. These differences are due to intercompany profits included in the inventory of a subsidiary, which are eliminated in the consolidation.
1995 1994 --------- ------- NLG NLG Share capital paid up and called up The authorized share capital consists of 500 shares each NLG 1000, 451 shares were issued and fully paid. Legally-required reserves Balance at January 1.................................... 440,289 136,019 Proposed appropriation for the year..................... -- 304,270 Release in favor of the other reserve................... 440,289 -- --------- ------- Balance at December 31.................................. -- 440,289 ========= ======= Other reserve Balance at January 1.................................... 353,879 272,796 From legally-required reserves.......................... 440,289 -- Write-off goodwill...................................... -- (18,928) Proposed appropriation for the year..................... 567,543 100,011 --------- ------- Balance at December 31.................................. 1,361,711 353,879 ========= =======
PROFIT AND LOSS ACCOUNTS
1995 1994 ------- ------- NLG NLG Result of participations after taxation Share result group companies.............................. (71,766) 65,052 Share result other participations......................... (689) 346,467 ------- ------- (72,455) 411,519 ======= =======
The management board: L.L.A.Pover Enschede, The Netherlands, March 13, 1996 F-39 RUTTER & CO. B.V. SUPPLEMENTARY INFORMATION PROVISIONS OF THE ARTICLES OF ASSOCIATION ON THE SUBJECT OF PROFIT APPROPRIATION Article 14 1. The profits are at the disposal of the general meeting of shareholders. 2. The company can only distribute if the shareholders' equity exceeds the share capital paid up and called up added with the legally-required reserves. 3. Distribution of profits takes place after the adoption of the financial statements from which it appears that distribution is allowed. 4. The general meeting of shareholders can between times decide to make a distribution, if the requirements of Article 2 are met. POST-BALANCE-SHEET EVENTS Due to the sale of the shares of the Company to Thermedics Detection Inc., credit facilities are cancelled at the beginning of 1996. Hereby existing securities are given free. PROFIT APPROPRIATION 1995 The profit over the year 1995 in the amount of NLG 1,890,858 is at the disposal of the general meeting of shareholders. The managent board proposes to appropriate the net result as follows:
NLG --------- Interim dividend................................................. 742,144 Final dividend................................................... 581,171 Allocation to other reserves (retained earnings)................. 567,543 --------- 1,890,858 =========
This proposal is comprehended in the financial statements. F-40 RUTTER & CO. B.V. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP) a. Basis of Presentation The accompanying financial statements are presented using Netherlands generally accepted accounting principles (GAAP) and are denominated in Netherlands guilders. The exchange rate at December 31, 1995 was 1.60. Inclusion of separate parent company financial statements as a component of the basic financial statements is a requirement under Netherlands GAAP. No similar requirement exists under U.S. GAAP. b. Scope of Consolidation and Related Party Transactions The Netherlands GAAP financial statements include the accounts of three subsidiaries using the equity method of consolidation during 1994. Each of the three subsidiaries was spun-off by the Company to its shareholder, Rutter Holdings B.V., during the year ended December 31, 1995. Such transactions were undertaken in advance of the sale of the ownership interests change in ownership of the Company in 1996. For U.S. GAAP purposes, such subsidiaries represent a change in the reporting entity, since the Company and the subsidiaries, which were spun-off, have been managed and financed historically as if they were autonomous, have no more than incidental common facilities and costs, will be operated and financed autonomously after the spin-off, and will not have material financial commitments, guarantees, or contingent liabilities to each other after the spin-off. Accordingly, the U.S. GAAP financial statements are presented as if the Company never had an investment in these subsidiaries. The financial statements of Systech Instruments B.V. are fully consolidated in the financial statements prepared under Netherlands GAAP. Under U.S. GAAP this subsidiary would have been accounted for using the equity method of accounting. Systech Instruments B.V. did not have any activities during 1995. The balances consolidated for Systech Instruments B.V. are immaterial to the consolidated balances. c. Pension plans In the Netherlands, the Company sponsors a defined benefit pension plan for substantially all of its Netherlands employees. SFAS 87, the U.S. accounting principles for pensions, uses accrual assumptions, including estimated future salary increases, when calculating pension expense. For Netherlands GAAP purposes, determination of pension expense does not take future salary increases into account, but does consider prior back service costs and lower discount rates. In France, legally required retirement indemnities exist for U.S. GAAP purposes. However, such amounts are immaterial and have not been provided. d. Income taxes Generally, temporary differences between financial statement and tax reporting do not exist in the Netherlands GAAP accounts. Accordingly, deferred income taxes which have been provided relate to the temporary differences resulting from other U.S. GAAP reconciling items. e. Cumulative translation adjustment Translation adjustments for income statement items under Netherlands GAAP were calculated using the exchange rate at the applicable balance sheet dates. Under SFAS 52 of U.S. GAAP, the translation for income statement items is to be calculated using the weighted average exchange rate for the year. For purposes of applying U.S. GAAP, the SFAS 52 approach was applied starting at January 1, 1989. Since this date, the year-end exchange rate has approximated the average rate, resulting in no material differences in any year. Accordingly, no cumulative translation adjustment at December 31, 1995 and 1994 has been recorded. f. Fair value of financial instruments The carrying amount of cash, accounts receivable and accounts payable approximates fair value. g. Use of estimates The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets F-41 RUTTER & CO. B.V. and liabilities at the balance sheet dates, and the reported amounts of revenue and expense during the reported periods. Actual results may vary from such estimates. h. Operating leases The Company leases certain facilities and automobiles under operating leases. As of December 31, 1995, the minimum annual rental commitments are as follows:
NLG --------- 1996.................................................................. 313,230 1997.................................................................. 317,561 1998.................................................................. 233,316 1999.................................................................. 133,032 2000.................................................................. 71,629 Thereafter............................................................ -- --------- Total............................................................... 1,068,768 =========
Rental expense was NLG 339,245 and NLG 306,774 for the years ended December 31, 1995 and 1994, respectively. i. New accounting pronouncement In March 1995, the United States Financial Accounting Standards Board issued SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", which is applicable to the Company beginning in 1996. Management believes that application of SFAS 121 will not result in any adjustments to the carrying value of the Company's long-lived assets. j. Stockholders' equity Differences exist between parent company shareholders' equity and group equity included in the consolidated financial statements prepared under Netherlands GAAP due to intercompany profits included in the inventory of a subsidiary, which are eliminated in the consolidation. On a U.S. GAAP basis, parent company equity would be the same as consolidated equity. k. Dividends Management of the Company has proposed a final dividend of NLG 581,171 and NLG 1,000,000 at December 31, 1995 and 1994, respectively. These proposed dividends are accrued in the financial statements prepared under Netherlands GAAP. Since these proposed dividends are subject to the authorization of the general meeting of shareholders, these dividends would not be presented as a liability in the financial statements prepared under U.S. GAAP. l. Netherlands GAAP--U.S. GAAP reconciliation The following is a summary of the significant adjustments to net income for the years ended December 31, 1995 and 1994 and to stockholders' equity as of December 31, 1995 and 1994, which would be required if U.S. GAAP had been applied instead of Netherlands GAAP in the financial statements:
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1995 1994 --------- --------- NLG NLG Net income according to the consolidated financial statements prepared under Netherlands GAAP............. 1,888,217 1,427,682 U.S. GAAP adjustments: Increase due to effects of applying SFAS 87, "Employers' Accounting for Pensions"................. 156,525 177,105 Decrease due to effects of applying SFAS 109, "Accounting for Income Taxes"........................ (54,780) (61,987) Decrease due to elimination of net income of subsidiaries spun-off................................ -- (346,467) --------- --------- Net income in accordance with U.S. GAAP............... 1,989,962 1,196,333 ========= =========
F-42 RUTTER & CO. B.V. A reconciliation of legal entity share in group equity in the balance sheet from Netherlands GAAP reporting to stockholder's equity in U.S. GAAP reporting is as follows:
AS OF DECEMBER 31, -------------------- 1995 1994 --------- --------- NLG NLG Legal entity share in group equity according to the consolidated financial statements prepared under Netherlands GAAP........................................ 1,795,569 1,259,669 U.S. GAAP adjustments: Increase due to effects of applying SFAS 87, "Employers' Accounting for Pensions".................. 524,379 367,867 Decrease due to effects of applying SFAS 109, "Accounting for Income Taxes"......................... (183,533) (128,753) Increase due to accrual of proposed final dividends.... 581,171 1,000,000 Other.................................................. 29,015 -- --------- --------- Stockholder's equity in accordance with U.S. GAAP........ 2,746,601 2,498,783 ========= =========
The accompanying consolidated statements of stockholder's equity has been prepared in accordance with U.S. GAAP. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NUMBER OF SHARE ORDINARY CAPITAL TOTAL SHARES AT PAR ACCUMULATED STOCKHOLDER'S OUTSTANDING VALUE EARNINGS EQUITY ----------- ------- ----------- ------------- NLG NLG NLG Balance January 1, 1994......... 451 451,000 1,651,450 2,102,450 Net income...................... -- -- 1,196,333 1,196,333 Dividend paid................... -- -- (800,000) (800,000) --- ------- ---------- ---------- Balance December 31, 1994....... 451 451,000 2,047,783 2,498,783 Net income...................... -- -- 1,989,962 1,989,962 Dividends paid.................. -- -- (1,742,144) (1,742,144) --- ------- ---------- ---------- Balance December 31, 1995....... 451 451,000 2,295,601 2,746,601 === ======= ========== ==========
F-43 RUTTER & CO. B.V. Cash flow data is not required to be prepared under Netherlands GAAP. The accompanying statement of cash flows have been prepared in accordance with U.S. GAAP. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ---------- ---------- NLG NLG CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ 1,989,962 1,196,333 Adjustment to reconcile net income to net cash flows from operating activities: Minority interest................................... 9,592 12,471 Depreciation........................................ 101,537 67,433 Amortization of goodwill............................ -- 37,853 Effects of changes in assets and liabilities: Increase in accounts receivable..................... (502,658) (480,984) Decrease (increase) in inventories.................. 117,685 (64,264) Increase in other current assets.................... (211,462) (81,492) (Decrease) increase in accrued liabilities.......... (408,487) 178,432 Increase in accounts payable........................ 247,334 167,400 Increase in deferred taxes.......................... 54,780 61,987 Increase in taxes payable........................... 21,096 27,266 ---------- ---------- Net cash provided by operating activities............. 1,419,379 1,122,435 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................. (274,366) (76,380) Decrease in investments............................... -- 107,425 Proceeds from sale of subsidiaries.................... 839,241 -- Decrease (increase) in other receivables.............. (158) 7,108 ---------- ---------- Net cash provided by investing activities............. 564,717 38,153 CASH FLOW FROM FINANCING ACTIVITIES: Payments on long term debt............................ -- (300,000) Dividends paid........................................ (1,742,144) (800,000) ---------- ---------- Net cash used in financing activities................. (1,742,144) (1,100,000) NET CASH FLOWS........................................ 241,952 60,588 CASH AT BANK AND IN HAND AT BEGINNING OF YEAR......... 819,783 759,195 ---------- ---------- CASH AT BANK AND IN HAND AT END OF YEAR............... 1,061,735 819,783 ========== ==========
F-44 THERMEDICS DETECTION INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED DECEMBER 28, 1996 (UNAUDITED) On January 25, 1996, Thermedics Detection Inc. (the "Company") acquired the assets of Moisture Systems Corporation and certain affiliated companies (collectively, "Moisture Systems"), and the stock of Rutter & Co. B.V. ("Rutter") for a total purchase price of $21,668,000 in cash, which included the repayment of $700,000 of debt. To finance these acquisitions, the Company borrowed $21,200,000 from Thermedics Inc. ("Thermedics") pursuant to a promissory note (the "promissory note") due March 1998, and bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. These acquisitions have been accounted for using the purchase method of accounting. The following unaudited pro forma combined condensed statement of income sets forth the results of operations for the year ended December 28, 1996, as if the acquisitions of Moisture Systems and Rutter had occurred on January 1, 1996. Moisture Systems and Rutter's historical statements of income represent their results for the 25 day period from January 1, 1996 through January 25, 1996, the date of acquisition by the Company. Rutter's historical consolidated statement of income, which is denominated in Netherlands guilders, has been translated at the average exchange rate of .5903 for the year ended December 28, 1996. The pro forma statement of income is not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions of Moisture Systems and Rutter been made on January 1, 1996. This statement should be read in conjunction with the accompanying notes and the respective historical financial statements and related notes of the Company, Moisture Systems and Rutter appearing elsewhere in this Prospectus.
HISTORICAL PRO FORMA -------------------------- -------------------- THERMEDICS MOISTURE DETECTION SYSTEMS RUTTER ADJUSTMENTS COMBINED ---------- -------- ------ ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues....................... $43,750 $1,141 $593 $(187) $45,297 ------- ------ ---- ----- ------- Costs and Operating Expenses: Cost of revenues............. 22,150 563 267 (187) 22,793 Selling, general and administrative expenses..... 15,525 495 168 45 16,233 Research and development expenses.................... 4,608 -- -- -- 4,608 ------- ------ ---- ----- ------- 42,283 1,058 435 (142) 43,634 ------- ------ ---- ----- ------- Operating Income............... 1,467 83 158 (45) 1,663 Interest Income................ 229 1 1 -- 231 Interest Expense............... (1,119) (18) -- (83) (1,220) Other Income................... 12 -- 43 -- 55 ------- ------ ---- ----- ------- Income Before Provision for Income Taxes.................. 589 66 202 (128) 729 Provision for Income Taxes..... 227 6 59 (1) 291 ------- ------ ---- ----- ------- Net Income..................... $ 362 $ 60 $143 $(127) $ 438 ======= ====== ==== ===== ======= Earnings per Share............. $ .04 $ .04 ======= ======= Weighted Average Shares........ 10,320 10,320 ======= =======
F-45 THERMEDICS DETECTION INC. NOTE TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) NOTE 1--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 28, 1996 (IN THOUSANDS, EXCEPT IN TEXT)
DEBIT (CREDIT) -------------- REVENUES Elimination of intercompany sales between Moisture Systems and Rutter......................... $187 ---- COST OF REVENUES Elimination of costs associated with intercompany sales between Moisture Systems and Rutter... (187) ---- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Service fee of 1.0% of the revenues of Moisture Systems and Rutter for services provided under a services agreement between the Company and Thermo Electron................................. 15 Amortization over 40 years of $11,569,000 and $5,757,000 of cost in excess of net assets of acquired companies created by the acquisitions of Moisture Systems and Rutter, respectively.. 30 ---- 45 ---- INTEREST EXPENSE Interest expense on the $21,200,000 promissory note issued to Thermedics to finance the acquisitions of Moisture Systems and Rutter, calculated at an average interest rate of 5.74%........................................................................................ 83 ---- PROVISION FOR INCOME TAXES Income tax benefit associated with the adjustments above (excluding nondeductible amortization of cost in excess of net assets of acquired companies relating to Rutter), calculated at the Company's statutory income tax rate of 38%................................................... (45) Income tax provision associated with the earnings of Moisture Systems Corporation, an S corporation, calculated at the Company's statutory income tax rate of 38%.................... 44 ---- (1) ----
F-46 At the upper left of the page is a graphic image depicting the Company's SecurScan system. To the right of this graphic is a graphic image of the Company's EGIS system. At the upper right of the page is the following caption: The Company's EGIS system (below), which is a highly sensitive trace particle- and vapor-detection system for screening people, baggage, packages, freight, and electronic equipment for explosives, has an installed base of more than 200 units in 21 countries, including more than 100 units in airports. The Company recently introduced a prototype of its new SecurScan system (left) for screening people for traces of explosives. Below the image of the SecurScan system is a graphic image depicting a number of moisture analysis instruments manufactured by the Company's Moisture Systems division. To the right of this image is the following caption: Equipment manufactured by the Company's Moisture Systems division (left) uses near-infrared light absorption technology to measure moisture and other product constituents in manufacturing processes for the food, pharmaceutical, chemical and other industries. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- No dealer, salesman or any other person has been authorized to give any in- formation or to make any representations not contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not con- stitute an offer of any securities other than those to which it relates or an offer to sell, or a solicitation of an offer to buy, to any person in any ju- risdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any cir- cumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. ----------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 9 Use of Proceeds.......................................................... 15 Dividend Policy.......................................................... 15 Capitalization........................................................... 16 Dilution................................................................. 17 The Company.............................................................. 19 The Rights Offering...................................................... 20 Selected Financial Information........................................... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 29 Business................................................................. 33 Relationship with Thermo Electron and Thermedics......................... 42 Management............................................................... 45 Security Ownership of Certain Beneficial Owners and Management........... 51 Description of Capital Stock............................................. 53 Shares Eligible for Future Sale.......................................... 54 Underwriting............................................................. 56 Legal Opinions........................................................... 58 Experts.................................................................. 58 Additional Information................................................... 59 Reports to Security Holders.............................................. 60 Index to Financial Statements............................................ F-1
----------------- Until , 1997 (25 days after the date of this Prospectus), all dealers ef- fecting transactions in the registered securities, whether or not participat- ing in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,200,000 SHARES [LOGO OF THERMEDICS DETECTION APPEARS HERE] COMMON STOCK ----------------- PROSPECTUS , 1997 ----------------- LEHMAN BROTHERS NATWEST SECURITIES LIMITED - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered. All amounts shown are estimates except for the Securities and Exchange Commission (the "Commission") registration fee, the NASD filing fee and the American Stock Exchange listing fee. Securities and Exchange Commission Registration fee................ $ 10,451 NASD filing fee.................................................... 3,949 American Stock Exchange listing fee................................ 37,500 Legal fees and expenses............................................ 20,000 Accounting fees and expenses....................................... 280,000 Blue sky fees and expenses (including legal fees and expenses)..... 10,000 Printing and engraving expenses.................................... 150,000 Transfer agent and subscription agent fees......................... 50,000 Miscellaneous...................................................... 98,100 -------- Total.......................................................... $660,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Massachusetts Business Corporation Law and the Company's Articles of Organization and By-Laws limit the monetary liability of directors to the Company and to its stockholders and provide for indemnification of the Company's officers and directors for liabilities and expenses that they may incur in such capacities. In general, officers and directors are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. The Company also has indemnification agreements with its directors and officers that provide for the maximum indemnification allowed by law. Reference is made to the Company's Articles of Organization, By-Laws and form of Indemnification Agreement for Officers and Directors incorporated by reference as Exhibits 3.1, 3.2 and 10.10 hereto, respectively. Thermo Electron Corporation has an insurance policy which insures the directors and officers of Thermo Electron and its subsidiaries, including the Company, against certain liabilities which might be incurred in connection with the performance of their duties. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In March and November 1996, pursuant to Securities Purchase Agreements with certain investors, the Registrant sold an aggregate of 683,500 shares of Common Stock for an aggregate gross purchase price of $7,122,625. All of such investors were accredited investors (as defined in Regulation D) who made appropriate investment representations. Such sales were made in reliance upon the exemption from the registration provisions of the Securities Act set forth in Section 4(2) thereof and Regulation D thereunder relative to sales by an issuer not involving any public offering. From December 1990 through December 31, 1996, the Registrant granted options under its stock-based compensation plans to purchase an aggregate of 218,217 shares of Common Stock at a weighted average exercise price of $10.41 per share. None of these options have been exercised. Exemption from registration for these grants is claimed under Section 4(2) of the Securities Act. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------------------------------------------------- *1 Form of Standby Underwriting Agreement 2.1 Asset Purchase Agreement dated as of January 25, 1996 among the Registrant, Moisture Systems Corporation and certain Affiliates of Moisture Systems Corporation. Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Registrant hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 2.2 Share Purchase Agreement dated as of January 25, 1996 among the Registrant, Rutter Holding B.V. and certain Affiliates of Rutter Holding B.V. Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Registrant hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. *3.1 Articles of Organization of the Registrant, as amended 3.2 By-Laws of the Registrant 4.1 Specimen Common Stock Certificate *4.2 Specimen Rights Certificate *5 Opinion of Seth H. Hoogasian, Esq. with respect to the validity of the securities being offered 10.1 Corporate Services Agreement dated as of March 20, 1996 between Thermo Electron Corporation ("Thermo Electron") and the Registrant 10.2 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (incorporated by reference herein form Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (File No. 1-8002)) 10.3 Tax Allocation Agreement dated as of March 20, 1996 between Thermedics Inc. ("Thermedics") and the Registrant 10.4 Master Repurchase Agreement dated as of March 20, 1996 between Thermo Electron and the Registrant 10.5 Master Guarantee Reimbursement Agreement dated as of March 20, 1996 among Thermo Electron, Thermedics and the Registrant 10.6 Master Guarantee Reimbursement Agreement dated as of March 20, 1996 between Thermedics and the Registrant 10.7 Equity Incentive Plan of the Registrant 10.8 Deferred Compensation Plan for Directors of the Registrant *10.9 $21.2 Million Principal Amount Promissory Note due March 1998, issued by the Registrant to Thermedics 10.10 Form of Indemnification Agreement for Officers and Directors 10.11 Stock Purchase Agreement dated as of March 25, 1996 between David H. Fine and the Registrant 10.12 Stock Purchase Agreement dated as of November 19, 1996 between Jeffrey J. Langan and the Registrant
II-2
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------------------------------------------------- In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of the Registrant's parent, Thermo Electron Corporation, and its subsidiaries, for services rendered to the Registrant or to such affiliated corporations. Such plans were filed as Exhibits 10.21 - 10.44 to the Annual Report on Form 10-K of Thermo Electron for the fiscal year ended December 30, 1995 [File No. 1-8002] and as Exhibits 10.18 - 10.19, 10.22, and 10.48 - 10.49 to the Annual Report on Form 10-K of Thermedics for the fiscal year ended December 30, 1995 [File No. 1-9567] and are incorporated herein by reference. 11 Computation of Earnings per Share 21 Subsidiaries of the Registrant *23.1 Consent of Arthur Andersen LLP *23.2 Consent of Arthur Andersen LLP *23.3 Consent of Deloitte & Touche Registeraccountants *23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5) 24 Power of Attorney (see page II-5 of the Registration Statement) *27 Financial Data Schedule *99.1 Form of Subscription Agency Agreement +99.2 Instructions as to use of Thermedics Detection Inc. Subscription Certificates and International Holder Subscription Forms *99.3 International Holder Subscription Form *99.4 Form of Letter to Thermedics Detection stockholders *99.5 Form of Letter to Thermedics stockholders
- -------- * Filed herewith. + To be filed by amendment. All other exhibits previously filed. (b) FINANCIAL STATEMENT SCHEDULE The financial Statement Schedule as of September 28, 1996 and the Report of Independent Public Accountants on such schedule are included in this Registration Statement. All other schedules are omitted because they are not applicable or are not required under Regulation S-X. ITEM 17. UNDERTAKINGS. (a) The Registrant hereby undertakes to provide the underwriters at the closing specified in the standby underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned Registrant hereby undertakes to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters, and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering. (e) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the Registrant is a foreign private issuer, to file a post- effective amendment to the registration statement to include any financial statements required by Rule 3-19 of Regulation S-X at the start of any delayed offering or throughout a continuous offering. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHELMSFORD, MASSACHUSETTS, ON THIS 5TH DAY OF FEBRUARY, 1997. Thermedics Detection Inc. By: /s/ Jeffery J. Langan ----------------------------------- JEFFREY J. LANGAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- Jeffery J. Langan* Chief Executive February 5, 1997 - ------------------------------------ Officer, President JEFFREY J. LANGAN and Director (Principal Executive Officer) John N. Hatsopoulos* Vice President, February 5, 1997 - ------------------------------------ Chief Financial JOHN N. HATSOPOULOS Officer and Director Paul F. Kelleher* Chief Accounting February 5, 1997 - ------------------------------------ Officer PAUL F. KELLEHER (Principal Accounting Officer) John W. Wood Jr.* Chairman of the February 5, 1997 - ------------------------------------ Board and Director JOHN W. WOOD JR. *By: /s/ Jonathan W. Painter -------------------------------- JONATHAN W. PAINTER ATTORNEY-IN-FACT II-5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermedics Detection Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Thermedics Detection Inc. included in Thermedics Detection Inc.'s Form S-1 and have issued our report thereon dated February 3, 1997. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Thermedics Detection Inc.'s Schedule of Valuation and Qualifying Accounts, included in Schedule II on page S-2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 S-1 SCHEDULE II THERMEDICS DETECTION INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT PROVISION BALANCE BEGINNING CHARGED TO ACCOUNTS ACCOUNTS AT END DESCRIPTION OF PERIOD EXPENSE OTHER (A) RECOVERED WRITTEN OFF OF PERIOD - ----------- ---------- ---------- --------- --------- ----------- --------- YEAR ENDED DECEMBER 31, 1994 Allowance for Doubtful Accounts.............. $431 $128 $ -- $ -- $ (12) $547 YEAR ENDED DECEMBER 30, 1995 Allowance for Doubtful Accounts.............. $547 $ 98 $ -- $ -- $(129) $516 YEAR ENDED DECEMBER 28, 1996 Allowance for Doubtful Accounts.............. $516 $582 $122 $167 $(172) $1,215
- -------- (a) Includes allowance of businesses acquired during the year as described in Note 2 to Consolidated Financial Statements included elsewhere in this Prospectus and foreign currency translation adjustment. S-2 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE ----------- --------------------------------------------------------- ---- *1 Form of Standby Underwriting Agreement 2.1 Asset Purchase Agreement dated as of January 25, 1996 among the Registrant, Moisture Systems Corporation and certain Affiliates of Moisture Systems Corporation. Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Registrant hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 2.2 Share Purchase Agreement dated as of January 25, 1996 among the Registrant, Rutter Holding B.V. and certain Affiliates of Rutter Holding B.V. Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Registrant hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. *3.1 Articles of Organization of the Registrant, as amended 3.2 By-Laws of the Registrant 4.1 Specimen Common Stock Certificate *4.2 Specimen Rights Certificate *5 Opinion of Seth H. Hoogasian, Esq. with respect to the validity of the securities being offered 10.1 Corporate Services Agreement dated as of March 20, 1996 between Thermo Electron Corporation ("Thermo Electron") and the Registrant 10.2 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (incorporated by reference herein form Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (File No. 1-8002)) 10.3 Tax Allocation Agreement dated as of March 20, 1996 between Thermedics Inc. ("Thermedics") and the Registrant 10.4 Master Repurchase Agreement dated as of March 20, 1996 between Thermo Electron and the Registrant 10.5 Master Guarantee Reimbursement Agreement dated as of March 20, 1996 among Thermo Electron, Thermedics and the Registrant 10.6 Master Guarantee Reimbursement Agreement dated as of March 20, 1996 between Thermedics and the Registrant 10.7 Equity Incentive Plan of the Registrant 10.8 Deferred Compensation Plan for Directors of the Registrant *10.9 $21.2 Million Principal Amount Promissory Note due March 1998, issued by the Registrant to Thermedics 10.10 Form of Indemnification Agreement for Officers and Directors 10.11 Stock Purchase Agreement dated as of March 25, 1996 between David H. Fine and the Registrant 10.12 Stock Purchase Agreement dated as of November 19, 1996 between Jeffrey J. Langan and the Registrant
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE ----------- --------------------------------------------------------- ---- In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of the Registrant's parent, Thermo Electron Corporation, and its subsidiaries, for services rendered to the Registrant or to such affiliated corporations. Such plans were filed as Exhibits 10.21 - 10.44 to the Annual Report on Form 10-K of Thermo Electron for the fiscal year ended December 30, 1995 [File No. 1-8002] and as Exhibits 10.18 - 10.19, 10.22, and 10.48 - 10.49 to the Annual Report on Form 10-K of Thermedics for the fiscal year ended December 30, 1995 [File No. 1-9567] and are incorporated herein by reference. 11 Computation of Earnings per Share 21 Subsidiaries of the Registrant *23.1 Consent of Arthur Andersen LLP *23.2 Consent of Arthur Andersen LLP *23.3 Consent of Deloitte & Touche Registeraccountants *23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5) 24 Power of Attorney (see page II-5 of the Registration Statement) *27 Financial Data Schedule *99.1 Form of Subscription Agency Agreement +99.2 Instructions as to use of Thermedics Detection Inc. Subscription Certificates and International Holder Subscription Forms *99.3 International Holder Subscription Form *99.4 Form of Letter to Thermedics Detection stockholders *99.5 Form of Letter to Thermedics stockholders
- -------- * Filed herewith. + To be filed by amendment. All other exhibits previously filed. EX-1 2 FORM OF STANDBY UNDERWRITING AGREEMENT EXHIBIT 1 Draft 2/5/96 ------------ Thermedics Detection Inc. Common Stock ($.10 par value) STANDBY UNDERWRITING AGREEMENT ------------------------------ ____________, 1997 Lehman Brothers Inc. NatWest Securities Limited As Representatives of the several Underwriters c/o Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Ladies and Gentlemen: Thermedics Detection Inc., a Massachusetts corporation (the "Company"), proposes to offer approximately 1,900,000 shares of Common Stock, par value $.10 per share (the "Common Stock"), of the Company, initially for subscription upon the exercise of rights (the "Rights") evidenced by transferable subscription certificates (the "Subscription Certificates") issued by the Company to holders of Common Stock of the Company of record at the close of business on ____________, 1997. The Rights will expire at 5:00 P.M., Eastern time, on ____________, 1997, unless extended by the Company with the consent of the Representatives (as defined below) (such date and time, the "Expiration Date"). Thermedics Inc., a Massachusetts corporation ("Thermedics"), owns 10,000,000 shares of Common Stock. Thermedics will not exercise the Rights received by it from the Company, but will distribute such rights to the holders of its Common Stock, $.05 par value per share (the "Thermedics Common Stock"), of record at the close of business on ____________, 1997. The Company proposes to sell to the underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are acting as representatives, a number of shares of Common Stock equal to: (i) 1,000,000 shares of Common Stock less (ii) ---- the number of shares of Common Stock which, as of the Expiration Date, have been properly subscribed for by the exercise of Rights (such number of shares of Common Stock, the "Standby Securities"). The Company also proposes to grant to the Underwriters (i) an option to purchase up to 150,000 additional shares of Common Stock (the "Standby Option Securities" in connection with the Rights Offering (as hereinafter defined) and (ii) an option to purchase 45,000 shares of Common Stock (the "Firm Option Securities") in connection with the purchase by the Underwriters of the Firm Shares (as hereinafter defined). The Firm Option Securities together with the Standby Option Securities are referred to herein as the "Option Securities." The Company also proposes to issue and sell to the Underwriters an additional 300,000 shares (the "Firm Shares") of Common Stock on a firm commitment basis. The Standby Securities together with the Option Securities and the Firm Shares are referred to herein together as the "Securities." The issuance of the Rights, the offering of the Common Stock to be issued by the Company upon exercise of the Rights and the subscription and purchase of Common Stock upon the terms described in the Prospectus (as hereinafter defined), including the purchase and distribution of the Standby Securities and the Standby Option Securities pursuant to this Agreement, are herein collectively referred to as the "Rights Offering". The Rights Offering, together with the offering and sale of the Firm Shares and the Firm Option Securities are referred to herein together as the "Offering." Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"), is the corporate parent of Thermedics. To the extent provided herein and for good and valuable consideration, each of Thermedics and Thermo Electron has become a party to this Agreement. 1. Representations and Warranties. (a) The Company, Thermedics and ------------------------------ Thermo Electron, jointly and severally, represent and warrant to, and agree with, each Underwriter as set forth below in this Section 1(a). Certain terms used in Section 1 are defined in paragraphs (i) and (xxii) of this Section 1(a). The following representations, warranties and agreements shall be deemed to apply to each Subsidiary (as defined in Section 15) of the Company, unless the context does not permit: (i) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (file number 333-19119), including the related preliminary prospectus, for the registration under the Securities Act of 1933, as amended, and the rules thereunder (the "Act") of the Rights and Common Stock to be issued in the Rights Offering. The Company may have filed one or more amendments thereto, including the related preliminary prospectus, each of which has previously been furnished to you. Copies of such registration statement as amended to date have been delivered by the Company to the Representatives and, to the extent applicable, were identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. The Company will next file with the Commission either (A) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (B) after effectiveness of such registration statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4). If the Company uses the provisions of Rule 430A, such registration statement, as amended at the Effective Date, shall include all material information (other than Rule 430A Information) required by the Act to be included in the Prospectus with respect to the Securities and the offering thereof. As filed, such amendment and form of final prospectus (in the case of clause (A)), or such final prospectus (in the case of clause (B)), shall contain all Rule 430A Information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the -2- Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. "Prospectus" means (a) the form of prospectus relating to the Securities, as first filed pursuant to paragraph (1) or (4) of Rule 424(b), or if no filing pursuant to Rule 424(b) is required, the form of prospectus included in the registration statement at the Effective Date, (b) the term sheet or abbreviated term sheet described in Rule 434(b), as first filed pursuant to paragraph (7) of Rule 424(b) together with the last preliminary prospectus included in the registration statement filed prior to the Effective Date or filed pursuant to Rule 424(a) that is delivered by the Company to the Underwriters for delivery to purchasers of the Securities. The Prospectus and any related letters from the Company, Thermedics or Thermo Electron to record or beneficial owners of Common Stock, Thermedics Common Stock or Rights, related letters from the Company, Thermedics, or Thermo Electron to securities dealers, commercial banks, trust companies and other nominees and other offering materials, in each case disseminated by the Company, Thermedics or Thermo Electron by any of their agents, and any other information that the Company, Thermedics or Thermo Electron may use, prepare, approve or authorize for use in connection with the Rights Offering, are collectively referred to hereinafter as the "Offering Materials". Notwithstanding the foregoing, any offering material or other information that is distributed by the Underwriters in connection with the Rights Offering shall not be deemed to be "Offering Materials" hereunder unless the distribution thereof is approved by the Company, Thermedics or Thermo Electron. For purposes of this Agreement, all references to the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include the respective copies thereof filed with the Commission pursuant to EDGAR. Capitalized terms used herein without definition have the meanings assigned to them in the Prospectus. (ii) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on each Closing Date (as hereinafter defined), the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Act and, to the extent applicable, the Securities Exchange Act of 1934, as amended, and the rules thereunder (the "Exchange Act"); on the Effective Date, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and on the Effective Date, the Prospectus, if not required to be filed pursuant to Rule 424(b), and the Offering Materials did not or will not, and on the date of the filing pursuant to Rule 424(b) and on each Closing Date, the Prospectus (together with any supplement thereto) and the Offering Materials will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company, Thermedics and Thermo Electron make no - -------- ------- representations or warranties as to the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any -3- supplement thereto). There is no contract or document required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (iii) The accounting firm(s) that have reported upon the audited financial statements and schedules included in the Registration Statement and Prospectus are independent public accountants as required by the Act. (iv) The consolidated financial statements and the related notes of the Company included in the Registration Statement and the Prospectus present fairly, in all material respects, in accordance with generally accepted accounting principles, the consolidated financial position of the entities purported to be shown thereon, as of the dates indicated and the consolidated results of operations and cash flows of the entities purported to be shown thereon, for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as otherwise noted therein and subject, in the case of interim statements, to normal year-end audit adjustments and footnote disclosures (which comply with the Act and the Exchange Act). The financial statement schedules included in the Registration Statement present fairly, in all material respects, in accordance with generally accepted accounting principles the information required to be stated therein. The pro forma financial statements and other pro forma financial information included in the Registration Statement and the Prospectus, if any, present fairly, in all material respects, the information shown therein, have been prepared, in all material respects, in accordance with applicable rules and guidelines of the Commission, if any, with respect thereto, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company and Thermo Electron, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (v) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary except where the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its Subsidiaries taken as a whole; and, except as described in the Prospectus, the Company holds all material licenses, certificates and permits from governmental authorities necessary for the conduct of its business as described in the Prospectus. (vi) All of the outstanding shares of capital stock of the Company have been duly authorized, validly issued, fully paid and nonassessable. Other than as described in the Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's corporate charter, by-laws or other governing documents or any agreement or other instrument to which the Company is a party or by which it may be bound. The capitalization of -4- the Company as of ____________ __, 199_ is as set forth in the Prospectus and the Common Stock, the Rights, the Subscription Certificates and the Securities conform to the description thereof contained in the Prospectus. All of the outstanding shares of capital stock of each Subsidiary (as defined in Section 15) of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are owned directly or indirectly by the Company, free and clear of any claim, lien, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party. (vii) Prior to or at the Effective Date, the Company and the Subscription Agent will have entered into a subscription agency agreement (the "Subscription Agency Agreement"). When executed by the Company, the Subscription Agency Agreement will have been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Subscription Agent, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except (A) as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) (collectively, "applicable bankruptcy laws"), and (B) as rights to indemnity and contribution thereunder may be limited by Federal or state securities laws and/or public policy. (viii) The Rights, when issued and delivered in accordance with the terms of the Rights Offering, will be validly issued, and no holder thereof is or will be subject to personal liability by reason of being such a holder (other than with respect to potential tax liability as described in the Prospectus); the shares of Common Stock issuable upon the exercise of the Rights, when issued or delivered and paid for in accordance with the terms of the Rights Offering, and any Securities issued pursuant to the terms of this Agreement, will be validly issued, fully paid and nonassessable, and the issuance of the shares of Common Stock issuable upon the exercise of the Rights and the Securities will not be subject to the preemptive rights of any stockholder of the Company. (ix) The Company has taken all valid corporate action to duly reserve such number of its authorized and unissued shares of Common Stock as are deliverable upon consummation of purchases pursuant to the Rights Offering. (x) Except as described in or contemplated by the Registration Statement and the Prospectus, there has not been (i) any material adverse change in, or any adverse development which materially affects, the condition (financial or other), results of operations, business or prospects of the Company and its Subsidiaries on a consolidated basis from the date as of which information is given in the Prospectus, (ii) any dividend or distribution of any kind declared, paid or made by the Company on its capital stock other than the Rights or (iii) any material change in the capitalization of the Company. (xi) The Company is not, and would not be with the giving of notice or lapse of time or both, in violation of or in default under, nor will the execution or delivery hereof, the issuance and delivery of the Rights and the Securities, the consummation of the Rights Offering or the -5- consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of the Company, or any agreement, indenture or other instrument to which the Company is a party or by which it is bound, or to which any of its properties is subject, nor will the performance by the Company of its obligations hereunder violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over the Company or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company, which would be material to the Company and its Subsidiaries taken as a whole. Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or any financial institution is required for the offer and sale by the Company of the Securities or the consummation of the Rights Offering as set forth in the Registration Statement and the Prospectus or the consummation by the Company, Thermedics or Thermo Electron of the transactions contemplated in this Agreement and in the Registration Statement and the Prospectus (it being understood that the Company, Thermedics and Thermo Electron make no representation as to the distribution of the Securities by the Underwriters outside of the United States or as to the distribution of the Rights by the Company or Thermedics outside of the United States (except in the United Kingdom)). Neither the filing of the Registration Statement nor the offering or sale of its shares of Common Stock pursuant to the Rights Offering gives rise to any rights, other than those that have been duly waived or satisfied and other than the Company's obligations with respect to the "Resale Registration Statement" (as defined in the Prospectus), for or relating to the registration of any shares of Common Stock or other securities of the Company. (xii) This Agreement has been duly authorized, executed and delivered by the Company. (xiii) The Company owns, or has valid rights to use, all items of real and personal property which are material to the business of the Company and its Subsidiaries taken as a whole, free and clear of all liens, encumbrances and claims which may materially interfere with the business, properties, financial condition or results of operations of the Company on a consolidated basis. (xiv) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or Thermedics or Thermo Electron is a party or to which any property of the Company is subject or which is pending or, to the knowledge of the Company, Thermedics or Thermo Electron, contemplated against the Company or Thermedics that is required to be disclosed in the Prospectus and that is not so disclosed. (xv) The Company is not in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject, which violation could have a material adverse effect on the condition (financial or other), results of operations, business or prospects of the Company and its Subsidiaries on a consolidated basis. -6- (xvi) The Company is not an "investment company" or a company "controlled by an investment company" within the meaning of such terms under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, and will not become such after giving effect to the transactions contemplated in this Agreement and in the Registration Statement and the Prospectus. (xvii) The Company owns or possesses adequate licenses or other rights to use all intellectual property rights, including patents and trademarks, necessary to conduct its business as described or referred to in the Prospectus, except where such failure, singularly or in the aggregate would not have a material adverse effect on the Company and its Subsidiaries on a consolidated basis, and, except as disclosed in the Prospectus, neither Thermo Electron, Thermedics nor the Company has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) rights or claims of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how, that if the subject of an unfavorable decision, ruling or finding, would result in a material adverse effect upon the Company and its Subsidiaries on a consolidated basis, and, except as disclosed in the Prospectus, all products or processes referred to in the Prospectus and relating to the business of the Company now conducted by it do not infringe upon or conflict with any right or patent, or with any discovery, invention, product or process which is the subject of any patent application known to the Company or Thermo Electron, in a manner which would materially and adversely affect the Company and its Subsidiaries on a consolidated basis. (xviii) Each of the Corporate Services Agreement between the Company and Thermo Electron (the "Services Agreement"), and the other agreements between the Company and Thermedics or Thermo Electron pursuant to which the Company was initially organized and capitalized (collectively, the "Organization Agreements"), and the Tax Allocation Agreement between Thermo Electron and the Company (all of the foregoing agreements being referred to herein as the "Inter- corporate Agreements") has been duly and validly authorized, executed and delivered by the Company and is the valid and binding agreement of the Company enforceable in accordance with its terms, except as provided by applicable bankruptcy laws. The execution, delivery and performance of the Inter-corporate Agreements by the Company, the consummation of the transactions therein contemplated and compliance with the terms thereof do not and will not result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of the Company, or any agreement, indenture or other instrument to which the Company is a party or by which it is bound, or to which any of its properties is subject, and do not and will not violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over the Company or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company, which would be material to the Company and its Subsidiaries taken as a whole. No consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation of the transactions contemplated by such Inter-corporate Agreements. (xix) Thermo Electron and Thermedics will take all such action as may be necessary or expedient to ensure that (A) the representations and warranties of the Company contained in this -7- Agreement are true and correct and (B) the Company complies with the terms of this Agreement and meets all of its obligations hereunder. (xx) Neither the Company, Thermedics nor Thermo Electron or any other Subsidiary of Thermo Electron has taken and none of such companies will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, stabilization or manipulation of the price of the Rights or the Common Stock. (xxi) The Common Stock and the Rights have been approved for listing, subject only to official notice of issuance, on the American Stock Exchange. (xxii) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term "the Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Preliminary Prospectus" shall mean any preliminary prospectus with respect to the Rights Offering referred to in paragraph (i) above and any preliminary prospectus with respect to the Rights Offering included in the Registration Statement at the Effective Date that omits Rule 430A Information. "Registration Statement" shall mean the registration statement referred to in paragraph (i) above, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to a Closing Date, shall also mean such registration statement as so amended. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A together with any registration statement filed by the Company pursuant to Rule 462(b). "Representatives" shall mean the Underwriters to the extent that no more than two parties are listed on Schedule I hereto as Underwriters. "Rule 424", "Rule 430A", "Rule 434" and "Rule 462" refer to such rules under the Act. "Rule 430A Information" means information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. (b) Each of Thermedics and Thermo Electron represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1(b). (i) Each of Thermedics and Thermo Electron has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full power and authority (corporate and other) to own or lease its properties and conduct its business, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on Thermedics and its Subsidiaries taken as a whole or on Thermo Electron and its Subsidiaries taken as a whole, as the case may be. -8- (ii) There has not been any material adverse change in, or any adverse development which materially affects, the condition (financial or other), results of operations, business or prospects of Thermo Electron and its Subsidiaries taken as a whole, or Thermedics and its Subsidiaries taken as a whole, from the date as of which information is given in the most recent quarterly or annual report filed by Thermo Electron or Thermedics, as the case may be, pursuant to the Exchange Act, except any as may have been disclosed to the public. (iii) Except as described in their filings with the Commission under the Exchange Act, neither Thermedics nor Thermo Electron is, nor with the giving of notice or lapse of time or both would be, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of Thermedics or Thermo Electron, or any material agreement, indenture or other instrument to which Thermedics or Thermo Electron is a party or by which any of them is bound, or to which any of their properties is subject, nor will the performance by Thermedics or Thermo Electron of its obligations hereunder violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Thermedics or Thermo Electron or any of their respective properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of Thermedics or Thermo Electron, which would be material to Thermedics and its Subsidiaries taken as a whole or to Thermo Electron and its Subsidiaries taken as a whole, as the case may be. (iv) This Agreement has been duly authorized, executed and delivered by Thermedics and Thermo Electron. (v) Thermedics owns, and will own as of each Closing Date (as defined below), of record and beneficially, the number of shares of Common Stock of the Company set forth in the Prospectus, free and clear of any liens, encumbrances, claims or restrictions, except that certain of such shares are reserved for issuance pursuant to stock option and other benefit plans under which options to purchase Common Stock of the Company owned by Thermedics are granted to certain employees, directors or consultants of Thermo Electron and its Subsidiaries. (vi) The most recent Annual Report on Form 10-K of Thermedics and of Thermo Electron and any subsequent reports filed pursuant to the Exchange Act complied as of the date thereof in all material respects with the Exchange Act and the rules and regulations thereunder. (vii) The transfer by Thermedics to the Company of certain stock and/or assets, as described in the Prospectus and in the Organization Agreements, has been completed by all required corporate and other action. Each of the Inter- corporate Agreements to which Thermedics is a party has been duly and validly authorized, executed and delivered by Thermedics and is the valid and binding agreement of Thermedics enforceable in accordance with its terms, except as provided by applicable bankruptcy laws. The execution, delivery and performance of each of the Inter-corporate Agreements to which Thermedics is a party by Thermedics, the consummation of the transactions therein contemplated and compliance with the terms thereof do not and will not result in a violation of, or constitute a default under, the -9- corporate charter, by-laws or other governing documents of Thermedics, or any agreement, indenture or other instrument to which Thermedics is a party or by which it is bound, or to which any of its properties is subject, and do not and will not violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Thermedics or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of Thermedics, which would be material to Thermedics. No consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation by Thermedics of the transactions contemplated by the Inter-corporate Agreements to which Thermedics is a party, except such as have been obtained. (viii) The Services Agreement has been duly and validly authorized, executed and delivered by Thermo Electron and is the valid and binding agreement of Thermo Electron, enforceable in accordance with its terms. (ix) The distribution to its stockholders of the Rights to be received by Thermedics from the Company, as described in the Prospectus, has been duly authorized by Thermedics and all necessary corporate action has been taken by Thermedics with respect thereto. (x) Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or financial institution is required for the distribution by Thermedics to its stockholders of the Rights to be received by it from the Company or the consummation by Thermedics and Thermo Electron of the transactions contemplated in this Agreement and in the Registration Statement and the Prospectus. 2. Purchase and Sale. Subject to the terms and conditions and in ----------------- reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a purchase price per share equal to $______, the percentage set forth opposite such Underwriter's name in Schedule I hereto of the Standby Securities, if any, such percentages to be adjusted as necessary by the Representatives so that no Underwriter shall be obligated to purchase Standby Securities other than in 100-share quantities. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to issue and sell to the Underwriters the Firm Shares, and each of the Underwriters agrees, severally and not jointly, to purchase at a price of $____ per Firm Share, the number of Firm Shares set forth opposite such Underwriters' name in Schedule I hereto. The Underwriters agree to offer the Firm Shares to the public as set forth in the Prospectus. The number of Standby Securities shall be reduced by such number of shares reserved for late subscriptions as may be agreed upon between the Company and the Representatives. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company grants (i) an option to the several Underwriters to purchase, severally and not jointly, up to 150,000 shares in the aggregate of the Standby Option Securities from the Company at $_____ per share and (ii) an option to the several Underwriters to purchase severally and not jointly, up to 45,000 shares in the aggregate of -10- the Firm Option Securities from the Company at a price of $____ per share. Said option may be exercised only to cover over-allotments in the sale of the Securities and Common Stock purchased by or for the accounts of the Underwriters upon exercise of Rights. Said option may be exercised in whole or in part at any time on or before the thirtieth day after the Expiration Date upon written or telegraphic notice by you to the Company, setting forth the aggregate number of shares of the Option Securities as to which the several Underwriters are exercising the option and the time and date for the purchase and sale thereof. Such time and date (which may not be earlier than two or later than three business days after the date of such notice, and which may be the same as but may not be earlier than the First Closing Date defined in Section 3), or such other time and date as may be agreed upon in writing by the Company and you, are herein called the "Option Securities Closing Date". Delivery of certificates for the shares of Option Securities, and payment therefor, shall be made as provided in Section 3 hereof on the Option Securities Closing Date, which may be postponed as provided in Section 9 hereof. The number of shares of the Option Securities to be purchased by each Underwriter on the Option Securities Closing Date shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters on the Option Securities Closing date as such Underwriter is committed to purchase of the Standby Securities, as adjusted by you in such manner so that no Underwriter shall be obligated to purchase Option Securities other than in 100-share quantities. The Representatives also agree to provide to the Company, Thermedics and Thermo Electron such assistance as they may reasonably request in connection with the Rights Offering. As compensation to the Underwriters for their commitments in connection with the Rights Offering, the Company agrees to pay, on the First Closing Date to you, as Representatives for the accounts of the several Underwriters as they may agree, a fee in the amount of $230,000 (the "Standby Fee"). The Company also agrees to pay, on the First Closing Date to you, as Representatives for the accounts of the several Underwriters as they may agree, a management fee in the amount of $506,000 (the "Management Fee"). In addition, in respect of the Underwriters' commission for the purchase and resale of the Common Stock, the Company agrees to pay to you, as Representatives for the accounts of the several Underwriters as they may agree, on the First Closing Date, and on the Option Securities Closing Date (to the extent not previously paid), an amount equal to five percent (5.0%) of the aggregate Subscription Price (the "Take-Up Fee") in respect of (i) all Standby Securities and Standby Option Securities, if any, purchased by the several Underwriters, and (ii) all Common Stock acquired by the Representatives for the accounts of the several Underwriters through the exercise of Rights. Notwithstanding the foregoing, the Company shall not be obligated to pay to the Representatives or the Underwriters, at any time, fees in respect of the Rights Offering which exceed in the aggregate 6% of the Subscription Price (as defined in the Prospectus) for each share of Common Stock purchased pursuant to the exercise of Rights (by the Underwriters or otherwise) or pursuant to the terms hereof (other than the Firm Shares or the Firm Option Securities) plus an amount equal to the aggregate purchase price of Rights purchased by the Underwriters, up to $100,000. The Company and Thermo Electron acknowledge that the several Underwriters may offer to the public Common Stock acquired by the Representatives for their respective accounts -11- through the purchase and exercise of Rights or pursuant to their commitments hereunder to purchase the Securities, if any, at such price or prices which, and at such time or times when, the Representatives in their discretion may determine in accordance with applicable laws, rules and regulations of the Commission, whether or not prior to the Expiration Date, and whether or not for long or short account. Any profits or losses realized upon such sales shall be for the accounts of the several Underwriters. 3. Delivery and Payment. Delivery of and payment for the Standby -------------------- Securities shall be made at 10:00 A.M., Eastern time, on __________ __, 1997, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Standby Securities and the Firm Shares being herein called the "First Closing Date"). To the extent that the options referred to in Section 2 are exercised, delivery of and payment for the Option Securities shall be made on the Option Securities Closing Date. The First Closing Date and the Option Securities Closing Date are herein called, individually, a "Closing Date" and, together, the "Closing Dates". Delivery of the Securities purchased from the Company shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the respective aggregate purchase prices of such Securities being sold by the Company to or upon the order of the Company, by certified or official bank check payable in New York Clearing House funds. Delivery of such Securities shall be made at such location as the Representatives shall reasonably designate at least one full business day in advance of the applicable Closing Date and payment for such Securities shall be made at the office of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 (or at such other place as mutually may be agreed upon). Certificates for such Securities shall be registered in such names in such denominations as you may request not less than one full business day in advance of the applicable Closing Date. The Company agrees to have the Securities available for inspection, checking and packaging by the Representatives in New York, New York, not later than 1:00 P.M. on the business day prior to the applicable Closing Date. 4. Offering by Underwriters. NatWest Securities Limited represents ------------------------ and agrees that (i) it has not offered or sold and will not offer or sell any Securities to persons in the United Kingdom prior to admission of the Securities to listing in accordance with Part IV of the Financial Services Act 1986 (the "Act") except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the Act, (ii) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on, and will only issue or pass on, in the United Kingdom any document received by it in connection with the issue of the Securities, other than any document which consists of or any part of listing particulars, supplementary listing particulars or any other document required or permitted to be published by listing rules under Part IV of the Act, to a person who is of a kind described in Article 11(3) of -12- the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on. 5. Agreements. The Company, Thermedics and Thermo Electron, jointly ---------- and severally, agree with each Underwriter that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, including any post-effective amendment, to become effective as soon as practicable. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus without your prior consent, which consent shall not be unreasonably withheld or delayed. The Company shall prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or the Prospectus which, in your opinion, may be necessary or advisable in connection with the distribution of the Securities. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company and, in the case of clause (G), Thermo Electron, will promptly advise the Representatives (A) when the Registration Statement, if not effective at the Execution Time, and any amendment thereto, shall have become effective, (B) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (C) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (D) of any request by the Commission for any amendment of the Registration Statement or supplement to the Prospectus or for any additional information, (E) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose, (F) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (G) if any of the representations and warranties contained in Section 1 hereof becomes inaccurate in any material respect subsequent to the date hereof. The Company will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) Within the time during which a prospectus relating to the Securities is required to be delivered under the Act, the Company shall comply with all requirements imposed upon it by the Act, so far as is necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof and by the Prospectus. If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act or the rules thereunder (including to comply with Item 512(c) of Regulation S-K under the Act), the Company -13- promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance. (c) As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earning statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Company will furnish to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or a dealer may be required by the Act, as many copies of each Preliminary Prospectus and Prospectus and any supplement thereto as the Representatives may reasonably request. To the extent applicable, the copies of the Registration Statement, any Preliminary Prospectus or Prospectus (in each case, as amended or supplemented) furnished to the Representative and counsel to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. The Company will pay all expenses incident to the Rights Offering and the performance of its obligations under this Agreement. (e) The Company will arrange for the qualification of the Securities for distribution, offering and sale under the laws of such jurisdictions as the Representatives may designate, and will maintain such qualifications in effect so long as required for the distribution of the Securities, except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. (f) The Company and Thermedics will commence mailing the Subscription Certificates to record holders of the Common Stock and the Thermedics Common Stock not later than two business days following the Record Date, which shall be not later than ________ __, 1997 and shall complete such mailing expeditiously, and will offer the Common Stock for subscription in accordance with the terms and under the conditions set forth in the Prospectus. The Expiration Date shall be not later than 5:00 P.M., Eastern time, on _________ __, 1997, (unless extended by the Company with the consent of the Representatives). The Company will advise you daily during the period when the Rights are exercisable of the number of shares of Common Stock subscribed for, and prior to 12:00 Noon, Eastern time, on the business day following the Expiration Date, will advise you of the number of shares of Common Stock subscribed for and of the number of Securities. Without your prior written consent, the Company will not change any of the terms or conditions of the Rights or the offering of Common Stock pursuant thereto as described in the Registration Statement except that the Company may waive irregularities in the exercise of Rights or waive conditions relating to the method (but not the timing, except with your prior written consent) of the exercise of Rights. The Company will not fix any date prior to any Closing Date as a record date for the determination of the holders of Common Stock entitled to receive any dividend other than the Rights. -14- (g) Each of the Company, Thermedics and Thermo Electron shall not, during the 180-day period following the date of this Agreement, except pursuant to this Agreement or the Rights Offering (including sales of Rights by Thermo Electron) or with your prior written consent, directly or indirectly, offer for sale, sell or otherwise dispose of any shares of Common Stock (except for the issuance of shares of Common Stock pursuant to existing stock option, purchase and compensation plans, the sales of shares of Common Stock by the Company to Thermedics or the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses provided that such Common Stock may not be resold prior to the expiration of the 180-day period following the date of this Agreement), or sell or grant options, rights or warrants with respect to any shares of Common Stock (other than the grant of options pursuant to existing stock option, purchase and compensation plans). The Company, Thermedics and Thermo Electron will not permit any employee stock option, director stock option or other stock option to purchase Common Stock of the Company granted by it to be exercised, and the Common Stock issued upon exercise of the stock option to be sold, prior to the expiration of the 180-day period following the date of this Agreement, without your prior written consent. The Company will not file the Resale Registration Statement (as defined in the Prospectus) with the Commission until the last date it is permitted to do so under the terms of the applicable stock purchase agreements. (h) The Company shall at all times reserve and keep available for issue upon the exercise of the Rights such number of authorized but unissued shares of Common Stock deliverable upon the exercise of the Rights as will be sufficient to permit the exercise in full of all Rights issued. (i) The Company shall take such steps as shall be necessary to ensure that neither the Company nor any Subsidiary shall become an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (j) Whether or not this Agreement is terminated or the sale of the Securities to the Underwriters is consummated, the Company shall pay or cause to be paid, in addition to the expenses referred to in Section 7, (A) all expenses (including stock transfer taxes) incurred in connection with the delivery to the several Underwriters of the Securities, (B) all fees and expenses (including, without limitation, fees and expenses of the Company's accountants and counsel) in connection with the preparation, printing, filing, delivery and shipping of the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), each Preliminary Prospectus, the Prospectus and any amendments or supplements of the foregoing, the preparation, printing, delivery and shipping of all documents relating to the Rights Offering and the printing, delivery and shipping of this Agreement and other underwriting documents, including, but not limited to, any Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements Among Underwriters and Selected Dealer Agreements, (C) all filing fees incurred in connection with qualification of the Securities under state securities laws as provided in Section 5(e) hereof, (D) the filing fee of the National Association of Securities Dealers, Inc., (E) any applicable listing or other fees, (F) the cost of printing certificates representing the Securities, (G) the cost and charges of any transfer -15- agent or registrar, and (H) all other costs and expenses incident to the performance of its obligations hereunder for which provision is not otherwise made in this Section. (k) The Company shall on or prior to each Closing Date use its best efforts to cause the Securities to be purchased on such date by the Underwriters to be approved for listing on the American Stock Exchange, subject only to official notice of issuance, and shall take such action as shall be necessary to comply with the rules and regulations of the American Stock Exchange with respect to such Securities. (l) During a period of five years from the Effective Date, the Company shall furnish to the Representatives copies of all reports or other communications furnished to shareholders and copies of any reports or financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed. To the extent applicable, such reports or documents shall be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. 6. Conditions to the Obligations of the Underwriters. The obligations of ------------------------------------------------- the several Underwriters to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company, Thermedics and Thermo Electron contained herein as of the Execution Time and the applicable Closing Date, to the accuracy of the statements of the Company, Thermedics and Thermo Electron made in any certificates pursuant to the provisions hereof, to the performance by the Company, Thermedics and Thermo Electron of their obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than 12:00 Noon, Eastern time, on ______ __, 1997; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) No Underwriter shall have been advised by the Company, Thermedics or Thermo Electron or shall have discovered and disclosed to the Company that the Registration Statement, or the Prospectus or any amendment or supplement thereto, contains an untrue statement of fact which in your reasonable opinion, or in the reasonable opinion of counsel for the Underwriters, is material, or omits to state a fact which, in your reasonable opinion, or in the reasonable opinion of counsel to the Underwriters, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) At the Execution Time and at the applicable Closing Date, the Company and Thermo Electron shall have furnished to you the opinions (addressed to the Underwriters) of Seth H. Hoogasian, Esq., General Counsel to the Company, Thermedics and Thermo Electron, -16- dated respectively as of the Execution Time and the applicable Closing Date, in the form previously provided to you. (d) At the Execution Time and at the applicable Closing Date, the Representatives shall have received from Testa, Hurwitz & Thibeault, LLP, counsel to the Underwriters, such opinion or opinions, dated as of the Execution Time and the applicable Closing Date, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) At the applicable Closing Date, the Company shall have furnished to the Representatives certificates of the Company, dated as of the applicable Closing Date and signed by the President or a Vice President and by the Treasurer or Secretary of the Company given in their capacities as such, to the effect that: (i) the representations and warranties of the Company in this Agreement are true and correct at and as of the applicable Closing Date, with the same effect as if made on the applicable Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the applicable Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to their knowledge, threatened; (iii) all filings required by Rule 424 and Rule 430A have been made; (iv) the signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments or supplements thereto and such documents contain all statements and information required to be included therein, and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (v) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been so set forth. (f) At the applicable Closing Date, each of Thermedics and Thermo Electron shall have furnished to the Representatives certificates of Thermedics and Thermo Electron, dated respectively as of the applicable Closing Date and signed by the President or a Vice President and the Treasurer or Secretary thereof given in their capacities as such, to the effect that: (i) the representations and warranties of Thermedics or ThermoTrex (as applicable) in this Agreement are true and correct at and as of the applicable Closing Date -17- with the same effect as if made on the applicable Closing Date, and each of Thermo Electron or Thermedics (as applicable) has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the applicable Closing Date; (ii) the signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments or supplements thereto, and such documents contain all statements and information required to be included therein and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been so set forth. (g) At the Execution Time and at the applicable Closing Date, each accounting firm whose report appears in the Prospectus shall have furnished to the Representatives letters, dated respectively as of the Execution Time and the applicable Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the applicable published rules and regulations thereunder and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of each such letter), the conclusions and findings of each such firm with respect to the financial information and other matters covered by its letter delivered to you concurrently with the execution of this Agreement, and with respect to each letter delivered on a Closing Date confirming the conclusions and findings set forth in such prior letter. (h) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), neither the Company nor any of the Subsidiaries of the Company shall have sustained loss by fire, flood, accident or other calamity, or shall have become a party to or the subject of any litigation, which is material to the Company and its Subsidiaries taken as a whole, nor shall there have been a material adverse change in the general affairs, operations, business, prospects, key personnel, capitalization, financial condition or net worth of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, which loss, litigation or change, in your judgment, shall render it inadvisable to proceed with the payment for and delivery of the Securities. (i) Prior to the applicable Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request. -18- (j) The Securities to be purchased on such Closing Date by the Underwriters shall be approved for listing on the American Stock Exchange, subject only to official notice of issuance. (k) At the Execution Time, the Company shall have furnished or caused to be furnished to the Representatives such lock-up agreements as are requested by the Representatives. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the applicable Closing Date by the Representatives. Any such cancellation shall be without liability of the Underwriters to the Company, Thermedics or Thermo Electron. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 7. Reimbursement of Underwriters' Expenses. The Company will reimburse --------------------------------------- the Underwriters severally upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of Testa, Hurwitz & Thibeault, LLP ) that shall have been incurred by them in connection with the proposed purchase of the Securities, whether or not a Closing shall have taken place. 8. Indemnification and Contribution. -------------------------------- (a) The Company, Thermedics and Thermo Electron, jointly and severally, shall indemnify and hold harmless each Underwriter against any loss, claim, damage or liability (or any action in respect thereof), joint or several, to which such Underwriter may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement made by the Company, Thermedics or Thermo Electron in Section 1(a) hereof or by Thermedics or Thermo Electron in Section 1(b) hereof, or (ii) any untrue statement or alleged untrue statement of a material fact contained (A) in the Registration Statement, any Preliminary Prospectus, or any of the Offering Materials, the Prospectus, any of the Offering Material or any amendment or supplement to any thereof, or (B) in any "Blue Sky" application or other document executed by the Company specifically for that purpose or based upon any written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Securities under the securities laws thereof (any such application, document or information being hereinafter called "Blue Sky Information"), or (iii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or in any Blue Sky Information a material fact required to be stated therein or necessary to make the statements therein not misleading or (iv) any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Securities or the offering contemplated hereby, and which is included as -19- part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (ii) or (iii) above (provided that the Company, Thermedics and Thermo Electron shall not be liable under this clause (iv) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly or indirectly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence, willful misconduct or breach of this Agreement or to have resulted from a violation of Rule 10b-6, 10b-7 or 10b-8 under the Exchange Act or this Agreement (other than actions performed at the request or with the consent of the Company)); and shall reimburse each Underwriter promptly after receipt of invoices from such Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case the person receiving them shall promptly refund them; provided, however, that the Company, Thermedics and Thermo Electron shall not be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of any Underwriter specifically for use in the preparation of the Registration Statement, any Preliminary Prospectus, the Prospectus, any of the Offering Material or any amendment or supplement to any thereof, or any Blue Sky Information; and provided, further, that as to any Preliminary Prospectus this indemnity agreement shall not inure to the benefit of any Underwriter on account of any loss, claim, damage, liability or action arising from the sale of Securities to any person by that Underwriter if that Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 5(d) (b) Each Underwriter severally, but not jointly, shall indemnify and hold harmless the Company, Thermedics and Thermo Electron against any loss, claim, damage or liability (or action in respect thereof) to which the Company, Thermedics or Thermo Electron may become subject, under the Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained (A) in the Registration Statement, any Preliminary Prospectus, the Prospectus, any of the Offering Material or any amendment or supplement to any thereof, or (B) in any Blue Sky Information, (ii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus, any of the Offering Material or any amendment or supplement to any thereof, or in any Blue Sky Information a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) actions or omissions of such Underwriter in connection with the services performed by it with respect to the Rights Offering that are found in a final judgment by a court of competent jurisdiction to have resulted from the bad faith or gross negligence of such Underwriter or related party or to constitute a violation of Rule 10b-6, 10b-7 or 10b-8 under the Exchange Act or this Agreement (other than actions performed at the request or with the consent of the Company); and -20- shall reimburse any legal or other expenses reasonably incurred by the Company, Thermedics or Thermo Electron promptly after receipt of invoices from the Company, Thermedics or Thermo Electron in connection with investigating or defending against any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case the Company, Thermedics and Thermo Electron shall promptly refund them; provided, however, that such indemnification referred to in clauses (i) and (ii) above shall be available in each such case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of such Underwriter specifically for use in the preparation thereof. The Company, Thermedics and Thermo Electron acknowledge that the statements set forth in the last paragraph of the cover page and under the heading "Underwriting" in any Preliminary Prospectus and Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or Prospectus, and you, as the Representatives, confirm that such statements are correct. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been prejudiced in any material respect by such failure or from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it or they wish, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under such subsection for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation, except that the Representatives shall have the right to employ counsel to represent you and those other Underwriters who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Underwriters against the Company, Thermedics or Thermo Electron under such subsection if, in your reasonable judgment, it is advisable for you and those Underwriters to be represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party or parties; provided, however, in no event, shall the indemnifying party or parties be responsible for the expenses of more than one separate counsel for all such indemnified parties. (d) If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, Thermedics - 21 - and Thermo Electron on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, Thermedics and Thermo Electron on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The benefits received by the Company, Thermedics and Thermo Electron shall be deemed to be the total net proceeds from the Rights Offering (before deducting expenses) and benefits received by the Underwriters shall be deemed to be equal to the total compensation paid to the Underwriters hereunder. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by one of the parties and such parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company, Thermedics, Thermo Electron and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to in the first sentence of this subsection (d). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject of this subsection (d), subject to the proviso in the last sentence of subsection (c). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the compensation paid hereunder to such Underwriter in respect of the securities purchased by such Underwriter hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it shall promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought from any obligation it may have hereunder or otherwise (except as specifically provided in subsection (c) hereof). (f) The obligations of the Company, Thermedics and Thermo Electron under this Section 8 shall be in addition to any liability which the Company, Thermedics and Thermo Electron may otherwise have, and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability that the respective Underwriters may otherwise have, and shall extend, upon the same terms and conditions, to each director of the Company (including any person who, with his consent, is named in the Registration Statement as about to become a director of the Company), to each officer of the Company who has signed the Registration Statement and to Thermedics and - 22 - Thermo Electron, and each other person, if any, who controls the Company within the meaning of the Act or the Exchange Act. 9. Default by an Underwriter. If anyone or more Underwriters shall fail ------------------------- to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder, the non-defaulting Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the commitment percentage of each remaining Underwriter set forth opposite its name in Schedule I hereto bears to the aggregate of the commitment percentages of all the non-defaulting Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; except that the non- defaulting Underwriters shall not be obligated to purchase any of the Securities if the total number of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase exceed 9.09% of the total number of Securities, and any non-defaulting Underwriters shall not be obligated to purchase more than 110% of the percentage of the Securities set forth opposite its name in Schedule I hereto. If the foregoing maximums are exceeded, the non- defaulting Underwriters, and any other underwriters satisfactory to you that so agree, shall have the right, but shall not be obligated, to purchase (in such proportions as may be agreed upon among them) all of the Securities. If the non- defaulting Underwriters or the other underwriters satisfactory to you do not elect to purchase the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase, the Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company, Thermedics or Thermo Electron. 10. Termination. Until the Closing Date, this Agreement may be terminated ----------- by you by giving notice as hereinafter provided to the Company, if (i) the Company, Thermedics or Thermo Electron shall have failed, refused or been unable, at or prior to the Closing Date, to perform any agreement on its part to be performed hereunder, (ii) any other condition of the obligations of the Underwriters hereunder is not fulfilled, (iii) trading in the Thermedics Detection Common Stock shall have been suspended by the American Stock Exchange or trading in securities generally on the New York Stock Exchange or the American Stock Exchange or the International Stock Exchange of the United Kingdom or the over-the-counter market shall have been suspended, limited or minimum prices shall have been established on any of such exchanges or such market by the Commission or by such exchange or other regulatory body or governmental authority having jurisdiction, (iv) a banking moratorium shall have been declared by Federal, New York, United Kingdom or Massachusetts authorities, (v) the United States or the United Kingdom is or becomes engaged in hostilities which result in the declaration of a national emergency or war, or (vi) there shall have been such a material adverse change in general economic, political or financial conditions, or the effect of international conditions on the financial markets in the United States or the United Kingdom shall be such, as to, in the judgment of a majority in interest of the several Underwriters, make it inadvisable or impracticable to proceed with the delivery of the Securities. 11. Representations and Indemnities to Survive. The respective ------------------------------------------ agreements, representations, warranties, indemnities and other statements of the Company, of Thermedics, of Thermo Electron and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any - 23 - Underwriter, the Company, Thermedics or Thermo Electron or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of the second paragraph of Section 2 and Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement; except that if this Agreement is terminated as a result of the occurrence of the events described in Section 10 hereof or as a result of a default of one or more Underwriters as set forth in Section 9 hereof, the Company shall not be liable to the Underwriters for the Management Fee and Standby Fee specified in Section 2 hereof or expenses as provided in Section 7 hereof. 12. Notices. All communications hereunder will be in writing and ------- effective only on receipt, and, if sent to the Underwriters, will be mailed, delivered or telecopied to them c/o Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department; or, if sent to the Company, Thermedics or Thermo Electron, will be mailed, delivered or telecopied to it at 81 Wyman Street, P.O. Box 9046, Waltham, MA 02254-9046. 13. Successors. This Agreement will inure to the benefit of and be ---------- binding upon the parties hereto and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company, Thermedics and Thermo Electron contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Underwriter within the meaning of the Act or the Exchange Act and (b) the indemnity agreement of the Underwriters contained in Section 8 hereof shall be deemed to be for the benefit of directors of the Company, officers of the Company who signed the Registration Statement, and any person controlling the Company, including Thermedics and Thermo Electron. Nothing in this Agreement shall be construed to give any person, other than the persons referred to in this paragraph, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 14. Applicable Law. This Agreement will be governed by and construed in -------------- accordance with the laws of the State of New York, without giving effect to the choice of law or conflict of law principles thereof. 15. Definition of Business Day, Subsidiary and Significant Subsidiary. ----------------------------------------------------------------- For purposes of this Agreement, (a) "business day" means any day on which the American Stock Exchange is open for trading, (b) "Subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations and (c) "Significant Subsidiary" has the meaning set forth in Item 1-02(v) of the Regulation S-X of the Rules and Regulations. 16. Counterparts. This Agreement may be signed in any number of ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. - 24 - 17. Agreement Supersedes. This Agreement shall supersede all provisions -------------------- of any other agreements, whether written or oral, of any of the parties to this Agreement that relate to the transactions contemplated by this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] - 25 - If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company, Thermedics, Thermo Electron and you. Very truly yours, THERMEDICS DETECTION INC. By: ----------------------- Name: Title: THERMEDICS INC. By: ----------------------- Name: Title: THERMO ELECTRON CORPORATION By: ----------------------- Name: Title: Confirmed and accepted as of the date first above written. LEHMAN BROTHERS INC. NATWEST SECURITIES LIMITED as Representatives of the several Underwriters named in Schedule I hereto By: LEHMAN BROTHERS INC. By: ---------------------- Authorized Signatory - 26 - Schedule I ---------- Underwriter Percentage of Securities to be Purchased - ----------- ---------------------------------------- Lehman Brothers Inc. NatWest Securities Limited Total............. 100% - 27 - EX-3.1 3 ARTICLES OF ORGANIZATION EXHIBIT 3.1 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF ORGANIZATION (Under G.L Ch. 156B) ARTICLE I The name of the corporation is: Thermedetec Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: (a) To manufacture and market explosive detection and drug detection devices; (b) To provide drug detection services; and (c) To carry on any other business, operation or activity which may be lawfully carried on by a corporation organized under the provisions of the Business Law of the Commonwealth of Massachusetts. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. ARTICLE III The type and classes of stock and the total number of shares and par value, if any, of each type and class of stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: 200,000 $.10 Preferred: Preferred:
ARTICLE IV If more than one type, class or series of stock is authorized, a description of each with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each type and class thereof and any series now established. None ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are as follows: None ARTICLE VI Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: (If there are no provisions, state "None".) See Continuation Sheets 6A and 6B Note: The preceding six (6) articles are considered to be permanent and may only be changed by filing appropriate Articles of Amendment. ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date which shall not be more than thirty days after the date of filing. The information contained in ARTICLE VIII is NOT a PERMANENT part of the Articles of Organization and may be changed ONLY by filing the appropriate form provided therefor. ARTICLE VIII a. The post office address of the corporation IN MASSACHUSETTS is: 470 Wildwood Street P.O. Box 2999 Woburn, MA 01888 b. The name, residential address and post office address (if different) of the directors and officer of the corporation are as follows:
RESIDENTIAL POST OFFICE NAME ADDRESS ADDRESS President: Louis S. Slaughter 26 Bittersweet Lane P.O. Box 9046 Weston, MA 02193 Waltham, MA 02254 Treasurer: Theo Melas-Kyriazi 15 Norfolk Road P.O. Box 9046 Chestnut Hill, MA Waltham, MA 02254 02167 Clerk: Sandra L. Lambert 149 College Road P.O. Box 9046 Concord, MA 01742 Waltham, MA 02254 Directors: George N. Hatsopoulos 233 Tower Road P.O. Box 9046 Lincoln, MA 01773 Waltham, MA 02254 Robert C. Howard 230 Windsor Road P.O. Box 9046 Waban, MA 02168 Waltham, MA 02254 Firooz Rufeh 185 Hunters Ridge P.O. Box 9046 Road Waltham, MA 02254 Concord, MA 01742 John W. Wood Jr. 132 Williams Road P.O. Box 2999 Concord, MA 01742 Woburn, MA 01888
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: The Saturday nearest December 31 each year d. The name and BUSINESS address of the RESIDENT AGENT of the corporation, if any, is: None ARTICLE IX By-laws of the corporation have been duly adopted and the president, treasurer, clerk and directors whose names are set forth above, have been duly elected. IN WITNESS WHEREOF and under the pains and penalties of perjury, I/WE, whose signature(s) appear below as incorporator(s) and whose names and business or residential address(es) ARE CLEARLY TYPED OR PRINTED beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 6th day of December, 1990. /s/ Shella Lieberman Shella Lieberman, Incorporator Note: If an already-existing corporation is acting as incorporator, type in the exact name of the corporation, the state or other jurisdiction where it was incorporated, the name of the person signing on behalf of said corporation and the title he/she holds or other authority by which such action is taken. THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 12) ========================================= I hereby certify that, upon an examination of these articles of organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $200.00 having been paid, said articles are deemed to have been filed with me this 7th day of December, 1990. Effective date: /s/ Michael J. Connolly MICHAEL J. CONNOLLY Secretary of the Commonwealth FILING FEE: 1/20 of 1% of the total amount of the authorized capital stock with par value, and one cent a share for all authorized shares without par value, but not less than $150 General Laws, Chapter 156B. Shares of stock with a par value of less than one dollar shall be deemed to have par value of one dollar per share. PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 Telephone: (617) 482-4420 CONTINUATION SHEET 6A (a) The corporation may be a partner in any business enterprise which the corporation has power to conduct itself. (b) Meetings of stockholders may be held anywhere in the United States as shall be determined from time to time by the directors or as shall be stated in the call of the meeting. (c) The By-laws may provide that the directors may make, amend or repeal the By-Laws, in whole or in part, except with respect to any provision thereof which by law, by the Articles of Organization or by the By-laws requires action by the stockholders. (d) The By-laws may provide for the indemnification, to the extent legally permissible, of directors, officers, employees or other agents of the corporation, and persons who serve at the corporation's request as directors, officers, employees or other agents of another organization of which the corporation is a stockholder, in which the corporation otherwise holds an ownership interest or of which the corporation is a creditor. (e) The requisite vote to effect an amendment of the Articles of Organization shall be a majority of each class of stock outstanding and entitled to vote thereon, at a meeting duly called for the purpose; provided, only, that any provision added to or changes made in the Articles of Organization by such amendment could have been included in, and any provision deleted thereby could have been omitted from, original Articles of Organization filed at the time of such meeting. (f) The requisite vote for the approval by the corporation of any agreement of consolidation or merger with any other corporation or corporations shall be a majority of each class of stock of the corporation outstanding and entitled to vote thereon. (g) The By-laws may provide that the corporation may enter into contracts and otherwise transact business as a vendor, purchaser, partner, joint venturer or otherwise with any director, officer, or stockholder of the corporation, and with any corporation, joint stock company, business trust, partnership or other entity in which any director, officer or stockholder of this corporation is or may become a director, officer, stockholder, joint venturer, partner, trustee or beneficiary, or in which he may otherwise be or become a party or may have an interest, pecuniary or otherwise; and that no such contract or transaction shall, in the absence of fraud, be affected, invalidated or avoided, and no such director, officer or stockholder shall be held liable to account to the corporation or to any creditor or stockholder of the corporation for any profit or benefit realized by such person through any such contract or transaction, by reason of such adverse interest or by reason of any fiduciary relationship of such director, officer or stockholder to the corporation arising out of such office or stock ownership. CONTINUATION SHEET 6B (h) No director of this corporation shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director notwithstanding any statutory provision or other law imposing such liability, provided, however, that nothing in this clause (h) shall eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 61 or 62 or successor provisions of Chapter 156B of the Massachusetts General Laws or (iv) for any transaction from which the director derived an improper personal benefit. The foregoing provisions of this clause (h) shall not eliminate the liability of a director for any act or omission occurring prior to the date this clause (h) becomes effective. No amendment to or repeal of this clause (h) shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 CERTIFICATE OF CORRECTION (GENERAL LAWS, CHAPTER 156B, SECTION 6A) FEDERAL IDENTIFICATION NUMBER: Applied for. CORPORATE NAME: Thermedetec Inc. DOCUMENT TO BE CORRECTED: Articles of Organization IT IS HEREBY CERTIFIED THAT THE ABOVE MENTIONED DOCUMENT WAS FILED WITH THE OFFICE OF THE SECRETARY OF STATE ON 12/7/90. PLEASE STATE THE INACCURACY OR DEFECT TO BE CORRECTED IN SAID DOCUMENT: In Article I, the name of the corporation was typed incorrectly. The second "t" of the name should have been capitalized. PLEASE STATE CORRECTED VERSION OF THE DOCUMENT: The name of the corporation is: ThermedeTec Inc. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE SIGN OUR NAMES THIS 3rd DAY OF January IN THE YEAR 1991. /s/ Louis S. Slaughter, PRESIDENT Louis S. Slaughter /s/ Sandra L. Lambert, CLERK Sandra L. Lambert NOTE: IF THE INACCURACY OR DEFECT TO BE CORRECTED IS NOT APPARENT ON THE FACE OF THE DOCUMENTS, MINUTES OF THE MEETING SUBSTANTIATING THE ERROR MUST BE FILED WITH THE CERTIFICATE. IF REQUIRED, ADDITIONAL INFORMATION MAY BE STATED ON A SEPARATE 8 1/2 X 11 INCH WHITE PAPER. THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 FEDERAL IDENTIFICATION NO. 04-3106698 We, Louis S. Slaughter, President, and Sandra L. Lambert, Clerk of ThermedeTec Inc. (EXACT name of corporation) located at: 470 Wildwood Street, Woburn, MA 01888 (MASSACHUSETTS Address of Corporation) do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 1 (Number those articles 1, 2, 3, 4, 5, and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on June 1, 1992, by vote of: 100 shares of Common of 100 shares outstanding, type class & series, (if any) _____shares of______of______shares outstanding, and type class & series, (if any) _____shares of______of______shares outstanding, type class & series, (if any) being at least a majority of each type, class or series outstanding and entitled to vote thereon: Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left-hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKs WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: Preferred: Preferred: CHANGE the total authorized to: WITHOUT PAR VALUE STOCK WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: Preferred: Preferred: That Article I of the Corporation's Articles of Organization is hereby amended to read as follows: ARTICLE I The name of the Corporation is: Thermedics Detection Inc. The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. EFFECTIVE DATE:______________________________ IN WITNESS WHEREOF, AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 2nd day of July, in the year 1992. /s/ Louis S. Slaughter Louis S. Slaughter, President /s/ Sandra L. Lambert Sandra L. Lambert, Clerk THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 ====================================== I hereby approve the within articles of amendment and, the filing fee in the amount of $100 having been paid, said articles are deemed to have been filed with me this 6th day of July, 1992. /s/ Michael J. Connolly MICHAEL J. CONNOLLY Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 Telephone: (617) 482-4420 FEDERAL IDENTIFICATION NO. 04-3106698 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, John W. Wood, Jr., President, and Sandra L. Lambert, Clerk of Thermedics Detection Inc. (Exact name of corporation) located at 220 Mill Road, Chelmsford, MA (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: III (Number those articles 1, 2, 3, 4, 5, and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on 20th, 1996, by vote of: 100 shares of Common of 100 shares outstanding, (type class & series, if any) _____shares of______of______shares outstanding, and (type class & series, if any) _____shares of______of______shares outstanding, (type class & series, if any) being at least a majority of each type, class or series outstanding and entitled to vote thereon Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue fill in the following: The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: 200,000 $.10 Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: 15,000,000 $.10 Preferred: Preferred:
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter, 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date:______________________________ SIGNED UNDER THE PENALTIES OF PERJURY this 21st day of March, 1996. /s/ John W. Wood, Jr. John W. Wood, Jr., President /s/ Seth H. Hoogasian Seth H. Hoogasian, Assistant Clerk THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) ======================================== I hereby approve the within Articles of Amendment and, the filing fee in the amount of $______ having been paid, said articles are deemed to have been filed with me this 22nd day of March, 1996. Effective date:_____________________________ /s/ William Francis Galvin WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 FEDERAL IDENTIFICATION NO. 04-3106698 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Jeffrey J. Langan, President, and Sandra L. Lambert, Clerk of Thermedics Detection Inc. (Exact name of corporation) located at 220 Mill Road, Chelmsford, Massachusetts (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: III (Number those articles 1, 2, 3, 4, 5, and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on January 31, 1997, by vote of: 10,301,000 shares of Common of 10,683,500 shares outstanding, (type class & series, if any) _____shares of______of______shares outstanding, and (type class & series, if any) _____shares of______of______shares outstanding, (type class & series, if any) being at least a majority of each type, class or series outstanding and entitled to vote thereon Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue fill in the following: The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: 15,000,000 $.10 Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF TYPE NUMBER OF PAR SHARES SHARES VALUE Common: Common: 50,000,000 $.10 Preferred: Preferred:
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter, 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date:______________________________ SIGNED UNDER THE PENALTIES OF PERJURY this 31st day of January, 1997. /s/ Jeffrey J. Langan Jeffrey J. Langan, President /s/ Sandra L. Lambert Sandra L. Lambert, Clerk THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) ======================================== I hereby approve the within Articles of Amendment and, the filing fee in the amount of $______ having been paid, said articles are deemed to have been filed with me this 31st day of January, 1997. Effective date:_____________________________ /s/ William Francis Galvin WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 EX-4.2 4 SPECIMEN RIGHTS CERTIFICATE EX 4.2 ------ [FRONT OF RIGHTS CERTIFICATE] THERMEDICS DETECTION INC. CONTROL NUMBER SUBSCRIPTION CERTIFICATE SUBSCRIPTION REPRESENTING RIGHTS TO CERTIFICATE FOR PURCHASE SHARES OF COMMON STOCK, $.10 PAR VALUE, OF THERMEDICS DETECTION INC. ("COMMON STOCK"). VOID IF NOT EXERCISED BEFORE 5:00 P.M. EASTERN TIME ON MARCH __, 1997. THIS SUBSCRIPTION CERTIFICATE SHARES IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED (BUT ONLY SUBSCRIPTION PRICE: INTO CERTIFICATES EVIDENCING A U.S.$_____ PER SHARE WHOLE NUMBER OF RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT. THE TERMS AND CONDITIONS CUSIP ___________ OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S PROSPECTUS DATED FEBRUARY __, 1997 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM AMERICAN STOCK TRANSFER & TRUST COMPANY, THE SUBSCRIPTION AGENT. REGISTERED OWNER: The registered owner whose name is inscribed hereon, or assigns, is entitled to subscribe for shares of Common Stock upon the terms and subject to the conditions set forth in the Prospectus and instructions relating thereto. The Rights represented by this Subscription Certificate may be exercised by duly completing Form 1; may be transferred, assigned, exercised or sold through a bank or broker by completing Form 2; and may be sold through the Subscription Agent by duly completing Form 3. Special delivery instructions may be specified by completing Form 4. THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY NOT BE EXERCISED, TRANSFERRED, ASSIGNED OR SOLD UNLESS THE REVERSE SIDE HEREOF IS SIGNED, WITH A SIGNATURE GUARANTEED IN ACCORDANCE WITH THE MEDALLION SIGNATURE GUARANTEE PROGRAM, IF APPLICABLE, AND THE APPROPRIATE FORM IS COMPLETED. Dated: [ THERMEDICS DETECTION INC. ] [ Corporate Seal ] Secretary President and Chief Executive Officer [BACK OF RIGHTS CERTIFICATE] THERMEDICS DETECTION INC. RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCE THEREBY. FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably ------ exercises one or more Rights to subscribe for shares of Common Stock as indicated below, on the terms and subject to the conditions specified in the Prospectus, receipt of which is hereby acknowledged. (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege (one Right needed to subscribe for each full share): _______________ (b) Number of shares subscribed for pursuant to the Oversubscription Privilege: _______________ (c) Total Subscription Price (total number of shares subscribed for pursuant to both the Basic Subscription Privilege and the Oversubscription Privilege -- times the Subscription Price of $_____): _______________ (1) METHOD OF PAYMENT (CHECK ONE) [_] CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY. [_] WIRE TRANSFER DIRECTED TO AMERICAN STOCK TRANSFER & TRUST COMPANY AT ITS ACCOUNT MAINTAINED AT CHEMICAL BANK, 55 WATER STREET, NEW YORK, NEW YORK 10041, ACCOUNT NO. ____________, ABA NO. 021 000 128. (1) If the amount enclosed or transmitted is not sufficient to pay the Subscription Price for all shares that are stated to be subscribed for, or if the number of shares being subscribed for is not specified, the number of shares subscribed for will be assumed to be the maximum number that could be subscribed for upon payment of such amount. If the number of shares to be subscribed for pursuant to the Oversubscription Privilege is not specified and the amount enclosed or transmitted exceeds the Subscription Price for all shares that the undersigned has the right to purchase pursuant to the Basic Subscription Privilege (the "Subscription Excess"), the person subscribing pursuant hereto shall be deemed to have exercised the Oversubscription Privilege to purchase, to the extent available, that number of whole shares of Thermedics Detection Common Stock equal to the quotient obtained by dividing the Subscription Excess by $_____. The amount remaining after such division shall be returned to the subscriber without interest or deduction. (d) If the number of Rights being exercised pursuant to the Basic Subscription Privilege is less than all of the Rights represented by this Subscription Certificate (check only one): [_] DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS TO WHICH I AM ENTITLED. [_] DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any required signature guarantees). [_] SELL THE REMAINING UNEXERCISED RIGHTS IN ACCORDANCE WITH MY FORM 3 INSTRUCTIONS. [_] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s).......................................... Window Ticket Number (if any)........................................... Date of Execution of Notice of Guaranteed Delivery...................... Name of Institution which Guaranteed Delivery........................... FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OR ------ YOUR RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received, _____ Rights represented by this Subscription Certificate are hereby assigned to (please print name and address and Social Security No. or Taxpayer ID No. of transferee in full): ------------------------------------ Name:....................................... PROVIDE GUARANTEE Address:.................................... OF SIGNATURE(S) ............................................ BELOW IF TRANSFEREE IS ............................................ NOT A BANK OR BROKER ............................................ ------------------------------------ Social Security No. or Taxpayer ID No. [_] FORM 3 - CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH THE ------ SUBSCRIPTION AGENT: Check box if the undersigned hereby authorizes the Subscription Agent to sell any Rights represented by this Subscription Certificate but not exercised hereby and to deliver to the undersigned a check for the net proceeds. [_] FORM 4 - DELIVERY INSTRUCTIONS: Name and/or address for mailing any ------ stock, new Subscription Certificate or cash payment if other than shown on the reverse hereof: ------------------------------------ Name:....................................... PROVIDE GUARANTEE OF Address:.................................... SIGNATURE(S) BELOW ............................................ ------------------------------------ (Including Zip Code) - -------------------------------------------------------------------------------- IMPORTANT Area Code and RIGHTS HOLDERS SIGN HERE Telephone Number....................... AND, IF RIGHTS ARE BEING SOLD OR (Home) EXERCISED, COMPLETE SUBSTITUTE FORM W-9 ....................................... .................................. (Business) .................................. (Signature(s) of Holder(s) Tax Identification or Social Security No.................... Dated:......................, 1997 (Complete Substitute Form W-9) (Must be signed by the registered holder(s) exactly as name(s) GUARANTEE OF SIGNATURE(S) appear(s) on this Subscription Note: See paragraph 5(c) of Certificate. If signature is by Instructions trustee(s), executor(s), administrator(s), guardian(s), Authorized Signature .................. attorney(s)-in-fact, agent(s), officer(s) of a corporation or Name................................... another acting in a fiduciary capacity, please provide the Title.................................. following information. See Instructions.) Name of Firm .......................... Name(s)........................... Address................................ .................................. (Please Print) Area Code and Telephone Number ........ Capacity.......................... Dated............................, 1997 Address........................... .................................. (Including Zip Code) EX-5 5 OPINION OF SETH J. HOOGASIAN, ESQ. EXHIBIT 5 Thermedics Detection Inc. 220 Mill Road Chelmsford, Massachusetts 01824-4178 February 5, 1997 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, DC 20549 Re: Registration Statement on Form S-1 (Registration No. 333-19199) Relating to Shares of Common Stock, Par Value $.10 Per Share, of Thermedics Detection Inc. and Subscription Rights to Purchase Such ------------------------------------------------------------------ Shares ------ Ladies and Gentlemen: I am General Counsel to Thermedics Detection Inc. (the "Company") and have acted as counsel in connection with the registration under the Securities Act of 1933, as amended (the "Act"), on Form S-1 (Registration No. 333-19199) (the "Registration Statement") of (i) shares of the Company's Common Stock, par value $.10 per share (the "Common Stock"), with a proposed maximum aggregate offering price of $34,488,000 (such shares, together with any shares of Common Stock registered under a registration statement related to the offering contemplated by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Act (a "462(b) Registration Statement"), are collectively referred to herein as the "Shares") and (ii) transferable subscription rights (the "Rights") to purchase the Shares. I or a member of my legal staff have reviewed the corporate proceedings taken by the Company with respect to the authorization of the issuance of the Shares and the Rights. I or a member of my legal staff have also examined and relied upon originals or copies, certified or otherwise authenticated to my satisfaction, of all corporate records, documents, agreements, or other instruments of the Company and have made all investigations of law and have discussed with the Company's representatives all questions of fact that I have deemed necessary or appropriate. Based upon and subject to the foregoing, I am of opinion that the Shares and the Rights have been duly authorized by the Company, and, when issued as contemplated by the Registration Statement, or by a 462(b) Registration Statement, will be validly issued, fully paid and non-assessable. Pursuant to the requirements of the Act, I hereby consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to any 462(b) Registration Statement, including any amendments thereto, and to the use of my name under the caption "Legal Opinions" in any prospectus constituting a part thereof. Very truly yours, Seth H. Hoogasian General Counsel SHH/pll EX-10.9 6 $21.2 MILLION PRINCIPAL AMOUNT PROMISSORY NOTE EXHIBIT 10.9 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE SECURITIES OR (2) UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. Thermedics Detection Inc. Promissory Note Due March 31, 1998 Woburn, Massachusetts December 15, 1996 For value received, Thermedics Detection Inc., a Massachusetts corporation (the "Company"), hereby promises to pay to Thermedics Inc. (hereinafter referred to as the "Payee"), or registered assigns, on March 31, 1998, as described below, the principal sum of twenty-one million two hundred thousand dollars ($21,200,000) or such part thereof as then remains unpaid, to pay interest from the date hereof on the whole amount of said principal sum remaining from time to time unpaid at a rate per annum equal to the rate of the Commercial Paper Composite Rate as reported by Merrill Lynch Capital Markets, as an average of the last five business days of the fiscal quarter, plus twenty-five (25) basis points, such interest to be payable in arrears on the first day of each fiscal quarter of the Company during the term set forth herein, until the whole amount of the principal hereof remaining unpaid shall become due and payable, and to pay interest on all overdue principal and interest at a rate per annum equal to the rate of interest announced from time to time by The First National Bank of Boston at its head office in Boston, Massachusetts as its "base rate" plus one percent (1%). Principal and all accrued but unpaid interest shall be repaid on March 31, 1998. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Payee or at such other place as the legal holder may designate from time to time in writing to the Company. Interest shall be computed on an actual 360-day basis. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. All prepayments shall be applied first to accrued interest and then to principal. 1 The then unpaid principal amount of, and interest outstanding on, this Note shall be and become immediately due and payable without notice or demand, at the option of the holder hereof, upon the occurrence of any of the following events: (a) the failure of the Company to pay any amount due hereunder within ten (10) days of the date when due; (b) any representation, warranty or statement made or furnished to the Payee by the Company in connection with this Note or the transaction from which it arises shall prove to have been false or misleading in any material respect as of the date when made or furnished; (c) the failure of the Company to pay its debts as they become due, the insolvency of the Company, the filing by or against the Company of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Company of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Company; (d) the sale by the Company of all or substantially all of its assets; (e) the merger or consolidation of the Company with or into any other corporation in a transaction in which the Company is not the surviving entity; (f) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Company or any liability or obligation of the Company to the holder hereof; and (g) the suspension of the transaction of the usual business of the Company. Upon surrender of this Note for transfer or exchange, a new Note or new Notes of the same tenor dated the date to which interest has been paid on the surrendered Note and in an aggregate principal amount equal to the unpaid principal amount of the Note so surrendered will be issued to, and registered in the name of, the transferee or transferees. The Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes. In case any payment herein provided for shall not be paid when due, the Company further promises to pay all cost of collection, including all reasonable attorneys' fees. 2 No delay or omission on the part of the Payee in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Payee, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Company hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Payee. This Note shall be governed by and construed in accordance with, the laws of the Commonwealth of Massachusetts and shall have the effect of a sealed instrument. This note replaces the previous Thermedics Detection Note of $21,200,000 to Thermedics with a maturity of March 31, 1997. THERMEDICS DETECTION INC. By: /s/ Jeffrey J. Langan --------------------- Jeffrey J. Langan President [Corporate Seal] Attest: /s/ Sandra L. Lambert - --------------------- Sandra L. Lambert Clerk 3 EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermedics Detection Inc.: As independent public accountants, we hereby consent to the use of our reports dated February 3, 1997 (and to all references to our Firm) included in or made a part of this Registration Statement and related Prospectus of Thermedics Detection Inc. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 EX-23.2 8 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Moisture Systems Corporation and Moisture Systems Limited: As independent public accountants, we hereby consent to the use of our report dated February 3, 1997 (and to all references to our Firm) included in or made a part of this Registration Statement and related Prospectus of Thermedics Detection Inc. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 EX-23.3 9 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Thermedics Detection Inc. on Form S-1 of our report dated January 29, 1997 (relating to the consolidated financial statements of Rutter & Co. B.V. for the period from January 25, 1996 to December 28, 1996, not presented separately herein) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the use in this Registration Statement of Thermedics Detection Inc. on Form S-1 of our report dated March 13, 1996 (except for the disclosures included in the supplementary information under the caption "United States Generally Accepted Accounting Principles (U.S. GAAP)" which is as of December 20, 1996) relating to the consolidated financial statements of Rutter & Co. B.V. for the two years ended December 31, 1995 appearing in this Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche Registeraccountants Almelo, The Netherlands February 4, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS DETECTION ANNUAL REPORT FOR THE FISCAL YEAR ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-28-1996 DEC-28-1996 13,484 0 10,602 1,215 8,793 34,691 5,683 3,899 53,483 11,333 0 0 0 1,068 19,842 53,483 31,255 43,750 15,417 22,150 4,608 582 1,119 589 227 0 0 0 0 362 .04 0
EX-99.1 11 FORM OF SUBSCRIPTION AGENCY AGREEMENT EXHIBIT 99.1 Draft 2/5/97 ------------ THERMEDICS DETECTION INC. AND AMERICAN STOCK TRANSFER & TRUST COMPANY ---------------------- SUBSCRIPTION AGENCY AGREEMENT DATED AS OF FEBRUARY __, 1997 SUBSCRIPTION AGENCY AGREEMENT dated as of February __, 1997 by and between Thermedics Detection Inc., a Massachusetts corporation (the "Company"), and American Stock Transfer & Trust Company as Subscription Agent (the "Subscription Agent"). WHEREAS, the Company has caused a Registration Statement on Form S-1 (Registration No. 333-19199) under the Securities Act of 1933, as amended (the "Act"), to be filed with the Securities and Exchange Commission (the "Commission") relating to the distribution by the Company of transferable subscription rights (the "Rights") and sale of newly issued shares of the Company's common stock, par value $.10 per share (the "Common Stock"), upon the exercise of such Rights (such Registration Statement, in the form in which it first becomes effective under the Act, and as it may thereafter be amended from time to time, is referred to herein as the "Registration Statement"; the distribution of the Rights and the sale of shares of Common Stock upon the exercise thereof as contemplated by the Registration Statement is referred to herein as the "Rights Offering"); WHEREAS, the Rights will be distributed to holders of record of shares of Common Stock as of the close of business on February 6, 1997 (the "Record Date") at a rate of approximately .366 Rights for each share of Common Stock held on the Record Date (except as provided for in the following paragraph); WHEREAS, a portion of the Rights will be distributed to Thermedics Inc., a Massachusetts corporation ("Thermedics"), as a holder of record of Common Stock and redistributed by Thermedics to holders of record of shares of its Common Stock, par value $.05 per share ("Thermedics Common Stock"), including Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"), on _______________ __, 1997 (the "Thermedics Record Date") at a rate of .10 Rights for each share of Thermedics Common Stock held on the Thermedics Record Date; WHEREAS, Thermo Electron will not distribute the Rights it receives to the holders of record of its shares, but may, at its discretion, exercise its Rights or sell its Rights; WHEREAS, the Company has reserved for issuance, and has authorized the issuance of, an aggregate number of authorized and unissued or treasury shares of Common Stock (the "Underlying Shares") equal to the aggregate number of Rights to be distributed pursuant to the Rights Offering; WHEREAS, Rights holders will be entitled to subscribe to purchase, at a per share price of $______ (the "Subscription Price"), one Underlying Share for each Right held (the "Basic Subscription Privilege") and may also subscribe to purchase additional Underlying Shares, to the extent that any such shares are not purchased due to the non-exercise of Rights (the "Oversubscription Privilege"); and -2- WHEREAS, the Company desires the Subscription Agent to act on its behalf in connection with the Rights Offering as set forth herein, and the Subscription Agent is willing so to act. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto hereby agree as follows: SECTION 1. Appointment of Subscription Agent. The Company hereby appoints --------------------------------- the Subscription Agent to act as agent for the Company in accordance with the instructions set forth in this Agreement, and the Subscription Agent hereby accepts such appointment. The Company may from time to time appoint such co- subscription agents as it may deem necessary or desirable. SECTION 2. Issue of Securities. ------------------- (a) The Company has distributed or will distribute the Rights to holders of record of shares of Common Stock as of the close of business on the Record Date (certain of which Rights are to be distributed by Thermedics as a holder of Common Stock to holders of record shares of Thermedics Common Stock as of the close of business on the Thermedics Record Date). The Company will promptly notify the Subscription Agent upon the effectiveness of the Registration Statement. As transfer agent and registrar for the shares of Common Stock, the Subscription Agent shall provide such assistance as the Company may require in order to effect the distribution of the Rights to holders of record of shares of Common Stock as of the close of business on the Record Date (or to holders of record of shares of Thermedics Common Stock on the Thermedics Record Date, as the case may be) (it being understood that Subscription Certificates (as defined in Section 3(b) hereof) or International Holder Subscription Forms (as defined in Section 3(c) hereof), as the case may be, shall be mailed to record holders (except those located in the United Kingdom, which holders must contact Lehman Brothers International (Europe)) of (i) the Common Stock together with a copy of the Prospectus no later than two business days following the [Thermedics] Record Date and (ii) Thermedics Common Stock together with a copy of the Prospectus no later than two business days following the date upon which the Subscription Agent receives a final list of record holders of Thermedics Common Stock as of the Thermedics Record Date), including assistance in determining the number of Rights to be distributed to each such record holder and assistance in distributing the Subscription Certificates evidencing the Rights or International Holder Subscription Forms, as the case may be. (b) The Company has authorized the issuance of and will hold in reserve the Underlying Shares, and upon the valid exercise of Rights, the Company will issue Underlying Shares to validly exercising Rights holders as set forth in the Registration Statement. SECTION 3. Basic Subscription Privilege; Oversubscription Privilege; Form -------------------------------------------------------------- of Subscription Certificates. - ---------------------------- -3- (a) Each Right carries with it a Basic Subscription Privilege and an Oversubscription Privilege. (i) Pursuant to each Right's Basic Subscription Privilege, the Right grants to the holder thereof, upon the valid exercise of the Right pursuant to Section 7 hereof, the right to purchase from the Company one Underlying Share for the Subscription Price. (ii) Pursuant to each Right's Oversubscription Privilege, the Right grants to the holder thereof, upon the valid exercise thereof pursuant to Section 7 hereof, and subject to the exercise of the Basic Subscription Privilege represented by such Right, the right, subject to the availability thereof as set forth below, to purchase from the Company additional Underlying Shares for the Subscription Price. Underlying Shares will be available for purchase pursuant to the Oversubscription Privilege only to the extent that the maximum number of Underlying Shares are not subscribed for through the exercise of all Basic Subscription Privileges by the Expiration Date (as defined below). If the Underlying Shares so available ("Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess Shares will be allocated pro rata (subject to the elimination of fractional shares) among those holders of Rights exercising the Oversubscription Privilege, in proportion, not to the number of shares requested pursuant to the Oversubscription Privilege, but to the number of shares they have purchased pursuant to the Basic Subscription Privilege; provided, however, that if such pro rata allocation results in any holder being allocated a greater number of Excess Shares than such holder subscribed for pursuant to the exercise of such holder's Oversubscription Privilege, then such holder will be allocated only such number of Excess Shares as such holder subscribed for and the remaining Excess Shares will be allocated among all other holders exercising Oversubscription Privileges. (iii) Banks, brokers and other nominee holders of Rights who exercise Rights and the Oversubscription Privilege on behalf of beneficial owners of Rights shall be required to certify to the Subscription Agent and the Company (by delivery to the Subscription Agent of a Nominee Holder Certification substantially in the form of Exhibit B hereto), in connection ------- - with the exercise of the Oversubscription Privilege, as to the aggregate number of Rights that have been exercised, and the number of Oversubscription Shares that are being subscribed for by each beneficial owner of Rights on whose behalf such nominee holder is acting. If more Underlying Shares are subscribed for pursuant to the Oversubscription Privilege than are available for sale, Underlying Shares will be allocated among persons exercising the Oversubscription Privilege in proportion to such persons' exercise of Rights pursuant to the Basic Subscription Privilege. (b) The Rights shall be evidenced by subscription certificates (the "Subscription Certificates"). The Subscription Certificates (and the form of election to exercise or transfer Rights to be printed on the reverse thereof) shall be substantially in the form attached -4- as Exhibit A hereto. The Subscription Certificates shall be fully transferable ------- - in the manner provided for herein. (c) Subscription Certificates will not be provided to holders of record whose addresses are outside the United States or who have an APO or FPO address, but will be held by the Subscription Agent for their account. To exercise or sell Rights, such international holders must notify the Subscription Agent by completing an international holder subscription form (the "International Holder Subscription Form") which will be delivered by the Subscription Agent to such international holders (except those located in the United Kingdom ) in lieu of a Subscription Certificate, and sending it by mail or telecopy to the Subscription Agent. International holders located in the United Kingdom will not initially be provided with International Holder Subscription Forms. These international holders who are interested in participating in the Rights Offering should contact Lehman Brothers International (Europe). SECTION 4. Signature and Registration. -------------------------- (a) The Subscription Certificates shall be executed on behalf of the Company by two of its executive officers. Any Subscription Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Subscription Certificate, shall be a proper officer of the Company to sign such Subscription Certificate, even if at the date of the execution of this Agreement or the date of the actual issuance of such certificate any such person is not such an officer. (b) The Subscription Agent will keep or cause to be kept, at its principal offices in New York, books for registration and transfer of the Rights issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights and the number of Rights evidenced by each outstanding Subscription Certificate. SECTION 5. Division, Combination and Exchange of Subscription -------------------------------------------------- Certificates; Mutilated, Destroyed, Lost or Stolen Subscription Certificates. - ---------------------------------------------------------------------------- (a) Subject to the provisions of Section 9 hereof, any Subscription Certificate, or any two or more Subscription Certificates, may be divided, combined or exchanged for any number of Subscription Certificates or for a single Subscription Certificate of different denominations; provided, however, that the aggregate number of Rights evidenced by the Subscription Certificate or Subscription Certificates so issued shall not exceed the aggregate number of Rights evidenced by the Subscription Certificate or Subscription Certificates surrendered in exchange therefore. The foregoing notwithstanding, a bank, trust company, securities dealer or broker holding shares of Common Stock on the Record Date for more than one beneficial owner may, upon proper showing to the Subscription Agent, exchange its Subscription Certificate to obtain Subscription Certificates for the number of Rights which each such beneficial owner would have been entitled to receive pursuant to Section 9(a) hereof had each such beneficial owner been the holder of record of such beneficial owner's shares on the Record Date; provided, however, that the Company reserves the right to refuse to issue any such Subscription Certificate or Subscription Certificates if such issuance would be inconsistent with -5- the principle that each beneficial owner's holding will be rounded down to the nearest whole Right. No Subscription Certificates evidencing fractional Rights will be issued upon division, combination or exchange of other Subscription Certificates, and any instructions to divide, combine or exchange Subscription Certificates which would result in the issuance of Subscription Certificates evidencing fractional Rights shall be rejected. Any holder desiring to divide, combine or exchange any Subscription Certificate or Subscription Certificates shall make such requests in writing to the Subscription Agent, and shall surrender the Subscription Certificate or Subscription Certificates (to be divided, combined or exchanged) to the Subscription Agent. Thereupon the Subscription Agent shall deliver to the person entitled thereto a Subscription Certificate or Subscription Certificates, as the case may be, as so requested. In all cases of transfer by an attorney-in-fact, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Subscription Agent. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority satisfactory to the Subscription Agent shall be produced and may be required to be deposited and to remain with the Subscription Agent in its discretion. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any division, combination or exchange of Subscription Certificates. (b) Upon receipt by the Company and the Subscription Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Subscription Certificate, and, in case of loss, theft or destruction, of indemnity and/or security satisfactory to them which may be in the form of an open penalty bond, and reimbursement to the Company and the Subscription Agent of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Subscription Certificate if mutilated, the Company will make and deliver a new Subscription Certificate of like tenor to the Subscription Agent for delivery to the registered owner in lieu of the Subscription Certificate so lost, stolen, destroyed or mutilated. If required by the Company or the Subscription Agent, an indemnity bond must be sufficient in the judgment of both to protect the Company, the Subscription Agent or any agent thereof from any loss which any of them may suffer if a Subscription Certificate is replaced. SECTION 6. Subsequent Issue of Subscription Certificates. Subsequent to --------------------------------------------- their original issuance, no Subscription Certificates shall be issued except (a) Subscription Certificates issued upon any transfer, combination, division or exchange of Rights pursuant to Section 5(a) or 10 hereof, (b) Subscription Certificates issued in replacement of mutilated, destroyed, lost or stolen Subscription Certificates pursuant to Section 5(b) hereof and (c) Subscription Certificates issued pursuant to Section 7(e) hereof upon the partial exercise of any Subscription Certificate to evidence the unexercised portion of such Subscription Certificate. SECTION 7. Exercise of Rights; Exercise Price; Expiration Date. --------------------------------------------------- (a) The holder of any Subscription Certificate may exercise some or all of the Rights evidenced thereby (but not in amounts of less than one Right or an integral multiple thereof) by delivering to the Subscription Agent, on or prior to 5:00 p.m., Eastern time, on _______________ __, 1997 (the "Expiration Date"), a properly completed and executed -6- Subscription Certificate evidencing such Rights (with signatures guaranteed by an eligible guarantor institution which is a participant in a securities transfer association recognized program (each, an "Eligible Guarantor")) together with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. In the case of holders of Rights that are held of record through The Depository Trust Company ("DTC"), exercises of the Basic Subscription Privilege (but not the Oversubscription Privilege) may be effected by instructing DTC to transfer Rights (such Rights being "DTC Exercised Rights") from the DTC account of such holder to the DTC account of the Subscription Agent, together with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege. The Oversubscription Privilege in respect of DTC Exercised Rights may not be exercised through DTC. The holder of a DTC Exercised Right may exercise the Oversubscription Privilege in respect of such DTC Exercised Right by properly executing and delivering to the Subscription Agent at or prior to 5:00 p.m., Eastern time, on the Expiration Date, a DTC Participant Oversubscription Exercise Form, substantially in the form of Exhibit C hereto, together with --------- payment of the appropriate Subscription Price for the number of Underlying Shares for which the Oversubscription Privilege is to be exercised. Alternatively, the holder of any Subscription Certificate may exercise the Rights evidenced thereby by effecting compliance with the procedures for guaranteed delivery set forth in Section 7(b) below. (b) If a holder wishes to exercise Rights, but time will not permit such holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions (the "Guaranteed Delivery Procedures") are met: (i) such holder has caused payment in full of the Subscription Price for each Underlying Share being subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege to be received (in the manner set forth in Section 7(d) hereof) by the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form provided with the Instructions as to Use of Thermedics Detection Inc. Subscription Certificates and International Holder Subscription Forms (the "Instructions") distributed with the Subscription Certificates, from a commercial bank or trust company having an office or correspondent in the United States or a member firm of a national securities exchange or a member of the National Association of Securities Dealers, Inc. (each, an "Eligible Institution"), stating the name of the exercising Rights holder, the number of Rights represented by the Subscription Certificate or Subscription Certificates held by such exercising Rights holder, the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege and the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the delivery to the Subscription Agent of the Subscription Certificate evidencing such Rights within five American Stock Exchange ("AMEX") trading days following the date of the Notice of Guaranteed Delivery, provided that if such a Notice of Guaranteed Delivery -7- relates to Rights with respect to which exercise of the Basic Subscription Privilege will be made through DTC and such Notice of Guaranteed Delivery also relates to the exercise of the Oversubscription Privilege, a DTC Participant Oversubscription Exercise Form must also be received by the Subscription Agent in respect of such exercise of the Oversubscription Privilege on or prior to the Expiration Date; and (iii) the properly completed Subscription Certificate[s] evidencing the Rights being exercised, with any required signatures guaranteed, are received by the Subscription Agent, or such Rights are transferred into the DTC account of the Subscription Agent, within five AMEX trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by telegram or facsimile transmission (telecopy no. 718-234-5001). (c) The Rights shall expire at 5:00 p.m., Eastern time, on the Expiration Date. (d) The "Subscription Price" shall be $_____ per share of Common Stock subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege payable (in United States dollars) (i) by check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to the Subscription Agent, or (ii) by wire transfer of funds to the account maintained by the Subscription Agent for such purpose at Chemical Bank, 55 Water Street, New York, New York 10041, Account No. 323-294723; ABA No._______________. The Subscription Price shall be deemed to have been received by the Subscription Agent only upon (i) clearance of any uncertified check, (ii) receipt by the Subscription Agent of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic or express money order or (iii) receipt of good funds in the Subscription Agent's account designated above, in payment of the Subscription Price. (e) If an exercising Rights holder has not indicated the number of Rights being exercised, or if the Subscription Price payment forwarded by such holder to the Subscription Agent is not sufficient to purchase the number of shares subscribed for, the Rights holder will be deemed to have exercised the Basic Subscription Privilege with respect to the maximum number of whole Rights which may be exercised for the Subscription Price delivered to the Subscription Agent and, to the extent that the Subscription Price payment delivered by such holder exceeds the Subscription Price multiplied by the number of Rights exercised (such excess being the "Subscription Excess"), the holder will be deemed to have exercised its Oversubscription Privilege to purchase, to the extent available, a number of whole Underlying Shares equal to the quotient obtained by dividing the Subscription Excess by the Subscription Price. (f) Funds received by the Subscription Agent in payment of the Subscription Price for Underlying Shares subscribed for pursuant to the Oversubscription Privilege shall be held in a segregated, interest-bearing account pending allocation pursuant to Section 3(a)(ii) hereof and eventual distribution pursuant to Section 8(a) hereof. The Company shall have sole -8- discretion in determining how the funds in such account shall be invested, and all interest and gains earned on such funds shall be paid to the Company. If a Rights holder exercising the Oversubscription Privilege is allocated less than all of the shares of Common Stock which such holder subscribed for pursuant to the Oversubscription Privilege, the Subscription Agent, as soon as practicable after the Expiration Date, shall mail to such Rights holder the Subscription Price paid by such holder in respect of the number of shares that were subscribed for but not ultimately issued, without interest or deduction. (g) In case the holder of any Subscription Certificate shall exercise less than all the Rights evidenced thereby, a new Subscription Certificate evidencing the number of rights remaining unexercised shall be issued by the Subscription Agent to the registered holder of such subscription Certificate or to his duly authorized assigns, subject to the provisions of Section 9 hereof, to the extent the Subscription Agent is able to reissue a Subscription Certificate prior to the Expiration Date. (h) The Subscription Agent is authorized to accept only Subscription Certificates (other than Subscription Certificates delivered in accordance with the procedure for guaranteed delivery set forth in Section 7(b)), or transfers of Rights to its account at DTC, received prior to 5:00 p.m., Eastern time, on the Expiration Date. (i) Once a holder of Rights has exercised a Right, such exercise may not be revoked. (j) Notwithstanding anything to the contrary contained herein, the Company has agreed to allow the Standby Underwriters (as defined below) to exercise any Rights held by them on the business day following the Expiration Date. SECTION 8. Payment for Common Stock; Delivery of Stock Certificates. -------------------------------------------------------- (a) The closing of the sale of the Common Stock upon exercise of the Rights (the "Closing") will take place at 10:00 a.m., Eastern time, on the sixth business day following the Expiration Date, or (if less than 1,000,000 shares of Common Stock are properly subscribed for pursuant to the Rights Offering) at such other date and time as the closing of the sale of Common Stock to the underwriters for whom Lehman Brothers Inc. and NatWest Securities Limited (collectively, the "Representatives") are acting as representatives (the "Standby Underwriters") shall occur pursuant to Section 3 of the Standby Underwriting Agreement (the "Underwriting Agreement") between the Company and the Representatives (such date and time being referred to herein as the "Closing Date"). At the Closing, the Subscription Agent shall pay, by wire transfer, certified or bank check or other method acceptable to the Company, the amount of all funds received by the Subscription Agent in payment of the Subscription Price for Underlying Shares subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. Notwithstanding the foregoing, the Closing shall not occur if less than an aggregate of 1,000,000 shares of Common Stock are sold through the exercise of Rights or to the Standby Underwriters. If the Company notifies the Subscription Agent that the Closing will not occur due to the failure of the condition described in the preceding sentence, the -9- Subscription Agent, as soon as practicable after receipt of such notice, shall mail to each Rights holder the Subscription Price paid by such holder in respect of the number of shares that were subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, without interest or deduction. The Company shall deliver, or arrange to have delivered, at the Closing the number of shares of Common Stock as are properly subscribed for pursuant to the Rights Offering and as soon as practicable after the Closing, the Subscription Agent shall deliver to each exercising Rights holder certificate(s) representing the shares of Common Stock purchased pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. (b) In the event that the Standby Underwriters shall become obligated to purchase any of the Underlying Shares not subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, the Company will give the Subscription Agent not less than two business days' notice in writing as to the number of shares of Common Stock which are to be issued, and as to the date fixed for the delivery thereof to the Standby Underwriters, together with a list of the names and denominations in which certificates for such shares are to be issued. The Subscription Agent will be prepared to deliver the certificates representing the shares of Common Stock to be so purchased at the offices of the Representatives on the date specified in such notice and will make such certificates available at the offices of the Representatives for inspection, checking and packaging not later than 1:00 p.m. on the business day prior to the date specified in such notice for such delivery. SECTION 9. Fractional Rights and Shares. ---------------------------- (a) The Company shall not issue fractions of Rights nor shall the Subscription Agent distribute Subscription Certificates which evidence fractional Rights. The number of Rights issued to each holder will be rounded up to the nearest whole number. (b) The Company shall not issue fractional shares of Common Stock to exercising Rights holders upon exercise and acceptance of Rights. The number of shares of Common Stock that each Rights holder shall be entitled to purchase pursuant to the Oversubscription Privilege shall be rounded down to the nearest whole share. SECTION 10. Transfer of Rights. ------------------ (a) Any holder may transfer (a) all of the Rights evidenced by a Subscription Certificate by properly endorsing the Subscription Certificate for transfer in accordance with the instructions accompanying the Subscription Certificate or (b) some of the Rights evidenced by a Subscription Certificate (but not fractional Rights) by delivering to the Subscription Agent such Subscription Certificate properly endorsed for transfer, with instructions to register the Rights to be transferred in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, the Subscription Agent shall issue a new Subscription Certificate (together with a copy of the Prospectus) evidencing the balance of the Rights to the holder or, if so instructed, to an additional transferee. However, -10- notwithstanding the foregoing, the Subscription Agent will reissue Subscription Certificates for the transferred Rights to the transferee, and will reissue Subscription Certificates for the balance, if any, to the holder of Rights, only to the extent it is able to do so before the Expiration Date. For purposes of this Agreement the term "properly endorsed for transfer" shall mean that each and every signature of a registered holder or holders or assigns shall be made or guaranteed by an Eligible Institution. (b) Any holder may place an order with the Subscription Agent to sell all or some of the Rights evidenced by a Subscription Certificate by delivering to the Subscription Agent such Subscription Certificate properly executed for sale by the Subscription Agent. In the event that such holder places an order with the Subscription Agent to sell some of the Rights evidenced by the Subscription Certificate, such holder shall instruct the Subscription Agent as to the action to be taken with respect to the Rights that are not to be sold, and the Subscription Agent shall take such action. Promptly following such sale and receipt of the proceeds therefrom, the Subscription Agent shall send the holder a check for the net proceeds from the sale of any such Rights. If the proceeds from the sale of Rights are to be paid or delivered to anyone other than the registered holder of the Rights, signatures on the Subscription Certificate must be guaranteed by an Eligible Guarantor. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights are sold, less applicable brokerage commissions, taxes and other direct expenses of sale, provided that the Company shall pay the fees of the Subscription Agent in respect of such sales. Orders to sell Rights must be received by the Subscription Agent at or prior to 11:00 a.m., Eastern time, on [the date that is 4 AMEX trading days prior to the Expiration Date]. The Subscription Agent's obligation to execute orders is subject to its ability to find buyers at a price that will result in net proceeds to the holder. (c) International Holder Subscription Forms may not be used to sell, transfer or subdivide Rights except to instruct the Subscription Agent to sell Rights. If the Subscription Agent has not received instructions from international holders or holders with APO or FPO addresses at or prior to 11:00 a.m. Eastern Time, on [the date that is 4 AMEX trading days prior to the Expiration Date], it will sell the Rights held by such holders, if feasible, and remit the net proceeds to such holders. The Subscription Agent's obligation to sell Rights is subject to its ability to find buyers at a price that will result in net proceeds to the holder. SECTION 11. Foreign and Certain Other Stockholders. The Subscription -------------------------------------- Agent shall not mail Subscription Certificates to holders of Common Stock whose addresses are outside the U.S. [and Canada] or who have an APO or FPO address. The Subscription Agent shall hold such Subscription Certificates for the account of such holders and upon notice from such holders shall exercise the Rights on their behalf. To so exercise such Rights, such stockholders must notify the Subscription Agent not later than 11:00 a.m., Eastern time, on [the date that is 4 AMEX trading days prior to the Expiration Date]. If no instructions have been received at or prior to 11:00 a.m., Eastern time, on [the date that is 4 AMEX trading days prior to the Expiration Date], the Subscription Agent shall sell such Rights, if feasible, and shall remit the net proceeds, if any, to such stockholders. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent on the day such Rights -11- are sold, less any applicable brokerage commissions, taxes and other expenses, provided that the Company shall pay the fees of the Subscription Agent in respect of such sales. International holders who exercise less than all of their rights will not receive a Subscription Certificate evidencing their remaining rights. SECTION 12. Reports. The Subscription Agent shall notify both the Company ------- and its designated representatives by telephone as requested during the period commencing with the mailing of Subscription Certificates and ending on the Expiration Date (and in the case of guaranteed deliveries pursuant to Section 7(b), the period ending five AMEX trading days after the Expiration Date), which notice shall thereafter be confirmed in writing, of (i) the number of Rights exercised on the day of such request, (ii) the number of Underlying Shares subscribed for pursuant to the Basic Subscription Privilege and the number of such Rights for which payment has been received, (iii) the number of Underlying Shares subscribed for pursuant to the Oversubscription Privilege and the number of such Rights for which payment has been received, (iv) the number of Rights subject to guaranteed delivery pursuant to Section 7(b) on such day, (v) the number of Rights for which defective exercises have been received on such day and (vi) cumulative totals derived from the information set forth in clauses (i) through (v) above. At or before 5:00 p.m., Eastern time, on the first AMEX trading day following the Expiration Date, the Subscription Agent shall certify in writing to the Company the cumulative totals through the Expiration Date derived from the information set forth in clauses (i) through (v) above. The Subscription Agent shall also maintain and update a listing of holders who have fully or partially exercised their Rights, holders who have transferred their Rights and their transferees and holders who have not exercised their Rights. The Subscription Agent shall provide the Company or its designated representatives with the information compiled pursuant to this Section 12 as any of them shall request. SECTION 13. Future Instructions and Interpretation. -------------------------------------- (a) All questions as to the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company, whose determinations shall be final and binding. The Company in its sole discretion may waive any defect or irregularity, permit a defect or irregularity to be corrected within such time as it may determine or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. Neither the Company nor the Subscription Agent shall be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. (b) The Subscription Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from an authorized officer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. - 12 - SECTION 14. Payment of Taxes. The Company covenants and agrees that it ---------------- will pay when due and payable all documentary, stamp and other taxes, if any, which may be payable in respect of the issuance or delivery of any Subscription Certificate or of the Underlying Shares; provided, however, that the Company shall not be liable for any tax liability arising out of any transaction which results in, or is deemed to be, an exchange of Rights or shares or a constructive dividend with respect to the Rights or shares and provided further that the Company shall not be required to pay any tax or other governmental charge which may be payable in respect of any transfer involved in the transfer or delivery of any Subscription Certificate or the issuance or delivery of certificates for shares of Common Stock in a name other than that of the registered holder of such Subscription Certificate evidencing the Rights exercised or transferred, and the Subscription Agent shall not register any such transfer or issue any such certificate until such tax or governmental charge, if required, shall have been paid. SECTION 15. Cancellation and Destruction of Subscription Certificates. --------------------------------------------------------- All Subscription Certificates surrendered for the purpose of exercise, exchange, substitution or transfer shall be canceled by the Subscription Agent, and no Subscription Certificates shall be issued in lieu thereof except as expressly permitted by provisions of this Agreement. The Company shall deliver to the Subscription Agent for cancellation and retirement, and the Subscription Agent shall so cancel and return, any other Subscription Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Subscription Agent shall deliver all canceled Subscription Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Subscription Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. SECTION 16. Right of Action. All rights of action in respect of this --------------- Agreement are vested in the Company and the respective registered holders of the Subscription Certificates; and any registered holder of any Subscription Certificate, without the consent of the Subscription Agent or of the holder of any other Subscription Certificate, may, on his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Subscription Certificate in the manner provided in such Subscription Certificate and in this Agreement. SECTION 17. Concerning the Subscription Agent. --------------------------------- (a) The Company agrees to pay to the Subscription Agent compensation in the amount of $______________ for all services rendered by it hereunder and, from time to time, on demand of the Subscription Agent, its reasonable out-of-pocket expenses and disbursements for mailing, postage and delivery. The Company also agrees to indemnify the Subscription Agent for, and to hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on the part of the Subscription Agent for anything done or omitted by the Subscription Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises, provided that the Subscription Agent shall have provided the Company with notice of any such claim promptly after such claim became known to the Subscription Agent, and provided further that the - 13 - Company shall have the right to assume the defense of any such claim upon receipt of written notice thereof from the Subscription Agent. If the Company assumes the defense of any such claim, the Subscription Agent shall be entitled to participate in (but not control) the defense of any such claim at its own expense. The Company shall not indemnify the Subscription Agent with respect to any claim or action settled without its consent, which consent shall not be unreasonably withheld. (b) The Subscription Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Subscription Certificate, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document reasonably believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper person or persons. SECTION 18. Merger or Consolidation of Subscription Agent. Any --------------------------------------------- corporation into which the Subscription Agent or any successor Subscription Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Subscription Agent or any successor Subscription Agent shall be a party, or any corporation succeeding to the corporate trust business of the Subscription Agent or any successor Subscription Agent, shall be the successor to the Subscription Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 19. Duties of Subscription Agent. The Subscription Agent ---------------------------- undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Subscription Certificates by their acceptance thereof shall be bound: (a) The Subscription Agent may consult with legal counsel (who may be, but is not required to be, legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Subscription Agent as to any actions taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Subscription Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President or a Vice President (including any Senior or Executive Vice President) and by the Treasurer or any Assistant Treasurer or the Secretary or an Assistant Secretary of the Company and delivered to the Subscription Agent; and such certificate shall be full authorization to the Subscription Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. - 14 - (c) The Subscription Agent shall be liable hereunder only for its own negligence or willful misconduct. (d) The Subscription Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Subscription Certificates or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Subscription Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Subscription Agent) or in respect of the validity or execution of any Subscription Certificate; nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Subscription Certificate; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Subscription Certificate or as to whether any shares of Common Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Subscription Agent for the carrying out or performing by the Subscription Agent of the provisions of this Agreement. (g) Nothing herein shall preclude the Subscription Agent from acting in any other capacity for the Company. SECTION 20. Notices to the Company, Holders and Subscription Agent. All ------------------------------------------------------ notices and other communications provided for or permitted hereunder shall be made by hand delivery, prepaid first-class mail, or telecopier: (a) if to the Company, to: Thermedics Detection Inc. c/o Thermo Electron Corporation 81 Wyman Street P.O. Box 9046 Waltham, MA 02254-9046 Attn: Seth H. Hoogasian, Esq. Telecopier: 617-622-1283 - 15 - (b) if to the Subscription Agent, to: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Telecopier: 718-234-5001 Attn: Herb Lemmer, Esq. Paula Magno (c) if to a registered holder, at the address shown on the registry books of the Company. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed as aforesaid; when answered back if telexed; and when receipt is acknowledged, if telecopied. SECTION 21. Supplements and Amendments. The Company and the Subscription -------------------------- Agent may from time to time supplement or amend this Agreement without the approval of any holders of Subscription Certificates in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Subscription Agent may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of the Subscription Certificates. SECTION 22. Successors. All the covenants and provisions of this ---------- Agreement by or for the benefit of the Company or the Subscription Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 23. Termination. This Agreement shall terminate at 5:00 p.m., ----------- Eastern time, on the thirtieth day following the Expiration Date. Upon termination of this Agreement, and provided that all shares of Common Stock for Rights accepted for execution prior to such termination are issued and delivered by the Company, the Company shall be discharged from all obligations under this Agreement except for its obligations to the Subscription Agent under Sections 14 and 17 hereof and except with respect to the obligation of the Company to provide instruction and direction to the Subscription Agent as may be provided in this Agreement. SECTION 24. Governing Law. This Agreement and each Subscription ------------- Certificate shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts and for all purposes shall be construed in accordance with the internal laws of said State. SECTION 25. Benefits of This Agreement. Nothing in this Agreement shall -------------------------- be construed to give to any person or corporation other than the Company, the Subscription Agent and the holders of the Subscription Certificates any legal or equitable right, remedy or claim - 16 - under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Subscription Agent and the holders of the Subscription Certificates. SECTION 26. Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. SECTION 27. Descriptive Headings. Descriptive headings of the several -------------------- Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF the undersigned have caused this Subscription Agency Agreement to be executed by their duly authorized representative as of the date first above written. THERMEDICS DETECTION INC. By: --------------------------- Name: Title: AMERICAN STOCK TRANSFER & TRUST COMPANY By: --------------------------- Name: Title: EX-99.3 12 INTERNATIONAL HOLDER SUBSCRIPTION FORM EXHIBIT 99.3 THERMEDICS DETECTION INC. International Holder Subscription Form IMPORTANT: The number of Rights that may be exercised pursuant to the Basic Subscription Privilege by the person whose name appears on the label affixed to this form is the number indicated in the top right-hand corner of the label. EXERCISE AND SUBSCRIPTION: The undersigned irrevocably exercises one or more Rights to subscribe for shares of Thermedics Detection Common Stock as indicated below, on the terms and subject to the conditions specified in the prospectus of Thermedics Detection Inc. dated February __, 1997 (the "Prospectus"), receipt of which is hereby acknowledged. (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege (one Right needed to subscribe for each full share): _______________ (b) Number of shares subscribed for pursuant to the Oversubscription Privilege: _______________ (c) Total Subscription Price (total number of shares subscribed for pursuant to both the Basic Subscription Privilege and the Oversubscription Privilege -- times the Subscription Price of $_____): _______________ (1) METHOD OF PAYMENT (CHECK ONE) [_] CHECK OR BANK DRAFT DRAWN ON A U.S. BANK OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY. [_] WIRE TRANSFER DIRECTED TO THE ACCOUNT MAINTAINED BY AMERICAN STOCK TRANSFER & TRUST COMPANY AT CHEMICAL BANK, 55 WATER STREET, NEW YORK, NEW YORK 10041, ACCOUNT NO. ____________, ABA NO. 021 000 128. (1) If the amount enclosed or transmitted is not sufficient to pay the Subscription Price for all shares that are stated to be subscribed for, or if the number of shares being subscribed for is not specified, the number of shares subscribed for will be assumed to be the maximum number that could be subscribed for upon payment of such amount. If the number of shares to be subscribed for pursuant to the Oversubscription Privilege is not specified and the amount enclosed or transmitted exceeds the Subscription Price for all shares that the undersigned has the right to purchase pursuant to the Basic Subscription Privilege (the "Subscription Excess"), the person subscribing pursuant hereto shall be deemed to have exercised the Oversubscription Privilege to purchase, to the extent available, that number of whole shares of Thermedics Detection Common Stock equal to the quotient obtained by dividing the Subscription Excess by $_____. The amount remaining after such division shall be returned to the subscriber without interest or deduction. [_] CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH SUBSCRIPTION AGENT: Check box if the undersigned hereby authorizes the Subscription Agent to sell any Rights held by the undersigned but not exercised hereby and to deliver to the undersigned a check for the proceeds. THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE PROSPECTUS AND ARE INCORPORATED HEREIN BY REFERENCE. ALL CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS ASCRIBED TO THEM IN THE PROSPECTUS. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM AMERICAN STOCK TRANSFER & TRUST COMPANY, THE SUBSCRIPTION AGENT. ANY PERSON LOCATED IN THE UNITED KINGDOM WHO IS NOT EITHER (1) A PERSON WHOSE ORDINARY BUSINESS IS TO BUY OR SELL SHARES OR DEBENTURES, WHETHER AS PRINCIPAL OR AGENT, OR (2) AN EXISTING REGISTERED HOLDER OF THERMEDICS DETECTION COMMON STOCK, REPRESENTS, BY SIGNING BELOW, THAT ANY SHARES OF THERMEDICS DETECTION COMMON STOCK PURCHASED UPON THE EXERCISE OF RIGHTS ARE BEING PURCHASED WITH A VIEW TO HOLDING SUCH SHARES AS AN INVESTMENT AND WITHOUT ANY INTENTION TO RESELL SUCH SHARES. IMPORTANT RIGHTS HOLDER SIGN HERE ...................................................... ...................................................... (Signature(s) of Holder(s)) Dated:.........................................., 1997 (Must be signed by the Rights holder(s) exactly as name(s) appear(s) on the certificate(s) representing shares of Common Stock of Thermedics Inc. or Thermedics Detection Inc. as to which the Rights have been distributed. If signature is by trustee(s), executor(s), administrator(s), guardian(s), attorney(s) - in - fact, agent(s), officer(s) of a corporation or another acting in a fiduciary or representative capacity, please provide the following information. See instructions.) Name(s)......................................................................... ................................................................................ (Please Print) Capacity........................................................................ Address......................................................................... ................................................................................ (Including Zip Code) Area Code and Telephone Number................................................................ (Home) ................................................................................ (Business) Tax Identification or Social Security No.............................................................. (Complete Substitute Form W-9) 2 EX-99.4 13 FORM OF LETTER TO THERMEDICS DETECTION STOCKHOLDERS EXHIBIT 99.4 [THERMEDICS DETECTION INC. LETTERHEAD] February , 1997 Dear Shareholder: Thermedics Detection Inc. ("Thermedics Detection") is distributing to its shareholders transferable subscription rights (the "Rights") to purchase shares of Thermedics Detection Common Stock for a price of $_____ per share (the "Subscription Price"). Thermedics Inc. will not exercise the Rights it receives as majority shareholder of Thermedics Detection, but is instead distributing the Rights to its shareholders. This Rights offering provides existing shareholders of both Thermedics Detection and Thermedics with the opportunity to participate directly in the initial public offering of Thermedics Detection. Upon completion of the Rights offering, Thermedics Detection will enjoy the benefits of being a publicly traded company. Summary of Terms of the Rights Offering The basic terms of the Rights offering are as follows: . Each Thermedics Detection shareholder will receive approximately .366 Rights for each share of Thermedics Detection Common Stock held on the Record Date (one Right for approximately every 2.73 shares of Thermedics Detection Common Stock held). . One whole Right is exercisable for one share of Thermedics Detection Common Stock at a price of $_____ per share. . Rights are exercisable from February __, 1997 through March __, 1997. . Shareholders who have fully exercised the Rights issued to them may subscribe for additional shares of Thermedics Detection Common Stock, to the extent available, at the Subscription Price, through the exercise of an oversubscription privilege. . The Rights will trade on the American Stock Exchange from February __, 1997 through March __,1997, and the shares of Thermedics Detection Common Stock will trade on the American Stock Exchange when issued commencing on February __, 1997 and regular way commencing March __, 1997. . THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON MARCH __, 1997. A more detailed description of the Rights offering is contained in the enclosed Prospectus, which you should read and consider in its entirety prior to participating in the Rights offering. Enclosures You will find enclosed a Prospectus describing the Rights offering and, if you are located in the United States, a Subscription Certificate representing Rights to purchase Thermedics Detection Common Stock as well as related instructions. If you are located anywhere outside the United States (except the United Kingdom), you will find instead an International Holder Subscription Form and related instructions. You should carefully review the Prospectus and, if applicable, the other enclosed materials. Exercise of Rights If you are located in the United States, you should follow the enclosed instructions as to the exercise or transfer of the Rights represented by the enclosed Subscription Certificate. If you are located outside the United States (except the United Kingdom), you should follow the enclosed instructions as to the completion of the International Holder Subscription Form. If you are located in the United Kingdom, you should contact Lehman Brothers International (Europe) at the international address indicated below if you are interested in participating in the Rights offering. Transfer of Rights The Rights have been listed for trading on the American Stock Exchange and are expected to trade from February __, 1997 through March __, 1997 through normal brokerage channels. You may sell your Rights by contacting your broker or you may request the subscription agent to sell some or all of your Rights and deliver the proceeds to you. The subscription agent will attempt to sell any Rights held by persons located outside the United States who have not provided the subscription agent with exercise or sale instructions by 11:00 a.m., Eastern time, on March __, 1997. Additional Information You may obtain additional information concerning the Rights offering from the following sources: United States International Lehman Brothers Inc. Lehman Brothers International(Europe) 3 World Financial Center One Broadgate New York, New York 10285 London EC2M 7HA Attention: Mr. Kevin Davies England telephone: (212) 526-3025 Attention: Mr. Adrian Norman telecopier: (212) 526-9731 telephone: 44-1-71-260-2793 telecopier: 44-1-71-260-2635 Information is also available from the subscription agent: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 telephone: (718) 921-8200 telecopier: (718) 234-5001 Thermedics Detection is pleased to provide you with this opportunity to participate in its initial public offering. We thank you for your support and look forward to our continuing relationship. Very truly yours, Jeffrey J. Langan President and Chief Executive Officer EX-99.5 14 FORM OF LETTER TO THERMEDICS STOCKHOLDERS EXHIBIT 99.5 [THERMEDICS INC. LETTERHEAD] February , 1997 Dear Shareholder: Thermedics Inc. ("Thermedics") pleased to offer you the opportunity to participate in the initial public offering of its majority-owned subsidiary, Thermedics Detection Inc. ("Thermedics Detection"), which manufactures high-speed on-line detection and measurement systems used in a variety of industrial process applications, explosives detection and laboratory analysis. Thermedics Detection is distributing to its shareholders transferable subscription rights (the "Rights") to purchase shares of Thermedics Detection Common Stock for a price of $_____ per share (the "Subscription Price"). Thermedics will not exercise the Rights it receives as majority shareholder of Thermedics Detection. Instead, Thermedics is distributing the Rights to its shareholders in order to provide them with an opportunity to participate directly in the initial public offering of Thermedics Detection. Summary of Terms of the Rights Offering The basic terms of the Rights offering are as follows: . Each Thermedics shareholder will receive 0.10 Rights for each share of Thermedics Common Stock held on the Record Date (one Right for every 10 shares of Thermedics Common Stock held). . One whole Right is exercisable for one share of Thermedics Detection Common Stock at a price of $_____ per share. . Rights are exercisable from February __, 1997 through March __, 1997. . Shareholders who have fully exercised the Rights issued to them may subscribe for additional shares of Thermedics Detection Common Stock, to the extent available, at the Subscription Price, through the exercise of an oversubscription privilege. . The Rights will trade on the American Stock Exchange from February __, 1997 through March __, 1997, and the shares of Thermedics Detection Common Stock will trade on the American Stock Exchange when issued commencing on February __, 1997 and regular way commencing March __, 1997. . THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON MARCH __, 1997. A more detailed description of the Rights offering is contained in the enclosed Prospectus, which you should read and consider in its entirety prior to participating in the Rights offering. Enclosures You will find enclosed a Prospectus describing the Rights offering and, if your shares of Thermedics Common Stock are held in your name and you are located in the United States, a Subscription Certificate representing Rights to purchase Thermedics Detection Common Stock as well as related instructions. If you are located anywhere outside the United States (except the United Kingdom) and hold your shares of Thermedics Common Stock in your name, you will find instead an International Holder Subscription Form and related instructions. You should carefully review the Prospectus and, if applicable, the other enclosed materials. Exercise of Rights If your shares of Thermedics Common Stock are held in your name and you are located in the United States, you should follow the enclosed instructions as to the exercise or transfer of the Rights represented by the enclosed Subscription Certificate. If you are located outside the United States (except the United Kingdom) and hold your shares of Thermedics Common Stock in your name, you should follow the enclosed instructions as to the completion of the International Holder Subscription Form. If you hold your shares of Thermedics Common Stock in your own name and you are located in the United Kingdom, you should contact Lehman Brothers International (Europe) at the international address indicated below if you are interested in participating in the Rights offering. If your shares of Thermedics Common Stock are held in the name of a nominee such as a broker, you should contact the nominee and provide instructions as to the exercise of your Rights. Transfer of Rights The Rights have been listed for trading on the American Stock Exchange and are expected to trade from February __, 1997 through March __, 1997 through normal brokerage channels. You may sell your Rights by contacting your broker or you may request the subscription agent to sell some or all of your Rights and deliver the proceeds to you. The subscription agent will attempt to sell any Rights held by persons located outside the United States who have not provided the subscription agent with exercise or sale instructions by 11:00 a.m., Eastern time, on March __, 1997. Additional Information You may obtain additional information concerning the Rights offering from the following sources: United States International Lehman Brothers Inc. Lehman Brothers International (Europe) 3 World Financial Center One Broadgate New York, New York 10285 London EC2M 7HA Attention: Mr. Kevin Davies England telephone: (212) 526-3025 Attention: Mr. Adrian Norman telecopier: (212) 526-9731 telephone: 44-1-71-260-2793 telecopier: 44-1-71-260-2635 Information is also available from the subscription agent: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 telephone: (718) 921-8200 telecopier: (718) 234-5001 Thermedics is pleased to provide you with this opportunity to participate in the initial public offering of Thermedics Detection. On behalf of the Board of Directors of Thermedics, I thank you for your continuing support. Very truly yours, John W. Wood Jr. President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----