AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2001
REGISTRATION NO. 333-55258
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACKARD BIOSCIENCE COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 3826 06-0676652
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
800 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450
(203) 238-2351
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
BEN D. KAPLAN
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PACKARD BIOSCIENCE COMPANY
800 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450
(203) 238-2351
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
ANDREW R. BROWNSTEIN, ESQ. ROHAN S. WEERASINGHE, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SHEARMAN & STERLING
51 WEST 52ND STREET 599 LEXINGTON AVENUE
NEW YORK, NY 10019-6150 NEW YORK, NY 10022
(212) 403-1000 (212) 848-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes 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, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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, 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(d)
under the Securities Act, 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,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 29, 2001
PROSPECTUS
10,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
Packard BioScience Company is selling 3,000,000 shares and Packard
BioScience Company stockholders are selling 7,000,000 shares. The U.S.
underwriters are offering 8,000,000 shares in the U.S. and Canada and the
international managers are offering 2,000,000 shares outside the U.S. and
Canada.
The shares are quoted on the Nasdaq National Market under the symbol "PBSC."
On March 28, 2001, the last sale price of the shares as reported on the Nasdaq
National Market was $5.8125 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------
PER SHARE TOTAL
--------- -----
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Packard BioScience............ $ $
Proceeds to the selling stockholders........................ $ $
The U.S. underwriters may also purchase up to an additional 1,200,000 shares
from the selling stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional 300,000 shares from the selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2001.
------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
JPMORGAN
BANC OF AMERICA SECURITIES LLC
ROBERT W. BAIRD & CO.
------------------
The date of this prospectus is , 2001.
TABLE OF CONTENTS
PAGE
--------
Summary..................................................... 1
Risk Factors................................................ 7
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Price Range of Common Stock................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 30
Management.................................................. 66
Related Party Transactions.................................. 78
Principal and Selling Stockholders.......................... 81
Description of Capital Stock................................ 85
Description of Indebtedness................................. 87
Shares Eligible for Future Sale............................. 90
Material United States Federal Tax Considerations for
Non-U.S. Holders.......................................... 92
Underwriting................................................ 95
Legal Matters............................................... 99
Experts..................................................... 99
Where You Can Find Additional Information................... 99
Index to Financial Statements............................... F-1
Index to Pro Forma Consolidated Financial Statements........ P-1
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus or other date stated in this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
------------------------
Packard, BioSignal, HTRF, TopCount, MultiPROBE, FlashPlate, Discovery,
Tri-Carb, Auto-Gamma, Radiomatic, SignalScreen, AlphaQuest, Cyclone (in the EU
only), LucLite, PlateTrak, QuantArray, ScanArray, SpotArray and BioChip Arrayer
(in the EU only) are registered trademarks, and ALPHA, AlphaScreen, BRET(2),
Fusion, HydroGel, DNATrak, GenomeTrak, MiniTrak, PlateStak, AlphaGenomics,
Talon, ArrayInformatics and ImageTrak are trademarks, of Packard BioScience
Company or its subsidiaries. MassPrep is a registered trademark of Waters
Corporation, SPA is a registered trademark of Amersham-Pharmacia Biotech AB, and
SPRI is a trademark of Agencourt Bioscience Corporation.
i
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER
"RISK FACTORS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
OUR COMPANY
We are a leading global developer, manufacturer and marketer of instruments
and related consumables and services for use in drug discovery and other life
sciences research, such as basic human disease research, genetic analysis and
biotechnology. Our broad technology portfolio and our experience working in more
than 60 countries with market-leading customers have allowed us to establish a
worldwide leadership position in many of our primary product categories.
Established on a strong lineage of bioanalytical instrumentation, we are
positioning ourselves to benefit from the fundamental change and growth the life
sciences research industry is undergoing resulting principally from the rapid
acceleration in gene discovery. We have developed advanced technologies through
substantial investments in research and development and intellectual property,
as well as through acquisitions and strategic alliances. For the year ended
December 31, 2000, we generated revenues of $165.4 million.
Our products are intended to meet the experimentation needs of a diverse
customer base, including pharmaceutical, biotechnology, agricultural and
diagnostics companies, as well as academic institutions and government agencies.
We are primarily focused on integrating our products to form platforms in the
following rapidly growing areas:
- DRUG SCREENING--the process of testing vast libraries of different
compounds in relatively simple tests, known as assays, containing
biological molecules, called targets, which are believed to have a
significant role in the onset or development of a disease,
- FUNCTIONAL GENOMICS--the analysis of gene variations and function and
their association with specific diseases, and
- PROTEOMICS--the study of the function of genes by direct analysis of the
proteins produced by such genes for the identification and validation of
targets.
Pharmaceutical and biotechnology companies have recognized that
understanding genetic variation and gene and protein function is critical to the
advancement of the drug discovery process. This, along with the accelerated
completion of the sequencing of various genomes, including the completion of the
initial high-volume stages of sequencing the human genome, is expected to result
in significantly greater investments in functional genomics and proteomics
research and more advanced downstream drug screening. The ability of researchers
to apply genomic and proteomic information to the discovery and development of
new drugs in the stages following the initial sequencing of the human genome, or
the post-genomic era, is currently subject to the limitations of the analytical
processes and instruments that provide the information. These shortcomings
result from insufficient speed of analysis due to the lack of integrated
automation in moving samples through the process, limitations in the ability to
miniaturize assays and the high cost of failures late in the drug development
process. Automation, high throughput rates and the simultaneous measurement of
more than one target from the same sample, or multiplex analysis, will be
required to meet the demands of researchers who need to process the billions of
tests necessary to convert raw genetic data into medically valuable information.
Based on industry experts' forecasts, we estimate that in the year 2001 the life
sciences research industry will invest more than $80 billion in basic life
sciences research and drug discovery and development, approximately
$4.6 billion of which will be in the areas we serve with our platforms, products
and services.
1
Whereas many technology companies offer a solution for one or more of the
shortcomings affecting the drug discovery process, we are integrating numerous
proven products and innovative technologies into our platforms so that the
entire process can operate with greater efficiency. Our solutions for drug
screening applications, which feature automation, miniaturization and high
sample throughput, allow our customers to increase speed, reduce cost, improve
data accuracy and enhance productivity. In addition, our technologies are
available in modular formats to address specific market needs.
We own approximately 65 U.S. and foreign patents and have over 40 patent
applications pending in the United States and abroad. Our rich portfolio of
proprietary technologies is embodied in our products, consumables and services.
According to a recent independent market study, we provide the broadest range of
products and services to the pharmaceutical drug screening industry. Our primary
products include:
- automated liquid handling and sample preparation systems--robotic devices
for sample preparation and dispensing of liquids designed to enable the
automation of most laboratory testing procedures,
- microwell plate readers and plate imaging systems--analytical equipment
for the high throughput analysis of samples in standardized, palm-sized
plastic plates, known as microwell plates, with small wells for holding up
to 1536 samples,
- drug screening and detection reagents--reagents and other consumables used
for the preparation of drug screening assays, making possible their high
throughput detection in miniaturized sample formats such as microwell
plates,
- biochip systems and related microarray analysis software--instruments and
software to enable the production, detection and analysis of simultaneous
gene and protein assays in microarray or biochip formats, both of which
are chips containing dense grids of genes or proteins, and
- bioanalytical scintillation instruments--essential instruments for
fundamental life science research applications using scintillation
detection, or the process that converts radioisotopic sample activity to
light measurements; as we are increasingly using our capital resources and
expertise to pursue new opportunities in the fast growing fields of drug
screening, functional genomics and proteomics, we refer to our
bioanalytical scintillation instruments product category and other
radioisotopic instruments and consumables as our "legacy products."
As part of our strategy we plan to:
- FOCUS ON HIGH GROWTH OPPORTUNITIES--continue the development of existing
and new platforms to address the large-scale experimental needs of the
post-genomic era in drug screening, functional genomics and proteomics,
- CONTINUE TECHNOLOGICAL INNOVATION--accelerate investments in technologies
associated with our products and services through research and
development, partnerships, licensing arrangements and acquisitions,
- MAXIMIZE THE BENEFITS OF OUR LEADERSHIP POSITIONS AND GLOBAL
PRESENCE--leverage our high brand recognition, established customer base
and well-developed sales and marketing infrastructure to commercialize new
products and platform technologies, and
- GROW RECURRING REVENUE STREAM--continue to develop and increase sales of
consumables, outsourcing and other services.
We have strong long-term relationships with a broad customer base that
includes substantially all of the 50 largest pharmaceutical and biotechnology
companies. We also have one of the largest installed bases in the life sciences
research industry with over 27,000 instruments. Our broad and
2
well-developed customer relationships and extensive installed base not only
allow us to generate a recurring revenue stream from services and sales of
related consumables, but also provide us with customer insights that are
invaluable for the development and commercialization of new products and
technologies. Through our worldwide sales, marketing and service organization of
approximately 400 individuals, we distribute our instruments and other products
and provide services to many of the leading pharmaceutical, biotechnology and
agrochemical companies, as well as to prominent academic, government and medical
laboratories.
RECENT DEVELOPMENTS
In October 2000, we completed the acquisition of the life sciences division
of GSI Lumonics, Inc. for approximately $40 million in cash and approximately
4.5 million shares of our common stock. The business we acquired generated
revenues of approximately $16 million for the year ended December 31, 2000, and
is now a part of our subsidiary Packard BioChip Technologies, LLC, an entity
formed to consolidate our various technologies in the area of biochips. Packard
BioChip Technologies is a leading provider of imaging equipment and software for
biochip and microarray applications.
In February 2001, we completed the sale of our Canberra Industries
division--a manufacturer of analytical instruments and systems used to detect,
identify, quantify and monitor radioactive materials for the nuclear industry
and related markets--to COGEMA, S.A., a France-based industrial group with
worldwide operations in the nuclear energy sector, for $170 million. We believe
the sale of Canberra will allow us to further focus and build on our global
presence in the life sciences research industry, and to continue our accelerated
research and development efforts with a significantly strengthened balance
sheet.
This offering is being made pursuant to a registration request from our
controlling stockholder under the Stockholders' Agreement described under
"Related Party Transactions--Stockholders' Agreement." Other parties to that
agreement, as listed under "Principal and Selling Stockholders," as well as a
wholly-owned subsidiary of GSI Lumonics, Inc., pursuant to the registration
rights agreement described under "Related Party Transactions--Registration
Rights Agreement," have joined our controlling stockholder's registration
request and are therefore also selling stockholders in the offering. In addition
to the common stock sold by the selling stockholders, we are also selling
3,000,000 shares of our common stock for the reasons described under "Use of
Proceeds." We also believe that our stockholders will benefit from increased
liquidity in our common stock that should result from the greater number of
shares of our common stock that will be held by public stockholders as a result
of this offering.
------------------------
Our principal executive offices are located at 800 Research Parkway,
Meriden, Connecticut 06450. Our telephone number is (203) 238-2351. We maintain
a website at www.packardbioscience.com. Information contained in our website
does not constitute a part of this prospectus. The reference above to our
website is intended to be an inactive textual reference only.
3
THE OFFERING
Common stock offered:
By Packard BioScience Company
U.S. offering........................... 2,400,000 shares
International offering.................. 600,000 shares
----------------
Total............................. 3,000,000 shares
By the selling stockholders
U.S. offering............................. 5,600,000 shares
International offering.................... 1,400,000 shares
----------------
Total............................. 7,000,000 shares
Shares outstanding after the offering........... 70,928,179 shares
Use of proceeds................................. We estimate that our net proceeds from this offering
will be approximately $ million. We currently
intend to use these proceeds for any or all of the
following:
- to increase spending associated with research and
development, new product development, enhancement
of existing products and strategic partnerships
and acquisitions,
- to make open-market purchases from time to time of
our 9 3/8% senior subordinated notes due 2007, if
available on terms acceptable to us, and
- for general corporate purposes.
We will not receive any proceeds from the sale of
shares by the selling stockholders. Our use of
proceeds is more fully described under "Use of
Proceeds."
Risk factors.................................... See "Risk Factors" and other information included in
this prospectus for a discussion of factors you
should carefully consider before deciding to invest
in shares of the common stock.
Nasdaq National Market symbol................... PBSC
The number of shares outstanding after the offering above is based on actual
shares outstanding as of March 16, 2001 and excludes 10,907,350 shares reserved
for issuance under our stock option, stock incentive, non-employee director
compensation and employee stock purchase plans, as described under "Management,"
of which options to purchase 5,543,850 shares at an average option price of
$4.30 have been issued and are outstanding.
The underwriters may purchase up to 1,500,000 additional shares of common
stock from the selling stockholders to cover over-allotments. Unless otherwise
noted, all share information in this prospectus does not give effect to the
exercise of the underwriters' over-allotment options.
4
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data for
the years ended and as of the dates indicated. The summary historical
consolidated financial data as of December 31, 2000 and for the years ended
December 31, 1998, 1999 and 2000 are derived from our audited consolidated
financial statements included elsewhere in this prospectus. The summary
consolidated financial data for the years ended December 31, 1996 and 1997 are
derived from our audited consolidated financial statements that are not included
in this prospectus. The summary operating statement data give effect to the
accounting for Canberra as a discontinued operation for the years presented.
Since the information in these tables is only a summary and does not provide all
of the information in our financial statements, you should read this information
in conjunction with our consolidated financial statements and accompanying notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
The pro forma operating statement data give effect to the October 2000
acquisition of the life sciences division of GSI Lumonics, Inc. as if it
occurred at the beginning of the periods presented. We have provided the pro
forma operating statement data for informational purposes only and you should
not assume that our results would actually have been as shown if we had acquired
the life sciences division of GSI Lumonics, Inc. on the assumed date or that the
information projects what our results or financial position will be as a result
of the acquisition. See our unaudited pro forma consolidated financial statement
and accompanying notes appearing elsewhere in this prospectus.
YEAR ENDED DECEMBER 31,
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HISTORICAL PRO FORMA
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 1999 2000
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(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Revenues........................................... $122,676 $120,286 $146,235 $158,890 $165,375 $172,680 $178,461
Gross profit(1).................................... 68,158 65,918 77,145 80,580 91,736 88,279 97,329
Income (loss) from operations(2)................... 22,711 (3,017) 20,774 15,764 (3,832) 12,944 2,814
Income (loss) from continuing operations before
extraordinary items, net......................... 13,928 (21,620) 855 (7,950) (10,843) (10,840) (7,579)
Income from discontinued operations, net........... 5,308 2,865 1,050 7,752 4,106 7,752 4,106
Net income (loss)(3)............................... 19,236 (18,755) 1,905 (198) (6,368) (3,088) (3,104)
Diluted weighted average shares outstanding(4)..... 125,236 62,318 47,683 45,803 58,443 50,299 61,884
Diluted income (loss) per share from continuing
operations(4).................................... $ 0.11 $ (0.35) $ 0.02 $ (0.17) $ (0.19) $ (0.22) $ (0.12)
Dividends declared and paid per share.............. $ 0.04 -- -- -- -- -- --
AS OF
DECEMBER 31, 2000
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
-------- -------------- --------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13,294 $ 92,178 $
Working capital............................................. 71,359 106,452
Total assets................................................ 306,092 316,399
Long-term debt, less current portion........................ 169,344 118,228
Stockholders' equity........................................ 83,273 132,773
(FOOTNOTES ON FOLLOWING PAGE)
5
- ------------------------
(1) Includes the following pre-tax items:
- the expensing of fair market value adjustments associated with acquired
inventories totaling $1.5 million in 1998; and
- a $2.7 million charge in 1999 in connection with modifying an existing
license agreement and terminating the production of an OEM clinical
product.
(2) Includes the items in (1) above and the following pre-tax items:
- charges totaling $0.8 million in 1996 and $18.4 million in 1997,
associated with our 1997 recapitalization;
- charges of $6.1 million and $12.1 million in 1998 and 2000, respectively,
for purchased in-process research and development and a gain in 1998 of
$10.8 million we recognized in connection with the sale of our gas
generation product line;
- non-cash stock compensation charges of $1.0 million in 1999 and
$4.7 million in 2000; and
- a $1.9 million charge in 2000 primarily to write off long-lived assets
which had become impaired.
(3) Includes interest income and a gain of $3.2 million recognized on the sale
of equity securities in 1998.
(4) Based upon the average shares outstanding during each period presented,
including the impact of outstanding options, except when such options are
anti-dilutive.
(5) Gives effect as of December 31, 2000 to:
- the February 2001 sale of Canberra for net proceeds of approximately
$130 million, after estimated income taxes payable of $21 million, cash
expenses directly related to the sale of $9 million, and repurchases of
options held by Canberra employees of approximately $10 million, and
- the repayment of the $51.1 million outstanding as of December 31, 2000 on
the revolving credit facility. The actual amount outstanding on the
revolving credit facility as of February 27, 2001 of $71 million was
repaid.
(6) Reflects the sale of shares by us in this offering and the use of proceeds
from this offering as described under "Use of Proceeds."
6
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL OF THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
AS COMPETITION IN THE MARKETS WE TARGET INTENSIFIES, WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY IN THESE MARKETS.
The life sciences research industry is highly competitive, and we encounter
competition from a large number of manufacturers in both domestic and foreign
markets. Some of our competitors compete with us in only one of our product
lines. Others compete with us in a number of our product lines. In addition, we
have various competitors that are focusing on the areas that are being addressed
by our integrated platforms. Our principal competitors and the areas in which
they compete with us are described more fully in "Business--Competition."
Some of our competitors, such as Applied Biosystems (formerly
PE Biosystems), Amersham Pharmacia Biotech, PerkinElmer, Inc. (formerly EG&G,
Inc.) and Beckman Coulter, Inc., are only marginally involved in our business
relative to their respective core businesses, yet are significantly larger and
have greater resources than we do. These competitors could at any time decide to
use a more substantial amount of their resources in our business and, as a
result, compete more broadly and more directly with us.
Companies that, like us, design, manufacture and market analytical
instruments for use in the life sciences research industry, face competition in
these areas from genomic, pharmaceutical, biotechnology and diagnostics
companies, and also from academic and research institutions and government or
other publicly-funded agencies, both in the United States and abroad. We may not
be able to compete effectively with all of these competitors.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO SUCCESSFULLY INTRODUCE NEW
PRODUCTS AND PLATFORMS AND EXPAND THE RANGE OF APPLICATIONS FOR OUR CURRENT
PRODUCTS.
In a market primarily driven by the need for innovative products, our
revenue growth will depend on overcoming various technological challenges to
successfully introduce new products and platforms into the marketplace in a
timely manner. Our new technology platforms require state-of-the-art or even
pioneering know-how in the areas of biochemistry, fluidics and physics. In
addition, we must continue to develop new applications for our existing
products, such as integrated platforms. Market acceptance of these new products
and platforms will depend on many factors, including demonstrating to existing
and potential customers that our technologies are superior to other technologies
and products that are available now or may become available in the future.
If we are not able to overcome these technological challenges, or even if we
experience difficulties or delays, we may lose our current customers and may not
be able to attract new customers, which could seriously harm our business and
our future growth prospects. In addition, some of our licensed technology is
subject to contractual restrictions, which may limit our ability to develop or
commercialize products for some of our applications. For example, many of our
license agreements are limited to the field of life sciences research and
exclude clinical diagnostics applications. We also may be unable to obtain
licenses to new or existing technologies needed to introduce new products.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR
OUR ABILITY TO COMPETE EFFECTIVELY IN THE MARKET.
Our success will depend in part on our ability, and the ability of our
business partners and licensors, to obtain and maintain meaningful patent
protection for the technology underlying our products, both in the United States
and in other countries. We cannot assure you that any of the presently pending
or future patent applications will result in issued patents, or that any patents
issued to us or licensed by us will not be challenged, invalidated or held
unenforceable. Further, we cannot
7
guarantee that any patents issued to us will provide a basis for commercially
viable products or provide us with a significant competitive advantage.
In addition to our patents, we possess a wide array of unpatented
proprietary technology and know-how and license intellectual property rights to
and from third parties. Such measures may not be adequate to safeguard the
technology underlying our products. Moreover, some of our licenses can be
terminated or converted to non-exclusive by the licensor if we fail to meet
specified performance targets, as described under "Business--Intellectual
Property."
If we fail to successfully enforce our proprietary technology or otherwise
maintain the proprietary nature of our intellectual property with respect to our
significant current or proposed products, our competitive position and, as a
result, our sales could suffer.
Notwithstanding our efforts to protect our intellectual property, our
competitors may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies. If customers prefer these alternative technologies to
ours, our sales could be adversely affected.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
CAUSING COSTLY LITIGATION AND SERIOUSLY HARMING OUR BUSINESS.
Due to the very significant number of U.S. and foreign patents issued to,
and other intellectual property rights owned by, entities operating in the
industry in which we operate, we believe that there is a significant risk of
litigation arising from infringement of these patents and other rights. Third
parties may assert infringement or other intellectual property claims against us
or our business partners or licensors. We may have to pay substantial damages,
including treble damages, for past infringement if it is ultimately determined
that our products infringe a third party's proprietary rights. In addition, even
if such claims are without merit, defending a lawsuit may result in substantial
expense to us and divert the efforts of our technical and management personnel.
We also may be subject to significant damages or injunctions against
development and sale of some of our products, which could have a material
adverse effect on our future revenues. Furthermore, claims of intellectual
property infringement may require us to enter into royalty or license agreements
with third parties, and we may not be able to obtain royalty or license
agreements on commercially acceptable terms, if at all.
A DECLINE IN THE USE OF RADIOISOTOPIC PROCESSES AND INSTRUMENTS, WHICH CONTINUE
TO REPRESENT A SIGNIFICANT PORTION OF OUR BUSINESS, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR REVENUES.
Our traditional or "legacy" product lines, which are used in connection with
radioisotopic methods, have historically been a significant portion of our total
revenues, and today they continue to account for approximately 35% of our total
product revenues. Because of their radioactivity, isotopic labels are
environmentally unfriendly and difficult and potentially harmful to handle.
Their by-products create waste disposal problems for our customers that are
becoming increasingly more expensive. We believe that the trend in the life
sciences research industry is toward the use of nonisotopic instrumentation.
Accordingly, we have shifted our focus to nonisotopic methodologies, including
fluorescent and chemiluminescent instruments. However, we cannot assure you that
any decline in traditional radioisotopic methods will not have a material
adverse impact on our sales and operating profit.
OUR TECHNOLOGY PARTNERSHIPS AND ACADEMIC ARRANGEMENTS ARE AN IMPORTANT PART OF
OUR BUSINESS, AND FAILURE TO MAINTAIN AND ENHANCE EXISTING RELATIONSHIPS OR
ESTABLISH ADDITIONAL RELATIONSHIPS MAY ADVERSELY AFFECT OUR RESEARCH AND PRODUCT
DEVELOPMENT EFFORTS AND HINDER OUR GROWTH.
Our success in developing and commercializing new products and in expanding
the applications for our current technologies rests in part on our ability to
broaden our relationship with existing partners and identify and establish
similar relationships with new strategic partners to address changing customer
8
needs. Our relationships with strategic partners not only allow us to generate
revenue from services and sales of products, but also provide us with insights
that are invaluable for the development and commercialization of new products
and technologies. If we are unable to broaden our existing partnerships or enter
into relationships with additional collaborative partners on commercially
reasonable terms, our business and future growth prospects may be harmed.
Additionally, if our business partners breach or terminate their agreements with
us or otherwise fail to perform their collaborative activities successfully, our
business may suffer. From time to time, we may also need to modify existing
partnerships for strategic or other business reasons. We may not be able to
negotiate acceptable changes to these arrangements, even if we believe such
modifications would benefit both parties.
In addition to our commercial alliances, we have relationships with
scientists and consultants at academic and other institutions who conduct
research at our request. These researchers are not employed by us and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to work on our projects. As a result, we have
limited control over their activities and, except as otherwise required by our
agreements with these individuals, we can expect only limited amounts of their
time to be dedicated to our projects. Our ability to make new discoveries and to
commercialize products based on those discoveries may depend in part on
continued arrangements with researchers at academic and other institutions.
IF WE ARE UNABLE TO PURSUE STRATEGIC ACQUISITIONS THAT ADD VALUE TO OUR
PLATFORMS, AN IMPORTANT COMPONENT OF OUR GROWTH STRATEGY MAY BE LOST.
The life sciences research industry has been consolidating, and this may
adversely affect our ability to find suitable acquisition candidates to add
value to our platforms. We are also likely to face increased competition from
other life sciences research companies for the companies or assets we wish to
purchase. This consolidation and increased competition may each lead to higher
prices for life sciences research companies or assets and therefore reduce the
number of potential acquisitions available at price ranges that would be
attractive to us.
We do not know if we will have sufficient capital resources to make
purchases, obtain any required consents from our lenders, or find acquisition
opportunities with acceptable terms.
We continuously evaluate acquisition opportunities and, at any given time,
may be engaged in discussions with respect to possible acquisitions or other
business combinations. In addition, from time to time, we may enter into letters
of intent with potential acquisition targets. Although we have discussions with
various companies to assess opportunities on an ongoing basis, we currently are
not a party to any letter of intent or agreement with respect to any material
acquisition.
THE COSTS ASSOCIATED WITH ANY STRATEGIC ACQUISITIONS WE EFFECT MAY OUTWEIGH THE
BENEFITS WE EXPECT TO RECEIVE FROM THE ACQUIRED BUSINESS OR ASSETS.
In 2000, we completed three acquisitions for aggregate consideration of
approximately $131 million. During the same period, we looked at other
acquisition opportunities and we expect to continue doing so in the future. As
we complete these acquisitions, we must then integrate the acquired assets or
businesses into our existing operations. This process of integration may result
in unforeseen difficulties and could require significant time and attention from
our management that would otherwise be directed at developing our existing
business. Further, we cannot be certain that the benefits that we anticipate
from these acquisitions will develop.
BECAUSE PURCHASES OF OUR PRODUCTS ARE SIGNIFICANTLY AFFECTED BY CAPITAL SPENDING
POLICIES OF OUR CUSTOMERS AND GOVERNMENT FUNDING, ANY DECREASE IN CUSTOMER
CAPITAL SPENDING OR GOVERNMENT FUNDING COULD ADVERSELY AFFECT OUR SALES AND
GROWTH PROSPECTS.
The capital spending policies of our primary customers, pharmaceutical,
biotechnology and agrochemical companies and clinical diagnostics laboratories,
have a significant effect on the demand
9
for our products and platforms. Those policies are based on a wide variety of
factors, including resources available to make these purchases, spending
priorities among various types of equipment and policies regarding capital
expenditures during industry downturns or recessionary periods. These companies
represented in total approximately 45% of our 2000 revenue. Any decrease in
capital spending by our customers resulting from any of these factors could
adversely affect our sales and growth prospects.
Similarly, many of our customers, including universities, government
research laboratories, private foundations and other institutions, obtain
funding for the purchase of our products from grants by governments or
government agencies. If government funding necessary to purchase our products
were to decrease, our sales could be adversely affected.
OUR REVENUES AND OPERATING RESULTS COULD BE ADVERSELY IMPACTED IF RISKS
ASSOCIATED WITH OUR INTERNATIONAL SALES AND OPERATIONS MATERIALIZE.
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. Revenues originating outside the
United States represented 45% of our total revenues from continuing operations
in 2000. We anticipate that revenue from international operations will continue
to represent a substantial portion of our total revenue. In addition, a number
of our manufacturing facilities and suppliers are located outside the United
States. Accordingly, if the value of the U.S. dollar increases relative to the
value of currencies we use to do business in foreign countries, our revenues and
operating results, which are stated in U.S. dollars, could be adversely
effected. In addition, because most of our products are manufactured in the
United States for export to foreign countries, trade protection measures and
import or export licensing requirements or other restrictive actions by foreign
governments could have an adverse effect on our revenues and operating results.
THE CURRENT TECHNOLOGY LABOR MARKET IS VERY COMPETITIVE, AND OUR BUSINESS MAY
SUFFER IF WE ARE NOT ABLE TO HIRE AND RETAIN SUFFICIENT PERSONNEL.
Our future success depends on the continued service of our key technical,
sales, marketing, manufacturing, executive and administrative personnel. The
loss of the services of any of these individuals could have a material adverse
effect on our product development and commercialization efforts. In addition,
research, product development and commercialization will require additional
skilled personnel. Competition for qualified personnel in the technology area is
intense, and we operate in several geographic locations where labor markets are
particularly competitive, including New Haven, Connecticut, Chicago, Illinois,
Boston, Massachusetts and Los Angeles, California, where key product development
laboratories are located. If we are unable to attract and retain a sufficient
number of qualified employees on acceptable terms, our business, financial
condition and results of operations could be seriously harmed. The inability to
retain and hire qualified personnel could also hinder the future expansion of
our business.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND MAY CONTINUE
TO FLUCTUATE IN THE FUTURE AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS MAY
DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE IN OUR
COMMON STOCK PRICE.
Our operating results have fluctuated in the past and we expect they will
fluctuate in the future. These fluctuations could cause our common stock price
to decline.
If revenue declines in a period, whether due to a delay in recognizing
expected revenue or otherwise, our earnings will decline because many of our
expenses are relatively fixed in the short term. In particular, research and
development and selling, general and administrative expenses are not directly
affected by variations in revenue in a period.
Due to volatile and unpredictable revenues and operating expenses, we
believe that period-to-period comparisons of our results of operations are not a
good indication of our future performance. It is possible that, in some future
periods, our operating results will be below the
10
expectations of securities analysts or investors. In such event, the market
price of our common stock could fluctuate significantly or decline, preventing
you from selling your shares at or above the offering price. In addition, the
stock market recently has experienced significant volatility that often has been
unrelated or disproportionate to the operating performance of particular
companies, such as ours. These broad market and industry fluctuations may also
adversely affect the market price of our common stock, regardless of our actual
operating performance. Furthermore, our stock price may fluctuate based on
developments concerning proprietary rights, including patents, by us or our
competitors.
YOUR INTERESTS AS HOLDERS OF OUR COMMON STOCK MAY CONFLICT WITH THOSE OF OUR
CONTROLLING STOCKHOLDER.
As of March 16, 2001, Stonington Capital Appreciation 1994 Fund, L.P.
beneficially owned 59.2% of the outstanding shares of our voting capital stock
and, after the offering, will continue to own approximately 53.7%, in each case,
without giving effect to the conversion of outstanding options and to the
exercise of the underwriters' over-allotment options. Stonington benefits from
an agreement with the other parties to the Stockholders' Agreement described
under "Related Party Transactions," pursuant to which these parties will vote
with Stonington in favor of nominations and removals of directors by Stonington.
In addition, under that agreement Stonington has the right to direct the voting
with respect to shares of our common stock owned by other institutional holders,
as described under "Related Party Transactions--Stockholders' Agreement." As a
result, Stonington has and will continue to have control over the outcome of
matters requiring stockholder approval, including the power to:
- elect all of our directors;
- amend our charter or by-laws; and
- adopt or prevent mergers, consolidations or the sale of all or
substantially all of our assets or our subsidiaries' assets or other
purchases of our common stock that could give holders of our common stock
the opportunity to realize a premium over the then-prevailing market price
of their shares of common stock.
Stonington will therefore be able to prevent or cause a change of control
relating to us. Stonington's control over us and our subsidiaries, and its
ability to prevent or cause a change in control relating to us, may delay or
prevent a change in control of us, which could adversely affect the market price
of the common stock.
BECAUSE WE DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON OUR COMMON STOCK,
CAPITAL APPRECIATION, IF ANY, OF OUR COMMON STOCK WILL BE YOUR SOLE SOURCE OF
GAIN FOR THE FORESEEABLE FUTURE.
Since we became a public company, in April 2000, we have never declared or
paid any cash dividends on our capital stock. In addition, we intend to retain
all of our earnings to finance the development and expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. Moreover,
our ability to declare and pay cash dividends on our common stock is restricted
by covenants in our senior credit facility and in the indenture governing our
senior subordinated notes, as described under "Description of Indebtedness." As
a result, capital appreciation, if any, of our common stock will be your sole
source of gain for the foreseeable future.
UNLESS OUR STOCK TRADES SUBSTANTIALLY IN EXCESS OF ITS BOOK VALUE, YOU WILL HAVE
A LOSS ON YOUR INVESTMENT.
Our tangible assets are readily identified assets like property, equipment,
cash, securities and accounts receivable. As of December 31, 2000, the value of
these assets on our balance sheet minus the value of our liabilities was $0.31
per share, after giving effect to the sale of Canberra. The assumed offering
price of $ per share exceeds this amount by $ . Therefore, you will be
paying more for a share of stock than the value reflected in our accounts of
tangible assets for that share. If we were forced to sell all our assets and
distribute all the proceeds, you would not recover the amount you paid for
shares unless we can sell the assets for more than the value we report for our
tangible assets.
11
OUR SHARE PRICE MAY DECLINE DUE TO THE LARGE NUMBER OF SHARES ELIGIBLE FOR
FUTURE SALE.
Sales of substantial amounts of our common stock after the offering, or the
possibility of such sales, could adversely affect the market price of our common
stock and impede our ability to raise capital through the issuance of equity
securities. After this offering, we will have 70,928,179 outstanding shares of
common stock, 53.7% of which, without giving effect to the exercise of the
underwriters' over-allotment options, will be beneficially owned by Stonington,
our controlling stockholder, and we will have reserved 10,907,350 shares of our
common stock for issuance pursuant to stock plans, of which 5,543,850 shares
will be subject to vested options. All of the shares of common stock to be sold
in the offering and shares of our common stock that are already publicly traded
or that are tradable pursuant to Rule 144(k) under the Securities Act of 1933
will be freely tradable without restriction or further registration under the
Securities Act. Approximately 32.4 million of the remaining shares of
outstanding common stock, representing approximately 45.7% of our outstanding
common stock upon completion of the offering, without giving effect to the
exercise of the underwriters' over-allotment options, will be available for
future sale subject to restrictions on the timing, manner and volume of sales
imposed by the Securities Act, or otherwise generally, upon expiration of lockup
agreements with the underwriters 90 days after the date of this prospectus. In
addition, after the offering we will have an obligation to register the resale
of up to approximately 31.2 million shares upon the conditions described under
"Related Party Transactions--Registration Rights."
We have filed registration statements on Form S-8 to register approximately
9.2 million shares of our common stock that were issuable under our stock plans
as of March 16, 2001, as described under "Management." All of these shares are
freely tradable without restriction or further registration under the federal
securities laws except to the extent purchased by one of our affiliates.
12
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. These statements relate to future events or our future financial
performance. We have attempted to identify forward-looking statements by
terminology including "anticipate," "believe," "can," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potential," "predict," "should"
or "will" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the following:
- intense competition in the markets we target;
- our inability to successfully introduce new products and platforms or to
expand the application range for our current products;
- our inability to effectively protect our intellectual property;
- the possibility that our products may infringe on the intellectual
property rights of others;
- a decline in the use of radioisotopic processes and instruments;
- our failure to maintain, enhance or establish technology partnerships and
academic arrangements;
- our inability to pursue strategic acquisitions;
- costs associated with strategic acquisitions we may effect;
- a decrease in capital spending by our customers or in government funding;
- exchange rate and other risks affecting our foreign operations;
- competition in the technology labor market;
- fluctuations in our operating results;
- conflict with the interests of our controlling stockholder;
- our declared intention not to pay cash dividends;
- the dilutive effect of the offering on purchasers of our common stock in
the offering; and
- the large number of shares eligible for future sale.
Any of these factors may cause our or our industries' actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are not under any duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results, unless required by law.
We use market data and industry forecasts and projections throughout this
prospectus, which we have obtained from internal and independent surveys and
market research, publicly available information and industry publications.
Industry publications generally state that the information they provide has been
obtained from sources believed to be reliable, but we have not independently
verified that information and there is no assurance that any of the projected
amounts will be achieved. Similarly, we believe that the surveys and market
research we or others have performed are reliable, but we have not independently
verified the information derived from surveys and market research performed by
others and there is no assurance that any of the projected amounts will be
achieved.
13
USE OF PROCEEDS
This prospectus relates to shares of our common stock being offered and sold
for our account and for the accounts of the selling stockholders named in this
prospectus. We will not receive any proceeds from the 7 million shares sold by
the selling stockholders in the offering. At the assumed public offering price
of $ per share, we will receive net proceeds from the offering of $ ,
after deducting underwriting discounts and estimated offering expenses of
$ . We currently intend to use these net proceeds for all or any of the
following:
- to increase spending associated with research and development, new product
development, enhancement of existing products and strategic partnerships
and acquisitions,
- to make open-market purchases from time to time of our 9 3/8% senior
subordinated notes due March 4, 2007, $118.1 million of which in aggregate
principal amount was outstanding as of March 16, 2001, in amounts, if any,
depending on prevailing market prices and other factors deemed relevant at
the time by our management, and
- for general corporate purposes.
The allocation among these categories will be decided based on a number of
factors, including market conditions, the amount of cash we generate from
operations and the timing of our research and development expenditures. In
addition, we regularly evaluate potential partnership and acquisition
opportunities, but we are not currently negotiating any partnership or
acquisition that would be material to our business. Pending use of the net
proceeds from the offering, we intend to invest the net proceeds in interest
bearing securities.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "PBSC" since our initial public offering on April 19, 2000. Prior to that
time, there was no public market for the common stock. The following table sets
forth, for the periods indicated, the high and low prices per share of the
common stock as reported on the Nasdaq National Market.
HIGH LOW
-------- --------
2000
Second Quarter (since April 19, 2000)..................... $19.25 $ 8.75
Third Quarter............................................. $28.00 $12.63
Fourth Quarter............................................ $19.50 $ 8.91
2001
First Quarter (through March 28, 2001).................... $16.00 $ 3.94
On March 28, 2001 the reported last sale price of the common stock on the
Nasdaq National Market was $5.8125 per share.
DIVIDEND POLICY
Since we became a public company in April 2000, we have never declared or
paid any cash dividends on our capital stock. We intend to retain all of our
earnings in the foreseeable future to finance the expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. Our
future dividend policy will depend on our earnings, capital requirements and
financial condition and the requirements of the financing agreements to which we
may be a party, and on other factors considered relevant by our board of
directors. In addition, covenants in our senior credit facility and the
indenture governing our senior subordinated notes limit our ability to declare
and pay cash dividends on our common stock.
14
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2000:
- on an actual basis;
- on a pro forma basis, reflecting the February 2001 sale of Canberra for
net proceeds of approximately $130 million, a gain for financial reporting
purposes of $49.5 million, and the use of $51.1 million of the proceeds to
repay the December 31, 2000 balance outstanding on our revolving credit
facility; and
- on a pro forma basis, as adjusted for the offering.
You should read this table together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our consolidated
financial statements and accompanying notes and our unaudited pro forma
consolidated financial statement and accompanying notes included elsewhere in
this prospectus.
AS OF DECEMBER 31, 2000
-----------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA FOR OFFERING
-------- --------- ------------
(IN THOUSANDS)
Cash and cash equivalents................................... $13,294 $ 92,178 $
======== ======== ========
Notes payable and current portion of long-term debt......... $ 3,067 $ 3,067 $
-------- -------- --------
Long-term debt, less current portion:
Senior credit facility.................................... 51,116 --
9 3/8% Senior subordinated notes due 2007................. 118,145 118,145
Other..................................................... 83 83
-------- -------- --------
Total long-term debt........................................ 169,344 118,228
-------- -------- --------
Stockholders' deficit:
Common stock(1)........................................... 164 164
Paid-in capital........................................... 168,562 168,562
Accumulated deficit....................................... (22,469) 27,031
Accumulated other comprehensive income.................... 65 65
-------- -------- --------
146,322 195,822
Treasury stock, at cost..................................... (62,718) (62,718)
Deferred compensation....................................... (331) (331)
-------- -------- --------
Total stockholders' equity (deficit)...................... 83,273 132,773
-------- -------- --------
Total capitalization...................................... $255,684 $254,068
======== ======== ========
- ------------------------
(1) Based on 200,000,000 authorized shares of common stock, par value $0.002 per
share, 81,997,215 of which were issued and 67,631,019 of which were
outstanding as of December 31, 2000. The number of shares outstanding before
and after the offering does not include 7,277,600 shares of common stock
issuable, as of December 31, 2000, upon exercise of outstanding options
granted under our stock plans described under "Management."
15
DILUTION
Our net tangible book value as of December 31, 2000 was $20.9 million, or
$0.31 per share of common stock, based on an aggregate of 67,631,019 shares of
common stock outstanding and after giving effect to the sale of Canberra. The
number of shares outstanding as of December 31, 2000 excludes 7,277,600 shares
of our common stock issuable upon exercise of outstanding options granted to our
directors, officers and employees under our stock option and management stock
incentive plans as of such date. "Net tangible book value" per share is equal to
our total consolidated tangible assets less our total consolidated liabilities,
divided by the number of shares of our common stock outstanding, before giving
effect to the sale of the shares of our common stock in the offering. On a pro
forma as adjusted basis, after giving effect to the Canberra sale and the sale
by us of 3 million shares of our common stock in the offering at the assumed
public offering price of $ per share, and after deducting estimated
underwriting discounts and offering expenses of $ million, our net tangible
book value as of December 31, 2000 would have been approximately
$ million, or approximately $ per share of common stock. This
represents an immediate increase in net tangible book value of $ per share
of common stock to existing stockholders and an immediate dilution in net
tangible book value of $ per share of common stock to new investors
purchasing common stock in the offering at the assumed public offering price.
The following table illustrates this per share dilution:
Assumed offering price per share............................ $
---------
Pro forma net tangible book value per share as of
December 31, 2000, after giving effect to the sale of
Canberra................................................ $ 0.31
---------
Increase in net tangible book value per share attibutable
to the offering......................................... $
---------
Pro forma net tangible book value per share after the
offering.................................................. $
---------
Dilution per share to new investors......................... $
=========
Dilution per share to new investors is determined by subtracting pro forma
net tangible book deficit per share after the offering from the assumed public
offering price per share paid by a new investor.
As of March 16, 2001, we had outstanding options to purchase 5,543,850
shares under our stock plans at a weighted average exercise price of $4.30 per
share. If any shares are issued in connection with outstanding options, you will
experience further dilution.
16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data for
the periods ended and as of the dates indicated. The selected historical
consolidated financial data as of December 31, 1999 and 2000 and for the years
ended December 31, 1998, 1999 and 2000 are derived from our audited consolidated
financial statements included elsewhere in this prospectus. The selected
historical consolidated financial data as of December 31, 1996, 1997 and 1998
and for the years ended December 31, 1996 and 1997 are derived from our audited
consolidated financial statements that are not included in this prospectus. The
summary consolidated financial data have been reclassified to give effect to the
accounting for Canberra as a discontinued operation for the periods presented.
This information should be read in conjunction with our consolidated financial
statements and accompanying notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Revenues.................................................... $122,676 $120,286 $146,235 $158,890 $165,375
Cost of revenues (1)........................................ 54,518 54,368 69,090 78,310 73,639
-------- -------- -------- -------- --------
Gross profit................................................ 68,158 65,918 77,145 80,580 91,736
Research and development expenses........................... 12,801 17,667 23,160 22,796 28,358
Selling, general and administrative expenses (2)............ 31,809 32,839 37,844 42,020 53,229
Purchased in-process research and development charges....... -- -- 6,120 -- 12,100
Other operating expense (income), net (3)................... 837 18,429 (10,753) -- 1,881
-------- -------- -------- -------- --------
Income (loss) from operations............................... 22,711 (3,017) 20,774 15,764 (3,832)
Interest expense............................................ (192) (18,079) (21,097) (22,425) (19,098)
Other income, net (4)....................................... 1,149 790 3,615 331 1,296
-------- -------- -------- -------- --------
Income (loss) from continuing operations before provision
for income taxes, minority interest and extraordinary
items, net................................................ 23,668 (20,306) 3,292 (6,330) (21,634)
(Provision for) benefit from income taxes................... (8,394) (1,096) (2,437) (1,620) 10,791
Minority interest in income of subsidiaries................. (1,346) (218) -- -- --
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
extraordinary items, net.................................. 13,928 (21,620) 855 (7,950) (10,843)
Income from discontinued operations, net of taxes........... 5,308 2,865 1,050 7,752 4,106
-------- -------- -------- -------- --------
Income (loss) before extraordinary items, net............... 19,236 (18,755) 1,905 (198) (6,737)
Extraordinary items, net of income taxes.................... -- -- -- -- 369
-------- -------- -------- -------- --------
Net income (loss)....................................... $ 19,236 $(18,755) $ 1,905 $ (198) $ (6,368)
======== ======== ======== ======== ========
Weighted average diluted shares outstanding (5)............. 125,697 62,318 47,683 45,803 58,443
Diluted per share information:
Income (loss) from continuing operations.................... $ 0.11 $ (0.35) $ 0.02 $ (0.17) $ (0.19)
Income from discontinued operations, net.................... 0.04 0.05 0.02 0.17 0.07
Extraordinary items, net.................................... -- -- -- -- 0.01
-------- -------- -------- -------- --------
Net income (loss) (5)....................................... $ 0.15 $ (0.30) $ 0.04 $ 0.00 $ (0.11)
======== ======== ======== ======== ========
Dividends declared and paid per share....................... $ 0.04 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
AS OF DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 36,243 $ 9,129 $ 6,607 $ 4,432 $ 13,294
Working capital............................................. 59,216 32,265 24,734 38,566 71,359
Total assets................................................ 126,966 124,954 141,435 182,558 306,092
Long-term debt, less current portion........................ 1,877 192,194 190,093 225,710 169,344
Stockholders' equity (deficit).............................. 80,593 (112,014) (108,563) (107,890) 83,273
(FOOTNOTES ON FOLLOWING PAGE)
17
- ------------------------------
(1) Includes the following pre-tax items:
- the expensing of fair market value adjustments associated with acquired
inventories totaling $1.5 million in 1998; and
- a $2.7 million charge in 1999 in connection with modifying an existing
license agreement and terminating the production of an OEM clinical
product.
(2) Includes non-cash stock compensation charges of $1.0 million in 1999 and
$4.7 million in 2000.
(3) Other operating expense (income), net in 1996 and 1997 represents expenses
incurred in connection with our 1997 recapitalization. 1998 represents a
$10.8 million gain we recognized in connection with the sale of our gas
generation product line. The 2000 amount consists of a $1.9 million charge
primarily to write off long-lived assets which had become impaired.
(4) Consists of interest income and, in 1998, a gain of $3.2 million recognized
on the sale of equity securities.
(5) Based upon the average shares outstanding during each period presented,
including the impact of outstanding options, except when such options are
anti-dilutive.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
THAT REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN FORWARD-LOOKING STATEMENTS, AS DESCRIBED
UNDER "RISK FACTORS."
OVERVIEW
We are a leading global developer, manufacturer and marketer of instruments
and related consumables and services for use in drug discovery and other life
sciences research. We are a leader in laboratory automation and have developed
scalable platforms built on our worldwide leadership in the manufacturing and
marketing of bioanalytical instruments for use in the life sciences research
industry.
Our revenues are derived primarily from sales of instruments and consumables
with additional sales from services. We are marketing our instruments as parts
of integrated platforms, which we expect will generate increasing instrument and
consumable sales at higher gross margins than our service business. All of our
operations are conducted through subsidiaries, as described under "Business--
Properties."
Our profitability varies among the sources of revenues, consisting of sales
of instruments, services and consumables. The major reasons for such variances
are:
- technological differences between our products and those of our
competitors;
- maturity of product life cycles;
- competitive environment and supply of services and consumables; and
- our market position and differences in the markets within the geographic
areas we operate.
Our operating results also vary among geographic territories. Major reasons
for such variances are:
- effects of foreign exchange rate fluctuations in countries where we
conduct business in currencies other than the U.S. dollar, primarily
England (British pound), Euro-based countries and Japan (Japanese yen);
- our market position and mix of products sold affect the margins in each
geographic area; and
- to the extent that our operating results reflect special charges or
credits, and such can be designated to specific geographic operations,
operating results will vary.
On February 27, 2001, we sold our Canberra division to COGEMA, S.A. for
$170 million. The net proceeds, after estimated income taxes payable and cash
expenses directly related to the sale and after repurchases of options held by
Canberra employees, were approximately $130 million. We used $71 million of net
proceeds to repay the outstanding balance on our credit facility on
February 28, 2001. We intend to use the remainder of the net proceeds to
increase spending associated with research and development, new product
development, enhancement of existing products and strategic partnerships and
acquisitions, and for general corporate purposes.
Our consolidated financial statements have been reclassified to reflect the
net assets and operating results of the Canberra operating segment as a
discontinued operation. The amounts below relate only to our continuing
operations unless otherwise noted.
19
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Revenues increased $6.5 million, or 4.1%, to $165.4 million in 2000 from
$158.9 million in 1999. Foreign currency exchange rates had an unfavorable
effect on 2000 revenues in comparison with 1999. Had exchange rates remained the
same during 2000, as in 1999, revenues would have been $5.8 million higher. The
Japanese yen was approximately 5% stronger than the U.S. dollar in 2000 when
compared to 1999, resulting in 2000 translated revenues being approximately
$0.9 million higher than they would have been if translated at the 1999 average
exchange rate. The Euro and British Pound were approximately 16% and 7% weaker,
respectively, than the U.S. dollar during 2000 as compared to 1999, reducing
translated revenues by approximately $5.5 million and $1.2 million,
respectively. The 2000 revenues included approximately $2.8 million of
instrument sales from the life sciences division of GSI Lumonics, Inc. (now
known as Packard BioChip Technologies, LLC) which we acquired effective
October 1, 2000. In addition, 1999 includes approximately $3.9 million of
revenues associated primarily with an OEM clinical instrument which we
terminated production of at the end of 1999 since our primary customer, CIS bio
international, stopped selling this instrument. Excluding the effect of exchange
rates, sales of Packard BioChip Technologies products and the product line
termination, 2000 revenues would have been 8.7% higher in 2000 when compared to
1999. The increase is primarily attributable to strong instrumentation revenue
growth in some of our major product lines, particularly automated liquid
handling and sample preparation where revenues increased $10.9 million, or
29.9%, to $47.3 million in 2000 from $36.4 million in 1999. This increase was
partially offset by decreases in revenues generated from bioanalytical
scintillation instruments and other radioisotopic instruments and consumables,
which are our legacy products, where revenues decreased $6.9 million, or 14.4%,
to $41.0 million in 2000 from $47.9 million in 1999.
Service revenues declined $1.6 million, or 4.8%, to $31.4 million in 2000
from $33.0 million in 1999. The decrease is primarily due to software upgrade
services performed to make some of our products Y2K compliant in 1999, which did
not occur at the same level in 2000. Chemicals and supplies, or consumables,
sales increased $1.3 million, or 4.2%, to $32.2 million in 2000 from
$30.9 million in 1999 reflecting an increase in revenues from our AlphaScreen
reagents.
GROSS PROFIT
Gross profit increased $11.1 million, or 13.8%, to $91.7 million in 2000
from $80.6 million in 1999. The 1999 gross profit amount includes a charge of
approximately $2.7 million to terminate an agreement we had with CIS bio
international covering the manufacturing of an OEM clinical instrument since CIS
bio international stopped selling this instrument, and to convert a license
agreement covering our HTRF product line from exclusive to non-exclusive.
Excluding this charge as well as the effect of foreign exchange rate
fluctuations, new product sales of Packard BioChip Technologies in 2000 and the
product line terminated in 1999, gross profit dollars would have increased
approximately 16.2% in 2000 when compared to 1999. As a percentage of sales,
excluding the items described above, total gross profit increased from 52.0% in
1999 to 55.6% in 2000. Product gross profit, as a percentage of net product
sales, increased from 59.7% in 1999 to 61.6% in 2000 and chemicals and supplies
gross profit, as a percentage of chemicals and supplies sales, increased from
62.0% in 1999 to 66.8% in 2000. These increases, in both dollars and as a
percentage of revenues, are primarily due to increased sales of our automated
liquid handling and sample preparation instruments and our AlphaScreen reagents.
In addition, service gross profit, as a percentage of service revenues,
increased from 22.4% in 1999 to 24.0% in 2000. The increase is due to software
upgrade services, which had lower margins, performed in 1999 to make some of our
products Y2K compliant.
20
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$5.6 million, or 24.6% to $28.4 million in 2000 from $22.8 million in 1999.
Packard BioChip Technologies contributed $1.5 million to the increase in
spending. The remaining increase is attributable to new product development as
well as efforts to accelerate the market introduction of our key new products.
In line with our strategic initiatives, we expect research and development
spending to increase significantly in the future; however, we expect it to
decline as a percent of revenues.
SELLING GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased $11.2 million, or 26.7%, to $53.2 million in 2000 from
$42.0 million in 1999. The 2000 and 1999 amounts include non-cash stock
compensation charges totaling $4.7 million and $1.0 million, respectively. These
charges resulted from stock options granted to employees in December 1999 and
from the March 2000 gifting of common stock by our Chairman and Chief Executive
Officer, our former President and other members of our management to our
employees who did not then own, or have options to acquire, any of our common
stock. An expense was recorded related to the gifting since it represented
additional compensation to these employees for financial reporting purposes.
Excluding these charges, selling, general and administrative costs would have
increased 18.3% in 2000 when compared to 1999. The increase is due primarily to
additional corporate expenses incurred as a result of our initial public
offering in April 2000 as well as higher goodwill amortization resulting from
contingent earnout payments related to our 1998 acquisition of Carl Creative
Systems, Inc. (which now operates as CCS Packard, Inc.) and the goodwill
resulting from the acquisition of the life sciences division of GSI Lumonics,
Inc. effective October 1, 2000. Additional payments up to a maximum of
$3.9 million are due contingent upon CCS Packard achieving specified operating
levels in 2001. In addition, we have increased spending to broaden our field of
product application specialists and enhance our sales and marketing
organization. Continuing operations for all years presented includes the costs
we will incur as a result of Canberra no longer absorbing certain previously
allocated expenses.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
In connection with the acquisition of the life sciences division of GSI
Lumonics, Inc., we incurred a charge of $12.1 million to expense the value of
in-process research and development projects at the date of the acquisition.
This charge was calculated using the percentage-of-completion method applied to
the discounted cash flows expected to be generated by the projects under
development. Two of the primary products under development at the time of the
acquisition were the SpotArray and ArrayInformatics.
OTHER OPERATING EXPENSE (INCOME), NET
In December 2000, we recorded a charge of $1.9 million to write-off assets
and accrue severance and lease termination costs relating to technologies that
we no longer intend to pursue.
INTEREST EXPENSE
Interest expense decreased $3.3 million, or 14.7%, from $22.4 million in
1999 to $19.1 million in 2000. The lower interest expense is directly
attributable to lower average borrowings during 2000 as a result of our
repayment of outstanding indebtedness using proceeds from our April 2000 initial
public offering. The repayments were partially offset through additional
borrowings to fund certain of our operating requirements, contingent earnouts
paid in March 2000, scheduled interest payments on our senior subordinated notes
and portions of our 2000 acquisition program, in particular the cash portion of
the acquisition of the life sciences division of GSI Lumonics, Inc. Interest
rates were also higher during 2000, 1% to 1.5% higher on average, on our
variable rate indebtedness as compared to 1999.
21
For purposes of presenting operating results of our continuing operations,
all corporate interest expense has been charged to continuing operations.
Corporate interest expense consists of all interest associated with our senior
subordinated notes, term loan facility and revolving credit facility.
OTHER INCOME
Other income consists of interest income earned on invested funds. The
increase in interest income, from $0.3 million in 1999 to $1.3 million in 2000,
is due to the higher average invested funds balance during the 2000 period as a
result of the proceeds received from our initial public offering.
EFFECTIVE TAX RATE
Our effective tax rate was 49.9% during 2000 as compared to 25.6% in 1999
(representing a provision on a pre-tax loss). The 2000 effective tax rate
represents a benefit provided on a pre-tax loss. Both periods reflect the effect
of nondeductible goodwill. The 2000 period reflects the benefit associated with
the reversal of valuation allowances associated with state net operating loss
carryforwards and research and development credits. Due to the gain to be
generated in connection with the sale of Canberra, such credit carryforwards are
expected to be realized in 2001.
The 1999 effective tax rate reflects the provision of additional valuation
allowances on foreign tax credit carryforwards due to the uncertainty of
realization.
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Income from discontinued operations consists of the following (in
thousands):
YEAR ENDED
DECEMBER 31,
-------------------
2000 1999
-------- --------
Revenues.................................................... $ 94,530 $106,003
Total costs and expense..................................... (87,957) (92,435)
Provision for income taxes.................................. (2,467) (5,816)
-------- --------
Income from discontinued operations, net.................. $ 4,106 $ 7,752
======== ========
For purposes of presenting operating results of our continuing operations,
all corporate interest expense has been charged, and all corporate interest
income has been credited, to continuing operations. Discontinued operations
include interest expense on local borrowings related to the applicable foreign
subsidiaries of $0.6 million and $0.1 million for the years ended December 31,
1999 and 2000, respectively.
Discontinued operations for 2000 included charges associated with
accelerated option vesting and gifted shares of common stock totaling
$3.5 million as well as a restructuring reserve totaling $1.4 million associated
with Canberra's Harwell Instruments operations. The 1999 results include a
$1.0 million charge to write-off the step-up in inventory acquired in connection
with Canberra's Tennelec, Inc. acquisition and a $0.8 million stock compensation
charge.
EXTRAORDINARY ITEMS, NET OF INCOME TAXES
During 2000, we repaid the outstanding balance on our term loan and our
revolving credit facility. We then entered into an amended and restated credit
agreement in August 2000. In addition, we repurchased $31.9 million of our
senior subordinated notes, at a discount from par, during 2000. The repurchase
of the notes generated a pre-tax gain of approximately $3.2 million. The gain
was partially offset by the write-off of unamortized deferred financing costs
associated with the repayment of the term and original revolving credit
facilities and the repurchase of senior subordinated notes. The gain, net of the
write-off of deferred financing costs and income taxes, is reflected as
extraordinary items, net of income taxes, in our consolidated statements of
income (loss).
22
NET INCOME (LOSS)
We incurred a net loss of $6.4 million during 2000 compared to a net loss of
$0.2 million in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Revenues increased $12.7 million, or 8.7%, to $158.9 million in 1999 from
$146.2 million in 1998. The effect of foreign exchange rate fluctuations had an
immaterial effect on revenues. The 1999 period reflects a full year of
operations of CCS Packard, Inc. and BioSignal, Inc. (which now operates as
BioSignal Packard, Inc.), subsidiaries that we acquired effective March 31, 1998
and July 1, 1998. Had CCS Packard and BioSignal Packard been included for all of
the prior year, 1998 revenues would have been $3.5 million higher. The 1999
increase in revenues was also attributable in part to strong growth in our
bioanalytical spectrometer business, particularly the liquid scintillation
counter product line where sales increased by approximately $2.9 million, or
28.7%, to $13.0 million in 1999 from $10.1 million in 1998. In addition, the
1999 revenue increase was due in large part to service revenue, which increased
$7.5 million, or 29.4%, to $33.0 million in 1999 from $25.5 million in 1998.
This increase was due primarily to the sale of software upgrade services
performed to make some of our products Y2K compliant. These revenue increases
were partially offset by the loss of revenues from the sale of our gas
generation product line at the end of 1998 and a reduction of $4.8 million in
revenues of our OEM clinical instruments due to our customer exiting the
marketplace.
GROSS PROFIT
Gross profit increased $3.5 million, or 4.5%, to $80.6 million in 1999 from
$77.1 million in 1998. Excluding the effects of other costs of product sales and
expensing the fair market value adjustment associated with acquired inventories
included in our cost of sales, gross profit would have been $83.3 million in
1999 and $78.6 million in 1998. As a percentage of revenues, and excluding these
charges, total gross profit was 52.4% for 1999 and 53.8% for 1998. Product gross
profit, as a percentage of net product sales, decreased from 60.0% in 1998 to
59.7% in 1999. Service gross profit, as a percentage of service revenues,
increased from 22.3% in 1998 to 22.4% in 1999. Chemicals and supplies gross
profit, as a percentage of chemicals and supplies sales, was the same in both
1998 and 1999, at 62.0%. The reduced total margin percentage is due primarily to
the increase in service revenues which generate lower margins than product
sales. The increase in gross profit dollars over the last two years is due
primarily to the CCS Packard and BioSignal Packard acquisitions.
During 1999, we terminated an agreement we had with CIS bio international
covering the manufacturing of an OEM clinical instrument since CIS bio
international stopped selling this instrument, and converted a license agreement
covering our HTRF product line from exclusive to non-exclusive. This termination
and modification resulted in a $2.7 million charge. During 1998, in connection
with the acquisitions of CCS Packard and BioSignal Packard, we expensed
$1.5 million, representing the fair market value adjustment associated with
acquired inventories.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES. Research and development spending
decreased $0.4 million, or 1.7%, to $22.8 million in 1999 from $23.2 million in
1998. The 1998 amount includes charges totaling $3.8 million associated with
terminating two agreements for the development of specific instrumentation.
Based on novel technologies, the projects did not result in the development of
commercially viable products and, accordingly, the agreements were terminated.
Excluding these charges, the 1999 spending represents a 17.5% increase over the
1998 level. The increased spending represents investments in the areas of new
product development and other collaborative arrangements.
23
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased $4.2 million, or 11.1%, to $42.0 million in
1999 from $37.8 million in 1998. The 1999 amount includes a compensation charge
of $1.0 million associated with options granted to our employees in
December 1999. Excluding this charge, selling, general and administrative costs
increased 8.5% in 1999. As a percentage of revenues, and excluding the
compensation charge from 1999, selling general and administrative expenses were
flat at approximately 25.8% each year.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
In connection with the acquisitions of CCS Packard and BioSignal Packard, we
incurred charges to expense the value of in-process research and development
projects at the date of the acquisition. These charges were calculated using the
percentage-of-completion method applied to the discounted cash flows expected to
be generated by the projects under development. The charge related to the
acquisition of CCS Packard was $2.7 million and primarily related to the
PlateStak product that is now being sold and several software products embedded
in various product offerings. The charge related to BioSignal Packard was
$3.4 million and was primarily related to the in-process development of our
AlphaScreen reagent and assay technology.
OTHER OPERATING EXPENSE (INCOME), NET
In 1998, other operating income represented a $10.8 million gain from the
sale of our gas generation product line. There were no comparable charges in
1999.
INTEREST EXPENSE
Interest expense increased $1.3 million, or 6.2%, to $22.4 million in 1999
from $21.1 million in 1998. Interest expense had increased due to borrowings on
our revolving credit facility to effect the CCS Packard and BioSignal Packard
acquisitions. The majority of this debt was originally incurred in connection
with our 1997 recapitalization.
For purposes of presenting operating results of our continuing operations,
all corporate interest expense has been charged to continuing operations.
Corporate interest expense consists of all interest associated with our senior
subordinated notes, term loan facility and revolving credit facility.
OTHER INCOME
Other income in 1999 consisted of interest income earned on invested funds.
In 1998, other income consisted of $0.4 million of interest income and a
$3.2 million gain recognized on the sale of equity securities.
EFFECTIVE TAX RATES
Our consolidated effective tax rate was 25.6% in 1999, representing a tax
provision on a pre-tax loss, and 74.0% in 1998. These effective tax rates are a
result of the following:
- the 1999 effective tax rate reflects an increase in the valuation
allowance for foreign tax credit carryforwards resulting from the reduced
likelihood of their utilization primarily as a result of estimated future
deductions associated with anticipated stock option exercises. As the
stock options are exercised, we will benefit through reduced cash income
tax payments;
- the 1998 effective tax rate reflects the non-deductibility for tax
purposes of purchased in-process research and development charges and
goodwill amortization associated with the acquisitions of CCS Packard and
BioSignal Packard; and
- the income tax provision for 1998 and 1999 reflects taxes on income
generated in foreign countries where the statutory rates are higher than
the statutory rate in the United States, particularly Japan.
24
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Income from discontinued operations consists of the following (in
thousands):
1998 1999
-------- --------
Revenues.................................................... $81,929 $106,003
Total costs and expenses.................................... (79,526) (92,435)
Provision for income taxes.................................. (1,353) (5,816)
------- --------
Income from discontinued operations, net.................... $ 1,050 $ 7,752
======= ========
For purposes of presenting operating results of our continuing operations,
all corporate interest expense has been charged, and all corporate interest
income has been credited, to continuing operations. Discontinued operations
includes interest expense on local borrowings related to the applicable foreign
subsidiaries of $0.1 million and $0.6 million for the years ended December 31,
1998 and 1999, respectively.
The 1999 results include a $1.0 million charge to write-off the step-up in
inventory acquired in connection with Canberra's Tennelec, Inc. acquisition as
well as a $0.8 million stock compensation charge.
NET INCOME (LOSS)
We incurred a net loss of $0.2 million in 1999 compared to net income of
$1.9 million in 1998.
LIQUIDITY AND FINANCIAL RESOURCES
Our liquidity requirements arise from operational needs, including research
and development expenditures, interest payments on outstanding indebtedness,
capital expenditures and funding of acquisitions and other partnerships. We met
our 2000 and 1999 cash requirements through cash generated from operations
(including discontinued operations), net proceeds received in connection with
our April 2000 initial public offering, proceeds from the exercise of stock
options, and borrowings under our revolving credit facility and overseas bank
facilities.
Approximately half of our revenues are generated from foreign sources, most
of which are denominated in currencies other than the U.S. dollar. As a result,
our reported earnings and financial position are affected by changes in foreign
currency exchange rates. A strengthening U.S. dollar against the foreign
currencies through which we conduct our business has had, and may continue to
have, a negative impact on our U.S. dollar denominated operating results. To
manage the exposure of foreign currency exchange rates, we engage in hedging
strategies. We purchase various foreign currency forward contracts, at specified
levels of coverage, generally for the purpose of hedging firm intercompany
inventory purchase commitments.
Net cash used by continuing operating activities was $2.3 million during
2000 as compared to net cash provided by continuing operating activities of
$0.9 million during 1999. The increase in cash used by operating activities is
primarily due to increased research and development spending, as well as higher
administrative costs during the 2000 period due primarily to additional
corporate expenses incurred as a result of our initial public offering in April
2000. In addition, our use of operating cash was due to a reduction in vendor
accounts payable and accrued expenses in 2000, due to available cash. Operating
cash benefited in 2000 from improved accounts receivable collections.
Net cash used for investing activities of continuing operations during 2000
consisted primarily of approximately $40 million, plus related fees and
expenses, to acquire the life sciences division of GSI Lumonics, Inc.,
$0.5 million to acquire a 51% interest in Carl Consumable Products, LLC,
$1.3 million to acquire certain net operating assets, primarily intangibles, of
Cambridge Imaging Limited and $5.0 million of contingent earnout payments
associated with the CCS Packard acquisition. In addition, we spent approximately
$6.4 million on capital equipment and improvements. In 1999, investing
activities consisted primarily of earnout payments associated with the CCS
Packard acquisition. During 1999, capital expenditures totaled $5.9 million.
25
The acquisition of the life sciences division of GSI Lumonics, Inc. had a
significant effect on our consolidated financial position through the creation
of approximately $90.5 million of goodwill. Such goodwill, which we are
currently amortizing over 20 years for financial statement purposes, is
deductible for income tax purposes over a 15 year period. In addition, goodwill
for income tax purposes is greater than that for financial reporting purposes,
due to a different valuation assigned to the common stock portion of the total
acquisition consideration, resulting in a further reduction in future income tax
cash requirements.
The net proceeds from the sale of our Canberra operating segment, after
income taxes payable and cash expenses directly related to the sale and after
the repurchase of options held by Canberra employees, was approximately
$130 million. We used $71 million of the net proceeds to repay the outstanding
balance on our credit facility on February 28, 2001. We intend to use the
remainder of the net proceeds to increase spending associated with research and
development, new product development, enhancement of existing products and
strategic partnerships and acquisitions, and for general corporate purposes.
Under the terms of our senior subordinated notes, if we do not use the net
proceeds, as defined in the indenture governing the notes, from the sale of
Canberra to replace the assets sold or permanently repay our senior indebtedness
prior to February 22, 2002, we must use up to approximately $82 million of the
net proceeds to repurchase our senior subordinated notes.
Financing activities during 2000 consisted primarily of our receipt of the
net proceeds from our initial public offering and our use of a substantial
portion of such proceeds, combined with available invested cash, to pay down
indebtedness. We used additional borrowings under our revolving credit facility
to fund $5.0 million of contingent earnout payments related to the year ended
December 31, 1999 and a portion of our cash acquisition requirements during 2000
as well as the semi-annual interest payments due in March and September 2000 on
our outstanding subordinated notes. We also used the borrowings to fund
operating requirements, as needed. In addition, proceeds from the exercise of
stock options totaled $7.1 million during 2000. During 1999, financing
activities consisted primarily of borrowings under the revolving credit facility
to fund $4.5 million of contingent earnout payments associated with the CCS
Packard acquisition. In addition, borrowings during 1999 were used to make the
semi-annual subordinated notes interest payments and to fund operating
requirements, as needed.
In connection with amending and restating our credit agreement in August
2000, we terminated our term loan and increased our revolving credit facility
from $75 million to $100 million. Based upon a stipulated formula in the credit
agreement, the revolving credit facility was decreased by $35 million upon
completion of the sale of Canberra. The revolving credit facility prohibits us
from paying cash dividends on our common stock. In addition, pursuant to the
guarantee and collateral agreement supporting the revolving credit facility, we
have pledged substantially all of our assets as collateral.
Net cash provided by (used for) continuing operations was $0.9 million for
1999, and $5.8 million for 1998. The 1999 operating cash flow is primarily a
result of that year's operating results prior to non-cash charges, including the
favorable effect of a full year of operations of the CCS Packard and BioSignal
Packard acquisitions. These increases were partially offset by an increase in
working capital, primarily accounts receivable and inventories. The 1998
operating cash flow is also a result of that year's operating performance prior
to non-cash charges, as well as the addition of CCS Packard and BioSignal
Packard during that year. The 1998 operating cash flow also includes
$10.8 million from the sale of our gas generation product line. Continuing
operations utilized cash in both 1999 and 1998 to reduce vendor accounts payable
and accrued expenses. In addition, operating cash flows reflected increases in
accounts receivable in both 1999 and 1998, primarily as a result of fourth
quarter sales that were not collected from customers until the first quarter of
the respective following year.
Net cash used for investing activities of continuing operations was
$11.8 million in 1999 and $14.9 million in 1998. During 1998 and 1999, our use
of cash for investing purposes increased in
26
accordance with our strategic plan and direction. During 1999 and 1998, cash
used to acquire businesses consisted of the following transactions:
- the acquisition of CCS Packard, which we initially purchased in 1998 for
approximately $1.5 million of our common stock and $6.3 million in cash,
plus contingent earnout payments; and
- the acquisition of BioSignal Packard, which we invested in initially in
1997 and purchased the remaining interest of 81% in 1998 for approximately
$100,000 of our common stock and $8.6 million in cash.
We have also invested significant amounts of cash in our infrastructure to
provide for the needs of our growing business. We acquired a new building for
our operations in The Netherlands and CCS Packard leased a facility requiring
leasehold and other improvements. Related to our growth strategy is our
investment of available cash in partnerships and other ventures that we believe
will bring future financial benefits.
Net cash provided by financing activities was $34.9 million in 1999 and
$0.2 million in 1998. During 1998 and 1999, financing cash flow proceeds
consisted primarily of borrowings under our revolving credit facility to fund
strategic acquisitions as well as to fund working capital requirements, as
needed. We repaid such borrowings to the extent possible, from operating cash
flows and other sources.
As of December 31, 2000, we had approximately $48.9 million of funds
available under our $100 million revolving credit facility, as amended and
restated. Monies available under this credit facility are subject to certain
restrictions and provisions. In February 2001, the credit facility was reduced
to $65 million as a result of the sale of Canberra. The revolving credit
facility matures in 2005 and bears interest at the Eurodollar rate plus 1.25% to
2.75% or the cost of funds rate, as defined in the revolving credit facility,
plus 0.25% to 1.75%. The revolving credit facility contains certain customary
financial covenants, as described under "Description of Indebtedness--Senior
Credit Agreement." We were in compliance with all covenants as of December 31,
2000.
Our senior subordinated notes are redeemable after March 1, 2002, starting
at 104.688%, reducing over time to March 1, 2004, at which time they are
redeemable at 100%. Upon a change of control, as defined in the notes, the
holders have the right to require us to repurchase all or part of the notes at a
purchase price equal to 101% of the notes' principal amount. As of December 31,
2000, we have repurchased an aggregate of $31.9 million of the $150 million
original outstanding amount of our notes.
SEASONALITY
The following table summarizes the seasonality of our revenues and income
from operations by quarter for the last three years:
2000
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Revenues..................................... 24% 23% 23% 30%
Income from operations....................... (19%) (104%) (50%) 273%
Income from operations, as adjusted.......... 36% 27% 13% 24%
1999
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Revenues................................. 24% 23% 23% 30%
Income from operations................... 37% 27% 15% 21%
Income from operations, as adjusted...... 30% 22% 12% 36%
1998
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Revenues................................. 20% 24% 25% 31%
Income from operations................... 4% 25% 5% 66%
Income from operations, as adjusted...... 20% 35% 28% 17%
27
The "as adjusted" percentages above exclude the effect of:
- charges of $6.1 million related to purchased in-process research and
development in 1998;
- a charge of $1.5 million in 1998 to expense the fair market value
adjustment associated with acquired inventories;
- a gain of $10.8 million recognized in 1998 in connection with the sale of
our gas generation product line;
- charges of $2.7 million associated with the termination of a product line
and the modification of a license in 1999;
- a stock compensation charge of $1.0 million in December 1999;
- charges of $12.1 million related to the write-off of purchased in-process
research and development in 2000;
- a stock compensation charge of $4.7 million in the first quarter of 2000;
and
- a $1.9 million charge in December 2000 primarily to write-off long-lived
assets which had become impaired.
We believe that the presentation of the "as adjusted" information, and the
exclusion of the above charges or income from income from operations, is
relevant and useful information as such items represent specific, isolated
situations in our operating history. Additional disclosure of such items is
provided in the notes to the consolidated financial statements included
elsewhere in this prospectus. The presentation of the "as adjusted" information
is intended to provide a more normalized indication as to the seasonality of our
business. It is not intended to, and should not be considered, more meaningful
than the information presented on an "as reported" basis. In addition, our
presentation of the "as adjusted" information as an indication of the
seasonality of our business may not be comparable to similarly titled measures
reported by other companies.
Our revenues are traditionally the highest in the fourth quarter of the year
due primarily to the spending patterns of many of our customers. The seasonality
of our income from operations does not necessarily correlate to that of our
revenues due to the following:
- variances in the mix of the instruments which we sell throughout the year
and the related gross margins earned on such sales;
- the impact of foreign currency exchange rate fluctuations, particularly to
the extent that such exposures are not covered by forward exchange
contracts; and
- variances in the mix of our revenues, between instruments, consumables and
services, throughout the year and the effect that the different margins of
such types of revenues have on our overall operating results.
BACKLOG
As of January 31, 2001 and 2000, our order backlog was approximately
$24.5 million and $17.9 million, respectively. We expect that substantially all
of the backlog as of January 31, 2001 will be filled by December 31, 2001. We
typically do not experience any seasonality in our backlog.
We include in backlog only those orders for which we have received purchase
orders, and do not include orders for service. Our backlog as of any particular
date may not be representative of actual sales for any succeeding period.
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NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes the accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 was amended by SFAS No. 138. We purchase forward contracts to cover
foreign exchange fluctuation risks on intercompany sales to certain of our
foreign operations which are not designated as hedging instruments under SFAS
No. 133, as amended. Effective January 1, 2001, we will reflect such forward
contracts in our financial statement at their current market values based upon
the actual exchange rates in effect as compared to the forward contract rates.
Any resulting gains and losses will be reflected in our consolidated statements
of income. We do not anticipate that the adoption of this statement will have a
material effect on our consolidated operating results or financial position upon
adoption. As of December 31, 2000, there were unrealized losses totaling
$0.2 million on outstanding foreign currency forward contracts.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements". SAB No. 101, among other things,
provides guidance on revenue recognition when customer acceptance and
installation provisions exist. We have quantified the impact of adopting SAB
No. 101 and the effect on our consolidated financial position and results of
operations is immaterial. Accordingly, we did not record any cumulative catch-up
adjustment as of January 1, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk and interest rate risk are the primary sources of
market risk to our operations. We manage exposure on certain foreign currency
risks through the use of foreign currency forward contracts primarily for the
purpose of hedging firm inventory purchase commitments. We do not enter into
contracts for trading purposes. Outstanding foreign currency forward contracts
as of December 31, 2000 totaled $5.4 million in U.S. dollar equivalents. As of
December 31, 2000, unrealized gains (losses) on foreign currency contracts were
not significant.
As of December 31, 2000, the carrying value and fair value, based on the
quoted terms, of the senior subordinated notes was $118,145,000 and
$105,149,000, respectively. As of December 31, 1999 the carrying value and fair
value of the senior subordinated notes was $150,000,000 and $137,175,000,
respectively.
As of December 31, 2000 and 1999, we had aggregate variable rate long-term
debt of approximately $54.3 million and $79.9 million, respectively. The 2000
balance consisted primarily of outstanding borrowings on our revolving credit
facility. The 1999 balance included borrowings outstanding on our term loan of
$37.4 million and on our revolving credit facility of $36.9 million. A 10%
change in interest rates would have changed the annual interest expense on such
long-term debt as of December 31, 2000 and 1999 by approximately $282,000 and
$580,000, respectively. As of December 31, 2000 and 1999, $25.1 million and
$28.5 million, respectively, of the outstanding borrowings on our revolving
credit facility were denominated in currencies other than the U.S. dollar,
primarily the Eurodollar. To the extent such borrowings remain outstanding, we
will be subject to risks associated with future foreign exchange fluctuations.
On February 28, 2001, the amounts outstanding on the revolving credit facility
were repaid from a portion of the proceeds from the sale of Canberra.
29
BUSINESS
We are a leading global developer, manufacturer and marketer of instruments
and related consumables and services for use in drug discovery and other life
sciences research. We are primarily focused on the rapidly growing areas of drug
screening, functional genomics and proteomics. Our broad technology portfolio
and our experience working in more than 60 countries with market-leading
customers have allowed us to establish a worldwide leadership position in many
of our primary product categories, including bioanalytical instrumentation,
liquid handling and sample preparation robotics and integrated screening systems
for drug discovery. In addition, we have developed advanced technologies for
biochips and microarrays, which are chips containing dense grids of genes or
proteins for simultaneous analysis, through substantial investments in research
and development and intellectual property, as well as through acquisitions and
strategic alliances. Our products are intended to meet the rapidly growing
experimentation needs of a diverse customer base, including pharmaceutical,
biotechnology, agricultural and diagnostics companies, as well as academic
institutions and government agencies. For the year ended December 31, 2000, we
generated revenues of $165.4 million.
Established on a strong lineage of bioanalytical instrumentation and
recognized brand names, Packard has for many years been a leading producer of
bioanalytical instruments and related consumables. Over time, this leadership
position has given us capital resources and expertise to pursue new
opportunities and develop scalable platforms in the fast growing fields of the
post-genomic era: drug screening, functional genomics and proteomics.
Today, we believe we provide the most comprehensive integrated solutions for
drug screening applications that allow our customers to increase speed, reduce
cost, improve data accuracy and enhance productivity. As a leading company in
laboratory automation and liquid handling, we have integrated our products to
form platforms that support the industrialization of drug discovery by bringing
the benefits of miniaturization, automation and ultra-high throughput analysis
to drug screening. To further accelerate our growth, we are leveraging our
strength in drug screening into the fields of functional genomics and
proteomics. For example, according to independent research reports, through our
acquisition of the life sciences division of GSI Lumonics, Inc. in
October 2000, we have become the leading provider of microarray imaging systems
and analysis software, allowing us to combine the benefits of this acquisition
with our existing microarray biochip production technologies to strengthen our
proteomics platform.
We own approximately 65 U.S. and foreign patents and have over 40 patent
applications pending in the United States and abroad. Our rich portfolio of
proprietary technologies is embodied in our products, consumables and services.
According to a recent independent market study, we provide the broadest range of
products and services to the pharmaceutical drug screening industry. Our primary
products include:
- automated liquid handling and sample preparation systems;
- microwell plate readers and plate imaging systems;
- drug screening and detection reagents;
- biochip systems and related microarray analysis software; and
- bioanalytical scintillation instruments, our "legacy products".
We have strong long-term relationships with a broad customer base that
includes substantially all of the 50 largest pharmaceutical and biotechnology
companies. We also have one of the largest installed bases in the life sciences
research industry with over 27,000 instruments. Our broad and well-developed
customer relationships and extensive installed base not only allow us to
generate a recurring revenue stream from services and sales of related
consumables, but also provide us with customer insights that are invaluable for
the development and commercialization of new products and
30
technologies. Through our worldwide sales, marketing and service organization of
approximately 400 individuals, we distribute our instruments and other products
and provide services to many of the leading pharmaceutical, biotechnology and
agrochemical companies, as well as to prominent academic, government and medical
laboratories.
INDUSTRY OVERVIEW--LIFE SCIENCES RESEARCH AND DRUG DISCOVERY
The life sciences research industry is undergoing fundamental change and
growth resulting principally from the rapid growth in gene discovery and the
increasing demand for greater efficiency in the drug discovery process. Based on
industry experts' forecasts, we estimate that in the year 2001 the life sciences
research industry will invest more than $80 billion in basic life sciences
research and drug discovery and development, approximately $4.6 billion of which
will be in the areas we serve with our platforms, products and services.
Traditionally, chemists laboriously synthesized new compounds with potential
therapeutic activity one at a time or painstakingly isolated them from natural
sources. Today, combinatorial chemistry techniques, or the large scale
production of new chemicals by mixing a set of materials in all possible
combinations, are used to greatly increase the supply and diversity of such
compounds. Libraries of hundreds of thousands, or even millions, of compounds
are now available for testing in biological assays against disease targets.
Until recently, life sciences researchers had identified only a few hundred
targets. Driven by large-scale DNA sequencing projects, such as the Human Genome
Project, life sciences researchers expect to identify tens of thousands of new
gene targets as they decipher the genomes of both humans and disease-causing
organisms. Sifting through these massive gene pools to identify disease-causing
genes will require large-scale experimentation. Determining which gene
variations cause or play a role in diseases will be an even greater challenge.
Once potential targets are identified, they need to be screened against hundreds
of thousands, if not millions, of compounds, a process known as "drug candidate
screening." As a result of this dramatic increase in the need for drug candidate
screening, industry experts agree that new bioanalytical tools and optimized
processes will be required to improve the overall efficiency of the drug
discovery process. It is generally accepted that industrialization and
automation of repetitive activities will be required to streamline the drug
discovery process.
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THE DRUG DISCOVERY PROCESS
The following chart illustrates the various phases of the modern drug
discovery process. Drug targets, which are genes and proteins that are believed
to have a significant role in the onset or development of a disease, are
identified using genomics and proteomics techniques. These targets are
incorporated into tests, known as assays, and then rapidly tested against
hundreds of thousands of compounds to determine whether a particular compound
reacts with a particular target, a process known as screening. The compounds
that act on a target are classified as leads and are then subjected to further
testing to optimize the leads, a process known as lead optimization. The drug
candidates emerging from this drug candidate screening process enter the drug
development phases where they are tested and optimized for therapeutic efficacy
and safety in the early ADME/Tox and pre-clinical testing phases, and for
commercial viability in the clinical trial phase. (ADME/Tox stands for the
following properties of a lead compound: absorption by the intestinal systems,
distribution within the body, metabolism by the liver and other systems,
excretion and toxicity.) Ultimately, the compounds that make it through this
attrition process are commercialized as therapeutic drugs. To improve the
efficiency of this process, the industry is looking for tools that improve
testing speeds throughout the process, enable test miniaturization to keep costs
under control, and methods to bring the drug selection process forward and avoid
late failures in the clinical trials phase.
[A flow chart describes the drug discovery process as follows: "Compounds"
derived from "Compound Libraries" in a process known as "Combinatorial
Chemistry," on the one hand, and "Targets" derived from processes known as
"Structural Genomics" and "Functional Genomics" (collectively "Genomics") and
"Protein Function" (or "Proteomics") lead to "Assays," "Screening" and "Lead
Optimization" (the "Drug Candidate Screening"), then to "Early ADME/Tox,"
"Pre-clinical Testing" and "Clinical Trials" (the "Drug Development") and then
to "Commercialization."]
GENOMICS
STRUCTURAL GENOMICS
Interest in understanding the relationships between genes and diseases has
generated a worldwide effort to identify the structure and sequence of the genes
of many organisms, including the approximately 3 billion DNA base pairs, or the
letters of DNA coding the human genome, comprising the approximately 30,000 to
40,000 genes within the human genome. Known as the Human Genome Project, this
project is expected to identify most of the human genes within the next couple
of years. While the portfolio of existing drugs is believed to act only on
approximately 500 gene products or
32
targets, scientists believe that from 5,000 to 10,000 gene products represent
the majority of the important drug targets from which therapeutic products
may be developed. In addition to human-related genomics, the sequencing of
the genome of disease-causing organisms is producing numerous potential
targets for drugs to treat infectious diseases.
FUNCTIONAL GENOMICS
We anticipate that, once researchers identify the sequence and structure of
a gene, the identification and validation of new drug targets will require an
understanding of the specific function and role of that specific gene in
diseases. This effort will require many years of additional research and
large-scale bioanalytical experimentation with millions of samples. Single
nucleotide polymorphism, or SNP, genotyping and gene expression analysis,
described below, are considered essential techniques to determine the function
and association of genes with specific diseases.
SINGLE NUCLEOTIDE POLYMORPHISM (SNP) GENOTYPING. SNP genotyping is the
process of analyzing locations within a genome where variations in a gene
sequence, or genetic polymorphisms, are known to exist. Genetic polymorphisms
may play a role in an individual's susceptibility to disease and response to
drugs. SNPs are the most common type of genetic variation. There are an
estimated 3 to 10 million SNPs in the human genome, and efforts are under way by
various public groups, such as the SNP Consortium, and numerous individual
companies, to identify these millions of human SNPs.
The identification of a SNP does not indicate whether or how it may relate
to human health. To relate SNPs to disease or drug response, SNPs must be
measured, or typed, in hundreds of thousands of people and correlated with
clinical data describing the health of those individuals. These studies will
require hundreds of millions of measurements. As more and more SNPs are
identified, a new market is quickly emerging for high throughput detection of
SNP genotypes. A portion of the need for this high throughput will be created in
the clinical trials and commercialization stages through pharmacogenomics, which
is an approach to drug development that utilizes genotypic information to
develop highly specific drugs.
GENE EXPRESSION ANALYSIS. Gene expression is the process by which a gene's
coded information is ultimately translated into the production of proteins
within a cell. While all cells contain the full set of genomic DNA, different
cells express different sets of genes depending on cell type and environmental
conditions. Certain diseases also arise from the over or under expression of
genes. Gene expression levels are measured by detecting differences in the
patterns of messenger RNA, or mRNA, which are molecules copied from a DNA
sequence that are used by cells to initiate the production of proteins. mRNA
serves as a template for the production of proteins. A primary application of
this process is differential gene expression analysis, where researchers compare
the genes expressed in healthy and diseased samples to identify specific genes
involved in a particular disease process. Another common application involves
measuring a change in expression of certain genes when researchers add drug
candidates to cells.
As researchers identify more genes from the genome sequencing projects, we
expect the market for expression analysis technologies to grow significantly.
For example, faster and more efficient instrumentation will enable researchers
to screen a compound library more effectively and look for those compounds that
affect expression of certain genes in a beneficial way, or develop a screening
system to assess the toxicological effect of a set of new drug leads.
PROTEOMICS
PROTEIN FUNCTION
Instead of analyzing a gene or its mRNA, proteomic research studies the
function of genes by direct analysis of the gene product, or protein. A
"proteome" is defined as the complete set of proteins present in a given tissue,
cell or biological system at a given time. It is in essence the protein
complement of the genome. A systematic analysis of the protein profiles of
healthy and diseased tissue may identify disease-specific proteins. Initially,
proteomics will complement functional genomics for the
33
identification and validation of targets. Once sets of candidate proteins
believed to be associated with certain diseases have been identified and
characterized, high throughput technologies will be required to determine the
effect of drug candidates on protein function or to perform clinical studies
and diagnostic analyses.
TARGETS
Targets are specific biological molecules, usually proteins, which are
believed to have a significant role in the onset or development of a disease.
Target identification involves acquiring knowledge about the role a particular
molecule plays in the body in order to determine whether it might be a good
target for further investigation. Target validation is the demonstration that
affecting the function of a particular target has a positive effect on the
course of a disease. Target validation employs a variety of scientific research,
including the analysis of mRNA, proteins and cells. Today, while this activity
is often associated with proteomic studies, it is most often initiated with
genomics studies.
COMBINATORIAL CHEMISTRY
Over decades, chemists in major pharmaceutical and chemical companies
built up libraries of hundreds of thousands of compounds. These compounds
were usually obtained by chemical synthesis one at a time or, alternatively,
by isolation from natural sources. During the last few years, however, many
corporate and academic groups have developed combinatorial chemistry
techniques to greatly increase the supply and diversity of small molecules
for screening. As a result, most companies now have access to millions of
compounds to be tested against established or new targets and yield potential
lead compounds for the development of new medicines. These vast numbers of
compounds, combined with the explosion in new targets, present a substantial
challenge to the drug discovery process and create a need for faster and more
cost-efficient screening.
DRUG CANDIDATE SCREENING
Drug candidate screening generally involves testing of large libraries of
different compounds in relatively simple assays, or tests, containing targets
identified through genomics and proteomics research. Assays are employed to
determine the effect of a compound upon a particular target. When applied
methodically, assays can be used as screens to identify active chemicals,
referred to as "hits," that may produce a desired effect upon a target's
function. Lead compounds can be identified by additional screening of hits and
may then be optimized to generate candidate compounds for development as
potential medicines.
ASSAYS
Assay development, in the context of screening compounds against a new
target, refers to a test a researcher must develop for measuring whether
particular compounds in a library interact with the target in a certain manner.
The type of assay utilized for drug screening depends on the target under
investigation and the type of information being sought. Researchers design some
assays to measure whether and how tightly a compound binds to a target, such as
the binding of a drug to a protein. Other assays are designed to measure whether
and to what degree a compound reduces the biological activity of a target, such
as the activity of an enzyme. In other cases, researchers test compound
collections against living cells and measure a particular cellular response,
such as a change in expression level of one or more genes. Targets can be
incorporated into either biochemical or cell-based assays. A biochemical assay
involves a target that is isolated from its natural cellular environment.
Cell-based assays test compounds on targets functioning in the environment of
living human or other mammalian cells. For lead optimization, described below,
cell-based assays provide a number of advantages, including greater predictive
value of therapeutic effect and potential toxicity. However, cell-based assays
have typically been more difficult and time consuming to develop and to perform
due to difficulties in detecting the function of a target in a living cell and
the inherent technical complexities of using human or other mammalian cells in
drug screens.
34
SCREENING
Screening is the process of methodically testing libraries of compounds for
potential therapeutic value by using assays to determine if any of the tested
compounds affect a selected target. Primary screening involves performing an
identical test on each compound in a large library to identify hits. Re-testing
confirms initial hits and secondary screening refines the initial evaluation of
hits. For example, secondary screening may measure a hit's "potency," which is
the amount of the hit compound required to exert its effect, and "specificity,"
which is the degree to which the hit exerts its effect on the defined target
rather than unintended targets. With the rapidly growing list of targets
identified by genomics programs, the major pharmaceutical companies are moving
towards screening up to 100 targets annually against libraries of up to one
million compounds using semi-automated or high throughput screening systems.
LEAD OPTIMIZATION
Lead optimization refers to the process of sorting through compounds that
emerge from the screening process, and involves conducting successive rounds of
chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein and cellular analysis, chemical
synthesis and high throughput experimentation.
DRUG DEVELOPMENT
EARLY ADME/TOX AND PRE-CLINICAL TESTING
ADME/Tox stands for the following properties of a lead compound: absorption
by the intestinal systems, distribution within the body, metabolism by the liver
and other systems, excretion and toxicity. The ADME/Tox phase is typically
conducted during pre-clinical studies. However, to avoid costly and
time-consuming pre-clinical experiments, simplified molecular and cellular model
systems that mimic mammalian physiology are often used to gain information about
the lead's solubility in blood plasma, its cell penetration capabilities or its
toxicity. These studies in these surrogate molecular and cellular systems,
referred to as "Early ADME/Tox," are bridging the gap between a need for high
throughput and true physiological information about lead compounds.
CLINICAL TRIALS AND COMMERCIALIZATION
Clinical trials test pharmaceutical product candidates in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are attempting to
improve the outcomes of clinical trials by using genomic approaches to drug
development. In order to use genomics in a clinical trial, each patient's
genetic make-up must be analyzed. This could entail analysis of thousands of
different SNPs in a patient's DNA which, for a 1,000 patient trial, would
require generating millions of data points. The successful outcome of clinical
trials may result in regulatory approval to commercialize the new drug product.
SHORTCOMINGS OF THE DRUG DISCOVERY PROCESS
Based on industry experts' forecasts, we estimate that in the year 2001 the
life sciences research industry will spend more than $80 billion for research
and development of new pharmaceuticals, more than $2.2 billion of which will be
spent on drug candidate screening in the areas we serve. Despite these heavy
investments, the largest companies in the industry do not believe they have the
means to generate an adequate rate of new drug applications for regulatory
approval. A significant opportunity to discover greater numbers of higher
quality drug candidates has been created by the recent dramatic increases in the
number of potential targets and the size and diversity of compound libraries.
These increasing numbers of gene targets and compounds, however, have also
created shortcomings in the drug discovery process.
We believe that the following technology limitations are hindering
efficiency improvements in the drug discovery process.
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INSUFFICIENT SPEED DUE TO LACK OF INTEGRATED AUTOMATION
Most drug discovery facilities rely on screening massive numbers of samples
for functional genomics and drug screening applications. Throughput is currently
limited by the preparation and movement of samples through the process of plate
and liquid handling, incubation, washing and finally into the detection area, as
opposed to the actual analysis time. For example, to perform one high throughput
screen, researchers typically need to remove thousands of compounds from storage
and transfer small amounts of these compounds to hundreds of new plates. They
then add fluid to dilute them and transfer a portion of the diluted compound to
another set of plates. After adding a target and reagents, they move the plates
to an incubation station and incubate the reaction mixture for a precise period
of time. In some cases, they then may separate the non-active portion from the
reaction by washing the plates. They then transfer the plates to a detection
instrument to scan the plates and to see the results. Finally, they discard all
the plates. The whole process can take a team of researchers weeks or months to
complete, and must be repeated to test the same compounds against the next
pharmaceutical target.
We believe that, in order for drug discovery to reach the next level of
performance, each process module, including robotics, liquid handling, assay
reagents, detection systems and data management software, must be linked and
integrated in a highly automated or industrialized manner.
LIMITATIONS IN THE MINIATURIZATION OF ASSAYS
To stay competitive and meet their goals for operational and financial
growth, pharmaceutical companies will have to increase significantly the number
of new drugs they introduce into clinical trials each year. Capacity increases
in drug candidate screening, SNP detection, gene expression and protein function
analysis will be required to meet these objectives. However, industry experts
agree that such capacity increases will not be economically feasible unless
assays can be miniaturized. Assays can generally be divided into liquid phase
assays, in which the assay components are mixed and the results measured without
an additional processing step, and solid phase assays, in which at least one
assay component is attached to an inert solid support. Many drug screening
assays are liquid phase assays, and are processed in the wells of microwell
plates. Functional genomics and proteomics assays on the other hand are often
processed on microarrays, which are high-density arrays of biological samples on
a solid support, called a microspot. Each microspot of the array represents a
solid phase assay. The following fundamental problems need to be addressed to
successfully miniaturize these two types of assays:
- Liquid phase or microwell plate assays:
-- highly sensitive assay chemistries and detection equipment are
required to measure biological reactions in small microliter volumes,
without substantially increasing the concentration of the reagents.
-- sample preparation and liquid handling must be performed in small
volumes such as 384- or 1536-well microwell plates rather than
96-well microwell plates, requiring the ability to accurately
dispense volumes at the sub-microliter level.
- Solid phase or microarray assays:
-- deposition of the assay component, whether a nucleic acid or a
protein, on a solid phase must be performed with great accuracy and
precision at the sub-nanoliter (one billionth of a liter) level in
order to realize the advantages that can be obtained from
simultaneous analysis of data obtained from gene and protein chips.
-- high-resolution imaging equipment with great detection sensitivity
and a wide dynamic range is required to automatically measure and
analyze batches of microarrays without much user intervention.
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TOO MANY FAILURES, TOO LATE IN THE PROCESS
The cost of drug discovery increases exponentially as a lead moves through
the discovery process. The cost of screening a compound is usually below ten
dollars, while the cost of developing a drug candidate at later stages of the
development can run in the hundreds of millions of dollars, especially during
clinical trials and the regulatory approval process. With the largest cause of
failure in the clinic being toxicology issues, the incorporation of high
throughput approaches for ADME/Tox screening in discovery will greatly benefit
any pharmaceutical company. Drug lead failures late in the process should be
significantly reduced through the use of so-called functional assays that
monitor the effect of drug candidates on living cells, and the implementation of
high throughput gene expression profiling using microarray formats to reject
compounds having unacceptable toxicity profiles.
OUR TECHNOLOGY PORTFOLIO
We have developed and continue to develop a broad portfolio of technologies,
products and services to support the drug discovery industry and to address
current shortcomings in most stages of the drug discovery process. We believe
that, in order to support more efficient drug discovery, industrialized
platforms that optimize the use of technology components are required. Please
refer to "--Intellectual Property" for more information regarding licenses
relating to these products.
PROPRIETARY ASSAY REAGENTS AND DRUG SCREENING TECHNOLOGIES
We have internally developed or exclusively licensed a broad range of
proprietary assay technologies, which we believe exhibit significant advantages
over existing high throughput assays in terms of sensitivity, miniaturization
capability and versatility. Because these are "one-step" or homogeneous assays,
which do not require additional separation or washing steps, they enable high
throughput analysis and fully automated screening. In addition, our assay
portfolio covers a wide range of both biochemical and cell-based assays, and can
be used against most major classes of drug targets in most therapeutic areas.
Our assay portfolio consists of:
- ALPHASCREEN. Amplified Luminescent Proximity Homogeneous Assay, or ALPHA,
is a homogeneous assay technology for biochemical and molecular assays
exclusively licensed from Dade Behring, Inc. As a result of its signal
amplification characteristics, ALPHA has superior sensitivity enabling
ease of use, throughputs of greater than 250,000 samples per day and
excellent miniaturization capabilities. Without the need to increase
reagent concentrations, ALPHA offers the sensitivity of heterogeneous
assays in a homogeneous format, and enables assay miniaturization to very
small volumes. We released ALPHA to the market in late 1999 under the
trade name AlphaScreen. We expect this technology to find widespread
acceptance for a wide range of drug discovery assays. In addition,
AlphaScreen can be configured to run two tests within one assay, which
makes it particularly useful for ultra-high throughput genomics
37
applications, such as SNP detection. The operation of AlphaScreen is shown
in the diagram below.
[DIAGRAM]
As illustrated in the the diagram on the left, when two molecules, called
a donor and an acceptor, are bound to our AlphaScreen markers and are not
interacting with each other, only the donor molecule will give off light
when a laser with a color of 680 nanometers shines on the sample. (A
nanometer is the unit of the wavelength of light.) However, as soon as
the two molecules start coming close together, or bind to each other as
illustrated in the diagram on the right, the acceptor molecule also
starts emitting light, but of a different color of either 520 nanometers
or 620 nanometers. By measuring the light intensity of these different
colors, one can measure the interaction and binding characteristic of
one molecule, such as a compound or drug candidate, with another
molecule, such as a disease target.
- BRET(2). We consider Bioluminescence Resonance Energy Transfer, or BRET, a
breakthrough luminescent assay technology for proteomic studies in live
mammalian cells. We released this new technology to the market in
August 2000 under the trade name BRET(2). This technology allows the study
of protein-to-protein interactions in live cell assays. For example,
BRET(2) enables the analysis of a new class of drug targets identified by
the Human Genome Project, so-called orphan receptors targets, which are
unknown receptor molecules on the surface of a cell that may interact with
certain drug compounds. The fundamental technology is licensed exclusively
from Vanderbilt University;
- LUCLITE. In 1996, we introduced, under the trade name LucLite, a glow-type
luminescent substrate which is a reagent that emits light where certain
genes are present in a cell. For the first time, LucLite enabled
ultra-high throughput screening of gene expressions in cells. Today, we
estimate that LucLite reagents have been used to screen over 60 million
compounds worldwide;
- FLASHPLATE. FlashPlate scintillation proximity assay technology, which is
a process of converting radioisotopic activity into light when two
molecules interact, was introduced in the early 1990's for homogeneous
radioisotopic applications. Despite the trend away from the use of
radioisotopes, we believe that radioisotopic assays will remain useful for
a significant percentage of drug discovery assays because it is possible
to label a compound with a radioisotope without altering its chemical
structure. We currently distribute FlashPlates through PerkinElmer's life
sciences division, under an exclusive license agreement;
- RAPID EXPRESSION AND TARGET VALIDATION. We hold various exclusive and
non-exclusive licenses to gene expression technologies, including a range
of expression systems. These technologies, combined with gene cloning
expertise and state-of-the-art cell culture facilities, enable rapid
38
genetic engineering of cells expressing new protein targets for target
validation by pharmacological analysis; and
- ASSAY DEVELOPMENT AND SCREENING SERVICES. We have extensive experience in
the purification of a wide range of proteins, including the purification
of proteins by labeling them with engineered genetic "tags." To facilitate
rapid assay development for high throughput screening, we also maintain a
portfolio of proprietary assays for receptors, reporter genes, and
biochemical and cell-based assays.
PROPRIETARY ASSAY FORMATS AND CONSUMABLES
Today, the large majority of high throughput assays are conducted in
standardized plastic plates having 96 small reservoirs, or "wells," to
facilitate parallel experimentation. Driven by higher throughput needs,
parallel processing requirements and cost constraints, the industry is
rapidly moving towards miniaturized assay formats which include high-density
microwell plates, containing 384 and 1536 wells, and biochip/microarray
formats. We believe that we are one of few companies that will be able to
offer both of these assay formats and provide compatible high throughput assay
platforms. These capabilities will give our customers a migration path to
miniaturized assays as applications emerge.
- MICROWELL PLATES. We have built a reputation as a specialty microwell
plate supplier for high throughput assays in the drug discovery market.
We have proprietary plates for cell-based assays, filtration assays and
scintillation proximity assays in both 96- and 384-well formats. In
addition, we are working closely with other manufacturers to develop
1536-well microwell plates suited for conducting the miniaturized assays
enabled by our new ALPHA screen and BRET assay technologies.
- 3D HYDROGEL MICROARRAY CHIPS. We have a co-exclusive license pursuant to
which each of Motorola, Inc. and ourselves, has a right to commercialize
the biochip technology developed at Argonne National Laboratory.
Consisting of a thin hydrogel film on a glass substrate, our HydroGel
chips provide a three-dimensional substrate for the immobilization of
nucleic acids and proteins in microarray formats with densities of
thousands of elements per square centimeter. Microarrays can be produced
in two formats, at the bottom of the wells of microwell plates, so-called
microarray plates, or on standard format glass microscope slides,
so-called biochips. Because the HydroGel provides an aqueous
microenvironment for biological reactions,
39
we believe our 3D HydroGel chips are suited for the production of
both DNA-chips and protein-chips. The diagram below shows our 3D
HydroGel microarray chips.
[Arrow pointing to microarray diagram: "A different gene or protein
target is attached at each position of a microarray."]
[DIAGRAM]
3D HydroGel microarray chips provide a three-dimensional substrate
containing hundreds to thousands of elements in a grid format, suited
for the attachment of many different targets, such as genes and
proteins. This enables the analysis of the effect of a single compound
or drug candidate on multiple gene or protein targets simultaneously.
- PIPETTING TIPS. Pipetting tips are disposable tips used on the dispensing
heads of our automatic liquid handling robots. The quality and consistency
in performance of these tips define to a large degree the precision and
accuracy of dispensing. To ensure this quality and consistency, we have
developed our own tip molding facility and have patented a unique tip
design. We believe that the ability to match the quality of the disposable
tips to the capabilities of the liquid handling equipment gives us a
competitive advantage, especially when dispensing very small volumes of
liquids.
PROPRIETARY LIQUID HANDLING AND ROBOTIC SYSTEMS
We have internally developed a number of products to automate sample
preparation and to process samples with industrial-strength robotic systems.
Our cliquid handling systems and robotics portfolio includes:
- MULTIPROBE LIQUID HANDLERS. These robotic systems allow researchers to
automatically process samples using a wide variety of sample and reagent
containers at a throughput and capacity far beyond those achievable with
manual pipetting. Key features of the MultiPROBE systems are their ability
to computer control innumerable liquid handling processes performed in
laboratories, such that virtually any routine sample preparation process
can be automated. MultiPROBE can process samples with up to eight tips
simultaneously, and offers the capability to both automatically adapt tip
spacing to accommodate various containers and interchange disposable and
fixed pipetting tips without user intervention. In addition, MultiPROBE
can be equipped with a robotic gripper system, designed to move common
labware within the workspace of the MultiPROBE. Introduced in
January 2001 under the Talon trade name, this system provides unattended
automation for many labor-intensive sample preparation routines.
- PLATETRAK ROBOTICS. These industrial-strength microwell plate and liquid
handling robotics use linear bi-directional conveyor belts to process
samples at very high throughputs. The
40
combination of various process modules, such as 96- and 384-tip liquid
dispensing, washing, filtration, sealing, barcode reading and plate
stacker modules, permits the automation of virtually any high
throughput sample preparation protocol in 96-, 384- and 1536-well
microwell plates. In addition, a "pick-and-place" robotic arm allows+-
the system to support peripheral devices such as incubators, thermal
cyclers and microwell plate readers in the automation process. The
recent launch of our ImageTrak fiber-optic imager further expands the
applications of the PlateTrak robotics platform to automated ultra-high
throughput drug screening. In addition, the introduction of our GenomeTrak
and DNATrak systems allow high throughput DNA extraction and preparation
for genomic applications.
[DIAGRAM]
The diagram above illustrates a particular customer's configuration of
our PlateTrak robotics. The system consists of various process modules
that can be combined to handle virtually any high throughput sample
preparation protocol in 96-, 384-, and 1536-well microwell plates. A
bi-directional conveyer belt mechanism runs across the modules to
transport microwell plates from one process module to the next, while a
robotic arm can move the microwell plates to a variety of peripheral
equipment such as incubation stations, thermal cyclers and microwell
plate readers and imagers.
PROPRIETARY MICROWELL PLATE READER AND IMAGING TECHNOLOGIES
We have developed a portfolio of ultra-high throughput detection
techniques to integrate our assay technologies with our robotics platforms.
Among the products incorporating these techniques are:
- MICROWELL PLATE READERS. Microwell plate readers are bioanalytical
devices designed to measure sample activity in the wells of a microwell
plate. Our microwell plate readers use various proprietary optical
detection technologies to analyze samples from absorbance,
scintillation, luminescence, fluorescence, time-resolved fluorescence,
AlphaScreen and BRET(2) assays. Single-photon counting electronics are
combined with parallel detection optics to meet ultra-high throughput
needs. We believe that our Fusion universal microwell plate reader,
which was launched in June 2000, is the only microwell plate reader
capable of measuring samples in virtually any microwell plate assay
format, using all detection techniques mentioned above.
41
- IMAGETRAK FIBER-OPTIC IMAGERS. Fiber-optic imagers are bioanalytical
devices designed to obtain images and analyze the activity of samples
in various sample formats. In January 2001, we launched our ImageTrak
fiber-optic imager. This system uses highly-sensitive "charge coupled
devices," or CCD, coupled to the sample through fiber optics to obtain
images of samples in a wide variety of microwell plates, including 96-,
384- and 1536-well microwell plates. Our patented fiber-optic imaging
technology avoids the use of lenses to project images of samples onto
the CCD detection device. This results in better light gathering
efficiencies, higher measurement throughputs and more accurate and
quantitative analytical data for both fluorescent and luminescent
assays. In addition, ImageTrak permits the simultaneous injection and
reading of all samples in a microwell plate, enabling the study of the
immediate effect of drug candidates on disease targets in live cells.
PROPRIETARY BIOCHIP SYSTEMS AND RELATED MICROARRAY ANALYSIS SOFTWARE
Both through internal development and acquisitions we have assembled a
portfolio of proprietary products and technologies for the production and
analysis of samples on biochips and microarrays:
- INKJET PRINTING ROBOTICS. This proprietary liquid handling technology
utilizes piezoelectric actuators to "squeeze" glass tips in order to
dispense pre-determined numbers of picoliter size droplets at high
frequency on the solid surface of a biochip or microarray. This
"drop-on-demand" or "inkjet printing" technology enables the tips to
dispense volumes ranging from 300 picoliters to several nanoliters with
great precision and accuracy. Several patented techniques are being
used to implement banks of inkjet printing tips on micro-precision
robots able to routinely aspirate, transfer and dispense minute
quantities of samples and reagents from standard labware to
miniaturized devices such as microarray plates and biochips.
Commercialized under the trade name BioChip Arrayer, this technology
enables industrial scale production of high-quality gene and protein
chips.
[DIAGRAM]
The diagram above illustrates our patented inkjet printing technology,
and its ability to dispense picoliter (one billionth of a liter) size
droplets to enable the production of
42
microarrays and biochips. Upon activation by an electric pulse from our
high-precision robotic arraying systems, the piezoelectric actuator
squeezes the glass capillary tip and a precise picoliter size
droplet is dispensed.
The dispensed droplet is hundreds of thousand times smaller than a
drop dispensed by conventional means from the same dispensing tip.
This ultra-small size of the droplet combined with precise dispensing
volumes makes it possible to produce high quality microarrays and
biochips on an industrial scale.
- SPOTARRAY. SpotArray was developed as an economical alternative to our
inkjet printing technology. It is a pin tool printer designed for
printing microarrays in academic and research settings. SpotArray
features a small footprint for space-constrained laboratories and
incorporates features including an integrated enclosure, humidity
control, and a barcode reader. SpotArray features intuitive, integrated
software for array design and spotter operation, and hardware sensors
are integrated with the software operation to prevent operation errors.
Advanced motion control, replaceable spotting pins, and a pin washer
provide fast, reliable operation for small-scale microarray production.
- SCANARRAY LASER SCANNERS. Our ScanArray scanners use patented confocal
optics and up to five laser wavelengths to provide both sensitivity and
versatility for the imaging and analysis of microarrays and biochips.
These proprietary capabilities allow users to extend their experiments
to a wide variety of microarray applications, including SNP detection,
gene expression analysis and protein chip studies. A patented barcode
reader option and a biochip autoloader permit hands-off imaging and
analysis of up to 20 microarrays.
- QUANTARRAY ANALYSIS SOFTWARE. Our QuantArray analysis software enables
researchers to easily and accurately visualize and quantify gene
expression data. Developed for Windows NT, QuantArray provides
automated analysis of two, three, four and five color microarray images
without the need to manually draw grids. Furthermore, when used in
conjunction with our ScanArray systems, QuantArray provides one-step,
automatic scanning and quantification before exporting data to
bioinformatics software packages, which are software packages used to
analyze the biological information contained in the scanned image of a
microarray. QuantArray's real-time image display allows the user to
view microarray experimental results in seconds.
- ARRAYINFORMATICS. Our ArrayInformatics software is one of the first
commercial products to incorporate microarray process information,
microarray spot data, and data visualization into one integrated
product. Users can store and analyze five channels of microarray spot
data and graphically visualize an audit trail of data transformations.
ArrayInformatics is designed to facilitate data collection from all our
biochip products including QuantArray, ScanArray, and SpotArray. In
addition, data can be imported from other third-party bioinformatics
products.
OUR INDUSTRIALIZED PLATFORMS AND SOLUTIONS
According to a recent independent market research study, we provide the
broadest range of products and services to the pharmaceutical drug
screening industry. Whereas many technology companies offer a solution for
one or more individual components of the broader drug discovery process, we
are integrating numerous proven technologies into our product offerings so
that the entire process can operate with greater efficiency. Our approach
is aimed at integrating our technologies, using modular, scalable,
integrated platforms that are suitable for high throughput industrial
applications, while keeping our individual components and products
sufficiently flexible and convenient for smaller scale academic research.
43
Our integrated platforms are designed to support the industrialization
of drug discovery by bringing the benefits of miniaturization, integration
and automation to high throughput applications such as drug screening, SNP
detection, gene expression and protein function analysis. Today, we believe
we provide the most comprehensive integrated solutions for drug screening
applications that allow our customers to increase speed, reduce cost,
improve data accuracy and enhance productivity. We intend to build upon our
drug screening foundation to expand the application scope of our platforms
to the growing large-scale experimentation needs of the functional genomics
and proteomics fields.
The primary features of our integrated system are:
- MINIATURIZATION. Unlike other microfluidic formats, such as
lab-on-a-chip technologies, our devices use a practical miniaturization
approach based on the standardized footprint of microwell plates and
microscope slides. This allows us to maintain compatibility with most
laboratory equipment. Our small volume pipetting tips currently can
handle microliter volumes accurately in high-density microwell plates,
and we believe they will be able to dispense sub-microliter volumes by
the end of 2001. Our inkjet printing technology can accurately
miniaturize liquid handling procedures to sub-nanoliter volumes. This
enables assay miniaturization beyond the current capabilities of other
liquid handling technologies. In combination with high-precision
robotics, our inkjet printing technology enables the production of high
quality microarrays on microscope slides or biochips, and on the bottom
of microwell plates.
- AUTOMATION. Our PlateTrak microwell plate and liquid handling robots
were the first to use bi-directional conveyor belts to process samples
at very high throughput. The recent addition of integrated incubation
and imaging makes this system the first to integrate assay assembly,
incubation and detection in one space-saving analytical configuration.
Complete experiments for both biochemical and live cell screening
assays, as well as for high throughput genomics assays such as DNA
extraction and SNP detection, can be automated using these platforms.
Depending on the assay, the PlateTrak robotic system will process and
analyze samples in standard microwell and high-density microwell
plates. For lower throughput microwell plate applications, our new
Talon integrated MultiPROBE robotics platform provides similar
functionality to the PlateTrak platform, while for microarray
applications, our patented ScanArray system with barcode reader and
automatic biochip loader enables the automation of gene and protein
chip analysis.
- ULTRA-HIGH THROUGHPUT. By integrating our Fusion multi-mode microwell
plate reader or ImageTrak fiber-optic imaging detector with our
PlateTrak's bi-directional robotic system, analytical throughputs can
now match the proven high-speed sample preparation capabilities of the
robotics system. Through this automated process line approach for
sample preparation, liquid handling, incubation and detection,
throughputs of hundreds of thousands of samples per day can be achieved
for a wide range of microwell plate assays. A similar integrated
approach combining the ScanArray with QuantArray and ArrayInformatics
addresses the needs of high throughput microarray analysis and data
interpretation.
44
The advantages of our current industrial-strength platforms and those
under development are listed in the following table:
FEATURE ENABLING TECHNOLOGIES BENEFITS
- ---------------------------- --------------------------------------- ----------------------------------
AUTOMATION - PlateTrak robotic system - High throughput drug screening
and DNA preparation
- MultiPROBE/Talon liquid handling - Flexible automation of most
sample preparation procedures
- Inkjet printing of biochips/ - High quality production of gene
microarrays and protein chips
MINIATURIZATION - AlphaScreen assays - Compound and target
savings in drug screening
- Low-volume dispensing in 384-and - Reduction of assay volumes
1536-well microwell plates
- AlphaGenomics assay - Cost effective and accurate SNP
detection
ULTRA-HIGH THROUGHPUT - Fusion multi-mode plate reader - High throughput analysis of
biochemical and SNP assays
- ImageTrak plate imager - Cell-based drug discovery
- ScanArray biochip imager - Automatic analysis of gene and
protein chips
For over five years, we have installed elements of our systems at
substantially all of the 50 largest pharmaceutical companies and at many
renowned academic institutions worldwide. Leading companies have purchased
hundreds of our microwell plate readers and numerous liquid handling robots
and use our products and services to streamline their drug discovery
process. We have installed over 350 microarray scanning and production
systems.
INDUSTRIALIZED DRUG SCREENING PLATFORM
Our industrialized drug screening platform allows assay development and
high throughput screening facilities to transition from conventional
microwell plates, to high-density microwell plates, and ultimately to
microarray plates. Our platform builds upon PlateTrak "assembly-line"
technology for high throughput automation and dispensing, ultra-sensitive
AlphaScreen and BRET(2) screening
45
technologies for miniaturization of both biochemical and cell-based assays, and
integrated microwell plate readers and imagers for ultra-high throughput
analysis. With the recent introduction of the ImageTrak system, we believe we
now offer the most advanced technology for cell-based assays based upon our
multi-tip liquid dispensing technology with multi-fiber optics imaging for
simultaneous injection of compounds and measurement of their instantaneous
response on live intact cells. Simultaneous data from all wells will provide
enhanced information on drug lead affinity, efficacy and function from a single
assay, thereby helping to identify drug candidate failures early in the process.
INDUSTRIALIZED DRUG SCREENING PLATFORM
As illustrated in the chart below, our customers apply our industrialized
drug screening platform to improve the efficiency of the three screening stages
of the drug discovery process: assay development, screening and lead
optimization. These stages include many standardized, repetitive tasks and our
platform brings process automation, high throughput analysis and assay
miniaturization to these phases to improve the productivity of the drug
screening operation. Our platform is designed as a modular assembly of screening
components to process and test hundreds of thousands of compounds in small
volume assays in an automated fashion. We provide both the assay reagents and
consumables, or assay formats, to efficiently convert targets into assays. Our
automation equipment and liquid handling robotics automatically process these
assays in microwell plates, and our microwell plate readers and imagers, or
detectors, can screen hundreds of thousands of compounds each day and analyze
their effect on assay targets to discover new drug leads.
[A flow chart describes the interaction (by means of interconnecting arrows) of
our industrialized drug screening platform with certain items (namely, "Assays,"
"Screening" and "Lead Optimization") of the drug discovery process flowchart
described under "Business--Industry Overview--Life Sciences Research and Drug
Discovery," as follows: two arrows, one from "Compounds" and the other from
"Targets," point to "Automation" (PlateTrak and MultiPROBE), which in turn
points to "Assays" and then to "Detection" (Fusion Plate Reader and ImageTrak
Plate Imager). Two additional arrows, one from "Assay Reagents" (AlphaScreen
and LucLite/BRET) and the other from "Assay Format" (Microwell Plates), point
to "Assays."]
- AUTOMATION. We believe our PlateTrak robotic system can automate the
sample preparation of virtually any high throughput screening protocol
using a modular conveyor approach that combines automated microwell plate
processing robotics with proprietary 96- and 384-tip liquid dispensing
modules. Today, assays can be conducted in 96-, 384- and 1536-well
microwell plates
46
at ultra-high throughputs. For lower throughput applications, such as
assay development, secondary screening, lead follow-up and ADME/Tox
studies, our Talon integrated MultiPROBE platform provides automation of
the sample preparation steps of virtually any assay procedure.
- ASSAYS. Automated high throughput preparative tools are compatible with
conventional scintillation proximity assays for biochemical interaction
measurements, as well as with our LucLite reagents for cell-based reporter
gene assays, or assays that allow the measurement of the function of an
unknown gene by coupling it to a gene with a known function. The
introduction of our AlphaScreen and BRET(2) assay technologies is expected
to provide enhanced performance for most drug screening applications.
AlphaScreen, launched in late 1999, is an enabling technology for scaling
down high throughput screening assays into 1536-well microwell plates, and
BRET(2), launched in August 2000, extends the applications of our
platforms to functional genomics and proteomic assays in live cells. In
addition, by integrating our ImageTrak fiber-optic imaging technology onto
the platform, we are expanding our automated assay processing to enable
the kinetic measurements of compound-target interactions by measuring
luminescence and fluorescence signals in live cell assays, and we believe
we will be able to measure proximity assays, such as Scintillation
Proximity Assay, or SPA, which are radioisotopic assays that emit light
when two specific molecules interact.
- DETECTION. The integration of our TopCount and Fusion microwell plate
readers results in high throughput screening platforms with superior
performance for scintillation, luminescence, fluorescence, AlphaScreen and
BRET(2) assays. Our microwell plate reader products are highly sensitive,
high throughput detection systems, capable of performing low-volume assays
in small-volume 384- and 1536-well microwell plates. Throughputs of 50,000
to over 250,000 samples per day can be achieved per instrument for BRET(2)
and AlphaScreen, respectively. In addition, with the introduction of
multi-technology detection on the Fusion universal microwell plate reader
for assay development and high throughput screening, and the ImageTrak for
ultra-high throughput cell-based and biochemical screening applications,
we believe that our drug screening platform will keep its competitive edge
over other automated screening systems.
Today, the current applications of our major product lines collectively span
the stages of the drug discovery process from target identification to clinical
trials:
[A flow chart describes how our major product lines collectively span the stages
of the drug discovery process. Forming the horizontal axis, the steps of the
drug discovery process are on the top of the chart, from "Assay Development,"
to "Primary Screening," to "Secondary Screening," to "Lead Optimization" and
finally to "ADME/Toxicology." Forming the vertical axis, the major products are
listed: MultiPROBE, TopCount, Fusion, PlateTrak, ImageTrak and Legacy products.
For each product, an arrow runs along the horizontal axis to show which stages
of the drug discovery process the product is used. For MultiPROBE, an arrow runs
from "Screen Development" to "ADME/Toxicology." For TopCount, an arrow runs from
"Screen Development" to "Secondary Screening." For Fusion, an arrow runs from
"Screen Development to Secondary Screening." For PlateTrak an arrow runs from
"Primary Screening" to "Secondary Screening." For ImageTrak, an arrow runs from
"Primary Screening" to "Lead Optimization." For Legacy products an arrow spans
"ADME/Toxicology."]
47
Our AlphaScreen brings reliable, high throughput screening capabilities to
miniaturized sample formats, including 1536-well microwell plates. We believe
that AlphaScreen enables miniaturization of the broadest range of assays of any
non-isotopic high throughput screening technology. The following table
illustrates some of the features of our AlphaScreen assay technology:
TRADITIONAL NON-ISOTOPIC HIGH
THROUGHPUT SCREEN* ALPHASCREEN
------------------------------------ ---------------------------
Typical Assay Volume 50 to 250 microliter 5 to 50 microliter
Assay Volume Lower Limit 10 microliter < 1 microliter
Reagent/Target/Compound Savings 1 x Up to 10 x
Microwell Plate Format Typically 96 and 384 96, 384 and 1536
Low Affinity Protein Interactions No Yes
SNP Discovery and Scoring Some Yes
Adaptable to Various Assay Classes Typically to 40% of all classes Up to 70% of all classes
Integral Signal Amplification No Yes
Signal/Background Ratio Low High
Sensitivity 1 x Up to 10 x
- ------------------------
* Based on publicly available third party sources.
INDUSTRIALIZED FUNCTIONAL GENOMICS PLATFORM
We are extending the applications of our industrialized high throughput drug
screening platform to functional genomics applications. The systems we have
developed for the MIT Center for Genome Research are evidence of the fact that
our industrial strength process-line automation systems are very well suited for
DNA sample preparation for high throughput genomics applications. In addition,
our proven AlphaScreen platform is being adapted to enable reliable and
economical high throughput SNP genotyping in microwell plate formats. This
platform, which is being commercialized under the trade name AlphaGenomics, will
be suited for screening of SNP candidates in a great number of individuals to
confirm disease association, and to conduct large-scale pharmacogenomics
studies. For other large-scale functional genomics applications, such as gene
expression profiling, it is beneficial to study the effects of experiments on
many genes simultaneously. This parallel approach of examining genes is powerful
since subtle patterns can often be revealed. The biochip or microarray is one of
the very few assay formats that can carry out such highly parallel analysis. To
address this fast emerging market, we have designed proprietary BioChip Arrayer
production tools using patented inkjet printing technology to manufacture
high-quality microarrays, and through the acquisition of the life sciences
division of GSI Lumonics, Inc. in October 2000, according to independent
research reports, we have become the leading provider of microarray imaging and
software analysis tools.
Our integrated functional genomics platform will integrate miniaturization,
parallellization, and automation for all steps involved in DNA-based testing,
ranging from sample preparation to analytical procedures and data management.
INDUSTRIALIZED FUNCTIONAL GENOMICS PLATFORM
By adapting our drug screening platform to specific functional genomics
requirements, we can improve efficiency in three additional stages of the drug
discovery process: the functional genomics,
48
early ADME/Tox and clinical trial phases. Because of the recent discovery of
many new genes, automation will be required to associate genetic variation and
function with disease, and to speed the identification of new targets in the
functional genomics process. For example, our high throughput platform can be
applied to the Early ADME/Tox phase, enabling the study of which genes react to
drug candidates, thus speeding up the identification of valid drug leads in the
Early ADME/Tox phase. Moreover, it is anticipated that the application of this
platform to clinical trials for high-throughput SNP genotyping will enhance the
selection of commercially viable drugs. As illustrated in the chart below, our
industrialized functional genomics platform will address these needs with
automated systems and reagents for high throughput DNA extraction and
purification, microwell plates, microarrays and consumables, or assay reagents
and formats, to enable the analysis of gene expression and genotyping, or
assays, and high throughput microwell plate reader and microarray imaging
systems, or detectors.
[A flow chart describes the interaction (by means of interconnecting arrows) of
our industrialized functional genomics platform with certain items (namely
"Functional Genomics," "Early ADME/Tox" and "Clinical Trials") of the drug
discovery process flowchart described under "Business--Industry Overview--Life
Sciences Research and Drug Discovery," as follows: two arrows, one from
"Samples" and the other from "Consumables," point to "Automation" DNATrak and
GenomeTrak), which in turn points to "Assays" and then to "Detection" (Fusion
Plate Reader and ScanArray Imager). Two additional arrows, one from "Assay
Reagents" (Agencourt SPRI and AlphaGenomics) and the other from "Assay Format"
(Microwell Plates and Microarrays) point to "Assays."]
- DNA PREPARATION AUTOMATION. By taking full advantage of the flexibility
and plate processing capabilities of the PlateTrak and MultiPROBE/Talon
robotic platforms, complex molecular biology sample preparation
procedures, such as DNA/RNA extraction, purification and amplification,
can be automated at medium to very high throughput. For instance, the
innovative combination of the Agencourt DNA preparation chemistry with our
MiniTrak and PlateTrak sample processing robots has resulted in the recent
launch of our DNATrak and GenomeTrak platforms. These fully automated
systems are able to process from 7,500 to 25,000 DNA preps per day, which
we believe to be the highest throughput systems for nucleic acid
purification, at a cost per DNA preparation of two to five times lower
than the price of current leading chemistries. To achieve this
performance and economy, we automated a patented procedure known as a
Solid-Phase Reversible Immobilization, or SPRI, developed at the
Whitehead Institute. The technology has been proven at various high
throughput genome centers, including
49
those at the Whitehead Institute, Washington University and Baylor
College of Medicine. Overall, this procedure is fast, simple and
highly automatable, and the samples from the SPRI procedure
generate high quality data, allowing us to offer enhanced
productivity solutions for DNA sequencing, the identification of
SNPs, or a front-end for our biochip platform.
- ALPHAGENOMICS. The AlphaScreen technology, initially developed for
miniaturized high throughput screening in microwell plates with up to 1536
wells, has been adapted for reliable and economic SNP genotyping
applications. By combining the simple mix-and-measure assay format of the
ALPHA detection technology with polymerase chain reaction, or PCR, for DNA
amplification, a single step SNP genotyping method has been developed,
called AlphaGenomics. This assay offers numerous procedural advantages
over many other SNP genotyping techniques that typically rely on a
multistep process based on PCR followed by additional steps for SNP
detection. AlphaScreen enables single-step amplification and detection in
closed sample containers such as sealed microwell plates. In addition to
facilitating automation, this feature reduces potential lab contamination,
which is a major problem with open container DNA amplification systems
such as PCR. This ability to avoid cross-contamination also reduces
potential false positive results, giving the system the reliability
required for industrial-strength genotyping. Other SNP detection methods
have been developed that reduce sample processing to a single step.
However, these methods may necessitate the design of costly fluorescence-
labeled DNA probes specific for the detection of each SNP. In contrast,
AlphaScreen uses two inexpensive universal probes, and the reactions are
run in generic PCR amplification machines, followed by reading on a
standard microwell plate reader such as our Fusion system. We believe that
through the use of these low-cost universal probes and the ability to
miniaturize the AlphaGenomics assay in standard equipment using
small-volume 384-well microwell plates, and possibly 1536-well microwell
plates in the future, the cost per SNP analysis can be reduced to levels
below that of most current, often laborious and difficult to automate,
techniques. In addition, a dual color AlphaGenomics method has been
developed, enabling the discrimination of two SNPs in a single well. Since
at least one color must be detected, two color reactions have their
inherent internal quality control as well, and the extreme sensitivity of
the ALPHA labels allows the use of very little genomic DNA per assay,
making the method suitable for large-scale studies where samples are to be
analyzed for large numbers of SNPs. Although this high throughput SNP
detection platform is still under development, most of its critical
components and processes have been proven at various customer and
collaborator sites, and a SNP scoring success rate of 99% has been
demonstrated. Therefore, we believe that by building upon the industrial
strength of our high throughput AlphaScreen platform, AlphaGenomics can
bring the benefits of proven automation technology and economical analysis
to SNP detection.
- BIOCHIPS AND MICROARRAY PRODUCTS. The biochip or microarray is one of very
few assay formats that can analyze multiple genes simultaneously, as is
needed to meet the demands of the high growth in the amount of genetic
information available, and to convert raw genetic data into medically
valuable information. It is part of an integrated system that begins with
the deposition of synthetic DNA or gene replica, referred to as the probe,
on the surface of a flat substrate, referred to as a chip. Sample DNA, the
target, is prepared independently and applied to the biochip for
hybridization. After hybridization between complementary DNA sequences in
the sample target and the probe DNA immobilized on the chip, the
hybridization signals are detected and analyzed. Through internal research
and development, we have designed BioChip Arrayer production tools based
on our patented inkjet printing technology, and through the acquisition of
the life sciences division of GSI Lumonics, Inc., according to independent
research reports, we have become the leading provider of microarray
imaging and software analysis tools. To focus our commercialization
efforts on this fast growing emerging market, we have created Packard
BioChip Technologies, LLC. This subsidiary will continue to develop the
components of our biochip platform with the aim of offering our customers
a range of instrumentation and
50
software that spans the entire microarray process, from production,
to analysis, to data interpretation. Our strategy is to commercialize
our own portfolio of microarray products in conjunction with
technology transfer and licensing agreements to address the market
potential for functional genomics applications in a wide range of
industries. We believe we are well positioned to achieve this goal
because we have a spectrum of printing technologies, including the
SpotArray for small-scale research applications and the BioChip
Arrayer for industrial-scale microarray production, complemented by
a broad product line of ScanArray microarray scanners, and
QuantArray and ArrayInformatics software.
INDUSTRIALIZED PROTEOMICS PLATFORM
Proteomics, a relatively new field in drug discovery and life sciences
research, has recently grown in prominence. It is widely believed that
proteomics will have an impact on medicine and the biotechnology and
pharmaceutical industries comparable in importance to that of the Human Genome
Project. While the Human Genome Project has almost finished deciphering the
entire sequence of human DNA, it has not yet identified the role of millions of
human proteins. Identifying those proteins that are the most promising targets
for a new generation of drugs remains a monumental task, and will require the
systematic characterization of protein profiles, in both healthy and diseased
tissues. In general, proteomics research can be divided into two categories: the
first aims to identify genome-wide alterations in the quantity and quality of
unknown proteins; the second aims to profile a limited number of
well-characterized proteins in normal and diseased states. Both methods require
large-scale parallel analysis of proteins. The first method--protein
identification--generally involves the separation of protein sample components
using a gel, followed by removal of the separated sample components from the gel
and robotic handling and preparation of the sample for analysis with mass
spectrometry, an analytical method that uses the weight of molecules to measure
unknown samples. The second method--protein profiling between healthy
individuals and patients--requires novel tools, for example, in the form of
protein chips, which operate much in the same manner as DNA chips or gene chips
analyzing differences in gene expression.
INDUSTRIALIZED PROTEOMICS PLATFORM
As illustrated in the following chart, proteomics is expected to have an
impact on many phases of the drug discovery process. For instance, in the
protein function phase, our sample preparation systems and protein chip
technologies will assist in the identification and selection of new protein
targets. In addition, we believe that virtually all phases of the drug discovery
process, including drug screening and ADME/Tox studies, will derive efficiency
gains from the use of protein chips because they enable multiplex assays, or the
simultaneous analysis of multiple targets against a single compound. Moreover,
the applications potential will extend beyond drug discovery into the clinical
trials and drug commercialization phases, such as the use of protein chips in
diagnostic tests and personalized medicine. Our industrialized proteomics
platform is comprised of various products, including tools for the production of
biochips with proprietary printing technologies and instruments for the
detection and analysis of microarrays, such as laser scanning imaging systems
and data analysis software. Assays and
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various biochip and microarray assay formats are under development to address
needs in the various phases of the process highlighted in the chart.
[A flow chart describes the interaction (by means of interconnecting arrows) of
our industrialized proteomics platform with all items of the drug discovery
process flowchart (except "Structural Genomics," "Dunctional Genomics,"
"Compound Libraries" and "Pre-clinical Testing") described under "Business
- --Industry Overview--Life Sciences Research and Drug Discovery," as follows:
two arrows point, one from "Samples" to "Sample Preparation" (MultiPROBE and
PlateTrak) and the other from "Proteins" to "Biochip Production" (and
SpotArray BioChip Arrayer), and both--through "Sample BioChip"--to "Assays"
and then to "Detection and Analysis" (ScanArray, QuantArray). Another arrow
points from "Assay Format" (Biochip Slide and Microarray Plate) to "Assays."]
- PROTEIN CHIPS. The major advantages of our patented inkjet printing robots
for protein chip production are the high quality and precision of the
microarrays, and the flexibility to dispense proteins on both porous and
non-porous substrates and in various formats. Competing arraying
technologies use pin tools to dispense samples by touching a non-porous
chip substrate. Dispensing accuracy is affected by the quality of the pin
and the proximity of the pin to the substrate, and precision varies
because of non-uniformity of the substrate or surface variability between
substrates. In addition, the steel pins used to array nucleic acids may
not be appropriate for proteins.
We can produce biochips using either a customer's substrate, or our own
proprietary HydroGel substrate. HydroGels provide a three-dimensional
structure enabling biomolecular interactions to occur in an aqueous
microenvironment. We believe that this aqueous microenvironment is
critical to maintain full functional activity of the proteins on the
surface of a chip. Samples are drawn from source vessels such as microwell
plates and arrayed on biochip substrates by dispensing 300 picoliter
droplets of probe material. Our first generation product, the BioChip
Arrayer I, designed for low throughput research applications, features
four piezo-tip dispensers. Our high throughput BioChip Arrayer II, which
we expect to start delivering in mid-2001, features eight piezo-tips,
upgradable to 48 tips, and is capable of in-motion microarraying for
industrial-scale production of ten to hundreds of thousands of biochips
per year. Rather than dispensing and immobilizing probes on a single
surface, as is the case with the conventional biochips, HydroGels can
capture probes in thousands of multiple layers, which will significantly
increase probe concentration. We believe that non-contact inkjet printing
of proteins on
52
HydroGel chips will enable the production of protein chips with
functionally active proteins at high throughput. These features
make HydroGel chips well suited for both genomics and proteomics
applications.
We can produce chips in two formats. The biochip slide format makes the
chip compatible with incubation and washing equipment commonly available
in the lab. This format is very well suited for medium to high density
microarrays, and for low to medium throughput applications, such as
target identification and validation, molecular toxicology studies, assay
development or academic research, and may also be very suitable for
diagnostics applications. For applications that require screening of a
large number of samples, we plan to develop and produce microarray plates
by depositing microarrays on the bottom of the wells of a 96-well
microwell plate. We intend to develop low density arrays of antibodies for
use as drug discovery tools, for example in ADME/ TOX applications. In
addition, we plan to transfer our BioChip Arrayer production tools and
best production practices to customers in exchange for technology transfer
and licensing fees. We believe this will give us a competitive advantage
because it will enable our customers to use their own substrates as well
as our proprietary HydroGels, while giving them the flexibility to quickly
adapt their arrays to a broad range of applications. We currently have an
agreement to provide HydroGel chips to Oxford GlycoSciences plc for
pharmaceutical discovery applications, and plan to work with more partners
who possess content or assay reagents, enabling us to make value-added
biochips available to the market.
For protein chip imaging and analysis, we offer our ScanArray laser
scanner and QuantArray software as market leading microarray imaging and
analysis tools. The flexibility provided by the ScanArray to analyze
microarrays with up to five laser wavelengths and the high detection
sensitivity of our proprietary optics are particularly beneficial for
protein chip analysis. Antibody and protein arrays require high detection
sensitivities, and the wavelength flexibility enables the optimization of
assays using a broad range of fluorescent labels. Our ScanArray product
line covers broad application needs with products ranging from low cost,
low throughput scanners to fully automated systems with barcode reading
and automatic microarray loading. Due to the quantity and complexity of
the experimental results, microarray data handling and management is
expected to become the next hurdle in biochip processing. The integration
of our QuantArray software with our scanners constitutes the foundation
for further development of ArrayInformatics, an integrated data management
and bioinformatics software package, which we believe will enable us to
offer our customers a complete microarray production, sample preparation
and analysis solution.
- PEPTIDE MASS FINGERPRINTING. Peptide mass fingerprinting is a widely used
technique to identify proteins based upon their mass using mass
spectrometry. Proteins are separated by one- or two-dimensional
electrophoresis, stained, excised from the gel and spotted onto a matrix
which facilitates identification by MALDI-TOF. Currently, protein
processing for peptide mass fingerprinting after the removal from the gel
is the bottleneck for accelerating MALDI-TOF analysis of proteins
separated by gel electrophoresis. All liquid handling steps are done
manually with associated time constraints and errors due to repetitious
manual manipulation of reagents and buffers. To solve this critical
bottleneck, we have customized our MultiPROBE robotic liquid handling
system for use by suppliers of mass spectrometry systems. The MultiPROBE
MassPrep handles all liquid handling and temperature controlled steps post
gel separation to enable automated, unattended operation, including the
addition of the MALDI matrix and spotting prior to mass spectrometry
analysis. The MultiPROBE MassPrep enables 300 proteins per day to be
processed, thus matching the throughput of the mass spectrometry system.
53
STRATEGY
Elements of our strategy include:
- FOCUS ON HIGH GROWTH OPPORTUNITIES--CONTINUE THE DEVELOPMENT OF EXISTING
AND NEW INDUSTRIAL-STRENGTH ANALYSIS PLATFORMS TO ADDRESS THE LARGE-SCALE
EXPERIMENTAL NEEDS OF THE POST-GENOMIC ERA IN DRUG SCREENING, FUNCTIONAL
GENOMICS AND PROTEOMICS. We believe that we are one of few companies
currently developing and manufacturing integrated systems to support
practical miniaturization and industrialization of drug screening,
functional genomic and proteomic analysis. We plan to continue our
pioneering work in laboratory automation, liquid handling
robotics, homogeneous screening assays, the application of genetic
engineering to assay development, and microwell plate reading and imaging
to further strengthen our leadership position as a supplier of integrated
platforms to the drug screening segment. We plan to continue adapting
these platforms to meet the fast growing needs for large-scale
experimentation in the functional genomics field. Proving the suitability
of these platforms for genomic sample preparation, we have successfully
begun the commercialization of the DNA preparation workstations we have
developed in collaboration with the Whitehead Institute's genome center.
We intend to continue extending these platforms' analytical capabilities
with AlphaGenomics to perform high throughput SNP genotyping.
We also plan to capitalize on the rapid growth in the biochip business
segment through the introduction of industrial-scale inkjet-based biochip
production tools that complement the ScanArray microarray imaging products
we acquired through our acquisition of the life sciences division of GSI
Lumonics, Inc. Recently, we established Packard BioChip Technologies, LLC
in order to accelerate the commercialization of our biochip platform and
to further develop complementary microarray printing and software
products.
- CONTINUE TECHNOLOGICAL INNOVATION--ACCELERATE INVESTMENTS IN TECHNOLOGIES
ASSOCIATED WITH OUR PRODUCTS AND SERVICES THROUGH RESEARCH AND
DEVELOPMENT, PARTNERSHIPS, LICENSING ARRANGEMENTS AND ACQUISITIONS. We are
a technology-driven company with a broad base of technology and scientific
expertise. We intend to expand the applications of our platform
technologies to new, emerging growth areas both by investing additional
resources in research and development, and through licensing efforts and
strategic acquisitions, such as the life sciences division acquired from
GSI Lumonics, Inc. In particular, we are pursuing the high-growth
opportunities available for applications of our microarray products and
biochip production tools in the functional genomics and proteomics fields.
We plan to become a leading manufacturer of instrumentation and software
tools that span the microarray process, from production through analysis.
In addition, we intend to be a major supplier of high quality biochips for
drug discovery research involving the use of protein arrays. Our strategy
is to use our portfolio of technologies and our strong intellectual
property position in conjunction with technology transfer and licensing
agreements to address the vast market potential for biochips in functional
genomics and proteomics. We believe we are competitively positioned with
our printing technologies, a proprietary substrate on which to print, as
well as our market leading scanning instrumentation and software. To
broaden our portfolio, we plan to actively seek partners who possess
microarray content or assay reagents for protein chips. We believe that
these partnerships will enable us to make value-added biochips available
to the market.
- MAXIMIZE THE BENEFITS OF OUR LEADERSHIP POSITIONS AND GLOBAL
PRESENCE--LEVERAGE OUR HIGH BRAND RECOGNITION, ESTABLISHED CUSTOMER BASE
AND WELL-DEVELOPED SALES AND MARKETING INFRASTRUCTURE TO COMMERCIALIZE NEW
PLATFORM PRODUCTS AND TECHNOLOGIES. We have established our presence in
over 60 countries and developed relationships with many market-leading
customers. We have one of the largest installed bases in the life sciences
research industry with over 27,000
54
instruments. Our broad and well-developed customer relationships and
extensive installed base provides us with customer insights that are
invaluable for the rapid development and commercialization of new
products and technologies. We support our customers with a worldwide
sales and services organization able to provide applications support to
our customers. Through our approximately 400 sales, marketing and
service personnel, and by selling to our established customer base, we
believe we can achieve rapid market acceptance of new platform products
worldwide. To address the needs of our customers, ranging from large
pharmaceutical to small academic research laboratories, we will
continue to develop our modular approach to commercialize our advanced
technology platforms. We also plan to continue the development of
our process control software, aimed at integrating our technologies, using
scalable integrated platforms that are suitable for high throughput
industrial scale applications, while keeping our individual components
sufficiently flexible and cost efficient for smaller scale academic
research.
- GROW RECURRING REVENUE STREAM--CONTINUE TO DEVELOP AND INCREASE SALES OF
CONSUMABLES, OUTSOURCING AND OTHER SERVICES. Our newer technology
platforms are aimed at high volume users in the drug discovery, functional
genomics and proteomics markets. We believe that recurring sales of
consumables and reagents to these customers represent opportunities to
increase our revenues. New consumables products, such as microwell plates,
pipetting tips, assay reagents, and HydroGel and protein chips, are
expected to further increase our consumables business.
We believe that our technologies in gene cloning and expression, and our
broad portfolio of proprietary assay development tools, provide
opportunities for high margin services and outsourcing arrangements. In
the drug discovery market, we seek to collaborate with genomics and
combinatorial chemistry companies that we believe have access to
considerable numbers of new drug targets and compound libraries, and for
which our technologies could substantially accelerate the identification
of candidate compounds for drug development. For example, we have entered
into an agreement with AstraZeneca to provide compound library screening
services. In the biochip production market, we expect to broaden our
internal chip production capabilities to satisfy the increased demand for
customized protein chips and antibody arrays. In addition, we intend to
license our inkjet printing manufacturing technology and other biochip
intellectual property in exchange for technology transfer fees and royalty
payments.
PRODUCTS AND SERVICES
Increasingly, we are combining several of our products to create reliable,
high volume automation platforms to support more efficient drug screening,
functional genomics and proteomics analysis. We continue to offer our products
in separate modules and components and also provide drug screening and detection
reagents, supplies used with our instruments and platforms, as well as related
service and support. More recently, we have also been providing outsourcing
services to the pharmaceutical and genomics industries. Our products and
services consist of the following categories:
AUTOMATED LIQUID HANDLING AND SAMPLE PREPARATION SYSTEMS
Our automated liquid handling and sample preparation systems can be
classified in two product categories: MultiPROBE systems for low to medium
throughput applications, using flexible format pipetting robotics that handle a
wide variety of labware formats and sample containers, and PlateTrak systems for
high to ultra-high throughput liquid and sample handling applications of
microwell plates.
The MultiPROBE II is our second generation of flexible liquid handling
robots. Because MultiPROBE can computer control a large variety of liquid
handling processes, using a simple "drag and drop" Windows NT software
application, most liquid handling routines for drug screening, functional
genomics and proteomics can be automated with this product. In August 2000, we
introduced the MultiPROBE II HT, the high throughput version of MultiPROBE,
which has the ability
55
to pipette liquids with eight tips simultaneously. This product offers the
same functionality and flexibility of its lower throughput predecessor. Among
its distinctive features are the capability to automatically adapt tip
spacing to the format of the various laboratory containers and sample vessels
that may be used in an assay, and to automatically interchange disposable and
fixed pipetting tips at any point in the sample preparation process. The
functionality of this product was further enhanced with a robotic gripper
arm, designed to move a variety of common labware on the workspace of the
MultiPROBE. This product, called the Talon Integration Platform, was
introduced in January 2001 and enables unattended automation for popular
applications such as DNA purification and solid-phase extraction. In
addition, Talon can be used to integrate the automatic liquid handling
capabilities of MultiPROBE with approved off-the-shelf equipment such as
microwell plate readers, labware mixers and microwell plate washers to
provide total application solutions.
Our PlateTrak laboratory automation systems feature high throughput
automatic microwell plate processing robotic technology combined with
proprietary 96-tip and 384-tip liquid dispensing modules, and a variety of other
sample processing and liquid handling modules. PlateTrak is a scalable modular
system, using a conveyor belt approach to move sample plates from one process
module to the next. It can be customized to meet the various high throughput and
sample throughput needs of our customers in the high throughput screening and
genetic analysis markets. The liquid handling and plate processing capabilities
of these industrial-strength robotic systems are compatible with 96-, 384- and
1536-well microwell plates. Through the addition in 1999 of a robotic arm, the
automation capabilities of our PlateTrak system have been further extended to
include a wide variety of peripheral laboratory equipment and instrumentation.
This capability enables full industrial-scale automation of complex drug
screening and genomic sample preparation procedures. For instance, the DNATrak
and GenomeTrak systems provide high to ultra-high throughput solutions for DNA
preparation, while the ImageTrak enables total assay automation of proximity,
luminescence and fluorescence assays.
Investment sales of this product group accounted for approximately
$47.3 million, or 28.6%, of our consolidated revenues for the year ended
December 31, 2000, $36 million, or 23%, for the year ended December 31, 1999,
and $26.2 million, or 18.0%, for the year ended December 31, 1998.
MICROWELL PLATE READERS AND IMAGING SYSTEMS
Our TopCount microwell plate reader was the first high throughput
scintillation and luminescence instrument used to screen compounds in drug
discovery. Its lower throughput configurations also found widespread use in
molecular and cellular biology applications and in immunology and biomedical
research. We entered the microwell plate reader market in the early 1990's
through the introduction of several new products for absorbance, luminescence
and fluorescence detection. Building on the increasing success of luminescence
applications for TopCount, we became one of the largest suppliers of microwell
plate readers. In 1997, we introduced our Discovery microwell plate reader, a
proprietary instrument that uses time-resolved fluorescence for detection, and
is compatible with homogeneous fluorescent high throughput screening assays, and
at the end of 1999, we introduced our AlphaQuest reader, which is designed for
ultra-high throughput drug candidate screening using AlphaScreen assays. In
June 2000, we introduced our Fusion universal microwell plate reader. This
product is suited for both low and high throughput applications, and can measure
samples in any microwell plate format, ranging from 6-well to 1536-well
microwell plates. Most significantly, Fusion is able to measure samples using
all established non-isotopic labeling techniques such as absorbance,
luminescence, fluorescence, time-resolved fluorescence, as well as our new
AlphaScreen and BRET(2) screening technologies. This unique capability makes
Fusion well suited both for the development of new drug discovery assays and for
the screening of drug candidates using these assays.
56
In January 2001, we introduced our ImageTrak imaging microwell plate
readers. These fiber-optic based imagers can be integrated with our PlateTrak
robotic systems to form an autonomous ultra-high throughput drug screening
platform, with sample throughputs in excess of 250,000 samples per day. The
ImageTrak can be configured for established fluorescence and luminescence
applications and we believe it is well suited for scintillation proximity
assays. In addition, by combining the multi-tip injection capabilities of
PlateTrak with the multi-well detection of our fiber-optic imaging system,
ImageTrak can be used to study the response of live cells to drug candidates.
This expands the application of our drug screening platform to primary screening
of live cells as well as secondary screening and follow-up of drug leads. The
latter application is made possible by real-time monitoring of the response of
live cells to the addition of drug candidates and leads.
DRUG SCREENING AND DETECTION REAGENTS AND SUPPLIES
Our detection reagents and supplies are laboratory consumables used for the
operation of bioanalytical instruments sold by our competitors and us. Detection
reagents principally include light-emitting scintillation cocktails, or reagents
that convert radioisotopic sample activity to light, used in conjunction with
our bioanalytical scintillation instruments. Today, we are a leading
manufacturer for scintillation cocktails and supplies, such as vials and
microwell plates.
In addition, we have developed an extensive portfolio of non-isotopic drug
screening and detection reagents. In early 1996, we introduced our first drug
screening reagent, the LucLite luminescence reagent for high throughput reporter
gene analysis. Also in 1996, we introduced HTRF reagents for the high throughput
detection of biochemical interaction assays. As part of our strategic focus on
non-isotopic drug screening technologies, in 1998 we acquired BioSignal, Inc.,
now BioSignal Packard, Inc. The core competencies in the field of gene cloning,
genetic engineering of live cells and expression and production of proteins that
we acquired through BioSignal Packard allowed us to expand our product offerings
to include SignalScreen protein targets and assays, and to support our drug
screening customers with assay development services. These capabilities enabled
us to successfully introduce in 2000 new generation drug screening technologies
including AlphaScreen for ultra-high throughput drug screening and
miniaturization of biochemical assays, and BRET(2) for high throughput analysis
of protein-to-protein interaction and orphan receptor assays in live cells.
BIOCHIP SYSTEMS AND RELATED ANALYSIS SOFTWARE
In 1999, we introduced the first version of our inkjet printing robotic
system for the manufacturing of biochips and microarrays. This system, called
the BioChip Arrayer I, was designed for low throughput, low density research
applications. Our primary objective was to evaluate and validate our inkjet
printing technology for various microarray applications at customer sites and
with potential partners. With the feedback from many of these sites, we have
developed the BioChip Arrayer II, which we expect to start delivering in
mid-2001. This product features eight piezo-tips, upgradable to 48 tips, and is
capable of in-motion inkjet printing of microarrays, enabling industrial-scale
production of ten to hundreds of thousands of biochips per year. We plan to
offer this system to end-users for the production of biochips for internal
research use only, and to third party producers of biochips in exchange for
technology transfers and licensing fees, as well as royalties on the resale
price of the chips and arrays.
In October 2000, through the acquisition of the life sciences division of
GSI Lumonics, Inc., we acquired the ScanArray biochip imaging products. The
ScanArray is the market leading three- and four-color microarray laser scanner
that enables researchers to conduct multiple and more complex microarray
experiments simultaneously. In addition, the ScanArray product features unique
automation capabilities, including a proprietary bar code reader and automated
slide loaders that allow users to run up to 20 microarrays unattended. The
ScanArray enjoys strong brand name recognition with installations at over 350
academic, biotechnology and pharmaceutical customers worldwide. According
57
to an independent third party research study, the ScanArray technology, which is
protected by four patents, is the established leader in the fast growing area of
laser scanning for biochip and microarray analysis.
QUANTARRAY ANALYSIS SOFTWARE
QuantArray is a powerful microarray analysis software that enables
researchers to easily and accurately visualize and analyze gene expression data.
Developed for Windows NT, QuantArray provides automated analysis of up to
five-color microarray images without the need for manually drawn grids.
Furthermore, when used in conjunction with our ScanArray systems, QuantArray
provides one-step, automatic scanning and analysis before exporting data to
bioinformatics software packages. QuantArray's real-time image display allows
users to view microarray experimental results within seconds.
BIOANALYTICAL SCINTILLATION INSTRUMENTS--OUR "LEGACY PRODUCTS"
Bioanalytical scintillation instruments are essential tools for biomedical
research applications. We are the established worldwide leader in this mature
business, with instruments that we believe are installed in every major life
science research and pharmaceutical laboratory in the world. The detection
technology of these instruments is based on the conversion of the activity of
radioisotopic labeled compounds into light, which is then measured with
ultra-sensitive detectors. Over the years, we have successfully applied our
expertise in this area to develop non-isotopic products such as our microwell
plate readers and imagers for luminescence and fluorescence measurements.
The widespread use of these instruments in the life sciences research
industry has created strong brand name recognition for us in this field. Our
Tri-Carb liquid scintillation and Auto-Gamma solid scintillation counters are
used by researchers to gain a better understanding of biochemistry, immunology,
cell biology and disease processes. Our Radiomatic flow scintillation analyzers
are used for ADME and toxicology studies of new drug candidates. Our Cyclone
imager is often used for drug distribution and pharmacokinetic studies. Also,
its rapid and quantitative imaging capabilities are used to replace slow and
labor-intensive X-ray film processes in the molecular biology field. Its major
applications are for the detection of nucleic acids and proteins in various
sample formats.
Instrument sales of this product group accounted for approximately
$41.0 million, or 24.8%, of our consolidated revenues for the year ended
December 31, 2000, $47.9 million, or 30.1%, for the year ended December 31,
1999, and $44.7 million, or 30.6%, for the year ended December 31, 1998.
SERVICE AND SUPPORT
Our service and support offerings include field service, customer support,
applications assistance and training through an organization of over 200
factory-trained and educated service and application support personnel around
the world. We provide purchasers of our instruments with service and support
primarily on a fixed fee, annual contract basis. We believe that our installed
base of over 27,000 instruments provides us with stable, recurring after-market
service and support revenue, as well as product upgrade and replacement
opportunities.
OUTSOURCING
We believe that our technologies in gene cloning and expression, and our
broad portfolio of proprietary assay development tools, provide opportunities
for high margin services and outsourcing arrangements. In the drug discovery
market, we seek to collaborate with genomics and combinatorial chemistry
companies that we believe have access to considerable numbers of new drug
targets and compound libraries, and for which our technologies could
substantially accelerate the identification of candidate compounds for drug
development.
58
CUSTOMERS
Our customers include pharmaceutical, biotechnology and agrochemical
companies as well as academic institutions, government laboratories and private
foundations. A representative list of our domestic and international customers
follows:
Abbott Laboratories Max-Planck-Institut
Amgen, Inc. Merck & Co., Inc.
AstraZeneca plc Millennium Pharmaceuticals, Inc.
Aventis S.A. Monsanto Company
Bristol-Myers Squibb Company National Institutes of Health
Cambridge University Novo Nordisk A/S
deCode Genetics, Inc. Pasteur Institute
E.I. DuPont de Nemours and Company Sankyo Pharmaceutical Company
Gen-Probe Incorporated Schering-Plough
Genentech, Inc. Takeda Pharmaceutical Company
GlaxoSmithKline plc University of California
Harvard Medical School Whitehead Institute for Biomedical Research/MIT Center for Genome Research
Hoffmann-LaRoche AG
Howard Hughes Medical Institute
None of our customers accounted for more than 5% of our total 2000 revenues.
SALES AND MARKETING AND SERVICE
As of December 31, 2000, our worldwide sales, marketing and service
organization employed approximately 400 personnel consisting of approximately
200 sales and marketing employees and approximately 200 service employees.
Our marketing and sales organization is organized to support our major
product lines and identify new market opportunities. Product and new market
development managers have responsibility for cultivating new markets,
identifying new technologies and creating new products in our principal growth
areas of drug screening, functional genomics and proteomics. Our marketing
strategy relies heavily on extensive training of direct sales and distributor
organizations, consultative selling approaches, responsive on-site customer
support, applications education and the use of electronic communication.
We have direct sales and service organizations in the United States,
Australia, Austria, Belgium, Denmark, France, Germany, Hong Kong, Italy, Japan,
The Netherlands, Switzerland and the United Kingdom. Products are also sold
through exclusive, independent distributors in Canada, Mexico, South Korea,
Spain, Taiwan and over 40 other countries active in bioanalytical research. Our
sales representatives are compensated with a combination of base salary and, to
the extent sales and service goals are achieved or exceeded, incentive
compensation. Through our global organization of direct sales representatives
and distributors, who are supported by a network of experienced application and
service support personnel, we have access to life sciences researchers in
academic, government, hospital and industrial laboratories worldwide.
RESEARCH AND DEVELOPMENT
Our principal research and development mission is to develop a broad
portfolio of technologies, products and core competencies in drug screening,
functional genomics and proteomics, which we have identified as the most
attractive areas of the life sciences research industry.
Our research and development expenditures from continuing operations were
$19.4 million (excluding $3.8 million associated with terminating two research
and development agreements that did not result in the development of
commercially usable products) in 1998, $22.8 million in 1999 and $28.4 million
for 2000. Our increased expenditures on research and development during these
periods
59
reflect our investments to maintain our competitive position, but are
primarily a result of our strong research and development efforts to develop the
technologies and products for our integrated drug screening, genomics and
biochip platforms. Our internal technology and product development programs were
complemented by external collaborative efforts and alliances, and we
aggressively pursued both licensing and acquisitions of technology and
intellectual property.
We anticipate that we will continue to have significant research and
development expenditures on these programs. We plan to continue to pursue a
balanced research and development portfolio strategy of originating new products
from internal research and development programs, external partnerships and
alliances, and business and technology acquisitions.
MANUFACTURING
We have created a well-disciplined, low-cost manufacturing culture. Our
manufacturing facilities have established a "focused cell system" in which
employees are divided into distinct manufacturing cells, each of which is wholly
responsible for a specific product line. Employees are also cross-trained to
work on multiple cells. To further reduce our average production cycle time and
cost of raw materials, we use outsourced standard components and sub-assemblies
as well as standard, "off-the-shelf" products, such as printed circuit boards
and power supplies.
We manufacture all of our instruments at our Downers Grove, Illinois,
Billerica, Massachusetts and Torrance, California facilities. Chemical
production of scintillation and luminescence products occurs at our facility in
Groningen, The Netherlands. Drug screening assays and drug targets obtained by
gene expression are developed at our Montreal, Canada location. Our Downers
Grove and Groningen manufacturing operations are certified to ISO 9001 quality
standards, and all of our products sold in the United States, Canada and Mexico
are certified by the Canadian Standards Association, which monitors safety
standards throughout North America. All of our instruments sold in Europe
conform with current European Community directives regarding safety, quality and
electromagnetic compatibility and are qualified under the European Community's
CE mark.
COMPETITION
We compete with several manufacturers in both domestic and foreign markets
within all areas of the life sciences research industry. We also encounter
different competitors in each of our key product lines. A number of established
companies such as Agilent Technologies, Inc., Applied Biosystems (formerly PE
Biosystems), Amersham Pharmacia Biotech AB, Tecan AG, PerkinElmer, Inc.
(formerly EG&G, Inc.), QIAGEN NV, Thermo Instruments Corporation and Beckman
Coulter, Inc. compete with us across a broad range of product lines, while
several other companies compete with us in a specific product line.
We compete principally on the basis of technology innovation, the quality,
features, price and performance of our products, and our service and
applications support. Through our acquisitions of CCS Packard, BioSignal Packard
and the life sciences division of GSI Lumonics, Inc., we have significantly
strengthened our competitive position as a platform provider and we are well
positioned to compete with these companies by offering automation, analytical
instrumentation, reagents, assays, microwell plates and biochips as a total
package. We believe that few of our competitors can offer such a wide variety of
instruments and platform approaches. We believe customers will be more likely to
buy products from vendors who are able to offer a number of products as
integrated platforms rather than buying instruments from multiple vendors and
trying to fit them into a combined system.
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We do, however, also have various competitors that are focusing on the areas
that are being addressed by our integrated platforms. The principal competitors
in these areas are, in alphabetical order:
- for drug screening: Aurora Biosciences Corporation, Caliper Technologies
Corporation, Carl Zeiss Jena GmbH, Cellomics, Inc., CyBio AG, Evotec
BioSystems AG and Molecular Devices Corporation (including the recently
acquired LJL BioSystems, Inc.);
- for functional genomics systems: Affymetrix, Inc., Agilent
Technologies, Inc., Illumina Inc., Incyte Genomics, Inc., Orchid
Biosciences, Inc., QIAGEN NV and Sequenom, Inc.; and
- for proteomics: Biacore, Inc., Ciphergen Biosystems, Inc., Genomic
Solutions, Inc., Luminex Corporation and Zyomyx, Inc.
Most of these competitors have a limited installed base and must rely on
partners for global distribution, service and support. We have a large installed
base of over 27,000 instruments and more than 400 sales and support people
worldwide, giving us a more complete coverage of the many segments of the life
sciences research industry. Our established service and application organization
provides on-site support and is designed to handle the needs of a diverse
customer base including both large pharmaceutical companies and small academic
laboratories.
RAW MATERIALS
We use many standard parts and components in our products and believe there
are a number of competent vendors for most parts and components. However, a
number of important components are developed by and purchased from single
sources due to price, quality, technology (including patent protection) or other
considerations. We do not believe that the loss of any single vendor or supplier
would materially adversely affect our competitive position and do not anticipate
experiencing any difficulties in procuring an adequate supply of components.
INTELLECTUAL PROPERTY
Our intellectual property strategy is designed to protect technology that is
important to the development, commercialization, and improvement of our current
and future products. We own approximately 65 U.S. and foreign patents and have
over 40 patent applications pending in the United States and abroad. Further,
we hold various exclusive and non-exclusive licenses to patents from third
parties.
PATENTS
Our patents and patent applications relate to various areas of technology
which we believe are valuable to our business, including
- automatic liquid handling and sample preparation instrumentation and
methods,
- fiber-optic imaging systems and techniques,
- inkjet printing, biochip manufacturing processes and related microarray
analysis software,
- liquid sample dispensing technology using piezoelectric dispensers,
- high throughput assay chemistries, methods and systems, and
- liquid scintillation detection devices.
Issued and pending patents we own, or hold licenses to, distinguish us from
our competitors by preventing them from copying product attributes or imitating
performance characteristics. In addition, some of our patents add barriers to
market entry by forcing other companies to design around our patented
technologies and products, thus slowing down the development process of
competing products. In some cases, we believe that we may be able to leverage
our patent portfolio by facilitating cross
61
license negotiations in order to further expand the applications of our
platforms. Generally, United States patents have a term of 17 years from the
date of issue for patents issued from applications filed with the U.S. Patent
Office prior to June 8, 1995, and 20 years from the application filing date
or earlier claimed priority date in the case of patents issued from
applications filed on or after June 8, 1995. Patents in most other countries
have a term of 20 years from the date of filing the patent application. Our
issued United States patents will expire between 2002 and 2021. Our success
depends to a significant degree upon our ability to develop proprietary
products and technologies. We intend to continue to file patent applications
as we develop new products, technologies and patentable enhancements.
In addition to our patent portfolio, we rely on a wide array of unpatented
proprietary technology and know-how to develop and maintain our competitive
position. Our success will depend in part on our ability to obtain patent
protection for our products and processes, to preserve our trade secrets,
trademarks and copyrights, to operate without infringing the proprietary rights
of others, to acquire licenses related to enabling technology or products and to
enforce our intellectual property portfolio.
LICENSE AGREEMENTS
We license technology from a number of third parties including, among
others, HydroGel chip technology from Argonne National Laboratory, AlphaScreen
chemistry from Dade Behring, Inc., BRET(2) array chemistry from Vanderbilt
University, liquid dispensing technology from Microdrop GmbH, and microwell
plate technology from Massachusetts General Hospital. These licenses are
generally long-term and require us to pay royalties to the licensor in
connection with sales of the product utilizing the licensed technology. The
terms of our material license agreements are described below.
We have entered into a license agreement with Dade Behring, Inc. under which
Dade Behring granted to us a worldwide, exclusive license to some of its patents
related to our AlphaScreen assay technology, and we agreed to make royalty
payments to Dade Behring in connection with the sale of such chemistry. Our
rights under the license agreement are limited to the fields of life sciences
research and pharmacogenomics applications. Dade Behring may convert the license
to non-exclusive or terminate it if we fail to make specified minimum royalty
payments. The license will terminate upon the expiration of the last to expire
of the licensed patents, at which time the license will convert to a ten-year
non-exclusive license.
We have entered into a license agreement with Argonne National Laboratory
under which Argonne granted to us, together with Motorola, Inc., a co-exclusive
license to patents, limited to use in the field of life sciences research,
related to our HydroGel technology. Argonne may convert our rights under the
license to non-exclusive in 2005 if we fail to generate sufficient royalties for
four consecutive years. In any event, the license will terminate upon the
expiration of the last to expire of the licensed patents.
We have entered into a worldwide, exclusive license with Microdrop GmbH
under which Microdrop licensed to us know-how related to piezoelectric liquid
dispensing technology for use in the fields of liquid handling applications in
life sciences research and clinical diagnostics. The license will be converted
automatically to non-exclusive in the event that we fail to make specified
minimum royalty payments. In any event, the license, which would otherwise
expire in 2012, will be extended automatically annually until either party
notifies the other of its desire not to extend.
We have entered into a license agreement with Massachusetts General Hospital
under which the hospital granted to us an exclusive, worldwide license to the
hospital's patents related to microwell plate technology, and we agreed to make
royalty payments to the hospital based on the sale of products incorporating
such technology. The license is limited to the fields of life sciences research
and diagnostics, and expressly excludes in-vivo diagnostics applications. The
license shall remain in effect
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until the date that is one year after we
discontinue selling licensed products, or for the life of the patents, whichever
is earlier.
We have entered into a license agreement with Vanderbilt University under
which the University granted to us an exclusive, worldwide license to the
fundamental technology related to our BRET(2) array chemistry, and we agreed to
make royalty payments to Vanderbilt in connection with the sale of such
chemistry. The license is limited to the field of life sciences research, other
than clinical, diagnostics or therapeutic applications. The license remains in
effect until we discontinue selling licensed products and services or upon the
expiration of the last to expire of any patents covering such technology,
whichever is earlier.
Although we are not currently involved in any patent infringement
litigation, and do not believe we are currently infringing on any third-party
patents, in some cases, litigation or other proceedings may be necessary to
defend against or assert claims of infringement, to enforce patents issued to us
or our licensors, to protect trade secrets, know-how or other intellectual
property rights owned by us, or to determine the scope and validity of our
proprietary rights or proprietary rights of third parties. Such litigation could
result in substantial costs to us and diversion of our resources. An adverse
outcome in any such litigation or proceeding could subject us to significant
liabilities and expenses, such as reasonable royalties, lost profits, attorney's
fees, and trebling of damages for willfulness, require us to cease using the
disputed intellectual property or cease the sale of a commercial product, or
require us to license the disputed rights from third parties, any of which could
have a material adverse effect on our business, financial condition and results
of operations.
EMPLOYEES
As of December 31, 2000, we had approximately 1,050 employees. Approximately
71% of our employees as of that date were located in the United States. Our
workforce is not unionized, and we believe that our relations with employees are
good.
ENVIRONMENTAL MATTERS
Our operations are subject to U.S. federal, state and local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the possession, distribution, handling, generation,
emission, release, discharge, export, import, treatment, storage and disposal,
and cleanup of, certain materials, substances and wastes. We believe our
operations are in material compliance with all applicable environmental laws
and regulations as currently interpreted. We do not believe that our compliance
with environmental regulations will have a material effect on our or our
subsidiaries' capital expenditures, earnings and competitive position.
REGULATION
We are not subject to governmental regulation other than the laws and
regulations generally applicable to businesses in the domestic and foreign
jurisdictions in which we operate, affecting such matters as taxes, employees,
environmental matters, business organization and the like.
PROPERTIES
As part of our continuing operations we currently have, either through
direct ownership or through the ownership by one of our subsidiaries, four
domestic and 12 foreign active subsidiaries, all of which are wholly-owned, with
the exception of Carl Consumable Products, LLC, which is 51% owned.
All of our operations are conducted through the following subsidiaries:
- Packard Instrument Company, Inc., which is located in Downers Grove,
Illinois, is our main manufacturing facility and develops, manufactures
and distributes a broad line of our bioanalytical and liquid handling
instrumentation;
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- CCS Packard, Inc., which is located in Torrance, California, develops,
manufactures and distributes systems for liquid handling and laboratory
automation;
- Packard BioChip Technologies, LLC, which is located in Billerica,
Massachusetts, designs, develops and manufactures imaging and arraying
systems and software for biochip and microarray applications;
- BioSignal Packard, Inc., which is located in Montreal, Canada, provides
assay technologies and reagents for drug discovery applications, as well
as services for assay development and contract screening;
- Carl Consumable Products, LLC, which is co-located with CCS Packard, is a
designer and manufacturer of disposable pipette tips for liquid dispensing
robots used to automate drug discovery and genomics research; and
- Packard BioScience, B.V., located in The Netherlands, also produces
reagents.
Our other foreign subsidiaries serve as direct sales and service
organizations as well as distribution facilities to support our worldwide
operations.
As of February 28, 2001, we owned the manufacturing facilities set forth
below:
LOCATION FUNCTION SQUARE FEET
- -------- ---------------------------------------- -----------
Downers Grove, Illinois................. Manufacturing, service, engineering and 109,000
research and development
Groningen, The Netherlands.............. Manufacturing and research and 69,000
development (chemicals and supplies)
Billerica, Massachusetts................ Administration, marketing, research and 40,000
development and manufacturing
In addition, we lease the following manufacturing facilities:
SQUARE
LOCATION FUNCTION FEET LEASE EXPIRATION
- -------- -------------------------------- ---------------------- -----------------------------
Meriden, Connecticut............ Headquarters, training, service, 50,000 February 2003
customer support, engineering,
sales and marketing, software
development and manufacturing
Torrance, California............ Administration, marketing, 70,000 December 2003
manufacturing, research and
development and warehousing
Montreal, Canada................ Administration, marketing, 15,700 July 31, 2002
research and development and
manufacturing
Billerica, Massachusetts........ Administration, marketing, 20,000 June 30, 2001
research and development and
manufacturing
With the exception of two sales and distribution facilities occupied by our
foreign subsidiaries, which we own, we lease all the sales and distribution
facilities of our foreign subsidiaries. We own an additional property in
Groningen, The Netherlands, which is currently being offered for sale.
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CCS Packard continues to lease an approximately 17,000-square-foot facility
in Harbor City, California that it used previously for administration,
manufacturing and warehousing. CCS Packard subleases this facility and the lease
expires in May 2002.
We believe that our facilities are suitable for their present and intended
purposes and are adequate for our current level of operations.
LEGAL PROCEEDINGS
We are currently, and may become from time to time, subject to claims and
suits arising in the ordinary course of our business. In certain actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. We accrue for these items as they become known and can be reasonably
estimated. It is the opinion of management that the various asserted claims and
litigation in which we are currently involved will not have a material adverse
effect on our financial position or results of operations.
OUR HISTORY
We were founded in 1965 by Emery G. Olcott, our current Chairman and Chief
Executive Officer, under the name Canberra Industries, for the purpose of
manufacturing nuclear instrument modules. The sale of these electronic devices,
which are used to detect and measure the energy of radioactive materials, laid
the business foundation for our Canberra division to become a global leader in
the areas of radiation exposure measurement of humans, neutron counting, nuclear
safeguards and high-purity germanium detectors. Through the purchase of Packard
Instrument Company from United Technologies Corporation in 1986, we diversified
our product portfolio into bioanalytical instruments and biochemicals and
supplies for the life sciences research industry. In March 1997, we completed a
recapitalization transaction as a result of which Stonington Capital
Appreciation 1994 Fund, L.P. acquired approximately 69% of our common stock, and
changed our name to Packard BioScience Company. During 1998, we acquired Carl
Creative Systems, Inc., currently known as CCS Packard, Inc., and
BioSignal, Inc., currently known as BioSignal Packard, Inc. CCS Packard is a
developer, manufacturer and distributor of high throughput liquid handling
systems used in the life sciences research, in-vitro diagnostics and
pharmaceutical drug discovery industries. BioSignal Packard is a developer and
supplier of cloned drug targets and assay reagents used in pharmaceutical and
biotechnology research, and provides screening services to drug discovery
companies. In March 2000, we acquired a 51% interest in Carl Consumable
Products, LLC, a designer and manufacturer of disposable pipette tips for liquid
dispensing robots used to automate drug discovery and genomics research. In
April 2000, we complemented our drug screening platform by adding fiber-optic
imaging technology through the acquisition of certain assets, primarily
intangibles, from Cambridge Imaging Limited. In October 2000, we acquired the
life sciences division of GSI Lumonics, Inc. for approximately $40 million in
cash and approximately 4.5 million shares of our common stock. This division is
a leading provider of imaging equipment and software for biochip and microarray
applications. Also, in October 2000, we began to account for Canberra as a
discontinued operation. On February 27, 2001, we sold Canberra to COGEMA, S.A.
for $170 million.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning our directors and
executive officers.
NAME AGE POSITION
- ---- -------- ------------------------------------------
Emery G. Olcott........................... 62 Chairman of the Board and Chief Executive
Officer
Franklin R. Witney, Ph.D.................. 47 President and Chief Operating Officer
Ben D. Kaplan............................. 43 Vice President and Chief Financial Officer
Timothy O. White, Jr...................... 33 Vice President, General Counsel and
Secretary
Staf C. van Cauter........................ 52 Vice President, Business Development
Nicholas G. Bacopoulos, Ph.D.............. 52 Director
Robert F. End............................. 45 Director
Bradley J. Hoecker........................ 39 Director
Alexis P. Michas.......................... 43 Director
Harry H. Penner, Jr....................... 55 Director
Robert C. Salisbury....................... 57 Director
Peter P. Tong............................. 59 Director
Each of our directors holds office until his successor is duly elected and
qualified or until his resignation or removal if earlier. Except as set forth
below, no family relationship exists among any of the directors or executive
officers. Pursuant to a Stockholders' Agreement entered into in connection with
the 1997 recapitalization, the parties to the agreement have agreed, subject to
applicable law, to vote in favor of Stonington's nomination or removal of our
directors, as more fully described under "Related Party
Transactions--Stockholders' Agreement." All executive officers are elected by
the Board and serve at the discretion of the Board.
EMERY G. OLCOTT is our Chief Executive Officer, a position he has held since
1971. From 1971 through October 2000, Mr. Olcott also held the position of
President. He also became Chairman of the Board effective as of the closing of
the 1997 recapitalization. Mr. Olcott co-founded Packard BioScience Company in
1965. Mr. Olcott was the Chairman of the Board of Directors of Yankee Energy
System, Inc., a gas distribution company that was acquired by Northeast
Utilities, and has been elected to the Board of Directors of Northeast
Utilities. In addition, he is a Vice Chairman and Trustee of The Loomis Chaffee
School, and is a member of the Dean's Advisory Council for the Sloan School of
Management at the Massachusetts Institute of Technology. Mr. Olcott graduated
from Yale University in 1960 with a Bachelor of Science degree and from MIT in
1963 with a Master of Science degree.
FRANKLIN R. WITNEY, PH.D. is our President and Chief Operating Officer, and
President of our wholly-owned subsidiary Packard Instrument Company, Inc.,
positions he has held since October 2000. Dr. Witney joined us as Senior Vice
President of Packard Instrument Company in April 2000. Prior to that,
Dr. Witney was employed at Bio-Rad Laboratories for 17 years, ultimately
becoming its Group Operations Manager, Life Sciences. Dr. Witney is responsible
for the development and execution of the strategic plan and the performance of
Packard Instrument Company, CCS Packard, Inc., Packard BioScience B.V.,
BioSignal Packard, Inc. and our international sales subsidiaries. Dr. Witney
holds a
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Master of Science degree in Microbiology and a Ph.D. in Molecular and Cellular
Biology from Indiana University.
BEN D. KAPLAN is our Vice President and Chief Financial Officer, positions
he has held since February 1997. From September 1992 to January 1997, he was a
partner at Arthur Andersen LLP, a public accounting firm. Mr. Kaplan is
currently on the Board of Regents of the University of Hartford. Mr. Kaplan
graduated from the University of Hartford in 1979 with a Bachelor's degree in
Accounting and in 1980 with a Master's degree in Accounting.
TIMOTHY O. WHITE, JR. is our Vice President, General Counsel and Secretary.
Mr. White has been our General Counsel and Secretary since May 1998 and became a
Vice President of Packard BioScience Company on March 20, 2000. From
September 1995 to May 1998, Mr. White was an attorney at the law firm of Jacobs
Chase Frick Kleinkopf & Kelley LLC. Prior to that time, Mr. White was an
attorney at the law firm of Ballard Spahr Andrews & Ingersoll, LLP. Mr. White
graduated from Hamilton College in 1990 with a Bachelor of Arts degree and from
the University of Michigan Law School in 1994 with a Juris Doctor degree.
Mr. White is a nephew of Mr. Olcott, our Chairman and Chief Executive Officer.
STAF C. VAN CAUTER is our Vice President, Business Development, a position
he has held since April 1998. From 1988 to 1998, Mr. van Cauter was also Vice
President, Marketing. Mr. van Cauter is currently responsible for identifying
emerging technologies for the development of new products. Mr. van Cauter
graduated from the Higher Institute of Technology in Mechelen, Belgium in 1972
with a Master of Science degree in Industrial Engineering.
NICHOLAS G. BACOPOULOS, PH.D. became one of our Directors in August 2000.
Dr. Bacopoulos is President and Head of Research and Development of OSI
Pharmaceuticals, Inc., a drug discovery company, positions he has held since
September 2000. From 1983 to September 2000, he was employed at Pfizer Inc.,
holding senior management positions in discovery research and pharmaceutical
planning and ultimately becoming the President and Chief Executive Officer of
Anaderm Research Corporation, which was founded by Pfizer, OSI Pharmaceuticals
and New York University. Dr. Bacopoulos received a Bachelor of Arts degree from
Cornell College and a Ph.D. from the University of Iowa.
ROBERT F. END became one of our Directors as of the closing of the
recapitalization in 1997. Mr. End is a Partner and a Director of Stonington
Partners, Inc., positions that he has held since 1993, and is also a Partner and
a Director of Stonington Partners, Inc. II, positions that he has held since
1994. He has also been a Director of Merrill Lynch Capital Partners, Inc., a
private investment firm associated with Merrill Lynch & Co., since 1993 and was
a consultant to Merrill Lynch Capital Partners from 1994 through 2000. Mr. End
is also a Director of Goss Graphic Systems, Inc. and several privately held
corporations. Mr. End graduated from Dartmouth College in 1977 with a Bachelor
of Arts degree and from the Amos Tuck School of Business in 1982 with a Master's
degree in Business Administration.
BRADLEY J. HOECKER became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Hoecker is a Partner and a Director of Stonington
Partners, Inc. and Stonington Partners, Inc. II, positions that he has held
since 1997. Prior to his election as a Partner, Mr. Hoecker served as a
Principal of Stonington Partners, Inc. since its formation in 1993. He was a
consultant to Merrill Lynch Capital Partners from 1994 through 2000.
Mr. Hoecker is also a Director of Merisel, Inc. and several privately held
corporations. Mr. Hoecker graduated from Southern Methodist University in 1984
with a Bachelor of Arts degree and from the Kellogg Graduate School of
Management in 1989 with a Master's degree in Management.
ALEXIS P. MICHAS became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Michas is Managing Partner and a Director of
Stonington Partners, Inc., positions that he has held since 1993, and is also
Managing Partner and Director of Stonington Partners, Inc. II, positions that he
has held since 1994. Mr. Michas has also been a Director of Merrill Lynch
Capital Partners since 1989,
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and was a consultant to Merrill Lynch Capital Partners from 1994 through 2000.
Mr. Michas is also a Director of Borg Warner, Inc., Goss Graphic Systems, Inc.
and several privately held corporations. Mr. Michas graduated from Harvard
College in 1980 with a Bachelor of Arts degree and from Harvard Business School
in 1984 with a Master's degree in Business Administration.
HARRY H. PENNER, JR. became one of our Directors in July 2000. Mr. Penner is
the President, Chief Executive Officer and Vice Chairman of Neurogen
Corporation, a drug discovery technology company, positions he has held since
December 1993. He is also a Director of Avant Immunotherapeutics, Inc. and
Genaissance Pharmaceuticals, Inc. Mr. Penner is also the Co-Chairman of CURE,
Connecticut's Bioscience Cluster, and a member of the Board of Directors of the
Connecticut Business and Industry Association and the Connecticut Technology
Council. Mr. Penner graduated from the University of Virginia in 1967 with a
Bachelor of Arts degree, from Fordham University in 1970 with a Juris Doctor
degree, and from New York University in 1975 with a Master's degree in Law.
ROBERT C. SALISBURY became one of our Directors in April 2000.
Mr. Salisbury is a private investor and advisor in the healthcare and
technology industries. Mr. Salisbury retired in 1998 from Pharmacia &
Upjohn, Inc. where he served as the Executive Vice President and Chief
Financial Officer since 1995. From 1974 to 1995, he was employed at The Upjohn
Company, holding various senior management positions and ultimately becoming
Executive Vice President for Finance and Chief Financial Officer. Mr. Salisbury
is also a Director of Viragen Inc. and a member of the National Association of
Corporate Directors and the Financial Executives International. Mr. Salisbury
graduated from Florida State University in 1972 with a Master's degree in
Business Administration.
PETER P. TONG became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Tong became a Management Partner of Stonington
Partners, Inc. in December 1999 and is also the President of Mandarin Partners
Management, LLC, an investment partnership he established in 1997. Mr. Tong
served as the Co-President of Marquette Medical Systems, Inc., a manufacturer of
medical equipment, from January 1996 to May 1996. From 1991 to 1996, he served
as President, Chairman and Chief Executive Officer of E for M Corporation, also
a manufacturer of medical equipment. Mr. Tong is also a director of several
privately held corporations. Mr. Tong graduated from Kansas State University in
1963 with a Bachelor's degree in Electrical Engineering and from the University
of Wisconsin in 1965 with a Master's degree in Electrical Engineering.
COMPENSATION OF DIRECTORS
Directors who are our employees or otherwise affiliated with management or
Stonington receive no compensation for their service as members of our Board or
its committees. Directors who are not our employees or related to Stonington
receive $15,000 annually, a $1,000 fee for each meeting of the Board or Board
committee they attend, and stock options under plans we describe below. See
"--The Non-Employee Director Stock and Options Compensation Plan." We also
reimburse all directors for expenses incurred in connection with attendance
at meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
We currently have an Audit Committee that consists of Messrs. Bacopoulos,
Hoecker, Penner and Salisbury. Mr. Salisbury acts as Chairman. The primary
functions of the Audit Committee are to:
- recommend annually to our Board of Directors the appointment of our
independent auditors;
- discuss and review in advance the scope and the fees of our annual audit
and review the results thereof with our independent auditors;
- review and approve non-audit services of our independent auditors;
- review compliance with our existing major accounting and financial
reporting policies;
- review the adequacy of major accounting and financial reporting policies;
and
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- review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices.
Our Compensation Committee currently consists of Messrs. End, Olcott and
Michas. The primary functions of the Compensation Committee are to:
- review and approve annual salaries, bonuses, and grants of stock options
under (and otherwise administer) our 2000 Stock Incentive Plan for all
executive officers and key members of our management team; and
- review and approve the terms and conditions of all employee benefit plans.
In addition, our Board of Directors may form an Executive Committee, which
will have the authority to exercise the powers of our Board of Directors, other
than those reserved to the Audit Committee, the Compensation Committee or to our
full Board of Directors, between meetings of our full Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, the Compensation Committee consisted of Messrs. Olcott, End and
Michas. Mr. Michas resigned from the Board in June 1999 and was re-elected in
March 2000. Executive compensation is determined in accordance with existing
employment agreements and related amendments thereto. Mr. End is a member of the
Compensation Committee of United States Manufacturing Company and OMP, Inc.
Mr. Tong is a director of both these companies.
EXECUTIVE COMPENSATION
The following table sets forth the compensation we paid to our Chief
Executive Officer and each of our four most highly-compensated executive
officers (other than the Chief Executive Officer) whose total compensation
exceeded $100,000 during the last fiscal year, for the year ended December 31,
2000.
LONG-TERM
COMPENSATION
ANNUAL -------------------
COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) (1)(2)(3) ($)
- --------------------------- -------- --------- -------- ------------------- -------------
Emery G. Olcott.................. 2000 $399,615 $122,000 35,000 $ 134,470
Chairman of the Board and Chief 1999 $367,308 $170,000 -- $ 55,850
Executive Officer 1998 $355,385 $375,000 -- $ 18,000
Franklin R. Witney............... 2000 $162,846 $ 50,000 150,000 $ 96,144
President and Chief Operating
Officer (4)
Richard T. McKernan.............. 2000 $294,231 $101,000 32,000 $ 109,450
Senior Vice President (5) 1999 $272,308 $131,500 -- $ 15,400
1998 $266,058 $200,000 -- $ 8,000
Ben D. Kaplan.................... 2000 $229,039 $ 60,000 28,000 $ 55,300
Vice President and Chief 1999 $207,308 $ 83,000 -- $ 8,975
Financial Officer 1998 $197,308 $140,000 -- $ 8,000
Staf C. van Cauter............... 2000 $201,539 $ 39,000 18,000 $ 48,500
Vice President, Business 1999 $188,846 $ 42,000 -- $ 8,000
Development 1998 $185,866 $ 52,000 -- $ 8,000
- ------------------------
(1) The 2000 amounts consist of bonuses awarded to the officers in connection
with the April 2000 initial public offering ($75,000 for Mr. Olcott, $80,000
for Mr. McKernan, $45,000 for Mr. Kaplan
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and $40,000 for Mr. van Cauter),
payments made for personal tax consultation services provided by our income
tax advisors ($50,970 for Mr. Olcott, $20,950 for Mr. McKernan and $1,800
for Mr. Kaplan), and contributions made by us pursuant to our defined
contribution plan in the amount of $8,500 for each individual listed with
the exception of Dr. Witney. The 2000 amount listed for Dr. Witney includes
a $20,000 signing bonus and $76,144 for reimbursement of relocation costs.
(2) The 1999 amounts consist of contributions made by us pursuant to our defined
contribution plan in the amount of $8,000 for each individual listed and
payments made for personal tax consultation services provided by our income
tax advisors ($47,850 for Mr. Olcott, $7,400 for Mr. McKernan and $975 for
Mr. Kaplan).
(3) The 1998 amounts consist of payments made for personal tax services rendered
by our income tax advisors ($10,000 for Mr. Olcott) and contributions we
made pursuant to our defined contribution plan in the amount of $8,000 for
each individual listed.
(4) Dr. Witney was hired as Senior Vice President in April 2000 and promoted to
President and Chief Operating Officer in October 2000.
(5) Mr. McKernan was our Senior Vice President. Effective January 1, 2001,
Mr. McKernan became a part-time employee of Packard in anticipation of his
retirement by year-end 2001. On March 15, 2001, Mr. McKernan resigned from
our Board of Directors and as our Senior Vice President, and continues to
serve as our Director of Strategic Initiatives.
OPTIONS/SAR GRANTS
The following table provides information on grants of stock options and
stock appreciation rights in 2000 to the executive officers listed in the
Executive Compensation table.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE GRANT DATE
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE PRESENT VALUE ($)(2)
- ---- -------------- ------------ ---------------- --------------- --------------------
Emery G. Olcott....... 35,000 2.6% $13.92 7/3/10 $496,298
Franklin R. Witney.... 75,000 5.6% $ 9.00 4/19/10 $577,031
75,000 5.6% $15.00 10/30/10 $958,745
Richard T. McKernan... 32,000 2.4% $13.92 7/3/10 $453,758
Ben D. Kaplan......... 28,000 2.1% $13.92 7/3/10 $397,038
Staf C. van Cauter.... 18,000 1.3% $ 9.00 4/19/10 $138,487
- ------------------------
(1) The terms of the stock options granted in fiscal 2000 provided that the
options become exercisable in 25% annual installments commencing one year
from the date of grant.
(2) The grant date present value was determined using the Black-Scholes model of
options pricing. The assumptions used in calculating the grant date present
value were as follows:
Expected volatility....................................... 100%
Risk-free rate of return.................................. 5.84% to 6.32%
Dividend yield............................................ 0
Expected life............................................. 7 years
Minimum option value...................................... $7.69 to $14.18
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OPTIONS/SAR EXERCISES AND YEAR-END VALUES
The following table provides information for the listed executive officers,
regarding the number and value of all their unexercised stock options and stock
appreciation rights, or SARs, at December 31, 2000.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY OPTIONS/
SARS AT FISCAL YEAR END SARS AT FISCAL YEAR END
(#) ($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
Emery G. Olcott............. 185,000 $ 466,185 565,000 35,000 $5,073,500 $ --
Franklin R. Witney.......... -- -- -- 150,000 -- $196,875
Richard T. McKernan......... 300,000 $1,124,784 700,000 32,000 $6,342,500 $ --
Ben D. Kaplan............... -- -- 500,000 28,000 $4,700,000 --
Staf C. van Cauter.......... 94,045 $ 686,170 130,000 18,000 $1,249,240 $ 47,250
- ------------------------
(1) The value of unexercised in-the-money options at year end was determined
based on the December 29, 2000 closing price of our common stock as quoted
on the Nasdaq National Market.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Olcott, Witney,
McKernan, Kaplan and van Cauter. Set forth below is a summary of the material
provisions of the employment agreements with these individuals. These
descriptions are qualified in their entirety by reference to the provisions of
those employment agreements.
The employment agreements with Messrs. Olcott, Witney, McKernan, Kaplan and
van Cauter, each of whom is referred to in this description as the "executive,"
supersede any other agreement between any of them and Packard BioScience Company
concerning their employment. Mr. Olcott serves as Chairman of the Board and
Chief Executive Officer of Packard BioScience Company; Dr. Witney serves as
President and Chief Operating Officer of Packard BioScience Company and
President of Packard Instrument Company; Mr. McKernan serves as Director of
Strategic Initiatives of Packard BioScience Company; Mr. Kaplan serves as Vice
President and Chief Financial Officer of Packard BioScience Company; and
Mr. van Cauter serves as Vice President of Packard Instrument Company, or in
such other capacity as may be assigned to him by the Chief Executive Officer of
Packard BioScience Company or the President of Packard Instrument Company. Each
of the employment agreements provides for an initial employment term of three
years, except for an initial employment term of two years in the case of
Messrs. Witney and van Cauter. Under each employment agreement, the initial
employment term will be automatically extended for additional 13-month terms on
the first day of each calendar month following the anniversary of the date of
the employment agreements, beginning on the second anniversary of the date of
the employment agreements (the first anniversary in the case of Messrs. Witney
and van Cauter), unless we affirmatively terminate it after giving 60 days
notice. There is an agreed-upon annual base salary for each executive, with
annual increases no less than the increase in the U.S. Consumer Price Index--All
Urban Consumers. Each executive is also eligible to receive an annual cash bonus
determined in accordance with the terms of our annual bonus incentive plans then
in effect. Mr. McKernan's employment agreement has been amended to provide for
part-time employment through October 2001, following which his employment will
terminate and he will become a consultant of Packard BioScience Company.
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Upon termination of employment by us other than for "cause" or "disability,"
or upon termination by the executive for "good reason," as such terms are
defined in the employment agreements, we will pay to the executive an amount in
cash equal to the sum of: the accrued annual base salary as of the date of
termination; a pro rata portion of the target annual bonus accrued to the date
of termination and any other accrued but unpaid annual bonuses, vacation pay or
deferred compensation not yet paid defined as the "accrued obligations"; annual
base salary and annual bonus amounts for the remainder of the employment period
(or the greater of 180 days in the case of Mr. Witney); and additional
contributions to the thrift savings plan, if any, to which the executive would
have been entitled had his employment continued for a period of three years (two
years in the case of Messrs. Witney and van Cauter) after the date of
termination. In addition, the executive will be entitled to participate in all
welfare benefit plans for a period of three years (two years in the case of
Messrs. Witney and van Cauter) after the date of termination on terms at least
as favorable as those that would have been applicable had his employment not
been terminated (or, if such benefit plans are not available, a comparable cash
payment) and, to the extent that any form of compensation will not be fully
vested or require additional service, the executive will be credited with
additional service of three years (two years in the case of Mr. van Cauter)
after the date of termination. In the case of Mr. McKernan, all forms of
compensation will fully vest if he was not terminated for cause or good reason.
Upon termination of employment due to death or disability, we will pay to the
executive or to his respective beneficiaries, all amounts that would have been
due had such executive remained in our employ until the end of his employment
period (until the date of termination for death and disability in the case of
Messrs. Witney, Kaplan and van Cauter). If employment is terminated for cause,
Packard BioScience Company will pay to the executive annual base salary through
the date of termination and any deferred compensation not yet paid, accrued
vacation pay and if the executive voluntarily terminates employment other than
for good reason, we will pay to the executive in a lump sum the accrued
obligations other than any accrued bonus amount.
Excluding Mr. Kaplan, each of the employment agreements provides that,
during employment and, unless employment terminates by reason of death or
disability (or good reason or without cause in the case of Dr. Witney), for one
year (two years in the case of Messrs. Witney and van Cauter) after employment
ends or, if later, for one year (two years in the case of Messrs. Witney and van
Cauter, and October 1, 2002 in the case of Mr. McKernan) after employment would
have ended had it not been terminated prior to the end of the employment term,
each executive will not solicit any of our employees or compete with us. In
consideration for such noncompetition covenant, we will pay to each executive
one-half of the sum of his annual base salary and his target annual bonus (100%
in the case of Messrs. Olcott and McKernan), such amount payable in equal
monthly installments during the portion of the noncompetition period following
the date of termination.
CANBERRA INDUSTRIES, INC. STOCK OPTION PLAN OF 1971
We adopted this plan in 1971 for the purpose of retaining and attracting
personnel for positions of responsibility with us or any of our subsidiaries.
Under the 1971 plan, as amended, we have 500,500 outstanding and vested options
as of March 16, 2001, with an average exercise price of $1.35. The options
granted under the 1971 plan expire on the tenth anniversary of the date of
grant.
In the event of a change in our capital structure, including as a result of
reorganization, merger, consolidation or recapitalization, our Compensation
Committee is required to adjust the number and kind of shares for which options
may be granted.
Our Board of Directors may at any time amend or terminate the 1971 plan,
except that no termination or amendment may impair the rights of the
participants as they relate to outstanding options. In connection with the
recapitalization of our company in 1997, the 1971 plan was frozen and no
additional options may be granted under the plan.
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In connection with the sale of Canberra and the transfer of that division's
employees to the purchaser, we offered those employees the ability to cash
settle all or part of their options under this plan for an amount per option
equal to the average price of our common stock over the 10-day period beginning
five days before, and ending five days after, the closing of the Canberra sale,
minus the option's exercise price, and after deduction for any required tax
withholding.
MANAGEMENT STOCK INCENTIVE PLAN
At the closing of the 1997 recapitalization, we adopted the Management Stock
Incentive Plan, pursuant to which our and our subsidiaries' directors, officers
and key employees will, as "eligible participants," be granted nonstatutory
stock options exercisable into shares of our common stock. This plan is not
related to our 1971 plan. The 1997 plan is administered by either our
Compensation Committee or our Board of Directors. The Compensation Committee or
the Board has the discretion to select those to whom options under the plan will
be granted from among those eligible. The Board or the Compensation Committee
has the authority to interpret and construe the plan, and any such
interpretation or construction of the provisions of the plan or of any options
granted under the plan is final and conclusive.
Options to purchase up to 11,125,460 shares of our common stock are
permitted to be granted under the plan. As of March 16, 2001, 3,906,850 options
were outstanding and vested under this plan, with an average exercise price of
$2.65. Certain of these options are granted at an exercise price equal to fair
market value on the date of grant. Twenty percent of these options vest
immediately upon grant, with the remainder becoming vested in equal annual
installments over a four-year period, provided that the eligible participant
continues to be employed by us or one of our subsidiaries. Effective March 17,
2000, our Board of Directors vested all options outstanding under the 1997 plan.
The remaining options, to be granted at a premium of fair market value, were
vested and fully exercisable upon the date of grant. In the event of an
"extraordinary transaction," such as a merger or consolidation, of Packard
BioScience Company or a reduction in Stonington's equity ownership in our
company to below 50%, all outstanding options will become fully vested upon
consummation of the extraordinary transaction.
The terms and conditions of a new option grant under the plan are set forth
in a related option agreement. Options granted under the plan will terminate
upon the earliest to occur of (1) the tenth anniversary of the date of the
option agreement; (2) the 180-day anniversary of the date of death or
"disability," or nine months after "retirement," as such terms are defined in
the Stockholders' Agreement, of the eligible participant; (3) the 30-day
anniversary of the date that the eligible participant ceases to be a full-time
employee of us or one of our subsidiaries for any reason other than as set forth
in (2) above or in (4) below; and (4) immediately upon an eligible participant's
voluntary termination of employment other than due to death, retirement or
disability, or termination for "cause," as defined in the Stockholders'
Agreement. Payment of the exercise price of options granted under the 1997 plan
must be made in cash.
In the event of a declaration of a stock dividend, or a reorganization,
merger, consolidation, acquisition, disposition, separation, recapitalization,
stock split, split-up, spin-off, combination or exchange of any shares of our
common stock or like event, the number or character of the shares subject to the
options or the exercise price of any such options may be appropriately adjusted
as deemed appropriate by our Compensation Committee or our Board.
The plan terminates upon, and no options may be granted under the plan
after, March 4, 2007, which is the tenth anniversary of the closing of the 1997
recapitalization, unless the plan has sooner terminated due to grant and full
exercise of options covering all the shares of common stock available for grant
under the plan. Our Board may at any time amend, suspend or discontinue the
plan, except that it may not alter, amend, discontinue or revoke or otherwise
impair any outstanding options
73
granted under the plan and which remain unexercised in a manner adverse to the
holders of those options except if the written consent of the holder is
obtained.
Upon adoption of the new plans in connection with our initial public
offering, the 1997 plan was frozen and no additional options will be granted
under the plan.
In connection with the sale of Canberra and the transfer of that division's
employees to the purchaser, we offered those employees the ability to cash
settle all or part of their options under this plan for an amount per option
equal to the average price of our common stock over the 10-day period beginning
five days before, and ending five days after, the closing of the Canberra sale,
minus the option's exercise price, and after deduction for any required tax
withholding.
THE NON-EMPLOYEE DIRECTOR OPTION COMPENSATION PLAN
In connection with our initial public offering, we adopted a Non-Employee
Director Option Compensation Plan. The purpose of this plan is to promote a
greater identity of interests between our non-employee directors and our
stockholders and to attract and retain individuals to serve as directors. As of
March 16, 2001, 45,000 options were outstanding under this plan, none of which
were vested, with an average exercise price of $18.00. The main material terms
of this plan are summarized below.
GENERAL
The plan is administered by our Board of Directors or a committee of our
Board of Directors designated for this purpose.
Our directors, who are neither our employees nor affiliates of Stonington,
are eligible to participate in the plan.
Our Board of Directors or its designated committee may adjust the awards
under the plan if there is any change in corporate capitalization, such as a
stock split, or a corporate transaction, such as a merger, consolidation,
separation, including a spin-off, or other distribution of our stock or
property, any reorganization or any partial or complete liquidation. Any option
that expires, is forfeited or is repurchased by us will again be available for
grant under the plan.
A total of 200,000 shares of our common stock have been reserved for
issuance under the plan.
OPTIONS
Each new non-employee director, other than directors affiliated with
Stonington, will be granted options for 15,000 shares of common stock upon being
elected or appointed to our Board of Directors and upon being re-elected after
each three-year term. The exercise price for all options will be 100% of the
fair market value of a share of common stock on the date of the grant of such
options, except that options granted before or upon consummation of our initial
public offering were granted at the initial public offering price. Each option
vests and becomes exercisable in equal installments on each of the first three
anniversaries of the date of grant of such option, if the director remains a
member of our Board of Directors at that time. Each vested option terminates one
year after the director's service on our Board of Directors ceases for any
reason, other than for cause. If a director is removed for cause, all vested and
unvested options will be forfeited. However, options expire no later than the
tenth anniversary of the date of grant. Any unvested options will terminate and
be canceled as of the date a director's service on our Board of Directors ceases
for any reason. All directors' options become fully vested and exercisable upon
a change in control.
74
TRANSFERABILITY
Options granted under the plan are nontransferable other than by will or the
laws of descent and distribution, or at the discretion of our Board of Directors
or the designated committee, by a written beneficiary designation or by a gift
to the director's immediate family. This gift may be made directly to an
immediate family member, or by means of a trust or partnership or limited
liability company. During the director's lifetime, a director's options may be
exercised only by the director, any such permitted transferee or a guardian,
legal representative or beneficiary.
AMENDMENTS
Our Board of Directors may at any time terminate or amend the plan, except
that no termination or amendment may impair the rights of directors relating to
outstanding options. To the extent required by law or automated quotation system
rule, no amendment will be made without the approval of our stockholders.
THE 2000 STOCK INCENTIVE PLAN
In connection with our initial public offering, we adopted a new stock
incentive plan. This plan is designed to promote our success and enhance our
value by linking the interests of our officers, employees and consultants to
those of our stockholders and by providing participants with an incentive for
outstanding performance. This plan is further intended to provide flexibility in
its ability to motivate, attract and retain employees upon whose judgment,
interest and special efforts our business is largely dependent. Our officers,
employees and consultants, including employees who are members of our Board of
Directors, and officers, employees and consultants of our subsidiaries and
affiliates are eligible to participate in this plan. Non-employee directors are
not eligible to participate in the 2000 plan. This plan is intended to remain in
effect until 2010. The description below summarizes the material terms of this
plan.
GENERAL
The 2000 plan is administered by the Compensation Committee of our Board of
Directors and provides for the grant of stock options, both non-qualified and
incentive stock options and other types of equity-based awards. As of March 16,
2001, we had 1,091,500 options outstanding under this plan, with an average
exercise price of $10.99.
The maximum number of shares of common stock available for grant under the
2000 plan is 15% of the aggregate number of shares outstanding, plus 5% of the
number of shares outstanding for each year, not to exceed 6.3 million shares in
the aggregate. In addition, the number of shares that may be granted to each
individual participant under the 2000 plan is limited to 200,000 shares for each
calendar year.
The term of options granted under the 2000 plan may not exceed 10 years.
Unless otherwise determined by our Compensation Committee, options vest ratably
on each of the first four anniversaries after the grant date and have an
exercise price equal to the fair market value of the common stock on the date of
grant. Options granted under the 2000 plan may be incentive stock options and
qualified stock options.
A participant exercising an option may pay the exercise price in cash or, if
approved by our Compensation Committee, with previously acquired shares of
common stock or in a combination of cash and stock. Our Compensation Committee,
in its discretion, may allow the cashless exercise of options.
Options are nontransferable other than by will or the laws of descent and
distribution or, at the discretion of our Compensation Committee, by a written
beneficiary designation or by a gift to members of the holder's immediate
family. The gift may be made directly or indirectly or by means of
75
a trust or partnership or limited liability company and, during the
participant's lifetime, may be exercised only by the participant, any such
permitted transferee or a guardian, legal representative or beneficiary.
Any option that expires, is forfeited or repurchased by us will again be
available for grant under the plan.
OTHER AWARDS
The 2000 plan allows for the grant of stock appreciation rights, or SARs,
alone or in tandem with options. An SAR permits a participant to receive, upon
exercise, cash or shares of common stock, or a combination thereof, as
determined by our Board of Directors or our Compensation Committee. The amount
of cash or the value of the shares is equal to the excess of the fair market
value of a share of common stock on the date of exercise over the SAR exercise
price, multiplied by the number of shares with respect to which the SAR is
exercised. The 2000 plan also allows for the grant of restricted stock, the
vesting of which is subject to the achievement of performance goals or continued
service. Performance awards may be granted subject to performance goals and/or
service-based restrictions, and will be denominated and payable in cash or
shares of common stock or a combination as determined by our Board of Directors
or our Compensation Committee. Dividend and interest equivalents with respect to
awards and other awards based on the value of common stock may also be granted.
CHANGE IN CONTROL
In the event of a change in control, or in the event of involuntary
termination of the optionee's employment within two years after a change of
control, any options or SAR that is not then exercisable and vested will become
fully exercisable and vested and remain exercisable for the option term,
restrictions on restricted stock will lapse and performance units will be deemed
earned. Change in control generally means:
- the acquisition of an amount of common stock greater than the amount held,
directly or indirectly, by Stonington and representing at least 30% of the
outstanding common stock or voting securities;
- a change in the majority of the members of the Board of Directors, unless
approved by the incumbent directors or Stonington;
- the completion of a merger involving our company in which, among other
things, our stockholders do not retain more than 50% of the common stock
and voting power; or
- approval by our stockholders of a liquidation, dissolution or sale of
substantially all of our assets.
DEFERRALS
The 2000 plan allows our Board of Directors or Compensation Committee to
establish procedures for the deferral of the delivery of shares or cash pursuant
to awards made under the plan.
AMENDMENTS
Our Board of Directors may at any time amend or terminate the 2000 plan and
may amend the terms of any outstanding options or other award, except that no
termination or amendment may impair the rights of the participants as they
relate to outstanding options. However, no such amendment to the 2000 plan will
be made without the approval of our stockholders to the extent such approval is
required by law or stock exchange rules.
THE EMPLOYEE STOCK PURCHASE PLAN
In connection with our initial public offering, we adopted an employee stock
purchase plan. The purpose of this plan is to further our long-term stability
and financial success by providing a method for
76
employees to increase their ownership of common stock. Under the purchase plan,
500,000 shares of common stock is available for issuance and sale. As of
March 16, 2001, 31,573 shares had been purchased under this plan at a price of
$9.88 per share. Unless terminated sooner at the discretion of our Board of
Directors, the purchase plan will terminate on December 31, 2010.
ELIGIBILITY
All of our employees and all of the employees of designated subsidiaries
generally are eligible to participate in the purchase plan, other than employees
whose customary employment is 20 hours or less per week or is for not more than
five months in a calendar year, or who are ineligible to participate due to
restrictions under the Internal Revenue Code, and subject to compliance with
applicable U.S. and foreign securities laws.
GENERAL DESCRIPTION
A participant in the purchase plan may authorize regular salary deductions
of a maximum of 15% and a minimum of 1% of base compensation. The fair market
value of shares that may be purchased by any employee during any calendar year
may not exceed $25,000. The amounts so deducted and contributed are applied to
the purchase of full shares of common stock under options to purchase shares at
85% of the lesser of the fair market value of such shares on the date of
purchase or on the offering date for such offering period. The offering dates
are January 1 and July 1 of each purchase plan year, and each offering period
shall consist of one six-month purchase period. The offering period beginning in
2000 commenced after July 1, and is for less than a six-month period. Shares are
purchased for participating employees on the last business days of June and
December for each purchase plan year and each such participant has the rights of
a stockholder with respect to such shares. Participants may decrease their
payroll deductions at any time but not more than once during any offering
period.
Participants may increase or decrease their payroll deductions for any
subsequent offering period by notifying the purchase plan administrator no later
than 15 days prior to such offering period. Participants may also withdraw from
participation in the purchase plan at any time on or prior to the 15th day of
the last month of the offering period. If a participant withdraws from the
purchase plan, any contributions that have not been used to purchase shares will
be refunded. A participant who has withdrawn may not participate in the purchase
plan again until the next offering period.
In the event of retirement or other termination of employment before the
15th day of the last month in the offering period, any contributions that have
not yet been used to purchase shares will be refunded and a certificate issued
for the full shares in the participant's account. In the event of a
participant's death, any contributions that have not yet been used to purchase
shares and all shares in such participant's account will be delivered to the
participant's beneficiary designated in writing and filed with us, or, if no
beneficiary has been designated or survives the participant, to the
participant's estate. Any payroll deductions that have not been used to purchase
shares will be returned to the participant after the end of the applicable
offering period.
AMENDMENTS OR TERMINATION OF THE PURCHASE PLAN
Our Board of Directors may amend the purchase plan in any respect, although
our stockholders must approve any amendment that would increase the number of
securities that may be issued under the purchase plan or would cause the plan to
fail to qualify for beneficial tax treatment under Section 423 of the Internal
Revenue Code. Our Board of Directors may suspend or terminate the purchase plan
at any time. However, in the event of a termination while an offering period is
in progress, our Compensation Committee may return accumulated payroll
deductions or shorten the offering period by setting a new date of purchase.
77
RELATED PARTY TRANSACTIONS
STOCKHOLDERS' AGREEMENT
In 1997, Packard BioScience Company, Stonington, KECALP Inc., Merrill Lynch
KECALP L.P. 1994, BCP II Affiliates Fund Limited Partnership and Baird Capital
Partners II Limited Partnership, members of our management (including Emery G.
Olcott, our Chairman and Chief Executive Officer, Ben D. Kaplan, our Chief
Financial Officer, Staf C. van Cauter, our Vice President for Business
Development, and Richard T. McKernan, our former Senior Vice President) and over
150 of our other stockholders who did not sell all of their shares in the
recapitalization entered into a Stockholders' Agreement, which contains, among
other terms and conditions, provisions relating to corporate governance,
restrictions with respect to the transfer of common stock, rights related to
puts and calls, and registration rights granted by us with respect to our common
stock.
Pursuant to the terms of the Stockholders' Agreement, each party agreed to
elect an initial slate of directors of Packard BioScience Company who had been
nominated by Stonington, on condition that the initial slate consists of three
management stockholders, four designees of Stonington and two independent
directors mutually agreed upon by Stonington and our chief executive officer.
Now that the initial slate of directors has been elected, Stonington has the
right to nominate at any time and from time to time all of our directors,
including the right to reduce, expand, and fill vacancies on our Board, and,
subject to applicable law, has the right to remove such directors at any time
and from time to time, and the other parties have agreed to vote in favor of
such nomination or removal of directors. In addition, Stonington has the right
to direct the voting and, generally, must consent to the disposition of the
shares of our common stock owned by the KECALP entities, and must generally
consent to the disposition of the shares of our common stock owned by the Baird
entities.
Under the Stockholders' Agreement, each party is, subject to the limitations
described below, entitled to register shares of common stock in connection with
a registration statement prepared by us to register common equity beneficially
owned by Stonington, as described below under "Registration Rights." Also, under
the Stockholders' Agreement, Stonington has the right to require us to take such
steps as necessary to register all or part of the common stock held by
Stonington under the Securities Act, and each other party (other than
Stonington) that holds at least 20% of the unregistered shares governed by the
Stockholders' Agreement has the right on one occasion to require us to register
at least 10% of these shares. The Stockholders' Agreement contains customary
terms and provisions with respect to, among other things, registration
procedures and rights to indemnification granted in connection with the
registration of common stock subject to such agreement.
The Stockholders' Agreement contains provisions relating to tag-along,
drag-along, put and call rights of the stockholders, all of which terminated
upon completion of our initial public offering. Pursuant to the Stockholders'
Agreement, the management stockholders and the stockholders who did not sell
their shares in the recapitalization will be able to transfer their shares
subject to applicable restrictions under the Securities Act and other federal
and state securities laws.
REGISTRATION RIGHTS
Under the Stockholders' Agreement, because Stonington is a selling
stockholder in this offering, the other parties to the agreement owning shares
of our common stock generally have the right to include those shares in the
offering, except to the extent that they are able to sell their shares of our
common stock pursuant to Rule 144 under the Securities Act. This exception,
however, does not apply to the KECALP and Baird entities. All parties having
registration rights under the Stockholders' Agreement are either participating
in the offering or have waived such rights.
In connection with our acquisition of the life sciences division of GSI
Lumonics, Inc., in October 2000, we entered into a registration rights agreement
with GSI Lumonics Life Science Trust,
78
which then assigned its rights and obligations under the agreement to GSLI
Investments, Inc. Under the registration rights agreement, GSLI Investments,
Inc. has the right to have any of our common stock owned by it included in any
registered offering of our common stock, such as this offering. Under the
agreement, if the managing underwriter for the offering determines, in writing,
that the total amount of shares to be included in the offering exceeds the
amount which can be marketed at a price reasonably related to the current market
price or without materially and adversely affecting the entire offering, then:
- of the first 5 million shares to be included in the offering, 40%, or up
to 2 million shares, will be allocated to GSLI Investments, Inc., and the
remaining amount will be allocated to Stonington and the other selling
stockholders under the Stockholders' Agreement; and
- of any shares in excess of 5 million, 25% will be allocated to the GSLI
Investments, Inc., and the remaining amount will be allocated to
Stonington and the other selling stockholders under the Stockholders'
Agreement.
As of March 16, 2001, GSLI Investments, Inc. held in the aggregate 4,495,711
shares of our common stock.
GSLI Investments, Inc. also has the right under the registration rights
agreement to, on one occasion, require us to take such steps as are necessary to
register all of the remaining shares of our common stock owned by it or, if less
than all of its remaining shares, a number of shares that have an anticipated
aggregate price of at least $40 million. GSLI Investments, Inc.'s registration
rights are subject to timing limitations and also allocation limitations if, as
described above, the offering includes stock registered on the behalf of us or
other stockholders. The registration rights terminate on October 1, 2005 or when
the shares held by GSLI Investments, Inc. have a public market value of less
than $2 million and can be sold pursuant to Rule 144(k) under the Securities Act
of 1933. Like the Stockholders' Agreement, the registration rights agreement
with GSLI Investments, Inc. contains customary terms and provisions with respect
to, among other things, registration procedures and rights to indemnification
granted in connection with the registration of common stock subject to that
agreement. As part of this offering, GSLI Investments, Inc. will be selling all
shares of our common stock held by them. As a result, upon completion of the
offering, this agreement will no longer have any force or effect.
OTHER RELATED PARTY TRANSACTIONS
In connection with the 1997 recapitalization, Stonington Partners, Inc., the
management company of our controlling stockholder, received a structuring fee
and reimbursement for out-of-pocket expenses totaling $2.6 million in the
aggregate.
In connection with our initial public offering, Messrs. Olcott, McKernan and
Serrano and Messrs. Orren Tench and Daniel Meert transferred by gift an
aggregate of 107,400 shares of their own common stock, or 100 shares per
employee, to substantially all of our employees who on the date of the gift did
not own shares or options to purchase shares of our common stock.
In October 2000, we entered into a joint marketing agreement with Agencourt
Bioscience Corporation related to the marketing of Agencourt's DNA purification
reagents. As part of the marketing arrangement, we made a $1.25 million equity
investment representing approximately 8% of the outstanding equity of Agencourt.
Agencourt is controlled by three sons of Richard T. McKernan, our Senior Vice
President and a member of our Board. The transaction was approved by all of our
disinterested directors.
In November 2000 we loaned Mr. Kaplan $300,000 in connection with his
purchase of his primary residence. The loan bears interest at the prime rate
less 0.25% and is due in November 2005. Mr. Kaplan is prohibited from exercising
the last 100,000 of his stock options prior to repaying this loan.
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We paid Robert W. Baird & Co. Incorporated fees and expenses of $3,069,000
in 1997 in connection with the 1997 recapitalization. In 1998, we paid Robert W.
Baird & Co. Incorporated a fee of $50,000 for financial advisory services. In
2001, we expect to pay Robert W. Baird & Co. Incorporated fees and expenses of
approximately $2.6 million in connection with our sale of Canberra. In addition,
Baird Capital Partners II Limited Partnership and BCP II Affiliates Fund Limited
Partnership, affiliates of Robert W. Baird & Co. Incorporated, own an aggregate
of 1,373,030 shares of our common stock that they acquired from us in June 1997
for a total price of approximately $3.1 million.
We paid Chase Securities Inc., an affiliate of J.P. Morgan Securities Inc.,
fees of approximately $1.2 million in 2000 in connection with our acquisition of
the life sciences business of GSI Lumonics, Inc. George Montgomery, an employee
of Chase Securities Inc., which is an affiliate of J.P. Morgan Securities Inc.,
owns 50,000 shares of our common stock.
We believe all of the related party transactions described under "Related
Party Transactions" were on terms no less favorable than we could have obtained
from unrelated parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, including the percentage of total voting power,
as of March 16, 2001, on an actual basis and as adjusted to reflect completion
of the offering, by:
- each of our executive officers;
- each director;
- all current directors and executive officers as a group;
- each holder known to us to hold beneficially more than 5% of our common
stock; and
- each selling stockholder selling shares of our common stock in this
offering.
Except as otherwise indicated in the footnotes below, each beneficial owner
has the sole power to vote and to dispose of all shares held by that holder. You
should keep the following points in mind as you read the information in the
table.
- The amounts and percentage of our common stock beneficially owned by a
holder are reported on the basis of the regulations of the SEC that govern
the determination of beneficial ownership of securities. Under these
regulations, a person or group of persons is deemed to be a "beneficial
owner" of a security if that person or group has or shares "voting power,"
which includes the power to vote or to direct the voting of the security,
or "investment power," which includes the power to dispose of or to direct
the disposition of the security. A person or group of persons is also
deemed to be a beneficial owner of any securities with respect to which
that person or group has a right to acquire beneficial ownership within
60 days of December 31, 2000. Under these rules, more than one person may
be deemed a beneficial owner of the same security and a person may be
deemed to be a beneficial owner of securities as to which that person has
no economic interest.
- The percentage of our common stock outstanding is based on 67,928,179
shares of our common stock outstanding as of March 16, 2001, and
70,928,179 shares of our common stock outstanding after the offering, in
each case, including shares of common stock deemed outstanding pursuant to
the definition of beneficial ownership in the preceding paragraph. These
shares are deemed to be outstanding when computing the percentage of
ownership of each person or group of
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persons named above, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person or group.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK SHARES TO OF COMMON STOCK
BEFORE OFFERING BE SOLD AFTER OFFERING
--------------------- --------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER* SHARES (1) % (2) SHARES (1) % (2)
- ------------------------------------- ---------- -------- --------- ---------- --------
DIRECTORS AND EXECUTIVE OFFICERS
Emery G. Olcott (4)........................ 2,233,855 3.3 100,000 2,133,855 3.0
Franklin R. Witney (5)..................... 18,750 ** -- 18,750 **
Ben D. Kaplan (7).......................... 520,000 ** -- 520,000 **
Timothy O. White, Jr. (8).................. 194,125 ** -- 194,125 **
Staf C. van Cauter (9)..................... 249,800 ** -- 249,800 **
Nicholas G. Bacopoulos..................... -- -- -- -- --
Robert F. End (10)(14)..................... 40,214,302 59.2 2,093,174 38,121,128 53.7
Bradley J. Hoecker (10)(14)................ 40,214,302 59.2 2,093,174 38,121,128 53.7
Alexis P. Michas (10)(14).................. 40,214,302 59.2 2,093,174 38,121,128 53.7
Harry H. Penner, Jr........................ -- -- -- -- --
Robert C. Salisbury (11)................... 6,000 ** -- 6,000 **
Peter P. Tong (10)(12)..................... 162,350 ** -- 162,350 **
All directors and executive officers as a
group (12 persons) (10)(13)................ 3,384,880 4.8 100,000 3,284,880 4.5
5% AND SELLING STOCKHOLDERS
Stonington Capital Appreciation 1994
Fund, L.P. (3)(14)....................... 40,214,302 59.2 2,093,174 38,121,128 53.7
GSLI Investments, Inc...................... 4,495,711 6.6 4,495,711 -- --
Essex Investment Management Company,
LLC (17)................................. 3,605,785 5.0 -- 3,605,285 5.0
Franklin Resources, Inc. and related
entities (16).............................. 4,401,329 6.6 -- 4,401,329 6.2
Richard T. McKernan (6).................... 1,554,095 2.3 235,000 1,319,095 1.8
Merrill Lynch KECALP L.P. (14)(15)......... 674,150 1.0 45,669 628,481 **
Merrill Lynch KECALP L.P. 1997 (14)(15).... 382,025 ** 25,879 356,146 **
Merrill Lynch KECALP Inc. 1997 (14)(15).... 67,415 ** 4,567 62,848 **
- ------------------------
* The address for all of the members of our management and for Nicholas G.
Bacopoulos, Harry H. Penner, Jr., Robert C. Salisbury and Peter P. Tong is:
800 Research Parkway, Meriden, Connecticut 06450. The address of GSLI
Investments, Inc. is 39 Manning Road, Billerica, Massachusetts 01821. The
address of Franklin Resources, Inc. and related entities is 777 Mariners
Island Boulevard, San Mateo, California 94404. The address of Essex
Investment Management Company, LLC is 125 High Street, Boston, Massachusetts
02110. Refer to (3) and (15) below for additional address information.
** Less than 1%.
(1) The figures assume exercise by only the stockholder or group named in each
row of all options for the purchase of common stock held by such stockholder
or group which were exercisable by May 15, 2001.
(2) Amounts are based upon 67,928,179 shares of our common stock outstanding
before the offering and 70,928,179 shares of our common stock outstanding
after the offering.
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(3) Stonington Capital Appreciation 1994 Fund, L.P. is the record holder of
30,898,890 shares of common stock. The Stonington fund also has the right to
direct the voting with respect to, but disclaims beneficial ownership of, an
additional 1,123,590 shares purchased by two institutional investors
pursuant to the Stockholders' Agreement. Additional rights of the Stonington
fund with respect to 8,191,822 shares of our common stock are described
under "Related Party Transactions". The Stonington fund disclaims beneficial
ownership of any of those 9,315,412 shares. The Stonington fund is a
Delaware limited partnership whose limited partners consist of certain
institutional investors, formed to invest in corporate acquisitions
organized by Stonington Partners, L.P. Stonington Partners, L.P., a Delaware
limited partnership, is the general partner in the Stonington fund with a 1%
economic interest. Except for such economic interest, Stonington Partners,
L.P. disclaims beneficial ownership of the shares set forth above.
Stonington Partners, Inc. II is the general partner of, with a 1% economic
interest in, Stonington Partners, L.P. Except for such economic interests,
Stonington Partners, Inc. II disclaims beneficial ownership of the shares
set forth above. Pursuant to a management agreement with the Stonington
fund, Stonington Partners, Inc. has full discretionary authority with
respect to the investments of the Stonington fund, including the authority
to make and dispose of such investments. Furthermore, Stonington Partners,
Inc. has a 1% economic interest in Stonington Partners, L.P. Stonington
Partners, Inc. disclaims beneficial ownership of the shares set forth above.
If the underwriters exercise their over-allotment options, the Stonington
fund will sell additional shares as described in footnote 14. The address
for each of the entities listed in this footnote, as well as Stonington
management included in the table above, is c/o Stonington Partners, Inc.,
767 Fifth Avenue, New York, NY 10153.
(4) Includes shares held by Mr. Olcott's spouse and by and in trust for one of
his children. Includes 565,000 shares subject to options which were
exercisable as of May 15, 2001.
(5) Includes 18,750 shares subject to options which were exercisable as of
May 15, 2001.
(6) Includes shares held by Mr. McKernan's spouse and the McKernan Family
Partnership. Includes 700,000 shares subject to options which were
exercisable as of May 15, 2001. In the offering, Mr. McKernan will sell
75,000 shares, Mr. McKernan's spouse will sell 75,000 shares and the
McKernan Family Limited Partnership will sell 85,000 shares.
(7) Includes 500,000 shares subject to options which were exercisable as of
May 15, 2001.
(8) Includes shares held by Mr. White's spouse, children and trust to which Mr.
White is beneficiary.
(9) Includes 124,500 shares subject to options which were exercisable as of
May 15, 2001.
(10) Messrs. End and Michas are two of four equal stockholders, and Mr. Hoecker
is a director, of Stonington Partners, Inc. and Stonington Partners,
Inc. II. Although none of Messrs. End, Hoecker and Michas owns any of our
shares of common stock individually, they may be deemed to be beneficial
owners of shares held by the Stonington fund as a result of their ownership
of stock in, and/or membership on the Boards of Directors of, Stonington
Partners, Inc. and Stonington Partners, Inc. II, but they disclaim such
beneficial ownership.
(11) Includes 5,000 shares subject to options which were exercisable as of
May 15, 2001.
(12) Includes 50,000 shares subject to options which were exercisable as of
May 15, 2001.
(13) Includes shares held by certain family members, trusts and similar
entities. Includes 1,263,250 shares subject to options which were
exercisable as of May 15, 2001.
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(14) Assumes that the underwriters' over-allotment options are not exercised. If
the underwriters exercise their over-allotment options in full:
- Merrill Lynch KECALP L.P. will sell an additional 31,579 shares. As a
result, Merrill Lynch KECALP L.P.'s beneficial ownership of common stock
will decrease from 674,150 shares to 596,902 after the offering;
- Merrill Lynch KECALP L.P. 1997 will sell an additional 17,895 shares. As a
result, Merrill Lynch KECALP L.P. 1997's beneficial ownership of common
stock will decrease from 382,025 shares before the offering to 338,251
after the offering;
- Merrill Lynch KECALP L.P. Inc. 1997 will sell an additional 3,158 shares.
As a result, Merrill Lynch KECALP Inc. 1997's beneficial ownership of
common stock will decrease from 67,415 shares before the offering to
59,690 after the offering; and
- the Stonington fund will sell an additional 1,447,368 shares. As a result,
the Stonington fund's beneficial ownership of common stock will decrease
from 40,214,302 shares, or 59.2% before the offering, to 36,673,760
shares, or 51.7% after the offering.
(15) Each of Merrill Lynch KECALP L.P., Merrill Lynch KECALP L.P. 1997 and
Merrill Lynch KECALP Inc. 1997 is an affiliate of a broker-dealer. The
shares being sold by these KECALP entities were purchased in the ordinary
course of business. At the time the KECALP entities purchased the shares
being resold in this offering, there were no agreements or understandings,
directly or indirectly, with any person to distribute the shares. The
address for each of the KECALP entities is c/o KECALP Inc., Two World
Financial Center, 31st floor, New York, New York 10281.
(16) Amount is based upon the stockholder's most recent 13G filing, dated
February 9, 2001.
(17) Amount is based upon the stockholder's most recent 13G filing, dated
February 12, 2001.
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DESCRIPTION OF CAPITAL STOCK
THE FOLLOWING SUMMARY DESCRIBES THE MATERIAL TERMS OF OUR CAPITAL STOCK.
HOWEVER, YOU SHOULD REFER TO THE ACTUAL TERMS OF OUR CAPITAL STOCK CONTAINED IN
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
As of March 16, 2001, our authorized capital stock consists of 200,000,000
shares of common stock, par value $0.002 per share, and 1,000,000 shares of our
preferred stock, par value $0.01 per share. As of the same date, we had
67,928,179 shares of common stock and no shares of preferred stock outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock that may be
outstanding, each holder of common stock on the applicable record date is
entitled to receive dividends as may be declared by our board of directors out
of funds legally available to pay dividends, and, in the event of liquidation,
to share ratably in any distribution of our assets after payment or providing
for the payment of liabilities and the liquidation preference of any outstanding
preferred stock. Common stock will vote together as a single class on all
matters presented to a vote of stockholders, including the election of
directors. Each holder of common stock is entitled to one vote for each share
held of record on the applicable record date for all of these matters.
Stonington benefits from an agreement with the other parties to the
Stockholders' Agreement described under "Related Party Transactions," pursuant
to which these parties will vote with Stonington in favor of nominations and
removals of directors by Stonington. Holders of common stock have no cumulative
voting rights or preemptive rights to purchase or subscribe for any stock or
other securities, and there are no conversion rights or redemption or sinking
fund provisions with respect to common stock. All outstanding shares of common
stock are, and the shares of common stock sold in the offerings will be when
issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority to issue shares of preferred stock
in one or more series and to fix, by resolution, the voting powers, and
designations, preferences and relative, participating, optional or other rights,
if any, and the qualifications, limitations or restrictions thereof, if any,
including the number of shares in each series (which our board of directors may
increase or decrease as permitted by Delaware law), liquidation preferences,
dividend rates, conversion rights and redemption provisions of the shares
constituting any series, without any further vote or action by the stockholders.
Any shares of preferred stock so issued would have priority over the common
stock with respect to dividend or liquidation rights or both. Although our board
of directors has no present plans to do so, it could issue one or more series of
preferred stock, without stockholder approval, that could, depending on the
terms of such series, restrict dividends on the common stock, dilute the voting
power of the common stock, impair the liquidation rights of the common stock or
impede the completion of a merger, tender offer or other takeover attempt.
DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware General Corporation Law.
Section 203 generally prevents Delaware corporations from engaging in a business
combination with any "interested stockholder" for three years following the date
that the person became an interested stockholder, unless the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, an "interested
stockholder" is a person, together with affiliates and associates, who owns 15%
or more of a corporation's voting stock. The existence of this provision may
delay or make more difficult the acquisition of our company by means of a
hostile tender offer, open market purchases, a proxy contest or otherwise.
85
ACTION BY WRITTEN CONSENT
Under the Delaware General Corporation Law, unless the certificate of
incorporation expressly prohibits action by the written consent for
stockholders, any action required or permitted to be taken by our stockholders
at a duly called annual or special meeting of stockholders may be taken by a
consent in writing executed by stockholders possessing the requisite votes for
the action to be taken. Our certificate of incorporation does not expressly
prohibit action by the written consent of stockholders. As a result, Stonington,
as holder of 53.7% of our total voting power after the offering, without giving
effect to the exercise of the underwriters' over-allotment options, will be able
to take any action to be taken by stockholders without the necessity of holding
a stockholder meeting. We intend, however, to hold annual meetings of
stockholders.
ANTI-TAKEOVER PROVISIONS OF OUR CHARTER AND BYLAWS
Our charter authorizes our Board to establish one or more series of
preferred stock and to designate the rights, terms and preferences of the
series. Accordingly, the Board could, without stockholder approval, adopt a
shareholder rights plan in combination with the issuance of a series of
preferred stock, thereby making it prohibitively expensive for third party
acquirors to gain control of the company without first obtaining the approval of
our Board. In addition, the following provisions in our bylaws may have the
effect of discouraging a third party from initiating a proxy contest, making a
tender offer or otherwise attempting to gain control of us. For example:
- our bylaws prevent removal of directors except for cause and only with a
80% stockholder vote;
- the term of office of our directors is three years, rather than one year,
and the terms of individual directors expire in different years;
- our Board may fix the number of directors, and vacancies on our Board and
newly created directorships resulting from any increase in the number of
directors on our Board are filled by resolution of the remaining directors
then in office, even though less than a quorum;
- only our Chairman or Board may call a special meeting of our stockholders;
and
- our bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other
business before an annual meeting of our stockholders.
These provisions make it more difficult for a third party to remove our
directors, and would preclude such third party from either increasing the number
of directors and filling the resulting vacancies with its own nominees or
removing incumbent directors and simultaneously gaining control of our Board by
filling the vacancies created by removal with its own nominees. In addition,
because of the three-year term and different term expirations of our directors,
it would take more than one year for a potential acquiror to gain control of our
Board. Also, third party acquirors are not able to call special meetings to
either elect their nominees or seek approval for change of control transactions,
and would have to notify us well in advance and comply with other bylaw
requirements in order to make director nominations or bring other business
before an annual meeting of our stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
LISTING
Our shares of common stock are quoted on the Nasdaq National Market under
the symbol "PBSC."
86
DESCRIPTION OF INDEBTEDNESS
SENIOR SUBORDINATED NOTES
During 1997, we issued $150,000,000 principal amount of 9.375% senior
subordinated notes due March 1, 2007. We used the net proceeds from the sale of
the notes, in connection with the 1997 recapitalization, to repay outstanding
indebtedness under previous obligations and to repurchase shares of our
outstanding common stock.
We issued and sold our notes in March 1997 in a transaction not registered
under the Securities Act, and subsequently registered them with the SEC in an
exchange offer that we completed in June 1997. In 2000, we repurchased
approximately $32.0 million of our notes in the open market, using proceeds from
our initial public offering. As of March 16, 2001, there were $118,145,000 in
aggregate principal amount of notes outstanding.
We have the right to redeem our notes in cash, at any time on or after
March 1, 2002, at redemption prices ranging from 104.688% to 100.000% depending
on the timing of redemption.
In the event of a "change in control" of Packard BioScience Company, a
holder of notes generally has the right to require us to purchase all or a
portion of its notes at a purchase price equal to 101% of the notes' principal
amount. Change of control is defined under the indenture governing the notes as
the occurrence of any of the following events:
- any person or group, other than Stonington and their affiliates, is or
becomes the beneficial owner of more than a majority of our outstanding
voting stock,
- during any period of two consecutive years, the directors who at the
beginning of the two years (together with any new directors whose election
was approved by either Stonington or their affiliates or 66 2/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved), cease to constitute a majority of the board of directors,
- we consolidate, merge or transfer substantially all of our assets,
excluding some transactions that would not result in a payment restricted
by the terms of the notes and where only Stonington and its affiliates
would own a majority of the total outstanding voting stock of the
surviving corporation, or
- we are liquidated or dissolved, other than in a transaction subject to the
above exclusion.
In addition, under the terms of the notes, if we sell assets for net
proceeds exceeding $10 million and within the following 360 days we do not use
these proceeds to replace the assets sold or permanently repay our senior
indebtedness as provided in our credit agreement, as amended and restated, we
must use proceeds that are not so reinvested to repurchase notes. We currently
estimate that, if we are unable to use the net proceeds from the sale of
Canberra to replace the assets sold within 360 days of the completion of the
sale, we would be required to use up to approximately $82 million of the net
proceeds to repurchase notes.
The notes are unsecured senior subordinated obligations of Packard
BioScience Company and any payment of or on the notes is subordinated to the
payment to all of our existing and future senior indebtedness, including
indebtedness under our senior credit facility.
Under the terms of the notes, we are subject to the following covenants:
- we and our subsidiaries cannot incur indebtedness if our consolidated
fixed charge ratio, as defined in the indenture, for the preceding four
fiscal quarters is less than 2.0;
- we cannot generally pay or declare dividends, redeem our stock, retire
subordinated debt or make investments, unless we meet the financial test
specified in the indenture;
87
- we and our subsidiaries generally cannot enter into transactions with any
of our affiliates unless the transactions are on terms not less favorable
than would result from a third-party transaction;
- we and our subsidiaries generally cannot create or incur any liens that
would have priority over the notes, except as otherwise permitted under
other terms of the indenture;
- we and our subsidiaries cannot sell assets at less than fair market value,
and at least 75% of the consideration we receive from any such sale must
be in cash or cash equivalents;
- we are limited in incurring additional subordinated debt;
- we and our subsidiaries generally are prohibited from issuing preferred
stock; and
- we may not engage in mergers, consolidations or the sale of all or
substantially all of our assets unless we are the surviving company or the
surviving company assumes our obligations under the notes, the indenture
and the guarantees of the notes, the transaction would not result in a
default under our note and no liens restricted under the indenture are
incurred.
We do not believe that these covenants will prevent us from implementing our
business plan or executing our strategy. As of December 31, 2000 we are in
compliance with all covenants under our notes.
The notes are not listed, and we do not intend to apply for listing, on any
securities exchange or automated quotation system.
SENIOR CREDIT AGREEMENT
During 1997, in connection with the 1997 recapitalization, we entered into a
senior credit agreement with a group of banks which provided for a term loan
facility and a revolving credit facility. In August 2000, we amended and
restated the credit agreement to eliminate the term loan and increase the
revolving credit borrowing capacity from $75 million to $100 million. Under the
terms of the amended and restated credit agreement, the outstanding revolving
credit facility balance, if any, is due and payable on August 17, 2005.
Revolving credit borrowings bear interest at rates within a range, subject to
the consolidated leverage ratio we achieve. U.S. dollar denominated borrowings
bear interest, at our option, at the customary base rate plus 0.25% to 1.75% or
the Eurodollar rate plus 1.25% to 2.75%. Borrowings in currencies other than the
U.S. dollar bear interest at the cost of funds rate plus a margin. The amended
and restated credit agreement requires a 0.5% commitment fee, adjusted downward
if we achieve a consolidated leverage ratio of 2:00 to 1:00 or less.
We are required under the credit agreement to reduce the commitments under
the revolving credit facility generally if we sell assets or issue debt or
equity securities. Mandatory prepayments or commitment reductions are applied to
the permanent reduction of the revolving credit facility.
The credit agreement contains financial covenants that limit our ability to
incur indebtedness if our ratio of debt to earnings before income tax,
depreciation and amortization, or EBITDA, ratio of EBITDA to interest expense,
and ratio of EBITDA to our fixed charges (which are comprised of interest,
taxes, scheduled debt payments and capital expenditures) do not equal or exceed
specified levels, which vary by year. We are also subject to covenants,
including the following:
- except for amounts drawn under the revolving credit facility,
intra-company debt, guarantees and our senior subordinated notes, we
cannot incur or have an aggregate principal amount of debt exceeding
$20 million;
- generally we cannot create, incur or assume any lien on our property or
revenues;
- generally, we cannot merge, consolidate, liquidate, transfer or sell all
or substantially all of our assets or materially change our present method
of conducting business;
88
- except for limited sales of obsolete property, sales of inventory in the
ordinary course of business and intra-company sales of capital stock,
generally we cannot sell assets that have a fair market value of more than
$5 million in any fiscal year and $15 million during the term of the
credit agreement;
- except for stock dividends, limited stock repurchases from employees and
intra-company payments, generally we cannot pay dividends or repurchase
our stock;
- we cannot make capital expenditures in excess of the amounts specified in
the credit agreement;
- we are limited in the amount of cash that we can spend on any single
acquisition;
- except for open market purchases of our subordinated notes at a maximum
redemption price of 105% of the original face amount, and as long as
$50 million in aggregate principal amount of notes remains outstanding and
the sum of our cash balances available on hand and amount of available
revolving credit commitment exceeds $15 million, we cannot repay,
repurchase or generally amend our subordinated notes; and
- we cannot enter into any new, unrelated lines of business.
As of December 31, 2000, we are in compliance with all covenants under our
credit agreement.
The credit agreement also provides for customary events of default,
including failure to make payments when due, failure to make interest payments
or payments of fees after a grace period, cross-defaults, violations of
covenants, material inaccuracies of representations and warranties, bankruptcy,
material judgments, invalidity of guaranties or any security document or the
occurence of a change of control. In connection with the credit agreement, we
pledged as collateral substantially all of our and most of our domestic
subsidiaries' tangible and intangible assets, and 65% of the capital stock of
our foreign subsidiaries.
In April 2000, we used $68.2 million of the proceeds from our initial public
offering to repay the remaining term facility (amounting to $37.3 million) and
the U.S. dollar denominated balance (amounting to $30.9 million) of the
revolving credit facility under our credit agreement. In February 2001, we used
$71 million of the proceeds from the sale of Canberra to repay the balance
outstanding on the revolving credit facility.
In February 2001, the credit facility was reduced to $65 million as a result
of the sale of Canberra.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public
market, or the perception that substantial sales may occur, could adversely
affect the prevailing market price of our common stock. After completion of the
offering, there will be 70,928,179 shares of our common stock outstanding. Of
these shares, approximately 38,559,563 shares (40,059,563 shares if the
underwriters' over-allotment options are exercised in full) will be freely
transferable under the Securities Act, including under paragraph (k) of
Rule 144. All the remaining shares of common stock may not be sold unless they
are registered under the Securities Act or are sold pursuant to an exemption
from registration, including an exemption contained in Rule 144 under the
Securities Act.
RULE 144
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who beneficially owns
"restricted securities" may not sell those securities until they have been
beneficially owned for at least one year. Thereafter, the person would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- 1% of the then outstanding shares of common stock (approximately 709,280
shares immediately after the offering); and
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of the sale is filed with the SEC.
Sales under Rule 144 are subject to certain restrictions relating to manner
of sale, notice and the availability of current public information about us and
may be effected only through unsolicited brokers' transactions.
Under Rule 144(k), a person who is not deemed an "affiliate" of us at any
time during the 90 days preceding a sale would be entitled to sell his, her or
its restricted shares under Rule 144 without regard to the volume or other
limitations described above, provided that two years have elapsed since the
restricted shares were acquired from us or one or our affiliates. Immediately
after the offering, substantially all of the shares of our common stock not sold
in this offering will be available for sale under Rule 144(k), subject only to
the restrictions set forth in the Stockholders' Agreement described under
"Related Party Transactions--Stockholders' Agreement," and the lock-up
arrangements described below.
LOCK-UPS
We, our directors, executive officers and principal stockholders have agreed
with the underwriters that, during the period beginning from the date of this
prospectus and continuing to and including the date 90 days after the date of
this prospectus, we, our directors, executive officers and principal
stockholders will not offer, sell, contract to sell or otherwise dispose of any
shares of our common stock or any securities of Packard BioScience Company that
are substantially similar to the shares of the common stock or that are
convertible into or exchangeable for securities which are substantially similar
to the shares of common stock (other than, in the case of Packard BioScience
Company, pursuant to our existing employee benefit plans and, in the case of our
directors and executive officers, an amount equal to 10% of each of their
respective outstanding shares of our common stock as of the date of this
prospectus, excluding shares included in this offering) without the prior
written consent of Merrill Lynch & Co., except for the shares of common stock
offered in connection with the offering. The lock-up agreements by these persons
(other than, in the case of our directors and executive officers, an amount
equal to 10% of each of their respective outstanding shares as of the date of
this prospectus, excluding shares included in this offering) cover over 50% of
the shares of our common stock outstanding prior to the offering.
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STOCK PLANS
We have filed registration statements on Form S-8 to register approximately
9.2 million shares of our common stock that were issuable under our stock plans,
as of March 16, 2001, as described under "Management." As of that time, there
were outstanding options to purchase an aggregate of 5,543,850 shares of our
common stock, 4,407,350 of which were vested. All shares of common stock
issuable upon exercise of options granted or to be granted under our stock plans
are freely tradable without restrictions under the Securities Act, except to the
extent held by one of our affiliates (in which case they will be subject to the
limitations of Rule 144 described above). In addition, we have an obligation to
register the resale of up to approximately 31.2 million shares upon certain
conditions, such as the registration of other shares of our common stock,
including as described under "Related Party Transactions--Registration Rights."
No prediction can be made as to the effect, if any, that market sales of
restricted shares or the availability of restricted shares for sale will have on
the market price of our common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for our common
stock and could impair our future ability to raise capital through an offering
of our equity securities.
OTHER SALES
We have authorized our officers and directors to implement stock sales plans
pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 that are
approved in advance by us. Pursuant to these plans, an individual may sell, on a
periodic basis, up to 10% of his aggregate equity holdings per year, or a
greater amount in the case of Mr. McKernan who has announced his plans to
retire. Sales of stock under these plans are intended to allow officers and
directors to take advantage of the protections offered by Rule 10b5-1 and to
sell a limited number of shares each year for diversification purposes. Once the
plans have been implemented, the officers and directors will not exercise any
discretion as to the timing or pricing of such sales. A number of officers have
notified us of their intention to adopt such plans.
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MATERIAL UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax considerations with respect to the ownership and disposition of
common stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is
any holder other than:
- a citizen or resident of the United States;
- a corporation created or organized in the United States or under the laws
of the United States or of any state thereof (including the District of
Columbia);
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; and
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended, existing and proposed Treasury Regulations promulgated
thereunder, judicial opinions, published positions of the Internal Revenue
Service, and all other applicable authorities, all of which are subject to
change (possibly with retroactive effect). This discussion does not address all
aspects of U.S. federal income and estate taxation or any aspects of state,
local, or non-U.S. taxes, nor does it consider any specific facts or
circumstances that may apply to a particular Non-U.S. Holder that may be subject
to special treatment under the U.S. federal tax laws (such as insurance
companies, tax-exempt organizations, financial institutions, brokers, dealers in
securities, and certain U.S. expatriates). Accordingly, prospective investors
are urged to consult their tax advisors regarding the U.S. federal, state, local
and non-U.S. income and other tax considerations of acquiring, holding and
disposing of shares of common stock.
DIVIDENDS
As described under "Risk Factors," we do not anticipate paying dividends on
our common stock in the foreseeable future. However, if dividends are paid on
the shares of common stock, dividends paid to a Non-U.S. Holder will be subject
to U.S. withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States and, if a treaty applies, are attributable to a
permanent establishment of the Non-U.S. Holder within the United States.
Dividends effectively connected with such a U.S. trade or business and, if a
treaty applies, attributable to such a U.S. permanent establishment of a
Non-U.S. Holder, generally will not be subject to U.S. withholding tax if the
Non-U.S. Holder files certain forms, including Internal Revenue Service
Form W-8ECI (or any successor form), with the payor of the dividend, and
generally will be subject to U.S. federal income tax on a net income basis, in
the same manner as if the Non-U.S. Holder were a resident of the United States.
A Non-U.S. Holder that is a corporation may be subject to an additional branch
profits tax at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty) on the repatriation from the United States of its
"effectively connected earnings and profits," subject to certain adjustments.
Under Treasury Regulations which recently became effective (the "Regulations"),
a Non-U.S. Holder will be required to satisfy certain certification requirements
in order to claim a reduced rate of withholding under an applicable income tax
treaty. In addition, under the Regulations, in the case of common stock held by
a foreign partnership, the certification requirements generally are applied to
the partners of the partnership, unless the partnership agrees to become a
"withholding foreign partnership" and the partnership agrees to provide
specified information. The Regulations also provide "look-through" rules for
tiered partnerships.
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GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax, including by way of withholding, on any gain realized upon the sale or
other disposition of the holder's shares of common stock unless:
- the gain is effectively connected with a trade or business carried on by
the Non-U.S. Holder within the United States and, if a treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Holder (in
which case the branch profits tax discussed above may also apply if the
Non-U.S. Holder is a corporation);
- the Non-U.S. Holder is an individual who holds shares of common stock as a
capital asset and is present in the United States for 183 days or more in
the taxable year of disposition and certain other tests are met;
- the Non-U.S. Holder is subject to tax under the provisions of the Internal
Revenue Code regarding the taxation of certain U.S. expatriates; or
- we are or have been a U.S. real property holding corporation, or USRPHC,
for U.S. federal income tax purposes (which we do not believe that we
currently are, or will become) at any time within the shorter of the
five-year period preceding such disposition and such Non-U.S. Holder's
holding period. If we were or were to become a USRPHC at any time during
this period, gains realized upon a disposition of common stock by a
Non-U.S. Holder that did not directly or indirectly own more than 5% of
the common stock during this period would not be subject to U.S. federal
income tax, provided that common stock is "regularly traded on an
established securities market" (within the meaning of Section 897(c)(3) of
the Code).
ESTATE TAX
Common stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for U.S. federal estate tax purposes) of the United
States at the time of death will be includible in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax treaty
provided otherwise, and therefore may be subject to U.S. federal estate tax.
INFORMATION REPORTING, BACKUP WITHHOLDING AND OTHER REPORTING REQUIREMENTS
We must report annually to the Internal Revenue Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable income tax treaty. Copies
of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S Holder resides or is established.
U.S. backup withholding tax is imposed at the rate of 31% on applicable
payments to persons that fail to furnish the information required under the U.S.
information reporting requirements.
Under the Regulations, the payment of dividends or the payment of proceeds
from the disposition of common stock to a Non-U.S. Holder may be subject to
information reporting and backup withholding unless the recipient satisfies the
certification requirements of the Regulations by proving its non-U.S. status or
otherwise establishes an exemption.
The payment of proceeds from the disposition of common stock to or through a
U.S. office of a broker will be subject to information reporting and backup
withholding, unless the beneficial owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder or otherwise establishes an
exemption (and the broker has no actual knowledge or reason to know that the
beneficial owner is not entitled to such exemption). The payment of proceeds
from the disposition of
93
common stock to or through a Non-U.S. office of a broker generally will not be
subject to backup withholding and information reporting, except as noted below.
In the case of proceeds from a disposition of common stock paid to or though a
non-U.S. office of a broker that is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
- a foreign person 50% or more of whose gross income from certain periods is
effectively connected with a U.S. trade or business; or
- a foreign partnership if at any time during its tax year a) one or more of
its partners are United States persons, as defined for U.S. federal income
tax purposes, who in the aggregate hold more than 50% of the income or
capital interests in the partnership or b) the foreign partnership is
engaged in a U.S. trade or business,
information reporting (but not backup withholding) will apply unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
certain other conditions are satisfied, or the beneficial owner otherwise
establishes an exemption (and the broker has no actual knowledge or reason to
know that the beneficial owner is not entitled to an exemption).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the Internal Revenue
Service in a timely manner.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
PROSPECTIVE NON-U.S. HOLDER OF COMMON STOCK SHOULD CONSULT THAT HOLDER'S OWN TAX
ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF COMMON STOCK.
94
UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
J.P. Morgan Securities Inc., Banc of America Securities LLC and Robert W.
Baird & Co. Incorporated are acting as U.S. representatives of the U.S.
underwriters named below. Subject to the terms and conditions described in a
U.S. purchase agreement among us, the selling stockholders, certain other
stockholders and the U.S. underwriters, and concurrently with the sale of shares
to the international managers, we and the selling stockholders have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase from us and the selling stockholders and concurrently with the sale
of shares to the international managers, the number of shares listed opposite
their names below.
NUMBER
U.S. UNDERWRITER OF SHARES
---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .................................
Credit Suisse First Boston Corporation..................
J.P. Morgan Securities Inc..............................
Banc of America Securities LLC..........................
Robert W. Baird & Co. Incorporated......................
---------
Total......................................... 8,000,000
=========
We, the selling stockholders and certain other stockholders have also
entered into an international purchase agreement with the international managers
for sale of the shares outside the U.S. and Canada for whom Merrill Lynch
International, Credit Suisse First Boston (Europe) Limited, J.P. Morgan
Securities Ltd., Bank of America International Limited and Robert W. Baird & Co.
Incorporated are acting as lead managers. Subject to the terms and conditions in
the international purchase agreement, and concurrently with the sale of shares
to the U.S. underwriters pursuant to the U.S. purchase agreement, we and the
selling stockholders have agreed to sell to the international managers, and the
international managers severally have agreed to purchase 2,000,000 shares from
us and the selling stockholders. The public offering price per share and the
total underwriting discount per share are identical under the international
purchase agreement and the U.S. purchase agreement.
The U.S. underwriters and the international managers have agreed to purchase
all of the shares sold under the U.S. and international purchase agreements if
any of these shares are purchased. If an underwriter defaults, the U.S. and
international purchase agreements provide that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the U.S.
underwriters and the international managers are conditioned on one another.
We and the selling stockholders have agreed to indemnify the U.S.
underwriters and the international managers against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
U.S. underwriters and the international managers may be required to make in
respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
95
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us and the selling stockholders that
the U.S. underwriters propose initially to offer the shares to the public at the
public offering price on the cover page of this prospectus and to dealers at
that price less a concession not in excess of $ per share. The U.S.
underwriters may allow, and the dealers may reallow, a discount not in excess of
$ per share to other dealers. After the offering, the public offering price,
concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Packard BioScience Company and the selling
stockholders. The information assumes either no exercise or full exercise by the
U.S. underwriters and the international managers of their over-allotment
options.
PER SHARE WITHOUT OPTIONS WITH OPTIONS
--------- --------------- ------------
Public offering price........................... $ $ $
Underwriting discount........................... $ $ $
Proceeds, before expenses, to Packard
BioScience.................................... $ $ $
Proceeds to selling stockholders................ $ $ $
The expenses of the offering, not including the underwriting discount, are
estimated at $1.5 million and are payable by us.
OVER-ALLOTMENT OPTIONS
The selling stockholders have granted options to the U.S. underwriters to
purchase up to 1,200,000 additional shares at the public offering price less the
underwriting discount. The U.S. underwriters may exercise this option for
30 days from the date of this prospectus solely to cover any over-allotments. If
the U.S. underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.
The selling stockholders have also granted options to the international
managers, exercisable for 30 days from the date of this prospectus, to purchase
up to 300,000 additional shares to cover any over-allotments on terms similar to
those granted to the U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement. Similarly, the international managers and any
dealer to whom they sell shares will not offer to sell or sell shares to U.S.
persons or Canadian persons or to persons they believe intend to resell to U.S.
or Canadian persons, except in the case of transactions under the intersyndicate
agreement.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and the selling stockholders have
agreed generally, subject to exceptions, not to sell or transfer common stock
for 90 days after the date of this prospectus without
96
first obtaining the written consent of Merrill Lynch. Specifically, we and these
other individuals will agree not to directly or indirectly:
- offer, pledge, sell or contract to sell any common stock;
- sell any options or contract to purchase any common stock;
- purchase any options or contract to sell any common stock;
- grant any options, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition. The restrictions described above do not apply to the
shares sold to the underwriters under this prospectus.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares are quoted on the Nasdaq National Market under the symbol "PBSC."
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the common shares is completed, SEC rules may
limit the underwriters from bidding for or purchasing our common stock. However,
the representatives may engage in transactions that stabilize the price of the
common shares, such as bids or purchases to peg, fix or maintain that price.
The underwriters may purchase and sell the common shares in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover position created by short sales. Short sales involve the sale
by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from selling
stockholders in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases of common shares made by the underwriters in
the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
97
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicated short sales may have the effect of raising or maintaining the
market price of the common shares or preventing or retarding a decline in the
market price of the common shares. As a result, the price of the common shares
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common shares. In addition, neither we nor
any of the underwriters make any representation that the underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act during a period before the commencement of offers or sales of common stock
and extending through the completion of distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of
that security. However, if all independent bids are lowered below the passive
market maker's bid, that bid must then be lowered when specified purchase limits
are exceeded.
ELECTRONIC PROSPECTUS
Merrill Lynch, Pierce, Fenner & Smith Incorporated may facilitate Internet
distribution for this offering to certain of its Internet subscription
customers. Merrill Lynch may allocate a limited number of shares for sale to its
on-line brokerage customers. In this case, an electronic prospectus will be made
available on the web site maintained by Merrill Lynch.
Other than the prospectus in electronic format, the information on the web
site maintained by Merrill Lynch relating to this offering is not intended to be
part of this prospectus.
OTHER RELATIONSHIPS
Banc of America Securities LLC is an affiliate of a lender under our senior
credit facility. Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, other investment banking and other commercial
dealings in the ordinary course of business with us. For example, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated and Bank
of America Securities LLC participated as underwriters in our initial public
offering for which, together with the other underwriters, they received
underwriting fees aggregating $7,560,000. In addition, J.P. Morgan Securities
Inc. and Robert W. Baird & Co. Incorporated provided us with financial advisory
services and received fees in connection with the transactions described under
"Related Party Transactions--Other Related Party Transactions." We believe these
are customary fees and commissions for transactions of this nature.
Messrs. End, Hoecker and Michas, who are Directors of our company, are also
Directors and/or former consultants to Merrill Lynch Capital Partners, Inc.,
which is associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated.
They have received, and may in the future receive, customary fees in connection
with these consulting services.
In addition, affiliates of Robert W. Baird & Co. Incorporated own an
aggregate of 1,373,030 shares of our common stock and affiliates of Merrill
Lynch, Pierce, Fenner & Smith Incorporated own an aggregate of 1,123,590 shares
of our common stock. Further, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC, J.P. Morgan Securities Inc. and
Robert W. Baird & Co. Incorporated are affiliates of Limited Partners of the
Stonington Capital Appreciation 1994 Fund, L.P. George Montgomery, an employee
of Chase Securities Inc., which is an affiliate of J.P. Morgan Securities Inc.,
also owns 50,000 shares of our common stock.
98
LEGAL MATTERS
The validity of the shares of common stock will be passed upon for us by
Wachtell, Lipton, Rosen & Katz, New York, New York, for the selling shareholders
by Day, Berry & Howard, Hartford, Connecticut, and for the underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Packard BioScience
Company as of December 31, 1999 and 2000 and for each of the years in the
three-year period ended December 31, 2000 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
Ernst & Young LLP, independent auditors, have audited the statements of net
assets sold of GSLI Life Sciences as of December 31, 1998 and 1999 and the
statements of net sales, cost of sales and direct operating expenses for the
years then ended as set forth in their report. These financial statements are
included in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act and we file reports, proxy and information statements and other information
with the SEC. You may inspect and copy these reports, proxy and information
statements and other information at the public reference facilities maintained
by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the SEC's Regional Offices located at Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of these materials may be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. You may call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference room. The SEC also
maintains a world wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
such as us which file electronically with the SEC. The registration statement,
including all exhibits thereto and amendments thereof, is available on that Web
site.
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered in this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to that registration statement. For
further information with respect to us and our common stock, we refer you to the
registration statement and its exhibits and schedules. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
that contract or document filed as an exhibit to the registration statement,
each of these statements being qualified in all respects by that reference. The
registration statement, including exhibits, schedules and amendments thereto,
may be inspected and copied at the locations described above, or obtained upon
payment of fees prescribed by the SEC.
99
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
PACKARD BIOSCIENCE COMPANY
Audited Consolidated Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000.................................................... F-3
Consolidated Statements of Income (Loss) for the Years
Ended December 31, 1998, 1999 and 2000.................. F-4
Consolidated Statements of Comprehensive Income (Loss) for
the Years Ended December 31, 1998, 1999 and 2000........ F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1999 and 2000.... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000........................ F-8
Notes to Consolidated Financial Statements................ F-9
GSI LUMONICS, INC.--LIFE SCIENCES BUSINESS
Independent Auditors' Report................................ F-32
Statements of Net Assets Sold as of December 31, 1998 and
1999 and September 30, 2000 (unaudited)................... F-33
Statements of Net Sales, Cost of Sales and Direct Operating
Expenses for Years Ended December 31, 1998 and 1999 and
the Nine Months Ended September 30, 1999 and 2000
(unaudited)............................................... F-34
Notes to Financial Statements............................... F-35
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Packard BioScience Company:
We have audited the accompanying consolidated balance sheets of Packard
BioScience Company (a Delaware corporation) and subsidiaries as of December 31,
1999 and 2000, and the related consolidated statements of income (loss),
comprehensive income (loss), stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Packard BioScience Company
and subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 8, 2001, except
for the second paragraph of Note 1
and all of Note 15 as to which the
date is February 28, 2001
F-2
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,432 $ 13,294
Accounts receivable, net.................................. 34,163 32,578
Inventories, net.......................................... 18,791 22,129
Deferred income taxes..................................... 3,695 15,089
Net current assets of discontinued operations (Note 15)... 31,382 31,868
Other..................................................... 3,558 6,700
-------- --------
Total current assets.................................... 96,021 121,658
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements..................................... 1,175 1,329
Buildings and improvements................................ 10,271 10,438
Machinery, equipment and furniture........................ 13,358 15,793
-------- --------
24,804 27,560
Less: Accumulated depreciation............................ (11,560) (13,208)
-------- --------
13,244 14,352
-------- --------
OTHER ASSETS:
Goodwill, net of accumulated amortization................. 19,855 115,010
Deferred financing costs, net of accumulated
amortization............................................ 6,801 4,196
Investments............................................... 797 2,116
Net noncurrent assets of discontinued operations (Note
15)..................................................... 36,428 36,709
Deferred income taxes..................................... -- 3,828
Other..................................................... 9,412 8,223
-------- --------
73,293 170,082
-------- --------
$182,558 $306,092
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable............................................. $ 2,429 $ 1,884
Current portion of long-term debt......................... 1,787 1,183
Accounts payable.......................................... 12,759 11,697
Accrued liabilities....................................... 20,893 19,019
Accrued acquisition payments.............................. 4,930 5,409
Income taxes payable...................................... 3,997 1,622
Deferred income........................................... 10,660 9,485
-------- --------
Total current liabilities............................... 57,455 50,299
-------- --------
LONG-TERM DEBT, less current portion........................ 225,710 169,344
-------- --------
DEFERRED INCOME TAXES....................................... 4,471 --
-------- --------
OTHER NONCURRENT LIABILITIES................................ 2,812 3,176
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 15)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock (68,515,515 and 81,997,215 shares issued and
46,268,825 and 67,631,019 shares outstanding as of
December 31, 1999 and 2000, respectively)............... 137 164
Paid-in capital........................................... 1,827 168,562
Accumulated deficit....................................... (12,895) (22,469)
Accumulated other comprehensive income (cumulative
translation adjustment)................................. 527 65
-------- --------
(10,404) 146,322
Treasury stock, at cost................................... (96,920) (62,718)
Deferred compensation..................................... (566) (331)
-------- --------
(97,486) (63,049)
-------- --------
Total stockholders' equity (deficit).................... (107,890) 83,273
-------- --------
$182,558 $306,092
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1999 2000
-------- -------- --------
Net product sales........................................... $ 93,796 $94,989 $101,811
Service revenue............................................. 25,457 33,026 31,365
Chemicals and supplies sales................................ 26,982 30,875 32,199
-------- ------- --------
146,235 158,890 165,375
-------- ------- --------
Cost of product sales....................................... 37,550 38,260 39,120
Other costs of product sales (Note 12)...................... -- 2,703 --
Service expense............................................. 19,787 25,614 23,840
Cost of chemicals and supplies sales........................ 10,253 11,733 10,679
Amortization of acquired inventory step-up (Note 11)........ 1,500 -- --
-------- ------- --------
69,090 78,310 73,639
-------- ------- --------
Gross profit.............................................. 77,145 80,580 91,736
Research and development expenses........................... 23,160 22,796 28,358
Selling, general and administrative expenses (Note 5)....... 37,844 42,020 53,229
Purchased in-process research and development charges
(Note 11)................................................. 6,120 -- 12,100
Other operating expense (income), net (Note 13)............. (10,753) -- 1,881
-------- ------- --------
Income (loss) from operations............................. 20,774 15,764 (3,832)
Interest expense (Note 15).................................. (21,097) (22,425) (19,098)
Interest income............................................. 460 331 1,296
Gain on sale of equity securities (Note 1).................. 3,155 -- --
-------- ------- --------
Income (loss) from continuing operations before provision
for income taxes and extraordinary items, net........... 3,292 (6,330) (21,634)
(Provision for) benefit from income taxes................... (2,437) (1,620) 10,791
-------- ------- --------
Income (loss) from continuing operations before
extraordinary items, net................................ 855 (7,950) (10,843)
Income from discontinued operations, net of income taxes.... 1,050 7,752 4,106
-------- ------- --------
Income (loss) before extraordinary items, net............. 1,905 (198) (6,737)
Extraordinary items, net of income taxes.................... -- -- 369
-------- ------- --------
Net income (loss)......................................... $ 1,905 $ (198) $ (6,368)
======== ======= ========
Basic and Diluted Per Share Information:
Income (loss) from continuing operations.................. $ 0.02 $ (0.17) $ (0.19)
Income from discontinued operations, net.................. 0.02 0.17 0.07
Extraordinary items, net.................................. -- -- 0.01
-------- ------- --------
Net income (loss)......................................... $ 0.04 $ (0.00) $ (0.11)
======== ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
-------- -------- --------
Net income (loss)........................................... $1,905 $ (198) $ (6,368)
------ ------- --------
Other comprehensive income (loss):
Foreign currency translation adjustments.................. 1,792 (921) 462
Unrealized investment income (loss), net of income
taxes................................................... (990) -- --
Reclassification adjustments, net......................... (1,895) -- --
------ ------- --------
Other comprehensive income (loss)........................... (1,093) (921) 462
------ ------- --------
Comprehensive income (loss)................................. $ 812 $(1,119) $ (5,906)
====== ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK CUMULATIVE UNREALIZED TREASURY STOCK
------------------- PAID-IN TRANSLATION INVESTMENT ACCUMULATED ----------------------- DEFERRED
SHARES AMOUNT CAPITAL ADJUSTMENT GAINS, NET DEFICIT SHARES AMOUNT COMPENSATION
---------- ------- -------- ----------- ---------- ----------- ----------- ---------- ------------
BALANCE,
December 31,
1997.............. 68,609,115 $ 137 $ -- $ (344) $ 2,885 $(10,220) 23,583,245 $ (103,448) $(1,024)
Net shares forfeited
in connection with
restricted stock
plan including
deferred
compensation and
amortization...... (40,500) (36) 229
Shares issued in
connection with
exercise of stock
options, including
related tax
benefits.......... 2,000 (406) (215,515) 932
Purchase of treasury
stock............. 82,140 (227)
Sale of treasury
stock............. (108) (50,000) 219
Issuance of shares
in connection with
acquisitions...... (1,147) (580,230) 3,183
Change during
year.............. 1,792
Unrealized
investment gains,
net of income
taxes............. (2,885)
Net income.......... 1,905
---------- ------ -------- ------ ---------- -------- ----------- ---------- -------
BALANCE,
December 31,
1998.............. 68,570,615 $ 137 $ -- $1,448 $ -- $(10,012) 22,819,640 $ (99,341) $ (795)
Net shares forfeited
in connection with
restricted stock
plan including
deferred
compensation and
amortization...... (55,100) (57) 229
Net shares issued in
connection with
exercise of stock
options, including
related tax
benefits.......... (2,628) (1,101,215) 4,821
Compensation expense
recognized in
connection with
grant of stock
options........... 1,827
Purchase of treasury
stock............. 528,265 (2,400)
Change during
year.............. (921)
Net loss............ (198)
---------- ------ -------- ------ ---------- -------- ----------- ---------- -------
BALANCE,
December 31,
1999.............. 68,515,515 $ 137 $ 1,827 $ 527 $ -- $(12,895) 22,246,690 $ (96,920) $ (566)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK CUMULATIVE TREASURY STOCK
------------------- PAID-IN TRANSLATION ACCUMULATED ----------------------- DEFERRED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT SHARES AMOUNT COMPENSATION
---------- ------- -------- ----------- ----------- ----------- ---------- ------------
BALANCE,
December 31,
1999.............. 68,515,515 $ 137 $ 1,827 $ 527 $(12,895) 22,246,690 $ (96,920) $ (566)
Net shares forfeited
in connection with
restricted stock
plan including
deferred
compensation and
amortization...... (40,500) (68) 235
Net shares issued in
connection with
exercise of stock
options, including
related tax
benefits.......... 2,271 (3,206) (3,331,645) 14,378
Sale of common
stock, net of
expenses.......... 13,522,200 27 110,415 (90,138) 391
Issuance of shares
in connection with
acquisition....... 45,628 (4,495,711) 19,558
Compensation expense
recognized in
connection with
grant of stock
options, gifted
common stock and
accelerated stock
option vesting.... 8,489
Purchase of treasury
stock............. 37,000 (125)
Change during
year.............. (462)
Net loss............ (6,368)
---------- ------ -------- ------ -------- ----------- ---------- -------
BALANCE,
December 31,
2000.............. 81,997,215 $ 164 $168,562 $ 65 $(22,469) 14,366,196 $ (62,718) $ (331)
========== ====== ======== ====== ======== =========== ========== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
-------- -------- --------
OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss)........................................... $ 1,905 $ (198) $ (6,368)
Adjustments to reconcile net income (loss) to income (loss)
from continuing operations:
Income from discontinued operations, net of income
taxes.................................................. (1,050) (7,752) (4,106)
-------- ------- --------
Income (loss) from continuing operations, including
extraordinary items.................................... 855 (7,950) (10,474)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation and amortization of intangibles.............. 5,822 6,811 8,515
Amortization of deferred financing costs.................. 1,545 1,545 1,202
Other costs of product sales (Note 12).................... -- 2,703 --
Purchased in-process research and development charges
(Note 11)............................................... 6,120 -- 12,100
Amortization of acquired inventory step-up (Note 11)...... 1,500 -- --
Non-cash stock compensation charges (Note 5).............. -- 1,037 4,724
Non-cash deferred financing fees write-off (Note 14)...... -- -- 2,593
Write-off of impaired assets and other charges (Note
13)..................................................... -- -- 1,881
Gain on sale of equity securities......................... (3,155) -- --
Deferred income taxes, net................................ (731) 25 (15,010)
Other, net................................................ 253 (202) 676
Changes in assets and liabilities excluding effects of
acquisitions:
Decrease (increase) in accounts receivable.............. (212) (2,526) 5,728
Increase in inventories................................. (1,254) (3,431) (1,304)
Decrease (increase) in other current assets............. 160 (89) (2,921)
Increase in other noncurrent operating assets........... (3,006) (460) (1,382)
Increase (decrease) in accounts payable and other
accrued expenses....................................... (4,692) (2,051) (7,514)
(Decrease) increase in deferred income.................. 1,940 3,271 (1,832)
(Decrease) increase in other noncurrent liabilities..... 658 2,172 725
-------- ------- --------
Net cash provided by (used for) continuing operations... 5,803 855 (2,293)
Net cash provided by discontinued operations............ 7,156 5,630 12,762
-------- ------- --------
Net cash provided by operating activities............... 12,959 6,485 10,469
-------- ------- --------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Acquisition of businesses, net of acquired cash............. (11,123) (4,546) (49,199)
Investments in equity securities............................ (68) -- (1,255)
Capital expenditures........................................ (4,992) (5,946) (6,384)
Product lines, patent rights and licenses acquired.......... (2,889) (1,292) (1,794)
Proceeds from sale of investments........................... 4,181 -- --
Proceeds from sale of fixed assets.......................... -- -- 302
-------- ------- --------
Net cash used for continuing operations................. (14,891) (11,784) (58,330)
Net cash used for discontinued operations............... (2,124) (28,017) (3,638)
-------- ------- --------
Net cash used for investing activities.................. (17,015) (39,801) (61,968)
-------- ------- --------
FINANCING ACTIVITIES:
Borrowings of long-term debt................................ 41,500 57,388 79,820
Repayments of long-term debt................................ (43,058) (22,700) (135,218)
Purchase of treasury stock.................................. (121) (281) (125)
Proceeds from sale of treasury stock........................ 481 299 263
Proceeds from sale of common stock.......................... -- -- 110,028
(Decrease) increase in notes payable to banks............... 1,291 174 (301)
Proceeds from exercise of stock options, including tax
benefits.................................................. 57 -- 7,132
-------- ------- --------
Net cash provided by (used for) financing activities.... 150 34,880 61,601
-------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 1,260 (1,917) (1,528)
-------- ------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (2,646) (353) 8,574
CASH AND CASH EQUIVALENTS, beginning of year................ 10,575 7,929 7,576
-------- ------- --------
7,929 7,576 16,150
Cash of discontinued operations............................. (1,322) (3,144) (2,856)
-------- ------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 6,607 $ 4,432 $ 13,294
======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 20,718 $20,986 $ 17,492
======== ======= ========
Income taxes............................................ $ 4,616 $ 5,050 $ 5,175
======== ======= ========
NON-CASH TRANSACTIONS:
Stock received in connection with cashless option exercise
(Note 5).................................................. $ -- $ 1,411 $ --
======== ======= ========
Stock issued in connection with acquisitions (Note 11)...... $ 1,620 $ -- $ 65,184
======== ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Packard BioScience Company, a Delaware corporation, and subsidiaries (the
"Company") is a leading global developer, manufacturer and marketer of
instruments and related consumables and services for use in drug discovery and
life sciences research.
On February 27, 2001, the Company sold its Canberra division to COGEMA, S.A.
for $170 million. The net proceeds, after estimated income taxes payable and
cash expenses directly related to the sale and after repurchases of options held
by Canberra employees, were approximately $130 million. On February 28, 2001,
the Company used $71 million of the proceeds to repay the outstanding balance on
its credit facility. The accompanying consolidated financial statements have
been reclassified to reflect the net assets and operating results of the
Canberra operating segment as a discontinued operation. The amounts below relate
only to the Company's continuing operations unless otherwise noted.
As a result of the sale of Canberra, the Company now operates and is managed
as a single segment for financial reporting purposes.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Packard BioScience Company and its majority-owned subsidiaries prepared in
accordance with accounting principles generally accepted in the United States.
All significant intercompany accounts and transactions have been eliminated.
FOREIGN OPERATIONS
The Company translates foreign currency financial statements using the
current rate method. Translation gains and losses are recorded as a separate
component of stockholders' equity (deficit), cumulative translation adjustment.
Gains and losses result from transactions which are denominated in other than
functional currencies. Such gains and losses are included in cost of product
sales in the accompanying consolidated statements of income (loss).
The Company purchases various foreign currency forward contracts primarily
for the purpose of hedging firm inventory purchase commitments. The Company
recognizes gains and losses from the settlement of forward contracts in the
consolidated statements of income (loss). As of December 31, 1999 and 2000, the
Company had total forward contracts outstanding of approximately $2,300,000 and
$5,359,000, respectively, whose settlement prices approximated year end exchange
rates. The following table summarizes by currency the outstanding forward
contracts as of December 31, 1999 and 2000 (in thousands):
1999 2000
-------- --------
Japanese Yen................................................ $2,000 $ 900
British Pound Sterling...................................... -- 2,000
German Deutschmark.......................................... -- 1,609
French Franc................................................ -- 600
All other................................................... 300 250
------ ------
$2,300 $5,359
====== ======
F-9
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The forward contracts outstanding at December 31, 2000 mature at various
times through July 2001. Transaction gains (losses), inclusive of forward
contracts settled, were $264,000, ($589,000) and ($266,000) in 1998, 1999 and
2000, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. A reserve for potential nonsaleable inventory due to
excess stocks or obsolescence is provided based upon a detailed review of
inventory components, past history and expected future usage.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Machinery, equipment,
furniture and leasehold improvements are depreciated using the straight-line
method over their estimated useful lives or term of the lease, if shorter,
ranging from 2 to 20 years. Buildings and improvements are depreciated over 5 to
40 years using the straight-line method.
GOODWILL, NET OF AMORTIZATION
The Company estimates the life of goodwill for each individual acquisition
based upon the nature of the operations and the core technologies acquired.
Goodwill included in the accompanying consolidated balance sheets is being
amortized over 20 to 40 years, representing the estimated period to be
benefited. As of December 31, 1999 and 2000, accumulated amortization was
approximately $1,167,000 and $3,253,000, respectively.
DEFERRED FINANCING COSTS, NET OF AMORTIZATION
Deferred financing costs includes the portion of fees incurred by the
Company for issuance of debt instruments in connection with its 1997
Recapitalization, including the initial purchasers' discount (see Note 10). Such
costs are being amortized over the average life of the debt to which they
relate, ranging from 5 to 10 years (see Note 14). Accumulated amortization of
deferred financing costs was $4,378,000 and $5,580,000 as of December 31, 1999
and 2000, respectively.
INVESTMENTS
During 1998, the Company held investment securities of a publicly traded
company. Such investments were available for sale and, as such, all unrealized
gains and losses were reflected in a separate component of stockholders' equity
(deficit), net of income taxes. Such investments were sold during 1998 for a
gain of $3,155,000.
F-10
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATENT RIGHTS AND LICENSE ACQUISITIONS
The Company capitalizes amounts paid for patent rights and licenses acquired
to manufacture and sell certain products. These amounts are amortized over the
lives of the respective agreements or the estimated lives of the related
products, if shorter. The amortization periods range from 3 to 10 years. As of
December 31, 1999 and 2000, the Company had an unamortized balance of $5,489,000
and $4,738,000, respectively, associated with patent rights and license
acquisitions, which amounts were reflected in other assets in the accompanying
consolidated balance sheets.
LONG-LIVED ASSETS
The Company reviews long-lived assets, including identifiable intangible
assets, to be held and used (including capitalized costs related to licenses)
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the expected future cash
flows (undiscounted and without interest) are less than the carrying value of
the asset, an impairment loss is recognized. Impairment losses are measured as
the difference between the carrying value of the asset, including goodwill if
applicable, and the fair value of the asset. If goodwill was identified with
assets subject to an impairment loss, the loss would first be applied to reduce
any goodwill. As of December 31, 1999 and 2000, the Company believes there was
no impairment of the long-lived assets as reported in the accompanying
consolidated balance sheets. Refer to Notes 12 and 13 for a description of the
Company's write-off of certain long-lived assets during 1999 and 2000. None of
the assets written-off were acquired in a business combination.
REVENUE RECOGNITION AND DEFERRED INCOME
The Company generates revenues from the sale of products and related
consumables and service revenue. The Company provides installation for certain
product sales. Since installation for the product sales is deemed
inconsequential and perfunctory, as defined in Staff Accounting Bulletin 101,
and when customer acceptance provisions exist, the Company can demonstrate that
the product meets such specifications prior to shipment, product revenue is
recognized when delivery has occurred and title has transferred. Estimated costs
of installation are accrued when product revenue is recognized. When the Company
is unable to demonstrate that the product meets customer specifications before
shipment, no revenue is recorded until customer acceptance has occurred.
When the Company's instruments contain embedded software which is not deemed
to be incidental to the product, the sale falls within the scope of SOP 97-2
"Software Revenue Recognition." In these cases, since the product and the
embedded software are delivered at the same time, there are no extended payment
terms and no significant obligations remain, revenue on the product and software
are recognized when the related product is delivered and title has transferred.
Revenues from service contracts are recognized on a straight-line basis over
the contract period. Deferred income results from the advance billing of certain
field service maintenance contracts and other customer advances.
F-11
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHIPPING AND HANDLING REVENUES AND EXPENSES
Shipping and handling revenues are included in net product sales and
shipping and handling expenses are included in selling, general and
administrative expenses in the accompanying consolidated statements of income
(loss). Shipping and handling expenses were $2,100,000, $2,400,000 and
$2,500,000, for the years ended December 31, 1998, 1999 and 2000, respectively.
WARRANTY
The Company generally provides a warranty for one year subsequent to
installation of its product. The Company accrues for the estimated cost of the
warranty at the time of sale of the related product.
INCOME TAXES
The Company uses an asset and liability approach for financial accounting
and reporting of income taxes. The provision for income taxes includes Federal,
foreign and state income taxes currently payable and those deferred because of
temporary differences between income reported for tax and financial statement
purposes.
The Company has not provided for possible U.S. taxes on undistributed
earnings of foreign subsidiaries that are considered to be reinvested
indefinitely. Undistributed earnings of foreign subsidiaries considered to be
reinvested indefinitely amounted to $11,043,000 and $18,980,000 at December 31,
1999 and 2000, respectively. If and when earnings are repatriated, credit for
foreign taxes already paid on subsidiary earnings and withholdings may offset a
portion of applicable U.S. income taxes.
EARNINGS PER SHARE
Basic earnings per share is computed based upon the weighted average shares
outstanding during each of the periods presented. Diluted earnings per share is
computed based upon the weighted average shares outstanding during each of the
periods presented, including the impact of outstanding options, determined under
the treasury stock method, to the extent their inclusion is dilutive. Basic and
diluted weighted average shares outstanding during the years ending
December 31, 1998, 1999 and 2000 are as follows:
1998 1999 2000
---------- ---------- ----------
Basic weighted average shares outstanding................ 45,574,160 45,803,495 58,442,738
Dilutive effect of outstanding stock options............. 2,109,225 -- --
---------- ---------- ----------
Diluted weighted average shares outstanding.............. 47,683,385 45,803,495 58,442,738
========== ========== ==========
For 1999 and 2000, 4,651,965 and 3,901,931 of common stock equivalents,
respectively, were excluded from diluted weighted average shares outstanding as
their effect was antidilutive.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported
F-12
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the reporting periods. Operating results in the
future could vary from the amounts derived from management's estimates and
assumptions.
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value as of December 31, 1999 and 2000:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.
NOTES PAYABLE--The fair value of the Company's notes payable are estimated
to approximate recorded amounts due to the relative short maturity.
LONG-TERM DEBT--The fair value of the Company's long-term debt is estimated
based on the quoted market prices for similar issues or on the current rates
offered to the Company for obligations with the same remaining maturities.
The estimated fair value of the Senior Subordinated Notes (see Note 4) was
$137,175,000 and $105,149,000 at December 31, 1999 and 2000, respectively,
based upon quoted terms at those dates. The estimated fair value of all
other long-term debt approximated their carrying amount.
FOREIGN CURRENCY CONTRACTS--The fair value of foreign currency contracts
(primarily used for hedging firm commitments) is estimated by obtaining
closing rates and comparing them to the actual contract rates. The total
value of the open contracts approximated the estimated fair value.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes the accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 was amended by SFAS No. 138. The Company purchases forward
contracts to cover foreign exchange fluctuation risks on intercompany sales to
certain of its foreign operations which are not designated as hedging
instruments under SFAS No. 133, as amended. Effective January 1, 2001, the
Company will reflect such forward contracts in its consolidated financial
statements at their current market values based upon the actual exchange rates
in effect as compared to the forward contracted rates. Any resulting gains and
losses will be reflected in the Company's consolidated statements of income.
This statement is not expected to have a material effect on the Company's
consolidated operating results or financial position upon adoption. As of
December 31, 2000, there were unrealized losses totaling $0.2 million on
outstanding foreign currency forward contracts.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101, among other things, provides guidance on revenue
recognition when customer acceptance and installation provisions exist. The
Company has quantified the impact of adopting SAB No. 101 and the effect on the
F-13
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's consolidated financial position and results of operations is DE
MINIMIS since the Company's previous revenue recognition policies substantially
complied with SAB No. 101. Accordingly, no cumulative catch-up adjustment was
recorded as of January 1, 2000. As of December 31, 2000, revenue has been
recorded in accordance with SAB No. 101 and remaining installation costs of
$63,000 have been accrued.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44),
"Accounting for Certain Transactions Involving Stock Compensation (an
Interpretation of APB Opinion No. 25)." This interpretation clarifies the
definition of employee for purposes of applying Opinion 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. The stock compensation charges included in the
accompanying consolidated statements of income (loss) were recorded in
accordance with the provisions of this interpretation after the effective dates
of the interpretation and with Opinion 25 prior to the effective dates of
FIN 44.
2. ACCOUNTS RECEIVABLE, NET
Accounts receivable are net of allowances for doubtful accounts totaling
$421,000 and $505,000 as of December 31, 1999 and 2000, respectively.
3. INVENTORIES
Inventories consisted of the following at December 31, 1999 and 2000 (in
thousands):
1999 2000
-------- --------
Raw materials and parts................................... $12,094 $11,330
Work in progress.......................................... 644 1,022
Finished goods............................................ 9,315 12,427
------- -------
22,053 24,779
Excess and obsolete reserves.............................. (3,262) (2,650)
------- -------
$18,791 $22,129
======= =======
F-14
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
4. LONG-TERM DEBT
The Company had the following long-term debt at December 31, 1999 and 2000,
as described below (in thousands):
As of December 31, 1999:
INTEREST RATE MATURITY CURRENT LONG-TERM TOTAL
--------------------- --------- -------- --------- --------
Senior subordinated notes........... 9.375% 2007 $ -- $150,000 $150,000
Term loan........................... Eurodollar+2.75% 2003 400 36,965 37,365
Revolving credit facility:
Borrowings denominated in U.S.
dollars......................... Eurodollar+2.375% 2002 -- 8,425 8,425
Borrowings denominated in other
currencies...................... Cost of funds+2.375% 2002 -- 28,513 28,513
Notes payable....................... 3.9%-4.0% 2000 2,429 -- 2,429
Other obligations................... 1.875%-10.0% 2000-2004 1,387 1,807 3,194
-------- -------- --------
$ 4,216 $225,710 $229,926
======== ======== ========
As of December 31, 2000:
INTEREST RATE MATURITY CURRENT LONG-TERM TOTAL
------------------- --------- -------- --------- --------
Senior subordinated notes............. 9.375% 2007 $ -- $118,145 $118,145
Revolving credit facility:
Borrowings denominated in U.S.
dollars........................... Eurodollar+2.75% 2005 -- 26,000 26,000
Borrowings denominated in other
currencies........................ Cost of funds+1.75% 2005 -- 25,116 25,116
Notes payable......................... 5.90% 2001 1,884 -- 1,884
Other obligations..................... 7.25%-8.30% 2001-2005 1,183 83 1,266
-------- -------- --------
$ 3,067 $169,344 $172,411
======== ======== ========
During 1997, the Company issued $150,000,000 principal amount of 9.375%
senior subordinated notes (the "Senior Subordinated Notes") due March 1, 2007.
The proceeds received from the sale of the Senior Subordinated Notes, net of
initial purchasers' discount of $4,500,000, were used to repay certain of the
outstanding indebtedness under previous obligations and to repurchase certain of
the Company's outstanding common stock (see Note 10). The initial purchasers'
discount is reflected as deferred financing costs in the accompanying
consolidated balance sheets and is being amortized over the term of the Senior
Subordinated Notes (10 years).
The Senior Subordinated Notes are redeemable, at the option of the Company,
after March 1, 2002, at rates starting at 104.688% of the principal amount
reduced annually through March 1, 2004, at which time they become redeemable at
100% of the principal amount. According to the terms of the Senior Subordinated
Notes, if a change of control occurs, as defined, each holder of Senior
Subordinated Notes will have the right to require the Company to repurchase such
holder's Senior Subordinated Notes at 101% of the principal amount thereof.
Other circumstances exist under the terms of the Senior Subordinated Notes which
would permit or require the Company to partially redeem the Senior Subordinated
Notes earlier than their stated maturity date (see Note 15).
F-15
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
During 1997, the Company also entered into a senior credit agreement (the
"Credit Agreement" and together with the Senior Subordinated Notes, the
"Financings") with a group of banks which provided for a $40,000,000 term loan
and availability of up to $75,000,000 in a revolving credit facility with a
sub-limit for letters of credit up to $11,000,000 in the aggregate. The term
loan was to mature in 2003 and bore interest, at the Company's option, at the
customary base rate (defined as a certain bank's reference rate, or the federal
funds rate plus 0.5%, whichever is higher), plus 1.75% (adjusted downward if the
Company achieved certain financial ratio levels), or at the customary reserve
adjusted Eurodollar rate plus 2.75%. On U.S. dollar denominated borrowings, the
revolving credit facility bore interest, at the Company's option, at the
customary base rate plus 1.375%, or at the customary reserve adjusted Eurodollar
rate plus 2.375% (adjusted downward if the Company achieved certain financial
ratio levels). Outstanding borrowings on the revolving credit facility which are
denominated in currencies other than the U.S. dollar bore interest at the cost
of funds rate plus 2.375% (adjusted downward if the Company achieved certain
financial ratio levels). Cost of funds on non-U.S. dollar borrowings represents
the rate at which deposits in the applicable currency would be offered by banks
participating in the revolving credit facility. A maximum of $50 million could
be borrowed in currencies other than the U.S. dollar. The credit agreement also
provided for a commitment fee of 0.5% (adjusted downward if the Company achieves
certain financial ratio levels) on any unused portion of the revolving credit
facility. At December 31, 2000, the Eurodollar rate and cost of funds rate were
6.62% and 4.90%-6.00%, respectively.
In August 2000, the Company amended and restated the Credit Agreement (the
"Amended Credit Agreement"). The Amended Credit Agreement eliminated the term
loan and increased the revolving credit borrowing capacity from $75 million to
$100 million. However, upon completion of the sale of Canberra (see Note 15),
the facility was reduced to $65 million. Under the terms of the Amended Credit
Agreement, the outstanding revolving credit facility balance, if any, is due and
payable on August 17, 2005. The Amended Credit Agreement modified certain of the
financial covenants, including the calculation of the Company's consolidated
leverage ratio. The maximum allowable consolidated leverage ratio, as defined,
was 4 to 1 at December 31, 2000 and declines to 3 to 1 on December 31, 2004. As
of December 31, 2000, the Company was in compliance with all covenants.
Revolving credit borrowings bear interest at rates within a range, subject to
the consolidated leverage ratio which the Company achieves. U.S. dollar
denominated borrowings bear interest, at the Company's option, at the customary
base rate plus 0.25% to 1.75% or the Eurodollar rate plus 1.25% to 2.75%.
Borrowings in currencies other than the U.S. dollar bear interest at the cost of
funds rate plus 1.75%. The Amended Credit Agreement requires a 0.5% commitment
fee, adjusted downward if the Company achieves a consolidated leverage ratio of
2 to 1 or less. In connection with the Amended Credit Agreement, the Company
pledged as collateral substantially all of the tangible and intangible assets of
the Company and its active domestic subsidiaries and 65% of the capital stock of
the Company's foreign subsidiaries.
The Financings contain certain financial covenants including, but not
limited to, a minimum fixed charge ratio test, a minimum interest ratio test and
a maximum leverage ratio and limitations on capital expenditures and technology
acquisitions. The Company is prohibited by the Financings from paying any cash
dividends and is limited in the amount of capital stock that it may repurchase,
the incurrence of additional indebtedness and liens or dispositions of assets by
the Company.
F-16
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Notes payable existing at December 31, 1999 and 2000, consisted of amounts
outstanding under overseas lines of credit which permitted maximum borrowings of
approximately $5,800,000 and $3,500,000, respectively. Borrowings are due on
demand. At December 31, 1999 and 2000, $2,429,000 and $1,884,000, respectively,
were outstanding under these arrangements with interest rates ranging from 3.9%
to 4.0% at December 31, 1999 and 5.9% at December 31, 2000. The weighted average
interest rates on these borrowings were 4.3% and 5.9% in 1999 and 2000,
respectively. The maximum amount outstanding on overseas lines of credit during
1999 and 2000 was $2,429,000 and $3,471,000, respectively.
As of December 31, 2000, aggregate principal payments of long-term debt
during the next five years ending December 31 and thereafter are as follows (in
thousands):
2001........................................................ $ 3,067
2002........................................................ 49
2003........................................................ 24
2004........................................................ 2
2005........................................................ 51,124
Thereafter.................................................. 118,145
--------
Total....................................................... $172,411
========
5. COMMON STOCK AND STOCK OPTIONS
At December 31, 2000, the Company had 200,000,000 shares of authorized
common stock with a par value of $.002 per share and 1,000,000 shares of
authorized preferred stock. On March 20, 2000, the Company's Board of Directors
approved a 5-for-1 split of the Company's common stock. All share and per share
information has been restated to reflect the effect of the split.
On April 19, 2000, the Company completed a public sale of 13.5 million
shares of the Company's common stock (the "Offering"). The Offering raised
approximately $110 million after consideration of the underwriters'
over-allotment and expenses associated with the Offering. The Company utilized a
portion of the proceeds from the Offering to repay the balance outstanding on
the term loan and to reduce the amount outstanding on the U.S. dollar
denominated portion of its revolving credit facility. Additionally, the Company
used a portion of the proceeds for open market purchases of its Senior
Subordinated Notes (see Note 14). The Offering did not result in a change in
control, as defined in the Senior Subordinated Notes. Accordingly, the Company
was not required to repurchase any Senior Subordinated Notes as a result of the
Offering. Upon consummation of the Offering, the Management Stockholders' right
to require the Company to purchase common stock and options held by such
Management Stockholders terminated.
In March 2000, certain members of the Company's management transferred by
gift 113,700 shares of their own Company common stock to substantially all of
the Company's employees who on the date of the gifting did not own shares or
options to purchase shares of the Company's stock. This resulted in non-cash
compensation charges to the Company of $0.6 million and $0.4 million for
continuing and discontinued operations, respectively, in the quarter ending
March 31, 2000.
F-17
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
5. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
The Company has granted non-qualified stock options to selected employees
under the Canberra Industries, Inc. Stock Option Plan of 1971, as amended (the
"1971 Plan") and the Management Stock Incentive Plan (the "1997 Plan") of 1997.
In connection with the 1997 Recapitalization, the 1971 Plan was frozen and no
additional options can be granted from this plan. There were 5,319,100 options
outstanding under the 1997 Plan as of December 31, 2000. The 1997 Plan was
frozen at the time of the Company's initial public offering. The exercise price
of all of these options at the date of grant is the fair value. During 1997, the
Company granted 1,325,000 performance options to various employees with an
exercise price of $2.726, which exceeded the $2.225 fair value of the Company's
stock on the date of grant, and in December 1999, the Company granted certain
options with an exercise price less than fair value. The options expire at
various dates through the year 2009. A summary of stock option activity is as
follows:
NUMBER WEIGHTED AVG. PRICE
OF SHARES PER SHARE
----------- -------------------
Outstanding at December 31, 1997............................ 7,806,500 $ 1.856
Granted..................................................... 1,117,500 2.780
Cancelled................................................... (164,000) 2.074
Exercised................................................... (85,000) 1.604
----------- -------
Outstanding at December 31, 1998............................ 8,675,000 1.970
Granted..................................................... 2,226,250 3.326
Cancelled................................................... (308,740) 2.266
Exercised................................................... (1,131,215) 0.788
----------- -------
Outstanding at December 31, 1999............................ 9,461,295 $ 2.420
Granted..................................................... 1,347,200 10.970
Cancelled................................................... (182,450) 3.430
Exercised................................................... (3,348,445) 2.190
----------- -------
Outstanding at December 31, 2000............................ 7,277,600 $ 4.072
=========== =======
As of December 31, 2000, the outstanding options had the following
characteristics:
WEIGHTED NUMBER WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISABLE EXERCISE PRICE
NUMBER RANGE OF AVERAGE REMAINING AS OF AS OF
OUTSTANDING EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE DECEMBER 31, 2000 DECEMBER 31, 2000
----------- ----------------- -------------- ------------------- ----------------- -----------------
5,960,600 $1.287-$ 3.352 $2.5200 4.9 years 5,960,600 $2.5200
896,500 $9.000 $9.0000 9.3 years -- --
420,500 $10.250-$26.750 $5.4022 9.6 years -- --
--------- ---------
7,277,600 5,960,600
========= =========
During 1999, 870,955 options were exercised through a process whereby
employees tendered mature common shares owned by them with an aggregate value
equivalent to the aggregate option exercise price of those options being
exercised. Common shares with a value equivalent to the required income tax and
other withholdings due by the employees associated with the exercise of the
options were also tendered. A total of 421,080 common shares were tendered by
the employees who participated in this option exercise.
F-18
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
5. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
In December 1999, the Company granted options to acquire 1,672,500 shares of
the Company's common stock to employees with an exercise price of $3.352 per
share. In accordance with financial reporting guidelines, compensation expense
of $1.0 million and $0.8 million was recorded in 1999 related to the 20% which
vested in 1999 for continuing and discontinued operations, respectively. Such
charge was based on an estimated fair value of $8.808 per share. On March 20,
2000, the Company's Board of Directors approved the acceleration of the vesting
of all outstanding unvested stock options, making them 100% vested, effective
March 17, 2000. This resulted in compensation expense of $4.1 million and
$3.1 million for continuing and discontinued operations, respectively, in the
quarter ending March 31, 2000. The charges relate to the remaining 80% vesting
which occurred in 2000. The compensation expenses for continuing operations are
included in selling, general and administrative expenses in the accompanying
consolidated statement of income (loss) for the years ended December 31, 1999
and 2000.
If compensation cost for stock options granted under these plans had been
determined under the fair-value based methodology of SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income (loss) would have been
$366,000, ($2,249,000) and ($13,044,000) on a pro forma basis for the years
ended December 31, 1998, 1999 and 2000, respectively. For purposes of this
calculation, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model (minimum value method) with
the following assumptions:
1998 1999 2000
------------- ------------- -------------
Expected dividend yield................. -- -- --
Expected stock price volatility......... -- -- 100.74%
Risk-free interest rate................. 4.91%-5.89% 5.14%-6.88% 5.29%-6.50%
Expected life........................... 10 years 10 years 7 years
Weighted average fair value............. $1.134 $5.714 $9.1981
In connection with the 1997 Recapitalization, the Company terminated a
restricted stock plan which provided for the issuance of common stock for no
consideration to officers and key employees, with vesting over an eight-year
period. No new shares can be granted but shares previously issued are still
vesting over the original vesting period. Compensation expense, determined as of
the date of grant, is being recognized ratably in accordance with the vesting
schedule. Compensation expense recognized was $191,000, $178,000 and $166,000 in
1998, 1999 and 2000, respectively. At December 31, 1999 and 2000, $566,000 and
$331,000, respectively, of future compensation expense associated with unvested
shares has been deferred and is included in deferred compensation in the
accompanying consolidated balance sheets.
6. INCOME TAXES
The sources of the Company's income (loss) from continuing operations before
provision for income taxes and extraordinary items, net were as follows (in
thousands):
1998 1999 2000
-------- -------- --------
United States.................................. $ (4,407) $(17,517) $(33,214)
Foreign........................................ 7,699 11,187 11,580
-------- -------- --------
$ 3,292 $ (6,330) $(21,634)
======== ======== ========
F-19
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
6. INCOME TAXES (CONTINUED)
The provision for (benefit from) income taxes is as follows (in thousands):
1998 1999 2000
-------- -------- --------
Current:
Federal....................................... $ (387) $ 325 $ --
Foreign....................................... 2,827 5,426 4,167
State......................................... 338 32 52
------- -------- --------
2,778 5,783 4,219
------- -------- --------
Deferred:
Federal....................................... 19 (4,367) (12,480)
Foreign....................................... (339) 161 (2,328)
State......................................... (21) 43 (202)
------- -------- --------
(341) (4,163) (15,010)
------- -------- --------
Total......................................... $ 2,437 $ 1,620 $(10,791)
======= ======== ========
A reconciliation between the income tax expense recognized in the Company's
consolidated statements of income (loss) and comprehensive income (loss) and the
income tax expense computed by applying the statutory Federal income tax rate to
the income (loss) from continuing operations before provision for income taxes
and extraordinary items, net follows (in thousands):
1998 1999 2000
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes
and extraordinary items......... $ 3,292 $(6,330) $(21,634)
======= ======= ========
Income tax (benefit) computed at
statutory rate.................. $ 1,152 35% $(2,216) 35% $ (7,572) 35%
Change in valuation allowance..... (2,291) (69%) 6,453 (102%) (2,411) 11%
Net tax effect relating to foreign
operations...................... 401 12% (1,559) 25% (420) 2%
Research credits.................. (654) (20%) (590) 9% (600) 3%
State income taxes................ 275 8% 180 (3%) -- --
Acquisition-related deductible
charges......................... (394) (12%) (571) 9% (778) 4%
Acquisition-related nondeductible
charges......................... 4,260 130% 193 (3%) 466 (2%)
Restricted stock vesting.......... (187) (6%) (84) 1% 341 (2%)
Other............................. (125) (4%) (186) 3% 183 (1%)
------- ---- ------- ----- -------- ------
$ 2,437 74% $ 1,620 (26%) $(10,791) 50%
======= ==== ======= ===== ======== ======
F-20
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
6. INCOME TAXES (CONTINUED)
At December 31, 1999 and 2000, deferred tax assets and liabilities were
comprised of the following (in thousands):
1999 2000
-------- --------
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,321 $ 4,346
Inventory related items................................... 2,191 1,974
Accruals not currently deductible......................... 2,088 1,957
Stock compensation........................................ 750 8,999
Foreign and other tax credit carryforwards................ 11,946 13,462
Deductible purchase accounting temporary differences...... -- 4,715
Other..................................................... 165 528
------- -------
Gross deferred tax assets............................... 19,461 35,981
Less: valuation allowance................................. (13,355) (10,944)
------- -------
Total deferred tax assets, net of valuation allowance... 6,106 25,037
------- -------
Deferred tax liabilities:
International transactions................................ 3,507 3,613
Accelerated depreciation.................................. 201 258
Transaction related tax liabilities....................... 2,815 2,233
Other..................................................... 359 16
------- -------
Total deferred tax liabilities.......................... 6,882 6,120
------- -------
Net deferred tax assets (liabilities)................... $ (776) $18,917
======= =======
At December 31, 1999, the Company had foreign tax credit carryforwards
totaling $10.4 million, which were fully offset by a valuation reserve due to
the uncertainty of the Company's ability to utilize such carryforwards prior to
their expiration. In addition, total state net operating loss carryforwards were
$2.4 million (tax effected) at December 31, 1999, which were fully reserved for,
also due to the uncertainty as to their utilization.
At December 31, 2000, the Company had foreign tax credit carryforwards
totaling $10.9 million which were fully offset by a valuation reserve due to the
uncertainty of the Company's ability to utilize such carryforwards prior to
their expiration. The valuation reserves associated with state net operating
loss carryforwards and other credit carryforwards were eliminated as of
December 31, 2000 since they are now likely to be realized as a result of the
gain generated on the Canberra sale (see Note 15). The foreign tax credit
carryforwards expire commencing in 2002 to 2005. The state net operating loss
carryforwards expire in 2002 to 2005.
7. BENEFIT PLANS
Packard BioScience Company and certain domestic subsidiaries offer a
contributory defined contribution plan (the "Profit Sharing Plan") covering
substantially all domestic employees who have completed at least one year of
service, as defined. Commencing in 1997, the Profit Sharing Plan
F-21
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
7. BENEFIT PLANS (CONTINUED)
provided that eligible participants may make a basic contribution from 1% to 4%
of their annual pay, with additional contributions allowed up to an additional
11% of annual pay. The Company makes matching contributions equal to 125% of a
participant's basic contribution, which amounted to approximately $1,047,000,
$1,209,000 and $1,400,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
In connection with the sale of Canberra (see Note 15), a new plan was
created for all Canberra employees. The plan assets attributable to Canberra
employees, amounting to approximately $50 million, were transferred to this new
plan.
The Company also had a noncontributory employee stock ownership plan
("ESOP") and related trust, which was merged into the Profit Sharing Plan in
March 1997. Each year the Company made a contribution from profits, as defined,
of an amount determined by its Board of Directors, but not to exceed 15% of the
aggregate compensation of all participants in the ESOP in any plan year.
Contributions under the ESOP for any individual participant in any year were
limited to the lower of $30,000 or 25% of the participant's compensation. The
trust had used the contributions to first service debt incurred, if any, and
then to purchase outstanding shares of the Company's stock. When employees
terminate their employment with the Company, they may choose to take the ESOP
portion of the Profit Sharing Plan distribution in the form of either cash or
shares of the Company's common stock, based upon the value of the common stock
on the date of distribution.
8. COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations from leased facilities and
leases automobiles and various types of machinery and equipment under operating
leases. The following is a schedule of future minimum rental payments under
operating leases that have initial or remaining non-cancelable lease terms
extending beyond December 31, 2001 (in thousands):
2001........................................................ $ 822
2002........................................................ 731
2003........................................................ 706
2004........................................................ 191
2005........................................................ 159
Thereafter.................................................. 690
------
$3,299
======
Rental expense for the years ended December 31, 1998, 1999 and 2000, was
approximately $3,352,000, $3,556,000 and $3,438,000, respectively.
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business, including those relating
to intellectual property matters, product liability, safety and health and
employment matters. In certain of such actions, plaintiffs request punitive or
other damages that may not be covered by insurance. The Company accrues for
these items as they become known and can be reasonably estimated. It is the
opinion of management that the
F-22
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
various asserted claims and litigation in which the Company is currently
involved will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company and provincial authorities in Groningen, The Netherlands, are in
the process of negotiating a remediation plan involving groundwater
contamination at the Company's Duinkerkenstraat facility. Asserting that the
causes of this contamination entirely predate the Company's acquisition of this
location in 1986, the Company had sought indemnification under the purchase
agreement from the prior owner of the property. The Company accepted a payment
in 1998 of $1.25 million from the prior owner and fully released them from their
indemnification obligations. Such amount primarily represented reimbursement for
remediation costs previously paid for by the Company and estimated remaining
remediation costs. The Company has accrued for the estimated remaining
obligation to remediate the site; however, there can be no assurance that the
Company will not incur any additional costs. As of February 2001, the site where
the facility is located is being tested by independent engineers to determine
the extent of the soil contamination and to develop a remediation plan.
9. GEOGRAPHIC INFORMATION
The Company operates predominately in three major geographic areas.
Transfers between geographic areas are made at the estimated market value of the
merchandise transferred. The eliminations result from intercompany sales,
receivables and profit in inventory.
F-23
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
9. GEOGRAPHIC INFORMATION (CONTINUED)
The following tables summarize the Company's operations by geographic area
for 1998, 1999 and 2000 (in thousands):
GEOGRAPHIC AREA 1998 1999 2000
--------------- -------- -------- --------
Revenues*:
United States, including third party export sales**....... $ 84,647 $ 85,841 $ 91,727
Europe.................................................... 50,193 56,346 55,821
Japan..................................................... 11,395 16,703 17,827
-------- -------- --------
Total consolidated...................................... $146,235 $158,890 $165,375
======== ======== ========
Income (loss) from operations:
United States, including export sales***.................. $ 13,547 $ 3,193 $(15,090)
Europe****................................................ 7,684 6,556 6,468
Japan..................................................... 2,456 5,292 6,243
Eliminations, net......................................... (2,913) 723 (1,453)
-------- -------- --------
Total consolidated...................................... $ 20,774 $ 15,764 $ (3,832)
======== ======== ========
Total assets:
United States............................................. $ 86,266 $ 95,959 $204,987
Europe.................................................... 27,835 29,179 36,168
Japan..................................................... 9,802 11,288 12,501
Discontinued operations................................... 34,712 67,810 68,577
Eliminations, net......................................... (17,180) (21,678) (16,141)
-------- -------- --------
Total consolidated...................................... $141,435 $182,558 $306,092
======== ======== ========
- ------------------------
* Includes only revenues from unaffiliated customers. Revenues in Europe are
denominated primarily in the Euro, or Euro equivalent currencies, and the
British Pound. Revenues in Japan are denominated primarily in the Japanese
Yen.
** Includes $17.9 million, $13.9 million and $10.0 million of third-party
export sales for 1998, 1999 and 2000, respectively.
*** Income from operations for 1998 includes a $1.5 million charge to expense
the fair market value adjustment associated with acquired inventories, a
$6.1 million charge for purchased in-process research and development and a
gain on the sale of the gas generation product line of $10.8 million. Income
from operations for 1999 includes a $2.7 million charge associated with
terminating the production of a product and modifying a license arrangement
and a $1.0 million compensation charge associated with the 1999 vesting of
stock options granted to certain employees in December 1999. Loss from
operations for 2000 includes a $4.7 million charge associated with employee
stock compensation costs, and a $12.1 million charge for purchased
in-process research and development. For purposes of presenting operating
results of the Company's continuing operations, all corporate interest
expense has been charged, and all corporate interest income has been
credited, to continuing operations.
****Loss from operations for 2000 includes a $1.9 million charge primarily to
write-off long-lived assets which had become impaired.
F-24
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
10. RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
On March 4, 1997, Stonington Capital Appreciation 1994 Fund, L.P.
("Stonington") acquired approximately 69% of the common stock of the Company on
a fully-diluted basis as a result of the transactions described below. The
transactions included (a) the acquisition by Stonington and certain other
investors of $54.0 million of common stock from certain continuing stockholders,
(b) the acquisition by Stonington of $17.5 million of common stock from the
Company, (c) a tender offer by the Company to all non-continuing stockholders
for $208.6 million and (d) the cancellation of all stock options held by the
non-continuing stockholders for $3.3 million. The Company used the proceeds of
the stock offering, $8.3 million from the exercise of certain options, cash on
hand and $190.0 million in proceeds from the Financings to redeem the shares in
the tender offer, purchase certain outstanding options (approximately
$12.9 million) and pay transaction fees and expenses (approximately
$21.5 million), of which $2.6 million was paid to Stonington Partners, Inc.
11. ACQUISITIONS
In May 1997, a subsidiary of the Company, Packard Japan KK ("PJKK"), entered
into an agreement, for a fixed amount denominated in Japanese yen, to acquire
the 40% interest held by its minority stockholder for approximately
$7.5 million. The agreement obligated PJKK to acquire approximately 60% of the
minority interest in 1997, 20% in 1998 and the remainder in 1999. Under the
agreement, the minority stockholder surrendered the rights to any dividends from
PJKK subsequent to December 31, 1996. The Company reflected the acquisition in
full as of the effective date of the agreement which was April 1, 1997, and, as
a result, the minority interest was eliminated and the related acquisition
obligations as well as resulting goodwill were recorded as of such date.
On March 31, 1998, the Company acquired all of the outstanding common stock
of Carl Creative Systems, Inc. (now known as CCS Packard, Inc.) ("CCS"), a
developer, manufacturer and distributor of ultra-high throughput liquid handling
systems used in the life science, in-vitro diagnostics and pharmaceutical drug
discovery markets. The Company issued 544,415 common shares of the Company
(valued at $2.792 per share) and paid $6.3 million in cash, including costs
incurred in connection with the acquisition. Allocation of the purchase price to
the net assets acquired resulted in a charge of $2.68 million for purchased
in-process research and development which had not reached technological
feasibility and had no probable alternative future uses. The acquisition also
resulted in a charge of $1.0 million in 1998 to expense the step-up of inventory
to fair value recorded at the date of acquisition. Additional contingent
payments, up to a maximum of $18.7 million, may be made through 2002, contingent
upon CCS achieving certain post acquisition operating performance levels through
December 31, 2001. During the period April 1, 1998 to December 31, 2000,
contingent payments totaling $14.8 million have been earned and accrued.
On July 1, 1998, the Company acquired 100% of the outstanding common stock
of BioSignal, Inc. ("BioSignal"), a biotechnology company located in Canada.
Prior to the acquisition, the Company owned a 19% interest in BioSignal. The
Company acquired the remaining 81% ownership interest for approximately
$8.6 million in cash and 35,815 shares of the Company's common stock valued at
$2.792 per share. In connection with the acquisition, the Company recognized a
charge of $3.44 million associated with purchased in-process research and
development which had not reached technological feasibility and had no probable
future uses. The acquisition also resulted in a charge of $0.5 million in 1998
to expense the step-up of inventory to fair value recorded at the date of
acquisition.
F-25
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
11. ACQUISITIONS (CONTINUED)
In March 2000, the Company acquired a 51% equity interest in Carl Consumable
Products, LLC ("CCP") for an initial cash payment of $510,000, with an option to
acquire the remaining 49% equity interest for (a) a cash payment of $490,000,
plus (b) earn-out payments equal to 25% of the operating profit (as defined in
the purchase agreement) of CCP in excess of $530,000 which is generated in each
calendar year occurring during the four-year period following exercise of the
option. The option is exercisable through March 6, 2002. As of December 31,
2000, the option had not been exercised. The financial results of CCP have been
consolidated in the accompanying financial statements. CCP is a new company
formed to design and manufacture sophisticated pipette tips used in the liquid
dispensing process of drug discovery and genomic research.
Effective March 31, 2000, the Company acquired certain net operating assets,
primarily intangibles, of Cambridge Imaging Limited ("CIL"). The Company paid
$1.25 million initially with additional contingent payments, up to
$4.0 million, that may be made through April 2005, subject to the operations
achieving certain post-acquisition performance levels through 2004. As of
December 31, 2000, no earnouts were accrued or paid. The assets and technology
acquired will be used to develop and manufacture biomedical imaging technology
and devices.
Effective October 1, 2000, the Company acquired the net operating assets of
a division of GSI Lumonics, Inc. ("GSLI") (now operating as a division of
Packard BioChip Technologies, LLC, a wholly-owned subsidiary of the Company).
The total amount paid consisted of approximately $40 million in cash and
4.5 million shares of Company common stock valued for financial reporting
purposes at $65.2 million. GSLI is a leading provider of imaging equipment for
biochip and microarray applications. The GSLI acquisition has been accounted for
using the purchase method. The acquisition resulted in a charge in October 2000
totaling $12.1 million to write-off the value assigned to acquired in-process
research and development which had not yet reached technological feasibility.
Goodwill related to this acquisition is approximately $90.5 million.
All of the above acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the purchase prices have been allocated
to the assets purchased and the liabilities assumed based upon the estimated
fair values at the dates of acquisition. The excess of the purchase prices, in
the aggregate, over the fair values of the net assets acquired was approximately
$118.2 million (including the earned contingent payments referred to above) and
has been reflected as goodwill in the accompanying consolidated balance sheets.
As contingent payments are earned, the related goodwill will increase. The
goodwill associated with these acquisitions is being amortized on a
straight-line basis over 20 years, except for the PJKK aquisition for which the
life is 40 years, from the initial acquisition dates. The operating results of
all acquisitions have been reflected in the accompanying condensed consolidated
statements of income (loss) since their dates of acquisition.
The following unaudited consolidated information is presented on a pro forma
basis, as if the GSLI acquisition had occurred as of the beginning of the year
presented. In the opinion of management, the pro forma information reflects all
adjustments necessary for a fair presentation. The pro forma adjustments
include: (1) the removal of the nonrecurring charge taken in connection with the
acquisition associated with in-process research and development costs;
(2) amortization of goodwill associated with the acquisition; (3) adjustments to
reflect additional interest expense relating to the financing of the
acquisition; and (4) adjustments to reflect the related income tax effects of
the above. The pro forma impact of the CCP and CIL acquisitions is immaterial to
the Company's historical
F-26
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
11. ACQUISITIONS (CONTINUED)
actual results of operations and therefore, no pro forma adjustments have been
made for such acquisitions.
1999 2000
---- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
Revenues.................................................... $172,680 $178,461
Income from operations...................................... 12,944 2,814
Loss from continuing operations before extraordinary items,
net....................................................... (10,840) (7,579)
Basic and diluted loss per share from continuing operations
before extraordinary items, net........................... ($0.22) ($0.12)
In October 2000, the Company acquired an 8% equity interest in Agencourt
Bioscience Corporation, a biotechnology company focused on providing nucleic
acid purification kits and other assays for the genomics and proteomics
marketplaces. The Company paid $1.25 million for this equity interest. The
investment is accounted for using the cost method. Three sons of the Company's
Senior Vice President are officers of Agencourt.
12. OTHER COSTS OF PRODUCT SALES
During 1999, the Company modified an existing license agreement and
terminated the production of an OEM clinical product. The modification and
termination resulted in a $2.7 million charge to cost of sales to expense the
remaining deferred licensing fees associated with the modified license
($0.9 million), reserve the value of the estimated excess inventory of the
terminated product ($1.6 million) and write-off the net book value of the
equipment used to manufacture the terminated product ($0.2 million). The charge
associated with the license fee was based upon the estimated future cash flows
associated with the underlying products.
13. OTHER OPERATING EXPENSE (INCOME), NET
Other operating expense (income), net in the accompanying consolidated
statements of income (loss) consists of the following (in thousands):
1998 1999 2000
-------- -------- --------
Gain on sale of product line..................... $(10,753) $ -- $ --
Write-off of impaired assets and other charges... -- -- 1,881
-------- ------- ------
$(10,753) $ -- $1,881
======== ======= ======
In December 1998, the Company sold Packard's gas generation product line,
realizing a pre-tax gain of approximately $10.8 million. In December 2000, the
Company recorded a $1.9 million charge to reflect the impact of certain
strategic changes. This charge consists of $0.8 million to write-off fixed
assets which had become impaired, $0.2 million of severance and lease
termination costs and $0.9 million to write-off licenses for technology for
which the Company will no longer receive any future benefit. The carrying value
of the fixed assets and licenses was written-off since the estimated fair value
was zero.
F-27
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
14. EXTRAORDINARY ITEMS, NET OF INCOME TAXES
In April 2000, the Company utilized $68.2 million of the proceeds from the
initial public offering to pay off its remaining term facility and the U.S.
dollar denominated balance of its revolving credit facility. In May 2000 and
December 2000, the Company repurchased an aggregate of approximately
$31.9 million of its Senior Subordinated Notes in the open market at a discount;
and in August 2000, the Company amended and restated its revolving credit
facility.
The May and December 2000 repurchases of the Senior Subordinated Notes
resulted in an aggregate gain of $3.2 million. The Company expensed the
remaining unamortized balance of the deferred financing fees associated with the
term loan and original revolving credit facility, as well as that portion
applicable to the Senior Subordinated Notes that were repurchased. The gain, net
of the deferred fees write-off of $2.6 million, are shown as extraordinary
items, net of income taxes of $0.2 million, in the consolidated statement of
income (loss) for the year ended December 31, 2000.
15. DISCONTINUED OPERATIONS
On February 27, 2001, the Company sold its Canberra division to COGEMA, S.A.
for $170 million. The net proceeds, after estimated income taxes payable and
cash expenses directly related to the sale and after repurchases of options held
by Canberra employees, were approximately $130 million. The Company used
$71 million of the net proceeds to repay the outstanding balance on the
Company's credit facility on February 28, 2001. The remainder of the proceeds
will be used to fund research and development and for general corporate
purposes.
Summary information of the discontinued operations for the years ended
December 31, 1998, 1999 and 2000 is as follows (in thousands):
1998 1999 2000
-------- -------- --------
Revenues...................................... $ 81,929 $106,003 $ 94,530
Total costs and expenses...................... (79,526) (92,435) (87,957)
Provision for income taxes.................... (1,353) (5,816) (2,467)
-------- -------- --------
Income from discontinued operations, net of
income taxes.............................. $ 1,050 $ 7,752 $ 4,106
======== ======== ========
For purposes of presenting operating results of the Company's continuing
operations, all corporate interest expense has been charged, and all corporate
interest income has been credited, to continuing operations. Corporate interest
expense consists of all interest associated with the Senior Subordinated Notes,
the term loan facility and the revolving credit facility. Corporate interest
income represents income earned on corporate invested funds. None of this
interest expense or income has been allocated to discontinued operations.
Discontinued operations include interest expense on local borrowings related to
the applicable foreign subsidiaries of $0.1 million, $0.6 million and $0.1
million for the years ended December 31, 1998, 1999 and 2000, respectively.
The benefit from (provision for) income taxes was calculated for the
Company, including continuing and discontinued operations. The benefit from
(provision for) income taxes related to continuing operations was determined as
if it were a stand-alone entity and the difference between such
F-28
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
15. DISCONTINUED OPERATIONS (CONTINUED)
amount and the total benefit from (provision for) income taxes was allocated to
discontinued operations.
Results of discontinued operations for 2000 include charges associated with
accelerated option vesting and gifted shares of common stock totaling $3.5
million (see Note 5) as well as a restructuring reserve totaling $1.4 million
associated with Canberra's Harwell Instruments operations. Results of
discontinued operations for 1999 include a charge associated with accelerated
option vesting totaling $0.8 million (see Note 5) for Canberra employees and a
$1.0 million charge associated with writing off the step-up in inventory
acquired in connection with Canberra's April 1, 1999 acquisition of the net
operating assets of Tennelec, Inc. Net assets of the discontinued operations
consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31,
1999 2000
------------- ------------
Cash................................................ $ 3,144 $ 2,858
Accounts receivable, net............................ 29,188 23,206
Inventories, net.................................... 15,400 17,915
Accounts payable.................................... (6,646) (3,462)
Accrued liabilities................................. (9,163) (8,205)
Other, net.......................................... (541) (444)
------- -------
Net current assets................................ $31,382 $31,868
======= =======
Property, plant and equipment, net.................. $16,870 $19,157
Goodwill, net....................................... 22,064 21,260
Noncurrent liabilities.............................. (616) (1,385)
Minority interest................................... (2,301) (2,492)
Other, net.......................................... 411 169
------- -------
Net noncurrent assets............................. $36,428 $36,709
======= =======
In December 2000, the Company's board of directors approved a modification
to the Company's existing employee stock option plans extending the period
Canberra employees have to exercise their outstanding stock options from 30 to
90 days immediately following the closing of the sale. This modification
generates a new measurement date and a compensation charge for all outstanding
options for Canberra employees when the employees separated from the Company on
February 27, 2001. The charge is based on the difference between the closing
price of the Company's common stock on the date that the board of directors
approved the modification and the exercise prices of the outstanding Canberra
employee options as of February 27, 2001 and is reduced by compensation expense
previously recognized on such options. The non-cash charge of $9.9 million will
be reflected as a component of the net gain on disposal of discontinued
operations in the first quarter of 2001.
In February 2001, the Company's board of directors approved the repurchase
of the outstanding Canberra employee options. Subsequently, the Canberra options
were repurchased for an aggregate value of approximately $9.5 million. As such,
in accordance with the cash settlement provisions of APB 25, additional
compensation expense of approximately $300,000 will be recorded in the first
quarter of 2001. This amount is based on the cash paid to the employees to
settle the options and the
F-29
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
15. DISCONTINUED OPERATIONS (CONTINUED)
number of options settled, less the intrinsic value previously recognized as
compensation expense related to these employee's options.
Cash flow information associated with discontinued operations in the
accompanying consolidated statements of cash flows is as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31,
---------------------------------
1998 1999 2000
--------- --------- ---------
Operating Activities:
Income from discontinued operations, net.................... $ 1,050 $ 7,752 $ 4,106
Depreciation and amortization............................... 2,576 2,733 3,100
Amortization of acquired inventory step-up.................. -- 1,000 --
Non-cash stock compensation................................. -- 790 3,549
Minority interest in income (loss) of subsidiary............ (164) (254) 326
Deferred income taxes, net.................................. (675) 534 2,958
Gain on sale of property.................................... (639) -- --
Changes in assets and liabilities, excluding the effect of
acquisitions.............................................. 5,008 (6,925) (1,277)
------- -------- --------
Net Cash Provided by Operating Activities................... $ 7,156 $ 5,630 $ 12,762
======= ======== ========
Investing Activities:
Acquisition of business, net of acquired cash............... $ (900) $(23,993) $ (1,163)
Capital expenditures........................................ (1,224) (4,024) (2,475)
------- -------- --------
Net Cash Used by Investing Activities....................... $(2,124) $(28,017) $ (3,638)
======= ======== ========
16. REGISTRATION STATEMENT
In February 2001, the Company filed a registration statement on Form S-1 for
the sale of 10,000,000 shares of the Company's common stock. The offering will
include 7,000,000 shares to be sold by GSLI, Stonington and certain other
stockholders, and 3,000,000 shares to be sold by the Company. The net proceeds
from the sale of the Company's shares will be used by the Company to make
open-market purchases of the Company's senior subordinated notes, to increase
spending associated with research and development, new product development,
enhancements of existing products, strategic partnerships and acquisitions, and
general corporate purposes. The Company will not receive any proceeds from the
sale of shares by the stockholders. Expenses related to the shares to be sold by
GSLI will be recorded as additional goodwill and expenses related to the shares
sold by the other stockholders will be charged to equity. The offering will not
result in a change in control, as defined, in the Senior Subordinated Notes (see
Note 4).
F-30
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 2000 are as follows (in
thousands, except per share information):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
1999
Revenues................................................ $38,162 $37,327 $36,871 $46,530
Gross profit............................................ $20,747 $19,631 $18,061 $22,141
Income (loss) from continuing operations before
extraordinary items, net.............................. $ 810 ($1,207) ($3,744) ($3,809)
Basic and diluted loss per share from continuing
operations............................................ $ 0.02 ($ 0.03) ($ 0.08) ($ 0.08)
2000
Revenues................................................ $39,845 $38,571 $37,030 $49,929
Gross profit............................................ $22,474 $22,094 $19,690 $27,478
Loss from continuing operations before extraordinary
items, net............................................ ($3,838) ($ 467) ($1,531) ($5,007)
Basic and diluted loss per share from continuing
operations............................................ ($ 0.08) ($ 0.01) ($ 0.02) ($ 0.08)
The fourth quarter of 1999 includes:
- charges of $2.7 million associated with the termination of a product line
and the modification of a license (see Note 12), and
- a stock compensation charge of $1.0 million (see Note 5).
The first quarter of 2000 includes a stock compensation charge of
$4.7 million (see Note 5). The fourth quarter of 2000 includes:
- a charge of $12.1 million to write-off purchased in-process research and
development (see Note 11),
- a $1.9 million charge primarily to write-off long-lived assets which had
become impaired (see Note 13), and
- the operating results of GSLI.
F-31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
GSI Lumonics Inc.
We have audited the accompanying statements of net assets sold of GSI
Lumonics Inc.'s Life Sciences Business as of December 31, 1998 and 1999 and the
statements of net sales, cost of sales and direct operating expenses for the
years then ended. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
As described in Note 1, the accompanying statements were prepared in
accordance with the Asset Purchase Agreement between GSI Lumonics Inc. and
Packard BioScience Company dated August 19, 2000 and consummated effective
October 1, 2000 for the sale of GSI Lumonics Inc.'s Life Sciences Business to
Packard BioScience Company, and for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the S-1
Registration Statement of Packard BioScience Company. These statements are not
intended to be a complete presentation of the assets, liabilities, revenue and
expenses of GSI Lumonics Inc.'s Life Sciences Business.
In our opinion, these statements present fairly, in all material respects,
the net assets sold of GSI Lumonics Inc.'s Life Sciences Business as of
December 31, 1998 and 1999 and the net sales, cost of sales and direct operating
expenses for the years then ended, pursuant to the Asset Purchase Agreement
described in Note 1, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada
October 25, 2000
F-32
GSI LUMONICS INC. -- LIFE SCIENCES BUSINESS
STATEMENTS OF NET ASSETS SOLD
(IN THOUSANDS OF U.S. DOLLARS)
AS OF
DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1998 1999 2000
---- -------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowance of $16, $24 and
$15 as of December 31, 1998 and 1999 and September 30,
2000, respectively...................................... $1,397 $5,027 $4,278
Inventories (Note 3)...................................... 900 2,421 1,948
------ ------ ------
Total current assets.................................... 2,297 7,448 6,226
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
amortization of $92, $158 and $282, respectively.......... 83 207 380
INTANGIBLE ASSETS, net of accumulated amortization of
$nil, $124, and $207, respectively........................ -- 910 827
------ ------ ------
TOTAL ASSETS................................................ 2,380 8,565 7,433
------ ------ ------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable.......................................... 78 1,090 615
Accrued warranty expenses................................. 82 240 1,465
Accrued compensation expenses............................. 77 483 159
Deferred revenue and other accrued expenses............... 157 333 658
------ ------ ------
Total current liabilities............................... 394 2,146 2,897
------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS SOLD............................................. $1,986 $6,419 $4,536
====== ====== ======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-33
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
STATEMENTS OF NET SALES, COST OF SALES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1998 1999 1999 2000
-------- -------- -------- --------
(UNAUDITED)
Net sales........................................... $8,027 $13,790 $ 8,697 $13,086
Cost of sales....................................... 2,886 6,091 3,790 7,493
------ ------- ------- -------
Gross profit...................................... 5,141 7,699 4,907 5,593
------ ------- ------- -------
Research and development expenses................... 1,865 2,973 2,192 3,745
Selling, general and administrative expenses........ 2,125 3,021 2,104 3,908
Amortization of technology and intangibles.......... -- 124 83 124
Acquired in-process research and development
(Note 2).......................................... -- 4,100 4,100 --
------ ------- ------- -------
Total direct operating expenses................... 3,990 10,218 8,479 7,777
------ ------- ------- -------
Excess (deficiency) of net sales over (under) cost
of sales and direct operating expenses............ $1,151 ($2,519) ($3,572) ($2,184)
====== ======= ======= =======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-34
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
The accompanying statements have been prepared in accordance with accounting
principles generally accepted in the United States for the purpose of presenting
the net assets sold of the Life Sciences Business ("Life Sciences") of GSI
Lumonics Inc. ("GSI Lumonics") pursuant to the Asset Purchase Agreement (the
"Agreement") entered into as of August 19, 2000 and consummated effective
October 1, 2000 ("Closing Date") between GSI Lumonics and Packard BioScience
Company (the "Buyer") and its net sales, cost of sales and direct operating
expenses. Pursuant to the Agreement, GSI Lumonics sold to the Buyer certain
assets including accounts receivable, inventories, property, plant and equipment
and intangible assets for proceeds of approximately $40,000,000 cash and 4.5
million shares of the Buyer's common stock. The Buyer is to also assume certain
liabilities pursuant to the Agreement.
Life Sciences was a separately managed product line in the GSI Lumonics'
Billerica facility, Massachusetts. Life Sciences manufactures laser-based
microarray scanners and related analytical software used to read and interpret
gene expression experiments. Major customers for these products include
universities, research laboratories, and Government agencies. The business'
principal markets are in the United States, Japan and Germany.
Historically, GSI Lumonics did not maintain Life Sciences as a separate
business unit and external financial statements have not been prepared.
Therefore, the accompanying statements are derived from the historical
accounting records of Life Sciences and present the net assets sold as of
December 31, 1998 and 1999 and September 30, 2000, and the statements of net
sales, cost of sales and direct operating expenses for the years ended
December 31, 1998 and 1999 and for the nine months ended September 30, 1999 and
2000. A statement of cash flows is not presented as Life Sciences did not
maintain a cash balance, all cash flow activities were funded by GSI Lumonics
and a statement of cash flows is not prepared at this reporting level. These
statements are not intended to be a complete presentation of Life Sciences'
financial position, results of operations and cash flows. The historical
operating results may not be indicative of the results of operations of Life
Sciences going forward due to changes in the business by the Buyer and the
omission of various indirect operating expenses.
The statements of net sales, cost of sales and direct operating expenses
include all revenues and expenses directly attributable to Life Sciences
products. Cost of sales includes material cost, direct labor and an allocation
of factory overhead. Direct operating expenses consist principally of research
and development, selling, general and administrative expenses, amortization and
in-process research and development costs. Some selling, general and
administrative expenses have been allocated to Life Sciences on various bases,
including the basis of relative sales of Life Sciences to other sales of GSI
Lumonics, personnel and estimated time spent on Life Sciences. The statements do
not include corporate general and administrative expenses, interest, income
taxes or any other corporate expense allocations. Since Life Sciences was not a
separate business unit, GSI Lumonics had never segregated indirect operating
cost information relative to Life Sciences for external financial reporting
purposes. Accordingly, it is not practical to isolate or allocate such indirect
operating costs to Life Sciences. In the opinion of management of Life Sciences,
such allocations are reasonable.
The interim financial information at September 30, 2000 and for the nine
months ended September 30, 1999 and 2000 is unaudited but includes all
adjustments and accruals which management considers necessary for a fair
presentation of the net assets sold of Life Sciences at such date and the
F-35
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION (CONTINUED)
net sales, cost of sales and direct operating expenses for the nine month
periods presented. The results for interim periods are not necessarily
indicative of results to be expected for the year or any future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of these 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 audit report date, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
INVENTORIES
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market.
FINANCIAL INSTRUMENTS
Financial instruments include accounts receivable, accounts payable and
accrued liabilities. The carrying values of the business' financial instruments
approximate their fair value.
FIXED ASSETS
Fixed assets are stated at cost. The declining-balance and straight-line
methods determine depreciation over the estimated useful lives of the assets,
generally 3 to 10 years. Depreciation expense, included in selling, general and
administration expenses on the statements of net sales, cost of sales and direct
operating expenses, for the years ended December 31, 1998 and 1999 and the nine
months ended September 30, 1999 and 2000 was $48,000, $66,000, $50,000 and
$75,000, respectively.
INTANGIBLES
On March 22, 1999, GSI Lumonics completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser systems
and components. The merger transaction was accounted for as a purchase. The
aggregate purchase price was allocated to General Scanning's net identifiable
assets, based on estimated fair values, including the net assets of Life
Sciences Business as follows:
1. Acquired technology of $624,000 results from an allocation of an
appraisal of General Scanning intangible assets and is being amortized on
a straight line basis over its useful life of 60 months;
2. Assembled workforce of $268,000 results from an allocation of an
appraisal of General Scanning intangible assets and is being amortized on
a straight line basis over a 10 year period;
F-36
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3. Trademark and trade name of $142,000 results from an allocation of an
appraisal of General Scanning intangible assets and is being amortized on
a straight line basis over a 10 year period.
Acquired in-process research and development of $4,100,000 arising on the
acquisition charged against income in 1999 results from an allocation of an
appraisal of General Scanning intangible assets.
REVENUE RECOGNITION
Revenue is generally recognized at the time of shipment or when services are
provided. Estimated potential product liability and warranty costs are accrued,
based on the Company's experience, when revenue is recognized.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rate in effect at the period-end.
Revenues and expenses are translated at the average exchange rate in effect for
the period. Foreign exchange gains or losses are recorded in the corporate
ledger at GSI Lumonics and, as such, no segregation of these items is presented
for product line foreign currency statements. As the foreign exchange gains and
losses are not tracked on a product line basis and are not as a result of direct
expenses incurred for the product line, they are not presented in the statement
of net sales, cost of sales and direct operating expenses.
STOCK BASED COMPENSATION
The Life Sciences Group has elected to continue to apply APB 25 in
accounting for its stock option plans, valuing the compensation expense using
the intrinsic value method (Note 10).
RECENT PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin (the "SAB") No. 101, Revenue Recognition in Financial
Statements, which was amended in March 2000 by SAB 101A, and in June 2000 by SAB
101B. The SAB summarizes certain of the SEC staff views in applying generally
accepted accounting principles to revenue recognition in financial statements.
This SAB is effective beginning the fourth fiscal quarter of fiscal 2000. We
believe this bulletin will not have a significant impact on our reported sales.
F-37
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
3. INVENTORIES
Inventories consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED)
Raw materials........................... $603 $2,027 $1,596
Work-in-process......................... 173 -- --
Finished goods.......................... 124 394 352
---- ------ ------
Total inventories....................... $900 $2,421 $1,948
==== ====== ======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED)
Machinery and equipment and other....................... $175 $ 365 $502
Furniture and fixtures.................................. -- -- 160
---- ----- ----
Total cost.......................................... 175 365 662
Less: Accumulated depreciation.......................... (92) (158) (282)
---- ----- ----
Property, plant and equipment, net.................. $ 83 $ 207 $380
==== ===== ====
5. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS AND DISPUTES
GSI Lumonics Inc. V. BioDiscovery, Inc. On December 10, 1999, GSI Lumonics
filed suit in the United States District Court for the District of Massachusetts
seeking a declaration that its QuantArray Microarray Analysis Software does not
infringe any copyright owned by BioDiscovery, Inc. or its president.
BioDiscovery, Inc. is a manufacturer of microarray quantification software under
the name ImaGene-C-. On December 21, 1999, BioDiscovery's president responded to
GSI Lumonics' action for declaratory judgment by filing a separate suit in the
United States District Court for the Southern District of California, alleging
that GSI Lumonics reverse engineered his software, and also sued for copyright
infringement. In the Massachusetts action, the court denied BioDiscovery's
president's motion to dismiss and scheduled a trial for May 2000. In
April 2000, shortly before the trial was scheduled to begin, BioDiscovery's
president abandoned his copyright infringement claim and consented to the entry
of a default judgment in favor of GSI Lumonics. In the California action the
court, in September 2000, allowed a motion by GSI Lumonics to dismiss
BioDiscovery's president's complaint insofar as it alleged any reverse
engineering, reverse compiling or copying of ImaGene-C-. On November 22, 2000,
the
F-38
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company announced that GSI Lumonics and BioDiscovery, Inc. have settled all
outstanding claims between the parties.
RISKS AND UNCERTAINTIES
At December 31, 1998 and 1999 and September 30, 2000 one customer
represented approximately nil, 16% and 16%, respectively of accounts receivable.
Sales to this customer for the years ended December 31, 1998 and 1999 and the
nine months ended September 30, 2000 represented approximately nil, 14% and 16%
of total sales. Credit risk, with respect to trade receivables, is minimized
because of the diversification of the business' sales and its growing customer
base worldwide.
6. TRANSITION SERVICES AGREEMENT
GSI Lumonics and the Buyer entered into a Transition Services Agreement
whereby GSI Lumonics agreed to provide certain administrative and transitional
services to the Buyer for an agreed price until March 31, 2001.
7. SUBLEASE AGREEMENT
On the Closing Date, GSI Lumonics and the Buyer entered into a Sublease
Agreement whereby GSI Lumonics has agreed to lease premises to the Buyer, for an
agreed price, until June 30, 2001.
8. RELATED PARTY TRANSACTIONS
Life Sciences recorded purchases from other product lines of GSI Lumonics
during the years ended December 31, 1998 and 1999 and the nine month period
ended September 30, 2000 of approximately $180,000, $321,000 and $369,000,
respectively at amounts and terms approximately equivalent to third party
transactions. Transactions with other divisions of GSI Lumonics are at normal
trade terms.
9. SEGMENT INFORMATION
Life Sciences manufactures laser-based microarray scanners and related
analytical software used to read and interpret gene expression experiments.
Major customers for these products include universities, research laboratories,
and Government agencies. The business' principal markets are in the United
States, Japan and Germany. Life Sciences has one reportable segment.
F-39
GSI LUMONICS INC.--LIFE SCIENCES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
9. SEGMENT INFORMATION (CONTINUED)
Life Sciences attributes revenues to geographic areas on the basis of the
customer location. Long-lived assets are attributed to geographic areas in which
Company assets reside and all such assets reside in the United States.
Geographic segment information is as follows (in thousands):
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
Revenues from external customers:
North America................................... $7,095 $ 8,342 $ 6,763
Europe.......................................... 208 2,062 2,653
Japan........................................... 724 3,386 3,670
------ ------- -------
Total......................................... $8,027 $13,790 $13,086
====== ======= =======
10. SHARE OPTIONS PLANS
Employees of GSI Lumonics who are being transferred to the Buyer
participated in share option plans depending on their original date of
employment. The first plan dated 1992 involved General Scanning employees, the
second dated 1995 was for GSI Lumonics employees. Employees transferred to the
Buyer may have options under both plans, depending on the date of employment and
options granted.
GSI Lumonics accelerated the vesting of the options for all employees that
were being transferred to the Buyer in the purchase and sale agreement
(Note 1). This arrangement allowed all options outstanding for the employees to
vest immediately. Each employee will then have thirty days for options granted
under the 1992 plan and sixty days for options granted under the 1995 plan to
exercise these options.
As of September 30, 2000, Life Science employees held accelerated options
entitling them to acquire 37,038 shares at a weighted average exercise price of
$5.49 per share. Life sciences has estimated and recorded an expense of $408,000
for the nine months ended September 30, 2000 in these finanical statements,
using the intrinsic value of the options at the date of modification of the
terms and based on its estimate of those employees expected to benefit from the
acceleration.
11. ACCRUED WARRANTY EXPENSES
Accrued warranty expenses of $1,465,000 as of September 30, 2000 includes
approximately $1,344,000 related to the estimated costs associated with one
particular warranty issue. The related units are expected to be repaired by June
2001.
F-40
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PAGE
--------
Pro Forma Statement of Loss from Continuing Operations
before Extraordinary Items for the Year Ended
December 31, 2000......................................... P-2
Pro Forma Statement of Loss from Continuing Operations for
the Year Ended December 31, 1999.......................... P-3
Notes to Pro Forma Consolidated Financial Statements........ P-4
P-1
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
PRO FORMA STATEMENT OF LOSS FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEMS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
HISTORICAL HISTORICAL PRO FORMA
PACKARD GSLI PACKARD
FOR THE YEAR FOR THE NINE FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, PRO FORMA DECEMBER 31,
2000 2000 ADJUSTMENTS 2000
------------- -------------- ----------- --------------
Revenues............................... $165,375 $ 13,086 $ -- $178,461
Cost of sales.......................... 73,639 7,493 -- 81,132
-------- -------- ---------- --------
Gross profit........................... 91,736 5,593 -- 97,329
Research and development expenses...... 28,358 3,745 -- 32,103
Selling, general and administrative
expenses............................. 53,229 3,908 (A) 3,394 60,531
Amortization of technology and
intangibles.......................... -- 124 (124) --
Purchased in-process research and
development charge................... 12,100 -- (B) (12,100) --
Other operating expenses............... 1,881 -- -- 1,881
-------- -------- ---------- --------
Income (loss) from operations.......... (3,832) (2,184) 8,830 2,814
Interest expense, net.................. (17,802) -- (C) (2,100) (19,902)
-------- -------- ---------- --------
Loss from continuing operations before
income taxes and extraordinary
items................................ (21,634) (2,184) 6,730 (17,088)
Benefit from income taxes.............. 10,791 -- (D) (1,282) 9,509
-------- -------- ---------- --------
Loss from continuing operations before
extraordinary items.................. $(10,843) $ (2,184) $ 5,448 $ (7,579)
======== ======== ========== ========
Weighted average shares outstanding.... 61,884
========
Basic and diluted loss per share from
continuing operations before
extraordinary items.................. $ (0.12)
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL
STATEMENTS.
P-2
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
PRO FORMA STATEMENT OF LOSS FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UANUDITED)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PACKARD GSLI ADJUSTMENTS PACKARD
---------- ---------- ----------- ---------
Revenues........................................... $158,890 $13,790 -- $172,680
Cost of sales...................................... 78,310 6,091 -- 84,401
-------- ------- --------- --------
Gross profit....................................... 80,580 7,699 -- 88,279
Research and development expenses.................. 22,796 2,973 -- 25,769
Selling, general and administrative expenses....... 42,020 3,021 (A) 4,525 49,566
Amortization of technology and intangibles......... -- 124 (124) --
Purchased in-process research and development
charge........................................... -- 4,100 (E)(4,100) --
-------- ------- --------- --------
Income (loss) from operations...................... 15,764 (2,519) (301) 12,944
Interest expense, net.............................. (22,094) -- (C)(2,800) (24,894)
-------- ------- --------- --------
Loss from continuing operations before income
taxes............................................ (6,330) (2,519) (3,101) (11,950)
(Provision for) benefit from income taxes.......... (1,620) -- (D) 2,730 1,110
-------- ------- --------- --------
Loss from continuing operations.................... $ (7,950) $(2,519) $(371) $(10,840)
======== ======= ========= ========
Weighted average shares outstanding................ 50,299
========
Basic and diluted loss per share from continuing
operations....................................... $ (0.22)
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL
STATEMENTS.
P-3
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
(UNAUDITED)
1. ACQUISITION AND BASIS OF PRESENTATION
Effective October 1, 2000, Packard BioScience Company ("Packard" or "the
Company") acquired the net operating assets of a division of GSI Lumonics, Inc.
("GSLI") (now operating as a division of Packard BioChip Technologies LLC, a
wholly-owned subsidiary of the Company). The total amount paid consisted of
approximately $40 million in cash and 4.5 million shares of Company common stock
valued for accounting purposes at $65.2 million. The acquisition resulted in a
charge in October 2000 totaling $12.1 million to write off the value assigned to
acquired in-process research and development which had not yet reached
technological feasibility, based upon an appraisal using the percentage of
completion method. Goodwill related to this acquisition of approximately
$90.5 million is being amortized over a 20-year period.
The pro forma information presented is theoretical in nature and not
necessarily indicative of future consolidated results of operations of the
Company or the consolidated results of operations which would have resulted had
the Company acquired certain net assets of GSLI during the period presented. The
pro forma consolidated financial statement reflects the effects of the GSLI
acquisition, assuming that the acquisition and related events occurred as of
January 1, 2000.
The historical Packard and GSLI financial information included in the
accompanying pro forma financial statement was derived from the historical
financial statements included elsewhere herein.
The historical GSLI statement of loss from continuing operations include all
revenues and expenses directly attributable to GSLI's products. Cost of sales
includes material cost, direct labor and an allocation of factory overhead. Some
selling, general and administrative expenses have been allocated to GSLI on
various bases, including the basis of relative sales of GSLI to other sales of
GSI Lumonics Inc., personnel and estimated time spent on GSLI. In the opinion of
management of GSLI, such allocations are reasonable. The statements do not
include corporate general and administrative expenses, interest, income taxes or
any other corporate expense allocations. Since GSLI was not a separate business
unit, GSI Lumonics Inc. had never segregated indirect operating cost information
relative to GSLI for external financial reporting purposes. Accordingly, it is
not practical to isolate or allocate such indirect operating costs to GSLI. The
Company does not believe that there will be any significant incremental costs
that should be reflected.
2. PRO FORMA ADJUSTMENTS
The purchase price of GSLI consisted of the following (in thousands):
Cash........................................................ $ 39,338
Company common stock........................................ 65,184
Legal and other fees........................................ 1,793
--------
Total consideration......................................... $106,315
========
The Company issued approximately 4.5 million shares of common stock to GSLI
in connection with the acquisition. For financial reporting purposes, the value
assigned to the stock of $65.2 million was determined in accordance with
guidance provided by the Emerging Issues Task Force. The value of the stock for
tax purposes was approximately $87.7 million, which amount was determined based
on the
P-4
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
(UNAUDITED)
2. PRO FORMA ADJUSTMENTS (CONTINUED)
closing price on the date the shares were issued. The difference will result in
an additional tax deduction of approximately $595,000 annually which will reduce
goodwill.
The purchase price was allocated as follows:
Tangible net assets......................................... $ 3,709
In-process research and development......................... 12,100
Goodwill.................................................... 90,506
--------
Total....................................................... $106,315
========
The Company wrote-off the value assigned to the acquired in-process research
and development in the fourth quarter of 2000 as it had not reached
technological feasibility as of the date of the acquisition. This write-off has
been eliminated in the accompanying pro forma statement of loss from continuing
operations since it is nonrecurring in nature.
The pro forma adjustments consist of the following:
(A) To reflect goodwill amortization using a twenty (20) year estimated
life.
(B) The purchased in-process research and development charge included in the
historical Packard financial statements has been eliminated from the pro
forma financial information as it is nonrecurring in nature.
(C) To reflect the reduction in interest income and increase in interest
expense that would have resulted given the $40 million used for the
acquisition. A change in the interest rate of .125% would result in
increasing or decreasing the annual pro forma interest expense adjustment
by $50,000.
(D) The income tax effect of the pro forma adjustments is based upon the
Company's approximate statutory effective rate of 38%. The adjustment
also includes a tax benefit for the historical loss for GSLI since a
benefit would have resulted if such amount was included in the Company's
consolidated group at such time.
(E) The purchased in-process research and development charge included in the
historical GSLI financial statements has been eliminated from the pro
forma financial information as it is nonrecurring in nature.
P-5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO]
COMMON STOCK
------------
P R O S P E C T U S
-------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
JPMORGAN
BANC OF AMERICA SECURITIES LLC
ROBERT W. BAIRD & CO.
, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
[ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 29, 2001
PROSPECTUS
10,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
Packard BioScience Company is selling 3,000,000 shares and Packard
BioScience Company stockholders are selling 7,000,000 shares. The international
managers are offering 2,000,000 shares outside the U.S. and Canada and the U.S.
underwriters are offering 8,000,000 shares in the U.S. and Canada.
The shares are quoted on the Nasdaq National Market under the symbol "PBSC."
On March 28, 2001, the last sale price of the shares as reported on the Nasdaq
National Market was $5.8125 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------
PER SHARE TOTAL
--------- -----
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to Packard BioScience........ $ $
Proceeds to the selling stockholders.................... $ $
The international managers may purchase up to an additional 300,000 shares
from the selling stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional 1,200,000 shares from the selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2001.
------------------
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
JPMORGAN
BANK OF AMERICA INTERNATIONAL LIMITED
ROBERT W. BAIRD & CO.
-----------
The date of this prospectus is , 2001.
[ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, Credit Suisse First Boston (Europe) Limited, J.P.
Morgan Securities Ltd., Bank of America International Limited and Robert W.
Baird & Co. Incorporated are acting as lead managers for the international
managers named below. Subject to the terms and conditions described in an
international purchase agreement among us, the selling stockholders, certain
other stockholders and the international managers, and concurrently with the
sale of shares to the U.S. underwriters, we and the selling stockholders have
agreed to sell to the international managers, and the international managers
severally have agreed to purchase from us and the selling stockholders and
concurrently with the sale of shares to the U.S. underwriters, the number of
shares listed opposite their names below.
NUMBER
INTERNATIONAL MANAGER OF SHARES
- --------------------- ---------
Merrill Lynch International ............................
Credit Suisse First Boston (Europe) Limited.............
J.P. Morgan Securities Ltd..............................
Bank of America International Limited...................
Robert W. Baird & Co. Incorporated......................
---------
Total......................................... 2,000,000
=========
We, the selling stockholders and certain other stockholders have also
entered into a U.S. purchase agreement with the U.S. underwriters for sale of
the shares in the U.S. and Canada for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation, J.P. Morgan Securities
Inc., Banc of America Securities LLC and Robert W. Baird & Co. Incorporated are
acting as U.S. representatives. Subject to the terms and conditions in the U.S.
agreement, and concurrently with the sale of shares to the international
managers pursuant to the international purchase agreement, we and the selling
stockholders have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase 8,000,000 shares from us and the
selling stockholders. The public offering price per share and the total
underwriting discount per share are identical under the international purchase
agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to purchase
all of the shares sold under the international and U.S. purchase agreements if
any of these shares are purchased. If an underwriter defaults, the international
and U.S. purchase agreements provide that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.
We and the selling stockholders have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
international managers and the U.S. underwriters may be required to make in
respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
93
COMMISSIONS AND DISCOUNTS
The lead managers have advised us and the selling stockholders that the
international managers propose initially to offer the shares to the public at
the public offering price listed on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
international managers may allow, and the dealers may reallow, a discount not in
excess of $ per share to other dealers. After the offering, the public offering
price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Packard BioScience Company and the selling
stockholders. The information assumes either no exercise or full exercise by the
international managers and the U.S. underwriters of their over-allotment
options.
PER SHARE WITHOUT OPTIONS WITH OPTIONS
--------- --------------- ------------
Public offering price........................... $ $ $
Underwriting discount........................... $ $ $
Proceeds, before expenses, to Packard
BioScience.................................... $ $ $
Proceeds to selling stockholders................ $ $ $
The expenses of the offering, not including the underwriting discount, are
estimated at $1.5 million and are payable by us.
OVER-ALLOTMENT OPTIONS
The selling stockholders have granted options to the international managers
to purchase up to 300,000 additional shares at the public offering price less
the underwriting discount. The international managers may exercise this option
for 30 days from the date of this prospectus solely to cover any
over-allotments. If the international managers exercise this option, each will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.
The selling stockholders have also granted options to the U.S. underwriters,
exercisable for 30 days from the date of this prospectus, to purchase up to
1,200,000 additional shares to cover any over-allotments on terms similar to
those granted to the international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the international managers and any dealer to whom
they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors and the selling stockholders have
agreed generally, subject to exceptions, not to sell or transfer common stock
for 90 days after the date of this prospectus without
94
first obtaining the written consent of Merrill Lynch. Specifically, we and these
other individuals will agree not to directly or indirectly:
- offer, pledge, sell or contract to sell any common stock;
- sell any options or contract to purchase any common stock;
- purchase any options or contract to sell any common stock;
- grant any options, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition. The restrictions described above do not apply to the
shares sold to the underwriters under this prospectus.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares are quoted on the Nasdaq National Market under the symbol "PBSC."
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the common shares is completed, SEC rules may
limit the underwriters from bidding for or purchasing our common stock. However,
the U.S. representatives may engage in transactions that stabilize the price of
the common shares, such as bids or purchases to peg, fix or maintain that price.
The underwriters may purchase and sell the common shares in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover position created by short sales. Short sales involve the sale
by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from selling
stockholders in the offering. The U.S. representatives may close out any covered
short position by either exercising their option to purchase additional shares
or purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the U.S. representatives will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The U.S. representatives must close out any naked short position by
purchasing shares in the open market. A naked short position is more likely to
be created if the underwriters are concerned that there may be downward pressure
on the price of the common shares in the open market after pricing that could
adversely affect investors who purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of common shares made by
the underwriters in the open market prior to the completion of the offering.
The U.S. representatives may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the U.S. representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
95
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicated short sales may have the effect of raising or maintaining the
market price of the common shares or preventing or retarding a decline in the
market price of the common shares. As a result, the price of the common shares
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common shares. In addition, neither we nor
any of the underwriters make any representation that the U.S. representatives or
the lead managers will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that:
- it has not offered or sold and will not offer or sell any shares of common
stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- 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 issuance
of common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements)(Exemptions)
Order 1996 as amended by the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1997 or is a person to whom such
document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act during a period before the commencement of offers or sales of common stock
and extending through the completion of distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of
that security.
96
However, if all independent bids are lowered below the passive market maker's
bid, that bid must then be lowered when specified purchase limits are exceeded.
ELECTRONIC PROSPECTUS
Merrill Lynch, Pierce, Fenner & Smith Incorporated may facilitate Internet
distribution for this offering to certain of its Internet subscription
customers. Merrill Lynch may allocate a limited number of shares for sale to its
on-line brokerage customers. In this case, an electronic prospectus will be made
available on the web site maintained by Merrill Lynch.
Other than the prospectus in electronic format, the information on the web
site maintained by Merrill Lynch relating to this offering is not intended to be
part of this prospectus.
OTHER RELATIONSHIPS
Banc of America Securities LLC is an affiliate of a lender under our senior
credit facility. Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, other investment banking and other commercial
dealings in the ordinary course of business with us. For example, Merrill Lynch,
Pierce Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated and Bank
of America Securities LLC participated as underwriters in our initial public
offering for which, together with the other underwriters, they received
underwriting fees aggregate $7,560,000 . In addition, J.P. Morgan Securities
Inc. and Robert W. Baird & Co. Incorporated provided us with financial advisory
services and received fees in connection with the transactions described under
"Related Party Transactions--Other Related Party Transactions". We believe these
are customary fees and commissions for transactions of this nature.
Messrs. End, Hoecker and Michas, who are Directors of our company, are also
Directors and/or consultants to Merrill Lynch Capital Partners, Inc., which is
associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated. They have
received, and may in the future receive, customary fees in connection with these
consulting services.
In addition, affiliates of Robert W. Baird & Co. Incorporated own an
aggregate of 1,373,030 shares of our common stock and affiliates of Merrill
Lynch, Pierce, Fenner & Smith Incorporated own an aggregate of 1,123,590 shares
of our common stock. Further, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC, J.P. Morgan Securities Inc. and
Robert W. Baird & Co. Incorporated are affiliates of Limited Partners of the
Stonington Capital Appreciation 1994 Fund, L.P. George Montgomery, an employee
of Chase Securities Inc., which is an affiliate of J.P. Morgan Securities Inc.,
also owns 50,000 shares of our common stock.
97
[ALTERNATE BACK COVER PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO]
COMMON STOCK
------------
P R O S P E C T U S
-------------------
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
JPMORGAN
BANK OF AMERICA INTERNATIONAL LIMITED
ROBERT W. BAIRD & CO.
, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered, all of which will be paid by the Registrant:
AMOUNT
----------
SEC registration fee........................................ $ 40,700
NASD filing fee............................................. 16,775
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees and expenses.............. *
Miscellaneous............................................... *
----------
Total................................................... $
==========
- ------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Packard BioScience Company (the "Company") is incorporated under the laws of
the State of Delaware. Section 145 of the General Corporation Law of the State
of Delaware ("Section 145") provides that a Delaware corporation may indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such person as an officer, director, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred.
II-1
The Company's Certificate of Incorporation and By-Laws provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duties as a
director, except for liability (i) for any transaction from which the director
derives an improper personal benefit, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) for improper payment of dividends or redemptions of shares, or (iv) for
any breach of a director's duty of loyalty to the company or its stockholders.
The Company's Certificate of Incorporation includes such a provision. Expenses
incurred by any officer or director in defending any such action, suit or
proceeding in advance of its final disposition shall be paid by the Company upon
delivery to the Company of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified by the Company.
The Purchase Agreements relating to the offering are expected to provide
that the Underwriters are obligated, under certain circumstances, to indemnify
directors, officers and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act of 1933 (the "1933
Act"). Reference is made to the forms of Purchase Agreements filed as Exhibits
1.1 and 1.2 hereto. In addition, a custody agreement to be entered into by and
among the Company and certain of its stockholders who may sell shares of their
common stock in the offering is expected to provide that, if such sales are
made, such selling stockholders are obligated, under certain circumstances and
subject to certain limitations, to indemnify controlling persons of the Company
against liabilities, including liabilities under the 1933 Act. Reference is made
to the form of Irrevocable Power of Attorney and Custody Agreement filed as
Exhibit 10.21 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by the Registrant during the
past three years involving sales of the Registrant's securities that were not
registered under the Securities Act. Except as otherwise indicated, all share
data reflect a 5-for-1 split of the common stock, par value $.002 per share (the
"Common Stock"), of Packard BioScience Company (the "Company"), effective as of
March 21, 2000.
(A) Pursuant to its Management Stock Incentive Plan, dated as of March 4,
1997, the Company granted during the past three years an aggregate amount of:
(a) 3,550,000 options entitling their holders to purchase one share of Common
Stock at an exercise price of $2.225 per share (subject to adjustments);
(b) 1,325,000 options at an exercise price of $2.725 per share (subject to
adjustments); (c) 1,150,000 options at an exercise price of $2.792 per share
(subject to adjustments); and (d) 2,126,250 options at an exercise price of
$3.352 (subject to adjustments). In addition, on September 4, 1997 and
January 29, May 14 and December 28, 1998, the Company issued 3,735 shares (at
$2.225 per share), 50,000 shares (at $2.225 per share), 125,355 shares (at
$2.792 per share) and 7,160 shares (at $2.792 per share), respectively, to
Messrs. Michael Gut, William Ettinger, Edward Fischer and Ms. Patricia Lobb,
under its Employee Stock Ownership Plan. These transactions were all made in
reliance on Rule 701 under the 1933 Act. On August 18, 2000, in connection with
the Company's initial public offering, the securities issuable under the
Management Stock Incentive Plan were registered under the 1933 Act pursuant to a
Registration Statement on Form S-8 (File No. 333-44082).
II-2
(B) In connection with the acquisition of Carl Creative Systems, Inc. on
March 31, 1998, pursuant to a Stock Purchase Agreement, dated as of March 31,
1998, between the Company and Mr. Richard A. Carl, the founder of Carl Creative
Systems, Inc. and current President of CCS Packard, Inc., the Company:
(a) issued 408,310 shares of Common Stock to Mr. Carl, at a price of $2.792 per
share; and (b) issued 136,105 shares of Common Stock to Mr. Daniel Roark, at a
price of $2.792 per share.
(C) In connection with the acquisition of BioSignal, Inc. on July 1, 1998,
the Company issued 35,815 shares of Common Stock, valued at $2.792 per share, to
Mr. Michael Dennis, the former CEO of BioSignal, Inc.
(D) Effective October 1, 2000, the Company acquired certain assets and
assumed certain liabilities of the life sciences division of GSI
Lumonics, Inc., a New Brunswick corporation ("GSI"), for aggregate consideration
of approximately $131 million, consisting of approximately $40 million in cash
and the issuance of approximately 4.5 million shares of the Company's common
stock, pursuant to the terms and conditions of an Asset Purchase Agreement dated
August 19, 2000 among the Company and two subsidiaries of GSI, GSI Lumonics Life
Science Trust (the "Trust") and GSI Lumonics Trust, Inc. as trustee for the
Trust.
None of the transactions described in this Item 15 involved any
underwriters, underwriting discounts or commissions, or any public offering, and
the Company believes that each transaction, if deemed to be a sale of a
security, was exempt from the registration requirements of the 1933 Act by
virtue of Section 4(2) thereof or, in the case of clause (A), Rule 701
thereunder pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and acknowledging that the securities were issued in a
transaction nor registered under the 1933 Act, such securities were restricted
as to transfers and appropriate legends were affixed to the share certificates
and instruments issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
1.1 Form of U.S. Purchase Agreement*
1.2 Form of International Purchase Agreement*
3.1 Amended and Restated Certificate of Incorporation of the
Registrant(1)
3.2 Amended and Restated By-Laws of the Registrant(1)
4.1 Specimen of Common Stock Certificate(1)
4.2 Stockholders' Agreement, dated as of March 4, 1997, by and
among the Company, Merrill Lynch KECALP L.P. 1994, KECALP
Inc., the Management Investors listed in Schedule 1 thereto,
the Non-Management Investors listed in Schedule 2 thereto
and Stonington Capital Appreciation 1994 Fund, L.P. (the
"Stockholders' Agreement")(2)
4.3 Amendment No. 1, dated as of June 2, 1997, to the
Stockholders' Agreement(3)
4.4 Amendment No. 2, dated as of January 23, 1998, to the
Stockholders' Agreement(4)
4.5 Amendment No. 3, dated as of March 31, 1998, to the
Stockholders' Agreement(4)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (including
consent)*
II-3
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
10.1 Indenture, dated as of March 4, 1997, between the Registrant
and The Bank of New York, as Trustee(2)
10.2 Amended and Restated Credit Agreement, dated as of March 4,
1997, and amended and restated as of August 17, 2000, by and
among the Company, the Subsidiary Borrowers from time to
time parties thereto, Banc of America Securities LLC, as
sole lead arranger and book manager, Fleet National Bank, as
syndication agent, General Electric Capital Corporation, as
documentation agent and Bank of America, N.A. as
administrative agent*
10.3 Packard BioScience Company 1997 Management Stock Incentive
Plan(2)
10.4 Canberra Industries, Inc. Stock Option Plan of 1971, as
amended(2)
10.5 Packard BioScience Company 2000 Stock Incentive Plan(1)
10.6 Packard BioScience Company Non-Employee Director Option
Compensation Plan(1)
10.7 Packard BioScience Company 2000 Employee Stock Purchase
Plan(1)
10.8 Employment Agreement by and between the Company and Emery G.
Olcott(2)
10.9 Employment Agreement by and between the Company and Richard
T. McKernan(2)
10.10 Employment Agreement by and between the Company and George
Serrano(2)
10.11 Employment Agreement by and between the Company and Staf van
Cauter(2)
10.12 Employment Agreement by and between the Company and Orren K.
Tench, Jr.(2)
10.13 Employment Agreement by and between the Company and Ben D.
Kaplan(5)
10.14 First Amendment to Employment Agreement by and between the
Company and Ben D. Kaplan(4)
10.15 Employment Agreement by and between the Company and Franklin
R. Witney*
10.16 First Amendment to Employment Agreement by and between the
Company and Richard T. McKernan*
10.17 Form of Irrevocable Power of Attorney and Custody Agreement*
10.18 Asset Purchase Agreement, dated August 19, 2000 between GSI
Lumonics Life Science Trust, GSI Lumonics Trust, Inc. and
the Company(6)
10.19 Asset Purchase Agreement between the Company and Compagnie
Generale Des Matieres Nucleaires, dated as of November 28,
2000(7)
21.1 Subsidiaries of the Registrant*
23.1 Consent of Arthur Andersen LLP**
23.2 Consent of Ernst & Young LLP**
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit No. 5.1)
24.1 Powers of Attorney (included on signature page)
- ------------------------
* To be filed by amendment.
** Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(file No. 333-31996).
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(file No. 333-24001).
(3) Filed as an exhibit to the Registrant's Form 10-K for the year ended
December 31, 1997.
II-4
(4) Filed as an exhibit to the Registrant's Form 10-K for the year ended
December 31, 1999.
(5) Filed as an exhibit to the Registrant's Form 10-Q for the quarter ending
June 30, 1997.
(6) Filed as an exhibit to the Registrant's Form 8-K dated October 2, 2000,
filed on October 13, 2000.
(7) Filed as an exhibit to the Registrant's Form 8-K dated February 27, 2001,
filed on March 14, 2001.
(B) FINANCIAL STATEMENT SCHEDULE
Packard BioScience Company and Subsidiaries Valuation and Qualifying
Accounts and Reserves for the Three Year Period Ended December 31, 2000.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That 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 a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That 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.
(3) 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
Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of New York, State of New
York, on the 29th day of March, 2001.
PACKARD BIOSCIENCE COMPANY
By: /s/ Ben D. Kaplan
-----------------------------------------
Name: Ben D. Kaplan
Title: Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 29, 2001.
SIGNATURE TITLE
--------- -----
/s/ Emery G. Olcott
------------------------------------------- Chairman of the Board and Chief Executive
Emery G. Olcott Officer
/s/ Franklin R. Witney
------------------------------------------- President and Chief Operating Officer
Franklin R. Witney
/s/ Ben D. Kaplan
------------------------------------------- Vice President and Chief Financial Officer
Ben D. Kaplan
/s/ David M. Dean
------------------------------------------- Corporate Controller
David M. Dean
/s/ Nicholas G. Bacopoulos
------------------------------------------- Director
Nicholas G. Bacopoulos
*
------------------------------------------- Director
Robert F. End
/s/ Bradley J. Hoecker
------------------------------------------- Director
Bradley J. Hoecker
II-6
SIGNATURE TITLE
--------- -----
/s/ Alexis P. Michas
------------------------------------------- Director
Alexis P. Michas
/s/ Harry H. Penner, Jr.
------------------------------------------- Director
Harry H. Penner, Jr.
/s/ Robert C. Salisbury
------------------------------------------- Director
Robert C. Salisbury
*
------------------------------------------- Director
Peter P. Tong
*By: /s/ Ben D. Kaplan
-----------------------------------
Ben D. Kaplan
(ATTORNEY-IN-FACT)
II-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Packard BioScience Company:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated balance sheets of Packard BioScience Company
and subsidiaries as of December 31, 1999 and 2000, and the related consolidated
statements of income (loss), comprehensive income (loss), stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 2000, included in this prospectus, and have issued our report
thereon dated February 8, 2001, except for the second paragraph of Note 1 and
all of Note 15 as to which the date is February 28, 2001. Our audits were made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The accompanying schedule 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
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 8, 2001
S-1
SCHEDULE II
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 2000
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ---------
DESCRIPTION COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------- ---------- ---------- ---------- ---------- ---------
For the year ended December 31, 1998:
Reserves which are deducted in the
balance sheet from assets to which
they apply --
Reserves for uncollectible amounts... $427,784 $ 70,448 $20,315(a) $114,818 $403,729
For the year ended December 31, 1999:
Reserves which are deducted in the
balance sheet from assets to which
they apply --
Reserves for uncollectible amounts... $403,729 $ 91,161 -- $ 95,612 $421,321
For the year ended December 31, 2000:
Reserves which are deducted in the
balance sheet from assets to which
they apply --
Reserves for uncollectible amounts... $421,321 $135,019 $14,588(a) $ 66,182 $504,746
- ------------------------
(a) Represents reserves recorded at dates of acquisition.
S-2