AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997
REGISTRATION NO. 333-24001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PACKARD BIOSCIENCE COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 3829 06-0676652
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
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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)
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BEN D. KAPLAN
VICE PRESIDENT & CHIEF FINANCIAL OFFICER
PACKARD BIOSCIENCE COMPANY
800 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450
(203) 238-2351
(Address, including zip code, and telephone number, including
area code, of agents for service of process)
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COPIES OF ALL COMMUNICATIONS TO:
ANDREW R. BROWNSTEIN, ESQ. PAUL F. MCALENNEY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ DAY, BERRY & HOWARD
51 WEST 52ND STREET CITY PLACE I
NEW YORK, NEW YORK 10019 185 ASYLUM STREET
(212) 403-1000 HARTFORD, CONNECTICUT 06103
(860) 275-0100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MAY 16, 1997
PRELIMINARY PROSPECTUS
[LOGO]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
OFFER TO EXCHANGE
UP TO $150,000,000 OF
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 3/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
PACKARD BIOSCIENCE COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
Packard BioScience Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange an aggregate of up to $150,000,000 principal amount of 9 3/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus forms a part, for
an identical face amount of the issued and outstanding 9 3/8% Senior
Subordinated Notes due 2007 (the "144A Notes" and, together with the Exchange
Notes, the "Notes") of the Company from the Holders (as defined herein) thereof
in integral multiples of $1,000. As of the date of this Prospectus, there are
$150,000,000 aggregate principal amount of the 144A Notes outstanding. The terms
of the Exchange Notes are identical in all material respects to the 144A Notes,
except that the Exchange Notes have been registered under the Securities Act,
and therefore will not bear legends restricting their transfer and will not
contain certain provisions providing for an increase in the interest rate
payable on the 144A Notes under certain circumstances relating to the
Registration Rights Agreement (as defined herein), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
The Exchange Notes will be obligations of the Company evidencing the same
indebtedness as the 144A Notes, and will be entitled to the benefits of the same
Indenture (as defined herein). See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
March 1 and September 1 of each year, commencing September 1, 1997. The Exchange
Notes will mature on March 1, 2007. The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, in cash, at any time on or after
March 1, 2002, at the redemption prices set forth herein, together with accrued
and unpaid interest, if any, to the date of redemption. In addition, on or prior
to March 1, 2000, the Company may redeem up to 30% of the originally issued
Exchange Notes, at a price of 109 3/8% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the redemption date, with the net
proceeds of one or more Public Equity Offerings (as defined herein), provided
that not less than $105 million in principal amount of Exchange Notes is
outstanding immediately after giving effect to such redemption. Upon the
occurrence of a Change of Control (as defined herein), each holder of Exchange
Notes will, subject to the limitations described herein, have the right to
require the Company to purchase all or a portion of such holder's Exchange Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase. See "Description of the
Exchange Notes."
The Exchange Notes will represent unsecured senior subordinated obligations
of the Company and will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined herein) of the Company, including
indebtedness under the New Credit Agreement (as defined herein). The Exchange
Notes will rank PARI PASSU with all senior subordinated indebtedness, if any, of
the Company and will rank senior to all other subordinated indebtedness, if any,
of the Company. In addition, the business operations of the Company are
conducted in part through its subsidiaries. The Company will, in part, be
dependent on the cash flow of such subsidiaries and distributions thereof from
such subsidiaries to the Company in order to meet its debt service obligations,
and the Exchange Notes will also be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries. As of March 31, 1997, the
Company had $40.0 million of Senior Indebtedness outstanding and the Company's
subsidiaries had approximately $1.8 million of Indebtedness (as defined herein)
outstanding (excluding the guarantees by the Company's subsidiaries under the
New Credit Agreement). The Company also had no PARI PASSU or subordinated
indebtedness outstanding. The Company may incur additional indebtedness in the
future, including Senior Indebtedness or PARI PASSU indebtedness, subject to
limitations imposed by the Indenture and the New Credit Agreement. See
"Description of the Exchange Notes" and "Description of the New Credit
Agreement."
(COVER TEXT CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1997.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The Company will accept for exchange any and all validly tendered 144A Notes
on or prior to the Expiration Date (as defined herein). Tenders of 144A Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer is
not conditioned upon any minimum principal amount of 144A Notes being tendered
for exchange. For certain conditions to the Exchange Offer, see "The Exchange
Offer--Conditions."
The 144A Notes were issued and sold on March 4, 1997 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the 144A Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for 144A Notes may be offered for resale, resold or otherwise
transferred by any Holder thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired
in the ordinary course of such Holder's business and such Holder does not intend
to participate and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. In some cases, certain
broker-dealers may be required to deliver a prospectus in connection with the
resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such 144A Notes where such 144A Notes were acquired by
such broker-dealer for its own account as a result of market-making activities
or other trading activities (other than 144A Notes acquired directly from the
Company). The Company has agreed that it will make this Prospectus available to
any broker-dealer for use in connection with any such resale.
Prior to this Exchange Offer, there has been no public market for the 144A
Notes or Exchange Notes. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their principal amount. The
Company does not intend to list the Exchange Notes on any securities exchange
nor does the Company intend to apply for quotation of the Exchange Notes through
the NASDAQ System. The Initial Purchasers (as defined herein) have indicated to
the Company that they intend to make a market in the Notes, but are not
obligated to do so and such market-making activities may be discontinued at any
time. As a result, no assurance can be given that an active trading market for
the Exchange Notes will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of Global Exchange Notes (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Notes representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
the DTC and its participants. Notwithstanding the foregoing, 144A Notes held in
certificated form will be exchanged solely for Certificated Exchange Notes (as
defined herein). After the initial issuance of the Global Exchange Notes,
Certificated Exchange Notes will be issued in exchange for the Global Exchange
Notes only on the terms set forth in the Indenture. See "Description of the
Exchange Notes--Book-Entry, Delivery and Form."
2
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement" or "Exchange Offer Registration Statement") under
the Securities Act with respect to the Exchange Notes being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement. For further
information with respect to the Company and the Exchange Notes offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. Copies of
the Registration Statement may be examined without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the web site maintained by the Commission
(http://www.sec.gov) and at the Commission's Regional Offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material so filed can
be obtained from the Public Reference Section of the Commission, upon payment of
certain fees prescribed by the Commission. In addition, pursuant to the
Indenture covering the Notes, the Company has agreed to file with the
Commission, and provide to the Holders, the annual reports and the information,
documents and other reports otherwise required pursuant to Section 13 of the
Exchange Act. Such requirements may be satisfied through the filing and
provision of such documents and reports which would otherwise be required
pursuant to Section 13 of the Exchange Act in respect of the Company.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE FORWARD-LOOKING STATEMENTS AND ARE
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST
SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER
"RISK FACTORS," BEGINNING ON PAGE 17 OF THIS PROSPECTUS, AND HOLDERS OF 144A
NOTES ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS.
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Tri-Carb-Registered Trademark-, InstantImager-Registered Trademark- and
MultiPROBE-Registered Trademark- are registered trademarks of the Company and
HTRF-TM-, Discovery-TM- and TopCount-TM- are trademarks of the Company.
3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
REQUIRES OTHERWISE, REFERENCES TO THE "COMPANY" INCLUDE PACKARD BIOSCIENCE
COMPANY AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, INDUSTRY DATA
CONTAINED HEREIN IS DERIVED FROM PUBLICLY AVAILABLE INDUSTRY TRADE JOURNALS,
REPORTS AND OTHER PUBLICLY AVAILABLE SOURCES, WHICH THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED BUT WHICH THE COMPANY BELIEVES TO BE RELIABLE, AND WHERE
SUCH SOURCES WERE NOT AVAILABLE, FROM COMPANY ESTIMATES, WHICH THE COMPANY
BELIEVES TO BE REASONABLE, BUT WHICH CANNOT BE INDEPENDENTLY VERIFIED. SEE
"GLOSSARY OF TERMS" IN APPENDIX A FOR DEFINITIONS OF CERTAIN TERMS AND ACRONYMS.
THE COMPANY
The Company is a leading developer, manufacturer and marketer of analytical
instruments and related products and services for use in the drug discovery and
molecular biology segments of the life sciences industry and in the nuclear
instrumentation industry. Through Packard Instrument Company, Inc., a
wholly-owned subsidiary, and several other wholly-owned subsidiaries
(collectively, "Packard Instrument"), the Company supplies bioanalytical
instruments, and related biochemical supplies and services, to the drug
discovery and molecular biology markets, and through certain divisions and
wholly-owned subsidiaries comprising the Canberra Nuclear Products Group
("Canberra Nuclear"), the Company manufactures analytical instruments and
systems used to detect, identify and quantify radioactive materials for the
nuclear industry and related markets. The Company believes that it is the
worldwide market leader in most of its primary product markets, with
well-recognized brand names and a reputation for high-quality, reliable
instruments. For the year ended December 31, 1996, the Company had revenues and
EBITDA (as defined herein) of $184.0 million and $36.7 million, respectively.
Packard Instrument is a worldwide leader in the manufacturing and marketing
of bioanalytical instruments for use in the drug discovery and molecular biology
segments of the life sciences industry. Packard Instrument's instruments and
biochemicals are used principally in laboratory research related to immunology,
genetics, virology, biochemistry, toxicology and metabolism studies, primarily
as part of the drug discovery research process. Over the past five years,
pharmaceutical and biotechnology companies have attempted to advance the drug
discovery process through accelerated drug screening and have invested
considerable resources in this process, resulting in increased demand for
Packard Instrument's products. Packard Instrument's primary products include
bioanalytical spectrometers, microplate readers, imaging systems, robotic liquid
handling systems and biochemicals and related supplies. Packard Instrument's
strong, long-term relationships with its customers have been a key component of
its development of new products which respond to these industry trends. In
addition, the Company believes that the quality and reliability of its products
have generated a large installed base of instruments which allows Packard
Instrument to generate a recurring stream of revenue from service and from sales
of biochemicals and other consumables. Packard Instrument distributes and
services its instruments through an extensive international sales and service
organization to many of the leading pharmaceutical, biotechnology and
agrochemical companies as well as to prominent academic, federal and hospital
laboratories.
Canberra Nuclear is the worldwide market leader in the manufacture and
marketing of precision instruments which use advanced analytical techniques to
quantify and identify radioisotopes. Canberra Nuclear offers its customers a
full array of nuclear instruments and related services including: (i) a broad
product line of basic hardware and software for detection, signal processing,
data acquisition and display, and basic analysis of all types of radiation; (ii)
"applied systems," which are integrated systems of software and hardware that
address a specific application and serve as turn-key operations; and (iii)
product and applications training and customer service and support. This
comprehensive product and service offering has enabled Canberra Nuclear to amass
what it believes to be the largest base of installed equipment in the nuclear
instrument industry, which generates a recurring stream of service revenues.
Canberra Nuclear's
4
customers include government institutions, utilities, research laboratories,
commercial analytical laboratories and international, national and local
regulatory agencies. In support of its worldwide customer base, Canberra Nuclear
has developed an extensive sales and service organization, with locations near
most major nuclear sites in the world.
COMPANY STRENGTHS
LEADING MARKET POSITION. The Company believes that it has the leading
market position in each of its two principal businesses. The Company believes
that Packard Instrument has an approximate 25% market share of the worldwide
market segments in the life sciences industry in which it currently competes and
that Canberra Nuclear holds a more than 50% market share of the worldwide
commercial nuclear instrument market. In addition, the Company estimates that
Canberra Nuclear has an approximate 60% market share in the market for turn-key
systems that meet customer's specific application requirements, a market segment
that the Company believes will grow faster than the market for individual
instruments. The Company's well-recognized name and reputation for quality and
reliability have allowed it to gain leading market positions across most of its
primary product lines.
LONG-TERM CUSTOMER RELATIONSHIPS. The Company has long-term relationships
with its customers in both the life sciences and nuclear instrumentation
industries. Packard Instrument's relationships with its customers, which include
most of the major pharmaceutical companies worldwide, have resulted in
collaborative research and development efforts with its customers that have been
key to Packard Instrument's new product development strategy and that have
helped Packard Instrument to maintain its leading market position. Canberra
Nuclear similarly enjoys strong relationships with major nuclear instrumentation
industry participants, including commercial enterprises and government entities
such as the United States Department of Energy ("DOE").
RECURRING REVENUES FROM INSTALLED BASE. The Company generates recurring
revenue from service and the sale of consumables due to its large installed base
of equipment. The Company believes that it has the largest installed equipment
base in the nuclear instrument industry and one of the largest installed bases
in the market segments of the life science industry in which it competes. The
Company estimates that Packard Instrument's installed base in the life sciences
industry consists of over 14,000 bioanalytical instruments. The Company
estimates that Canberra Nuclear's installed base in the nuclear instrument
industry includes more than 150 waste characterization systems, more than 300
whole body counting systems, hundreds of safeguards systems and thousands of
radiochemistry systems. Both Packard Instrument and Canberra Nuclear offer their
customers service and support for the instruments they sell. In addition,
Packard Instrument offers its customers consumables for its instruments.
Consumable sales and service provide the Company with stable, recurring revenue
for years after an instrument has been sold. Approximately 33% of the Company's
revenues for fiscal 1996 was generated by service of its equipment and the sale
of consumables. For those instruments covered by service contracts, service
contract revenues per instrument per year average 8% to 13% of the equipment's
original selling price. Canberra Nuclear's applied systems generally require
more aftermarket service than Canberra Nuclear's other instruments, and as this
market segment grows, the Company believes that revenue from the provision of
related services may also increase. The Company believes that its installed base
represents a competitive advantage because many customers tend to remain with an
existing supplier who can provide accurate and reliable products and related
services.
EXTENSIVE WORLDWIDE SALES AND SERVICE ORGANIZATION. The Company has
developed an extensive worldwide sales, service and distribution network. The
Company primarily provides service and support for its instruments on a fixed
fee, one-year contract basis, which includes field service, customer support,
applications assistance and extensive training. The Company's worldwide service
organization includes approximately 160 personnel at Packard Instrument and
approximately 90 personnel at Canberra Nuclear who are, in each case,
factory-trained and educated. Packard Instrument has sales and service
operations in
5
13 countries, and approximately 43 independent distributors with over 68 offices
in more than 51 countries. Canberra Nuclear has locations near most major
nuclear sites in the world, with sales and service operations in nine countries,
and approximately 50 independent distributors with over 70 offices in more than
60 countries. In addition to the recurring stream of revenue from the Company's
service and support organization, the close contact and relationship between its
service and support personnel and its customers also provide the Company with
access to new product and application ideas as well as sales opportunities.
EXPERIENCED MANAGEMENT. The Company's management has substantial experience
in the life sciences industry and in the nuclear instrumentation industry. The
Company's top 14 managers average 21 years of experience with the Company. The
Company's Chief Executive Officer has held such position since 1965. Revenues in
1965 were $119,000 and have grown to $184.0 million for the year ended December
31, 1996. Upon consummation of the Recapitalization (as defined herein), the
Company's management beneficially owned approximately 20% of the Common Stock of
the Company on a fully diluted basis (excluding New Options (as defined herein)
to be granted subsequent to the Recapitalization Closing (as defined herein)
pursuant to a management stock incentive plan). See "Management--Management
Stock Incentive Plan."
BUSINESS STRATEGY
LEVERAGE BRAND RECOGNITION AND HIGH QUALITY. Through its applications
expertise and long history in its businesses, the Company has established and
will seek to maintain its recognized brand name and reputation for high quality,
reliable products and services. This reputation and recognized brand name, along
with the Company's extensive sales and service organization, should assist in
its efforts to further penetrate the markets for its existing products and
improve its market position in the industry segments in which it operates. The
Company monitors such quality statistics as "perfect" installations of its
equipment and, in the case of Packard Instrument, mean time between failures of
its products. The Company's goal is to be the supplier of choice for all end
users of its analytical instruments and systems. The Company will also seek to
use its established brand name and reputation for quality to compete on factors
other than price in order to maintain its margins.
GENERATE GROWTH THROUGH NEW PRODUCT DEVELOPMENT. The Company intends to
continue to emphasize new product development in order to provide
technologically advanced products to its customers for existing and new
applications and reinforce its market leadership. In particular, the Company
intends to continue to target a number of its new products toward the evolving
drug discovery market. Packard Instrument has an aggressive new product
introduction strategy that leverages its extensive distribution system and
recognized brand name. With its 90 research and development professionals and
its global service capabilities, Packard Instrument seeks to refine and market
technological advances that it obtains through internal development,
acquisitions or external collaborations with other companies or individuals.
Packard Instrument has capitalized on its strong customer relationships and
established reputation to learn about new applications desired by the
marketplace, enabling it to anticipate and respond to its customers' needs. The
Company believes that the introduction of its new products and product
enhancements and extensions should assist in its efforts to further penetrate
its markets.
Canberra Nuclear has implemented a strategy of developing turn-key systems
which meet a specific application requirement, require less technical training
to operate, and offer greater economic benefit than traditional stand-alone
components. This "systems" strategy is well suited to Canberra Nuclear's
strengths of applications know-how, worldwide service, software and hardware
expertise, and advanced training capabilities. In addition to selling its
measurement equipment, Canberra Nuclear has started offering transaction-based
database and spectroscopy services requested by its customers. Canberra
Nuclear's strategy is to develop its capabilities as a components manufacturer,
systems integrator, and applications expert in order to maintain and improve its
margins for both its products and services.
6
IMPLEMENT ADDITIONAL MANUFACTURING COST REDUCTIONS. The Company believes
that Packard Instrument is a low cost producer and that it can maintain this
position with continued emphasis on production cycle time, reduction in the
number of suppliers and increased use of outsourced standard components and sub-
assemblies. Canberra Nuclear has lowered its costs of manufacturing and service
significantly in the last several years through increased emphasis on
efficiency, primarily as a result of personnel and facilities reductions,
standardization of systems and increased automation of design. The Company
believes that Canberra Nuclear will strive to lower its manufacturing costs in
the future.
EMPHASIZE RECURRING REVENUES FROM SERVICES AND CONSUMABLES. The Company
intends to continue placing emphasis on expanding its service organization and
adding new biochemical and supply products to its existing product line in order
to increase its revenue from services and consumables. The Company is expanding
the type of value-added services it provides by increasing the applications
knowledge of its service staff which, as a result, should be able to provide
more consultative assistance to customers. Packard Instrument is positioning
itself to address the emerging demand for non-radioisotopic biochemicals and
supplies. The Company believes that new non-radioisotopic assays will address
new areas of the biochemicals and supplies market. The Company is also expanding
its product line to include a broader array of microplates and vials that
complement its existing product lines and new instruments. Canberra Nuclear is
emphasizing recurring service revenues by expanding its database service
activities serving the U.S. nuclear utility industry and positioning itself to
compete in transaction-based database and spectroscopy services for customers in
the nuclear power and DOE markets.
THE RECAPITALIZATION
The Company entered into a Recapitalization and Stock Purchase Agreement
(the "Recapitalization Agreement"), dated as of November 26, 1996, by and among
the Company, CII Acquisition LLC (the "Acquisition Entity") and each of the
management stockholders party thereto (the "Management Stockholders"), to effect
a recapitalization of the Company and related transactions (the
"Recapitalization"). Pursuant to the Recapitalization Agreement, the Company
completed a tender offer (the "Tender Offer") in which it repurchased for an
aggregate price of approximately $208.6 million all of the shares of common
stock of the Company ("Common Stock") other than certain shares retained by the
Management Stockholders and certain other stockholders (the "Continuing
Stockholders"). In addition, (i) the Acquisition Entity assigned its right to
acquire shares of Common Stock under the Recapitalization Agreement to
Stonington Capital Appreciation 1994 Fund, L.P. (the "Fund"), which is the sole
member of the Acquisition Entity, and two institutional investors, (ii) the
Fund, the two institutional investors and a member of the Board of Directors of
the Company acquired shares of Common Stock from the Company and certain shares
of Common Stock beneficially owned by the Management Stockholders for an
aggregate purchase price of approximately $71.5 million and (iii) the Management
Stockholders and the Continuing Stockholders retained certain shares of Common
Stock and options to purchase shares of Common Stock ("Existing Options") with
an implied value of approximately $31.9 million. Upon consummation of the
Recapitalization, the Fund, the two institutional investors and a member of the
Board of Directors owned approximately 69% of the Common Stock and the
Management Stockholders and Continuing Stockholders beneficially owned
approximately 31% of the Common Stock, each on a fully diluted basis (excluding
New Options to be granted subsequent to the Recapitalization Closing). Pursuant
to the Recapitalization, Existing Options were cancelled in exchange for a
payment of approximately $3.3 million in the aggregate. See
"Management--Management Investment" and "Ownership of Capital Stock." The
closing of the Recapitalization (the "Recapitalization Closing") occurred
simultaneously with the closing of the Tender Offer and the offering of the 144A
Notes (the "144A Note Offering"). The balance of the funds needed to consummate
the Recapitalization came from borrowings under a credit agreement (the "New
Credit Agreement") and from cash on hand. The foregoing equity and debt
transactions are herein referred to as part of the Recapitalization. See "The
Recapitalization" and "Description of the New Credit Agreement."
7
The following table sets forth the sources and uses of funds related to the
Recapitalization:
AMOUNT
-------------
(IN MILLIONS)
SOURCES OF FUNDS:
Cash on hand.................................................................. $ 21.2
New Credit Agreement (1)...................................................... 40.0
144A Notes.................................................................... 150.0
Equity from the Fund (2)...................................................... 71.5
Exercise of stock options (3)................................................. 8.3
------
Total....................................................................... $ 291.0
------
------
USES OF FUNDS:
Purchases of Common Stock from existing stockholders by:
The Company (4)............................................................. $ 211.9
The Fund (2)................................................................ 54.0
Repayment of existing indebtedness (5)........................................ 4.6
Transaction fees and expenses (6)............................................. 20.5
------
Total....................................................................... $ 291.0
------
------
- ------------------------
(1) The New Credit Agreement consists of a $40 million six-year term loan and
includes a $75 million five-year Revolving Credit Facility (as defined
herein), which was undrawn as of the Recapitalization Closing. See
"Description of the New Credit Agreement."
(2) Excludes approximately $31.9 million implied value of equity retained by the
Management Stockholders and the Continuing Stockholders. Includes equity
from the Fund, the two institutional investors and an outside director, and
consists of approximately $17.5 million for purchase of shares of Common
Stock from the Company and approximately $54.0 million for the purchase of
shares of Common Stock beneficially owned by Management Stockholders.
(3) Represents proceeds received from the exercise of Existing Options by
Management Stockholders.
(4) Consists of approximately $208.6 million for repurchase of Common Stock and
approximately $3.3 million for redemption of Existing Options. See "The
Recapitalization."
(5) Primarily represents overdrafts at certain foreign subsidiaries, certain
treasury stock notes and certain building loans repaid in conjunction with
the Recapitalization which had interest rates that range from 3.5% to 7.9%
and which had maturities, in the case of the overdrafts, of less than one
year, in the case of the treasury stock notes, ranging from five to eight
years and, in the case of the building loans, of up to 16 years.
(6) Includes fees related to financing for the Recapitalization; legal,
financial advisory and other fees of the Company; and legal, accounting and
other fees of the Acquisition Entity. Also includes $1.2 million for payment
of bonuses to management and $2.4 million for the payment of a lump sum
amount to satisfy the Company's obligations under certain executive
officers' Supplemental Executive Retirement Plans.
8
THE 144A NOTE OFFERING
The 144A Notes............... The 144A Notes were sold by the Company in the 144A Note
Offering on March 4, 1997, and were subsequently resold to
Qualified Institutional Buyers (as defined herein) pursuant
to Rule 144A under the Securities Act and to institutional
investors that are Accredited Investors (as defined herein)
in a manner exempt from registration under the Securities
Act.
Registration Rights
Agreement.................. In connection with the 144A Note Offering, the Company
entered into the Registration Rights Agreement, which grants
Holders of the 144A Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy such
exchange and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered........... $150,000,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2007, Series B.
The Exchange Offer........... $1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of 144A Notes. As of the
date hereof, $150,000,000 aggregate principal amount of 144A
Notes are outstanding. The Company will issue the Exchange
Notes to Holders on or promptly after the Expiration Date.
The terms of the Exchange Notes are substantially identical
in all material respects (including principal amount,
interest rate and maturity) to the terms of the 144A Notes
for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are freely
transferrable by holders thereof (other than as provided
herein), and are not subject to any covenant regarding
registration under the Securities Act. See "The Exchange
Offer." Other than compliance with applicable federal and
state securities laws, including the requirement that the
Registration Statement be declared effective by the
Commission, there are no material federal or state
regulatory requirements to be complied with in connection
with the Exchange Offer.
Interest Payments............ The Exchange Notes will bear interest from March 4, 1997,
the date of issuance of the 144A Notes, or the most recent
interest payment date to which interest on such 144A Notes
has been paid, whichever is later. Accordingly, Holders of
144A Notes that are accepted for exchange will not receive
interest on such 144A Notes that is accrued but unpaid at
the time of tender, but such interest will be payable on the
first interest payment date after the Expiration Date.
Minimum Condition............ The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of 144A Notes being tendered for
exchange.
Expiration Date.............. 5:00 p.m., New York City time, on , 1997 unless
the Exchange Offer is extended, in which case the term
"Expiration Date"
9
means the latest date and time to which the Exchange Offer
is extended.
Exchange Date................ The date of acceptance for exchange of the 144A Notes will
be the first business day following the Expiration Date.
Withdrawal Rights............ Tenders may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. See "The Exchange
Offer-- Withdrawal of Tenders."
Acceptance of 144A Notes and
Delivery of Exchange
Notes...................... The Company will accept for exchange any and all 144A Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer-- Conditions."
Procedures for Tendering 144A
Notes...................... To tender in the Exchange Offer, a Holder must complete,
sign and date the accompanying Letter of Transmittal, or a
facsimile thereof, have the signatures therein guaranteed if
required by instruction 4 of the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with the 144A Notes and any other
required documentation to the Exchange Agent (as defined
herein) at the address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer-- Procedures for Tendering" and "Plan of
Distribution." By executing the Letter of Transmittal, each
Holder will represent to the Company that, among other
things, the Holder or the person receiving such Exchange
Notes, whether or not such person is the Holder, is
acquiring the Exchange Notes in the ordinary course of
business and that neither the Holder nor any such other
person intends to participate or has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes. In lieu of physical
delivery of the certificates representing 144A Notes,
tendering Holders may transfer 144A Notes pursuant to the
procedure for book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose 144A Notes are registered in the
name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender in the Exchange Offer
should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial owner must,
prior to completing and executing the Letter of Transmittal
and delivering the 144A Notes, either make appropriate
10
arrangements to register ownership of the 144A Notes in such
beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered
ownership may take considerable time. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................. Holders of 144A Notes who wish to tender their 144A Notes
and whose 144A Notes are not immediately available or who
cannot deliver their 144A Notes, the Letter of Transmittal
or any other documents required by the Letter of Transmittal
to the Exchange Agent (or comply with the requirements for
book-entry transfer) prior to the Expiration Date must
tender their 144A Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer-- Guaranteed
Delivery Procedures."
Federal Income Tax
Consequences............... The issuance of the Exchange Notes to Holders pursuant to
the terms set forth in this Prospectus will not constitute
an exchange for federal income tax purposes. Consequently,
no gain or loss would be recognized by Holders upon receipt
of the Exchange Notes. See "Certain Federal Income Tax
Consequences of the Exchange Offer."
Use of Proceeds.............. There will be no proceeds to the Company from the exchange
of 144A Notes pursuant to the Exchange Offer.
Exchange Agent............... The Bank of New York is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes (which they replace) except that (i) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the 144A Notes and will be entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
Securities Offered........... $150,000,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2007, Series B.
Maturity Date................ March 1, 2007.
Interest Payment Dates....... March 1 and September 1 of each year, commencing September
1, 1997.
Optional Redemption.......... The Exchange Notes will be redeemable at the option of the
Company, in whole or in part, in cash, at any time on or
after March 1, 2002, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any,
to the date of redemption. In addition, on or prior to March
1, 2000, the Company may redeem up to 30% of the originally
issued Notes, at a price of 109 3/8% of the principal amount
11
thereof, together with accrued and unpaid interest to the
redemption date, with the net proceeds of one or more Public
Equity Offerings; PROVIDED that not less than $105 million
in principal amount of Notes is outstanding immediately
after giving effect to such redemption. See "Description of
the Exchange Notes--Optional Redemption."
Change of Control............ Upon the occurrence of a Change of Control, each holder of
Exchange Notes will, subject to the limitations described
herein, have the right to require the Company to purchase
all or a portion of such holder's Exchange Notes at a
purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon
to the date of purchase. If a Change of Control occurs,
there can be no assurance that the Company will have
available funds sufficient to pay the purchase price for all
of the Exchange Notes that might be delivered by holders of
the Exchange Notes who exercise their right to require the
Company to purchase each such holder's Exchange Notes. See
"Description of the Exchange Notes--Purchase of Notes Upon a
Change of Control."
Ranking...................... The Exchange Notes will be unsecured senior subordinated
obligations of the Company and will be subordinated in right
of payment to all existing and future Senior Indebtedness of
the Company, including indebtedness under the New Credit
Agreement. The Exchange Notes will rank PARI PASSU with all
senior subordinated indebtedness, if any, of the Company,
and will rank senior to all other subordinated indebtedness,
if any, of the Company. In addition, the business operations
of the Company are conducted in part through its
subsidiaries and the Exchange Notes will also be effectively
subordinated to all existing and future liabilities of the
Company's subsidiaries. As of March 31, 1997, the Company
had $40.0 million of Senior Indebtedness outstanding and the
Company's subsidiaries had approximately $1.8 million of
Indebtedness outstanding (excluding the guarantees of the
Company's subsidiaries under the New Credit Agreement).
Certain Covenants............ The Indenture pursuant to which the 144A Notes were issued
and pursuant to which the Exchange Notes will be issued
contains certain covenants, including, among others,
covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on certain transactions with
affiliates; (iv) limitation on disposition of proceeds of
asset sales; (v) limitation on liens; (vi) limitation on
other senior subordinated indebtedness; (vii) limitation of
guarantees by subsidiaries; (viii) limitation on dividends
and other payment restrictions affecting subsidiaries; (ix)
limitation on the issuance of preferred stock of
subsidiaries; and (x) restrictions on mergers,
consolidations or the sale of all or substantially all of
the assets of the Company. See "Description of the Exchange
Notes--Certain Covenants."
Exchange Offer; Registration
Rights..................... In the event that any changes in the law or the applicable
interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if a Holder of
the 144A
12
Notes is not permitted to participate in the Exchange Offer
or does not receive freely tradeable Exchange Notes pursuant
to the Exchange Offer or if any of the Initial Purchasers so
request, the Registration Rights Agreement provides that the
Company will use its best efforts to cause to become
effective within 135 days of the Issue Date (as defined
herein) (or within 30 days of the request of any Initial
Purchaser) a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the
144A Notes and to keep such Shelf Registration Statement
effective until two years after the Issue Date or such
shorter period ending when all the 144A Notes eligible for
sale thereunder have been sold thereunder. The interest rate
on the 144A Notes is subject to increase under certain
circumstances if the Company is not in compliance with its
obligations under the Registration Rights Agreement. See
"Exchange Offer; Registration Rights."
Absence of a Public Market
for the Notes.............. The Exchange Notes will be new securities for which there is
currently no established trading market. Although the
Initial Purchasers have informed the Company that they
currently intend to make a market in the Exchange Notes,
they are not obligated to do so, and any such market-making
may be discontinued at any time without notice, at their
sole discretion. Accordingly, there can be no assurance as
to the development or the liquidity of any market for the
Exchange Notes. The Company does not intend to apply for
listing of the Exchange Notes on any securities exchange or
for quotation through the NASDAQ National Market or any
other quotation system.
RISK FACTORS
Participants in the Exchange Offer should carefully consider all of the
information contained in this Prospectus prior to tendering 144A Notes in the
Exchange Offer. In particular, participants in the Exchange Offer should
carefully consider the factors set forth herein under "Risk Factors," beginning
on page 17. These risks include the effect of the Company's substantial
indebtedness on the Company and the Company's ability to service its
indebtedness; the ranking of the Exchange Notes; the encumbrance of the
Company's assets to secure Senior Indebtedness; the structural subordination of
the Exchange Notes; the restrictions on the Company imposed by its indebtedness;
risks associated with the highly competitive industries in which the Company
operates; the Company's dependence on capital spending policies of its customers
and government funding; the limited sources of supply for germanium crystals;
the Company's reliance on patents and other intellectual property, the risk of
termination of license agreements and the risk of intellectual property
litigation; the potential decline in use of radioisotopic processes and
instruments; risks associated with the Company's technology and its need to
develop new products; risks associated with foreign operations; the risk of
liability under environmental laws; the Company's dependence on its key
personnel; control of the Company by the Fund; the risk of fraudulent conveyance
liability; the lack of a prior market for the Exchange Notes; risks associated
with the Exchange Offer procedures; and risks associated with restrictions on
transfer of the Notes.
13
RECENT DEVELOPMENTS
On May 8, 1997, a subsidiary of the Company, Packard Japan KK ("Packard
Japan"), entered into an agreement (the "PJKK Agreement") to acquire the 40%
interest held by its minority stockholder for approximately $7.5 million. The
PJKK Agreement obligates Packard Japan to acquire approximately 60% of the
minority interest in 1997 and the remainder in future years as Packard Japan
generates sufficient earnings to allow for the redemption in accordance with
Japanese laws and regulations. Under the PJKK Agreement, the minority
stockholder has surrendered the right to any dividends from Packard Japan
subsequent to December 31, 1996. The Company will record the full obligation and
eliminate any minority interest in the earnings of Packard Japan as of the
effective date of the agreement, which is April 1, 1997. The Company expects
that Packard Japan will be able to fulfill its obligations under the PJKK
Agreement with its cash on hand and its future earnings and that no funding from
the Company will be required.
14
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical and pro forma consolidated
financial data with respect to the Company for the periods ended and as of the
dates indicated. The summary historical consolidated financial data for the
years ended December 31, 1996, 1995 and 1994 are derived from the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The summary historical consolidated financial data for the years
ended December 31, 1993 and 1992 are derived from audited consolidated financial
statements of the Company that are not included in this Prospectus. The summary
historical consolidated financial data for the three months ended March 31, 1997
and 1996 are derived from the unaudited condensed consolidated financial
statements of the Company included elsewhere in this Prospectus. Such unaudited
condensed consolidated financial statements, in the opinion of the Company's
management, include all adjustments necessary for the fair presentation of the
financial position and the results of operations of the Company for such periods
and as of such dates. Operating results for the three months ended March 31,
1997 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1997. The unaudited summary pro forma
consolidated financial data do not purport to represent what the Company's
financial condition would actually have been had the Recapitalization in fact
occurred as of such date or to project the Company's financial condition for any
future period or as of any future date. This information should be read in
conjunction with the consolidated financial statements and pro forma financial
statements of the Company and the notes thereto appearing elsewhere in this
Prospectus, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Condensed Consolidated
Statements of Income (Loss)."
THREE MONTHS
ENDED
FISCAL YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Packard Instrument revenues........... $ 95,454 $ 92,371 $ 101,335 $ 107,156 $ 122,676 $ 32,060 $ 29,460
Canberra Nuclear revenues............. 66,084 64,364 64,049 61,958 61,342 14,042 13,100
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 161,538 156,735 165,384 169,114 184,018 46,102 42,560
Cost of sales and service expense..... 85,458 81,228 85,299 82,635 85,757 20,266 19,486
--------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 76,080 75,507 80,085 86,479 98,261 25,836 23,074
Research and development expenses..... 12,633 13,494 13,726 14,414 17,852 4,525 5,051
Selling, general and administrative
expenses............................ 46,755 45,066 45,062 47,322 48,830 11,409 11,174
Other charges (1)..................... -- -- 3,450 -- 837 -- 17,979
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations......... 16,692 16,947 17,847 24,743 30,742 9,902 (11,130)
Interest expense...................... 447 175 558 616 122 28 1,610
Other (income) expense, net........... (647) 630 (2,940) (1,153) (1,149) (217) (318)
Flood costs (savings) (2)............. 6,000 1,897 (551) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest................... 10,892 14,245 20,780 25,280 31,769 10,091 (12,422)
Provision for (benefit from) income
taxes............................... 3,722 2,488 8,470 9,875 11,187 4,247 (3,134)
Minority interest in income of
subsidiary.......................... 342 909 768 800 1,346 656 218
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ 6,828 $ 10,848 $ 11,542 $ 14,605 $ 19,236 $ 5,188 $ (9,506)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed charges
(3)................................. 6.9x 11.2x 12.5x 13.9x 22.8x 28.9x --(8)
Packard Instrument EBITDA (4)......... --(7) $ 14,162 $ 18,075 $ 19,947 $ 27,084 $ 9,241 $ 6,100
Canberra Nuclear EBITDA (4)........... --(7) 7,461 7,834 9,471 9,630 1,805 2,184
--------- --------- --------- --------- --------- --------- ---------
Total EBITDA (4)...................... $ 21,366 $ 21,623 $ 25,909 $ 29,418 $ 36,714 $ 11,046 $ 8,284
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Depreciation and amortization......... $ 4,674 $ 4,676 $ 4,612 $ 4,675 $ 5,135 $ 1,144 $ 1,564
Capital expenditures.................. 7,506 4,436 1,577 3,327 2,715 752 547
Cash flows from (used for) operating
activities.......................... 13,876 19,961 14,698 18,755 33,187 14,304 (1,084)
Cash flows used for investing
activities.......................... (7,558) (4,384) (1,715) (4,578) (8,486) (1,752) (733)
Cash flows used for financing
activities.......................... (14,373) (2,535) (13,192) (11,145) (7,610) (6,660) (12,725)
Shares of common stock outstanding.... 13,759,728 13,591,892 12,771,401 12,434,992 12,146,352 12,432,124 4,353,386
Weighted average common shares
outstanding(9)...................... 14,659,588 13,926,254 13,323,068 12,941,222 12,569,742 12,735,258 11,153,705
Earnings (loss) per share (9)......... $ 0.47 $ 0.78 $ 0.87 $ 1.13 $ 1.53 $ 0.41 $ (0.85)
(CONTINUED ON FOLLOWING PAGE)
15
YEAR ENDED THREE MONTHS ENDED
PRO FORMA FINANCIAL DATA (5): DECEMBER 31, 1996 MARCH 31, 1997
----------------- ---------------------
(DOLLARS IN THOUSANDS)
EBITDA (4)............................................................... $ 36,714 $ 8,284
Cash interest expense (6)................................................ 18,117 4,481
Depreciation and amortization............................................ 5,135 1,822
Capital expenditures..................................................... 2,715 547
Ratio of EBITDA to cash interest expense (4)(6).......................... 2.03x 1.85x
AS OF AS OF
BALANCE SHEET DATA: DECEMBER 31, 1996 MARCH 31, 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
Working capital...................................................... $ 59,216 $ 38,927
Total assets......................................................... 137,925 134,915
Total debt........................................................... 6,390 191,756
Stockholders' equity (deficiency).................................... 80,593 (107,780)
- ------------------------
(1) Amount in 1994 relates to a restructuring charge incurred in connection with
the Company's shutdown of its Itasca, Illinois facility and the relocation
of most of those operations to Meriden, Connecticut. Most of these costs
incurred related to employee terminations and a lease buy-out. Amounts in
1996 and 1997 relate to expenses incurred in connection with the
Recapitalization.
(2) Fiscal 1992 amount relates to costs incurred with the Company's relocation
to a new facility in Meriden, Connecticut and the write-off of $3,120 in
unamortized leasehold improvements after the flooding of the old
headquarters. In 1993, additional costs were incurred for temporary
facilities and a provision was made for the termination of the remaining
lease obligation of the old headquarters. During 1994, the recorded
obligation to the previous landlord was settled for an amount less than that
accrued as of December 31, 1993.
(3) For the purposes of computing the ratio of earnings to fixed charges,
earnings consists of income (loss) before income taxes and minority
interest, and fixed charges consists of interest expense which includes
amortization of deferred financing costs and the portion of rental expense
deemed representative of the interest factor.
(4) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents, for any period, the sum of income (loss) from operations and
depreciation and amortization exclusive of other charges. EBITDA includes
100% of the EBITDA generated by Packard Japan, the Company's 60% owned
subsidiary. See "--Recent Developments." The amount of Packard Japan's
operating income represented by the 40% interest not owned by the Company
was $744, $1,612, $1,647, $1,668 and $2,649 for the years ended 1992, 1993,
1994, 1995 and 1996, respectively, and $1,317 and $475 for the three months
ended March 31, 1996 and 1997, respectively. EBITDA is presented because it
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. Management believes that presentation of EBITDA
is helpful to investors. However, EBITDA should not be considered as an
alternative to net income as a measure of the Company's operating results or
to cash flows as a measure of liquidity. In addition, although the EBITDA
measure of performance is not recognized under generally accepted accounting
principles, it is widely used by industrial companies as a general measure
of a company's operating performance because it assists in comparing
performance on a relatively consistent basis across companies without regard
to depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(5) Presented on a PRO FORMA basis as though the Recapitalization had occurred
at the beginning of the periods presented. The Recapitalization will be
recorded as a recapitalization for financial reporting purposes, and,
accordingly, the historical basis of the Company's assets and liabilities
will not be impacted by the Recapitalization.
(6) Reflects the interest expense from the debt incurred necessary to effect the
Recapitalization. Cash interest expense excludes the amortization of the
deferred financing costs from the Recapitalization, which would have been
$1,545 for the year ended December 31, 1996 and $387 for the three months
ended March 31, 1997, on a PRO FORMA basis.
(7) Data not available.
(8) The Company's earnings were inadequate to cover fixed charges by $12,422 for
the three months ended March 31, 1997.
(9) The weighted average common shares outstanding and earnings (loss) per share
amounts have been computed based on the average shares outstanding during
each of the periods presented, including the impact of outstanding options
determined under the treasury stock method.
16
RISK FACTORS
HOLDERS OF 144A NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE DECIDING TO TENDER
144A NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE GENERALLY
APPLICABLE TO THE 144A NOTES AS WELL AS THE EXCHANGE NOTES.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company incurred substantial indebtedness in connection with the
Recapitalization and, following the 144A Note Offering, the Company is highly
leveraged. As of March 31, 1997, the Company had total indebtedness of $191.8
million and stockholders' equity (deficiency) of $(107.8) million. After giving
PRO FORMA effect to the Recapitalization, the Company's ratio of earnings to
fixed charges would have been 1.6x for the year ended December 31, 1996. See
"Capitalization" and "Unaudited Pro Forma Condensed Consolidated Statements of
Income (Loss)." The Company may incur additional indebtedness in the future,
including Senior Indebtedness, subject to limitations imposed by the Indenture
and the New Credit Agreement.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which, to a certain extent, are
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
working capital borrowings will be available in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make necessary
capital expenditures or investments in research and development. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to debt service and will not be available to
the Company for its operations; (ii) the Company's ability to obtain additional
financing in the future for acquisitions, capital expenditures, working capital
or general corporate purposes could be limited; (iii) certain of the Company's
borrowings are at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates; (iv) the
indebtedness outstanding under the New Credit Agreement is secured by the
capital stock of certain of the subsidiaries of the Company and will mature
prior to the maturity of the Notes; and (v) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at a
relative competitive disadvantage and make the Company more vulnerable to
changing market conditions and regulations. See "Description of the Exchange
Notes" and "Description of the New Credit Agreement."
RANKING OF THE EXCHANGE NOTES; ASSET ENCUMBRANCES
The Exchange Notes will be senior subordinated obligations of the Company
and, as such, will be subordinated in right of payment to all existing and
future Senior Indebtedness, including indebtedness under the New Credit
Agreement. The Exchange Notes will rank PARI PASSU with all senior subordinated
indebtedness, if any, of the Company and will rank senior to all other
subordinated indebtedness, if any, of the Company. The Exchange Notes will also
be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries. At March 31, 1997, there was outstanding $40.0 million
of Senior Indebtedness, all of which was secured borrowings under the New Credit
Agreement, approximately $1.8 million of indebtedness of the Company's
subsidiaries, and no PARI PASSU or subordinated indebtedness was outstanding. In
addition, at March 31, 1997, the Company had available an additional $75.0
million under the revolving loan tranche of the New Credit Agreement and,
provided certain tests were met, would have been able to borrow additional
Senior Indebtedness. By reason of such subordination, in the event of the
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Company or upon a default
17
in payment with respect to, or the acceleration of, any Senior Indebtedness, the
holders of such Senior Indebtedness and any other creditors who are holders of
Senior Indebtedness and creditors of subsidiaries must be paid in full before
the holders of the Exchange Notes may be paid. If the Company incurs additional
PARI PASSU debt, the holders of such debt would be entitled to share ratably
with the holders of the Exchange Notes in any proceeds distributed in connection
with any insolvency, liquidation, reorganization, dissolution or other
winding-up of the Company. This will have the effect of reducing the amount of
proceeds paid to holders of the Exchange Notes. In addition, no payments may be
made with respect to the principal of or interest on the Exchange Notes if a
payment default exists with respect to Designated Senior Indebtedness (as
defined herein) and, under certain circumstances, no payments may be made with
respect to the principal of or interest on the Exchange Notes for certain
periods of time if a non-payment default exists with respect to Designated
Senior Indebtedness. See "Description of the Exchange Notes."
The Company's obligations under the New Credit Agreement are secured by
security interests in substantially all of the current and future assets of the
Company and its domestic subsidiaries (including a pledge of all of the issued
and outstanding shares of the capital stock of Packard Instrument and 65% of the
capital stock of certain of the Company's foreign subsidiaries). In the event of
a default on secured indebtedness (whether as a result of the failure to comply
with a payment or other covenant, a cross-default, or otherwise), the parties
granted such security interests will have a prior secured claim on the assets of
the Company. Moreover, if such parties should attempt to foreclose on their
collateral, it is possible that there would be insufficient assets remaining
after satisfaction in full of all such indebtedness to satisfy in full the
claims of the holders of the Exchange Notes and the Company's financial
condition and the value of the Exchange Notes could be materially adversely
affected. See "Description of the New Credit Agreement."
STRUCTURAL SUBORDINATION
The Company conducts a portion of its business through subsidiaries. The
Company will, in part, be dependent on the cash flow of such subsidiaries and
distributions thereof from such subsidiaries to the Company in order to meet its
debt service obligations. As a result of the structure of the Company, the
holders of the Exchange Notes will be structurally subordinated to all creditors
of the subsidiaries of the Company, including the guarantees by certain
subsidiaries of the Company's obligations under the New Credit Agreement. The
Company's rights, and the rights of its creditors, to participate in the
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subject to the claims of any secured creditor of such subsidiary and of any
holder of indebtedness of such subsidiary senior to that held by the Company.
The Company's subsidiaries are not party to any debt instrument or other
agreement that restricts or otherwise affects the ability of such subsidiary to
pay dividends or make any other distribution in respect of its capital stock to
the Company. As of March 31, 1997, there was approximately $1.8 million of
indebtedness of the Company's subsidiaries outstanding (excluding the guarantees
of the New Credit Agreement obligations by certain of the Company's
subsidiaries).
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The New Credit Agreement and the Indenture contain covenants that, among
other things and subject to certain exceptions, restrict the ability of the
Company to incur additional indebtedness, pay dividends, prepay subordinated
indebtedness, dispose of certain assets, enter into sale and leaseback
transactions, create liens, make capital expenditures and make certain
investments or acquisitions and otherwise restrict corporate activities. In
addition, under the New Credit Agreement, the Company is required to satisfy
specified financial covenants, including a minimum fixed charge coverage ratio,
a consolidated interest
18
coverage ratio and a maximum leverage ratio. The ability of the Company to
comply with such provisions may be affected by events beyond the Company's
control. The breach of any of these covenants could result in a default under
the New Credit Agreement. In the event of any such default, depending on the
actions taken by the lenders under the New Credit Agreement, the Company could
be prohibited from making any payments on the Exchange Notes. In addition, such
lenders could elect to declare all amounts borrowed under the New Credit
Agreement, together with accrued interest, to be due and payable. A default
under the New Credit Agreement or the instruments governing the Company's other
indebtedness could constitute a cross-default under the Indenture and any
instruments governing the Company's other indebtedness, and a default under the
Indenture could constitute a cross-default under the New Credit Agreement and
any instruments governing the Company's other indebtedness.
HIGHLY COMPETITIVE INDUSTRIES
The life sciences instrumentation industry and the nuclear instrumentation
industry are each highly competitive, and the Company encounters competition in
each industry from several manufacturers in both domestic and foreign markets.
Many of its competitors are significantly larger and have greater resources than
those of the Company. Moreover, the Company encounters different competitors in
each of its key product lines, and there can be no assurance that the Company
will not encounter increased competition in the future, which could have a
material adverse effect on the Company's financial condition and results of
operations.
Packard Instrument competes principally on the basis of quality, product
features, product performance, price and service. Competition within the markets
which Packard Instrument serves is primarily driven by the need for innovative
products that address the needs of its customers in each market in which it
competes. There can be no assurance that Packard Instrument's competitors will
not develop products or services that are more effective or less expensive than
Packard Instrument's products or which could render certain of Packard
Instrument's products less competitive. If Packard Instrument's competitors
expand their product lines or intensify their efforts within existing product
lines, competition may increase significantly. Delays in the launch by Packard
Instrument of new products may result in decreased revenues from sales of
instruments, together with related sales of biochemicals, other consumables and
services, during the period of the delay, as well as during subsequent periods,
due to the longer period needed to establish an installed base and any loss of
market share due to its customers' purchases of competitors' products during the
delay. See "--Technology and the Development of New Products."
Canberra Nuclear competes principally on the basis of applications
expertise, quality, product reliability, performance, price and service. The
nuclear instrumentation market is a very mature and stable market in which
Canberra Nuclear encounters, and expects to continue to encounter, competition.
Although the industry remains fragmented, there has been a recent trend toward
consolidation among the suppliers of instrumentation. There can be no assurance
as to the future of the competitive environment in which Canberra Nuclear
operates or whether Canberra Nuclear will remain competitive in such
environment.
DEPENDENCE ON CAPITAL SPENDING POLICIES AND GOVERNMENT FUNDING
Packard Instrument's customers include pharmaceutical, biotechnology and
chemical companies and clinical diagnostic laboratories and companies. Canberra
Nuclear's customers include electric utility companies, nuclear fuel cycle
companies and environmental laboratories. The capital spending policies of these
companies have a significant effect on the demand for Packard Instrument and
Canberra Nuclear products. Such policies are based on a wide variety of factors,
including the resources available to make such purchases, the spending
priorities among various types of equipment and the policies regarding capital
expenditures during industry downturns or recessionary periods. Any decrease in
capital spending
19
by these companies could have a material adverse effect on the Company's
business and results of operations.
In addition, departments and agencies of the U.S. federal government,
notably the DOE, as well as of other NATO states are important customers of
Canberra Nuclear. The DOE in total represented approximately 6% of the Company's
fiscal 1996 revenues and approximately 17% of Canberra Nuclear's fiscal 1996
revenues. Many of the Company's customers, including universities, government
research laboratories, private foundations and other institutions, obtain
funding for the purchase of the Company's products from grants by governments or
government agencies. If government funding necessary to purchase the Company's
products was to decrease, the Company's business and results of operations could
be materially adversely affected.
LIMITED SOURCES OF SUPPLY FOR GERMANIUM CRYSTALS
Canberra Nuclear purchases high purity germanium crystals as part of the
manufacture of high resolution radiation detectors. Germanium detectors and
products related thereto represent a significant portion of total Canberra
Nuclear sales. The sources of supply of these crystals are limited to two
manufacturers (Oxford Instruments, Inc. and Union Miniere) from whom Canberra
Nuclear makes purchases. Canberra Nuclear has secured under contract what it
believes to be a long term, dependable supply of these crystals from one of the
two manufacturers. The term of the supply contract has no fixed termination
date, but continues until terminated by either party upon four years' written
notice. The supply contract also provides for termination by the other party
upon (i) the manufacturer's failure to meet its supply obligations, (ii) the
manufacturer's failure to honor certain warranty claims, (iii) Canberra
Nuclear's failure to pay invoices in a timely manner, (iv) the assignment of the
contract by either party in violation of the contract and (v) the bankruptcy or
liquidation of either party. In the case of clause (i) above, the supply
contract may be terminated only after certain dispute resolution procedures have
been exhausted. Other features of the supply contract include price increase
limitations linked to the costs of crystal production and the grant to Canberra
Nuclear of a right of first refusal to acquire the germanium crystal vendor's
production capability if the vendor proposes to sell or discontinue its crystal
business. Notwithstanding the terms of this contract, there can be no assurance
that the supply of germanium crystals will continue at the level and prices
Canberra Nuclear currently enjoys.
RELIANCE ON PATENTS AND OTHER INTELLECTUAL PROPERTY; RISK OF TERMINATION OF
LICENSE AGREEMENTS; RISK OF INTELLECTUAL PROPERTY LITIGATION
The Company, particularly Packard Instrument, owns numerous United States
and foreign patents, and has patent applications pending in the United States
and abroad. The Company also owns numerous United States and foreign registered
trademarks and trade names and has applications for the registration of
trademarks and trade names pending in the United States and abroad. In addition,
the Company possesses a wide array of unpatented proprietary technology and
know-how and licenses certain intellectual property rights to and from third
parties. See "Business--Intellectual Property."
The Company's ability to compete effectively with other companies depends,
to a significant extent, on its ability to maintain the proprietary nature of
its owned and licensed intellectual property. There can be no assurance as to
the degree of protection offered by the claims of the various patents, the
likelihood that patents will be issued on pending patent applications or, with
regard to the licensed intellectual property, that the licenses will not be
terminated. Moreover, certain of the Company's licenses (such as the license
from CIS bio international for HTRF-TM- (as defined herein) reagents used in the
microplate reader product line) can be terminated by the licensor if the Company
fails to meet certain specified performance targets. If the Company were unable
to maintain the proprietary nature of its intellectual property with respect to
its significant current or proposed products, the Company's business,
particularly Packard
20
Instrument, could be materially adversely affected. There can be no assurance
that the Company will be able to obtain patent protection for products or
processes discovered using the Company's technologies. Furthermore, there can be
no assurance that any patents issued to the Company, or for which the Company
has license rights, will not be challenged, invalidated, narrowed or
circumvented, or that the rights granted thereunder will provide significant
proprietary protection or competitive advantages to the Company. There can be no
assurance that, if challenged, the Company's issued or licensed patents would be
held valid by a court of competent jurisdiction. Legal standards relating to the
breadth and scope of patent claims are uncertain. Accordingly, the valid scope
of patent claims cannot be predicted. There can be no assurance that the claims
of the patents owned or licensed by the Company will be interpreted by a court
broadly enough to offer significant patent protection to the Company, or that
the claims of a third party's patents will not be interpreted by a court broadly
enough to cover some of the Company's products.
Litigation, which could result in substantial costs to the Company, may be
necessary to enforce patents issued or licensed to the Company or to determine
the scope and validity of third-party proprietary rights. Uncertainties
resulting from the initiation and continuation of any patent or related
litigation could have a material adverse effect on the Company's financial
condition and results of operations. An adverse outcome in connection with an
infringement or validity proceeding could subject the Company to significant
liabilities and expenses (e.g., reasonable royalties, lost profits, attorneys'
fees, trebling of damages for willfulness), require disputed rights to be
licensed from third parties or require the Company to cease using the disputed
intellectual property or cease the sale of a commercial product, any of which
could have a material adverse effect on the Company's financial condition or
results of operations. For a discussion of litigation relating to certain of the
Company's patents and other intellectual property, see "Business--Legal
Proceedings."
POTENTIAL DECLINE IN USE OF RADIOISOTOPIC PROCESSES AND INSTRUMENTS
A majority of the testing in the life sciences industry today uses
radioisotopic processes and instruments. Radioisotopic methods, such as the
Company's traditional bioanalytical spectrometer product lines, allow a
researcher to recognize the activity of a particular molecule or compound by
labeling it with a radioactive molecule. The Company's traditional bioanalytical
spectrometer product lines are radioisotopic instruments which have historically
been a significant portion of the Company's revenue (declining from
approximately 40% of Packard Instrument's total revenues in 1993 to
approximately 28% of Packard Instrument's total revenues in 1996). Because of
their radioactivity, isotopic labels are environmentally unfriendly and
difficult and potentially dangerous to handle. Their by-products bring about
waste disposal problems for the Company's customers that are becoming
increasingly more expensive. The Company believes that, as a result, the trend
in the life sciences industry is toward the use of nonisotopic instrumentation.
The Company believes that its recent focus on nonisotopic methodologies,
including fluorescent and chemiluminescent instruments, has led to increased
sales (from approximately 10% in 1993 to approximately 18% in 1996) to the life
sciences market. However, there can be no assurance that any decline in
traditional radioisotopic methods will not have a material adverse impact on the
Company's results of operations or financial condition.
TECHNOLOGY AND THE DEVELOPMENT OF NEW PRODUCTS
The markets for the Company's products are characterized by technological
change, evolving industry standards and frequent new product introductions and
product enhancements. Many of the Company's products require significant
planning, design, development and testing, at the technological, product and
manufacturing process levels. In addition, the introduction of new products and
technologies may render existing and/or future products uncompetitive. There can
be no assurance that any of the products currently being developed by the
Company, or those to be developed in the future, will be technologically
feasible or accepted by the marketplace, that any such development will be
completed in any particular
21
time frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete.
FOREIGN OPERATIONS
During fiscal 1996, 52% of the Company's revenues were generated by its
foreign subsidiaries. International operations and exports to foreign markets
are subject to a number of special risks, including, but not limited to, risks
with respect to currency exchange rates, economic and political destabilization,
other disruption of markets, restrictive actions by foreign governments (such as
restrictions on transfer of funds, export duties and quotas, foreign customs and
tariffs and unexpected changes in regulatory environments), changes in foreign
laws regarding trade and investment (including the protection of patents and
other intellectual property), difficulty in obtaining distribution and support,
nationalization, the laws and policies of the United States affecting trade,
foreign investment and loans, and foreign tax laws. There can be no assurance
that one or a combination of these factors will not have a material adverse
impact on the Company's ability to increase or maintain its foreign sales or on
its results of operations. Additionally, the U.S. dollar value of the Company's
net sales varies with currency exchange rate fluctuations. Significant increases
in the value of the dollar could have a material adverse effect on the Company's
financial condition and results of operations.
The Company's ability to service its indebtedness will be dependent, in
part, on its ability to utilize the cash flow generated by its foreign
operations. In general, United States federal and international tax laws provide
that income of international subsidiaries is subject to tax only in the local
jurisdiction and is not subject to United States federal income tax unless, and
only to the extent, such income is distributed as a dividend or deemed dividend
to the United States parent company. The Company plans to cause its
international subsidiaries to pay dividends to the Company from future earnings.
The Company may make loans to its foreign subsidiaries, and, in that event,
payments by the Company's foreign subsidiaries to the Company on such
intercompany loans may result in the repatriation of a substantial portion of
the cash flow of such subsidiaries without the payment of taxes abroad. There
can be no assurance, however, that the interest payments on such intercompany
loans will not be recharacterized as dividends, which could have adverse tax
consequences to the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, 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 clean up of, certain materials, substances and wastes. To the best of the
Company's knowledge, its operations are in material compliance with all
applicable environmental laws and regulations as currently interpreted.
Management cannot predict with any certainty whether future events, such as
changes in existing laws and regulations or the discovery of conditions not
currently known to the Company, may give rise to additional environmental costs.
Furthermore, actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the costs of producing the Company's products or providing its services, or
otherwise adversely affect the demand for its products or services. See
"Business--Environmental Matters." For a discussion of potential litigation
relating to environmental matters, see "Business--Legal Proceedings."
22
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers. The loss of the services of certain of these executives could have a
material adverse impact on the Company. The Company has entered into employment
arrangements with certain key executive officers. In addition, the Management
Stockholders beneficially own approximately 20% of the Common Stock of the
Company on a fully diluted basis (excluding New Options to be granted subsequent
to the Recapitalization Closing). See "The Recapitalization" and "Management."
The Company maintains key man life insurance policies on certain of its senior
officers.
CONTROL OF THE COMPANY
The Fund owns approximately 69% of the voting equity of the Company on a
fully diluted basis (excluding New Options to be granted subsequent to the
Recapitalization Closing). The Fund's ownership includes shares of Common Stock
purchased by two institutional investors (which represent approximately 2.4% of
the voting equity of the Company on a fully diluted basis (excluding New Options
to be granted subsequent to the Recapitalization Closing)), the votes of which,
pursuant to the terms of the Stockholders Agreement, are controlled by the Fund.
The directors of the Company consist of three Management Stockholders, four
designees of the Fund and one independent director mutually agreed upon between
the Fund and the Chief Executive Officer of the Company (with a second
independent director to be named). The Fund has the right to nominate at any
time and from time to time all directors of the Company (including the right to
expand the Board of Directors of the Company (the "Board") and to fill vacancies
created thereby) and has the right to remove such directors at any time and from
time to time, and each of the Management Stockholders and Continuing
Stockholders have agreed to vote in favor of such nomination or removal of
directors. As a result, the Fund has the ability to elect all of the directors
of the Company, appoint new management and approve any action requiring the
approval of the Company's stockholders, including adopting amendments to the
Company's certificate of incorporation and approving mergers or sales of
substantially all of the Company's assets, in each case, subject to any
contractual restrictions which may apply to the Company. There can be no
assurance that the interests of the Fund will not conflict with the interests of
the holders of the Exchange Notes. See "Management," "Ownership of Capital
Stock" and "Certain Transactions."
FRAUDULENT CONVEYANCE
The Company believes that the indebtedness represented by the Notes was
incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, the Company is,
and, upon the consummation of the Recapitalization, the Company was, solvent,
had sufficient capital for carrying on its business and was able to pay its
debts as they mature. Notwithstanding this belief, however, under federal or
state fraudulent transfer laws, if a court of competent jurisdiction in a suit
by an unpaid creditor or a representative of creditors (such as a trustee in
bankruptcy or a debtor-in-possession) were to find that the Company did not
receive fair consideration (or reasonably equivalent value) for incurring the
Notes or any debt being refinanced thereby and at the time of the incurrence of
such indebtedness, the Company was insolvent, was rendered insolvent by reason
of such incurrence, was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, or that the Company intended to hinder, delay or defraud its creditors,
then such court could, among other things, (a) void all or a portion of the
Company's obligations to the holders of the Notes, the effect of which would be
that the holders of the Notes may not be repaid at all or only repaid in part,
(b) recover all or a portion of the payments made to holders of the Notes,
and/or (c) subordinate the Company's obligations to the holders of the Notes to
other existing and future indebtedness of the Company to a greater extent than
would otherwise be the case, the effect of which would be to
23
entitle such other creditors to be paid in full before any payment could be made
on the Notes. The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the relevant jurisdiction. Generally, however, a
company would be considered insolvent for purposes of the foregoing if the sum
of the company's debts is greater than all of the company's property at a fair
valuation, or if the present fair saleable value of the company's assets is less
than the amount that will be required to pay its probable liability on its
existing debts as they become absolute and mature. There can be no assurance as
to what standards a court would apply to determine whether the Company was
solvent at the relevant time, or whether, whatever standard was applied, the
Notes would not be voided on another of the grounds set forth above.
LACK OF PRIOR MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the Holders of the 144A Notes. The
144A Notes were offered and sold in March 1997 to "Qualified Institutional
Buyers" and "Accredited Investors" (as defined in Rule 144A and Rule 501(a) (1),
(2), (3) or (7) under the Securities Act, respectively) and are eligible for
trading in the Private Offerings, Resale and Trading through Automatic Linkages
("PORTAL") Market.
The Exchange Notes will constitute a new class of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by nonaffiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to apply for a listing of the Exchange Notes on any
securities exchange or to arrange for the Exchange Notes to be quoted on the
NASDAQ National Market or other quotation system. As a result, there can be no
assurance as to the liquidity of markets that may develop for the Exchange
Notes, the ability of the holders of the Exchange Notes to sell their Exchange
Notes or the price at which such holders would be able to sell their Exchange
Notes. If such markets were to exist, the Exchange Notes could trade at prices
that may be lower than the initial market values thereof depending on many
factors, including prevailing interest rates and the markets for similar
securities. Although there is currently no market for the Exchange Notes, the
Initial Purchasers have advised the Company that they currently intend to make a
market in the Exchange Notes. However, the Initial Purchasers are not obligated
to do so, and any market-making with respect to the Exchange Notes may be
discontinued at any time without notice.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for 144A Notes pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of such 144A Notes,
a properly completed, duly executed Letter of Transmittal and all other required
documents. Therefore, Holders desiring to tender their 144A Notes in exchange
for Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of 144A Notes for exchange. Any 144A Notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account in exchange for 144A Notes, where such 144A Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer."
24
RESTRICTIONS ON TRANSFER
The 144A Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A under the Securities Act and to a limited number of other
institutional Accredited Investors. As a result, the 144A Notes may not be
reoffered or resold by purchasers except pursuant to an effective registration
statement under the Securities Act, or pursuant to an applicable exemption from
such registration, and the 144A Notes are legended to restrict transfer as
aforesaid. Each Holder (other than any Holder who is an affiliate or promoter of
the Company) who duly exchanges 144A Notes for Exchange Notes in the Exchange
Offer will receive Exchange Notes that are freely transferable under the
Securities Act. Holders who participate in the Exchange Offer should be aware,
however, that if they accept the Exchange Offer for the purpose of engaging in a
distribution, the Exchange Notes may not be publicly reoffered or resold without
complying with the registration and prospectus delivery requirements of the
Securities Act. As a result, each Holder accepting the Exchange Offer will be
deemed to have represented, by its acceptance of the Exchange Offer, that it
acquired the Exchange Notes in the ordinary course of business and that it is
not engaged in, and does not intend to engage in, a distribution of the Exchange
Notes. If existing Commission interpretations permitting free transferability of
the Exchange Notes following the Exchange Offer are changed prior to
consummation of the Exchange Offer, the Company will use its best efforts to
register the 144A Notes for resale under the Securities Act. See "Prospectus
Summary--The Exchange Offer" and "Exchange Offer; Registration Rights."
The 144A Notes currently may be sold pursuant to the restrictions set forth
in Rule 144A under the Securities Act or pursuant to another available exemption
under the Securities Act without registration under the Securities Act. To the
extent that 144A Notes are tendered and accepted in the Exchange Offer, the
trading market for the untendered and tendered but unaccepted 144A Notes could
be adversely affected.
25
THE EXCHANGE OFFER
THE FOLLOWING DISCUSSION SETS FORTH OR SUMMARIZES WHAT THE COMPANY BELIEVES
ARE THE MATERIAL TERMS OF THE EXCHANGE OFFER, INCLUDING THOSE SET FORTH IN THE
LETTERS OF TRANSMITTAL DISTRIBUTED WITH THIS PROSPECTUS. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DOCUMENTS
UNDERLYING THE EXCHANGE OFFER, COPIES OF WHICH ARE FILED AS EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART, AND ARE INCORPORATED
BY REFERENCE HEREIN.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of 144A Notes pursuant to the Purchase
Agreement, dated February 21, 1997 (the "Purchase Agreement"), between the
Company and the Initial Purchasers, the Initial Purchasers became entitled to
the benefits of the Registration Rights Agreement, dated as of March 4, 1997,
between the Company and the Initial Purchasers (the "Registration Rights
Agreement").
Under the Registration Rights Agreement, the Company must use its best
efforts to (a) file a registration statement in connection with a registered
exchange offer within 45 days after March 4, 1997, the date the 144A Notes were
issued (the "Issue Date"), (b) cause such registration statement to become
effective under the Securities Act within 105 days of the Issue Date, (c) keep
such registration statement effective until the closing of the Exchange Offer
and (d) cause such registered exchange offer to be consummated within 135 days
after the Issue Date. Within the applicable time periods, the Company will
endeavor to register under the Securities Act all of the Exchange Notes pursuant
to a registration statement under which the Company will offer each Holder of
144A Notes the opportunity to exchange any and all of the outstanding 144A Notes
held by such Holder for Exchange Notes in an aggregate principal amount equal to
the aggregate principal amount of 144A Notes tendered for exchange by such
Holder. Subject to limited exceptions, the Exchange Offer being made hereby, if
commenced and consummated within such applicable time periods, will satisfy
those requirements under the Registration Rights Agreement. In such event, the
144A Notes would remain outstanding and would continue to accrue interest, but
would not retain any rights under the Registration Rights Agreement. Holders of
144A Notes seeking liquidity in their investment would have to rely on
exemptions to registration requirements under the securities laws, including the
Securities Act. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
term "Holder" with respect to the Exchange Offer means any person in whose name
the 144A Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all 144A Notes, the number of 144A
Notes tendered and exchanged in the Exchange Offer will reduce the principal
amount of 144A Notes outstanding. Following the consummation of the Exchange
Offer, Holders who did not tender their 144A Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
144A Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such 144A Notes could be adversely
affected. The 144A Notes are currently eligible for sale pursuant to Rule 144A
through the PORTAL System. Because the Company anticipates that most Holders of
144A Notes will elect to exchange such 144A Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any 144A Notes
remaining after the consummation of the Exchange Offer may be substantially
limited. See "Exchange Offer; Registration Rights."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all 144A
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
26
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
144A Notes accepted in the Exchange Offer. Holders may tender some or all of
their 144A Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes except that (i) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the 144A Notes and will be entitled to the
benefits of the Indenture.
Holders of 144A Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered 144A Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of 144A Notes for the purposes of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such Holders.
If any tendered 144A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted 144A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of 144A Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of 144A Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not less
than 30 days after notice is mailed to Holders (the "Exchange Period"). The
Expiration Date will be 5:00 p.m., New York City time, on , 1997,
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the Expiration Date will be the latest business day to which the Exchange
Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
Holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time.
The Company reserves the right (i) to delay accepting any 144A Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept 144A
Notes not previously accepted if any of the conditions set forth under
"--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to
27
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes is payable semiannually on March 1 and
September 1 of each year at the rate of 9 3/8% PER ANNUM. The Exchange Notes
will bear interest from March 4, 1997, the date of issuance of the 144A Notes,
or the most recent interest payment date to which interest on such 144A Notes
has been paid, whichever is later. Accordingly, Holders of 144A Notes that are
accepted for exchange will not receive interest that is accrued but unpaid on
the 144A Notes at the time of tender, but such interest will be payable in
respect of the Exchange Notes delivered in exchange for such 144A Notes on the
first interest payment date after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Holder of 144A Notes may tender such 144A Notes in the Exchange
Offer. To tender in the Exchange Offer, a Holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 4 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the 144A Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the 144A
Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The tender by a Holder of 144A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF 144A NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR 144A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial holder whose 144A Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his 144A Notes, either make
appropriate arrangements to register ownership of the 144A Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution") unless the 144A Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible
28
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any 144A Notes listed therein, such 144A Notes must be endorsed or
accompanied by appropriate bond powers and a proxy which authorizes such person
to tender the 144A Notes on behalf of the registered holder, in each case signed
as the name of the registered holder or holders appears on the 144A Notes with
the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any 144A Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the 144A
Notes at the DTC for the purpose of facilitating the Exchange Offer, and subject
to the establishment thereof, any financial institution that is a participant in
the DTC may make book-entry delivery of the 144A Notes by causing the DTC to
transfer such 144A Notes into the Exchange Agent's account with respect to the
144A Notes in accordance with the DTC's procedures for such transfer. Although
delivery of the 144A Notes may be effected through book-entry transfer into the
Exchange Agent's account at the DTC, a Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered 144A Notes and withdrawal of the tendered 144A
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all 144A Notes not properly tendered or any 144A Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular 144A Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including, the instructions
in the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of 144A Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of 144A Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of 144A Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any 144A Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such Holder by the Exchange Agent to the tendering Holders of 144A Notes, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their 144A Notes and (i) whose 144A Notes are not
immediately available, or (ii) who cannot deliver their 144A Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
a. the tender is made through an Eligible Institution;
29
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the 144A Notes, the
certificate or registration number or numbers of such 144A Notes and the
principal amount of 144A Notes tendered, stating that the tender is being
made thereby, and guaranteeing that, within five business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the 144A Notes to be tendered in proper
form for transfer (or a confirmation of book-entry transfer of such 144A
Notes into the Exchange Agent's account at the Depository) and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered 144A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such 144A Notes into the Exchange Agent's account at
the Depository) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of 144A Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of 144A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the 144A Notes to be withdrawn (the "Depositor"),
(ii) identify the 144A Notes to be withdrawn (including the certificate or
registration number(s) and principal amount of such 144A Notes, or, in the case
of notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such 144A Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee (as defined herein) with
respect to the 144A Notes register the transfer of such 144A Notes into the name
of the Depositor withdrawing the tender, (iv) specify the name in which any such
144A Notes are to be registered, if different from that of the Depositor and (v)
include a statement that such Holder is withdrawing his election to have such
144A Notes exchanged. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be determined by the
Company, whose determination shall be final and binding on all parties. Any 144A
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the 144A Notes so withdrawn are validly retendered. Any 144A Notes which
have been tendered but which are not accepted for payment will be returned to
the Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn 144A Notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any 144A
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such 144A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the
30
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(ii) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any 144A
Notes and return all tendered 144A Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all 144A Notes tendered prior to the expiration of
the Exchange Offer subject, however, to the rights of Holders to withdraw such
144A Notes (see "--Withdrawals of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
144A Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered Holders, the Company will extend the Exchange Offer
for a period of five to ten business days if the Exchange Offer would otherwise
expire during such five to ten business-day period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED
BY HAND OR OVERNIGHT DELIVERY: Facsimile Transmissions: MAIL:
The Bank of New York (Eligible Institutions The Bank of New York
101 Barclay Street Only) 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level (212) 571-3080 Attention:Reorganization
Attention:Reorganization To Confirm by Telephone Section,
Section, or for Information Call: Arwen Gibbons
Arwen Gibbons
(212) 815-6333
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company, and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of 144A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or 144A Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the 144A Notes
tendered, or if tendered 144A Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of 144A Notes pursuant to the
31
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the 144A
Notes, which is the aggregate principal amount of the 144A Notes, as reflected
in the Company's accounting records on the date of exchange. Accordingly, no
gain or loss for accounting purposes will be recognized in connection with the
Exchange Offer. The expense of the Exchange Offer will be amortized over the
term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any holder of such
Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
PROVIDED that such Exchange Notes acquired pursuant to the Exchange Offer are
obtained in the ordinary course of such holder's business, and such holder does
not intend to participate, and has no arrangement or understanding to
participate in the distribution of such Exchange Notes. Any holder who tenders
into the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988) or MORGAN STANLEY & CO., INCORPORATED
(available June 5, 1991) or similar interpretive letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for 144A Notes, where such 144A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Company has agreed to make available a prospectus meeting the requirements of
the Securities Act to any such broker-dealer for use in connection with any
resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
By tendering in the Exchange Offer, each Holder will represent to the
Company, among other things, (i) the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of its business, (ii)
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
(iii) the holder and any such other person acknowledge that if they participate
in the Exchange Offer for the purpose of distributing the Exchange Notes (a)
they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act), of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be
32
offered for resale, resold, or otherwise transferred by that Holder without
registration under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of 144A Notes who do not tender their 144A Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder that does not exchange such Holder's 144A
Notes for Exchange Notes will continue to hold the untendered 144A Notes and
will be entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The 144A Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such 144A Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) pursuant to an effective registration statement under the Securities Act,
(iii) so long as the 144A Notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a Qualified Institutional Buyer in a transaction
meeting the requirements of Rule 144A, (iv) outside the United States to a
foreign person pursuant to the exemption from the registration requirements of
the Securities Act provided by Regulation S thereunder, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
thereunder (if available) or (vi) to an Accredited Investor in a transaction
exempt from the registration requirements of the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United States
or other applicable jurisdiction. See "Risk Factors--Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered 144A Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any 144A Notes that are not tendered in the Exchange
Offer or to file a registration statement to permit resales of any untendered
144A Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to Holders. Certain Holders of the 144A Notes (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. Each Holder of a 144A Note should consult his, her or its own tax advisor
as to the particular tax consequences of exchanging such Holder's 144A Notes for
Exchange Notes, including the applicability and effect of any state, local or
foreign tax laws.
The issuance of the Exchange Notes to Holders of the 144A Notes pursuant to
the terms set forth in this Prospectus will not constitute an exchange for
United States federal income tax purposes. Consequently, no gain or loss would
be recognized by Holders of the 144A Notes upon receipt of the Exchange Notes,
and ownership of the Exchange Notes will be considered a continuation of
ownership of the 144A Notes. For purposes of determining gain or loss upon the
subsequent sale or exchange of the Exchange Notes, a Holder's basis in the
Exchange Notes should be the same as such Holder's basis in the 144A Notes
exchanged therefor. A Holder's holding period for the Exchange Notes should
include the Holder's holding period for the 144A Notes exchanged therefor. The
issue price, original issue discount inclusion and other tax characteristics of
the Exchange Notes should be identical to the issue price, original issue
discount inclusion and other tax characteristics of the 144A Notes exchanged
therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
34
THE COMPANY
The Company is a leading developer, manufacturer and marketer of analytical
instruments and related products and services for use in the drug discovery and
molecular biology segments of the life sciences industry and in the nuclear
instrumentation industry. Through Packard Instrument, the Company supplies
bioanalytical instruments, and related biochemical supplies and services, to the
drug discovery and molecular biology markets, and through Canberra Nuclear, the
Company manufactures analytical instruments and systems used to detect, identify
and quantify radioactive materials for the nuclear industry and related markets.
The Company believes that it is the worldwide market leader in most of its
primary product markets, with well-recognized brand names and a reputation for
high-quality, reliable instruments. For the year ended December 31, 1996, the
Company had revenues and EBITDA of $184.0 million and $36.7 million,
respectively.
The Company was founded in 1965 by Emery G. Olcott, its current President
and Chief Executive Officer. The Company began as a manufacturer of nuclear
instrument modules ("NIMs"), which are electronic devices used to detect and to
measure radioactive materials and the energy they emit. Throughout the 1970s and
into the early 1980s, the Company maintained a leadership position in the
nuclear spectroscopy market and continued to grow. Expertise in measuring
radiation exposure of humans (health physics) was increased through the
acquisition of Radiation Management Corporation in early 1983. Major subsequent
acquisitions included Nuclear Data, Inc. in 1989, which specialized in computer-
based spectroscopy systems and health physics software, and Jomar Systems, Inc.
in 1990, which specialized in neutron counting devices.
In 1986, the Company purchased Packard Instrument from a subsidiary of
United Technologies Corporation. Packard Instrument was founded in 1949 by Lyle
E. Packard. The original product manufactured by Packard Instrument was a geiger
counter particularly suited to laboratory measurements of low energy
radioactivity. In 1954, Packard Instrument introduced the first commercial
liquid scintillation counter, called the Tri-Carb-Registered Trademark-
Spectrometer. With a rapid succession of technological innovations, Packard
Instrument established leadership in the emerging scintillation spectrometry
industry. In 1967, Packard Instrument was acquired by the American Bosch Arma
Corporation, which later became part of the Automotive Division of United
Technologies Corporation. During the 1960s and 1970s, Packard Instrument
increased its international presence, establishing several sales and service
companies in Europe and Australia. In 1980, Packard Instrument developed a
manufacturing presence for biochemicals and supplies in Groningen, The
Netherlands. The Company's acquisition of Packard Instrument capitalized on its
knowledge of nuclear physics, but at the same time diversified its product
portfolio by addressing entirely new markets. In 1988, the Company acquired
Radiomatic Instruments and Chemical Co., a manufacturer of flow scintillation
analyzers, which complemented Packard Instrument's product line.
The Company currently has two domestic and twelve foreign active
subsidiaries, all of which are wholly-owned by Packard BioScience Company. In
addition, the Company has a 60% ownership interest in Packard Japan KK through
Packard Instrument Company, Inc. See "Prospectus Summary--Recent Developments."
Packard Instrument Company, Inc., located in Downers Grove, Illinois,
manufactures all of Packard Instrument's products other than biochemical
products, which are produced in the Netherlands by Packard Instrument B.V.
Canberra Nuclear's instruments, radiation detectors and applied systems are
manufactured by certain divisions of the Company located at its headquarters in
Meriden, Connecticut, along with certain radiation detectors that are
manufactured in Belgium by Canberra Semiconductor N.V. See
"Business--Manufacturing." The Company's other subsidiaries are sales and/or
service organizations. See "Business--Marketing, Sales and Service."
Historically, certain of the Company's subsidiaries have paid dividends to the
Company. The Company will, in part, be dependent on the cash flow of such
subsidiaries and distributions thereof from such subsidiaries to the Company in
order to meet its debt service obligations. The Company's subsidiaries may incur
additional indebtedness in the future, subject to limitations imposed by the
Indenture and the New Credit Agreement. See "Description of the Exchange Notes"
and "Description of the New Credit Agreement."
The principal executive offices of the Company are located at 800 Research
Parkway, Meriden, Connecticut 06450. Its telephone number is (203) 238-2351.
35
THE RECAPITALIZATION
On March 4, 1997, the Recapitalization was effected pursuant to the terms of
the Recapitalization Agreement. Pursuant to the Recapitalization Agreement, the
Company completed the Tender Offer in which it repurchased for an aggregate
price of approximately $208.6 million all of the shares of Common Stock other
than certain shares retained by the Management Stockholders and the Continuing
Stockholders. In addition, (i) the Acquisition Entity assigned its right to
acquire shares of Common Stock under the Recapitalization Agreement to the Fund
and two institutional investors, (ii) the Fund, the two institutional investors
and a member of the Board of Directors of the Company acquired shares of Common
Stock from the Company and certain shares of Common Stock beneficially owned by
the Management Stockholders for an aggregate purchase price of approximately
$71.5 million and (iii) the Management Stockholders and the Continuing
Stockholders retained certain shares of Common Stock and Existing Options with
an implied value of approximately $31.9 million. Upon consummation of the
Recapitalization, the Fund, the two institutional investors and a member of the
Board of Directors owned approximately 69% of the Common Stock and the
Management Stockholders and Continuing Stockholders beneficially owned
approximately 31% of the Common Stock, each on a fully diluted basis (excluding
New Options to be granted subsequent to the Recapitalization Closing). Pursuant
to the Recapitalization, Existing Options were cancelled in exchange for a
payment of approximately $3.3 million in the aggregate. See
"Management--Management Investment" and "Ownership of Capital Stock." The Tender
Offer was closed, and the Common Stock validly tendered and not withdrawn was
purchased by the Company, concurrently with the acquisition of Common Stock by
the Fund and the two institutional investors and with the consummation of the
144A Note Offering. The balance of the funds needed to consummate the
Recapitalization came from borrowings under the New Credit Agreement, from the
proceeds of the 144A Note Offering and from cash on hand. See "Description of
the New Credit Agreement."
36
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer.
The net proceeds of the 144A Note Offering were approximately $143.0
million. The proceeds of the 144A Note Offering were used to fund a portion of
the Recapitalization and to meet a portion of certain other cash requirements
arising out of or in connection with the Recapitalization, including transaction
fees and expenses. The following table sets forth the sources and uses of funds
related to the Recapitalization:
AMOUNT
-------------
(IN MILLIONS)
SOURCES OF FUNDS:
Cash on hand.................................................................. $ 21.2
New Credit Agreement (1)...................................................... 40.0
144A Notes.................................................................... 150.0
Equity from the Fund (2)...................................................... 71.5
Exercise of stock options (3)................................................. 8.3
------
Total......................................................................... $ 291.0
------
------
USES OF FUNDS:
Purchases of Common Stock from existing stockholders by:
The Company (4)............................................................. $ 211.9
The Fund (2)................................................................ 54.0
Repayment of existing indebtedness (5)........................................ 4.6
Transaction fees and expenses (6)............................................. 20.5
------
Total......................................................................... $ 291.0
------
------
- ------------------------
(1) The New Credit Agreement consists of a $40 million six-year term loan and
includes a $75 million five-year Revolving Credit Facility, which was
undrawn as of the Recapitalization Closing. See "Description of the New
Credit Agreement."
(2) Excludes approximately $31.9 million implied value of equity retained by the
Management Stockholders and the Continuing Stockholders. Includes equity
from the Fund, the two institutional investors and an outside director, and
consists of approximately $17.5 million for purchase of shares of Common
Stock from the Company and approximately $54.0 million for the purchase of
shares of Common Stock beneficially owned by Management Stockholders.
(3) Represents proceeds received from the exercise of Existing Options by
Management Stockholders.
(4) Consists of approximately $208.6 million for repurchase of Common Stock and
approximately $3.3 million for redemption of Existing Options. See "The
Recapitalization."
(5) Primarily represents overdrafts at certain foreign subsidiaries, certain
treasury stock notes and certain building loans repaid in conjunction with
the Recapitalization which had interest rates that range from 3.5% to 7.9%
and which had maturities, in the case of the overdrafts, of less than one
year, in the case of the treasury stock notes, ranging from five to eight
years and, in the case of the building loans, of up to 16 years.
(6) Includes fees related to financing for the Recapitalization; legal,
financial advisory and other fees of the Company; and legal, accounting and
other fees of the Acquisition Entity. Also includes $1.2 million for payment
of bonuses to management and $2.4 million for the payment of a lump sum
amount to satisfy the Company's obligations under certain executive
officers' Supplemental Executive Retirement Plans.
37
CAPITALIZATION
The following table sets forth, as of December 31, 1996 and March 31, 1997,
the cash, cash equivalents, short-term debt and capitalization of the Company on
an historical basis. The March 31, 1997 data reflect the effects of the
Recapitalization (including the receipt and application by the Company of the
net proceeds of the 144A Note Offering). See "Use of Proceeds," "Unaudited
Condensed Consolidated Financial Statements" and "Selected Historical
Consolidated Financial Data."
AS OF AS OF
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(IN THOUSANDS)
Cash and cash equivalents............................. $ 37,826 $ 21,757
------- --------------
------- --------------
Short-term debt (1)................................... $ 3,524 $ 2,008
------- --------------
Long-term debt:
New Credit Agreement (2)............................ -- 39,700
144A Notes.......................................... -- 150,000
Other debt.......................................... 2,866 48
------- --------------
Total long-term debt.............................. 2,866 189,748
------- --------------
Total debt........................................ 6,390 191,756
Stockholders' equity (deficiency) (3)................. 80,593 (107,780)
------- --------------
Total capitalization.............................. $ 86,983 $ 83,976
------- --------------
------- --------------
- ------------------------
(1) Primarily represents bank overdrafts associated with foreign subsidiaries
and short-term portion of amounts outstanding under the New Credit
Agreement.
(2) At March 31, 1997, the Company was able to borrow up to $75 million under
the Revolving Credit Facility, none of which was drawn down at March 31,
1997. See "Description of the New Credit Agreement."
(3) The number of shares outstanding immediately before and after the
Recapitalization was 12,146,352 and 4,353,506, respectively.
38
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
The unaudited pro forma condensed consolidated statements of income (loss)
of the Company for the year ended December 31, 1996 and for the three months
ended March 31, 1997 (the "Pro Forma Statements of Income (Loss)") have been
prepared to give effect to the Recapitalization described elsewhere in this
Prospectus and in the accompanying Notes to the Unaudited Pro Forma Condensed
Consolidated Statements of Income (Loss). See "The Recapitalization." The Pro
Forma Statements of Income (Loss) do not purport to represent what the Company's
results of operations would actually have been had the Recapitalization in fact
occurred as of the beginning of such periods or to project the Company's results
of operations for any future period.
The Pro Forma Statement of Income (Loss) for the year ended December 31,
1996 has been derived from the audited consolidated financial statements of the
Company included elsewhere in this Prospectus adjusted to give pro forma effect
to the Recapitalization as if it had occurred as of January 1, 1996. The Pro
Forma Statement of Income (Loss) for the three months ended March 31, 1997 has
been derived from the unaudited condensed consolidated financial statements of
the Company included elsewhere in this Propectus adjusted to give pro forma
effect to the Recapitalization as if it had occurred as of January 1, 1997.
The Recapitalization will be recorded as a recapitalization for financial
reporting purposes. Accordingly, the historical basis of the Company's assets
and liabilities was not impacted by the Recapitalization. See the unaudited
condensed consolidated balance sheet of the Company as of March 31, 1997
contained elsewhere in this Prospectus. Pursuant to the Recapitalization, the
Company repurchased 9,379,255 shares of Common Stock for $22.25 per share, or
approximately $208.6 million in the aggregate, the Fund purchased 786,807 shares
of Common Stock from the Company for $22.25 per share, or approximately $17.5
million in the aggregate, and the Fund and certain other investors purchased a
total of 2,426,676 shares of Common Stock beneficially owned by the Management
Stockholders for $22.25 per share, or approximately $54.0 million in the
aggregate. The sources of funds for the shares of Common Stock repurchased by
the Company were the sale of Common Stock to the Fund, cash on hand and
borrowings through the issuance of the 144A Notes and under the New Credit
Agreement. See "The Recapitalization" and "Use of Proceeds."
The Pro Forma Statements of Income (Loss) should be read in conjunction with
the historical consolidated and condensed consolidated financial statements of
the Company and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
39
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1996 THREE MONTHS ENDED MARCH 31, 1997
------------------------------------ -------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------- ----------- -----------
Revenues........................... $ 184,018 $ 184,018 $ 42,560 $ 42,560
Cost of sales and service
expense.......................... 85,757 85,757 19,486 19,486
---------- ----------- ----------- -----------
Gross profit................... 98,261 98,261 23,074 23,074
Research and development
expenses......................... 17,852 17,852 5,051 5,051
Selling, general and administrative
expenses......................... 48,830 48,830 11,174 11,174
Other charges...................... 837 837 17,979 17,979
---------- ----------- ----------- -----------
Operating profit (loss)........ 30,742 30,742 (11,130) (11,130)
Interest expense................... (122) $ (17,995)(1) (18,117) (1,481) $ (3,000)(1) (4,481)
Amortization of deferred financing
costs............................ -- (1,545)(2) (1,545) (129) (258)(2) (387)
Other income, net.................. 1,149 1,149 318 318
---------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes and minority
interest..................... 31,769 (19,540) 12,229 (12,422) (3,258) (15,680)
Provision for (benefit from) income
taxes............................ 11,187 (7,816)(3) 3,371 (3,134) (1,303)(3) (4,437)
Minority interest in income of
subsidiary....................... 1,346 1,346 218 218
---------- ----------- ----------- ----------- ----------- -----------
Net income (loss).............. $ 19,236 $ (11,724) $ 7,512 $ (9,506) $ (1,955) $ (11,461)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Pro forma earnings (loss)
per share........................ $ 1.69(4) $ (2.58)(4)
----------- -----------
----------- -----------
Earnings to fixed charges ratio.... 1.58x -- (5)
----------- -----------
----------- -----------
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income.
40
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(1) The following represent adjustments to interest expense as a result of the
Recapitalization:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
Interest expense with respect to the New Credit Agreement............ $ 3,357 $ 560
Interest expense with respect to the 144A Notes...................... 14,063 2,344
Bank and other finance fees.......................................... 575 96
------- -------
Net change........................................................... $ 17,995 $ 3,000
------- -------
------- -------
The interest rate on the New Credit Agreement and 144A Notes was at a
weighted average interest rate of 9.2%. For each 0.25% change in average
interest rate on the New Credit Agreement, annual pro forma interest expense
would change by $100.
(2) Represents amortization expense of deferred financing costs related to the
Recapitalization. Approximately $11,200 has been deferred and will be
amortized over the lives of the related debt securities. The weighted
average amortization period for the deferred financing costs is 7.25 years.
(3) Represents the estimated income tax effects of pre-tax pro forma adjustments
at the Company's statutory rate of 40% for all periods presented.
(4) Pro forma earnings (loss) per share for the year ended December 31, 1996 and
the three months ended March 31, 1997 was calculated based on shares
outstanding of 4,353,506 and 96,539 shares for options calculated using the
treasury stock method, for a combined total of 4,450,045 shares.
(5) The Company's earnings were inadequate to cover fixed charges by $12,422 for
the three months ended March 31, 1997.
41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data with respect to the Company for the periods ended and as of the dates
indicated. The selected historical consolidated financial data for the years
ended December 31, 1996, 1995 and 1994 are derived from the audited consolidated
financial statements of the Company included elsewhere in this Prospectus. The
selected historical consolidated financial data for the three months ended March
31, 1997 and 1996 are derived from the unaudited condensed consolidated
financial statements of the Company included elsewhere in this Prospectus. Such
unaudited condensed consolidated financial statements, in the opinion of the
Company's management, include all adjustments necessary for the fair
presentation of the financial position and the results of operations of the
Company for such periods and as of such dates. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 1997. This
information should be read in conjunction with the consolidated and condensed
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected historical
consolidated financial data for the years ended December 31, 1993 and 1992 are
derived from audited consolidated financial statements of the Company that are
not included in this Prospectus.
THREE MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Total revenues....................................... $ 161,538 $ 156,735 $ 165,384 $ 169,114 $ 184,018 $ 46,102 $ 42,560
Cost of sales and service expense.................... 85,458 81,228 85,299 82,635 85,757 20,266 19,486
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................................... 76,080 75,507 80,085 86,479 98,261 25,836 23,074
Research and development expenses.................... 12,633 13,494 13,726 14,414 17,852 4,525 5,051
Selling, general and administrative expenses......... 46,755 45,066 45,062 47,322 48,830 11,409 11,174
Other charges (1).................................... -- -- 3,450 -- 837 -- 17,979
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........................ 16,692 16,947 17,847 24,743 30,742 9,902 (11,130)
Interest expense..................................... 447 175 558 616 122 28 1,610
Other (income) expense, net.......................... (647) 630 (2,940) (1,153) (1,149) (217) (318)
Flood costs (savings) (2)............................ 6,000 1,897 (551) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
interest........................................... 10,892 14,245 20,780 25,280 31,769 10,091 (12,422)
Provision for (benefit from) income taxes............ 3,722 2,488 8,470 9,875 11,187 4,247 (3,134)
Minority interest in income of subsidiary............ 342 909 768 800 1,346 656 218
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................................... $ 6,828 $ 10,848 $ 11,542 $ 14,605 $ 19,236 $ 5,188 $ (9,506)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital...................................... $ 38,935 $ 46,191 $ 44,776 $ 51,341 $ 59,216 $ 50,728 $ 38,927
Total assets......................................... 99,168 112,384 115,212 120,602 137,925 122,374 134,915
Long-term debt (net of current portion).............. 3,491 2,547 2,399 1,753 2,037 1,692 189,748
Stockholders' equity (deficiency).................... 56,841 65,581 65,867 72,429 80,593 72,075 (107,780)
OTHER DATA:
Ratio of earnings to fixed charges (3)............... 6.9x 11.2x 12.5x 13.9x 22.8x 28.9x --(5)
EBITDA (4) $ 21,366 $ 21,623 $ 25,909 $ 29,418 $ 36,714 $ 11,046 $ 8,284
Depreciation and amortization........................ 4,674 4,676 4,612 4,675 5,135 1,144 1,564
Capital expenditures................................. 7,506 4,436 1,577 3,327 2,715 752 547
Cash flows from (used for) operating activities...... 13,876 19,961 14,698 18,755 33,187 14,304 (1,084)
Cash flows used for investing activities............. (7,558) (4,384) (1,715) (4,578) (8,486) (1,752) (733)
Cash flows used for financing activities............. (14,373) (2,535) (13,192) (11,145) (7,610) (6,660) (12,725)
Shares of common stock outstanding................... 13,759,728 13,591,892 12,771,401 12,434,992 12,146,352 12,432,124 4,353,386
Weighted average common shares outstanding (6)....... 14,659,588 13,926,254 13,323,068 12,941,222 12,569,742 12,735,258 11,153,705
Earnings (loss) per share (6)........................ $ 0.47 $ 0.78 $ 0.87 $ 1.13 $ 1.53 $ 0.41 $ (0.85)
(FOOTNOTES ON FOLLOWING PAGE)
42
- ------------------------------
(1) Amount in 1994 relates to a restructuring charge incurred in connection with
the Company's shutdown of its Itasca, Illinois facility and the relocation
of most of its operations to Meriden, Connecticut. Most of these costs
incurred related to employee terminations and a lease buy-out. Amounts in
1996 and 1997 relate to expenses incurred in connection with the
Recapitalization.
(2) Fiscal 1992 amount relates to costs incurred with the Company's relocation
to a new facility in Meriden, Connecticut and the write-off of $3,120 in
unamortized leasehold improvements after the flooding of the old
headquarters. In 1993, additional costs were incurred for temporary
facilities and a provision was made for the termination of the remaining
lease obligation of the old headquarters. During 1994, the recorded
obligation to the previous landlord was settled for an amount less than that
accrued as of December 31, 1993.
(3) For the purposes of computing the ratio of earnings to fixed charges,
earnings consists of income (loss) before income taxes and minority
interest, and fixed charges consists of interest expense which includes
amortization of deferred financing costs and the portion of rental expense
deemed representative of the interest factor. After giving PRO FORMA effect
to the Recapitalization, the Company's ratio of earnings to fixed charges
would have been 1.6x for the year ended December 31, 1996.
(4) EBITDA represents, for any period, the sum of income (loss) from operations
and depreciation and amortization exclusive of other charges. EBITDA
includes 100% of the EBITDA generated by Packard Japan, the Company's 60%
owned subsidiary. See "Prospectus Summary--Recent Developments." The amount
of Packard Japan's operating income represented by the 40% interest not
owned by the Company was $744, $1,612, $1,647, $1,668 and $2,649 for the
years ended 1992, 1993, 1994, 1995 and 1996, respectively, and $1,317 and
$475 for the three months ended March 31, 1996 and 1997, respectively.
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. Management believes
that presentation of EBITDA is helpful to investors. However, EBITDA should
not be considered as an alternative to net income as a measure of the
Company's operating results or to cash flows as a measure of liquidity. In
addition, although the EBITDA measure of performance is not recognized under
generally accepted accounting principles, it is widely used by industrial
companies as a general measure of a company's operating performance because
it assists in comparing performance on a relatively consistent basis across
companies without regard to depreciation and amortization, which can vary
significantly depending on accounting methods (particularly where
acquisitions are involved) or non-operating factors such as historical cost
bases. Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled measures
of other companies.
(5) The Company's earnings were inadequate to cover fixed charges by $12,422 for
the three months ended March 31, 1997.
(6) The weighted average shares outstanding and earnings (loss) per share
amounts have been computed based on the average shares outstanding during
each of the periods presented, including the impact of outstanding options
determined under the treasury stock method.
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS OF THE COMPANY COVER CERTAIN PERIODS BEFORE COMPLETION OF
THE RECAPITALIZATION. ACCORDINGLY, THE DISCUSSION AND ANALYSIS OF SUCH PERIODS
DO NOT REFLECT THE SIGNIFICANT IMPACT THAT THE RECAPITALIZATION WILL HAVE ON THE
COMPANY. ACCORDINGLY, THE FINANCIAL INFORMATION INCLUDED IN THE FOLLOWING
DISCUSSION MAY NOT NECESSARILY REFLECT THE RESULTS OF OPERATIONS, FINANCIAL
POSITION AND CASH FLOWS OF THE COMPANY IN THE FUTURE. THE FOLLOWING DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH THE SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA, THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS, AND THE OTHER FINANCIAL INFORMATION AND DATA APPEARING ELSEWHERE
HEREIN.
GENERAL
The Company's revenues are comprised of sales of bioanalytical instruments
and related biochemical supplies and services to the drug discovery and
molecular biology markets, as well as sales of analytical instruments, systems
and services used for the detection, identification and quantification of
radioactive materials for the nuclear industry and related markets.
The Company operates a global business, with net sales that are diversified
by geographic region and by product line. Packard Instrument has an extensive
direct sales and service organization in the United States, Australia, Austria,
Belgium, Denmark, France, Germany, Italy, Japan, The Netherlands, Russia,
Switzerland and the United Kingdom. Canberra Nuclear's direct sales and service
organization is comprised of operations in the United States, Australia,
Austria, Belgium, France, Germany, Russia and the United Kingdom. Outside of
these countries, both Packard Instrument and Canberra Nuclear maintain large
independent distributor networks. In the three fiscal years 1994 to 1996, net
sales to foreign third parties were 58%, 62% and 63%, respectively, of total net
sales. In the three months ended March 31, 1996 and 1997, net sales to foreign
third parties were 67% and 65% of total net sales, respectively.
The Company's sales include significant service revenue derived from Packard
Instrument's and Canberra Nuclear's large base of installed equipment. In
addition, Packard Instrument also generates significant revenue from the sale of
consumable biochemicals and supplies. These provide the Company with a stable
stream of revenue after an instrument has been sold. The table below illustrates
the percentage of total sales that the three major categories of sales have
generated in the last three fiscal years and in the three months ended March 31,
1996 and 1997.
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- ---------
1994 1995 1996 1996
-------------------- -------------------- -------------------- ---------
CONSOLIDATED NET SALES (DOLLARS IN MILLIONS): $ % $ % $ % $
--------- --- --------- --- --------- --- ---------
Instruments and systems...................... $ 115.4 70% $ 113.2 67% $ 124.1 68% $ 31.7
Services..................................... 32.9 20 35.6 21 37.2 20 8.7
Chemicals and supplies....................... 17.1 10 20.3 12 22.7 12 5.7
--------- --- --------- --- --------- --- ---------
Total.................................... $ 165.4 100% $ 169.1 100% $ 184.0 100% $ 46.1
--------- --- --------- --- --------- --- ---------
--------- --- --------- --- --------- --- ---------
1997
-----------
CONSOLIDATED NET SALES (DOLLARS IN MILLIONS): % $ %
--- --------- ---
Instruments and systems...................... 69% $ 27.9 65%
Services..................................... 19 8.8 21
Chemicals and supplies....................... 12 5.9 14
--- --------- ---
Total.................................... 100% $ 42.6 100%
--- --------- ---
--- --------- ---
Packard Instrument's total revenues increased by 21% from 1994 to 1996. This
growth is primarily a result of the growth in funding of research by
pharmaceutical and biotechnology companies, driven principally by their desire
to accelerate drug screening and development, the demand for increased
automation at many research laboratories and a trend toward non-radioisotopic
bioanalytical research. Sales of certain of Packard Instrument's products,
including microplate readers, robotic liquid handling systems and biochemicals
and supplies have grown during the period, partially offset by declines in sales
of certain bioanalytical spectrometers, which employ radioisotopic analytical
methods. See "Risk Factors-- Potential Decline in Use of Radioisotopic Processes
and Instruments."
44
Packard Instrument actively engages in new product development through both
internal development and outside collaborations in response to demand for higher
efficiency bioanalytical instrumentation from the drug discovery and molecular
biology markets and growing demand for non-radioisotopic methods. Packard
Instrument's spending on research and development has increased since 1994.
Packard Instrument's research and development expenditures were approximately
10% of Packard Instrument's revenues for 1996, as compared to 9% in 1994.
Canberra Nuclear's total revenues decreased by 4% from 1994 to 1996. This
decline is primarily a result of three factors: discontinuation of certain less
profitable product lines, the reorganization of the mission and operations of
the DOE as a result of the end of the Cold War and delays in orders by electric
utilities due, in part, to deregulation in the United States. The Company
believes that certain emerging industry trends may benefit Canberra Nuclear in
the future. These trends include (i) environmental cleanup projects, a new
mission of the DOE, which will require nuclear waste characterization systems;
(ii) safeguarding nuclear material resulting from weapons and facilities
decommissioning, another new mission of the DOE, which will increase the need to
monitor, account for and protect such materials; (iii) the deregulation of U.S.
electric utilities which, the Company believes, will ultimately generate demand
for Canberra Nuclear's labor saving health physics and radiochemistry software;
and (iv) growth in the use of nuclear energy in the Pacific Rim.
Canberra Nuclear's research and development expenditures were approximately
8% of Canberra Nuclear's revenues for 1996. Several new products have been
developed recently which the Company believes respond to market demand for new
modes of radiation counting. These include portable spectroscopy instruments,
x-ray detectors for materials science research and waste counting systems.
From 1994 to 1996, the Company's overall operating margins have improved
from 11% to 17%, with Packard Instrument's operating margins (which exclude
allocation of general corporate, other charges and consolidating adjustments)
increasing from 18% to 21% and Canberra Nuclear's operating margins (which
exclude allocation of general corporate expenses, other charges and
consolidating adjustments) increasing from 10% to 14% during the same period.
The overall improvement for the Company is primarily a result of higher product
gross margins and increased service profits at both Packard Instrument and
Canberra Nuclear. In addition, a higher mix of Packard Instrument revenues,
which had higher operating margins than Canberra Nuclear, improved the Company's
overall operating margin. Packard Instrument's product gross margins improved
primarily as a result of increased manufacturing efficiency in its Downers
Grove, Illinois facility and better margins at its European sales subsidiaries.
Packard Instrument's service margins increased in its European region. Canberra
Nuclear's higher product gross margins were primarily a result of increased
manufacturing efficiency. Canberra Nuclear's service profits increased
significantly in both the U.S. and Europe.
The Company's sales subsidiaries outside the United States primarily bill
their customers in their respective local currencies. Approximately 50% of the
Company's revenues are based on sales denominated in currencies other than the
U.S. dollar. As a result of this foreign exchange exposure, the Company
generally purchases foreign currency forward contracts with the objective of
mitigating the effect on cash flow of potential fluctuation in foreign
currencies. See Note 1 to the Consolidated Financial Statements. Independent
representatives outside the United States are billed in U.S. dollars and
therefore represent no currency exposure for the Company.
As a result of the Recapitalization, the Company's total consolidated
indebtedness increased by approximately $185.4 million, to $191.8 million. The
primary effects of the Recapitalization on the Company's future operating
results will include reduced reported profitability to the extent interest
expense is above historical amounts resulting from higher debt levels. In
addition, the Company has recorded approximately $18.0 million in charges for
transaction fees and expenses in the consolidated statements of income and
stockholders' equity in the first quarter of fiscal 1997. The Company expects to
generate sufficient cash from operations to fund its working capital and capital
expenditure needs and
45
make required interest and principal payments on its indebtedness for the
foreseeable future. See "-- Liquidity and Capital Resources" and "Risk
Factors--Substantial Leverage; Ability to Service Indebtedness" and
"--Restrictions Imposed by Indebtedness."
RESULTS OF OPERATIONS
The following table sets forth operating results as a percentage of total
revenues for the historical periods indicated:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Total revenues................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and service expense............................. 51.6 48.9 46.6 44.0 45.8
Gross profit.................................................. 48.4 51.1 53.4 56.0 54.2
Research and development expenses............................. 8.3 8.5 9.7 9.8 11.9
Selling, general and administrative expenses.................. 27.2 28.0 26.5 24.7 26.3
Other charges................................................. 2.1 -- 0.5 -- 42.2
--------- --------- --------- --------- ---------
Operating profit (loss)....................................... 10.8% 14.6% 16.7% 21.5% (26.2)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Total revenues for the three months ended March 31, 1997 were $42.6 million,
a decrease of $3.5 million or 7.6% compared to the same period in 1996. If
average exchange rates through March 31, 1997 had remained unchanged from the
corresponding period in 1996, total revenues for the three months ended March
31, 1997 would have been 4.5%, or $1.9 million, higher than reported. Packard
Instrument's total revenues for the three months ended March 31, 1997 were $29.5
million, a decrease of $2.6 million or 8.1% compared to the same period in 1996.
This decrease was primarily a result of an expected decline in sales at the
Company's Japanese subsidiary of approximately $3.8 million in the first quarter
of 1997 compared to the unusually strong first quarter of 1996, which benefited
from the Japanese government's efforts to stimulate the Japanese economy through
increased spending. The decline in Japanese subsidiary sales more than offset
the increase in sales of several new products, including Kryptor, Cyclone,
MicroCount and Discovery, and the increase in sales of both the chemicals and
services product lines. Canberra Nuclear's total revenues for the three months
ended March 31, 1997 were $13.1 million, a decrease of $0.9 million or 6.7%
compared to the same period in 1996. This decrease was primarily a result of
lower instrument sales in Europe and at the Company's Belgian detector
manufacturing facility.
Gross profit decreased to $23.1 million for the three months ended March 31,
1997 from $25.8 million in the same period in 1996, a decrease of $2.7 million
or 10.5%. Gross profit margin decreased to 54.2% for the three months ended
March 31, 1997 from 56.0% for the same period in 1996. The decrease in gross
profit margin was primarily a result of a lower level of sales from Packard's
Japanese subsidiary, the mix of products sold, and a stronger dollar, which more
than offset the improved manufacturing efficiencies at Canberra Nuclear,
especially in the stand-alone instruments product line and in detectors made in
the United States.
Research and development expenses increased to $5.1 million for the three
months ended March 31, 1997 from $4.5 million in the same period in 1996, an
increase of $0.6 million or 13.3%. This increase was primarily a result of
higher spending by Packard Instrument for product enhancement and new product
development.
Selling, general and administrative expenses decreased to $11.2 million for
the three months ended March 31, 1997 from $11.4 million for the same period in
1996, a decrease of $0.2 million or 1.8%. As a percent of total revenues,
selling, general and administrative expenses increased to 26.3% for the three
46
months ended March 31, 1997 from 24.7% for the same period in 1996. This
increase as a percent of sales was primarily a result of spreading certain fixed
spending over lower revenues.
Other charges were $18.0 million for the three months ended March 31, 1997
and resulted from the Recapitalization. See Note 3 to the Unaudited Condensed
Consolidated Financial Statements included elsewhere in this Prospectus.
The Company recorded an operating loss of $11.1 million for the three months
ended March 31, 1997 compared to an operating profit of $9.9 million for the
same period in 1996, a decrease of $21.0 million. Packard Instrument's operating
profit (excluding allocation of general corporate expenses and consolidating
adjustments) decreased to $5.6 million for the three months ended March 31, 1997
from $9.0 million for the same period in 1996, a decrease of $3.4 million or
37.8%. Packard Instrument's operating profit margin decreased to 18.9% for the
three months ended March 31, 1997 from 28.0% for the same period in 1996.
Canberra Nuclear's operating profit (excluding allocation of general corporate
expenses and consolidating adjustments) increased to $1.8 million for the three
months ended March 31, 1997 from $1.5 million for the same period in 1996, an
increase of $0.3 million or 20.0%. Canberra Nuclear's operating profit margin
increased to 13.7% for the three months ended March 31, 1997 from 10.5% for the
same period in 1996.
Interest expense increased to $1.6 million for the three months ended March
31, 1997 from $28,000 for the same period in 1996. This increase was primarily a
result of interest expense associated with $150 million in 144A Notes sold by
the Company and $40.0 million in Senior Indebtedness incurred by the Company
under the New Credit Agreement, effective March 4, 1997.
The consolidated effective income tax rate for the first quarter of 1997 was
a benefit of 25.2% compared to a 42.1% provision for the same period in 1996.
The reduced effective rate was primarily a result of the tax benefit provided on
a portion of the Recapitalization charges being realized at a lower effective
rate than the rate on income generated in high tax rate countries, particularly
Japan.
The Company recorded a net loss of $9.5 million during the three months
ended March 31, 1997 compared to net income of $5.2 million for the same period
in 1996, a decrease of $14.7 million. This decrease was primarily a result of
the Recapitalization. See Note 3 to the Unaudited Condensed Consolidated
Financial Statements included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased to $184.0 million in 1996 from $169.1 million in
1995, an increase of $14.9 million or 8.8%. If average exchange rates in 1996
had remained unchanged from those in 1995, total revenues in 1996 would have
been 3.2% higher than reported. Packard Instrument's total revenues increased to
$122.7 million in 1996 from $107.1 million in 1995, an increase of $15.6 million
or 14.6%. This increase was primarily a result of strong growth in sales of
certain instrument product lines, including a substantial increase in sales by
Packard Instrument's Japanese subsidiary. Canberra Nuclear's total revenues
decreased to $61.3 million in 1996 from $62.0 million in 1995, a decrease of
$0.7 million or 1.1%. This decrease was primarily a result of an unfavorable
change in average exchange rates, partially offset by higher sales of standalone
instruments.
Gross profit increased to $98.3 million in 1996 from $86.5 million in 1995,
an increase of $11.8 million or 13.6%. Gross profit margin increased to 53.4% in
1996 from 51.1% in 1995. This increase was primarily a result of a higher mix of
sales from Packard Instrument's Japanese subsidiary, improved Company-wide
manufacturing efficiencies and better sales and service margins at Packard
Instrument's European subsidiaries.
Research and development expenses increased to $17.9 million in 1996 from
$14.4 million in 1995, an increase of $3.5 million or 24.3%. This increase was
primarily a result of higher spending by Packard Instrument for product
enhancement and new product development.
47
Selling, general and administrative expenses increased to $48.8 million in
1996 from $47.3 million in 1995, an increase of $1.5 million or 3.2%. As a
percent of total revenues, selling, general and administrative expenses
decreased to 26.5% in 1996 from 28.0% in 1995. The decrease as a percent of
total revenues was primarily a result of spreading certain fixed selling,
general and administrative costs over a higher revenue base.
In 1996, the Company incurred a charge of $0.8 million for expenses related
to the Recapitalization. There were no unusual charges in 1995.
Operating profit increased to $30.7 million in 1996 from $24.7 million in
1995, an increase of $6.0 million or 24.3%. Operating profit margin increased to
16.7% in 1996 from 14.6% in 1995. Packard Instrument's operating profit (which
excludes allocation of general corporate expenses, other charges and
consolidating adjustments) increased to $25.7 million in 1996 from $19.2 million
in 1995, an increase of $6.5 million or 33.9%. Packard Instrument's operating
profit margin increased to 21.0% in 1996 from 18.0% in 1995. Canberra Nuclear's
operating profit (which excludes allocation of general corporate expenses, other
charges and consolidating adjustments) increased to $8.4 million in 1996 from
$8.3 million in 1995, an increase of $0.1 million or 1.2%. Canberra Nuclear's
operating profit margin increased to 13.7% in 1996 from 13.3% in 1995.
Net income increased to $19.2 million in 1996 from $14.6 million in 1995, an
increase of $4.6 million or 31.5%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues increased to $169.1 million in 1995 from $165.4 million in
1994, an increase of $3.7 million or 2.3%. If average exchange rates in 1995 had
remained unchanged from those in 1994, total revenues in 1995 would have been
5.3% lower than reported. Packard Instrument's total revenues increased to
$107.1 million in 1995 from $101.3 million in 1994, an increase of $5.8 million
or 5.7%. This increase was primarily a result of strong growth in instrument
unit sales in the microplate reader and robotic liquid handling system product
lines, the introduction of more environmentally safe biochemicals, the
acquisition of a new product line from DuPont NEN Life Science Products and
growth in service revenue, which was partially offset by declines in sales of
the bioanalytical spectrometer, imaging system and other instrument product
lines. Canberra Nuclear's total revenues decreased to $62.0 million in 1995 from
$64.1 million in 1994, a decrease of $2.1 million or 3.3%. This decrease was
primarily a result of the discontinuation of several less profitable product
lines, a decline in domestic shipments to the DOE because of uncertainty
surrounding the DOE's role and funding following the Cold War and a decline in
sales to domestic nuclear power plants due to cost pressures resulting from the
potential deregulation of the U.S. electric utility industry.
Gross profit increased to $86.5 million in 1995 from $80.1 million in 1994,
an increase of $6.4 million or 8.0%. Gross profit margin increased to 51.1% in
1995 from 48.4% in 1994. This increase was primarily a result of manufacturing
and service expense cost savings from the 1994 closing of Canberra Nuclear's
operations in Itasca, Illinois, other operational efficiencies implemented at
both Canberra Nuclear and Packard Instrument (including reduction in production
cycle time, implementation of enhanced communication software and changing the
raw material purchase process for sheet metal kits) and the 1995 depreciation of
the United States dollar against most of the Company's major trading currencies.
Research and development expenses increased to $14.4 million in 1995 from
$13.7 million in 1994, an increase of $0.7 million or 5.0%. This increase was
primarily a result of Packard Instrument increasing its commitment to new
product development in 1995 and Canberra Nuclear increasing its investment in
systems engineering.
48
Selling, general and administrative expenses increased to $47.3 million in
1995 from $45.1 million in 1994, an increase of $2.2 million or 5.0%. As a
percent of total revenues, selling, general and administrative expenses
increased to 28.0% in 1995 from 27.2% in 1994. This increase was primarily a
result of 1995 inflationary increases.
There were no unusual charges or expenses in 1995. In 1994, the Company
incurred a $3.5 million expense for closing Canberra Nuclear's Nuclear Data
facility in Itasca, Illinois. In addition, unusual charges in 1994 were a $0.6
million gain relating to an overaccrual in prior years of costs related to a
1992 flood of the Company's leased headquarters building in Meriden,
Connecticut.
Operating profit increased to $24.7 million in 1995 from $17.8 million in
1994, an increase of $6.9 million or 38.6%. Operating profit margin increased to
14.6% in 1995 from 10.8% in 1994. Packard Instrument's operating profit (which
excludes allocation of general corporate expenses and consolidating adjustments)
increased to $19.2 million in 1995 from $17.8 million in 1994, an increase of
$1.4 million or 7.8%. Packard Instrument's operating profit margin increased to
18.0% in 1995 from 17.6% in 1994. Canberra Nuclear's operating profit (which
excludes allocation of general corporate expenses and consolidating adjustments)
increased to $8.3 million in 1995 from $6.7 million in 1994, an increase of $1.6
million or 23.5%. Canberra Nuclear's operating profit margin increased to 13.3%
in 1995 from 10.4% in 1994.
Net income increased to $14.6 million in 1995 from $11.5 million in 1994, an
increase of $3.1 million or 26.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's free cash flow has historically been used to fund capital
expenditures, working capital requirements, debt service, stockholder dividends
and stock repurchases. Following the Recapitalization, interest expense
associated with the borrowings of $40.0 million under the New Credit Agreement
and $150.0 million under the 144A Notes, as well as scheduled principal payments
of term loans under the New Credit Agreement, significantly increased cash
requirements. The Company's interest expense following the Recapitalization will
be substantially higher than immediately prior to such transaction. There can be
no assurance that the Company's business will generate sufficient cash flow from
operations or that future working capital borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the Notes, or make necessary capital expenditures or investments in research and
development. See "Risk Factors--Substantial Leverage; Ability to Service
Indebtedness." Prior to the time at which significant levels of principal on
indebtedness under the New Credit Agreement and the Notes becomes due, the
Company will evaluate and identify the most advantageous options available to
service such debt. Options may include refinancing such principal under
potentially new terms and conditions or repaying such debt through funds
obtained through other sources or means.
The New Credit Agreement provides for a six-year $40 million Term Loan
Facility. Loans under the New Credit Agreement bear interest at floating rates
based upon the interest rate option selected by the Company. Quarterly
amortization is required, commencing in the third calendar quarter of 1997, in
the amount of $200,000 in the first fiscal year after funding, $400,000 per year
in the second through fifth fiscal years after funding, $19.2 million in the
sixth fiscal year after funding and $19.0 million in the seventh fiscal year
after funding. The Revolving Credit Facility of $75 million will mature five
years after the date of initial funding of the term loans described above. The
New Credit Agreement contains operating covenants, financial covenants and
events of default. These covenants, among other things and subject to certain
exceptions, limit the Company's ability to make capital expenditures and
technology acquisitions to no more than $10.0 million per year ($13.0 million in
certain circumstances); may limit borrowings under the New Credit Agreement for
investments by the Company to no more than $70.0 million during the term of the
New Credit Agreement and no more than $20.0 million for any one investment (or,
on a one-time basis, $40.0 million); and may limit the incurrence of certain
indebtedness by the Company or its subsidiaries, other than pursuant to the New
Credit Agreement, to no more than $20.0 million in the
49
aggregate. Borrowings under the New Credit Agreement are secured by
substantially all of the Company's assets, the stock of Packard Instrument and
65% of the stock of certain of the Company's foreign subsidiaries. No amounts
were drawn down under the Revolving Credit Facility in connection with the
Recapitalization Closing. The Company is required to pay a commitment fee of
0.5% per year on the average daily unused portion of the Revolving Credit
Facility, payable quarterly in arrears. See "Description of the New Credit
Agreement" and "Risk Factors--Restrictions Imposed by Indebtedness."
In addition to the New Credit Agreement, the Company has also issued $150.0
million of 144A Notes in connection with the Recapitalization. The 144A Notes
are subordinated to the indebtedness under the New Credit Agreement. The
Indenture governing the 144A Notes imposes certain restrictions on the Company
and its subsidiaries, including restrictions on the ability to incur
indebtedness, pay dividends, make investments, grant liens, dispose of certain
assets, enter into sale and leaseback transactions, make capital expenditures
and engage in certain other activities. The restrictions on the incurrence of
indebtedness provide that the Company and its subsidiaries may not incur
indebtedness unless the Company is in compliance with a consolidated fixed
charge coverage ratio, subject to certain overall limitations and permitted
exceptions. The 144A Notes may be required to be purchased by the Company upon a
Change of Control (as defined) and in certain circumstances with the proceeds of
asset sales. See "Description of the Exchange Notes." The New Credit Agreement
and the Indenture each prohibit the Company from paying any cash dividends on
its capital stock.
Operating activities utilized $1.1 million of cash during the first quarter
of 1997 compared to $14.3 million of cash generated by operating activities in
the same period in 1996. This decrease in cash flow from operating activities of
$15.4 million was primarily a result of the Recapitalization charge ($8.5
million) recognized in the first quarter of 1997 and the additional interest
incurred on the Recapitalization indebtedness, as well as a decrease in accounts
payable and accruals (excluding those related to the Recapitalization) during
the first quarter of 1997 compared to an increase in accounts payable and
accruals during the first quarter of 1996.
Operating activities generated $14.7 million, $18.8 million and $33.2
million in cash flow in each of 1994, 1995 and 1996, respectively. The increase
in cash flow from operating activities from 1994 to 1995 of $4.1 million was
primarily a result of a $3.1 million increase in net earnings. The increase in
cash flow from operating activities from 1995 to 1996 of $14.4 million was
primarily a result of a $4.6 million increase in net income and a $6.7 million
increase in accounts payable and other accrued expenses.
The Company's capital expenditures totaled $2.7 million in 1996, $3.3
million in 1995 and $1.6 million in 1994. Capital expenditures have primarily
been for machinery, equipment and the purchase and expansion of facilities. The
Company's expenditures for technology acquisitions, including product lines,
patent rights and licenses acquired, totaled $4.0 million in 1996, $0.7 million
in 1995 and $0.6 million in 1994.
The Company expects that its majority-owned Japanese subsidiary, Packard
Japan, will repurchase during 1997 and 1998 the outstanding 40% minority
interest in its capital stock from the holder thereof (subject to Japanese laws
and regulations) for aggregate consideration of approximately $7.5 million. See
"Prospectus Summary--Recent Developments."
The Company is subject to various federal, state, local and foreign
environmental laws and regulations in the jurisdictions in which it operates.
The Company does not currently anticipate any material adverse effect on its
operations or financial condition as a result of its efforts to comply with, or
its liabilities under, environmental laws. The Company does not currently
anticipate any material capital expenditures for environmental control
facilities. Some risk of environmental liability is inherent in the Company's
business, and there can be no assurance that material environmental costs will
not arise in the future. In particular, the Company might incur capital and
other costs to comply with increasingly stringent environmental policies.
Although it is difficult to predict future environmental costs, the Company does
not anticipate any material adverse effect on its operations, financial
condition or competitive position as a result of future
50
costs of environmental compliance. 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 Netherlands facility.
Studies of the contamination have been completed, and the negotiations concern
which method for remediating the site will be implemented by the Company. The
methods under consideration differ in the estimates of both the length of time
required to remediate the site and the expense associated with implementing the
cleanup. Although the liability associated with this matter could be material,
the Company believes that any liability in such matter is covered by the
indemnification provisions of the purchase agreement with the site's prior
owner. See "Business--Legal Proceedings."
The Company believes that existing cash balances and cash flow from
operating activities, together with borrowings available under the New Credit
Agreement, will be sufficient to fund working capital needs, capital spending
requirements and debt service requirements of the Company for at least the next
12 months.
SEASONALITY
For 1995, quarterly revenues as a percentage of total revenues were
approximately 23%, 25%, 24%, and 28%, respectively, for the first through fourth
quarters of the calendar year. For 1996, quarterly revenues as a percentage of
total revenues were approximately 25%, 24%, 22% and 29%, respectively, for the
first through fourth quarters of the calendar year. Seasonality in revenues,
which is typical of most years, has historically been caused by the Company's
Canberra Nuclear business, which is dependent upon customer's seasonal
purchasing patterns. Quarterly operating profit as a percentage of total
operating profit was approximately 18%, 26%, 21% and 35%, respectively, for the
first through fourth quarters of 1995. In 1996, quarterly operating profit as a
percentage of total operating profit was approximately 32%, 24%, 15% and 29%,
respectively, for the first through fourth quarters, reflecting unusually strong
first quarter revenues and profit for Packard Japan. The relatively fixed nature
of manufacturing and non-manufacturing overheads, especially in Canberra
Nuclear's business, has historically resulted in the increased level of fourth
quarter revenues and operating profit.
BACKLOG
As of March 31, 1997 and 1996, the Company's backlog was approximately $28.8
million and $22.9 million, respectively. The Company includes in backlog only
those orders for which it has received firm purchase orders and does not include
in backlog orders for service. The Company's backlog as of any particular date
may not be representative of actual sales for any succeeding period.
51
BUSINESS
GENERAL
The Company is a leading developer, manufacturer and marketer of analytical
instruments and related products and services for use in the drug discovery and
molecular biology segments of the life sciences industry and in the nuclear
instrumentation industry. Through Packard Instrument, the Company supplies
bioanalytical instruments, and related biochemical supplies and services, to the
drug discovery and molecular biology markets, and through Canberra Nuclear, the
Company manufactures analytical instruments and systems used to detect, identify
and quantify radioactive materials for the nuclear industry and related markets.
The Company believes that it is the worldwide market leader in most of its
primary product markets, with well-recognized brand names and a reputation for
high-quality, reliable instruments. For the year ended December 31, 1996, the
Company had revenues and EBITDA of $184.0 million and $36.7 million,
respectively.
Packard Instrument is a worldwide leader in the manufacturing and marketing
of bioanalytical instruments for use in the drug discovery and molecular biology
segments of the life sciences industry. Packard Instrument's instruments and
biochemicals are used principally in laboratory research related to immunology,
genetics, virology, biochemistry, toxicology and metabolism studies, primarily
as part of the drug discovery research process. Over the past five years,
pharmaceutical and biotechnology companies have attempted to advance the drug
discovery process through accelerated drug screening and have invested
considerable resources in this process, resulting in increased demand for
Packard Instrument's products. Packard Instrument's primary products include
bioanalytical spectrometers, microplate readers, imaging systems, robotic liquid
handling systems and biochemicals and related supplies. Packard Instrument's
strong, long-term relationships with its customers have been a key component of
its development of new products which respond to these industry trends. In
addition, the Company believes that the quality and reliability of its products
have generated a large installed base of instruments which allows Packard
Instrument to generate a recurring stream of revenue from service and from sales
of biochemicals and other consumables. Packard Instrument distributes and
services its instruments through an extensive international sales and service
organization to many of the leading pharmaceutical, biotechnology and
agrochemical companies as well as to prominent academic, federal and hospital
laboratories.
Canberra Nuclear is the worldwide market leader in the manufacture and
marketing of precision instruments which use advanced analytical techniques to
quantify and identify radioisotopes. Canberra Nuclear offers its customers a
full array of nuclear instruments and related services including: (i) a broad
product line of basic hardware and software for detection, signal processing,
data acquisition and display, and basic analysis of all types of radiation; (ii)
"applied systems," which are integrated systems of software and hardware that
address a specific application and serve as turn-key operations; and (iii)
product and applications training and customer service and support. This
comprehensive product and service offering has enabled Canberra Nuclear to amass
what it believes to be the largest base of installed equipment in the nuclear
instrument industry, which generates a recurring stream of service revenues.
Canberra Nuclear's customers include government institutions, utilities,
research laboratories, commercial analytical laboratories and international,
national and local regulatory agencies. In support of its worldwide customer
base, Canberra Nuclear has developed an extensive sales and service
organization, with locations near most major nuclear sites in the world.
COMPANY STRENGTHS
LEADING MARKET POSITION. The Company believes that it has the leading
market position in each of its two principal businesses. The Company believes
that Packard Instrument has an approximate 25% market share of the worldwide
market segments in the life sciences industry in which it currently competes and
that Canberra Nuclear holds a more than 50% market share of the worldwide
commercial nuclear instrument market. In addition, the Company estimates that
Canberra Nuclear has an approximate 60%
52
market share in the market for turn-key systems that meet customer's specific
application requirements, a market segment that the Company believes will grow
faster than the market for individual instruments. The Company's well-recognized
name and reputation for quality and reliability have allowed it to gain leading
market positions across most of its primary product lines.
LONG-TERM CUSTOMER RELATIONSHIPS. The Company has long-term relationships
with its customers in both the life sciences and nuclear instrumentation
industries. Packard Instrument's relationships with its customers, which include
most of the major pharmaceutical companies worldwide, have resulted in
collaborative research and development efforts with its customers that have been
key to Packard Instrument's new product development strategy and that have
helped Packard Instrument to maintain its leading market position. Canberra
Nuclear similarly enjoys strong relationships with major nuclear instrumentation
industry participants, including commercial enterprises and government entities
such as the DOE.
RECURRING REVENUES FROM INSTALLED BASE. The Company generates recurring
revenue from service and the sale consumables due to its large installed base of
equipment. The Company believes that it has the largest installed equipment base
in the nuclear instrument industry and one of the largest installed bases in the
market segments of the life science industry in which it competes. The Company
estimates that Packard Instrument's installed base in the life sciences industry
consists of over 14,000 bioanalytical instruments. The Company estimates that
Canberra Nuclear's installed base in the nuclear instrument industry includes
more than 150 waste characterization systems, more than 300 whole body counting
systems, hundreds of safeguards systems and thousands of radiochemistry systems.
Both Packard Instrument and Canberra Nuclear offer their customers service and
support for the instruments they sell. In addition, Packard Instrument offers
its customers consumables for its instruments. Consumable sales and service
provide the Company with stable, recurring revenue for years after an instrument
has been sold. Approximately 33% of the Company's revenues for fiscal 1996 was
generated by service of its equipment and the sale of consumables. For those
instruments covered by service contracts, service contract revenues per
instrument per year average 8% to 13% of the equipment's original selling price.
Canberra Nuclear's applied systems generally require more aftermarket service
than Canberra Nuclear's other instruments, and as this market segment grows, the
Company believes that revenue from the provision of related services may also
increase. The Company believes that its installed base represents a competitive
advantage because many customers tend to remain with an existing supplier who
can provide accurate and reliable products and related services.
EXTENSIVE WORLDWIDE SALES AND SERVICE ORGANIZATION. The Company has
developed an extensive worldwide sales, service and distribution network. The
Company primarily provides service and support for its instruments on a fixed
fee, one-year contract basis, which includes field service, customer support,
applications assistance and extensive training. The Company's worldwide service
organization includes approximately 160 personnel at Packard Instrument and
approximately 90 personnel at Canberra Nuclear who are, in each case,
factory-trained and educated. Packard Instrument has sales and service
operations in 13 countries and approximately 43 independent distributors with
over 68 offices in more than 51 countries. Canberra Nuclear has locations near
most major nuclear sites in the world, with sales and service operations in nine
countries, and approximately 50 independent distributors with over 70 offices in
more than 60 countries. In addition to the recurring stream of revenue from the
Company's service and support organization, the close contact and relationship
between its service and support personnel and its customers also provide the
Company with access to new product and application ideas as well as sales
opportunities.
EXPERIENCED MANAGEMENT. The Company's management has substantial experience
in the life sciences industry and in the nuclear instrumentation industry. The
Company's top 14 managers average 21 years of experience with the Company. The
Company's Chief Executive Officer has held such position since 1965. Revenues in
1965 were $119,000 and have grown to $184.0 million for the year ended December
31, 1996. Upon consummation of the Recapitalization, the Company's management
beneficially
53
owned approximately 20% of the Common Stock of the Company on a fully diluted
basis (excluding New Options to be granted subsequent to the Recapitalization
Closing pursuant to a management stock incentive plan). See
"Management--Management Stock Incentive Plan."
BUSINESS STRATEGY
LEVERAGE BRAND RECOGNITION AND HIGH QUALITY. Through its applications
expertise and long history in its businesses, the Company has established and
will seek to maintain its recognized brand name and reputation for high quality,
reliable products and services. This reputation and recognized brand name, along
with the Company's extensive sales and service organization, should assist in
its efforts to further penetrate the markets for its existing products and
improve its market position in the industry segments in which it operates. The
Company monitors such quality statistics as "perfect" installations of its
equipment and, in the case of Packard Instrument, mean time between failures of
its products. The Company's goal is to be the supplier of choice for all end
users of its analytical instruments and systems. The Company will also seek to
use its established brand name and reputation for quality to compete on factors
other than price in order to maintain its margins.
GENERATE GROWTH THROUGH NEW PRODUCT DEVELOPMENT. The Company intends to
continue to emphasize new product development in order to provide
technologically advanced products to its customers for existing and new
applications and reinforce its market leadership. In particular, the Company
intends to continue to target a number of its new products toward the evolving
drug discovery market. Packard Instrument has an aggressive new product
introduction strategy that leverages its extensive distribution system and
recognized brand name. With its 90 research and development professionals and
its global service capabilities, Packard Instrument seeks to refine and market
technological advances that it obtains through internal development,
acquisitions or external collaborations with other companies or individuals.
Packard Instrument has capitalized on its strong customer relationships and
established reputation to learn about new applications desired by the
marketplace, enabling it to anticipate and respond to its customers' needs. The
Company believes that the introduction of its new products and product
enhancements and extensions should assist in its efforts to further penetrate
its markets.
Canberra Nuclear has implemented a strategy of developing turn-key systems
which meet a specific application requirement, require less technical training
to operate, and offer greater economic benefit than traditional stand-alone
components. This "systems" strategy is well suited to Canberra Nuclear's
strengths of applications know-how, worldwide service, software and hardware
expertise, and advanced training capabilities. In addition to selling its
measurement equipment, Canberra Nuclear has started offering transaction-based
database and spectroscopy services requested by its customers. Canberra
Nuclear's strategy is to develop its capabilities as a components manufacturer,
systems integrator, and applications expert in order to maintain and improve its
margins for both its products and services.
IMPLEMENT ADDITIONAL MANUFACTURING COST REDUCTIONS. The Company believes
that Packard Instrument is a low cost producer and that it can maintain this
position with continued emphasis on production cycle time, reduction in the
number of suppliers and increased use of outsourced standard components and
sub-assemblies. Canberra Nuclear has lowered its costs of manufacturing and
service significantly in the last several years through increased emphasis on
efficiency, primarily as a result of personnel and facilities reductions,
standardization of systems and increased automation of design. The Company
believes that Canberra Nuclear will strive to lower its manufacturing costs in
the future.
EMPHASIZE RECURRING REVENUES FROM SERVICES AND CONSUMABLES. The Company
intends to continue placing emphasis on expanding its service organization and
adding new biochemical and supply products to its existing product line in order
to increase its revenue from services and consumables. The Company is expanding
the type of value-added services it provides by increasing the applications
knowledge of its service staff which, as a result, should be able to provide
more consultative assistance to customers.
54
Packard Instrument is positioning itself to address the emerging demand for
non-radioisotopic biochemicals and supplies. The Company believes that new
non-radioisotopic assays will address new areas of the biochemicals and supplies
market. The Company is also expanding its product line to include a broader
array of microplates and vials that complement its existing product lines and
new instruments. Canberra Nuclear is emphasizing recurring service revenues by
expanding its database service activities serving the U.S. nuclear utility
industry and positioning itself to compete in transaction-based database and
spectroscopy services for customers in the nuclear power and DOE markets.
INDUSTRY OVERVIEW
The Company believes that it is well-positioned to capitalize on favorable
trends influencing both the life sciences industry and the market for nuclear
instruments. In the life sciences industry, these trends include the growth in
funding from the pharmaceutical and biotechnology industries, driven principally
by the desire to accelerate drug screening and development, the demand for
increased automation at pharmaceutical, biotechnology and clinical laboratories,
and the growth of non-radioisotopic bioanalytical research. In the market for
nuclear instruments, the Company believes that, although its traditional
businesses will be affected by the deregulation in the United States of nuclear
power plants, opportunities may increase as a result of certain emerging trends,
including: (i) environmental cleanup projects, a new mission of the DOE, which
will require nuclear waste characterization systems; (ii) safeguarding nuclear
material resulting from weapons and facilities decommissioning, another new
mission of the DOE, which will increase the need to monitor, account for and
protect such materials; (iii) the deregulation of U.S. electric utilities which,
the Company believes, will ultimately generate demand for Canberra Nuclear's
labor saving health physics and radiochemistry software; and (iv) growth in the
use of nuclear energy in the Pacific Rim.
PACKARD INSTRUMENT
Life science is the study of the characteristics, behavior and structure of
living organisms and their component systems. Life science researchers utilize a
variety of instruments and related biochemicals and supplies in the study of
life processes, drug discovery, biotechnology and environmental testing. Two
major branches of life science are cellular biology and molecular biology.
Cellular biology is the study of live, intact cells. Molecular biology is the
study of cell components including DNA, RNA and proteins. The Company estimates
that in 1996 annual sales to the global life sciences industry for
instrumentation, related service and biochemicals totaled approximately $2.7
billion. The segments of this industry on which the Company focuses are
bioanalytical spectrometers, microplate readers, imaging systems, robotic liquid
handling systems, and radioisotopic and non-radioisotopic biochemicals and
supplies, for which the Company estimates annual sales total approximately $440
million in the aggregate.
The bioanalytical instrument market includes primarily bioanalytical
spectrometers, microplate readers, imaging systems and robotic liquid handling
systems. Bioanalytical spectrometers are used to measure biologically active
molecules, cells and sub-cellular components, the composition and function of
body tissues and organs, the dynamics of living systems, and the mechanics of
disease. They are used by researchers in pharmaceutical companies, biotechnology
companies, and academic institutions as well as customers in hospitals,
environmental testing laboratories and clinical testing laboratories.
Bioanalytical spectrometer samples are contained in vials, test tubes and
special transparent tubing.
Microplate readers are used primarily by researchers at drug companies and
biotechnology companies when studying cellular and molecular biology.
Microplates are used in drug discovery and development for screening potential
drug candidates and by scientists conducting evaluation assays. Microplate
readers quantify the results of tests performed in the depressions, or "wells,"
of small plastic trays. Microplate readers miniaturize the tests and, therefore,
reduce the amount of samples, labels and time needed to perform such tests.
Because of their advanced technology and differentiating characteristics, both
55
bioanalytical spectrometers and microplate readers are sold at higher margins
than more standard instruments.
Imaging systems are also used in the study of molecular and cellular biology
primarily by researchers in drug companies and biotechnology companies. Imaging
system samples are analyzed in flat (two-dimensional) formats. Robotic liquid
handling systems are used in laboratories to transfer liquids from one piece of
labware or apparatus to another, add or mix reagents, perform dilutions, perform
washing steps, or otherwise manipulate liquid samples for analytical procedures.
These instruments have become important as laboratory research tools because
microplate readers have reduced the size and increased the number of samples.
Robotics are necessary to complete precise measurements and handle a large
number of minute samples. Packard Instrument sells robotic liquid handlers that
are used to prepare samples in microplate readers and bioanalytical
spectrometers.
A major application of Packard Instrument's bioanalytical instruments is for
use as a part of the drug discovery process. The pharmaceutical industry has
traditionally gained most of its drug leads by evaluating natural and synthetic
compounds from their chemical libraries for molecules with possible therapeutic
benefit. However, new tools for drug discovery allowing for more rapid, thorough
and efficient identification of drug leads have evolved over the past five
years. In addition, two major technological innovations have substantially
increased the number of possible drug leads, and new avenues for disease
treatment are now available. First, molecular and cellular biology and the study
of genetics have facilitated the identification of complex disease mechanisms
and identified genetic targets as potential and known causes of diseases.
Second, combinatorial chemistry, the production of hundreds of thousands of
compounds from functionally diverse chemicals, has enabled chemists to
synthesize huge numbers of new substances which can then be tested for
disease-fighting capability. As a result of these innovations, the challenge for
all pharmaceutical companies is how to screen this large number of candidate
drug compounds against a proliferating number of disease targets. Pharmaceutical
groups require the capability to screen millions of potential drug leads against
many new disease targets in shorter time periods and have turned to
instrumentation for "high throughput screening."
Makers of bioanalytical instruments, like Packard Instrument, have addressed
this need and helped to make the new approach to drug discovery possible by
combining the detection capabilities of its bioanalytical instruments with
advances in "high throughput screening." "High throughput screening" is a
general term that refers to the automated systems and new instruments currently
being used in drug research. Using high throughput screening, research groups
have been able to screen tens and even hundreds of thousands of compounds a
week, well beyond previous limits. The result has been an increase in both the
speed with which tests can be conducted and the volume of information available
on the binding characteristics of a given drug molecule or biological target.
The bioanalytical instrument market includes products that provide
researchers with the ability to detect the activity of biological samples by
measuring minute amounts of light. Today, there exist three different labeling
methods: isotopic, fluorescent and chemiluminescent labeling. Fluorescent and
chemiluminescent labels are considered nonisotopic methods. Isotopic methods
allow a researcher to recognize the activity of a particular molecule or
compound by labeling it with a radioactive molecule. Rather than utilize
radioactivity, fluorescent or chemiluminescent labeling distinguishes a specific
molecule or compound to be analyzed by attaching an organic light-emitting
molecule.
Although a majority of the tests today use radioisotopic processes and
instruments, the Company believes that the trend is toward the use of
nonisotopic instrumentation. Because isotopic labeling has been the most widely
used ultrasensitive biological test, it is the benchmark against which the
reliability and sensitivity of nonisotopic methods are measured. Radioisotopic
labeling is the most specific, easy to use and cost effective method of testing
compounds. Additionally, the Company believes that scientists who currently use
radioisotopes tend to be reluctant to switch methodology because of the
potential sources for experimental error involved in altering their testing
methods. Because radioisotopes are chemically
56
identical to stable elements, they can be used as effective labels without
modifying reaction chemistry. However, the Company believes that the trend
towards gradual substitutions of many of the isotopic methods is likely. Because
of their radioactivity, isotopic labels are environmentally unfriendly and
difficult and potentially dangerous to handle. Their by-products bring about
waste disposal problems that are becoming increasingly more expensive.
CANBERRA NUCLEAR
The Company estimates that worldwide sales in 1996 of instruments and
services to the segments of the nuclear industry it serves were approximately
$180 million, of which approximately $100 million were generated by commercial
suppliers such as Canberra Nuclear. The remaining sales were generated by
captive systems integrators (E.G., DOE facilities such as Los Alamos), which
build their own equipment. The Company estimates that Canberra Nuclear has a
more than 50% market share of the $100 million worldwide commercial nuclear
instrument market. Due to privatization of the DOE facilities and to
deregulation of the U.S. electric utility industry, the Company believes the
captive portion of this market is gradually beginning to open to commercial
companies like Canberra Nuclear.
The traditional end markets for Canberra Nuclear's products are the
radiochemistry, nuclear research and worker health and safety markets.
Radiochemistry is a basic analytical tool for the investigation of the chemical
composition of substances by analyzing their radioactive isotopic constituents.
As the use of radiochemical techniques has grown in recent years, the need has
grown for highly automated instruments, like those manufactured by Canberra
Nuclear, that can analyze a larger number of samples in less time. The nuclear
research market has historically focused on basic research in nuclear physics.
In areas such as the Pacific Rim and South America, funding for such research
has increased, while in many industrialized countries, the focus has shifted
from basic research to applied topics such as environmental restoration. The
worker health and safety market requires instruments that measure the intake of
radioactive substances by workers who are exposed to nuclear materials.
In addition to these traditional end markets, the Company believes that
demand for its instruments may develop in the future in several emerging
markets. Given concerns about contamination of the environment (both radioactive
and non-radioactive), there is a need for measuring instruments both to monitor
radioactive and hazardous sites and to verify the success of remediation and
containment projects. The market for instruments used to characterize nuclear
waste has developed as decisions are made regarding the permanent disposal of
nuclear waste which is, for the most part, currently stored on-site by waste
generators. The use of nuclear instruments to help safeguard the Cold War's
legacy of weapons grade nuclear material is emerging as a market for Canberra
Nuclear's instruments. Finally, in addition to safeguarding nuclear materials,
the decontamination and decommissioning of nuclear weapons and other nuclear
sites also represents a market opportunity for makers of nuclear instruments.
The United States market is the most mature nuclear instrument market,
especially in the areas of research and radiochemistry. The Company believes
that existing nuclear facilities in the United States represent opportunities in
the areas of waste characterization and decontamination and decommissioning.
Worker health and safety is becoming an increasingly important market in the
United States with the advent of more stringent regulatory requirements at DOE
facilities. Additionally, the Company believes that the move to privatization of
DOE facilities is creating opportunities for new transaction-based services.
Western Europe, like the United States, is a mature market. However, the
Company believes that it differs from the United States due to its high degree
of commercial fuel reprocessing which creates additional safeguards and other
measurement opportunities. Central Europe and the former Soviet Union face the
same legacy of contaminated facilities as does the United States, but on an even
larger scale.
In other parts of the world, the Company believes that Asia is the primary
growth opportunity for commercial applications of nuclear power. This growth
potential is primarily due to Japan's aggressive
57
pursuit of energy self-sufficiency, as well as Korea, Taiwan, India and China
becoming more active nuclear markets. China and India, however, are subject to
certain United States export controls which may limit Canberra Nuclear's ability
to sell goods and services into those markets. In addition, South America is
increasing its use of nuclear energy resulting in increased opportunities to
supply safeguards, radiochemistry and waste characterization systems.
PRODUCTS AND SERVICES
PACKARD INSTRUMENT
Packard Instrument provides the following products:
BIOANALYTICAL SPECTROMETERS. Bioanalytical spectrometers, used broadly
throughout life sciences research, use sensitive light measuring methods for
detecting radioisotopic labeled compounds. Packard Instrument is a leading
manufacturer and marketer of bioanalytical spectrometry instruments, including
its Liquid Scintillation Counter ("LSC"), Gamma Counter and Flow Scintillation
Analyzer ("FSA") instruments. LSC and FSA spectrometers measure the emission of
beta particles from labeled samples by detecting the light these particles emit
in a liquid scintillation cocktail. Gamma Counters measure light given off when
gamma rays from labeled samples strike a sodium iodide crystal detector. Packard
Instrument's bioanalytical spectrometers typically range in price from
approximately $18,000 to $100,000 per instrument.
MICROPLATE READERS. Packard Instrument's microplate readers provide
high-throughput microplate scintillation counting used to screen compounds in
drug discovery, molecular and cellular biology, immunology and biomedical
research. Packard Instrument's current products perform detection using both
radioisotopic and chemiluminescence methods. Additionally, Packard Instrument
has begun to develop microplate readers using the fluorescence method for
detection, including its new Homogeneous Time-Resolved Fluorescence (HTRF-TM-)
instrument, the Discovery-TM-. HTRF-TM- is a proprietary non-isotopic detection
technique licensed from CIS bio international and marketed by Packard Instrument
for high throughput screening applications. Through the introduction of the
Matrix 9600 and TopCount instruments in the early 1990s, Packard Instrument
rapidly penetrated the microplate reader market, recently becoming the largest
supplier of these types of instruments. Packard Instrument's microplate readers
typically range in price from approximately $12,000 to $180,000 per instrument.
IMAGING SYSTEMS. Packard Instrument's current imaging systems provide flat
sample imaging of the emissions from samples, including gels, blots and high
density microplates for use in drug development and molecular and cellular
biology, including areas such as genomics, neuroscience, immunology and
biochemistry. Packard Instrument entered the imaging market with the
introduction of its InstantImager in 1993. The Company believes that its product
provides significant benefits to users in terms of real-time, fast sample
turnaround and enhanced quantitation capabilities. Packard Instrument has
broadened its product line through the addition of a low-cost storage phosphor
imager in 1996 and intends to introduce additional products in this area over
the next several years. Packard Instrument's imaging systems typically range in
price from approximately $28,000 to $75,000 per instrument.
ROBOTIC LIQUID HANDLING SYSTEMS. Packard Instrument's robotic liquid
handling systems are used to prepare small volume samples to be dispensed into
the wells of microplates, which are then screened by microplate readers. Packard
Instrument believes that it has a strong position in the drug discovery market,
the current primary market for the Company's robotic liquid handling systems,
where its MultiPROBE robotic liquid handler is often sold in conjunction with
the TopCount microplate reader. Packard Instrument is in the process of
developing the next generation instrument for this segment, the MultiPROBE II.
Another new product, the Biochip Processor-TM- with ultrasmall volume liquid
handling capability and high precision mechanics to prepare samples in higher
density microplates, is scheduled to be introduced by the end of the third
quarter of 1997. Packard Instrument's robotic liquid handling systems typically
range in price from approximately $26,000 to $105,000 per system.
58
OTHER INSTRUMENTS. Packard Instrument manufactures other instruments for
certain original equipment manufacturers, which principally include hydrogen
generators and the new KRYPTOR fluorescence immunoassay instrument, developed in
conjunction with CIS bio international for the oncology segment of the clinical
diagnostic market.
BIOCHEMICALS AND SUPPLIES. Packard Instrument believes that it is the
leading biochemicals manufacturer for scintillation cocktails and supplies, with
an estimated 44% share of the radioisotopic market segment, which Packard
Instrument estimates to be $50 million annually. Biochemicals and supplies sold
by Packard Instrument are laboratory consumables used in the operation of life
science analytical instruments. Biochemicals principally include light-emitting
scintillation cocktails used in conjunction with Packard Instrument's
bioanalytical spectrometers. Scintillation cocktails are solutions of
biochemicals and radioactively labeled compounds used in a particular
bioanalytical spectrometer called a liquid scintillation counter. Supplies
include such items as vials, microplates, luminescence and fluorescence reagents
and are used in conjunction with Packard Instrument's bioanalytical
spectrometers and microplate readers. In early 1995, Packard Instrument
introduced luminescence reagents for its TopCount product and, in 1996,
introduced HTRF-TM- reagents licensed from CIS bio international. In 1997,
Packard Instrument intends to introduce fluorescence reagents licensed from
Aurora Biosciences Corporation. Packard Instrument expects these new
introductions to help penetrate the nonisotopic reagent market.
SERVICE AND SUPPORT. Packard Instrument provides purchasers of its
instruments with service and support primarily on a fixed fee, annual contract
basis. Packard Instrument's service and support include field service, customer
support, applications assistance and extensive training through an organization
of approximately 160 factory-trained and educated service and application
support personnel around the world. Its installed product base provides it with
stable, recurring aftermarket service and support revenue as well as product
upgrade and replacement opportunities.
CANBERRA NUCLEAR
Canberra Nuclear is the world's largest manufacturer and distributor of
analytical instruments used to detect, identify and quantify radioactive
materials. Whereas there are many manufacturers of gross counting instruments
that measure radiation without regard to the source or type of emitter, the
Company believes that it is a leader among those companies that manufacture
instruments which can both quantify and identify the radioisotopes under
investigation through spectroscopic analysis. In addition to its products,
Canberra Nuclear provides a variety of services to its customers, including
aftermarket product support and on-site analysis.
INSTRUMENTS AND DETECTORS. Nuclear instruments are stand-alone electronic
measurement components. These products are not used independently but are the
building blocks for assembling radiation measurement applications, which are
utilized for a variety of purposes. Canberra Nuclear has three key instrument
product lines: NIMs, radiation detectors and Multi-Channel Analyzers ("MCAs").
NIMs are used to amplify, filter, shape, time and in other ways process the
signals generated by radiation detectors. MCAs are used to sort digitized data
from the NIMs into frequency distributions according to incoming pulse heights.
APPLIED SYSTEMS. Applied systems are integrated turn-key radiation
measurement systems that have all the required hardware and software necessary
to meet specific application needs. This category of products has recently been
the fastest growing segment of Canberra Nuclear's business. Canberra Nuclear
manufactures both standard systems that can be used for a wide variety of
applications as well as customized systems, such as waste characterization and
safeguards systems, used for more specific applications. Canberra Nuclear's
standard systems are used for worker health and safety systems, radioactive
waste analysis, environmental monitoring and safeguards applications. The worker
health and safety systems include whole body counters, in vitro analysis systems
and database information systems, and provide accurate measurement of internal
radiation dosage and control access to radiation areas, a key component in the
assessment of worker health and safety. Canberra Nuclear provides such systems
as permanent installations, mobile facilities and temporary rental units, and
all are available as complete turn-key systems.
59
The Company believes that Canberra Nuclear has been a commercial leader in
radioactive waste analysis systems for over 15 years. The new waste assay
systems that the Company has developed and is continuing to develop address the
needs of temporary and permanent off-site repositories that are currently being
planned and established for radioactive waste.
Canberra's full array of transportable radioanalysis systems, which range
from hand-held systems to mobile trailers, address the requirements for
environmental restoration and monitoring. With the introduction of its new
on-site characterization system, Canberra believes it is positioned to capture
business from analytical laboratories.
The Company believes that the application of safeguards, the means of
accounting for and protecting fissile materials from diversion, is expanding due
to: (i) the growth of reprocessing facilities and associated mixed oxide (MOX)
fuel facilities, (ii) the submission of former weapons facilities to
international inspection, (iii) the large volume of weapons materials being
extracted from decommissioned weapons and (iv) the disposition of those
materials in new facilities. This growth in safeguards should provide
opportunities for Canberra's new safeguards systems.
AFTERMARKET SERVICE AND SUPPORT. Canberra Nuclear's instrumentation and
applied system product segments generate continuing service demand in the form
of maintenance, product enhancement, general repair and training. Canberra
Nuclear believes that it has developed a reputation in the industry for high
quality customer service, provided by approximately 90 factory-trained and
educated service personnel worldwide. Its installed product base provides it
with stable, recurring aftermarket service and support revenue as well as
product upgrade and replacement opportunities.
TRANSACTION-BASED SERVICES. Canberra Nuclear has started conducting the
analysis and other transaction-based services required by its customers. These
services were developed in response to the DOE's privatization initiatives. An
example of Canberra Nuclear's full service approach is its ability to assume
total performance responsibility for nuclear waste characterization in
connection with environmental restoration projects. Canberra Nuclear can provide
all necessary equipment, mobile systems and personnel to characterize and sort
waste into treatment and disposal streams. Canberra Nuclear's environmental
restoration specialists review data and work with team members to maximize
operational efficiencies. Canberra Nuclear provides characterization of
containerized waste based on fixed-unit pricing.
RESEARCH AND DEVELOPMENT
The Company's research and development ("R&D") efforts are focused on
supporting its business development efforts, and each project is scrutinized for
feasibility, return on investment and time to market. The Company has a program
of both internal and external R&D projects in support of its overall growth
initiatives. Since 1992, the Company has been spending approximately 9% of net
sales on R&D. In 1996, R&D expenditures increased to approximately 10% to
support the introduction of various new products. For the three-year period
ending December 31, 1996, the Company spent a total of $46 million on R&D.
Packard Instrument's principal R&D mission is to develop a broad portfolio
of technologies, products and core competencies in what it believes are the two
most attractive business segments of the life sciences industry, drug discovery
and molecular and cellular biology. Packard Instrument's R&D focus is on the
development and rapid commercialization of technology. Rather than seek to
develop fundamental technological advances through its own research, Packard
Instrument emphasizes evolutionary technological improvements and the commercial
application of technologies obtained through acquisitions, licenses, joint
ventures or collaborations as well as its own research. Because of its strong,
long-term customer relationships, Packard Instrument's customers often identify
technologies of which the customer has become aware that would be suitable for
development and commercialization by Packard Instrument. In addition, Packard
Instrument's global research and technology collaborations complement its
internal R&D resources by expanding the breadth of Packard Instrument's basic
research. Packard Instrument's
60
R&D is organized into a group for core technology products and a group for new
technology development. Products are developed by cross-functional teams and
reviewed by a peer group to enhance institutional learning.
The Company believes that Canberra Nuclear's technical expertise and new
product development efforts are among the best in the commercial nuclear
instrument industry. It employs approximately 30 Ph.D. nuclear spectroscopists,
Ph.D. nuclear engineers, certified health physicists, master-degreed physicists,
nuclear engineers and radiochemists. The Company believes that this group of
scientists and engineers enables Canberra Nuclear to transform research-level
systems into standardized, user-friendly products that enjoy broad market
support. An important route to technology commercialization is through
Cooperative Research and Development Agreements ("CRADA") with the DOE. The
CRADA process is one in which a commercial company and a national laboratory
share the cost of developing and commercializing innovative technologies. The
Company has entered into various CRADA in 1996 requiring milestone payments and
future royalty payments upon satisfaction of certain criteria as specified in
such agreements. The Company has a successful history of technology transfers
from DOE national laboratories.
MARKETING, SALES AND SERVICE
Packard Instrument's marketing organization consists of approximately 17
professionals, subdivided into two groups: (i) product managers with
responsibility for maintaining a leadership position with existing products, and
(ii) new market development managers with responsibility for cultivating new
markets, developing new applications, and identifying new products in Packard
Instrument's principal growth areas of drug discovery and molecular and cellular
biology. Packard Instrument's 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 vehicles such as Lotus Notes, E-mail and an
Internet WorldWide Website. These communication links give product managers,
market development managers and application scientists the ability to have
interactive dialogue with customers around the world, helping to guide Packard
Instrument's efforts to find new ways to deliver customer benefits and to
identify product innovations.
Packard Instrument has an extensive direct sales and service organization in
the United States, Australia, Austria, Belgium, Denmark, France, Germany, Italy,
Japan, The Netherlands, Russia, Switzerland and the United Kingdom. Products are
also sold through exclusive, independent distributors in Canada, Mexico, South
Korea, Spain, Taiwan and 30 other countries active in bioanalytical research.
Packard Instrument's 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 its global organization of direct sales
representatives and distributors, who are supported by a network of experienced
application and service support personnel, Packard Instrument has access to life
sciences researchers in academic, government, hospital and industrial
laboratories worldwide.
Packard Instrument has skilled service engineers and technical specialists
available worldwide providing service, maintenance and application consulting in
the laboratory. With the added convenience of service agreements and routine,
preventive and value-added maintenance, Packard Instrument seeks to ensure that
its instrumentation is producing precise results for its customers. In addition,
the close relationship between customers and service personnel provide Packard
Instrument with access to new product and application ideas as well as new sales
opportunities.
Canberra Nuclear's marketing organization is subdivided into two groups: (i)
industry or market specialists, who are responsible for sales and marketing
strategy in Canberra's largest industry segments (i.e. nuclear power, nuclear
fuel manufacturing and weapons material production); and (ii) product or
applications managers who are responsible for specific product or applications
segments in all industries. The two groups work as a team in defining and
promoting products and applications into each market
61
segment. They also form a team with the sales engineers for significant sales
situations. In addition, there is a business development group which is
responsible for strategic marketing for Canberra Nuclear and investigation into
and implementation of new opportunities, both from a technical and market
perspective. Canberra Nuclear's marketing strategy is to position Canberra
Nuclear as an applications expert. In so doing, Canberra Nuclear seeks to
exploits its ability to offer worldwide distribution, worldwide service,
multi-platform software support, as well as worldwide applications and training
support.
In the United States, Canberra Nuclear's sales force consists of 14 sales
engineers who cover the breadth of its product line with extensive support from
field and in-house specialists. Canberra Nuclear's European sales force is
comprised of direct sales operations in Austria, Belgium, France, Germany and
the United Kingdom, and distributors in the remainder of Europe. The sales
organization for other international markets consists of direct sales operations
in Russia and Australia, one minority-owned distributor covering Central Europe
and the Ukraine, and approximately 50 independent exclusive distributors
covering approximately 60 countries. Canberra Nuclear compensates its sales
force with a combination of base salary and, to the extent sales and service
goals are achieved or exceeded, incentive compensation. Canberra Nuclear
provides worldwide service and support through one manufacturing location in the
United States and one in Europe, three U.S.-based field service offices and
sales and service offices in nine countries. The Company has sales and service
operations near most major nuclear sites with a strong international presence
and contacts in emerging markets such as South America. The Company believes
that it is well recognized in the industry for high quality service, and that
its extensive sales and distribution network provide it with strong
relationships with almost every major user of nuclear instruments in the world.
As of December 31, 1996, the number of Company employees in sales and
marketing and service were approximately as follows:
PACKARD CANBERRA
INSTRUMENT NUCLEAR TOTAL
--------------- ------------- -----
Sales and Marketing................................... 135 78 213
Service............................................... 161 90 251
--- --- ---
Total............................................... 296 168 464
--- --- ---
--- --- ---
CUSTOMERS
The Company's customers include pharmaceutical, biotechnology, electric
utility, chemical and industrial companies as well as academic institutions,
government laboratories and private foundations. Customers of Packard Instrument
include Amgen Inc., Bristol-Meyers Squibb Company, Fujisawa Pharmaceutical Co.
Ltd., Genentech, Inc., Gen-Probe Incorporated, Glaxo Wellcome PLC, Harvard
Medical School, Hoffman LaRoche AG, Merck & Co., Inc., National Institutes of
Health, Pasteur Institute, and the University of California. Customers of
Canberra Nuclear include Los Alamos National Laboratory, Savannah River Site,
Rocky Flats, Commonwealth Edison Company, Southern Nuclear Company, Duke Power
Company, Power Reactor and Nuclear Fuel Development Corporation, COGEMA, EURATOM
and the International Atomic Energy Agency. Sales to the DOE were approximately
6% of the Company's fiscal 1996 revenues and approximately 17% of Canberra
Nuclear's fiscal 1996 revenues. Total DOE sales are diversified among 13 major
nuclear sites in the United States, each with numerous and distinct projects,
laboratories and priorities. Moreover, the nuclear mission of the DOE is divided
into three diverse categories: environmental restoration and management, treaty
obligations (SALT, START, and Safeguards) and new weapons production. No
customer of the Company accounted for more than 10% of the Company's revenues in
fiscal 1996.
62
MANUFACTURING
The Company has created a well-disciplined, low cost manufacturing culture
and believes that it is a low cost producer for instruments manufactured by both
Packard Instrument and Canberra Nuclear. The Company's 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. The
Company utilizes "just-in-time" inventory management, which resulted in
inventory turns of approximately four times per year in 1996. To further reduce
its average production cycle time and the cost of raw materials, the Company
will seek to increase its use of outsourced standard components and
sub-assemblies as well as standard, "off-the-shelf" products, such as printed
circuit boards and power supplies.
Packard Instrument manufactures all of its instruments at its Downers Grove,
Illinois facility, except for the chemical production of scintillation and
luminescence products, which occurs at Packard Instrument's facility in
Groningen, The Netherlands. Packard Instrument's manufacturing operations are
certified to ISO 9001 quality standards, and all Packard Instrument 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 Packard Instrument's instruments sold in Europe are in conformity with
current European Community directives regarding safety, quality and
electromagnetic compatibility and have qualified under the European Community's
"CE Mark."
Canberra Nuclear manufactures its nuclear instruments, radiation detectors
and applied systems at its Meriden, Connecticut facility with three separate
manufacturing groups. Certain of Canberra Nuclear's radiation detectors are also
manufactured in its Olen, Belgium facility. Canberra Nuclear has established a
certified and documented quality system as a means of ensuring that products and
services conform to specifications, and this system has been certified to ISO
9001 standards and complies with the American National Standards Institute
quality standards. The Company has also qualified a significant portion of its
product line under the "CE Mark."
COMPETITION
Packard Instrument competes with several manufacturers in both domestic and
foreign markets within the drug discovery and molecular biology segments of the
life sciences instrumentation industry. Moreover, Packard Instrument encounters
different competitors in each of its key product lines. Beckman Instruments,
Inc., EG&G Wallac Inc. and Tecan AG compete in a number of Packard Instrument's
product lines, and several companies compete in one of Packard Instrument's
product lines.
Packard Instrument competes principally on the basis of quality, product
features, product performance, price and service. Competition within the markets
that Packard Instrument serves is primarily driven by the need for innovative
products that address the needs of customers. Packard Instrument attempts, to
the extent possible, to counter competition by seeking to develop differentiated
new products and provide quality products and services that meet customers'
needs. See "Risk Factors--Technology and the Development of New Products" and
"--Highly Competitive Industries."
Canberra Nuclear's end markets are characterized by a small number of large
competitors. Over the past decade, significant consolidation in the industry has
been led by Canberra Nuclear, Eurisys Mesures (a subsidiary of SGN/COGEMA) in
France and British Nuclear Fuels PLC in the United Kingdom. Within the applied
systems market, the Company believes that it is the only company that has a
leading position within every market category. Canberra Nuclear competes
principally on the basis of applications expertise and also benefits from
superior quality, product reliability, performance and service. EG&G Ortec and
Eurisys Mesures compete in a number of Canberra Nuclear's product lines, and
several companies compete in one of Canberra Nuclear's product lines.
63
RAW MATERIALS
The Company uses many standard parts and components in its products and
believes 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 or other considerations.
Canberra Nuclear purchases high purity germanium crystals as part of the
manufacture of high resolution radiation detectors. Germanium detectors
represent a significant portion of total Canberra Nuclear sales. The sources of
supply of these crystals are limited to two manufacturers (Oxford Instruments
Inc. and Union Miniere) from whom Canberra Nuclear makes purchases. Canberra
Nuclear has secured under contract what it believes to be a long term,
dependable supply of these crystals from one of the two manufacturers. The term
of the supply contract has no fixed termination date, but continues until
terminated by either party upon four years' written notice. The supply contract
also provides for termination by the other party upon (i) the manufacturer's
failure to meet its supply obligations, (ii) the manufacturer's failure to honor
certain warranty claims, (iii) Canberra Nuclear's failure to pay invoices in a
timely manner, (iv) the assignment of the contract by either party in violation
of the contract and (v) the bankruptcy or liquidation of either party. In the
case of clause (i) above, the supply contract may be terminated only after
certain dispute resolution procedures have been exhausted. Other features of the
supply contract include price increase limitations linked to the costs of
crystal production and the grant to Canberra Nuclear of a right of first refusal
to acquire the germanium crystal vendor's production capability if the vendor
proposes to sell or discontinue its crystal business. Notwithstanding the terms
of this contract, there can be no assurance that the supply of germanium
crystals will continue at the level and prices Canberra Nuclear currently
enjoys. See "Risk Factors--Limited Sources of Supply for Germanium Crystals."
INTELLECTUAL PROPERTY
The Company owns numerous United States and foreign patents, and has patent
applications pending in the United States and abroad. Further, the Company
licenses certain intellectual property rights to or from third parties. In
addition to its patent portfolio, the Company possesses a wide array of
unpatented proprietary technology and know-how. The Company also owns numerous
United States and foreign trademarks and trade names and has applications for
the registration of trademarks and trade names pending in the United States and
abroad. The Company believes that patents and other proprietary rights are
important to the development of its business, but also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
Packard Instrument licenses technology from a number of third parties,
including, among others, licenses in connection with certain of its liquid
handling systems, imager products and microplate readers. The licenses are
generally long-term and require Packard Instrument to pay royalties to the
licensor in connection with sales of the product utilizing the licensed
technology. Certain of the licenses, including the license agreement with CIS
bio international for HTRF-TM- technology in connection with Packard
Instrument's Discovery-TM- product, may be terminated by the licensor if Packard
Instrument fails to meet certain volume targets. The licenses are generally
exclusive licenses, but some are nonexclusive in particular geographic regions
and others may be made nonexclusive if Packard Instrument fails to meet certain
volume targets. Packard Instrument does not believe that it is dependent on any
single license or that the loss of any single license would have a material
adverse effect on the Company's results of operations.
In some cases, litigation or other proceedings may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or its licensors, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the proprietary rights of the Company or of third parties. Such
litigation could result in substantial costs to and diversion of resources by
the Company. An adverse outcome in any such litigation or proceeding could
subject the Company to significant liabilities and expenses (e.g., reasonable
royalties, lost profits, attorney's fees, trebling of damages for willfulness,
etc.), require the Company to cease using the disputed intellectual
64
property or cease the sale of a commercial product, or require the Company to
license the disputed rights from third parties, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is currently involved in two separate litigations with EG&G
Instruments, Inc. ("EG&G Instruments") concerning intellectual property. See
"--Legal Proceedings."
EMPLOYEES
As of March 31, 1997, the Company had 1,012 employees. Sixty-nine percent of
employees as of that date were located in the United States. The Company's
workforce is non-union, and the Company believes that its relations with
employees are satisfactory.
LEGAL PROCEEDINGS
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 product liability, safety and health and employment matters. In certain 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 various asserted
claims and litigation in which the Company is currently involved will not have a
material adverse effect on the Company's financial position or results of
operations. However, no assurance can be given as to the ultimate outcome with
respect to such claims and litigation. The resolution of such claims and
litigation could be material to the Company's operating results for any
particular period, depending upon the level of income for such period.
The Company is currently involved in two separate litigations with EG&G
Instruments, a subsidiary of EG&G, Inc., concerning intellectual property
rights. In the first lawsuit, Packard Instrument sued EG&G Instruments on March
5, 1996 in District Court I in Munich, Germany, 21st Civil Division. Packard
Instrument contends that EG&G Instruments' 1450 cross-talk free microplate
infringes a Packard Instrument German patent. The EG&G Instruments product at
issue competes with a Packard Instrument Viewplate product. In the second
lawsuit, EG&G Instruments sued the Company on September 17, 1996 in the United
States District Court for the Eastern District of Tennessee, alleging patent
infringement. The lawsuit concerns an automatic pole-zero cancellation circuit
which is utilized in three amplifiers presently manufactured and sold by the
Company, and EG&G Instruments is seeking a judgment of infringement, a permanent
injunction, damages not less than a reasonable royalty and an accounting of the
Company's profits with pre-judgment interest. EG&G Instruments has also asserted
that the Company's infringement is willful and therefore has requested that
damages be trebled and that attorneys' fees be awarded. The Company has
counterclaimed, alleging EG&G's patents are invalid. Although the Company
believes that it will prevail in this litigation and intends to defend this
claim vigorously, there can be no assurance as to the outcome of the lawsuit or
that, if determined adversely, the outcome would not have a material adverse
effect on the Company's financial condition 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. The Company believes
that the causes of this contamination entirely predate the Company's acquisition
of Packard Instrument in 1986 and has sought indemnification under the purchase
agreement from United Technologies Automotive Holdings, Inc. ("UTAH"), a
subsidiary of United Technologies Corporation. UTAH has assumed an active role
in seeking to resolve this matter and, to date, has held Packard Instrument
harmless pursuant to an indemnification procedures agreement entered into by the
parties in 1989. The Groningen property is owned by Packard Instruments B.V.
("PIBV"), a subsidiary of the Company. Although the liability associated with
this matter could be material, the Company believes that any liability of PIBV
in this matter is covered by the indemnification provisions of the purchase
agreement with UTAH. However, there can be no assurance that UTAH will continue
to indemnify the
65
Company for all liability, and that the Company will not incur any material
costs, related to contamination at the Duinkerkenstraat facility in Groningen.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, 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 clean up of, certain materials, substances and wastes. To the best of the
Company's knowledge, its operations are in material compliance with all
applicable environmental laws and regulations as currently interpreted. The
Company and local authorities in Groningen, The Netherlands, are in the process
of negotiating a remediation plan involving groundwater contamination at the
Duinkerkenstraat facility. See "--Legal Proceedings."
Management cannot predict with any certainty whether future events, such as
changes in existing laws and regulations or the discovery of conditions not
currently known to the Company, may give rise to additional environmental costs.
Furthermore, actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the costs of producing the Company's products, or providing its services, or
otherwise adversely affect the demand for its products or services. During
fiscal 1996, the Company did not expense any amount relating to environmental
remediation. See "Risk Factors--Environmental Matters."
PROPERTIES
As of March 31, 1997, the Company owned the manufacturing facilities set
forth below:
FACILITY FUNCTION SQUARE FEET
- --------------------------------------------- ----------------------------------------------------- -----------
Meriden, Connecticut......................... Headquarters, training, service, customer support, 170,000
engineering, software development and manufacturing
(Packard Instrument and Canberra Nuclear)
Downers Grove, Illinois...................... Manufacturing, service, and engineering and R&D 109,000
(Packard Instrument)
Groningen, The Netherlands................... Manufacturing (chemicals and supplies) (Packard 31,000
Instrument)
Olen, Belgium................................ Detector manufacturing (Canberra Nuclear) 10,000
The Company believes that its facilities are suitable for their present and
intended purposes and are adequate for the Company's current and expected level
of operation.
REGULATION
The Company, in the ordinary course of business, handles a variety of
low-level radioactive sources for purposes of quality control and calibration of
its products. The Company maintains United States Nuclear Regulatory Commission
("NRC") and appropriate state licenses for all sources of radiation in its
possession. In addition, the Company has a radiation safety program at each
licensed site the objective of which is to assure proper handling and control of
all radioactive materials. The Company believes that it is in material
compliance with all of its NRC and state licenses.
Under NRC regulations, the NRC must be advised of any proposed transfer of
the ownership of a license granted by the NRC. Pursuant to these regulations,
the NRC was advised of and consented to the transfer of ownership effected by
the Recapitalization.
66
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the executive officers
and directors of the Company as of the Recapitalization Closing. In addition to
the board members indicated below, one additional board member is expected to be
designated.
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
Emery G. Olcott..................... 58 Chairman, Chief Executive Officer and President
Richard T. McKernan................. 59 Senior Vice President and Director of the Company and President,
Packard Instrument Company, Inc.
George Serrano...................... 51 Vice President, Secretary and Director of the Company and President,
Canberra Nuclear Products Group
Benjamin Campagnuolo................ 56 Vice President, International Sales, Canberra Nuclear Products Group
Michael A. Catalano, Jr. ........... 49 Vice President and General Manager, Applied Systems Division,
Canberra Nuclear Products Group
Michael J. Charland................. 48 Vice President and General Manager, Instruments Division, Canberra
Nuclear Products Group
Eugene A. Della Vecchia............. 57 Vice President, Sales, Packard Instrument Company, Inc.
Gerald W. Gaughran.................. 64 Vice President and General Manager, Downers Grove Facility, Packard
Instrument Company, Inc.
Ben D. Kaplan....................... 39 Vice President and Chief Financial Officer
Orren K. Tench, Jr. ................ 55 Vice President and General Manager, Detector Products Division,
Canberra Nuclear Products Group
Staf van Cauter..................... 48 Vice President, Marketing and Business Development, Packard
Instrument Company, Inc.
Charles M. Wherlock................. 56 Vice President, Worldwide Service and Subsidiary Operations, Packard
Instrument Company, Inc.
Michael A. Zebarth.................. 49 Vice President, Business Development, Canberra Nuclear Products Group
Robert F. End....................... 41 Director
Bradley J. Hoecker.................. 35 Director
Stephen M. McLean................... 39 Director
Alexis P. Michas.................... 39 Director
Peter P. Tong....................... 55 Director
EMERY G. OLCOTT is the Chief Executive Officer and President of the Company,
positions he has held for at least five years. He also became Chairman effective
as of the Recapitalization Closing. Mr. Olcott co-founded the Company in 1965.
Mr. Olcott is a Director of Yankee Energy System, Inc., a gas distribution
company.
67
RICHARD T. MCKERNAN is the President of Packard Instrument, a position he
has held for at least five years, and a Senior Vice President and Director of
the Company.
GEORGE SERRANO is the President of Canberra Nuclear, a position he has held
since January 1994. Mr. Serrano became a Director of the Company effective as of
the Recapitalization Closing. Mr. Serrano is also a Vice President and Secretary
of the Company, a position he has held for at least five years. From April 1991
to December 1993, he was the Vice President for Canberra International
Operations, during which time he managed the Company's sales and service
subsidiaries and European operations.
BENJAMIN CAMPAGNUOLO is Vice President of International Sales for Canberra
Nuclear, a position he has held for at least five years.
MICHAEL A. CATALANO, JR. is the Vice President and General Manager of the
Applied Systems Division of Canberra Nuclear, a position he has held since 1992.
MICHAEL J. CHARLAND is the Vice President and General Manager of the
Instruments Division of Canberra Nuclear, a position he has held for at least
five years.
EUGENE A. DELLAVECCHIA is the Vice President of Sales for Packard Instrument
Company, Inc., a position he has held for at least five years.
GERALD W. GAUGHRAN is Vice President and General Manager of Packard
Instrument's Downers Grove, Illinois facility, a position he has held since
1994. From 1989 to 1994, he was the Executive Vice President and General Manager
of the Nuclear Data Systems Division of Canberra Nuclear.
BEN D. KAPLAN has been a Vice President and the Chief Financial Officer of
the Company since February 1997. From August 1992 to January 1997, he was a
partner at Arthur Andersen LLP, a public accounting firm, and prior to August
1992, Mr. Kaplan was a Senior Manager at Arthur Andersen LLP.
ORREN K. TENCH, JR. is Vice President and General Manager of Canberra
Nuclear's Detector Products Division, a position he has held since 1992.
STAF VAN CAUTER is the Vice President of Marketing and Business Development
for Packard Instrument, a position he has held since 1992.
CHARLES M. WHERLOCK is Vice President of Subsidiary Operations and Worldwide
Service of Packard Instrument, a position he has held since 1994. Prior to his
present position, he was Vice President of Operations responsible for the
manufacturing facility and U.S. service from Downers Grove, Illinois, from 1992
to 1994.
MICHAEL A. ZEBARTH is the Vice President of Business Development of Canberra
Nuclear, a position he has held since September 1995. From 1993 to September
1995, he was the Vice President of International Operations, Worldwide Sales and
Marketing for Canberra Nuclear, and from 1992 to 1993, he was the Vice President
and General Manager of the Applied Systems Division of Canberra Nuclear.
ROBERT F. END is a Partner and a Director of Stonington Partners, Inc.
("Stonington"), a position that he has held since 1993, and is also a Partner
and a Director of Stonington Partners Inc. II, a Delaware corporation
("Stonington II"), a position he has held since 1994. He has also been a
Director of Merrill Lynch Capital Partners, Inc. ("MLCP"), a private investment
firm associated with Merrill Lynch & Co., since 1993 and a Consultant to MLCP
since 1994. He was a Partner of MLCP from 1993 to 1994 and Vice President of
MLCP from 1989 to 1993. Mr. End was also a Managing Director of the Investment
Banking Division of Merrill Lynch & Co. from 1993 to July 1994 and a Director of
the Investment Banking Division of Merrill Lynch & Co. from 1990 to 1993. Mr.
End is also a Director of Goss Graphic Systems, Inc. and United Artists Theatre
Circuit, Inc. and several privately held corporations.
BRADLEY J. HOECKER is a Principal of Stonington, a position that he has held
since 1993. He was a Principal of MLCP from 1993 to 1994 and an Associate of
MLCP from 1989 to 1993 and has been a Consultant to MLCP since 1994. Mr. Hoecker
was also an Associate in the Investment Banking Division of Merrill Lynch & Co.
from 1989 to 1994. Mr. Hoecker is also a Director of several privately held
corporations.
68
STEPHEN M. MCLEAN is a Partner and a Director of Stonington, a position that
he has held since 1993, and is also a Partner and a Director of Stonington II, a
position he has held since 1994. He has also been a Director of MLCP since 1987
and a Consultant to MLCP since 1994. He was a Partner of MLCP from 1993 to 1994
and a Senior Vice President of MLCP from 1987 to 1993. Mr. McLean was also a
Managing Director of the Investment Banking Division of Merrill Lynch & Co. from
1987 to 1994. Mr. McLean is also a Director of CMI Industries, Inc., Dictaphone
Corporation, Pathmark Stores, Inc., Supermarkets General Holding Corp. and
several privately held corporations.
ALEXIS P. MICHAS is a Managing Partner and a Director of Stonington, a
position he has held since 1993, and is also a Managing Partner and a Director
of Stonington II, a position he has held since 1994. Mr. Michas has also been a
Director of MLCP since 1989. He was a Partner of MLCP from 1993 to 1994 and
Senior Vice President of MLCP from 1989 to 1993. Mr. Michas was also a Managing
Director of the Investment Banking Division of Merrill Lynch & Co. from 1991 to
1994 and a Director in the Investment Banking Division of Merrill Lynch & Co.
from 1990 to 1991. Mr. Michas is also a Director of Blue Bird Corporation,
Borg-Warner Automotive, Inc., Borg-Warner Security Corporation, Dictaphone
Corporation, Goss Graphic Systems, Inc. and several privately held corporations.
PETER P. TONG served as the Co-President of Marquette Electronics, 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. Since May 1996, Mr. Tong
has been self-employed as a private investor. Mr. Tong is also a director of
Dictaphone Corporation, Marquette Electronics, Inc. and several privately held
corporations.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company will initially be composed of nine
members. Pursuant to the Stockholders' Agreement, four members of the Board of
Directors are designated by Stonington, three members are Management
Stockholders and two are outside directors chosen jointly by Stonington and the
Chief Executive Officer of the Company. Messrs. End, Hoecker, McLean and Michas
have been designated by Stonington, Messrs. Olcott, McKernan and Serrano have
been designated as the Management Stockholders, and Mr. Tong and another
individual to be designated serve as the independent directors. Messrs. End,
McLean and Michas serve as members of the Compensation Committee, and Messrs.
End, Hoecker and McLean serve as members of the Audit Committee.
MANAGEMENT INVESTMENT
As a part of the Recapitalization, the Management Stockholders, who are
comprised of Messrs. Olcott, McKernan, Serrano, Tench and van Cauter, and other
key members of management, retained certain shares of Common Stock and Existing
Options such that, upon consummation of the Recapitalization, such Management
Stockholders, together with the Continuing Stockholders, beneficially owned
approximately 31% of the Common Stock on a fully diluted basis (excluding New
Options to be granted subsequent to the Recapitalization Closing). In addition,
the Management Stockholders exercised, immediately prior to the Recapitalization
Closing, Existing Options held by them that were not being retained as a part of
the Recapitalization, and the Common Stock purchased pursuant to such exercise,
along with other shares of Common Stock beneficially owned by the Management
Stockholders that were not being retained as a part of the Recapitalization,
were purchased by the Fund for a price per share equal to that being offered in
the Tender Offer. The executive officers named in the Summary Compensation Table
below, and all directors and executive officers as a group, sold shares of
Common Stock beneficially owned by them to the Fund in the following amounts:
Mr. Olcott--1,204,869 shares; Mr. McKernan-- 257,325 shares; Mr.
Serrano--179,148 shares; Mr. Tench-- 196,326 shares; Mr. van Cauter--50,641
shares; and all directors and executive officers as a group -- 2,095,778 shares.
See "The Recapitalization" and "Ownership of Capital Stock." In connection with
the Recapitalization Closing, the Management Stockholders and the Continuing
Stockholders entered into the Stockholders Agreement. See "Certain
Transactions--Stockholders Agreement" and "--Management Stock Incentive Plan."
69
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and to each of its four most highly compensated
executive officers (other than the Chief Executive Officer) whose total
compensation exceeded $100,000 during the last fiscal year, for the year ended
December 31, 1996:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- ------------------------------------------------ --------- ---------- ---------- ------------- ----------------
($) ($) (#) ($)
Emery G. Olcott, Chairman, Chief Executive
Officer and President......................... 1996 $ 358,752 $ 330,000 30,000 $ 51,448
Richard T. McKernan, President,
Packard Instrument............................ 1996 241,539 145,000 50,000 18,805
George Serrano, President, Canberra Nuclear..... 1996 158,848 94,000 25,000 10,287
Staf van Cauter, Vice President................. 1996 173,312 38,500 20,000 7,389
Orren K. Tench, Jr., Vice President and
General Manager............................... 1996 139,539 60,000 -- 9,037
- ------------------------
(1) Represents split-dollar premiums in the amount of $44,059, $11,416, $2,898
and $1,648 paid by the Company on behalf of Messrs. Olcott, McKernan,
Serrano and Tench, respectively, and Company contributions made pursuant to
the Company's defined contribution plans in the amount of $7,389 for each of
Messrs. Olcott, McKernan, Serrano, van Cauter and Tench.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANT DATE
OPTIONS/SARS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR ($/SHARE) DATE ($)(2)
- --------------------------------- ------------- --------------- ----------- ---------------------- -----------
Emery G. Olcott.................. 30,000 18.18% $ 16.00 September 6, 2006 $ 158,862
Richard T. McKernan.............. 50,000 30.30 16.00 September 6, 2006 264,769
George Serrano................... 25,000 15.15 16.00 September 6, 2006 132,385
Staf van Cauter.................. 20,000 12.12 16.00 September 6, 2006 105,908
Orren K. Tench, Jr............... 0 -- -- -- --
- ------------------------
(1) The terms of the stock options granted in fiscal 1996 provided that such
options would become exercisable in 20% annual installments commencing with
the date of grant. Upon consummation of the Recapitalization, these options
became fully vested.
(2) The Grant Date Present Value was determined using the Black-Scholes model of
option pricing. The assumptions used in calculating the Grant Date Present
Value were as follows: expected volatility, 0%; risk-free rate of return,
7.11%; dividend yield, 2.5%; expected life, 10 years; and minimum option
value, $5.30.
70
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND OPTION/SAR VALUES AS OF DECEMBER 31, 1996
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
ON VALUE ------------------------------ -------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- --------------- ----------- ----------------- ------------ -----------------
Emery G. Olcott................ -- -- 374,000 -- $ 2,431,900 --
Richard T. McKernan............ -- -- 218,000 -- 1,098,620 --
George Serrano................. -- -- 128,500 -- 685,025 --
Staf van Cauter................ -- -- 55,000 -- 283,622 --
Orren K. Tench, Jr............. -- -- -- -- -- --
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS
The Company entered into Supplemental Executive Retirement Agreements
("SERPs") with each of Messrs. Olcott, McKernan and Tench. The SERPs were not
funded, but provided that, upon a change of control, the Company would establish
grantor trusts funded with assets to fund the benefits under them. At the
Recapitalization Closing, in lieu of establishing such grantor trusts, the
Company made a lump sum payment to Messrs. Olcott, McKernan and Tench of $2.4
million in the aggregate to satisfy the Company's obligations under the SERPs,
and the SERPs were terminated.
EMPLOYMENT AGREEMENTS
At the Recapitalization Closing, the Company entered into employment
agreements with Mr. Olcott and Mr. McKernan, and subsequently entered into
employment agreements with certain other executive officers, including Messrs.
Serrano, van Cauter and Tench. Set forth below is a summary of the material
provisions of the employment agreements with Messrs. Olcott, McKernan, Serrano,
van Cauter and Tench, which is qualified in its entirety by reference to the
provisions of such employment agreements, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus forms a part, and are
incorporated herein by reference.
The employment agreements with Messrs. Olcott, McKernan, Serrano, van Cauter
and Tench (each, an "Executive") supersede any other agreement between any of
them and the Company concerning their employment. Mr. Olcott serves as Chairman
of the Board, Chief Executive Officer and President of the Company; Mr. McKernan
serves as Senior Vice President and a Director of the Company, and as President
of Packard Instrument; Mr. Serrano serves as Vice President, Secretary and a
Director of the Company, and as President of Canberra Nuclear; Mr. Tench serves
as a Vice President of the Company and General Manager of its Detector Products
Division; and Mr. van Cauter serves as Vice President of Packard Instrument, or
in such other capacity as may be assigned to him by the Chief Executive Officer
of the Company or the President of Packard Instrument. 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 Mr. van Cauter. Under each
employment agreement, the initial employment term will be automatically extended
for additional 13-month terms on the first day of the calendar month following
each 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 Mr. van Cauter), unless affirmatively terminated by
the Company. The agreed-upon annual base salary for each Executive is equal to
his base salary immediately prior to the Recapitalization, 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
71
bonus determined in accordance with the terms of the Company's annual bonus
incentive plans then in effect.
Upon termination of employment by the Company other than for "cause" or
"disability," or upon termination by the Executive for "good reason" (as such
terms are defined in the employment agreements), the Company will pay to the
Executive an amount in cash equal to the sum of (i) 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 (the "Accrued
Obligations"), (ii) annual base salary and annual bonus amounts for the
remainder of the employment period, and (iii) 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
Mr. 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 Mr. 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 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. Upon termination of employment due to
death or disability, the Company will pay to the Executive or to his respective
beneficiaries, all amounts that would have been due had such Executive remained
in the employ of the Company until the end of his employment period. If
employment is terminated for cause, the Company will pay to the Executive annual
base salary through the date of termination and any deferred compensation not
yet paid, and if the Executive voluntarily terminates employment other than for
good reason, the Company will pay to the Executive in a lump sum the Accrued
Obligations other than any accrued bonus amount.
Each of the employment agreements also provides that, during employment and
(unless employment terminates by reason of death or disability) for one year
(two years in the case of Messrs. Serrano, van Cauter and Tench) after
employment ends or, if later, for one year (two years in the case of Messrs.
Serrano, van Cauter, and Tench) after employment would have ended had it not
been previously terminated, each Executive will not solicit any employees of the
Company or compete with the Company. In consideration for such noncompetition
covenant, the Company will pay to each Executive the sum of his annual base
salary and his target annual bonus, such amount payable in equal monthly
installments during the portion of the noncompetition period following the date
of termination.
MANAGEMENT STOCK INCENTIVE PLAN
At the Recapitalization Closing, the Company adopted the Management Stock
Incentive Plan (the "Plan") pursuant to which directors, officers and key
employees of the Company and its subsidiaries (the "Eligible Participants") will
be granted nonstatutory stock options exercisable into shares of Common Stock
(the "New Options"). The Plan is not related to the Company's Stock Option Plan
of 1971, pursuant to which Existing Options have been granted, as discussed
above, and is a separate plan established by the Company at the Recapitalization
Closing. The Plan is administered by either the Compensation Committee of the
Board (the "Committee") or the Board. The Committee or the Board has the
discretion to select those to whom New Options will be granted (from among those
eligible). The Board or the Committee has the authority to interpret and
construe the Plan, and any interpretation or construction of the provisions of
the Plan or of any New Options granted under the Plan by the Board or the
Committee will be final and conclusive.
New Options to purchase up to 473,420 shares of Common Stock at an exercise
price equal to $22.25 per share (the "Incentive Options") are permitted to be
granted under the Plan. As to certain of the Incentive Options, twenty percent
of such Incentive Options will vest and become exercisable per year on each of
the first through fifth anniversaries of the date of grant, provided that the
Eligible Participant continues to be employed by the Company or a subsidiary of
the Company. As to the remaining Incentive Options, one-third of such Incentive
Options will vest and become exercisable per year on each of the first
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through third anniversaries of the date of grant, provided that the Eligible
Participant continues to be employed by the Company or a subsidiary of the
Company. In addition, New Options to purchase up to 139,026 shares of Common
Stock at an exercise price equal to $27.25 per share (the "Performance Options")
are permitted to be granted under the Plan. All of the Performance Options will
be vested and fully exercisable immediately upon the date of grant. In the event
of an Extraordinary Transaction (as defined in the Plan) of the Company prior to
the fifth anniversary of the date of grant of an Incentive Option (or the third
anniversary in the case of the Incentive Options that vest over a three-year
period), all outstanding Incentive Options will become fully vested upon
consummation of the Extraordinary Transaction.
The terms and conditions of a New Option grant will be set forth in a
related New Option agreement (the "New Option Agreement"). New Options granted
under the Plan will terminate upon the earliest to occur of (a) the tenth
anniversary of the date of the New Option Agreement; (b) the date on which the
Company acquires any shares of Common Stock, Existing Options or New Options
held by the Eligible Participant in connection with the exercise of a Put Right
(as defined in the Stockholders Agreement); (c) the one-hundred-eighty-day
anniversary of the date of death, Retirement (as defined in the Stockholders
Agreement) or Disability (as defined in the Stockholders Agreement) of the
Eligible Participant; (d) the thirty-day anniversary of the date that the
Eligible Participant ceases to be a full-time employee of the Company or its
subsidiaries for any reason other than as set forth in (c) above or in (e)
below; and (e) 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 New Option
exercise price must be made in cash.
The number of shares of Common Stock that are available for New Options
under the Plan is 612,446 shares. If New Options granted under the Plan are
repurchased by the Company pursuant to the "Put Rights" and "Call Rights"
contained in the Stockholders Agreement, the shares covered by such New Options
will again be available for grant under the Plan. In the event of the
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 Common Stock or like event,
the number or character of the shares subject to the New Option or the exercise
price of any New Option may be appropriately adjusted as deemed appropriate by
the Committee or the Board.
The Plan terminates upon, and no New Options will be granted after, the
tenth anniversary of the Recapitalization Closing, unless the Plan has sooner
terminated due to grant and full exercise of New Options covering all the shares
of Common Stock available for grant under the Plan. The Board may at any time
amend, suspend or discontinue the Plan; provided, however, that the Board may
not alter, amend, discontinue or revoke or otherwise impair any outstanding New
Options granted under the Plan and which remain unexercised in a manner adverse
to the holders thereof, except if the written consent of such holder is
obtained.
COMPENSATION OF DIRECTORS
During 1996, the Company paid non-employee directors $1,500 for each board
or committee meeting attended. Directors who are full-time employees of the
Company receive no additional compensation for serving on the Board or its
committees. The Company does not pay any compensation to directors who are
designees of Stonington for serving on the Board or its committees. The
compensation to be paid to the two outside directors has not yet been
determined. At the Recapitalization Closing, Peter P. Tong was granted Incentive
Options for 10,000 shares of Common Stock and purchased 11,235 shares of Common
Stock from the Company at the same price per share of Common Stock paid by the
Company in the Tender Offer. During 1996, the Company had consulting
arrangements with David R. Meredith and Dr. Gerhard Kremer, who were directors
of the Company prior to the Recapitalization. Messrs. Meredith and Kremer were
paid $30,000, and $50,000, respectively, pursuant to these arrangements during
fiscal 1996.
73
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee during 1996 consisted of Emery G.
Olcott, the Company's President and Chief Executive Officer, David R. Meredith
and Charles Panneciere. The Company and Mr. Meredith have entered into a
consulting arrangement, as described under "--Compensation of Directors."
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding beneficial
ownership of the Common Stock of the Company immediately after the consummation
of the Recapitalization by (i) each stockholder known to the Company to own
beneficially more than 5% of the outstanding Common Stock of the Company and
(ii) each director, each executive officer and all directors and officers as a
group. Except as set forth in the footnotes to the table, each stockholder
listed below has informed the Company that such stockholder has sole voting and
investment power with respect to the shares of Common Stock of the Company
beneficially owned by such stockholder.
SHARES OF COMPANY
COMMON STOCK
BENEFICIALLY OWNED(A)
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER NUMBER PERCENT(B)
- ----------------------------------------------------------------------------------- ---------- -------------
Stonington Capital Appreciation 1994 Fund, L.P. (c)................................ 3,202,248 73.6%
Emery G. Olcott (d)................................................................ 292,366 6.7%
Richard T. McKernan (e)............................................................ 101,952 2.3%
George Serrano (f)................................................................. 66,000 1.5%
Staf van Cauter (g)................................................................ 22,000 *
Orren K. Tench, Jr................................................................. 90,000 2.1%
Robert F. End (h).................................................................. 0 --
Bradley J. Hoecker................................................................. 0 --
Stephen M. McLean (h).............................................................. 0 --
Alexis P. Michas (h)............................................................... 0 --
Peter P. Tong (i).................................................................. 13,235 *
Directors and executive officers as a group (18 persons) (h)(j).................... 692,049 15.3%
- ------------------------
* Signifies less than 1%.
(a) 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 are exercisable within 60 days of the date of the
Recapitalization Closing. The figures do not take into account options to be
granted subsequent to the Recapitalization Closing pursuant to the
Management Stock Incentive Plan, other than options granted at the
Recapitalization Closing to Peter P. Tong.
(b) Figures are based upon 4,353,506 shares of Common Stock outstanding on the
date of the Recapitalization Closing.
(c) The Fund is the record holder of 3,089,889 shares of Common Stock. The Fund
also controls, but disclaims beneficial ownership of, an additional 112,359
shares purchased by two institutional investors pursuant to the Stockholders
Agreement. The Fund is a Delaware limited partnership whose limited partners
consist of certain institutional investors, formed to invest in corporate
acquisitions organized by Stonington. Stonington Partners, L.P. ("SPLP"), a
Delaware limited partnership, is the general partner of the Fund, with a 1%
economic interest in the Fund. Except for such economic interest, SPLP
disclaims beneficial ownership of the shares set forth above. Stonington II
is the general partner of SPLP with a 1% economic interest in SPLP. Except
for such economic interests, Stonington II disclaims beneficial ownership of
the shares set forth above.
74
Pursuant to a management agreement with the Fund, Stonington has full
discretionary authority with respect to the investments of the Fund,
including the authority to make and dispose of such investments. Stonington
disclaims beneficial ownership of the shares set forth above. The address
for each of the entities and individuals listed in this footnote is c/o
Stonington Partners, Inc., 767 Fifth Avenue, New York, NY 10153.
(d) Includes shares held by Mr. Olcott's spouse, mother and minor child and
family trusts of which Mr. Olcott is trustee. Includes 30,000 shares subject
to options which are exercisable within 60 days of the Recapitalization
Closing. Mr. Olcott's address is c/o Packard BioScience Company, 800
Research Parkway, Meriden, Connecticut 06450.
(e) Includes shares held by Mr. McKernan's spouse and the McKernan Family
Partnership. Includes 30,000 shares subject to options which are exercisable
within 60 days of the Recapitalization Closing.
(f) Includes 26,000 shares subject to options which are exercisable within 60
days of the Recapitalization Closing.
(g) Includes 17,000 shares subject to options which are exercisable within 60
days of the Recapitalization Closing.
(h) Excludes shares held by the Fund of which Mr. End, Mr. McLean and Mr. Michas
may be deemed to be beneficial owners as a result of their ownership of
stock in, and membership on the Boards of Directors of, Stonington and
Stonington II, but they disclaim such beneficial ownership.
(i) Includes 2,000 shares subject to options which are exercisable within 60
days of the Recapitalization Closing. Does not include 8,000 shares subject
to options which are not currently exercisable.
(j) Includes shares held by certain family members, trusts and similar entities.
Includes 165,000 shares subject to options which are exercisable within 60
days of the Recapitalization Closing.
CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT
The Company, the Fund, two institutional investors, the Management
Stockholders, certain Continuing Stockholders and other stockholders of the
Company (each, a "Stockholder") entered into a stockholders agreement (the
"Stockholders Agreement"), which contains, among other terms and conditions,
provisions relating to corporate governance, certain restrictions with respect
to the transfer of Common Stock by certain parties thereunder, certain rights
related to puts and calls and certain registration rights granted by the Company
with respect to shares of Common Stock.
Pursuant to the terms of the Stockholders Agreement, each of the
Stockholders has agreed to elect an initial slate of directors of the Company
who have been nominated by the Fund; provided that such initial slate shall
consist of three Management Stockholders, four designees of the Fund and two
independent directors mutually agreed upon by the Fund and the Chief Executive
Officer of the Company. After the initial slate of directors has been elected,
the Fund has the right to nominate at any time and from time to time all
directors of the Company (including the right to reduce or expand the Board of
Directors and to fill vacancies created thereby) and, subject to applicable law,
has the right to remove such directors at any time and from time to time and
each of the Stockholders has agreed to vote in favor of such nomination or
removal of directors. As of the Recapitalization Closing, the Company has eight
Board members.
Pursuant to the terms of the Stockholders Agreement, in the event that,
prior to an Initial Public Offering (as defined in the Stockholders Agreement),
the Fund proposes to sell securities which, in the aggregate, represent 40% or
more of the common equity on a fully diluted basis to a third party which is
not, and following such sale will not be, an affiliate of the Fund, the
Management Stockholders and the Continuing Stockholders have the right to elect
to participate in such sale with respect to a certain number
75
of shares of Common Stock held by them on a pro rata basis. In the event that,
prior to an Initial Public Offering, the Fund proposes to sell securities which,
in the aggregate, represent 40% or more of the common equity on a fully diluted
basis to a third party which is not, and following such sale will not be, an
affiliate of the Fund, the Fund has the right to require each Management
Stockholder, Continuing Stockholder and such other Stockholders who have agreed
to be bound by the Stockholders Agreement to participate in such sale with
respect to a certain number of shares of Common Stock held by them on a pro rata
basis.
Management Stockholders and Continuing Stockholders are not permitted,
without the prior consent of the Company, to sell or transfer shares of Common
Stock, other than to permitted transferees (I.E., family members, in the case of
Management Stockholders, and, upon the death of a Management Stockholder or a
Continuing Stockholder, to his or her estate or executors), prior to the
occurrence of the earlier of the fifth anniversary of the Recapitalization
Closing and an Initial Public Offering. Following an Initial Public Offering,
Management Stockholders and Continuing Stockholders may transfer shares subject
to applicable restrictions under the Securities Act, and other federal and state
securities laws. On or after the fifth anniversary and prior to the tenth
anniversary of the Recapitalization Closing, if an Initial Public Offering has
not occurred, Management Stockholders and Continuing Stockholders are permitted
to sell Common Stock to third parties after first giving the Company, the other
Management Stockholders and the Continuing Stockholders a right of first refusal
for the same number of shares of Common Stock at the same price.
Prior to the earlier of an Initial Public Offering or the tenth anniversary
of the Recapitalization Closing, the Company has the right to require a
Management Stockholder to sell to the Company his or her shares of Common Stock,
New Options and Existing Options upon a termination of employment for any
reason. Such right is exercisable within a period of 190 days after the date of
termination of employment, subject to certain extensions, at a price per share,
depending on the reason for termination of employment and whether such shares
were shares of Common Stock retained by such Management Stockholder in the
Recapitalization or Existing Options, equal to the Fair Value Price (as defined
in the Stockholders Agreement) or the Original Purchase Price (as defined in the
Stockholders Agreement) of a share of Common Stock and at a price per New Option
or Existing Option equal to the difference between the Fair Value Price or the
Original Purchase Price of the shares of Common Stock covered by such New Option
or Existing Option and the exercise price of the shares of Common Stock covered
by such New Option or Existing Option, multiplied by the number of shares of
Common Stock covered by the New Option or Existing Option.
Prior to the earlier of an Initial Public Offering or the tenth anniversary
of the Recapitalization Closing, each Management Stockholder has the right to
require the Company to purchase his or her shares of Common Stock, New Options
or Existing Options upon termination of employment due to death, Disability,
Retirement or certain instances of Involuntary Termination (as defined in the
Stockholders Agreement). Such a right is exercisable within a period of 180 days
after the date of termination of employment due to death, Disability, Retirement
or certain instances of Involuntary Termination, subject to certain extensions,
(a) at a price per share of Common Stock equal to the Fair Value Price thereof,
and (b) at a price per New Option or Existing Option equal to the difference
between the Fair Value Price of the shares of Common Stock covered by such New
Option or Existing Option and the exercise price of the shares of Common Stock
covered by such New Option or Existing Option, multiplied by the number of
shares of Common Stock covered by the New Option or Existing Option. If the
payment for the shares of Common Stock, New Options or Existing Options would
constitute or cause a breach or default under any agreement or instrument to
which the Company or any of its subsidiaries is bound or violate any law
applicable to the Company or any of its subsidiaries, the Company is permitted
to pay for the shares or options with a subordinated note of the Company that
will, among other things, contain subordination terms which are reasonably
satisfactory to the relevant senior lenders to the Company or any of its
subsidiaries.
76
In the event that a Management Stockholder's employment is terminated due to
Voluntary Resignation (as defined in the Stockholders Agreement) or Involuntary
Termination, but not if such termination is for Cause, and the Company does not
repurchase such Management Stockholder's Existing Options pursuant to the
Company's rights set forth in the preceding paragraph, the Stockholders
Agreement provides that the term of such Existing Options shall be extended for
five years from such termination or until 30 days following an Initial Public
Offering, if sooner. The Company has also agreed, pursuant to the Stockholders
Agreement, to indemnify Management Stockholders against additional tax liability
arising from the exercise of "Put Rights" and "Call Rights" contained in the
Stockholders Agreement resulting in "dividend" distributions under Section 302
of the Code.
Stockholders are, subject to certain limitations, entitled to register
shares of Common Stock in connection with a registration statement prepared by
the Company to register common equity beneficially owned by the Fund. The Fund
has the right to require the Company to take such steps as necessary to register
all or part of the Common Stock held by the Fund under the Securities Act
pursuant to the provisions of the Stockholders Agreement. After an Initial
Public Offering, Stockholders other than the Fund have the right on one occasion
to require the Company to take such steps as necessary to register shares of
Common Stock held by such Stockholders under the Securities Act, subject to
certain minimum amounts and other limitations. The Stockholders Agreement
contains customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification granted by parties
thereunder in connection with the registration of Common Stock subject to such
agreement.
OTHER RELATED PARTY TRANSACTIONS
Prior to the Recapitalization, Compagnie Oris Industrie, S.A. ("Oris") owned
30.7% of the outstanding Common Stock of the Company. Oris sold all of its
shares of Common Stock pursuant to the Tender Offer and does not own any Common
Stock of the Company. In 1996, Packard Instrument entered into an agreement with
CIS bio international ("CIS"), an affiliate of Oris, pursuant to which Packard
Instrument agreed to become the exclusive worldwide manufacturer of the KRYPTOR
system for CIS. The agreement terminates on December 31, 2002 but may be
extended upon agreement of the parties. In 1995, Packard Instrument entered into
another agreement with CIS pursuant to which Packard Instrument obtained a
10-year license to certain HTRF-TM- technology owned by CIS. Packard Instrument
agreed to pay CIS $700,000 plus specified annual royalties. CIS may cancel the
license or make it nonexclusive if certain targets are not met. CIS may also
cancel the license if the Company is controlled by a competitor of CIS. The
Company had revenues from CIS of approximately $641,000, $99,000 and $1,065,000
for 1994, 1995 and 1996, respectively, and CIS reimbursed the Company for
certain R&D expenses in the amounts of $1,577,000, $2,961,000 and $1,536,000 for
1994, 1995 and 1996, respectively. The Company also had a non-interest bearing,
trade receivable from CIS of approximately $703,000 and $1,061,000 at December
31, 1995 and 1996, respectively.
Stonington received a structuring fee of $2.5 million with respect to its
activities in structuring the Recapitalization and related transactions. In
addition, Stonington was reimbursed for certain out-of-pocket fees and expenses
incurred by Stonington in establishing investment entities and arranging for
financing for the Recapitalization.
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DESCRIPTION OF THE NEW CREDIT AGREEMENT
In connection with the Recapitalization, the Company and certain foreign
subsidiary borrowers entered into the New Credit Agreement with Bank of America
National Trust and Savings Association ("BofA"), BancAmerica Securities, Inc.
("BancAmerica Securities"), Canadian Imperial Bank of Commerce ("CIBC"), CIBC
Wood Gundy Securities Corp. ("CIBC Wood Gundy") and certain banks and financial
institutions, as lenders (collectively, the "Lenders"), providing for (i) a $40
million six-year term loan facility (the "Term Loan Facility") and (ii) a $75
million five-year revolving credit facility (the "Revolving Credit Facility"
and, together with the Term Loan Facility, the "Bank Facilities").
The execution of the Bank Facilities, and the delivery of required
documentation thereunder, occurred simultaneously with the closing of the 144A
Note Offering and the closing of the Recapitalization.
The Term Loan Facility matures six years after the date of the initial
funding under the Bank Facilities (the "Initial Funding Date"). Quarterly
amortization is required, commencing in the third calendar quarter of 1997, in
the amount of $200,000 in the first fiscal year after the Initial Funding Date,
$400,000 per year in the second through fifth fiscal years after the Initial
Funding Date, $19.2 million in the sixth fiscal year after the Initial Funding
Date and $19.0 million in the seventh fiscal year after the Initial Funding
Date.
In addition, the Company is required to make prepayments on the Term Loan
Facility and reduce the commitments under the Revolving Credit Facility under
certain circumstances, including upon certain asset sales and issuance of debt
or equity securities. Mandatory prepayments or commitment reductions will be
applied first to the prepayment of the loans under the Term Loan Facility and
second to the permanent reduction of the Revolving Credit Facility. Each such
prepayment of the Term Loan Facility will be applied to the installments thereof
ratably in accordance with the then outstanding amounts thereof without premium
or penalty and may not be reborrowed. Each holder of term loans under the Term
Loan Facility has the right to refuse any mandatory prepayment, in which case
the amount so refused would be retained by the Company. The Term Loan Facility
bears interest, at the Company's option, at the customary base rate (either
BofA's reference rate, or the federal funds rate plus 0.5%) plus 1.75% or at the
customary reserve adjusted Eurodollar rate plus 2.75%. As shown in Note 1 to the
Unaudited Pro Forma Condensed Consolidated Statements of Income (Loss), interest
expense for the year ended December 31, 1996 and for the three months ended
March 31, 1997, on a pro forma basis, on the Term Loan Facility would have been
approximately $3.4 million and $0.6 million, respectively.
The Revolving Credit Facility matures five years after the Initial Funding
Date. Pursuant to the New Credit Agreement, the proceeds of loans under the
Revolving Credit Facility may be used to finance a portion of the
Recapitalization and the ongoing working capital needs of the Company. The
Revolving Credit Facility was undrawn as of the Recapitalization Closing. A
portion of the Revolving Credit Facility is available to finance acquisitions,
subject to certain limitations, including pro forma compliance with financial
covenants, and a portion is available in various foreign currencies to the
Company's foreign subsidiaries. The Revolving Credit Facility also has a
sublimit for letters of credit. The Revolving Credit Facility bears 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%. The Company is also required to
pay a commitment fee of 0.5% per year on the average daily unused portion of the
Revolving Credit Facility, payable quarterly in arrears.
The Bank Facilities are guaranteed by Packard Instrument. The Bank
Facilities are also secured by a perfected first priority security interest in
all of the Company's and its domestic subsidiaries' tangible and intangible
assets, whether owned as of the Initial Funding Date or thereafter acquired
(including, without limitation, intellectual property, real property, all of the
capital stock of Packard Instrument and 65% of the capital stock of certain of
the Company's foreign subsidiaries).
The Bank Facilities contain certain financial covenants, including, but not
limited to, a minimum fixed charge coverage test, a minimum interest coverage
test, a maximum leverage test and a maximum capital
78
expenditures limit. In addition, the Bank Facilities contain other customary
affirmative and negative covenants relating to (among other things) limitations
on other indebtedness, liens, investments, guarantees, restricted payments,
mergers and acquisitions, sales of assets, leases, transactions with affiliates
and conduct of business, with customary exceptions and baskets. The Bank
Facilities contain 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 and certain changes of control.
79
DESCRIPTION OF THE EXCHANGE NOTES
The 144A Notes were issued and the Exchange Notes will be issued under the
Indenture dated as of March 4, 1997 (the "Indenture") between the Company and
The Bank of New York, as trustee (the "Trustee"). References to "(Section
)" mean the applicable Section of the Indenture.
Upon the effectiveness of the Registration Statement of which this
Prospectus forms a part, the Indenture will be subject to and governed by the
Trust Indenture Act. The following summaries of the material provisions of the
Indenture do not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a part of the
Indenture by the Trust Indenture Act. A copy of the Indenture is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
is incorporated herein by reference. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions" or "Exchange
Offer; Registration Rights."
GENERAL
The Exchange Notes will mature on March 1, 2007, will be limited to
$150,000,000 aggregate principal amount, and will be unsecured senior
subordinated obligations of the Company. The Exchange Notes will be issued
solely in exchange for an equal principal amount of outstanding 144A Notes
pursuant to the Exchange Offer. The terms of the Exchange Notes will be
identical to the 144A Notes, but since the Exchange Notes will have been
registered under the Securities Act, they will generally be freely tradeable by
holders thereof who are not affiliates of the Company. References in this
Section to the "Notes" will be references to the 144A Notes and/or Exchange
Notes, depending upon which are outstanding. Each Exchange Note will bear
interest at the rate set forth on the cover page hereof from March 4, 1997 or
from the most recent interest payment date to which interest has been paid,
payable semiannually on March 1 and September 1 in each year, commencing
September 1, 1997, to the Person in whose name the Exchange Note (or any
predecessor Note) is registered at the close of business on the February 15 or
August 15 next preceding such interest payment date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. (Sections 202,
301, 309 and 313)
Principal of, premium, if any, and interest on the Notes are payable, and
the Notes are exchangeable and transferable, at the office or agency of the
Company in The City of New York maintained for such purposes (which initially
will be the corporate trust office of the Trustee); PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check mailed to
the Person entitled thereto as shown on the security register. (Sections 301,
305 and 1002) The Exchange Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and any integral multiple thereof.
(Section 302) No service charge will be made for any registration of transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith. (Section
305)
Settlement for the Exchange Notes will be made in same day funds. All
payments of principal and interest will be made by the Company in same day
funds. The Exchange Notes will trade in the Same Day Funds Settlement System of
the Depositary until maturity, and secondary market trading activity for the
Exchange Notes will therefore settle in same day funds.
When issued, the Exchange Notes will be a new class of securities with no
established trading market. No assurance can be given as to the liquidity of the
trading market for the Exchange Notes. See "Risk Factors--Lack of Prior Market
for the Exchange Notes."
OPTIONAL REDEMPTION
The Notes are subject to redemption at any time on or after March 1, 2002,
at the option of the Company, in whole or in part, on not less than 30 nor more
than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof
at the following redemption prices (expressed as percentages of the
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principal amount), if redeemed during the 12-month period beginning March 1 of
the years indicated below:
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
2002............................................................................. 104.688%
2003............................................................................. 103.125%
2004............................................................................. 101.563%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, at any time on or prior to March 1, 2000, the Company may, at
its option, use the net proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 30% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price equal to 109 3/8% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date; provided that at least $105 million
aggregate principal amount of Notes remains outstanding immediately after the
occurrence of such redemption. In order to effect the foregoing redemption, the
Company must mail a notice of redemption no later than 60 days after the related
Public Equity Offering and must consummate such redemption within 90 days of the
closing of the Public Equity Offering.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable. (Sections 203, 1101, 1104,
1105 and 1107)
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes in
whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Notes, plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and in accordance with the other
procedures set forth in the Indenture.
Within 30 days of any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes, by first-class mail, postage prepaid, at his address appearing in the
security register, stating, among other things, that a Change of Control has
occurred and the date of such event, the circumstances and relevant facts
regarding such Change of Control (including, but not limited to, information
with respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); the purchase price and the purchase
date which shall be fixed by the Company on a business day no earlier than 30
days nor later than 60 days from the date such notice is mailed, or such later
date as is necessary to comply with requirements under the Exchange Act; that
any Note not tendered will continue to accrue interest; that, unless the Company
defaults in the payment of the Change of Control Purchase Price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance. (Section 1015)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. See "-- Ranking." The
failure of the Company to make or consummate the Change of Control Offer or pay
the Change of Control Purchase Price when due will give the Trustee and the
holders of the Notes the rights described under "--Events of Default."
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The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indenture and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a "Change of Control," the Bank Credit
Facility also contains an event of default upon a "Change of Control" as defined
therein which obligates the Company to repay amounts outstanding under the Bank
Credit Facility upon an acceleration of the indebtedness issued thereunder.
Indebtedness pursuant to the Bank Credit Facility is senior in right of payment
to the Notes under the Indenture. See "Description of New Credit Agreement."
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
RANKING
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated, as set forth in the Indenture, in right of payment to the prior
payment in full in cash or cash equivalents or, as acceptable to the holders of
Senior Indebtedness, in any other manner, of all Senior Indebtedness. The Notes
are senior subordinated indebtedness of the Company ranking PARI PASSU with all
other existing and future senior subordinated indebtedness of the Company and
senior to all existing and future Subordinated Indebtedness of the Company.
(Sections 1301 and 1302)
Upon the occurrence of any default in the payment of any Designated Senior
Indebtedness beyond any applicable grace period and after the receipt by the
Trustee from representatives of holders of any Designated Senior Indebtedness
(collectively, a "Senior Representative") of written notice of such default, no
payment (other than payments previously made pursuant to the provisions
described under
"--Defeasance or Covenant Defeasance of Indenture") or distribution of any
assets of the Company or any Subsidiary of any kind or character (excluding
certain permitted equity interests or subordinated securities) may be made on
account of the principal of, premium, if any, or interest on, the Notes, or on
account of the purchase, redemption, defeasance or other acquisition of or in
respect of, the Notes unless and until such default shall have been cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash or cash equivalents or, as
acceptable to the holders of Senior Indebtedness, in any other manner, after
which the Company shall resume making any and all required payments in respect
of the Notes, including any missed payments.
Upon the occurrence and during the continuance of any non-payment default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated immediately (a "Non-payment Default")
and after the receipt by the Trustee and the Company from a Senior
Representative of written notice of such Non-payment Default, no payment (other
than payments previously made pursuant to the provisions described under
"--Defeasance or Covenant Defeasance of Indenture") or distribution of any
assets of the Company of any kind or character (excluding certain permitted
equity interests or subordinated securities) may be made by the Company or any
Subsidiary on account of the principal of, premium, if any, or interest on the
Notes or on account of the purchase, redemption, defeasance or other acquisition
of or in respect of, the Notes for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee and the Company from a Senior Representative
and shall end on the earliest of (i) the 179th
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day after such commencement, (ii) the date on which such Non-payment Default
(and all Non-payment Defaults as to which notice is also given after such
Payment Blockage Period is initiated) is cured, waived or ceases to exist or on
which such Designated Senior Indebtedness is discharged or paid in full in cash
or cash equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner or (iii) the date on which such Payment Blockage Period (and
all Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) shall have been terminated by written notice to the Company
or the Trustee from the Senior Representative initiating such Payment Blockage
Period, after which, in the case of each of clauses (i), (ii) and (iii), the
Company will promptly resume making any and all required payments in respect of
the Notes, including any missed payments. In no event will a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Company or the
Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of
Non-payment Defaults may be given during the Initial Period; provided that
during any period of 365 consecutive days only one Payment Blockage Period,
during which payment of principal of, premium, if any, or interest on, the Notes
may not be made, may commence and the duration of such period may not exceed 179
days. No Non-payment Default with respect to any Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. (Section 1303)
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
its assets, or any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary, or whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or any other
marshalling of assets or liabilities of the Company, all Senior Indebtedness
must be paid in full before any payment or distribution (excluding distributions
of certain permitted equity interest or subordinated securities) is made on
account of the principal of, premium, if any, or interest on the Notes or on
account of the purchase, redemption, defeasance or other acquisition of, or in
respect of, the Notes (other than payments previously made pursuant to the
provisions described under "--Defeasance or Covenant Defeasance of Indenture").
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
"Senior Indebtedness" under the Indenture means the principal of, premium,
if any, and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy law
whether or not allowable as a claim in such proceeding) and all other monetary
obligations on any Indebtedness of the Company (other than as otherwise provided
in this definition), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, and whether at any time owing, actually
or contingently, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Without limiting the generality of the foregoing,
"Senior Indebtedness" shall include the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceedings under any state, federal or foreign bankruptcy laws whether or
not allowable as a claim in such proceeding), and all other monetary obligations
of every kind and nature of the Company from time to time owed to the lenders
83
under the Bank Credit Facility; provided, however, that any Indebtedness under
any refinancing, refunding or replacement of the Bank Credit Facility shall not
constitute Senior Indebtedness to the extent the Indebtedness thereunder is by
its express terms subordinate to any other Indebtedness of the Company.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Notes, (ii) Indebtedness that is by its terms
subordinate or junior in right of payment to any Indebtedness of the Company,
(iii) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11 United States Code, is without recourse to the
Company, (iv) Indebtedness which is represented by Redeemable Capital Stock, (v)
any liability for foreign, federal, state, local or other tax owed or owing by
the Company to the extent such liability constitutes Indebtedness, (vi)
Indebtedness of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's subsidiaries and (vii) that portion of any
Indebtedness which at the time of issuance is issued in violation of the
Indenture.
"Designated Senior Indebtedness" under the Indenture means (i) all Senior
Indebtedness under, or in respect of, the Bank Credit Facility, and (ii) any
other Senior Indebtedness which at the time of determination, has an aggregate
principal amount outstanding of at least $15 million and is specifically
designated in the instrument evidencing such Senior Indebtedness or the
agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness" by the Company.
As of March 31, 1997, the Company had outstanding $40.0 million aggregate
principal amount of Senior Indebtedness, all of which was secured, and the
Company's Subsidiaries had approximately $1.8 million of Indebtedness (excluding
the guarantees by the Company's Subsidiaries of Senior Indebtedness). The
Company also had no PARI PASSU or Subordinated Indebtedness outstanding.
The Indenture limits, but does not prohibit, the incurrence by the Company
and its Subsidiaries of additional Indebtedness, and the Indenture prohibits the
incurrence by the Company of Indebtedness that is subordinated in right of
payment to any Senior Indebtedness of the Company and senior in right of payment
to the Notes.
The Notes are effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any
such Subsidiary upon the liquidation or reorganization of any such Subsidiary
(and the consequent right of the holders of the Notes to participate in those
assets) is effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would still
be subordinate to any security in the assets of such Subsidiary and any
Indebtedness of such Subsidiary senior to that held by the Company.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any
of its Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in
any manner become directly or indirectly liable for the payment of or otherwise
incur (collectively, "incur"), any Indebtedness (including any Acquired
Indebtedness but excluding Permitted Indebtedness), unless such Indebtedness is
incurred by the Company or constitutes Acquired Indebtedness of a Subsidiary
and, in each case, the Company's Consolidated Fixed Charge Coverage Ratio for
the four full fiscal quarters for which financial statements are available
immediately preceding the incurrence of such Indebtedness taken as one period is
at least equal to or greater than 2.0. (Section 1008)
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its
84
Qualified Capital Stock or in options, warrants or other rights to acquire
shares of such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, the Company's Capital Stock or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary of the Company) or options, warrants or other rights to acquire
such Capital Stock;
(iii) prior to any scheduled principal payment, sinking fund payment or
maturity of any Subordinated Indebtedness, make any principal payment on, or
repurchase, redeem, defease, retire or otherwise acquire for value, such
Subordinated Indebtedness (other than any such Indebtedness owed to the
Company or a Wholly Owned Subsidiary);
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than (a) to the Company or any of its
Wholly Owned Subsidiaries or (b) to all holders of Capital Stock of such
Subsidiary on a PRO RATA basis); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other than
cash, as determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a PRO FORMA basis, no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an "event of
default" under the terms of any Indebtedness of the Company or its Subsidiaries;
(2) immediately before and immediately after giving effect to such Restricted
Payment on a PRO FORMA basis, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions described
under "--LIMITATION ON INDEBTEDNESS;" and (3) after giving effect to the
proposed Restricted Payment, the aggregate amount of all such Restricted
Payments declared or made after the date of the Indenture plus the Permitted
Payments made under clause (b)(vii), do not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on the first day of the
fiscal quarter beginning after the date of the Indenture and ending on
the last day of the Company's last fiscal quarter ending prior to the
date of the Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss);
(B) the aggregate Net Cash Proceeds received after the date of the Indenture
by the Company either (x) as capital contributions in the form of common
equity to the Company or (y) from the issuance or sale (other than to any
of its Subsidiaries) of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such Qualified Capital Stock of
the Company (except, in each case, to the extent such proceeds are used
to purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (ii) or (iii) of paragraph (b)
below), in each case, other than Net Cash Proceeds received from the
issuance or sale of Qualified Capital Stock or options, warrants or
rights to purchase Qualified Capital Stock in the Recapitalization;
(C) the aggregate Net Cash Proceeds received after the date of the Indenture
by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital
Stock of the Company;
(D) the aggregate Net Cash Proceeds received after the date of the Indenture
by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent
such debt securities or Redeemable Capital Stock were issued after the
date of the Indenture, the aggregate of Net Cash Proceeds from their
original issuance; and
85
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of the Indenture,
an amount equal to the lesser of the return of capital with respect to
such Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vii) below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions (each of clauses
(i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of declaration
and shall not have been deemed a "Permitted Payment" for purposes of the
calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement for
value of any shares of any class of Capital Stock of the Company in exchange
for (including any such exchange pursuant to the exercise of a conversion
right or privilege in connection with which cash is paid in lieu of the
issuance of fractional shares or scrip), or out of the Net Cash Proceeds of
a substantially concurrent issue and sale for cash (other than to a
Subsidiary) of, other shares of Qualified Capital Stock of the Company;
PROVIDED that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are, to the extent so used, excluded from clause
(3)(B) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness or
Redeemable Capital Stock in exchange for, or in an amount not in excess of
the Net Cash Proceeds of, a substantially concurrent issuance and sale for
cash (other than to any Subsidiary) of any Qualified Capital Stock of the
Company, PROVIDED that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are, to the extent so used, excluded from
clause (3)(B) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through
the substantially concurrent issuance of new Subordinated Indebtedness of
the Company, PROVIDED that any such new Subordinated Indebtedness (1) shall
be in a principal amount that does not exceed the principal amount so
refinanced (or, if such Subordinated Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, then such lesser amount as of the date
of determination), plus the lesser of (I) the stated amount of any premium
or other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing; (2) has an Average
Life to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes; (3) has a Stated Maturity for its final scheduled
principal payment later than the Stated Maturity for the final scheduled
principal payment of the Notes; and (4) is expressly subordinated in right
of payment to the Notes at least to the same extent as the Subordinated
Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of any Redeemable Capital Stock through the
substantially concurrent issuance of new Redeemable Capital Stock of the
Company, PROVIDED that any such new Redeemable Capital Stock (1) shall have
an aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; (2) has an Average Life
to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes; and (3) has a Stated Maturity later than the Stated
Maturity for the final scheduled principal payment of the Notes;
86
(vi) the repurchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of the Company (i) upon the closing of
the Recapitalization or (ii) which were owned immediately prior to the
closing of the Recapitalization by Non-Management Stockholders (as defined
in the Recapitalization Agreement) and which the Company made an offer to
repurchase pursuant to Section 2.2 of the Recapitalization Agreement but
which were not tendered to the Company, PROVIDED that the purchase price per
share for such shares of Capital Stock of the Company shall not exceed
$22.25 per share and any such shares of Capital Stock are purchased within
90 days of the closing of the Recapitalization; and
(vii) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved
by the board of directors under which such individuals purchase or sell or
are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases in any
calendar year shall not exceed $2 million in cash or subordinated notes of
the Company issued pursuant to Section 3.1 of the Stockholders' Agreement
(plus any such amount in cash or such subordinated notes not utilized in
prior years) PROVIDED that the aggregate amount of all such repurchases in
any calendar year shall not exceed $5 million in cash or such subordinated
notes of the Company, PROVIDED, FURTHER, that such subordinated notes (the
"Management Notes") (1) have an Average Life to Stated Maturity greater than
the remaining Average Life to Stated Maturity of the Notes, (2) have a
Stated Maturity for its final scheduled principal payment later than the
Stated Maturity for the final scheduled principal payment of the Notes, and
(3) are expressly subordinated in right of payment to the Notes. (Section
1009)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with or
for the benefit of any Affiliate of the Company (other than the Company or a
Subsidiary) unless such transaction or series of related transactions is entered
into in good faith and (a) such transaction or series of related transactions is
on terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than those that would be available in a comparable transaction in
arm's-length dealings with an unrelated third party, (b) with respect to any
transaction or series of related transactions involving aggregate value in
excess of $2.5 million, the Company delivers an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (a) above, and (c) with respect to any transaction or
series of related transactions involving aggregate value in excess of $5
million, either (A) such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the Company, or in the
event there is only one Disinterested Director, by such Disinterested Director,
or (B) the Company delivers to the Trustee a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transactions or series of related transactions are fair to the Company or such
Subsidiary from a financial point of view; PROVIDED, HOWEVER, that this
provision shall not apply to (i) any transaction with an employee or director of
the Company or any of its Subsidiaries entered into in the ordinary course of
business (including compensation and employee benefit arrangements with any
officer, director or employee of the Company or any Subsidiary, including under
any stock option or stock incentive plans), (ii) the payment of a one-time fee
to Stonington in connection with the Recapitalization in an aggregate amount not
to exceed $2.5 million plus reasonable expenses and (iii) Restricted Payments
made in accordance with "--LIMITATION ON RESTRICTED PAYMENTS" or Permitted
Payments. (Section 1010)
LIMITATION ON LIENS. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create or incur any Lien of any kind
securing any Pari Passu Indebtedness or Subordinated
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Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Subsidiary) upon any property or assets (including any
intercompany notes) of the Company or any Subsidiary owned on the date of the
Indenture or acquired after the date of the Indenture, or any income or profits
therefrom, unless the Notes are directly secured equally and ratably with (or,
in the case of Subordinated Indebtedness, prior or senior thereto, with the same
relative priority as the Notes shall have with respect to such Subordinated
Indebtedness) the obligation or liability secured by such Lien except for Liens
(A) securing any Indebtedness which became Indebtedness pursuant to a
transaction permitted under "--Consolidation, Merger, Sale of Assets" or
securing Acquired Indebtedness which, in each case, were created prior to (and
not created in connection with, or in contemplation of) the incurrence of such
Pari Passu Indebtedness or Subordinated Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Subsidiary) and which
Indebtedness is permitted under the provisions of "--LIMITATION ON INDEBTEDNESS"
or (B) securing any Indebtedness incurred in connection with any refinancing,
renewal, substitutions or replacements of any such Indebtedness described in
clause (A), so long as the aggregate principal amount of Indebtedness
represented thereby is not increased by such refinancing by an amount greater
than the lesser of (i) the stated amount of any premium or other payment
required to be paid in connection with such a refinancing pursuant to the terms
of the Indebtedness being refinanced or (ii) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing, PROVIDED, HOWEVER, that in the case of clauses (A) and (B),
any such Lien only extends to the assets that were subject to such Lien securing
such Indebtedness prior to the related acquisition by the Company or its
Subsidiaries. (Section 1012)
LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the consideration from such Asset Sale is received in
cash or Cash Equivalents and (ii) the Company or such Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets subject to such Asset Sale (as determined by the
board of directors of the Company and evidenced in a board resolution). For the
purposes of this covenant, "Cash Equivalents" means (x) the assumption of
Indebtedness of the Company or any Subsidiary and the release of the Company or
such Subsidiary from all liability on such Indebtedness in connection with such
Asset Sale, (y) Temporary Cash Investments, and (z) securities received by the
Company or any Subsidiary from the transferee that are promptly converted by the
Company or such Subsidiary into cash.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or a Subsidiary may, within 360 days of the Asset Sale invest the Net
Cash Proceeds in properties and other assets that (as determined by the board of
directors of the Company) replace the properties and assets that were the
subject of the Asset Sale or in properties and assets that will be used in the
businesses of the Company or its Subsidiaries existing on the date of the
Indenture or in businesses reasonably related thereto. The amount of such Net
Cash Proceeds not applied to repay Senior Indebtedness or used or invested
within 360 days of the Asset Sale as set forth in this paragraph constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will apply the Excess Proceeds to the repayment of the Notes and any
other Pari Passu Indebtedness outstanding with provisions requiring the Company
to make an offer to purchase or to purchase or redeem such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Indebtedness (subject to
88
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Notes tendered) and (B) to the extent required by such
Pari Passu Indebtedness to permanently reduce the principal amount of such Pari
Passu Indebtedness, the Company will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over
the Note Amount; PROVIDED that in no event will the Company be required to make
a Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of
such Pari Passu Indebtedness plus the amount of any premium required to be paid
to repurchase such Pari Passu Indebtedness. The offer price for the Notes will
be payable in cash in an amount equal to 100% of the principal amount of the
Notes plus accrued and unpaid interest, if any, to the date (the "Offer Date")
such Offer is consummated (the "Offered Price"), in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate Offered
Price of the Notes tendered pursuant to the Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Indebtedness that is
purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company will use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon the
completion of the purchase of all the Notes tendered pursuant to an Offer and
the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any,
shall be reset at zero.
(d) The Indenture provides that, if the Company becomes obligated to make an
Offer pursuant to clause (c) above, the Notes and the Pari Passu Indebtedness
shall be purchased by the Company, at the option of the holders thereof, in
whole or in part in integral multiples of $1,000, on a date that is not earlier
than 30 days and not later than 60 days from the date the notice of the Offer is
given to holders, or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act.
(e) The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Offer. (Section
1013)
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS. (a) The Company will
not permit any Subsidiary, directly or indirectly, to guarantee, assume or in
any other manner become liable with respect to any Pari Passu Indebtedness or
Subordinated Indebtedness of the Company unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Guarantee of the Notes on the same terms as the guarantee of such Indebtedness
except that (A) such guarantee need not be secured unless required pursuant to
"--LIMITATION ON LIENS" and (B) if such Indebtedness is by its terms expressly
subordinated to the Notes, any such assumption, guarantee or other liability of
such Subsidiary with respect to such Indebtedness shall be subordinated to such
Subsidiary's Guarantee of the Notes at least to the same extent as such
Indebtedness is subordinated to the Notes.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Notes shall provide by its terms that it (and all Liens securing the same) shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which transaction is in compliance with the terms of the Indenture
and such Subsidiary is released from its guarantees of other Indebtedness of the
Company or any Subsidiaries. (Section 1014)
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company will not, and
will not permit any Guarantor to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to or otherwise permit to exist any Indebtedness that
is subordinate in right of payment to any Indebtedness of the Company or such
Guarantor, as the case may be, unless such Indebtedness is also PARI PASSU with
the Notes or the Guarantee of such Guarantor or subordinate in right of payment
to the Notes or such Guarantee at least to the same extent as the Notes or such
Guarantee are subordinate in right of payment to Senior Indebtedness or Senior
Indebtedness of such Guarantor, as the case may be. (Section 1011)
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LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
(a) any Subsidiary of the Company to issue any Preferred Stock, except for (i)
Preferred Stock issued to the Company or a Wholly Owned Subsidiary, and (ii)
Preferred Stock issued by a Person prior to the time (A) such Person becomes a
Subsidiary, (B) such Person merges with or into a Subsidiary or (C) a Subsidiary
merges with or into such Person; PROVIDED that such Preferred Stock was not
issued or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A), (B) or (C) or (b) any Person (other than the
Company or a Wholly Owned Subsidiary) to acquire Preferred Stock of any
Subsidiary from the Company or any Subsidiary, except, in the case of clause (a)
or (b), upon the acquisition of all the outstanding Capital Stock of such
Subsidiary in accordance with the terms of the Indenture. (Section 1016)
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create any consensual encumbrance or restriction on
the ability of any Subsidiary to (i) pay dividends or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the Company
or any other Subsidiary, (iii) make any Investment in the Company or any other
Subsidiary or (iv) transfer any of its properties or assets to the Company or
any other Subsidiary, except for: (a) any encumbrance or restriction pursuant to
any agreement in effect on the date of the Indenture and listed on a schedule to
the Indenture; (b) any encumbrance or restriction, with respect to a Subsidiary
that is not a Subsidiary of the Company on the date of the Indenture, in
existence at the time such Person becomes a Subsidiary of the Company and not
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary; (c) customary non-assignment or subletting provisions of any lease,
license or other contract; (d) any restriction entered into in the ordinary
course of business contained in any lease of any Subsidiary or any security
agreement or mortgage securing Indebtedness of any Subsidiary to the extent such
restriction restricts the transfer of property subject to such security
agreement, mortgage or lease; (e) any encumbrance or restriction existing under
any agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (a), (b),
(c) or (d), or in this clause (e), PROVIDED that the terms and conditions of any
such encumbrances or restrictions are no more restrictive in any material
respect than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced; or (f) restrictions
arising under any applicable law, rule, regulation or order. (Section 1017)
LIMITATIONS ON UNRESTRICTED SUBSIDIARIES. The Company will not make, and
will not permit its Subsidiaries to make, any Investment in Unrestricted
Subsidiaries if, at the time thereof, the aggregate amount of such Investments
would exceed the amount of Restricted Payments then permitted to be made
pursuant to the "--LIMITATION ON RESTRICTED PAYMENTS" covenant. Any Investments
in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i)
will be treated as a Restricted Payment in calculating the amount of Restricted
Payments made by the Company and (ii) may be made in cash or property. (Section
1018)
PROVISION OF FINANCIAL STATEMENTS. After the earlier to occur of the
consummation of the Exchange Offer and the 150th calendar day following the date
of original issue of the 144A Notes, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to Sections 13(a) or 15(d) of the Exchange
Act if the Company were so subject, such documents to be filed with the
Commission on or prior to the date (a "Required Filing Date") by which the
Company would have been required so to file such documents if the Company were
so subject. The Company will also in any event (x) within 15 days of each
Required Filing Date occurring after the issuance of the 144A Notes (i) transmit
by mail to all holders, as their names and addresses appear in the security
register, without cost to such holders and (ii) file with the Trustee copies of
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to Sections 13(a)
or 15(d) of the Exchange Act if the Company were subject to either of such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act,
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promptly upon written request and payment of the reasonable cost of duplication
and delivery, supply copies of such documents to any prospective holder at the
Company's cost. If any Guarantor's financial statements would be required to be
included in the financial statements filed or delivered pursuant to the
Indenture if the Company were subject to Section 13(a) or 15(d) of the Exchange
Act, the Company shall include such Guarantor's financial statements in any
filing or delivery pursuant to the Indenture. The Indenture also provides that,
so long as any of the 144A Notes remain outstanding, the Company will make
available to any prospective purchaser of 144A Notes or beneficial owner of 144A
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
exchanged the 144A Notes for securities identical in all material respects which
have been registered under the Securities Act or until such time as the holders
thereof have disposed of such 144A Notes pursuant to an effective registration
statement under the Securities Act. (Section 1019)
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or series of
related transactions if such transaction or series of related transactions, in
the aggregate, would result in a sale, assignment, conveyance, transfer, lease
or disposition of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a Consolidated basis to any other Person or
group of affiliated Persons, unless at the time and after giving effect thereto
(i) either (a) the Company will be the continuing corporation or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the properties and
assets of the Company and its Subsidiaries on a Consolidated basis (the
"Surviving Entity") will be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such Person expressly assumes, by a supplemental
indenture, in a form satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture, as the case may be, and the Notes and
the Indenture will remain in full force and effect as so supplemented; (ii)
immediately before and immediately after giving effect to such transaction on a
PRO FORMA basis (and treating any Indebtedness not previously an obligation of
the Company or any of its Subsidiaries which becomes the obligation of the
Company or any of its Subsidiaries as a result of such transaction as having
been incurred at the time of such transaction), no Default or Event of Default
will have occurred and be continuing; (iii) immediately before and immediately
after giving effect to such transaction on a PRO FORMA basis (on the assumption
that the transaction occurred on the first day of the four-quarter period for
which financial statements are available ending immediately prior to the
consummation of such transaction with the appropriate adjustments with respect
to the transaction being included in such PRO FORMA calculation), the Company
(or the Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions of "--Certain Covenants--LIMITATION ON
INDEBTEDNESS;" (iv) at the time of the transaction each Guarantor, if any,
unless it is the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantees shall apply to such
Person's obligations under the Indenture and the Notes; (v) at the time of the
transaction if any of the property or assets of the Company or any of its
Subsidiaries would thereupon become subject to any Lien, the provisions of
"--Certain Covenants--LIMITATION ON LIENS" are complied with; and (vi) at the
time of the transaction the Company or the Surviving Entity will have delivered,
or caused to be delivered, to the Trustee, in form and substance
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reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereof comply with the Indenture and that all
conditions precedent therein provided for relating to such transaction have been
complied with. (Section 801)
The Indenture also provides that if any Guarantor, in a single transaction
or through a series of related transactions, consolidates with or merges with or
into any other Person (other than the Company or any Guarantor) or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its properties and assets on a Consolidated basis to any
Person or group of affiliated Persons (other than the Company or any Guarantor)
such Guarantor or successor entity will reaffirm the Guarantee of such entity
unless such Guarantee is released pursuant to paragraph (b) of "--Certain
Covenants--LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS."
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the two immediately preceding paragraphs
in which the Company or any Guarantor, as the case may be, is not the continuing
corporation, the successor Person formed or remaining shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, and the
Company or any Guarantor, as the case may be, would be discharged from all
obligations and covenants under the Indenture and the Notes or its Guarantee, as
the case may be. (Section 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture or
any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (i), (ii)
or (iv)) and such default or breach shall continue for a period of 30 days
after written notice has been given, by certified mail, (x) to the Company
by the Trustee or (y) to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the outstanding Notes;
(iv) (a) there shall be a default in the performance or breach of the
provisions described in "-- Consolidation, Merger, Sale of Assets;" (b) the
Company shall have failed to make or consummate an Offer required in
accordance with the provisions of "--Certain Covenants--LIMITATION ON SALE
OF ASSETS;" or (c) the Company shall have failed to make or consummate a
Change of Control Offer required in accordance with the provisions of
"--Purchase of Notes Upon a Change of Control;"
(v) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company, any Guarantor
or any Subsidiary then has outstanding Indebtedness in excess of $7.5
million, individually or in the aggregate, and either (a) such default
results from the failure to pay such Indebtedness at its stated final
maturity or (b) such default or defaults have resulted in the acceleration
of the maturity of such Indebtedness;
(vi) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms except to
the extent contemplated by the Indenture and any such Guarantee;
(vii) one or more judgments, orders or decrees for the payment of money
in excess of $7.5 million, either individually or in the aggregate, shall be
rendered against the Company, any Guarantor or any Subsidiary or any of
their respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or
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(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment, order or decree, by reason of an
appeal or otherwise, shall not be in effect, PROVIDED that the amount of
such money judgment, order or decree shall be calculated net of any
insurance coverage that the Company has determined in good faith is
available in whole or in part with respect to such money judgment, order or
decree;
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company,
any Guarantor or any Significant Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or (b) a decree or order
adjudging the Company, any Guarantor or any Significant Subsidiary bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company, any Guarantor or any
Significant Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company, any Guarantor or
any Significant Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their respective
affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect,
for a period of 60 consecutive days; or
(ix) (a) the Company, any Guarantor or any Significant Subsidiary
commences a voluntary case or proceeding under any applicable Bankruptcy Law
or any other case or proceeding to be adjudicated bankrupt or insolvent, (b)
the Company, any Guarantor or any Significant Subsidiary consents to the
entry of a decree or order for relief in respect of the Company, such
Guarantor or such Significant Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company, any
Guarantor or any Significant Subsidiary files a petition or answer or
consent seeking reorganization or relief under any applicable federal or
state law, (d) the Company, any Guarantor or any Significant Subsidiary (I)
consents to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company, any Guarantor or such
Significant Subsidiary or of any substantial part of their respective
properties, (II) makes an assignment for the benefit of creditors or (III)
admits in writing its inability to pay its debts generally as they become
due or (e) the Company, any Guarantor or any Significant Subsidiary takes
any corporate action in furtherance of any such actions in this paragraph
(ix). (Section 501)
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph with respect to the Company) shall occur and be
continuing with respect to the Indenture, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may, and
the Trustee at the request of such holders shall, declare all unpaid principal
of, premium, if any, and accrued interest on all Notes to be due and payable, by
a notice in writing to the Company (and to the Trustee if given by the holders
of the Notes) and upon any such declaration, such principal, premium, if any,
and interest shall become due and payable immediately. If an Event of Default
specified in clause (viii) or (ix) of the prior paragraph occurs with respect to
the Company and is continuing, then all the Notes shall IPSO FACTO become and be
due and payable immediately in an amount equal to the principal amount of the
Notes, together with accrued and unpaid interest, if any, to the date the Notes
become due and payable, without any declaration or other act on the part of the
Trustee or any holder. Thereupon, the Trustee may, at its discretion, proceed to
protect and enforce the rights of the holders of Notes by appropriate judicial
proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes
then outstanding, (iii) the principal of and premium, if any, on any Notes then
outstanding which
93
have become due otherwise than by such declaration of acceleration and interest
thereon at a rate borne by the Notes and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest at the rate borne by the
Notes; and (b) all Events of Default, other than the non-payment of principal of
the Notes which have become due solely by such declaration of acceleration, have
been cured or waived as provided in the Indenture. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the agent under the Bank Credit
Agreement of the acceleration. If any indebtedness under the Bank Credit
Agreement is outstanding, the Company may not pay the Notes until five business
days after the agent under the Bank Credit Agreement receives notice of such
acceleration, and, thereafter, may pay the Notes only if the Indenture otherwise
permits payments at that time. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all outstanding Notes waive
any past default under the Indenture and its consequences, except a default in
the payment of the principal of, premium, if any, or interest on any Note or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note affected by such
modification or amendment. (Section 513)
The Company is also required to notify the Trustee within ten business days
of the occurrence of any Default. (Section 1020) The Company is required to
deliver to the Trustee, on or before a date not more than 120 days after the end
of each fiscal year, a written statement as to compliance with the Indenture,
including whether or not any Default has occurred. (Section 1020) The Trustee is
under no obligation to exercise any of the rights or powers vested in it by the
Indenture at the request or direction of any of the holders of the Notes unless
such holders offer to the Trustee security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred
thereby. (Section 603)
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions, PROVIDED that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the Notes
discharged with respect to the outstanding Notes ("defeasance"). Such defeasance
means that the Company, any such Guarantor and any other obligor under the
Indenture shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, except for (i) the rights of holders of
such outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company and any Guarantor released with respect to certain covenants that
are described in the Indenture ("covenant defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes. In the event covenant defeasance
occurs, certain events (not including non-payment, bankruptcy and insolvency
events) described under "--Events of Default" will no longer constitute an Event
of Default with respect to the Notes. (Sections 401, 402 and 403)
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In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, in
trust, for the benefit of the holders of the Notes cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
(or on any date after March 1, 2002 (such date being referred to as the
"Defeasance Redemption Date"), if at or prior to electing either defeasance or
covenant defeasance, the Company has delivered to the Trustee an irrevocable
notice to redeem all of the outstanding Notes on the Defeasance Redemption
Date); (ii) in the case of defeasance, the Company shall have delivered to the
Trustee an opinion of independent counsel in the United States stating that (A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of independent counsel in the United States
shall confirm that, the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (iv) no Default or Event of Default
(other than a Default or an Event of Default resulting from the borrowing of
funds to be applied to such deposit) shall have occurred and be continuing on
the date of such deposit or insofar as clauses (viii) or (ix) under the first
paragraph under "--Events of Default" are concerned, at any time during the
period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of such
period); (v) such defeasance or covenant defeasance shall not cause the Trustee
for the Notes to have a conflicting interest as defined in the Indenture and for
purposes of the Trust Indenture Act with respect to any securities of the
Company or any Guarantor; (vi) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default under, the Indenture
or any other material agreement or instrument to which the Company, any
Guarantor or any Subsidiary is a party or by which it is bound; (vii) such
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (viii) the
Company will have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (ix) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes or any Guarantee over the other creditors
of the Company or any Guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of the Company, any Guarantor or others; (x) no
event or condition shall exist that would prevent the Company from making
payments of the principal of, premium, if any, and interest on the Notes on the
date of such deposit or at any time ending on the 91st day after the date of
such deposit; and (xi) the Company will have delivered to the Trustee an
officers' certificate and an opinion of independent counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section 404)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all
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outstanding Notes under the Indenture when (a) either (i) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid or Notes whose payment has been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at their Stated Maturity within one year, or (z) are
to be called for redemption within one year under arrangements satisfactory to
the applicable Trustee for the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company; and the Company or any Guarantor
has irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust an amount in United States dollars sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, including principal of, premium, if any, and accrued
interest on, such Notes at such Maturity, Stated Maturity or redemption date;
(b) the Company or any Guarantor has paid or caused to be paid all other sums
payable under the Indenture by the Company and any Guarantor; and (c) the
Company has delivered to the Trustee an officers' certificate and an opinion of
independent counsel each stating that (i) all conditions precedent under the
Indenture relating to the satisfaction and discharge of such Indenture have been
complied with and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which the Company, any Guarantor or any
Subsidiary is bound. (Section 1201)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority of aggregate principal amount of the Notes then outstanding;
PROVIDED, HOWEVER, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change the
Stated Maturity of the principal of, or any installment of interest on, or
change to an earlier date any redemption date of, or waive a default in the
payment of the principal or interest on, any such Note or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of any
such Note or any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the redemption
date); (ii) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sale or Asset Sales in accordance
with "--Certain Covenants--LIMITATION ON SALE OF ASSETS" or the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control in accordance with "--Purchase of Notes Upon a Change of
Control," including, in each case, amending, changing or modifying any
definitions relating thereto; (iii) reduce the percentage in principal amount of
such outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture; (iv) modify any
of the provisions relating to supplemental indentures requiring the consent of
holders or relating to the waiver of past defaults or relating to the waiver of
certain covenants, except to increase the percentage of such outstanding Notes
required for any such actions or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of each
such Note affected thereby; (v) except as otherwise permitted under
"--Consolidation, Merger, Sale of Assets," consent to the assignment or transfer
by the Company or any Guarantor of any of its rights and obligations under the
Indenture; or (vi) amend or modify any of the provisions of the Indenture
relating to the subordination of the Notes or any Guarantee thereof in any
manner adverse to the holders of the Notes or any such Guarantee. (Section 902)
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company, any Guarantor and the Trustee may modify or amend the
Indenture: (a) to evidence the succession of another
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Person to the Company, any Guarantor or any other obligor upon the Notes, and
the assumption by any such successor of the covenants of the Company or such
Guarantor or obligor in the Indenture and in the Notes and in any Guarantee in
accordance with "--Consolidation, Merger, Sale of Assets"; (b) to add to the
covenants of the Company, any Guarantor or any other obligor upon the Notes for
the benefit of the holders of the Notes, or to surrender any right or power
conferred upon the Company or any Guarantor or any other obligor upon the Notes,
as applicable, in the Indenture, in the Notes or in any Guarantee; (c) to cure
any ambiguity, or to correct or supplement any provision in the Indenture or in
any supplementary indenture, the Notes or any Guarantee which may be defective
or inconsistent with any other provision in the Indenture, the Notes or any
Guarantee or make any other provisions with respect to matters or questions
arising under the Indenture, the Notes or any Guarantee; PROVIDED that, in each
case, such provisions shall not adversely affect the interest of the holders of
the Notes; (d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act; (e) to add a Guarantor under the Indenture; (f) to evidence and provide the
acceptance of the appointment of a successor trustee under the Indenture; or (g)
to mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee for the benefit of the holders of the Notes as additional security for
the payment and performance of the Company's and any Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise. (Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
GOVERNING LAW
The Indenture, the Notes and any Guarantee are governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof. (Section 113).
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as Trustee with such conflict or resign as Trustee. (Sections 608 and 611)
The holders of a majority in principal amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that in case an Event of Default occurs
(which has not been cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
(Section 603)
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be. Acquired Indebtedness shall
be deemed to be incurred
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on the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(iii) any other Person 5% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its Subsidiaries;
or (iii) any other properties or assets of the Company or any Subsidiary other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties and assets
(A) that is governed by the provisions described under "-- Consolidation,
Merger, Sale of Assets," (B) that is by the Company to any Guarantor or to any
Subsidiary that after the date hereof becomes a Guarantor, or by any Subsidiary
to the Company or any Wholly Owned Subsidiary in accordance with the terms of
the Indenture, (C) that is of obsolete equipment or other obsolete assets in the
ordinary course of business, (D) that represents an Investment in a Permitted
Joint Venture in the form of contributions of assets; or (E) the Fair Market
Value of which in the aggregate does not exceed $500,000 in any transaction or
series of related transactions.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Credit Facility" means the Credit Agreement, dated as of the date of
the Indenture, among Bank of America National Trust and Savings Association,
BancAmerica Securities, Inc., Canadian Imperial Bank of Commerce, CIBC Wood
Gundy Securities Corp., the other Banks, the Company and certain of its
Subsidiaries, as such agreement, in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Banks" means the lenders under the Bank Credit Facility.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its Subsidiaries on a Consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date of the Indenture.
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"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have beneficial ownership of all shares that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than a
majority of the total outstanding Voting Stock of the Company; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of the Company (together with any new
directors whose election to such board or whose nomination for election by the
stockholders of the Company was approved by the Permitted Holders or by a vote
of 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 for any reason to constitute a majority of such
board of directors then in office; (iii) the Company consolidates with or merges
with or into any Person or conveys, transfers or leases all or substantially all
of its assets to any Person, or any corporation consolidates with or merges into
or with the Company in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company or where (A) the outstanding Voting Stock of the
Company is changed into or exchanged for (x) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (y) cash, securities and
other property (other than Capital Stock of the surviving corporation) in an
amount which could be paid by the Company as a Restricted Payment as described
under "--Certain Covenants--LIMITATION ON RESTRICTED PAYMENTS" (and such amount
shall be treated as a Restricted Payment subject to the provisions in the
Indenture described under "--Certain Covenants--LIMITATION ON RESTRICTED
PAYMENTS") and (B) no "person" or "group," other than Permitted Holders, owns
immediately after such transaction, directly or indirectly, more than a majority
of the total outstanding Voting Stock of the surviving corporation; or (iv) the
Company is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under "--Consolidation, Merger, Sale of Assets."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act then the body performing
such duties at such time.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar financial agreement or arrangement
relating to, or the value which is dependent upon, fluctuations in commodity
prices.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Packard BioScience Company (f/k/a Canberra Industries,
Inc.), a corporation incorporated under the laws of Delaware, until a successor
Person shall have become such pursuant to the applicable provisions of the
Indenture, and thereafter "Company" shall mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss), Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income (Loss) in each case, for
such period, of such Person and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP to (b) the sum of Consolidated Interest
Expense for such period and cash dividends paid on any Preferred Stock or
Redeemable Capital Stock of such Person or any subsidiary of such Person during
such period, in each case after giving PRO FORMA effect to (i) the incurrence of
the Indebtedness giving rise to the need to make such calculation and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, on the first day of such period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Subsidiaries since the first day of such period
99
as if such Indebtedness was incurred, repaid or retired at the beginning of such
period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such period); (iii) in the case of
Acquired Indebtedness or any acquisition occurring at the time of the incurrence
of such Indebtedness, the related acquisition, assuming such acquisition had
been consummated on the first day of such period; and (iv) any acquisition or
disposition by the Company and its Subsidiaries of any company or any business
or any assets out of the ordinary course of business, whether by merger, stock
purchase or sale or asset purchase or sale, or any related repayment of
Indebtedness, in each case since the first day of such applicable period,
assuming such acquisition or disposition had been consummated on the first day
of such period; PROVIDED that (i) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a PRO
FORMA basis and (A) bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of such Person, a fixed
or floating rate of interest, shall be computed by applying at the option of
such Person either the fixed or floating rate and (ii) in making such
computation, the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility computed on a PRO
FORMA basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Subsidiaries for such period, on a Consolidated basis, including, without
limitation, (i) amortization of debt discount, (ii) the net costs associated
with Interest Rate Agreements, Currency Hedging Arrangements and Commodity Price
Protection Agreements (including amortization of discounts), (iii) the interest
portion of any deferred payment obligation and (iv) accrued interest, plus (b)
(i) the interest component of the Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Subsidiaries during such
period and (ii) all capitalized interest of such Person and its Subsidiaries
plus (c) the interest expense under any Guaranteed Debt of such Person and any
Subsidiary to the extent not included under clause (a)(iv) above, in each case
as determined on a Consolidated basis in accordance with GAAP, provided that
noncash interest accrued but not paid on any Management Notes issued pursuant to
clause (b)(vii) of "--Certain Covenants-- LIMITATION ON RESTRICTED PAYMENTS" and
amortization of deferred financing fees previously paid shall be excluded from
Consolidated Interest Expense.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Subsidiaries for such
period on a Consolidated basis as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains or losses (less all fees and
expenses relating thereto), (ii) the portion of net income (or loss) of such
Person and its Subsidiaries on a Consolidated basis allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains (or losses) (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the net income of any Subsidiary to the extent that the
declaration of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (vii) any restoration to income of any contingency reserve, except
to the extent provision for such reserve was made out of income accrued at any
time following the
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date of the Indenture, (viii) any gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any Indebtedness of such
Person or (ix) transaction costs charged during the first quarter of fiscal 1997
in connection with the Recapitalization.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the board of directors of the Company who does
not have any material direct or indirect financial interest in or with respect
to such transaction or series of related transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Fair Market Value shall be determined by the board
of directors of the Company acting in good faith and shall be evidenced by a
resolution of the board of directors.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness below
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (iii) to supply funds to, or in any other
manner invest in, the debtor (including any agreement to pay for property or
services without requiring that such property be received or such services be
rendered), (iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor or (v) otherwise to assure a creditor against loss; PROVIDED that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Guarantor" means any Subsidiary which becomes a guarantor of the Notes,
including any Person that is required after the date of the Indenture to execute
a guarantee of the Notes pursuant to the "Limitations on Liens" covenant or the
"Limitation on Issuance of Guarantees of Indebtedness" covenant until a
successor replaces such party pursuant to the applicable provisions of the
Indenture and, thereafter, shall mean such successor.
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"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements, Currency Hedging Agreements or
Commodity Price Protection Agreements of such Person, (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends, and (ix) any amendment, supplement, modification,
deferral, renewal, extension, refunding or refinancing of any liability which
constitutes Indebtedness of the types referred to in clauses (i) through (viii)
above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof, and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired.
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"Maturity" means, when used with respect to the Notes, the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect of
Excess Proceeds, Change of Control Offer in respect of a Change of Control, call
for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in the
form of cash or Temporary Cash Investments including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to under "--Certain Covenants--LIMITATION ON
RESTRICTED PAYMENTS," the proceeds of such issuance or sale in the form of cash
or Temporary Cash Investments including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Temporary Cash Investments (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-U.S. Subsidiaries" means Subsidiaries organized under the laws of
jurisdictions other than the United States and the states and territories
thereof.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company that is
PARI PASSU in right of payment to the Notes and (b) with respect to any
Guarantee, Indebtedness which ranks PARI PASSU in right of payment to such
Guarantee.
"Permitted Holders" means Stonington, the Fund and their respective
Affiliates.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company and Non-U.S. Subsidiaries (and
guarantees of such Indebtedness of the Company by Subsidiaries) under the
Bank Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed $115 million, minus all principal payments made in
respect of any term loans thereunder and minus the amount by which any
commitments under any revolving credit facility thereunder are permanently
reduced;
(ii) Indebtedness of the Company pursuant to the Notes and Indebtedness
of any Guarantor pursuant to a Guarantee of the Notes;
(iii) Indebtedness of the Company or any Subsidiary outstanding on the
date of the Indenture and listed on a schedule thereto;
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(iv) Indebtedness of the Company owing to a Subsidiary; PROVIDED that
any Indebtedness of the Company owing to a Subsidiary is subordinated in
right of payment to the Notes to the same extent that the Notes are
subordinated to Senior Indebtedness and, upon an Event of Default, such
Indebtedness shall not be due and payable until such Event of Default is
cured, waived or rescinded; PROVIDED, FURTHER, that any disposition, pledge
or transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Subsidiary) shall be deemed to be an incurrence of
such Indebtedness by the Company not permitted by this clause (iv);
(v) Indebtedness of a Wholly Owned Subsidiary owing to the Company or
another Wholly Owned Subsidiary; PROVIDED that all amounts owing pursuant to
any such Indebtedness is immediately due and payable upon an Event of
Default and until such Event of Default is cured, waived or rescinded;
PROVIDED, FURTHER, that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than the Company or a Wholly Owned
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
obligor not permitted by this clause (v), and (b) any transaction pursuant
to which any Wholly Owned Subsidiary, which has Indebtedness owing to the
Company or any other Wholly Owned Subsidiary, ceases to be a Wholly Owned
Subsidiary shall be deemed to be the incurrence of Indebtedness by such
Wholly Owned Subsidiary that is not permitted by this clause (v);
(vi) guarantees of any Subsidiary made in accordance with the provisions
of "--Certain Covenants--LIMITATION ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS;"
(vii) obligations of the Company entered into in the ordinary course of
business (a) pursuant to Interest Rate Agreements designed to protect the
Company or any Subsidiary against fluctuations in interest rates in respect
of Indebtedness of the Company or any Subsidiary as long as such obligations
do not exceed the aggregate principal amount of such Indebtedness then
outstanding, (b) under any Currency Hedging Arrangements, which if related
to Indebtedness do not increase the amount of such Indebtedness other than
as a result of foreign exchange fluctuations, or (c) under any Commodity
Price Protection Agreements, which if related to Indebtedness do not
increase the amount of such Indebtedness other than as a result of foreign
exchange fluctuations;
(viii) Indebtedness of the Company and its Subsidiaries represented by
Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition,
improvement or development of real or personal, movable or immovable,
property in each case incurred for the purpose of financing or refinancing
all or any part of the purchase price or cost of construction or improvement
of property used in the business of the Company and any refinancings of such
Indebtedness made in accordance with subclauses (a), (b) and (c) of clause
(x) below, in an aggregate principal amount pursuant to this clause (viii)
not to exceed $5 million outstanding at any time; PROVIDED that the
principal amount of any Indebtedness permitted under this clause (viii) did
not in each case at the time of incurrence exceed the Fair Market Value, as
determined by the Company in good faith, of the acquired or constructed
asset or improvement so financed;
(ix) Indebtedness of the Company or any Subsidiary in respect of
performance bonds, bankers' acceptances, letters of credit of the Company or
any Subsidiary and surety bonds provided by the Company or any Subsidiary in
the ordinary course of business, not to exceed at any given time $5 million
outstanding in the aggregate;
(x) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described
in clauses (ii) and (iii) of this definition of "Permitted Indebtedness,"
including any successive refinancings (a) so long as the borrower under such
refinancing is the Company or, if not the Company, the same as the borrower
of the Indebtedness being refinanced, (b) the aggregate principal amount of
Indebtedness represented thereby is not increased by such refinancing by an
amount greater than the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the
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Indebtedness being refinanced or (II) the amount of premium or other payment
actually paid at such time to refinance the Indebtedness, plus, in either
case, the amount of expenses of the Company incurred in connection with such
refinancing and (c) (A) in the case of any refinancing of Indebtedness that
is Subordinated Indebtedness, such new Indebtedness is made subordinated to
the Notes at least to the same extent as the Indebtedness being refinanced
and (B) in the case of Pari Passu Indebtedness or Subordinated Indebtedness,
as the case may be, such refinancing does not reduce the Average Life to
Stated Maturity or the Stated Maturity of such Indebtedness;
(xi) Indebtedness of the Company and its Subsidiaries in an aggregate
principal amount not to exceed $7.5 million, the proceeds of which are used
to purchase the 40% equity interest in Packard Japan KK not presently owned
by the Company and its Subsidiaries;
(xii) Management Notes issued pursuant to clause (b)(vii) of the
covenant "LIMITATION ON RESTRICTED PAYMENTS"; and
(xiii) Indebtedness of the Company and its Subsidiaries (including
Acquired Indebtedness) in addition to that described in clauses (i) through
(xii) above, and any renewals, extensions, substitutions, refinancings or
replacements of such Indebtedness, so long as the aggregate principal amount
of all such Indebtedness shall not exceed $20 million outstanding at any one
time in the aggregate.
"Permitted Investment" means (i) Investments in any Subsidiary or any Person
which, as a result of such Investment, (a) becomes a Subsidiary or (b) is merged
or consolidated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or any Subsidiary; (ii)
Indebtedness of the Company or a Subsidiary described under clauses (iv), (v)
and (vi) of the definition of "Permitted Indebtedness"; (iii) Investments in any
of the Notes; (iv) Temporary Cash Investments; (v) Investments acquired by the
Company or any Subsidiary in connection with an Asset Sale permitted under
"--Certain Covenants--LIMITATION ON SALE OF ASSETS" to the extent such
Investments are non-cash proceeds as permitted under such covenant; (v)
Investments in existence on the date of the Indenture; (vi) guarantees of
Indebtedness of a Wholly Owned Subsidiary given by the Company or another Wholly
Owned Subsidiary and guarantees of Indebtedness of the Company given by any
Subsidiary, in each case, in accordance with the terms of the Indenture; (vii)
Investments in any Permitted Joint Venture in the aggregate amount of $20
million at any one time outstanding; and (viii) any other Investments in the
aggregate amount of $5 million at any one time outstanding. In connection with
any assets or property contributed or transferred to any Person as an
Investment, such property and assets shall be equal to the Fair Market Value (as
determined by the Company's Board of Directors) at the time of Investment.
"Permitted Joint Venture" means any joint venture in which the Company or
any Subsidiary holds Voting Stock and which develops, manufactures, sells or
licenses instrumentation, biochemicals, consumables or other related products in
connection with the biotechnological and drug discovery segments of the life
sciences industry or the nuclear instrumentation industry.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Redeemable Capital Stock) pursuant to a registration statement
that has been declared effective by the Commission (other than a registration
statement on Form S-8 or any successor form or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
105
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Subsidiaries and any
additions and accessions thereto, which are purchased at any time after the
Notes are issued; PROVIDED that (i) the security agreement or conditional sales
or other title retention contract pursuant to which the Lien on such assets is
created (collectively a "Purchase Money Security Agreement") shall be entered
into within 180 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accession thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company and its Subsidiaries of the
assets subject thereto or (B) the Indebtedness secured thereby shall be with
recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Recapitalization" means the transactions defined as the "Recapitalization"
in the Prospectus with respect to the Notes.
"Recapitalization Agreement" means the Recapitalization and Stock Purchase
Agreement, dated as of November 26, 1996, among the Company, the Management
Stockholders signatory thereto, and CII Acquisition LLC, as in effect on the
date of the Indenture.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity at the option of the
holder thereof, provided that the term "Redeemable Capital Stock" shall not
include shares of Capital Stock which would not be Redeemable Capital Stock but
for the provisions of Section 3.1 of the Stockholders' Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Senior Guarantor Indebtedness" means Indebtedness of a Guarantor which
secures or guarantees any Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"Stockholders' Agreement" means the Stockholders' Agreement, dated the date
hereof, among the Company, certain management investors listed in Schedule I
thereto, certain non-management investors listed in Schedule II thereto,
Stonington Capital Appreciation 1994 Fund, L.P. and other parties thereto, as in
effect on the date of the Indenture.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the Notes or the Guarantee of such
Guarantor, as the case may be.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the
106
Company and one or more other Subsidiaries; PROVIDED that any Unrestricted
Subsidiary shall not be deemed a Subsidiary under the Notes.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit (or, with respect to non-U.S.
banking institutions, similar instruments) maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case, that has combined capital and surplus and
undivided profits of not less than $500 million (or the foreign currency
equivalent thereof), whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's Investors
Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or higher)
according to Standard & Poor's Rating Group, a division of McGraw Hill, Inc.
("S&P") or any successor rating agency, (iii) commercial paper, maturing not
more than one year after the date of acquisition, issued by a corporation (other
than an Affiliate or Subsidiary of the Company) organized and existing under the
laws of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P and (iv) any money market deposit accounts or
demand deposit accounts issued or offered by a domestic commercial bank or a
commercial banking institution organized and located in a country recognized by
the United States of America, in each case having capital and surplus in excess
of $500 million (or the foreign currency equivalent thereof); PROVIDED that the
short term debt of such commercial bank has a rating, at the time of Investment,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary if all of the
following conditions apply: (a) neither the Company nor any of its Subsidiaries
provides credit support for Indebtedness of such Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (b) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, (c) any Investment in such Unrestricted Subsidiary made as a
result of designating such Subsidiary an Unrestricted Subsidiary shall not
violate the provisions under "--Certain Covenants-- LIMITATION ON UNRESTRICTED
SUBSIDIARIES" covenant and such Unrestricted Subsidiary is not party to any
agreement, contract, arrangement or understanding at such time with the Company
or any other Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such other Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company or, in the event such condition is not
satisfied, the value of such agreement, contract, arrangement or understanding
to such Unrestricted Subsidiary shall be deemed an Investment, and (d) such
Unrestricted Subsidiary does not own any Capital Stock in any Subsidiary of the
Company which is not simultaneously being designated an Unrestricted Subsidiary.
Any such designation by the board of directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complies with the foregoing conditions and shall be deemed a Restricted Payment
on the date of designation in an amount equal to the greater of (1) the net book
value of such Investment or (2) the Fair Market Value of such Investment as
determined in good faith by the Company's board of directors. The board of
directors of the Company may designate any Unrestricted Subsidiary as a
Subsidiary; PROVIDED that (i) immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the restrictions under
107
"--Certain Covenants--LIMITATION ON INDEBTEDNESS" and (ii) all Indebtedness of
such Subsidiary shall be deemed to be incurred on the date such Unrestricted
Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the Company
nor any Subsidiary is directly or indirectly liable (by virtue of the Company or
any such Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), except Guaranteed Debt of the
Company or any Subsidiary to any Affiliate, in which case (unless the incurrence
of such Guaranteed Debt resulted in a Restricted Payment at the time of
incurrence) the Company shall be deemed to have made a Restricted Payment equal
to the principal amount of any such Indebtedness to the extent guaranteed at the
time such Affiliate is designated an Unrestricted Subsidiary and (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of the Company or any Subsidiary to
declare, a default on such Indebtedness of the Company or any Subsidiary or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
a corporation (irrespective of whether or not at the time Capital Stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
is owned by the Company or another Wholly Owned Subsidiary.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form, without coupons. Except as described below, the Exchange Notes
will be deposited with, or on behalf of, DTC, and registered in the name of Cede
& Co. as DTC's nominee, in the form of a global Exchange Note certificate (the
"Global Exchange Note") or will remain in the custody of the Trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the Trustee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificated Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless the transferee
requests otherwise or the Global Exchange Note has previously been exchanged in
whole for Certificated Exchange Notes, be exchanged for an interest in the
Global Exchange Note.
THE GLOBAL EXCHANGE NOTE. The Company expects that, pursuant to procedures
established by DTC, (a) upon deposit of the Global Exchange Note, DTC or its
custodian will credit on its internal system the principal amount at maturity of
Exchange Notes of the individual beneficial interests represented by such Global
Exchange Note to the respective accounts of persons who have accounts with DTC
and (b) ownership of beneficial interests in the Global Exchange Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants (as defined herein)) and the records of Participants (with respect
to interests of persons other than Participants). Ownership of beneficial
interests in the Global Exchange Note will be limited to persons who have
accounts with DTC ("Participants") or persons who hold interests through
Participants. Qualified Institutional Buyers may hold their interests in the
Global Note directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Exchange Notes
108
represented by such Global Exchange Note for all purposes under the Indenture.
No beneficial owner of an interest in the Global Exchange Note will be able to
transfer such interest except in accordance with DTC's procedures, in addition
to those provided for under the Indenture with respect to the Exchange Notes.
Payments of the principal of or premium and interest on the Global Exchange
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of or premium and interest on the Global Exchange Note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in the Global
Exchange Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in federal funds. If a holder requires physical delivery of a
Certificated Exchange Note for any reason, including to sell Exchange Notes to
persons in states which require physical delivery of the Exchange Notes or to
pledge such securities, such holder must transfer its interest in the Global
Exchange Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Exchange Notes,
which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Notes among Participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES. If DTC is at any time unwilling or unable to
continue as a depository for the Global Exchange Note and a successor depository
is not appointed by the Company within 90 days, the Company will issue
Certificated Exchange Notes in exchange for the Global Exchange Note.
109
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the 144A Notes or
the Exchange Notes by a United States Holder (as defined below). This summary
deals only with United States Holders that will hold the 144A Notes or the
Exchange Notes as capital assets. The discussion does not cover all aspects of
federal taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, the acquisition, ownership or
disposition of the 144A Notes or the Exchange Notes by particular investors, and
does not address state, local, foreign or other tax laws. In particular, this
summary does not discuss all of the tax considerations that may be relevant to
certain types of investors subject to special treatment under the federal income
tax laws (such as banks, insurance companies, investors liable for the
alternative minimum tax, individual retirement accounts and other tax-deferred
accounts, tax-exempt organizations, dealers in securities or currencies,
investors that will hold the 144A Notes or the Exchange Notes as part of
straddles, hedging transactions or conversion transactions for federal tax
purposes or investors whose functional currency is not United States Dollars).
Furthermore, the discussion below is based on provisions of the Code, and
regulations, rulings, and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION OF EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the 144A Notes or the Exchange Notes that is (i) a citizen or resident of the
United States for United States federal income tax purposes, (ii) a corporation
created or organized under the laws of the United States or any State thereof,
(iii) a person or entity that is otherwise subject to United States federal
income tax on a net income basis in respect of income derived from the 144A
Notes or the Exchange Notes, or (iv) a partnership to the extent the interest
therein is owned by a person who is described in clause (i), (ii) or (iii) of
this paragraph.
INTEREST
Interest (including any additional interest paid because of failure to
satisfy the requirements of the Registration Rights Agreement ("Additional
Interest")) paid on a 144A Note or an Exchange Note will be taxable to a United
States Holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general (with certain exceptions described below), a United States
Holder's tax basis in an Exchange Note will equal the price paid for the 144A
Notes for which such Exchange Note was exchanged pursuant to the Exchange Offer.
A United States Holder generally will recognize gain or loss on the sale,
exchange, retirement, redemption or other disposition of a 144A Note or an
Exchange Note (or portion thereof) equal to the difference between the amount
realized on such disposition and the United States Holder's tax basis in the
144A Note or the Exchange Note (or portion thereof). Except to the extent
attributable to accrued but unpaid interest, gain or loss recognized on such
disposition of a 144A Note or an Exchange Note will be capital gain or loss and
will be long-term capital gain or loss if such 144A Note or Exchange Note was
held for more than one year. Any such gain will generally be United States
source gain.
BOND PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a 144A
Note, in each case, for an amount more than its redemption price, the Holder may
elect to amortize such bond premium on a
110
yield to maturity basis. Once made, such an election applies to all bonds (other
than bonds the interest on which is excludable from gross income) held by the
United States Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the United States Holder, unless the
IRS consents to a revocation of the election. The basis of an Exchange Note will
be reduced by any amortizable bond premium taken as a deduction.
MARKET DISCOUNT
The purchase of an Exchange Note or the purchase of a 144A Note other than
at original issue may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily defined DE MINIMIS
exception, if a United States Holder purchases an Exchange Note (or purchased a
144A Note) at a "market discount," as defined below, and thereafter recognizes
gain upon a disposition of the Exchange Note (including dispositions by gift or
redemption), the lesser of such gain (or appreciation, in the case of a gift) or
the portion of the market discount that has accrued ("accrued market discount")
while the Exchange Note (and its predecessor 144A Note, if any) was held by such
United States Holder will be treated as ordinary interest income at the time of
disposition rather than as capital gain. For an Exchange Note or a 144A Note,
"market discount" is the excess of the stated redemption price at maturity over
the tax basis immediately after its acquisition by a United States Holder.
Market discount generally will accrue ratably during the period from the date of
acquisition to the maturity date of the Exchange Note, unless the United States
Holder elects to accrue such discount on the basis of the constant yield method.
Such an election applies only to the Exchange Note with respect to which it is
made and is irrevocable.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a 144A Note acquired at a market discount)
may elect to include the accrued market discount in income currently either
ratably or using the constant yield method. Once made, such an election applies
to all other obligations that the United States Holder purchases at a market
discount during the taxable year for which the election is made and in all
subsequent taxable years of the United States Holder, unless the IRS consents to
a revocation of the election. If an election is made to include accrued market
discount in income currently, the basis of an Exchange Note (or, where
applicable, a predecessor 144A Note) in the hands of the United States Holder
will be increased by the accrued market discount thereon as it is includible in
income. A United States Holder of a market discount Exchange Note who does not
elect to include market discount in income currently generally will be required
to defer deductions for interest on borrowings allocable to such Exchange Note,
if any, in an amount not exceeding the accrued market discount on such Exchange
Note until the maturity or disposition of such Exchange Note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Interest) and principal on,
and the proceeds of sale or other disposition of the 144A Notes or the Exchange
Notes payable to a United States Holder may be subject to information reporting
requirements and backup withholding at a rate of 31% will apply to such payments
if the United States Holder fails to provide an accurate taxpayer identification
number or to report all interest and dividends required to be shown on its
federal income tax returns. Certain United States Holders (including, among
others, corporations) are not subject to backup withholding. United States
Holders should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
111
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Securities and CIBC Wood
Gundy (the "Initial Purchasers") pursuant to which the Company agreed, for the
benefit of the holders of the 144A Notes, at the Company's cost, to use its best
efforts (i) to file with the Commission the Registration Statement of which this
Prospectus forms a part with respect to the Exchange Offer for the Exchange
Notes within 45 days after the date of original issue of the 144A Notes, (ii) to
cause the Registration Statement to be declared effective under the Securities
Act within 105 days of the date of original issue of the 144A Notes, (iii) to
keep the Registration Statement effective until the closing of the Exchange
Offer, and (iv) to cause the Exchange Offer to be consummated within 135 days of
the original issue date of the 144A Notes. Promptly after the Registration
Statement has been declared effective, the Company will offer the Exchange Notes
in exchange for surrender of the 144A Notes. The Company will keep the Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the 144A
Notes. For each 144A Note validly tendered to the Company pursuant to the
Exchange Offer and not withdrawn by the holder thereof, the holder of such 144A
Note will receive an Exchange Note having a principal amount equal to that of
the tendered 144A Note. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the tendered 144A Note in
exchange therefor or, if no interest has been paid on such 144A Note, from the
date of the original issue of the 144A Note.
Based on an interpretation of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof without further compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any purchaser of 144A Notes who is an "affiliate" of the Company or who intends
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretation by the staff
of the Commission set forth in the above referenced no-action letters, (ii) will
not be able to tender 144A Notes in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the 144A Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the 144A Notes who wishes to exchange 144A Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering 144A Notes acquired directly from the Company for its own account,
(ii) any Exchange Notes to be received by it were acquired in the ordinary
course of its business and (iii) at the time of commencement of the Exchange
Offer, it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any broker-dealer (a
"Participating Broker-Dealer") who acquired the 144A Notes for its own account
as a result of market-making activities or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the 144A Notes) with
the Prospectus contained in the Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use the Prospectus contained in the Registration Statement in connection with
the resale of such Exchange Notes.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the company to effect the Exchange
Offer, or if for any other reason the Registration Statement is not declared
effective within 105 days of the date of original issue of the 144A Notes or the
Exchange Offer is not consummated within 135 days of the date of original issue
of the 144A Notes, or
112
upon the request of any of the Initial Purchasers, or if a holder of the 144A
Notes is not permitted by applicable law to participate in the Exchange Offer or
elects to participate in the Exchange Offer but does not receive fully tradable
Exchange Notes pursuant to the Exchange Offer, the Company will, in lieu of
effecting the registration of the Exchange Notes pursuant to the Registration
Statement and at the Company's cost, (a) as promptly as practicable, file with
the Commission the Shelf Registration Statement covering resales of the 144A
Notes, (b) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act by the 135th day after the original
issue of the 144A Notes (or within 30 days of the request by any Initial
Purchaser) and (c) use its best efforts to keep effective the Shelf Registration
Statement for a period of two years after its effective date (or for such
shorter period that will terminate when all of the 144A Notes covered by the
Shelf Registration Statement have been sold pursuant thereto or cease to be
outstanding). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the 144A Notes copies of the
prospectus which is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement for the 144A Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the 144A Notes. A holder of 144A Notes who sells such 144A Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver the
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
In the event that (i) the Registration Statement is not filed with the
Commission on or prior to the 45th calendar day following the date of original
issue of the 144A Notes, (ii) the Registration Statement is not declared
effective on or prior to the 105th calendar day following the date of original
issue of the 144A Notes or (iii) the Exchange Offer is not consummated on or
prior to the 135th day following the date of original issue of the 144A Notes or
a Shelf Registration Statement is not declared effective on or prior to the
135th day following the date of original issue of the 144A Notes (or, if a Shelf
Registration Statement is required to be filed because of the request by any
Initial Purchaser, 30 days following the request by any such Initial Purchaser
that the Company file the Shelf Registration Statement) (each such event
referred to in clauses (i) through (iii) above, a "Registration Default"), the
interest rate borne by the 144A Notes (except in the case of clause (iii), in
which case only the 144A Notes which have not been exchanged in the Exchange
Offer) shall be increased by one-quarter of one percent per annum upon the
occurrence of any Registration Default, which rate (as increased as aforesaid)
will increase by an additional one quarter of one percent each 90-day period
that such additional interest continues to accrue under any such circumstance,
with an aggregate maximum increase in the interest rate equal to one percent
(1%) per annum. Following the cure of all Registration Defaults the accrual of
additional interest will cease and the interest rate will revert to the original
rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part, and is incorporated herein by reference.
113
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for 144A Notes where such 144A Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that it will make this Prospectus, as amended or supplemented, available
to any Participating Broker-Dealer for use in connection with any such resale
and Participating Broker-Dealers shall be authorized to deliver this Prospectus
in connection with the sale or transfer of the Exchange Notes. In addition,
until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. Any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Day, Berry &
Howard, Hartford, Connecticut.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996,
included in this Prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
114
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996..... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996......................... F-25
Condensed Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 1997 and 1996.... F-26
Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1997 and 1996........ F-27
Notes to Condensed Consolidated Financial Statements..................................................... F-28
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, formerly known as Canberra
Industries, Inc.) and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Packard BioScience Company
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 10, 1997
F-2
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1995 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ 22,515 $ 37,826
Accounts receivable, net........................................................................ 39,797 40,860
Inventories..................................................................................... 21,145 21,798
Deferred income taxes........................................................................... 1,625 1,689
Other........................................................................................... 6,739 4,743
------------- -------------
Total current assets...................................................................... 91,821 106,916
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements........................................................................... 1,626 1,598
Buildings and improvements...................................................................... 14,546 14,632
Machinery, equipment and furniture.............................................................. 15,160 14,955
------------- -------------
31,332 31,185
Less--Accumulated depreciation.................................................................. 12,711 13,598
------------- -------------
18,621 17,587
------------- -------------
OTHER ASSETS:
Goodwill, net of amortization................................................................... 363 147
Deferred income taxes........................................................................... 2,149 1,238
Other........................................................................................... 7,329 12,037
------------- -------------
9,841 13,422
------------- -------------
$ 120,283 $ 137,925
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable................................................................................... $ 1,995 $ 3,524
Current portion of long-term obligations........................................................ 688 829
Accounts payable................................................................................ 7,964 11,118
Accrued liabilities............................................................................. 15,066 15,943
Income taxes payable............................................................................ 4,036 6,685
Deferred income................................................................................. 10,731 9,601
------------- -------------
Total current liabilities................................................................. 40,480 47,700
------------- -------------
LONG-TERM OBLIGATIONS, less current portion....................................................... 1,753 2,037
------------- -------------
OTHER NONCURRENT LIABILITIES...................................................................... 3,961 4,875
------------- -------------
COMMITMENTS AND CONTINGENCIES--See Note 9
MINORITY INTEREST IN EQUITY OF SUBSIDIARY......................................................... 1,660 2,720
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock.................................................................................... 129 129
Paid-in capital................................................................................. 1,030 1,320
Cumulative translation adjustment............................................................... 4,064 2,402
Retained earnings............................................................................... 74,827 89,088
------------- -------------
80,050 92,939
------------- -------------
Less: Treasury stock, at cost................................................................... 6,265 11,128
Deferred compensation...................................................................... 1,356 1,218
------------- -------------
7,621 12,346
------------- -------------
72,429 80,593
------------- -------------
$ 120,283 $ 137,925
------------- -------------
------------- -------------
Number of shares of common stock outstanding.................................................... 12,434,992 12,146,352
------------- -------------
------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1995 1996
---------- ---------- ----------
NET PRODUCT SALES............................................................ $ 115,442 $ 113,169 $ 124,067
SERVICE REVENUE.............................................................. 32,852 35,603 37,197
CHEMICALS AND SUPPLIES SALES................................................. 17,090 20,342 22,754
---------- ---------- ----------
165,384 169,114 184,018
---------- ---------- ----------
COST OF PRODUCT SALES........................................................ 49,580 44,906 46,970
SERVICE EXPENSE.............................................................. 25,465 25,829 26,649
COST OF CHEMICALS AND SUPPLIES SALES......................................... 10,254 11,900 12,138
---------- ---------- ----------
85,299 82,635 85,757
---------- ---------- ----------
Gross profit............................................................. 80,085 86,479 98,261
RESEARCH AND DEVELOPMENT EXPENSES............................................ 13,726 14,414 17,852
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 45,062 47,322 48,830
OTHER CHARGES (Note 6)....................................................... 3,450 -- 837
---------- ---------- ----------
Operating profit......................................................... 17,847 24,743 30,742
INTEREST EXPENSE............................................................. (558) (616) (122)
OTHER INCOME, net............................................................ 2,940 1,153 1,149
FLOOD COST SAVINGS (see Note 6).............................................. 551 -- --
---------- ---------- ----------
Income before provision for income taxes and minority interest........... 20,780 25,280 31,769
PROVISION FOR INCOME TAXES................................................... 8,470 9,875 11,187
MINORITY INTEREST IN INCOME OF SUBSIDIARY.................................... 768 800 1,346
---------- ---------- ----------
Net income............................................................... $ 11,542 $ 14,605 $ 19,236
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE........................................................... $ 0.87 $ 1.13 $ 1.53
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK CUMULATIVE TREASURY STOCK
---------------------- PAID-IN TRANSLATION RETAINED --------------------
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS SHARES AMOUNT
--------- ----------- --------- ----------- ----------- --------- ---------
BALANCE, December 31, 1993......... 15,287,454 $ 153 $ 5,414 $ 1,258 $ 77,074 1,695,562 $ (17,022)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. 52,602 703
Purchase of treasury stock......... 873,093 (9,186)
Retirement of treasury stock....... (2,528,655) (25) (6,117) (19,634) (2,528,655) 25,776
Repayments of deferred ESOP
contribution.....................
Cash dividend paid--$.335 per
share............................ (4,564)
Change during year................. 1,797
Net income......................... 11,542
Other.............................. 11
--------- ----- --------- ----------- ----------- --------- ---------
BALANCE, December 31, 1994......... 12,811,401 128 -- 3,055 64,429 40,000 (432)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. 18,718 346
Shares issued in connection with
exercise of stock options,
including related tax benefits... 69,100 1 684
Purchase of treasury stock......... 424,227 (5,833)
Repayment of deferred ESOP
contribution.....................
Cash dividend paid--$.33 per
share............................ (4,205)
Change during year................. 1,009
Net income......................... 14,605
Other.............................. (2)
--------- ----- --------- ----------- ----------- --------- ---------
BALANCE, December 31, 1995......... 12,899,219 129 1,030 4,064 74,827 464,227 (6,265)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. 1,602 36
Shares issued in connection with
exercise of stock options,
including related tax benefits... 23,400 254
Purchase of treasury stock......... 313,642 (4,863)
Cash dividend paid--$.40 per
share............................ (4,972)
Change during year................. (1,662)
Net income......................... 19,236
Other.............................. (3)
--------- ----- --------- ----------- ----------- --------- ---------
BALANCE, December 31, 1996......... 12,924,221 $ 129 $ 1,320 $ 2,402 $ 89,088 777,869 $ (11,128)
--------- ----- --------- ----------- ----------- --------- ---------
--------- ----- --------- ----------- ----------- --------- ---------
DEFERRED
COMPENSATION
-------------
BALANCE, December 31, 1993......... $ (1,296)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. (497)
Purchase of treasury stock.........
Retirement of treasury stock.......
Repayments of deferred ESOP
contribution..................... 480
Cash dividend paid--$.335 per
share............................
Change during year.................
Net income.........................
Other..............................
-------------
BALANCE, December 31, 1994......... (1,313)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. (188)
Shares issued in connection with
exercise of stock options,
including related tax benefits...
Purchase of treasury stock.........
Repayment of deferred ESOP
contribution..................... 145
Cash dividend paid--$.33 per
share............................
Change during year.................
Net income.........................
Other..............................
-------------
BALANCE, December 31, 1995......... (1,356)
Net shares issued in connection
with restricted stock plan
including deferred compensation
and amortization................. 138
Shares issued in connection with
exercise of stock options,
including related tax benefits...
Purchase of treasury stock.........
Cash dividend paid--$.40 per
share............................
Change during year.................
Net income.........................
Other..............................
-------------
BALANCE, December 31, 1996......... $ (1,218)
-------------
-------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 11,542 $ 14,605 $ 19,236
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 4,612 4,675 5,135
Benefit for flood costs..................................................... (551) -- --
Minority interest in net income of subsidiary............................... 768 800 1,346
Increase in deferred income taxes, net...................................... 800 342 802
Other....................................................................... (429) (437) 371
Changes in assets and liabilities net of effects from product line
acquired--
Increase in accounts receivable........................................... (583) (4,659) (1,043)
(Increase) decrease in inventories........................................ (136) 1,282 (653)
Decrease (increase) in other current assets............................... (2,239) 2,298 2,111
Increase in other noncurrent assets....................................... (971) (368) (459)
Increase (decrease) in accounts payable and other accrued expenses........ 7,963 (3,851) 6,681
Increase (decrease) in deferred income.................................... (977) 3,161 (1,130)
(Decrease) increase in other noncurrent liabilities....................... (5,101) 907 790
--------- --------- ---------
Net cash provided by operating activities................................... 14,698 18,755 33,187
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (1,577) (3,327) (2,715)
Proceeds from sale of fixed assets and investments.............................. 497 529 43
Product lines, patent rights and licenses acquired.............................. (635) (700) (4,046)
Other........................................................................... -- (1,080) (1,768)
--------- --------- ---------
Net cash used for investing activities...................................... (1,715) (4,578) (8,486)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term obligations............................................. -- 7 23
Repayments of long-term obligations............................................. (1,563) (646) (693)
Purchase of treasury stock...................................................... (7,706) (5,833) (3,751)
Increase (decrease) in notes payable to banks................................... 641 (1,153) 1,529
Proceeds from exercise of stock options, including tax benefits................. -- 685 254
Dividends paid.................................................................. (4,564) (4,205) (4,972)
--------- --------- ---------
Net cash used for financing activities...................................... (13,192) (11,145) (7,610)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................... 1,584 534 (1,780)
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................................... 1,375 3,566 15,311
--------- --------- ---------
CASH AND CASH EQUIVALENTS, beginning of year...................................... 17,574 18,949 22,515
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year............................................ $ 18,949 $ 22,515 $ 37,826
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest...................................................................... $ 521 $ 372 $ 249
--------- --------- ---------
--------- --------- ---------
Income taxes.................................................................. $ 7,543 $ 7,987 $ 5,935
--------- --------- ---------
--------- --------- ---------
NON-CASH FINANCING ACTIVITIES:
Debt issued for the purchase of treasury stock.................................. $ 1,480 $ -- $ 1,112
--------- --------- ---------
--------- --------- ---------
Stock issued under restricted stock plan........................................ $ 711 $ 406 $ 54
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS--
Packard BioScience Company (formerly known as Canberra Industries, Inc.) and
subsidiaries (the Company) is a worldwide developer, manufacturer and marketer
of analytical instruments and related products and services that have
applications extending into the physics research, environmental monitoring, life
sciences research and health care clinical testing markets. In March 1997, the
Company changed its name from Canberra Industries, Inc. to Packard BioScience
Company.
The Company operates primarily in two industry segments.Through its Packard
Instrument segment, the Company supplies bioanalytical instruments, and the
related biochemical supplies and services, to the drug discovery and molecular
biology markets. The Canberra Nuclear segment manufactures analytical
instruments and systems used to detect, identify and quantify radioactive
materials for the nuclear industry and related markets.
CONSOLIDATION--
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. 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, cumulative translation adjustment.
The Company purchases various foreign currency forward contracts primarily
for the purpose of hedging firm purchase commitments. As of December 31, 1995
and 1996, the Company had total forward contracts outstanding of approximately
$8,557,000 and $3,649,000 whose settlement prices substantially approximated
yearend exchange rates. Foreign exchange transaction losses (gains), inclusive
of forward contracts settled, were $1,097,000, $1,158,000 and $(592,000) in
1994, 1995 and 1996, respectively, and were included in cost of sales in the
accompanying consolidated statements of income.
CASH AND CASH EQUIVALENTS--
For purposes of the consolidated statements of cash flows, 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. Equipment, furniture and
leasehold improvements are depreciated using the straight-line method over their
estimated useful lives or term of the lease
F-7
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
Goodwill included in the accompanying consolidated balance sheets is being
amortized over ten years. As of December 31, 1995 and 1996, the Company had
accumulated amortization of approximately $1,882,000 and $2,098,000,
respectively. The Company assesses realizability of goodwill based on the
profitability of items acquired. Based on this assessment, the Company believes
there is no impairment of goodwill.
PATENT RIGHTS AND LICENSE ACQUISITIONS--
The Company capitalizes amounts paid for patent rights and licenses acquired
to manufacture certain products. These amounts are amortized over the lives of
the respective agreements or the estimated lives of the products, if shorter. As
of December 31, 1995 and 1996, the Company had an unamortized balance of
$659,000 and $4,348,000, respectively, associated with patent rights and license
acquisitions, which amounts were reflected in other assets in the accompanying
consolidated balance sheets.
REVENUE RECOGNITION AND DEFERRED INCOME--
Revenue is recognized when title to a product is transferred or services
have been rendered. Revenues from service contracts are recognized on a
straight-line basis over the contract period. Deferred income results from the
billings of certain field service maintenance contracts and other customer
advances. When maintenance contracts are billed in advance, revenue amounts are
deferred and recognized ratably over the terms of the related contracts.
WARRANTY--
The Company generally provides a warranty for a one year period 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 $10,560,000 and $9,578,000 at December 31,
1995 and 1996, respectively. When earnings are remitted, credit for foreign
taxes already paid on subsidiary earnings and withholdings may offset a portion
of applicable U.S. income taxes.
F-8
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER INCOME AND EXPENSE--
Other income and expense includes interest income of approximately
$1,179,000, $1,247,000 and $1,149,000 in 1994, 1995 and 1996, respectively, and
certain other non-operating revenues and expenses.
LONG-LIVED ASSETS--
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". This statement
requires that long-lived assets, including premises and equipment and
identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amounts of an asset may not
be recoverable. The adoption of this standard in 1996 did not have any impact on
the Company's consolidated financial position or results of operations.
NEW PRONOUNCEMENTS--
In 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
This statement requires an entity to recognize financial and servicing assets it
controls and derecognize financial assets when control is surrendered and
liabilities are extinguished. This statement is required to be adopted January
1, 1997 although certain provisions of SFAS 125 have been deferred by the FASB
for one year. It is not expected that this statement will have a material impact
on the Company's consolidated financial position or results of operations.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities 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:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.
MORTGAGE RECEIVABLE--At December 31, 1996, the Company has a long-term
mortgage receivable with a face amount of $3,300,000, which exceeded the
current carrying value of $1,015,000 included in other assets in the
accompanying consolidated balance sheets. The estimated fair value of this
investment approximates its carrying value of $1,015,000. Fair value was
determined through the use of an independent appraisal.
F-9
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-TERM OBLIGATIONS AND NOTES PAYABLE--The fair values of the Company's
long-term obligations and notes payable are estimated to approximate
recorded amounts due to the relative short maturity.
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.
RECLASSIFICATIONS--
Certain prior year amounts have been reclassified to conform with the
current year classification.
2. ACCOUNTS RECEIVABLE, NET:
Accounts receivable, net, consisted of the following at December 31 (in
thousands):
1995 1996
--------- ---------
Trade................................................................... $ 39,239 $ 40,018
Other................................................................... 979 1,317
Allowance for doubtful accounts......................................... (421) (475)
--------- ---------
$ 39,797 $ 40,860
--------- ---------
--------- ---------
3. INVENTORIES:
Inventories consisted of the following at December 31 (in thousands):
1995 1996
--------- ---------
Raw materials and parts................................................. $ 12,595 $ 13,532
Work in progress........................................................ 698 944
Finished goods.......................................................... 9,499 9,085
--------- ---------
22,792 23,561
Excess and obsolete reserve............................................. (1,647) (1,763)
--------- ---------
$ 21,145 $ 21,798
--------- ---------
--------- ---------
4. LONG-TERM OBLIGATIONS AND NOTES PAYABLE:
The Company had the following notes payable and long-term debt at December
31, 1996 and on a pro forma (unaudited) basis after giving effect to the new
bank financing and issuance of the Senior
F-10
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
4. LONG-TERM OBLIGATIONS AND NOTES PAYABLE: (CONTINUED)
Subordinated Notes and the application of the proceeds therefrom, subsequent to
year end, as described below (in thousands):
AS OF DECEMBER 31, 1996
INTEREST ----------------------------------- PRO FORMA
RATE MATURITY CURRENT LONG-TERM TOTAL TOTAL
--------------------- ----------- ----------- ----------- --------- -----------
(UNAUDITED)
Notes payable............................ 3.5% to 7.9% 1997 $ 3,524 $ -- $ 3,524 $ 1,708
Other long-term obligations.............. 5.0% to 6.0% 1997-2013 829 2,037 2,866 --
New bank term loan....................... LIBOR + 2.75% 2003 -- -- -- 40,000
New bank revolving loan.................. LIBOR + 2.375% 2002 -- -- -- --
Senior Subordinated Notes................ 9.375% 2007 -- -- -- 150,000
----------- ----------- --------- -----------
$ 4,353 $ 2,037 $ 6,390 $ 191,708
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Subsequent to year end, the Company issued $150,000,000 principal amount of
9.375% senior subordinated notes (the "Notes") due March 1, 2007. The proceeds
received from the sale of the 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
stock (see Note 12).
The Notes are redeemable, at the option of the Company, after March 1, 2002
at rates starting at 104.688% of principal amount reduced annually through March
1, 2004 at which time they become redeemable at 100% of principal amount.
According to the terms of the Notes, if a change of control occurs, as defined,
each holder of Notes will have the right to require the Company to repurchase
such holder's Notes at 101% of the principal amount thereof.
Subsequent to year end, the Company also entered into a senior credit
agreement (the "Agreement" and together with the Notes, the "Financings") with a
group of banks which provides for a $40,000,000 term loan facility and the
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 facility matures in six years and bears 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%, or at the
customary reserve adjusted Eurodollar rate plus 2.75%. The outstanding revolving
credit facility balance, if any, is due and payable on March 31, 2002. The
revolving credit facility bears 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%. The credit agreement also provides for a commitment fee of
0.5% on any unused portion of the revolving credit facility.
The Agreement contains certain financial covenants including, but not
limited to, a minimum fixed charge coverage test, a minimum interest coverage
test and a maximum leverage test. The Financings contain certain financial and
non-financial covenants including, but not limited to, 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 or any of its subsidiaries.
F-11
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
4. LONG-TERM OBLIGATIONS AND NOTES PAYABLE: (CONTINUED)
In connection with the Agreement, the Company pledged as collateral
substantially all of the tangible and intangible assets of the Company and its
domestic subsidiaries, and 65% of the capital stock of certain of the Company's
foreign subsidiaries.
As of December 31, 1996, after giving effect to the Financings and the
application of the proceeds therefrom, aggregate principal payments of long-term
obligations required during the next five years ending December 31 and
thereafter are approximately as follows (in thousands):
1997.............................................................. $ 1,054
1998.............................................................. 1,254
1999.............................................................. 400
2000.............................................................. 400
2001.............................................................. 400
Thereafter........................................................ 188,200
---------
$ 191,708
---------
---------
Notes payable existing at December 31, 1995 and 1996 consisted of amounts
outstanding under overseas lines of credit which permitted maximum borrowings of
approximately $10,200,000 and $13,500,000, respectively. Borrowings are due on
demand. At December 31, 1995 and 1996, $1,995,000 and $3,524,000, respectively
were outstanding under these arrangements with interest rates ranging from 3.5%
to 7.9%, respectively. The weighted average interest rates on these borrowing
were 5.8% and 4.4% in 1995 and 1996, respectively. The maximum amount
outstanding during 1996 was $3,524,000.
5. COMMON STOCK AND STOCK OPTIONS:
At December 31, 1996, the Company had authorized common stock of 15,000,000
shares with a par value of $.01 per share. At December 31, 1995 and 1996,
12,899,219 and 12,924,221, respectively, of these shares had been issued. A
1-for-1 dividend of common stock was effected July 20, 1994. The number of
shares and all per share amounts, as presented in the consolidated financial
statements and accompanying notes, have been retroactively restated for the
dividend.
The Company has granted non-qualified stock options to outside directors and
selected employees. The exercise price of the options at the date of grant is
the fair value, based upon an external appraisal, and is approved by the Board
of Directors. These options expire at various dates through the year 2006. A
summary of stock option activity is as follows:
F-12
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
5. COMMON STOCK AND STOCK OPTIONS: (CONTINUED)
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
---------- -------------
Outstanding at December 31, 1993................................... 855,550 $ 5.02
Granted.......................................................... 380,500 13.17
---------- ------
Outstanding at December 31, 1994................................... 1,236,050 $ 9.08
Granted.......................................................... 92,000 14.29
Cancelled........................................................ (20,000) 8.56
Exercised........................................................ (69,100) 6.98
---------- ------
Outstanding at December 31, 1995................................... 1,238,950 $ 9.59
Granted.......................................................... 165,000 16.00
Cancelled........................................................ (8,700) 10.81
Exercised........................................................ (23,400) 7.63
---------- ------
Outstanding at December 31, 1996................................... 1,371,850 $ 10.37
---------- ------
---------- ------
As of December 31, 1996, 479,100 of the 1,371,850 options have exercise
prices between $4.37 and $6.33, with a weighted averaged exercise price of $6.21
and a weighted average remaining contractual life of 2.9 years. All of these
options are exercisable as of December 31, 1996.
Of the total options outstanding, 233,500 have exercise prices between $8.13
and $10.81, with a weighted average price of $8.62 and a weighted average
remaining contractual life of 4.3 years. All of these options are exercisable as
of December 31, 1996.
The remaining 659,250 options have exercise prices between $12.87 and
$16.00, with a weighted average exercise price of $14.02 and a weighted average
remaining contractual life of 2.6 years. Of the 659,250 options, 318,450 are
exercisable as of December 31, 1996 at a weighted average price of $13.56.
If compensation cost for 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 would have been reduced to $14,504 and
$18,937 on a pro forma basis for the years ended December 31, 1995 and 1996,
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:
Expected dividend yield..................................... 2.5%
Expected stock price volatility............................. 0.0%
Risk-free interest rate..................................... 5.97% - 7.81%
Expected life of options.................................... 10 years
F-13
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
The Company maintains a restricted stock plan which provides for the
issuance of common stock for no consideration to officers and key employees,
with vesting over an eight-year period. Compensation expense, determined as of
the date of grant, is being recognized ratably in accordance with the vesting
schedule. Compensation expense recognized was $206,000, $158,000 and $173,000 in
1994, 1995 and 1996, respectively. At December 31, 1995 and 1996, $1,356,000 and
$1,218,000 of future compensation expense associated with 127,106 and 104,140
unvested shares, respectively, has been deferred and is included in deferred
compensation in the accompanying consolidated balance sheets.
At December 31, 1996, 579,316 shares of common stock were reserved for
options and various stock plans, in addition to shares reserved for stock
options outstanding.
The Company has granted put rights on its common stock to selected
employees. Generally, exercisable rights occur over a period up to ten years at
the then current appraisal value. As of December 31, 1996, 378,289 shares have
put rights exercisable in 1997, subject to certain restrictions. During 1995 and
1996, 123,702 shares and 139,215 shares were put to the Company, respectively.
6. FLOOD COST SAVINGS AND OTHER CHARGES:
On June 6, 1992, the Company's previous headquarters in Meriden, Connecticut
were flooded. As a result, the Company relocated its headquarters to a new
facility also in Meriden and wrote-off $3,120,000 of unamortized leasehold
improvements during 1992. The new facility, which was purchased in 1992, was
partially funded with a state grant and loan, both of which are secured by the
new facility. The remaining balance on the loan was $899,000 as of December 31,
1996 which is included in long-term obligations. This loan was repaid subsequent
to yearend. During 1993, additional costs were incurred for temporary facilities
and a provision was made for the termination of the remaining lease obligation
of the old headquarters. During 1994, the obligation to the previous landlord
was settled for an amount less than that accrued for as of December 31, 1993.
The effects of these actions have been recorded as flood cost savings in the
accompanying consolidated statements of income.
During 1994, the Company shutdown its Itasca, Illinois facility and
relocated most of the operations to the Meriden facility. The Company recorded a
charge of $3,450,000 to recognize the costs associated with employee
terminations, lease buy-outs and other costs of the closing. These costs have
been recorded in other charges in the accompanying consolidated statements of
income.
During 1996, the Company incurred $837,000 of costs related to the
recapitalization as described in Note 12.
7. INCOME TAXES:
The sources of the Company's income before provision for income taxes and
minority interest were as follows (in thousands):
1994 1995 1996
--------- --------- ---------
United States................................................ $ 9,171 $ 13,116 $ 15,271
Foreign...................................................... 11,609 12,164 16,498
--------- --------- ---------
$ 20,780 $ 25,280 $ 31,769
--------- --------- ---------
--------- --------- ---------
F-14
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
7. INCOME TAXES: (CONTINUED)
The provision for income taxes is as follows (in thousands):
1994 1995 1996
--------- --------- ---------
Current:
Federal.................................................... $ 3,874 $ 4,010 $ 2,697
Foreign.................................................... 4,414 4,536 7,081
State...................................................... 338 356 694
--------- --------- ---------
8,626 8,902 10,472
--------- --------- ---------
Deferred:
Federal.................................................... (78) 1,150 674
Foreign.................................................... 119 (330) (113)
State...................................................... (197) 153 154
--------- --------- ---------
(156) 973 715
--------- --------- ---------
Total.................................................... $ 8,470 $ 9,875 $ 11,187
--------- --------- ---------
--------- --------- ---------
The effective income tax rate varies from the U.S. Federal statutory rate,
as a percentage of income before provision for income taxes and minority
interest, as follows:
1994 1995 1996
----- ----- -----
Anticipated statutory rate................................................................... 35% 35% 35%
Increases (decreases) resulting from:
Net tax effect relating to foreign operations and sales.................................... 9 (2) (3)
Research credits........................................................................... (3) (1) (1)
State income taxes......................................................................... 3 2 3
Other, net................................................................................. (3) 5 1
-- -- --
Effective income tax rate................................................................ 41% 39% 35%
-- -- --
-- -- --
F-15
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
7. INCOME TAXES: (CONTINUED)
At December 31, 1995 and 1996, deferred tax assets and liabilities were
comprised of the following elements (in thousands):
1995 1996
--------- ---------
DEFERRED TAX ASSETS:
Inventory related items.................................................. $ 1,214 $ 1,294
Non-deductible accruals.................................................. 1,689 1,786
Foreign and other tax credit carryforwards............................... 2,800 392
Other.................................................................... 912 1,282
--------- ---------
Gross deferred tax assets.............................................. 6,615 4,754
Less: valuation allowance................................................ 1,263 350
--------- ---------
Total deferred tax assets.............................................. 5,352 4,404
--------- ---------
DEFERRED TAX LIABILITIES:
Accelerated depreciation................................................. 505 471
Acquisition related tax liabilities...................................... 589 439
Other.................................................................... 484 567
--------- ---------
Total deferred tax liabilities......................................... 1,578 1,477
--------- ---------
Net deferred tax assets................................................ $ 3,774 $ 2,927
--------- ---------
--------- ---------
During 1994, the Company recorded a valuation allowance against U.S. foreign
tax and other credit carryforwards due to the significant uncertainty relative
to their use. During 1995, the Company changed its terms on foreign sales,
creating additional foreign source income. Accordingly, the valuation allowance
relating to foreign tax credits was reduced during 1995 and 1996.
8. BENEFIT PLANS:
The Company maintains two primary benefit plans for its employees. The
Company and its domestic subsidiary offer a contributory defined contribution
plan (the Profit Sharing Plan) covering substantially all employees who have
completed at least one year of service, as defined. The Profit Sharing Plan
provides that eligible participants may make a basic contribution from 1% to 3%
of their annual pay, with additional contributions allowed up to an additional
8% of annual pay. The Company makes matching contributions equal to 80% of the
employee's basic contribution which amounted to approximately $696,000, $627,000
and $729,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company also has a noncontributory employee stock ownership plan (the
ESOP) and related trust. Employees of the Company and its domestic subsidiary
who have been employed one full year and have completed 1,000 hours of service,
as defined, are eligible to participate in the ESOP. Each year the Company makes
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 are limited to the lower of $30,000 or 25% of
the participant's compensation. The Company provided for contributions of
$800,000 in 1994, $850,000 in 1995 and $800,000 in 1996, plus interest due by
the ESOP. The trust had used the
F-16
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
8. BENEFIT PLANS: (CONTINUED)
contributions to first service debt incurred, if any, and then to purchase
outstanding shares of the Company's stock. The ESOP will be merged into the
Profit Sharing Plan subsequent to year end pursuant to the Recapitalization and
Stock Purchase Agreement. The transactions consummated pursuant to the
Recapitalization and Stock Purchase Agreement are described in Note 12.
In addition, the Company maintains a Supplemental Executive Retirement Plan
("SERP") covering certain executive officers. The SERP is an unfunded plan. The
Company accrues for the actuarially determined accumulated benefit obligation
associated with the SERP, amounting to $470,000 and $705,000 as of December 31,
1995 and 1996, respectively. In connection with the Recapitalization, the SERP
was terminated. See Note 12.
9. COMMITMENTS AND CONTINGENCIES:
The Company conducts certain of its operations from leased facilities. In
addition, the Company leases automobiles and various types of machinery and
equipment under operating leases generally expiring during the next three years.
The following is a schedule of future minimum rental payments under
operating leases (excluding autos) that have initial or remaining noncancelable
lease terms extending beyond December 31, 1997 (in thousands):
1997................................................................ $ 514
1998................................................................ 475
1999................................................................ 416
2000................................................................ 356
2001................................................................ 309
Thereafter.......................................................... 1,411
---------
$ 3,481
---------
---------
Rental expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $3,753,000, $4,028,000 and $4,005,000, respectively.
The Company has entered into various cooperative research and development
agreements in 1996 requiring milestone payments and future royalty payments upon
satisfaction of certain criteria as specified in the agreements.
The Company is subject to litigation, claims and assessments arising in the
ordinary course of business. The Company accrues the cost of these items as they
become known and are reasonably estimable. The Company is currently involved in
two separate litigations with EG&G Instruments, a subsidiary of EG&G, Inc.,
concerning intellectual property rights. Although the Company believes that it
will prevail in these litigations, there can be no assurance as to their
outcome, and, if they are determined adversely, the Company cannot estimate its
loss.
In the opinion of management, none of the currently known contingencies are
expected to have a material adverse effect on the Company's results of
operations or financial position.
F-17
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
10. RELATED PARTY TRANSACTIONS:
The Company had a trade receivable of approximately $703,000 and $1,061,000
at December 31, 1995 and 1996, respectively, from Cis-bio international, an
affiliate of a significant stockholder. In addition, the accompanying
consolidated statements of income include revenues from Cis-bio international of
approximately $641,000, $99,000 and $1,065,000 for 1994, 1995 and 1996,
respectively, and reimbursements of research and development expenses of
$1,577,000, $2,961,000 and $1,536,000 for 1994, 1995 and 1996, respectively.
11. GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS:
The Company operates predominately in three major geographic areas and two
industry segments. Transfers between geographic areas are made at the estimated
market value of the merchandise transferred. The eliminations result from
intercompany or intersegment sales, receivables and profit in inventory.
The following tables summarize the Company's operations by geographic area
and industry segment for 1994, 1995 and 1996 (in thousands):
GEOGRAPHIC AREAS 1994 1995 1996
- ----------------------------------------------------------------------------- ---------- ---------- ----------
Revenues
United States.............................................................. $ 68,804 $ 64,511 $ 68,390
Europe..................................................................... 68,540 72,399 73,808
Japan...................................................................... 13,902 14,818 21,741
Other International and Eliminations, net.................................. 14,138 17,386 20,079
---------- ---------- ----------
Total consolidated....................................................... $ 165,384 $ 169,114 $ 184,018
---------- ---------- ----------
---------- ---------- ----------
Operating profit*
United States.............................................................. $ 8,789 $ 13,674 $ 16,165
Europe..................................................................... 6,324 8,855 9,745
Japan...................................................................... 4,117 4,169 6,623
Other International and Eliminations, net.................................. (1,383) (1,955) (1,791)
---------- ---------- ----------
Total consolidated....................................................... $ 17,847 $ 24,743 $ 30,742
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets
United States.............................................................. $ 87,682 $ 89,428 $ 105,495
Europe..................................................................... 42,290 48,275 44,044
Japan...................................................................... 8,998 9,075 12,999
Other International and Eliminations, net.................................. (23,758) (26,495) (24,613)
---------- ---------- ----------
Total consolidated....................................................... $ 115,212 $ 120,283 $ 137,925
---------- ---------- ----------
---------- ---------- ----------
- ------------------------
* Operating profit for 1994 includes a facility closing charge of $3,450
within the United States as described in Note 6. Operating profit for 1996
includes costs of $837 related to transactions as described in Note 12.
F-18
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
11. GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS: (CONTINUED)
INDUSTRY SEGMENT 1994 1995 1996
- ----------------------------------------------------------------------------- ---------- ---------- ----------
Revenues
Packard Instrument......................................................... $ 101,335 $ 107,156 $ 122,676
Canberra Nuclear........................................................... 64,049 61,958 61,342
---------- ---------- ----------
Total consolidated....................................................... $ 165,384 $ 169,114 $ 184,018
---------- ---------- ----------
---------- ---------- ----------
Operating profit
Packard Instrument......................................................... $ 17,844 $ 19,243 $ 25,737
Canberra Nuclear........................................................... 6,684 8,260 8,401
General corporate expenses................................................. (2,861) (2,453) (2,318)
Other Charges.............................................................. (3,450) -- (837)
Eliminations............................................................... (370) (307) (241)
---------- ---------- ----------
Total consolidated....................................................... $ 17,847 $ 24,743 $ 30,742
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures
Packard Instrument......................................................... $ 1,005 $ 1,702 $ 1,513
Canberra Nuclear........................................................... 572 1,625 1,202
---------- ---------- ----------
Total consolidated....................................................... $ 1,577 $ 3,327 $ 2,715
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization
Packard Instrument......................................................... $ 2,243 $ 2,427 $ 2,971
Canberra Nuclear........................................................... 2,369 2,248 2,164
---------- ---------- ----------
Total consolidated....................................................... $ 4,612 $ 4,675 $ 5,135
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets
Packard Instrument......................................................... $ 74,785 $ 81,457 $ 98,912
Canberra Nuclear........................................................... 40,427 38,826 39,013
---------- ---------- ----------
Total consolidated....................................................... $ 115,212 $ 120,283 $ 137,925
---------- ---------- ----------
---------- ---------- ----------
12. RECAPITALIZATION AND STOCK PURCHASE AGREEMENT AND PRO FORMA DISCLOSURE:
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 include (a) acquisition by Stonington of $54.0 million of common
stock from certain continuing stockholders, (b) 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)
cancellation of all stock options held by the non-continuing stockholders for
$3.3 million. The price per share for the above transactions was $22.25 except
for the option redemption where the price was $22.25 less the exercise price of
such stock options. 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 certain debt financings to redeem the shares in the tender offer
and pay an estimated $20.5 million in transaction fees and expenses of which
$2.5 million was a fee paid to Stonington. All of the foregoing transactions are
collectively referred to as the Recapitalization. The transaction fees and
expenses include costs associated
F-19
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
12. RECAPITALIZATION AND STOCK PURCHASE AGREEMENT AND PRO FORMA DISCLOSURE:
(CONTINUED)
with the stock offering, debt financings and fees and other expenses. As a part
of the Recapitalization, the Company and certain executives of the Company who
are party to the SERP agreed to terminate the plan for a payment of $2.4 million
in the aggregate. The transaction fees and expenses also include the cost of
terminating the SERP.
Pursuant to the terms of a Stockholders Agreement among the Company,
Stonington and certain other stockholders of the Company, certain members of
management of the Company ("Management Stockholders") have the right, prior to
the earlier of an initial public offering of common stock of the Company and the
tenth anniversary of the Recapitalization, to require the Company to purchase
common stock and options held by such Management Stockholders upon termination
of employment due to death, disability, retirement or certain cases of
involuntary termination. Under certain circumstances, the Company may pay or may
be required to pay for the common stock or options with a subordinated note of
the Company.
The following unaudited pro forma condensed consolidated balance sheet and
statement of income have been prepared to give effect to the above transactions
and related tax benefits as if they had occurred as of December 31, 1996 and
January 1, 1996, respectively.
F-20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 37,826 $ (21,213 (1) $ 16,613
Accounts receivable, net........................................ 40,860 -- 40,860
Inventories..................................................... 21,798 -- 21,798
Refundable income taxes......................................... -- 5,511(2) 5,511
Deferred income taxes........................................... 1,689 -- 1,689
Other........................................................... 4,743 -- 4,743
------------- ------------- ------------
Total current assets........................................ 106,916 (15,702) 91,214
------------- ------------- ------------
Property, plant and equipment, net.............................. 17,587 -- 17,587
Goodwill, net of amortization................................... 147 -- 147
Deferred income taxes........................................... 1,238 -- 1,238
Deferred financing costs........................................ -- 11,200(3) 11,200
Other assets.................................................... 12,037 -- 12,037
------------- ------------- ------------
Total assets................................................ $ 137,925 $ (4,502) $ 133,423
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable................................................... $ 3,524 $ (1,816 (1) $ 1,708
Current portion of long-term obligations........................ 829 (829 (1) 0
Accounts payable................................................ 11,118 -- 11,118
Accrued liabilities............................................. 15,943 -- 15,943
Income taxes payable............................................ 6,685 -- 6,685
Deferred income................................................. 9,601 -- 9,601
------------- ------------- ------------
Total current liabilities................................... 47,700 (2,645) 45,055
------------- ------------- ------------
Long-term obligations, less current portion..................... 2,037 (2,037 (1) 0
Term loan facility (see Note 4)................................. -- 40,000(1) 40,000
Senior subordinated notes (see Note 4).......................... -- 150,000(1) 150,000
Other non-current liabilities................................... 4,875 -- 4,875
Minority interest in equity of subsidiary....................... 2,720 -- 2,720
------------- ------------- ------------
Total liabilities........................................... 57,332 185,318 242,650
------------- ------------- ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)................................. 80,593 (189,820 (4) (109,227)
------------- ------------- ------------
Total liabilities and stockholders' equity (deficiency)..... $ 137,925 $ (4,502) $ 133,423
------------- ------------- ------------
------------- ------------- ------------
Number of shares of common stock outstanding...................... 12,146,352 (7,792,846) 4,353,506
------------- ------------- ------------
------------- ------------- ------------
F-21
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) Represents the adjustments to the Company's cash and debt to account for the
effects of the Recapitalization.
(2) Represents the tax benefit to be derived from the currently deductible
transaction fees and expenses as well as the tax benefit from the exercise
and redemption of stock options calculated at the statutory tax rate.
(3) Represents the deferred financing costs incurred as a result of the
Recapitalization.
(4) Represents the net change in stockholders' equity (deficiency) as a result
of the Recapitalization, including transaction fees and expenses, less
capitalized deferred financing costs and the income tax benefit referred to
in (2) above.
F-22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(UNAUDITED)
REVENUES................................................................... $ 184,018 $ -- $ 184,018
COST OF SALES AND SERVICE EXPENSE.......................................... 85,757 -- 85,757
---------- ----------- -----------
Gross profit........................................................... 98,261 -- 98,261
RESEARCH AND DEVELOPMENT EXPENSES.......................................... 17,852 -- 17,852
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................... 48,830 -- 48,830
OTHER CHARGES.............................................................. 837 -- 837
---------- ----------- -----------
Operating profit....................................................... 30,742 -- 30,742
INTEREST EXPENSE........................................................... (122) (17,995) (1) (18,117)
AMORTIZATION OF DEFERRED FINANCING COSTS................................... -- (1,545) (2) (1,545)
OTHER INCOME, net.......................................................... 1,149 -- 1,149
---------- ----------- -----------
Income before provision for income taxes and minority interest......... 31,769 (19,540) 12,229
PROVISION FOR INCOME TAXES................................................. 11,187 (7,816) (3) 3,371
MINORITY INTEREST IN INCOME OF SUBSIDIARY.................................. 1,346 -- 1,346
---------- ----------- -----------
Net income............................................................. $ 19,236 $ (11,724) $ 7,512
---------- ----------- -----------
---------- ----------- -----------
PRO FORMA EARNINGS PER SHARE............................................... $ 1.69(4)
-----------
-----------
F-23
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) The following represent adjustments to interest expense as a result of the
Recapitalization:
Interest expense with respect to the term loan facility..................... $ 3,357
Interest expense with respect to the senior subordinated notes.............. 14,063
Bank and other finance fees................................................. 575
-----------
Net change.................................................................. $ 17,995
-----------
-----------
The interest rate on the term loan facility and senior subordinated notes
was at a weighted average interest rate of 9.2%. For each 0.25% change in
average interest rate on the term loan facility, annual pro forma interest
expense would change by $100.
(2) Represents amortization expense of deferred financing costs related to the
Recapitalization. Approximately $11,200 has been deferred and will be
amortized over the lives of the related debt securities. The weighted
average amortization period for the deferred financing costs is 7.25 years.
The remainder of the Recapitalization fees and expenses has been charged
against stockholders' equity (deficiency) in the Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
(3) Represents the estimated income tax effects of pre-tax pro forma adjustments
at the Company's statutory rate of 40% for all periods presented.
(4) Pro forma earnings per share was calculated based on shares outstanding of
4,353,506 and 96,539 shares for options calculated under the treasury stock
method, for a combined total of 4,450,045 shares.
F-24
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1997 1996
----------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 21,757 $ 37,826
Accounts receivable, net.......................................................................... 34,307 40,860
Inventories....................................................................................... 23,445 21,798
Other current assets.............................................................................. 6,827 6,432
----------- -------------
Total current assets........................................................................ 86,336 106,916
----------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost:............................................................. 31,097 31,185
Less--Accumulated depreciation.................................................................... 14,117 13,598
----------- -------------
16,980 17,587
----------- -------------
OTHER ASSETS:
Deferred financing costs, net..................................................................... 11,050 --
Deferred income taxes............................................................................. 8,496 1,238
Other............................................................................................. 12,053 12,184
----------- -------------
31,599 13,422
----------- -------------
TOTAL ASSETS........................................................................................ $ 134,915 $ 137,925
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable..................................................................................... $ 1,693 $ 3,524
Current portion of long-term obligations.......................................................... 315 829
Accounts payable.................................................................................. 10,215 11,118
Accrued liabilities............................................................................... 16,939 15,943
Other current liabilities......................................................................... 18,247 16,286
----------- -------------
Total current liabilities................................................................... 47,409 47,700
----------- -------------
LONG-TERM OBLIGATIONS, net of current portion:
Notes and other long-term obligations............................................................. 2,814 6,912
Term loan facility................................................................................ 39,700 --
Senior subordinated notes......................................................................... 150,000 --
----------- -------------
Total long-term obligations, net............................................................ 192,514 6,912
----------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN EQUITY OF SUBSIDIARY........................................................... 2,772 2,720
----------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock...................................................................................... 137 129
Paid-in capital................................................................................... 17,034 102
Cumulative translation adjustment................................................................. 990 2,402
Retained earnings................................................................................. 79,579 89,088
----------- -------------
97,740 91,721
Less: Treasury stock, at cost..................................................................... 205,520 11,128
----------- -------------
Total stockholders' equity (deficiency)...................................................... (107,780) 80,593
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)............................................. $ 134,915 $ 137,925
----------- -------------
----------- -------------
Number of shares of common stock outstanding...................................................... 4,353,386 12,146,352
----------- -------------
----------- -------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---------- ---------
NET SALES.................................................................................. $ 42,560 $ 46,102
COSTS OF SALES............................................................................. 19,486 20,266
---------- ---------
Gross profit............................................................................. 23,074 25,836
RESEARCH AND DEVELOPMENT EXPENSES.......................................................... 5,051 4,525
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................................... 11,174 11,409
RECAPITALIZATION CHARGES (see Note 3)...................................................... 17,979 --
---------- ---------
Operating profit (loss).................................................................. (11,130) 9,902
INTEREST EXPENSE........................................................................... (1,610) (28)
INTEREST INCOME............................................................................ 318 217
---------- ---------
Income (loss) before income taxes and minority interest.................................. (12,422) 10,091
PROVISION FOR (BENEFIT FROM) INCOME TAXES.................................................. (3,134) 4,247
MINORITY INTEREST IN INCOME OF SUBSIDIARY.................................................. 218 656
---------- ---------
Net income (loss)........................................................................ $ (9,506) $ 5,188
---------- ---------
---------- ---------
EARNINGS (LOSS) PER SHARE.................................................................. $ (0.85) $ 0.41
---------- ---------
---------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-26
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
----------- ---------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ (9,506) $ 5,188
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization of intangibles.......................................... 1,435 1,144
Amortization of deferred financing costs.............................................. 129 --
Other non-cash charges, net........................................................... 2,138 129
Changes in assets and liabilities..................................................... 4,720 7,843
----------- ---------
Net cash provided by (used for) operating activities.................................... (1,084) 14,304
----------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures.................................................................... (547) (752)
Product lines, patent rights and licenses acquired...................................... (186) (1,000)
----------- ---------
Net cash used for investing activities................................................ (733) (1,752)
----------- ---------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowings of long-term obligations..................................................... 190,000 --
Repayments of long-term obligations..................................................... (4,620) (1,629)
Purchase of treasury stock.............................................................. (208,691) (59)
Sale of treasury stock.................................................................. 17,551 --
Proceeds from exercise of stock options................................................. 8,330 --
Recapitalization costs deferred or charged to equity.................................... (15,295) --
Dividend paid........................................................................... -- (4,972)
----------- ---------
Net cash used for financing activities................................................ (12,725) (6,660)
----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................................... (1,527) (550)
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... (16,069) 5,342
----------- ---------
CASH AND CASH EQUIVALENTS, beginning of year.............................................. 37,826 22,515
----------- ---------
CASH AND CASH EQUIVALENTS, end of period.................................................. $ 21,757 $ 27,857
----------- ---------
----------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
The condensed consolidated financial statements and related notes included
herein have been prepared by Packard BioScience Company (the Company) without
audit, except for the December 31, 1996 condensed consolidated balance sheet,
which was derived from the audited consolidated balance sheet contained
elsewhere in this Prospectus. Certain information and footnote disclosures which
normally accompany financial statements prepared in accordance with generally
accepted accounting principles have been omitted from the accompanying condensed
consolidated financial statements, as permitted by the Securities and Exchange
Commission's rules and regulations. The Company believes that the accompanying
disclosures and notes are adequate to make the financial statements not
misleading. Such financial statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations and financial position of the Company for the periods
and as of such dates reported herein.
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The Company's condensed consolidated financial statements as of and for the
three months ended March 31, 1997 and 1996 have been prepared in accordance with
the accounting policies described in Note 1 to the consolidated financial
statements included elsewhere in this Prospectus. The Company's practices of
recognizing assets, liabilities, revenues, expenses and other transactions which
impact the accompanying financial information is consistent with such note.
The Financial Accounting Standards Board (FASB) has issued several new
accounting standards which became effective after January 1, 1996. The impact of
adopting these statements was not material to the consolidated financial
position or results of operations of the Company.
NOTE 2. INVENTORIES:
Inventories consisted of the following at March 31, 1997 and December 31,
1996 (in thousands):
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
Raw materials and parts......................... $ 11,922 $ 13,532
Work in process................................. 957 944
Finished goods.................................. 12,348 9,085
----------- ------------
25,227 23,561
Excess and obsolete reserve..................... (1,782) (1,763)
----------- ------------
$ 23,445 $ 21,798
----------- ------------
----------- ------------
NOTE 3. RECAPITALIZATION:
Refer to Notes 4 and 12 to the 1996 consolidated financial statements
included elsewhere in this Prospectus for a detailed description of the
recapitalization of the Company which occurred in March 1997 (the
Recapitalization).
In connection with the Recapitalization, the Company incurred approximately
$21.2 million in transaction fees consisting primarily of costs associated with
professional services rendered and fees paid to financial organizations involved
in the Recapitalization. Included in these fees was a $2.5 million fee
F-28
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
(FORMERLY KNOWN AS CANBERRA INDUSTRIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997 AND 1996
NOTE 3. RECAPITALIZATION: (CONTINUED)
paid to Stonington Partners, Inc., an affiliate of the Company's majority
stockholder. Of the total transaction fees, $11.2 million and $4.1 million have
been associated with the debt financing portion and the equity portion,
respectively, of the transaction. The debt financing related costs have been
deferred in the accompanying financial statements and are being amortized over
the lives of the associated debt; the equity related costs have been charged
directly to paid-in capital and treasury stock. The remaining portion of the
transaction fees ($5.9 million) has been expensed, a portion of which had been
accrued for and expensed during the year ended December 31, 1996.
In addition to the transaction fees paid, the Company recognized
compensation expense associated with the exercise and buyout of certain stock
options in connection with the Recapitalization. Compensation expense was
recognized on such options to the extent of the difference between the price
paid for the options and the underlying exercise price of the options (the
Spread). Compensation cost associated with the Spread amounted to approximately
$12.9 million and has been reflected as part of the Recapitalization charges in
the accompanying condensed consolidated statements of income (loss).
NOTE 4. STOCKHOLDERS' EQUITY (DEFICIENCY):
During the three months ending March 31, 1997, changes in the number of
common shares issued and treasury shares consisted of the following:
COMMON TREASURY
SHARES SHARES
------------ ----------
Number of shares, December 31, 1996................................ 12,924,221 777,869
Restricted stock plan shares forfeited............................. (898) --
Recapitalization related activity:
Shares issued in connection with
exercise of stock options...................................... 798,500 --
Sale of treasury stock........................................... -- (788,807)
Purchase of treasury stock....................................... -- 9,379,375
------------ ----------
Number of shares, March 31, 1997................................... 13,721,823 9,368,437
------------ ----------
------------ ----------
During the three months ending March 31, 1997, in addition to reflecting the
impact of the sale of common shares, paid-in capital was charged approximately
$864,000 of transaction-related fees and credited for approximately $17.8
million of gross proceeds from the exercise of options and compensation expense
related to the Spread (see Note 3). In addition to the activity above, treasury
stock was charged approximately $3.3 million of transaction-related fees.
F-29
APPENDIX A
GLOSSARY OF TERMS
ALPHA PARTICLE--A positively charged particle emitted by certain radioactive
materials. Comprised of two neutrons and two protons, it is identical to the
nucleus of a helium atom.
ANALYTE--The substance that is determined and quantified in an analytical
procedure.
ASSAYS--Analytical procedures that measure the amount of a particular
substance (or biological function) in a heterogeneous sample.
AUTORADIOGRAPHY--The process whereby a photographic film is used to locate
radioactivity labeled substances, e.g., radiolabeled DNA bands on a gel. The
specimen is overlayered with a photographic film and left for a length of time
determined by the amount of radioactivity present. When the film is developed, a
two dimensional image is produced that corresponds to the location of the
radioactive sample.
BETA PARTICLE--An elementary particle emitted from the nucleus during
radioactive decay, either negatively charged (electron) or positively charged
(positron).
BIOANALYTICAL INSTRUMENTS--Instruments that are used in life science
research to measure biological activity.
CELLULAR BIOLOGY--The study of live, intact cells.
CHEMILUMINESCENCE--The emission of radiation light, usually visible, caused
by the decay of a chemical reaction product from an electronic excited state to
ground state.
CHROMATOGRAPHY--Generally, several analytical and preparative separation
techniques based on the partitioning of a substance between a mobile and a
stationary phase. Classification of the different techniques can be based on the
nature of the stationary phase (e.g., gel, paper, ion exchange, thin-layer) or
on the type of mobile phase (e.g., gas or liquid).
CLINICAL MARKET--The purchases of specialized instruments, reagents and
consumables by hospital labs, reference labs, and decentralized labs that
conduct IN VITRO diagnostic procedures on human specimens.
COLORIMETRIC--Measurements based on the intensity of color changes.
CONTACT IMAGER--In general, a type of imaging using charge-coupled devices
(CCD) cameras to produce a two dimensional image of radioactive decay, and
fluorescence, or chemiluminescence labels in a sample. The camera comes in
direct contact with the sample, such as a gel, blot, or microplate, in order to
maximize the sensitivity of the image.
CRYPTATE--A stable, "cage-like" molecular structure that can encapsulate
ions and which enables time resolved fluorescence in HTRF assays.
EXCITED STATE--A state of a molecule, atom, or nucleus when it possesses
more than its normal energy. Excess molecular or atomic energy may appear as
light or heat. Excess nuclear energy is often released as a gamma ray.
FLUORESCENCE--A molecular process whereby radiation is emitted from a
substance after stimulation by absorption of radiation (light or radioactivity).
The wavelength emitted can be in the visible or ultraviolet region, but is
always greater than the wavelength absorbed.
A-1
FLOW SCINTILLATION COUNTER OR FSA--An analytical instrument similar to a
liquid scintillation counter, that can measure radioactivity in liquids using
either scintillation cocktails or solid scintillators. Measurements are made
continuously as samples flow through a small cell, usually at the end of a
separation step.
FUNCTIONAL IN-CELL ASSAYS--The measurement of a reaction within the
environment of a living cell. These in vivo measurements are generally
considered to be more biologically relevant because they measure complete
response than are IN VITRO measurements of single isolated cells.
GAMMA RAYS--High energy, short wavelength electromagnetic radiation
originating in the nucleus of an atom.
GAMMA SCINTILLATION COUNTER--An analytical instrument that measured the
amount of gamma radiation being emitted from a sample. Particularly useful in
radioimmunoassay procedures.
HIGH THROUGHPUT SCREENING--A process in drug discovery in which a large
library of substances with potential therapeutic efficacy are tested against
large numbers of biological targets.
HOMOGENOUS TIME-RESOLVED FLUORESCENCE (HTRF-TM-)--A proprietary non-isotopic
detection technique developed by CIS bio international and marketed by Packard
Instrument for high throughput screening applications. It is appropriate for
many types of assays including immunoassays, protease, kinase, receptor binding,
and nucleic acid interactions. The primary advantages of this chemistry are that
it is homogenous (i.e., it runs entirely in solution with no solid supports or
special vessels required), and it eliminates background problems by using
time-resolved analysis and spectral discrimination.
IMAGER--In life sciences, a general term used to describe all instruments
able to develop a two dimensional image of radioactive decay, and fluorescence
or chemiluminescence labels, including densitometers, storage phosphor imagers,
and Packard Instrument's proprietary products InstantImager (electronic
autoradiography) and Cyclone (filmless autoradiography).
IMMUNOASSAY--An assay technique that uses antibodies for detecting and
quantifying biological molecules or microorganisms. The most common forms based
on the label used are radioimmunoassay (RIA), enzyme-linked immunoabsorbent
assay (ELISA), fluorescence immunoassay (FIA), and enzyme immunoassay (EIA).
IN VITRO--Literally, IN GLASS, pertaining to biological reactions taking
place in an artificial apparatus such as a test tube.
IN VIVO--Literally, IN LIFE, pertaining to a biological reaction that takes
place in a living cell.
ISOTOPE--One of two or more atoms with the same atomic number (the same
chemical element) but with different atomic weights. Isotopes have very nearly
the same chemical properties, but somewhat different physical properties.
LABEL--A distinguishing feature or tag that can enable a particular molecule
or group to be recognized.
LIFE SCIENCES MARKET--The purchase of specialized instrumentation, reagents,
and consumables for the study of life processes, drug discovery, biotechnology,
or environmental testing including separation equipment, sequencers,
bioanalytical spectrometers, microplate readers, imaging systems, and laboratory
robotics.
LIQUID HANDLING ROBOTICS--Devices that are used in laboratories to transfer
liquids from one piece of labware or apparatus to another, add or mix reagents,
perform dilutions, perform washing steps, or otherwise manipulate liquid samples
for analytical procedures.
LIQUID SCINTILLATION COUNTER OR LSC--An analytical instrument which measures
radioactivity (alpha and beta particles, electron capture, or gamma rays) from
the rate of light photons emitted by a liquid sample.
A-2
LUMINESCENCE--A general term applied to the emission of light by causes
other than high temperature.
MICRO OR MICROVOLUME--Literally, a prefix that divides a basic unit by
1,000,000. Generally, sample or reagent volumes appropriate for microplates and
smaller than usually used in single vials, (i.e., 400 microliters or less).
MICROPLATE--Generally, a small (approximately 3.5" x 5") disposable plastic
tray with rows and columns of wells (24, 96, 384, or more) that are used in
assay procedures.
MICROPLATE READER--A device for quantifying the assay results in a
microplate with one or more types of assay labels, e.g., radioisotopic,
luminescence, fluorescence, or calorimetric.
MOLECULAR BIOLOGY--Generally, this term applies to the study and
manipulation of DNA or RNA in isolated molecules or in living organisms. DNA
sequencing, cloning, restriction mapping, and PCR are all common techniques used
in molecular biology.
NANO OR NANOVOLUME--Literally, a prefix that divides a basic unit by
1,000,000,000. Generally, sample or reagents volumes smaller than "micro"
quantities (i.e., less than 1 microliter).
NANOPLATE--A proprietary name for a plastic tray similar to a microplate but
with much higher density of wells (864, 1,528, 3,456, or higher).
NANOTIP-TM---A proprietary name for a sampling tip on a Packard Instrument
MultiPROBE liquid handling system that can aspirate and/or dispense liquids in
volumes less than 1 microliter.
OPTICAL DENSITY--A measure of the extent to which a beam of radiation,
usually ultraviolet, visible, or infrared, is attenuated by transmission through
an absorbing medium. A term equivalent to "absorbance".
OPTICAL CONTACT IMAGER--A proprietary name for an imaging product being
developed by Packard Instrument that uses an intensified charge-coupled camera
device (ICCD) camera to create a two dimensional image of radioactive decay and
chemiluminescence or fluorescence labels.
PHOSPHORESCENCE--A process similar to fluorescence, in which radiation is
emitted from a molecule after absorption of radiation of a defined wavelength.
Unlike fluorescence, however, phosphorescence continues to be emitted after the
exciting radiation is removed.
RADIOACTIVITY--The property of an unstable nuclide of emitting radiation by
spontaneous disintegration.
RADIOISOTOPIC LABELS--Labeling compounds in assays that emit radiation in
relation to the amount of analyte present in the sample.
SCINTILLATION--A flash of light produced in a scintillator by an ionizing
event. The scintillation is the sum of all photons produced by the decay event.
SCINTILLATION COCKTAIL--A solution in which samples are placed for
measurement in a liquid scintillation counter. The major components are solvents
and scintillators, substances that emit photons when excited by radioactivity.
SPECTROMETER--An analytical instrument that measures some portion of the
electromagnetic spectrum, from very short wavelengths (x-ray) to long
wavelengths (ultraviolet, visible light, and infrared).
STORAGE PHOSPHOR IMAGER--An imaging device that is based on the property of
phosphors in a film-like screen to store energy emitted by the specimen and emit
radiation when excited by laser. It is a "filmless" autoradiography system.
A-3
- -------------------------------------------------
-------------------------------------------------
- -------------------------------------------------
-------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO BUY, THE EXCHANGE
NOTES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
---------
Available Information................................. 3
Prospectus Summary.................................... 4
Risk Factors.......................................... 17
The Exchange Offer.................................... 26
Certain Federal Income Tax Consequences of the
Exchange Offer...................................... 34
The Company........................................... 35
The Recapitalization.................................. 36
Use of Proceeds....................................... 37
Capitalization........................................ 38
Unaudited Pro Forma Condensed Consolidated Statements
of Income (Loss).................................... 39
Selected Historical Consolidated
Financial Data...................................... 42
Management's Discussion and Analysis of
Financial Condition and Results
of Operations....................................... 44
Business.............................................. 52
Management............................................ 67
Ownership of Capital Stock............................ 74
Certain Transactions.................................. 75
Description of the New Credit Agreement............... 78
Description of the Exchange Notes..................... 80
Description of Certain Federal Income Tax Consequences
of an Investment in the Exchange Notes.............. 110
Exchange Offer; Registration Rights................... 112
Plan of Distribution.................................. 114
Legal Matters......................................... 114
Experts............................................... 114
Index to Consolidated Financial Statements............ F-1
Glossary of Terms..................................... A-1
[LOGO]
PACKARD BIOSCIENCE COMPANY
OFFER TO EXCHANGE
$150,000,000
9 3/8% SENIOR SUBORDINATED
NOTES DUE 2007
FOR
9 3/8% SENIOR SUBORDINATED
NOTE DUE 2007, SERIES B
------------------
PROSPECTUS
------------------------
, 1997
- -------------------------------------------------
-------------------------------------------------
- -------------------------------------------------
-------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 was 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 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.
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.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
2.1 --Recapitalization and Stock Purchase Agreement, dated as of November 26, 1996, by and among the
Company, CII Acquisition LLC and the Management Stockholders party thereto.*
3.1 --Amended and Restated Certificate of Incorporation of the Company.
3.2 --By-Laws of the Company.*
4.1 --Indenture, dated as of March 4, 1997, between the Company and The Bank of New York, as Trustee.*
4.2 --Form of 9 3/8% Senior Subordinated Notes due 2007.*
4.3 --Form of 9 3/8% Senior Subordinated Notes due 2007, Series B.*
4.4 --Credit Agreement, dated as of March 4, 1997, by and among the Company, the Subsidiary Borrowers
from time to time party thereto, the several banks and other financial institutions or entities
from time to time party thereto, Canadian Imperial Bank of Commerce, as documentation agent,
BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp., each as a co-arranger and a
co-syndication agent, and Bank of America National Trust and Savings Association, as administrative
agent.*
5.1 --Opinion of Day, Berry & Howard.
10.1 --Purchase Agreement, dated as of February 21, 1996, by and among the Company, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp.*
10.2 --Registration Rights Agreement, dated as of March 4, 1997, by and among the Company, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BancAmerica Securities, Inc. and CIBC Wood Gundy Securities
Corp.*
10.3 --Employment Agreement, dated as of March 4, 1997, by and between the Company and Emery G. Olcott.*
10.4 --Employment Agreement, dated as of March 4, 1997, by and between the Company and Richard T.
McKernan.*
10.5 --Management Stock Incentive Plan.*
10.6 --Stock Option Plan of 1971.*
10.7 --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.*
10.8 --Form of Employment Agreement by and between the Company and George Serrano.
10.9 --Form of Employment Agreement by and between the Company and Staf van Cauter.
10.10 --Form of Employment Agreement by and between the Company and Orren K. Tench, Jr.
12.1 --Statements re Computation of Ratios.*
21. --List of subsidiaries of the Company.*
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Day, Berry & Howard (contained in their opinion filed as Exhibit 5.1)
24. --Powers of Attorney (included in the signature pages in Part II of this Registration Statement).*
25. --Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York.*
99.1 --Form of Letter of Transmittal.*
II-2
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*
- ------------------------
*Previously filed.
(b) Financial Statement Schedules.
Financial statement schedules are omitted because they are not applicable or
because the required information is presented in the combined financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(d) That, 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 registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrants of expenses incurred or paid by a director,
officer or controlling person of the registrants in the successful defense
of any action, suit or proceeding) is asserted by such
II-3
director, officer or controlling person in connection with the securities
being registered, the registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by them is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
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 Meriden, State of
Connecticut, on May 16, 1997.
PACKARD BIOSCIENCE COMPANY
By: /s/ EMERY G. OLCOTT
------------------------------------------
Emery G. Olcott
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
II-5
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on May 16, 1997 by the following persons
in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
Chairman of the Board,
/s/ EMERY G. OLCOTT Chief Executive Officer
- ------------------------------ and President (Principal
Emery G. Olcott Executive Officer)
Vice President and Chief
/s/ BEN D. KAPLAN Financial Officer
- ------------------------------ (Principal Financial and
Ben D. Kaplan Accounting Officer)
*
- ------------------------------ Director
Robert F. End
*
- ------------------------------ Director
Bradley J. Hoecker
*
- ------------------------------ Director
Richard T. McKernan
*
- ------------------------------ Director
Stephen M. McLean
*
- ------------------------------ Director
Alexis P. Michas
*
- ------------------------------ Director
George Serrano
*
- ------------------------------ Director
Peter P. Tong
*By: /s/ BEN D. KAPLAN
-------------------------
Ben D. Kaplan
ATTORNEY-IN-FACT
II-6
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------------------------------------------------------------------- -----
2.1 --Recapitalization and Stock Purchase Agreement, dated as of November 26, 1996, by and among the
Company, CII Acquisition LLC and the Management Stockholders party thereto.*....................
3.1 --Amended and Restated Certificate of Incorporation of the Company................................
3.2 --By-Laws of the Company.*........................................................................
4.1 --Indenture, dated as of March 4, 1997, between the Company and The Bank of New York, as
Trustee.*.......................................................................................
4.2 --Form of 9 3/8% Senior Subordinated Notes due 2007.*.............................................
4.3 --Form of 9 3/8% Senior Subordinated Notes due 2007, Series B.*...................................
4.4 --Credit Agreement, dated as of March 4, 1997, by and among the Company, the Subsidiary Borrowers
from time to time party thereto, the several banks and other financial institutions or entities
from time to time party thereto, Canadian Imperial Bank of Commerce, as documentation agent,
BancAmerica Securities, Inc. and CIBC Wood Gundy Securities Corp., each as a co-arranger and a
co-syndication agent, and Bank of America National Trust and Savings Association, as
administrative agent.*..........................................................................
5.1 --Opinion of Day, Berry & Howard..................................................................
10.1 --Purchase Agreement, dated as of February 21, 1996, by and among the Company, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BancAmerica Securities, Inc. and CIBC Wood Gundy Securities
Corp.*..........................................................................................
10.2 --Registration Rights Agreement, dated as of March 4, 1997, by and among the Company, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Securities, Inc. and CIBC Wood Gundy
Securities Corp.*...............................................................................
10.3 --Employment Agreement, dated as of March 4, 1997, by and between the Company and Emery G.
Olcott.*........................................................................................
10.4 --Employment Agreement, dated as of March 4, 1997, by and between the Company and Richard T.
McKernan.*......................................................................................
10.5 --Management Stock Incentive Plan.*...............................................................
10.6 --Stock Option Plan of 1971.*.....................................................................
10.7 --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.*.....................................................................................
10.8 --Form of Employment Agreement by and between the Company and George
Serrano. .......................................................................................
10.9 --Form of Employment Agreement by and between the Company and Staf Van
Cauter. ........................................................................................
10.10 --Form of Employment Agreement by and between the Company and Orren K.
Tench, Jr.......................................................................................
12.1 --Statements re Computation of Ratios.*...........................................................
21. --List of subsidiaries of the Company.*...........................................................
23.1 --Consent of Arthur Andersen LLP..................................................................
23.2 --Consent of Day, Berry & Howard (contained in their opinion filed as Exhibit 5.1)................
24. --Powers of Attorney (included in the signature pages in Part II of this Registration
Statement).*....................................................................................
25. --Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New
York.*..........................................................................................
99.1 --Form of Letter of Transmittal.*.................................................................
99.2 --Form of Notice of Guaranteed Delivery.*.........................................................
99.3 --Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*.........
- ------------------------
*Previously filed.