-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pe/qL7GjmU5eHBvkNMn7vcMMU16t86Jps9Zw78uzrfiHms5x8FZJAYjLxmfA+cr0 qUXkfHfKCpLFLbHjpmyJdw== 0000927016-96-002077.txt : 19961231 0000927016-96-002077.hdr.sgml : 19961231 ACCESSION NUMBER: 0000927016-96-002077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLOGIC INC CENTRAL INDEX KEY: 0000859737 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 042902449 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18281 FILM NUMBER: 96687226 BUSINESS ADDRESS: STREET 1: 590 LINCOLN ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178902300 MAIL ADDRESS: STREET 1: 590 LINCOLN STREET CITY: WALTHAM STATE: MA ZIP: 02154 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: September 28, 1996 ------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____ to _____ Commission File Number: 0-18281 - ----------------------- ------- Hologic, Inc. ------------- (Exact name of registrant as specified in its charter) Delaware 04-2902449 -------- ---------- (State of incorporation) (I.R.S. Employer Identification No.) 590 Lincoln Street, Waltham, Massachusetts 02154 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 890-2300 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Rights to purchase Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this 10-K. ___ The aggregate market value of the registrant's Common Stock held by non- affiliates of the registrant as of November 29, 1996 was $322,042,600 based on the price of the last reported sale on the Nasdaq National Market System. As of November 29, 1996 there were 12,881,704 shares of the registrant's Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Proxy Statement for Registrant's Annual Meeting of Stockholders to be held on February 28, 1997 (Items 10,11,12 and 13). - -------------------------------------------------------------------------------- 2 Introductory Statement When used in this Report, the words "expects," "anticipates," "estimates," "should," "will," "could," "would," "may," and similar expressions are intended to identify forward-looking statements. Such statements, which include statements relating to the timing and availability of products under development, the ability of the Company to market such products, once developed, successfully, the anticipated growth or expansion of the markets for the Company's products, and other matters are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. These forward-looking statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Part I Item 1. Business Hologic, Inc. ("Hologic" or the "Company") is a leading international developer, manufacturer and marketer of X-ray bone densitometers which precisely measure bone density for use in the diagnosis and monitoring of metabolic bone diseases such as osteoporosis. Hologic pioneered the use of dual-energy X-ray absorptiometry (''DXA'') to measure bone density, introducing the first DXA bone densitometer in 1987. Since this introduction, DXA systems have become the standard for measuring bone density. In 1995, Hologic introduced its fourth generation of DXA bone densitometers, its clinically oriented QDR 4500 ACCLAIM product line. To address the growing clinical market for the early diagnosis and monitoring of osteoporosis, Hologic is developing products that it believes will complement its DXA product line. In December 1994, Hologic acquired the ultrasound bone analyzer business of Walker Sonix, Inc. (''Walker Sonix''). Hologic is developing an enhanced ultrasound bone analyzer, the Sahara, which it has recently introduced in clinical test sites in the United States and certain international markets. Hologic believes that ultrasound systems could represent a relatively low cost, compact, easy-to-use, non-X-ray based, screening technique to assist in the initial diagnosis of osteoporosis. In September 1994, Hologic began a joint development effort with Serex, Inc. (''Serex'') to develop a diagnostic strip test to detect biochemical markers that indicate the rate of a patient's bone loss. The strip test is being designed to provide a physician with a real-time means of measuring a patient's biochemical response to osteoporosis therapies and compliance with those therapies, as a complement to periodic bone density measurements. On August 29, 1996, Hologic's wholly-owned subsidiary merged with FluoroScan Imaging Systems, Inc. ("FluoroScan" or the "Company") in a pooling-of-interests transaction. The merger was completed by the exchange of .31069 shares of common stock of Hologic for each outstanding share of FluoroScan common stock. Hologic issued 1,454,901 shares of common stock in exchange for all outstanding shares of FluoroScan common stock. Hologic also reserved an additional 300,375 shares of its common stock for issuance to holders of FluoroScan options and warrants. FluoroScan manufactures and distributes the FluoroScan Imaging System (the ''FluoroScan System''), a low intensity, real-time mini c-arm X-ray imaging device which provides high resolution images at radiation levels and at a cost well below those of conventional X-ray and fluoroscopic equipment. These mini c- arm systems are used primarily by orthopedic surgeons to perform minimally invasive surgical procedures on a patient's extremities (i.e., hand, wrist, knee, foot, ankle, ect.). Used herein the term "Company" includes Hologic and all of its subsidiaries, including FluoroScan. The Hologic logo is a service mark of Hologic. QDR and QDR-1000 are registered trademarks of X-Ray Technology Corp., a wholly-owned subsidiary of Hologic. QDR-1000W and QDR-2000 are trademarks of X-Ray Technology Corp. ACCLAIM and Sahara are registered trademarks of Hologic. 2 Bone Assessment Product Background Osteoporosis. Osteoporosis is a condition characterized by reduced bone density that leads to an increased risk of fractures. Bone is a dynamic organ that is maintained through a process referred to as remodeling in which old bone is removed (resorption) and new bone is formed. In early adulthood, the levels of bone resorption and bone formation are generally balanced, with the quantity and distribution of bone throughout the body varying over time depending on muscle mass, strength and use. When remodeling does not function properly, and resorption exceeds formation, the result is a net loss of bone mass and density, often causing diminished structural integrity of the skeleton (particularly of the trabecular ''spongy'' bone) and an increased risk of fracture. According to the National Osteoporosis Foundation (the ''NOF''), 25 million Americans, 80% of whom are women, and approximately 250 million people worldwide, suffer from osteoporosis. Osteoporosis typically develops silently over a period of years, eventually progressing to a point where a fracture can easily occur, causing pain and disability. The post-menopausal female population has the highest incidence of osteoporosis and the highest rate of morbidity (loss of quality of life) and mortality due to osteoporosis. The NOF estimates that in the United States osteoporosis contributes to more than 1.3 million fractures annually, a majority of which were of the spine and hip, and that related direct healthcare and indirect productivity costs in 1987 were approximately $10 billion. Hip fractures lead to the most serious consequences. According to the NOF, as many as one in every five hip fracture patients dies from complications within a year after fracture, one in every four requires long-term care and an even higher percentage of hip fracture patients never return to an active and independent lifestyle. According to the Centres for Disease Control and Prevention, about 850,000 people aged 65 and older suffer from fractures every year. Total medical care costs for fractures among older adults totaled $13.8 billion in 1995. Until recently, osteoporosis was thought to be an untreatable consequence of aging. The Company believes that the recent development and introduction of new drug therapies, the aging of the population, and an increased focus on women's health issues and preventive medical practices has created a growing awareness among patients and physicians that osteoporosis is treatable. Therapies. The Company believes that over 70 clinical studies are currently in progress to assess the safety and effectiveness of new therapies to treat osteoporosis. However, prior to 1995, there were only two approved drug treatments for osteoporosis in the United States, hormone replacement therapy, using estrogen and related hormones (''HRT''), and calcitonin, with the most widely prescribed treatment being HRT. Patient concerns regarding complications related to prolonged use of HRT have contributed to a low compliance rate. Until recently, calcitonin was available only in an injectable form, a delivery method that has contributed to low patient compliance. Although HRT and calcitonin have generally been shown in clinical trials to slow or stop the loss of bone mass, these therapies have not been proven to restore bone mass. In September 1995, the FDA approved Merck's drug Fosamax for the treatment of established osteoporosis in post-menopausal women. Fosamax is a bisphosphonate that acts by coating the bone surface and inhibiting bone resorption. Merck reported that in clinical studies of Fosamax conducted in over 16 countries post-menopausal patients with established osteoporosis who were treated with Fosamax gained on average of 7-10% bone mass in the spine and 7-8% bone mass in the hip over a three-year period compared to patients treated with placebo, and that Fosamax reduced the number of new vertebral fractures (fractures of the spine) by approximately 48% compared with placebo. Merck is conducting ongoing clinical trials to determine the effectiveness of Fosamax in preventing osteoporosis, and in April 1996 filed a supplement with the FDA for approval of the use of Fosamax for that purpose. Fosamax is also approved in approximately 40 countries in addition to the United States. In October 1996, Merck reported that more than 1,959,000 patients worldwide were taking Fosamax. Other therapies cleared by the FDA to treat osteoporosis in 1995 are a one- tablet hormone replacement therapy, which combines estrogen and progestin, developed by Wyeth-Ayerst Laboratories, and an intra-nasal formulation of calcitonin developed by Sandoz. In addition, in November 1995, an FDA advisory committee recommended that the FDA approve slow-release sodium fluoride for the treatment of post-menopausal osteoporosis. Additional therapies undergoing clinical trials for the prevention or treatment of osteoporosis include bisphosphonates being developed by 3 Proctor & Gamble (Rasidronate), Boehringer-Mannheim (Ibandronate) and Sanofi (Tiludronate), and estrogen analogues or anti-estrogens being developed by Eli Lilly (Raloxifene) and Pfizer (Draloxifene). In several European countries, Japan and other international markets, there has been an earlier availability and greater acceptance of osteoporosis therapies. Some of these therapies include estrogens, bisphosphonates, calcitonins, vitamin D compounds and ipriflavone. The timing of when and where new drugs will become commercially available, if ever, is uncertain. However, the Company believes that there will be broadened and new approvals of osteoporosis therapies for both treatment and prevention which should positively impact the bone assessment market worldwide. Diagnosis and Monitoring of Osteoporosis. There are a number of different technologies that are available that can be used to assess bone mineral status. Since the introduction of the first DXA bone densitometer by the Company in 1987, dual-energy X-ray absorptiometry has become the primary means of measuring bone density. Prior to that introduction, the most widely used bone density measuring technique for the hip and spine was dual photon absorptiometry (DPA). DPA systems were not very precise and required relatively long scanning times and the use of an expensive radioactive source that required periodic replacement. In contrast, DXA systems have much higher precision, require significantly shorter scanning times and do not require a radioactive source. DXA systems require a low patient radiation exposure. The most advanced DXA systems can be used to measure the bone density of the whole body, or any site, including the most important fracture sites of the hip or spine. As a result of their precision and versatility, DXA systems have become the predominant means of evaluating low bone density before fractures occur and monitoring changes in a patient's bone density in response to therapies. Other bone assessment technologies include single photon absorptiometry (SPA), radiographic absorptiometry (RA), quantitative computed tomography (QCT), quantitative ultrasound and biochemical markers. Single photon absorptiometry was introduced in the 1960s and represents an effective method of measuring bone density at a peripheral site of the skeleton (forearm or heel), although it cannot be used to measure the most important fracture sites of the spine or hip. SPA systems also have the added inconvenience of requiring the patient to place the site being scanned in water or other tissue-equivalent medium to achieve precision. SPA, however, does represent a relatively inexpensive and valuable tool in the diagnosis of osteoporosis with reasonable precision and low radiation exposure. Quantitative computed tomography was introduced in the mid 1970s and can measure bone density by using a CT scanner to determine both the patient's bone density and bone distribution in three dimensions. QCT, however, has remained limited in clinical use because of its relatively high radiation dose and the high cost of CT scanner equipment. Radiographic absorptiometry, also introduced in the 1970s, measures bone density from two X-ray images (radiographs) of the hand placed alongside a calibration device using a conventional X-ray machine. The radiographs are sent to a central processing laboratory where a computer measures the density of the bone. The precision of this technique is comparable to SPA measurements. An advantage of this system is that it does not require any additional capital investment, as traditional X-ray equipment can be used to obtain the radiographs. The technique, however, cannot be used to measure and monitor the hip or spine. Also, because the radiograph must be sent to a laboratory for testing, it does not provide a real-time assessment of bone density, and, if the test is positive, a follow-up consultation is required. The Company believes that RA will be useful in rural areas where there may not be a sufficient concentration of patients to justify a capital investment in DXA bone density measuring equipment. Ultrasound has long been used in medical testing. However, the use of ultrasound for the detection of osteoporosis was not commercially introduced until recently, and then only in certain foreign countries. Ultrasound measurement has concentrated mainly on the calcaneous (the heel), which is comprised primarily of trabecular bone, as a measuring site. Initial clinical trials of ultrasound systems have indicated a significant association of low ultrasonic bone measurements of the calcaneous and the risk of fracture. The latest developments in hardware and software, resulting in enhanced 4 =============================================================================== precision and ease of use, are currently making ultrasound techniques an option for the diagnosis of osteoporosis. Major advantages of ultrasound examination are the complete absence of radiation and the small size and low cost of the equipment. Ultrasound devices do not use X-rays in making their measurements and therefore do not require X-ray licensing or registered operators. However, because ultrasound bone measurements currently are not as precise as DXA and other measurements, they are less reliable for continued monitoring of small changes in bone density or for assessing the response to therapies. In addition, they are generally limited to measurements at peripheral sites, not the more important spine or hip fracture sites. Accordingly, the Company believes that the most likely use for ultrasound techniques currently employed and under development by the Company and others will be for initial screening for osteoporosis and not for continued monitoring of changes in bone density or the response to therapies. Biochemical markers are substances that are produced within the body that correlate directly or indirectly to disease or bodily function. A number of biochemical markers have been discovered that can be used to measure the rate of bone resorption or formation. These measurements, while not measuring bone density, can provide a means to assess quickly (within approximately three months) the effectiveness of treatment and patient compliance with therapies for osteoporosis. A baseline and subsequent bone density tests (as frequently as annually) must be used in conjunction with biochemical marker measurements to assess fully the bone status of the patient. Because biochemical markers cannot be used independently to diagnose osteoporosis or risk of fracture, or to monitor a patient's changes in bone density as a result of therapy or otherwise, the Company believes that biochemical marker tests, including those being developed by the Company, will complement and not replace densitometry. Bone Assessment Market The Company believes that the clinical market for osteoporosis diagnostic and monitoring products is expanding due to the recent development and introduction of new drug therapies to treat osteoporosis, the more widespread and increased reimbursement for bone density examinations, the aging of the population, and an increased focus on women's health issues and preventive medical practices. All of these factors have led to an increased awareness by women and primary care providers, such as gynecologists and family physicians, that osteoporosis is a treatable disease and that measurement of bone density is an integral component of diagnosis and monitoring of this disease. Upon obtaining FDA approval for Fosamax in September 1995, Merck launched an extensive educational campaign to increase patient and physician awareness that osteoporosis is a treatable disease. In connection with this effort, Merck is promoting the use of DXA and other techniques to diagnose and monitor osteoporosis and the effects of drug therapies. The Company believes that this ongoing comprehensive Merck program has significantly contributed to the growth of the bone densitometer and related markets. Currently, Fosamax is only approved for use by patients with established osteoporosis. However, Merck and other drug companies are conducting ongoing clinical trials to establish the efficacy of drug therapies to prevent osteoporosis in high risk patients. In April 1996, Merck filed a supplement with the United States FDA for a new indication for Fosamax--the prevention of osteoporosis in women. Such approval should increase the need for patient testing and monitoring at an earlier age, before a patient is afflicted with osteoporosis. In the United States, the Health Care Finance Administration, which establishes guidelines for the reimbursement of health care providers treating Medicare and Medicaid patients, provided validation for DXA bone densitometry examinations as a clinically useful procedure by recommending the reimbursement for DXA bone examinations in April 1994 and recently clarifying its guidelines by recommending reimbursement for hip and spine examinations, the important fracture sites, of approximately $121 per patient examination. Reimbursement for densitometry done at peripheral sites declined to approximately $37. This differential in reimbursement recognizes the important benefit of DXA measurements of the critical fracture sites, the hip and spine, in assisting in the detection and monitoring of bone disease. In part, as a result of the reimbursement policy recommendations implemented by HCFA, bone density examinations are paid for by many private third party insurers in the United States. With the established reimbursement levels in the United States, and the FDA approval of Fosamax and other drug therapies, the Company believes that the United States market for bone densitometers and other methods of bone mineral assessment will expand from the hospitals, large clinics, research institutions and imaging and women's centers, to the larger potential market of primary care providers, including gynecologists and family physicians. 5 In several European countries, Japan and other international markets, there has been a greater availability or acceptance of osteoporosis therapies and an earlier adoption of reimbursement for bone densitometry exams. Countries in which reimbursement for the use of X-ray bone densitometers has been approved include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and Switzerland. In addition, the Japanese government has been actively supporting an educational program to promote public awareness of osteoporosis as a treatable disease. In Latin American countries such as Argentina, Brazil and Chile, and in Pacific Rim countries, such as Australia, The Peoples Republic of China, South Korea and Taiwan, there is a growing use of osteoporosis therapies and an expanding market for osteoporosis diagnostic and monitoring equipment. Bone Assessment Products The Company's bone assessment products include a family of DXA bone densitometers which are used for the precise measurement of bone density to assist physicians in the diagnosis and monitoring of metabolic bone diseases such as osteoporosis. Since commercially introducing the first DXA bone densitometer in 1987, the Company introduced its first bone densitometer capable of assessing the bone density of the entire body in 1989, introduced the first bone densitometer capable of taking lateral measurements of the spine in 1991, and, in 1995, introduced its new QDR 4500 ACCLAIM fourth generation series of bone densitometers, which integrates the Company's most advanced X-ray technology into a compact package that facilitates installation in a standard examination room. The Company believes that a significant market may exist for relatively low- cost products that assess bone mineral status, employ technologies that do not use ionizing radiation and may be used in a doctor's office. In order to address this market, the Company has acquired or is developing products that use ultrasound or measure biochemical markers to assist in the assessment of bone mineral status. QDR X-Ray Bone Densitometers. Since its first commercial shipment of a DXA system in October 1987, the Company has sold more than 3,200 DXA systems. The Company believes that its systems' performance advantages and their early adoption by leading clinical investigators have led to their market acceptance. The Company's DXA systems have been purchased for multiple-site studies sponsored by the pharmaceutical companies and by the United States government for evaluation of the incidence and treatment of osteoporosis. In addition, pharmaceutical companies have promoted the purchase of the systems for use by physicians to assist in the diagnosis and treatment of osteoporosis. Advantages of the Company's DXA systems include high precision (consistency from test to test), low patient radiation exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast scanning time, low operating cost, no radioactive source and the ability to measure bone density of the most important fracture sites, the spine and hip. Studies conducted by the Company and independent investigators have demonstrated that the systems can detect a change in spine bone density with a precision error of less than 1%. All the Company's DXA systems employ its patented Automatic Internal Reference System, which continuously calibrates each patient's bone density measurement to a known standard. This system virtually eliminates errors that might result from manual calibration and saves operators the time-consuming task of calibrating several times a day. The system automatically compensates for drift in the X-ray system, detectors or other electronic components which ensures long-term measurement stability. Each of the Company's DXA systems contains an X-ray source mounted beneath the patient, who is positioned lying on her back. The X-ray source generates alternating high and low energy pulses in a thin beam that passes through the Company's patented Automatic Internal Reference System and then through the patient to an X-ray detector mounted above the patient. Controlled by a computer, the X-ray source and detector are moved in tandem across the patient. When the X-ray beam is detected, it contains information about the X-ray absorbing characteristics of both the patient and the calibration materials in the Automatic Internal Reference System at each of the two levels of radiation. The system converts this information into a digital format which is processed and analyzed by a computer and displayed on a high-resolution color monitor, both of which are incorporated into the system. 6 The Company has invested substantial resources in developing operating and applications software for its systems. The software includes calibration software, automated scan and analysis programs for each scan site, a patient data base manager that archives all raw data for later retrieval and analysis and allows the operator to review the current image with an earlier image of the same patient. Initial DXA systems developed by the Company employed a single narrow pencil beam detected by one receptor. In 1991, the Company introduced the first bone densitometer employing a high density fan shaped X-ray beam that is detected by an array of receptors. This configuration enables the system to obtain better quality images with improved spatial resolution, significantly faster scanning time and higher patient throughput compared to single-beam systems. Moreover, for standard spine and hip scans, fan beam technology can reduce scan time by a factor of more than 25 compared to older single-beam scanning systems. The Company developed this fan beam technology to perform lateral (side-to- side) scans of the lower spine, in addition to the posterior-anterior (back-to- front) measurements performed by the Company's pencil beam systems. The earliest and most dramatic loss of bone density in the spine occurs primarily in the spine's soft (trabecular) bone, which is positioned directly behind the hard (cortical) bone when taking back-to-front measurements. This results in bone density measurements that average the density of the soft and hard bone and tends to mask changes in the soft bone. A lateral scan permits the imaging and measurement of the spine's soft bone with only limited interference from hard bone. In addition, a lateral scan reduces the interference caused by abnormal accumulation of bone and calcium deposits in and around the spine. Numerous scientific articles have established lateral bone densitometry, using supine patient positioning, as a highly precise and more diagnostically sensitive way to measure the spine than conventional posterior-anterior examinations. Lateral densitometry also eliminates scan artifacts such as aortic calcification or degenerative disease of the spinal processes that can distort conventional posterior-anterior measurements. In November 1994, the Company introduced the QDR 4500A ACCLAIM at the annual meeting of the Radiological Society of North America and in January 1995 obtained FDA clearance to sell the system in the United States. See ''Regulation.'' The Company's QDR 4500 ACCLAIM series of bone densitometers offers rapid scanning and high resolution imaging using the latest available fan beam and high density, solid-state multi-detector array technology. In addition, the QDR 4500 ACCLAIM series is built in modular configurations that allow customers to add new features and capabilities, while protecting their investment in the equipment and patient data. The ACCLAIM series is comprised of four modular systems: the high-end QDR 4500A, the QDR 4500SL, the QDR 4500W and the QDR 4500C clinical bone densitometer. An important feature of the QDR 4500A and QDR 4500SL is their ability to perform lateral (side-to-side) scans of the lower spine, without turning the patient on her side, in addition to the posterior-anterior (back-to-front) measurements. The QDR 4500A and QDR 4500SL ACCLAIM are capable of producing high quality images of the spine, lateral spine, hip and other skeletal sites. The ACCLAIM's scan arm allows for multiple scan views without patient repositioning. The images produced can be combined with capabilities that enable vertebral dimensions to be determined with a radiation dose approximately ten to 100 times lower than that of conventional chest X-rays. Using the QDR 4500A or the QDR 4500SL, high-quality lateral images of the entire spine can now be obtained in as little as ten seconds. The ACCLAIM systems are designed to require less floor space than any other bone densitometer capable of taking hip and spine measurements. The special tabletop design and motorized scanner C-arm allow the QDR 4500C and QDR 4500SL to be installed in a standard 8ft x 8ft examination room (the QDR 4500W and QDR 4500A require an 8ft x 10ft room). Installation requirements for any of the ACCLAIM bone densitometers are minimal and normally do not require special electrical, structural or lead-shielding preparation. In addition to their small size, the QDR 4500 series offers virtually silent operation. 7 The ACCLAIM series has replaced the Company's QDR 1500, QDR 2000 and QDR 2000plus products. The Company has retained its QDR 1000plus system as a low- price offering. The QDR 1000plus employs the Company's older pencil beam technology. In fiscal 1996, the ACCLAIM series accounted for approximately 86% of DXA sales. Ultrasound. In December 1994, the Company acquired the ultrasound bone analyzer business of Walker Sonix. Walker Sonix had developed an ultrasound product line to assess bone mineral status of the heel. The location of the heel facilitates easy coupling of the ultrasound transducers at a site with a relatively low amount of overlying soft tissue. The heel is also made up of predominantly trabecular bone which tends to be more metabolically active. The Walker Sonix ultrasound devices measure two parameters, Broadbased Ultrasound Attention (BUA) and Speed of Sound (SOS) through a water medium to characterize bone mineral status. The use of water as a medium, which is a characteristic of other ultrasound bone analyzers, requires the patient to place her foot in water. The use of water requires cumbersome plumbing and cleaning mechanisms to be incorporated in the system. The Company developed internally an enhanced dry ultrasound bone analyzer, called ''Sahara'' that does not require the use of water. The Company believes that this ''dry'' technology offers further operator convenience by the elimination of the water handling required between each patient. The elimination of the use of water has also enabled the Company to reduce the size and weight of the device. In September 1995, the Company introduced a prototype of the Sahara at the American Society of Bone Mineral Research. The Company initiated clinical trials of the Sahara in the United States in the fourth quarter of fiscal 1995 and commenced international sales of the system in the third quarter of fiscal 1996. Commercial introduction of the system in the United States is dependent upon FDA approval. The Company believes that this approval process may take as long as two to three years. There can be no assurance that the Company will be able to obtain FDA approval for the Sahara on a timely basis, if at all. Recent studies have suggested that ultrasound provides good separation of fracture populations from reference groups and suggests that this method is a promising screening tool for evaluating a patient's fracture risk. However, ultrasound does not allow for direct assessment of important hip and spine fracture sites, has undocumented ability to follow the effects of therapy and has less precision (reproducibility of results) compared to DXA measurements. Accordingly, the Company believes that ultrasound systems will be used predominantly as a low cost initial screening or diagnostic tool and not as a patient monitoring tool. Biochemical Markers. In September 1994, the Company entered into a joint development agreement with Serex to develop a simple strip test for use by physicians to monitor the levels of a patient's biochemical markers that indicate the rate of bone resorption. Although biochemical markers cannot measure bone density, the Company believes that biochemical markers may be useful as a tool to determine if therapy is effective. This is accomplished by comparing the baseline level of the marker with the value obtained from a serial measurement performed only two or three months following the start of therapy. This same technique may be useful to evaluate patient compliance with a prescribed therapy. Traditionally, biochemical markers of bone were performed using high pressure liquid chromatography (''HPLC'') methods conducted in a research laboratory. HPLC procedures are complex and labor intensive requiring a highly trained technician, relatively slow, subject to high variability and expensive. For these reasons, biochemical markers of bone using HPLC methods have not been used for routine clinical testing. Recently, several immunodiagnostic tests that are antibody-based have been developed as biochemical markers of bone remodeling. Immunodiagnostic tests may be performed in a variety of technical formats. The format that has been introduced by several companies is the microtitre plate system, which is used for many different types of in-vitro diagnostic tests and is normally performed in a reference laboratory. Serex has developed a proprietary and patented technology that enables complex immuno-chemistry assays to be performed in a strip test format that the Company believes is well-suited for testing directly in the physician's office or the home to provide a real-time assessment of bone resorption. In September 1994, the Company purchased a minority interest in Serex and entered into a license and supply agreement with Serex to develop a urine-based bone resorption test deliverable in a diagnostic strip test format. The Company believes that other applications for biochemical markers of bone as well as new markers are likely to be developed in the future, and under its agreement with Serex, the Company 8 retains the first right of negotiation to develop and license such tests. There can be no assurance that Serex will be able to develop effective strip tests, either for physician or over-the-counter use, on a timely basis, if at all, that once developed, any strip test will be approved or cleared for sale in the United States or other jurisdictions, or that once cleared or approved for sale any strip test will be commercially successful. Mini C-arm Imaging Products Background and Market Overview On August 29, 1996, Hologic's wholly-owned subsidiary merged with FluoroScan in a pooling-of-interests transaction. FluoroScan manufactures and distributes the FluoroScan Imaging System, a low intensity, real-time mini c-arm X-ray imaging device which provides high resolution images at radiation levels and at a cost well below those of conventional X-ray and fluoroscopic equipment. These mini c-arm systems are used primarily by orthopedic surgeons to perform minimally invasive surgical procedures on a patient's extremities (i.e., hand, wrist, knee, foot, ankle, etc.). The Company believes that certain trends in the healthcare industry will broaden the use of mini c-arms from the hospitals and surgery centers to private orthopedic and podiatric physician groups. Some of these trends include: the emergence of technology that enables minimally invasive procedures and therapies, the increase in the number of office-based procedures and examinations as a result of efforts to contain healthcare costs, and the development of new treatments and pharmaceuticals such as synthetic bone materials that are facilitated by the use of a mini c-arm to perform these procedures. FluoroScan Products FluoroScan pioneered the mini c-arm market with the introduction of FluoroScan I in June 1984. The basis of the FluoroScan System technology is a second generation micro channel plate image intensifier commonly referred to as a ''night vision'' intensifier. This technology permits the FluoroScan System to produce high resolution readily viewable images by using a small amount of radiation, converting it to visible light and amplifying it approximately 50,000 times. The same night vision intensifier, as used by the military, allows clear views of a battlefield at night by amplifying small amounts of ambient light. The FluoroScan System technology offers several advantages over existing real- time conventional X-ray imaging devices (also known as C-arms, image intensifiers or fluoroscopy equipment). These advantages include; a substantial reduction of radiation to the patient and of scatter radiation to the surgeon and other operating room personnel, a cost of approximately one-third of the cost of a conventional C-arm, mobility, it does not require lead-lined rooms and it can often be operated without a radiology technician. FluoroScan III. The FluoroScan III imaging system was introduced in the first quarter of 1996. The FluoroScan III typically has a four- or five-inch field-of-view and is targeted primarily at orthopedic surgeons, operating rooms, emergency rooms and ambulatory surgery centers. The new system replaced FluoroScan I (the first generation model FluoroScan System) and has a number of technical enhancements. FluoroScan III has dual video channels that allow a surgeon to display different views of the anatomy for side-by-side comparison. The unit also features four image buffer memories for instant recall of previous images. The unit also provides for permanent storage of up to 4,000 full resolution digital images. The unit stands approximately four feet high, weighs about 240 pounds and can be plugged into any standard outlet. It rests on a portable, wheeled base cabinet, and all vital functions are computer controlled. Images can be viewed on the monitor or, through the addition of options, printed on thermal paper or stored on video tape or computer diskette. FluoroScan II. The Company has introduced the FluoroScan II to veterinarians and has exhibited a prototype of the FluoroScan II to orthopedic surgeons for use in their offices and to other medical and veterinary offices, podiatrists and sports medicine physicians as well as for use by the military and various industries. The Company believes that the target audience for the three-inch field-of-view FluoroScan II consists of users seeking a lower cost or more mobile unit than the FluoroScan III. The Company manufactures two versions of the FluoroScan II for the veterinary and medical markets. The veterinary version differs from the medical version of the FluoroScan II in that it is contained in a portable 9 carrying case with a removable C-arm, which may be hand held. The Company began sales of the veterinary version of this item in the third quarter 1995. The Company expects to begin sales of the medical version of the FluoroScan II in the first half of 1997. Sales of this system to the medical community in the United States will be dependent on receiving FDA 510(k) marketing clearance. There can be no assurance that the Company will receive 510 (k) marketing clearance in a timely manner. FluoroScan Corporate Collaboration Certain companies are developing material to assist in the healing of bone fractures. For example, Norian Corporation (''Norian'') is in clinical trials in the U.S. and Europe for its Skeletal Repair System TM ("SRS"). SRS is a material that is injected into a fracture and has been shown to hold the bones in position while providing the raw materials to help the body repair itself more rapidly. Since SRS requires extensive imaging from the initial injection through the healing process, the Company believes that FDA approval and market acceptance of SRS could provide long-term benefits for the Company. On June 12, 1995, the Company announced that it had entered an agreement with Norian. The agreement provides for the Company to provide imaging equipment for seminars introducing Norian's Skeletal Repair System (''SRS'') to orthopedic surgeons. There can be no assurance that SRS will receive FDA approval, or if approved will gain wide market acceptance or enhance sales of the Company's FluoroScan System. Other Products; Scanora In order to take advantage of its European sales force and associated distribution capability, the Company distributes Scanora, a specialized system for taking X-ray images of the maxillo-facial anatomy (teeth, jaw and other facial structures) manufactured by Soredex, S.A. (''Soredex''), a division of Orion Corporation of Helsinki, Finland. The Scanora system supports more than 1,000 different image modes, including pre-surgical planning of dental implants, reconstructive surgery and temporal mandibular joint repair. This system provides significantly improved images of the maxillo-facial anatomy compared to other techniques available in the market, such as panoramic X-rays or computed tomography. Dental implant procedures have experienced significant growth in Europe over the past five years. The Company is the exclusive distributor of Scanora systems in Western Europe, the Middle East and Africa, excluding South Africa and Namibia. In addition, the Company has non-exclusive distribution rights in several Eastern European countries. The Company is distributing Scanora under a distribution agreement which is renewable annually. Customers The Company's DXA customers include many pharmaceutical companies active in the field of bone mineral metabolism, such as Eli Lilly, Merck, Pfizer, Proctor & Gamble, Rhone-Poulenc/Rorer, Sanofi Research and SmithKline. The Company believes that because of their technological features, its DXA systems have been and continue to be the most widely used bone densitometers for clinical studies involving the emerging drug therapies for osteoporosis. The Company has a group of 10 employees who provide data collection and quality assurance services to such customers. Initial clinical evaluation sites for the Company's DXA systems included leading medical and research institutions, such as the Mayo Clinic, the Massachusetts General Hospital and the University of California at San Francisco in the United States; the University of Lyon and Guy's Hospital in Europe; and Kobe University in Japan. These institutions, along with many other leading medical institutions, continue to be users of the Company's DXA systems. The clinical demand for the Company's DXA bone densitometers is growing as a result of the increased worldwide focus on women's health problems and the availability of new osteoporosis therapies entering the market. More than 75% of the Company's new sales of DXA systems have shifted to the clinical segment of the market which includes radiologists, endocrinologists and rheumatologists. The Company expects a further shift in the market for bone densitometers to primary care physicians, including gynecologists and family physicians, in response to the development of new drug therapies for osteoporosis and the growing awareness of osteoporosis as a treatable disease. 10 In fiscal 1996 and 1995, the Company's sales to its Japanese distributor, Toyo Medic, accounted for approximately 13% and 20% of product sales, respectively. The loss of Toyo Medic as a customer of the Company or an adverse change in the relationship between the Company and Toyo Medic could have a material adverse affect on the Company's business. Marketing and Sales In the United States, the Company sells its DXA systems primarily through its direct sales force and its FluoroScan Systems through a national network of independent sales representatives and sales representative organizations. As of November 30, 1996, the Company had approximately 18 employees engaged in DXA sales in the United States. In order to penetrate the DXA market more effectively, the Company has expanded its direct marketing activities, including additions to its sales force, and has implemented various leasing programs, including a program with a third party leasing company to make its QDR 1000plus and QDR 4500C ACCLAIM system available to physicians on a fee-per-scan basis. To meet the growing demand for its products, the Company plans to enhance further its distribution capabilities in the United States through a combination of an expansion of its sales force and strategic alliances with companies with established distribution channels in the various market segments for the Company's products. In the first quarter of fiscal 1996, the Company entered into a distribution agreement with Leisegang Medical Systems. Under this agreement Leisegang has the exclusive right (subject to attaining certain quotas) to represent certain Company products to OB/GYN and primary care physicians in the United States. The Company sells its products in international markets through independent distributors, as well as a direct sales force in France, the Benelux countries, Spain and Portugal. As of November 30, 1996, the Company had eight employees engaged in sales in Europe. The Company distributes its DXA and ultrasound products in Japan through Toyo Medic, which has been the Company's exclusive distributor in Japan since April 1988. The agreement requires Toyo Medic to purchase certain minimum quantities and to provide technical and warranty support to its customers. In certain other territories outside the United States, the Company sells its systems through independent distributors, all of whom offer technical support. The Company has increased its efforts to expand its market penetration for its DXA systems into Latin America, including Argentina, Brazil and Chile, and into Pacific Rim countries other than Japan, including Australia, The Peoples Republic of China, South Korea and Taiwan, by working with local sales representatives and distributors or entering into strategic marketing alliances in those territories. The Company believes that with time, Eastern Europe may present a significant opportunity for growth and also is seeking to expand its presence in the area. In fiscal 1996 and in fiscal 1995, foreign sales accounted for approximately 40% and 58% of the Company's product sales, respectively. The Company believes that the relatively high level of foreign sales reflects, in part, a more advanced regulatory status for drug therapies for osteoporosis in certain foreign countries than in the United States. The Company's foreign sales are subject to risks generally associated with foreign sales, including United States and foreign regulatory approval requirements and policy changes. The relative strength of the United States dollar in relation to foreign currencies may also adversely affect the Company's sales to foreign countries. The Company also believes that its sales to Europe may be seasonal, with reduced orders in the summer months reflecting summer vacation schedules. International sales will also be affected by government approval of new drug therapies, changes in local healthcare policies regarding reimbursement and the strength of promotional efforts by its distributors. Moreover, the FluoroScan System technology is governed by the International Traffic in Arms Regulations of the United States Department of State. As a result, the export of FluoroScan Systems to certain countries may be limited or prohibited. Competition The bone assessment market is highly competitive and characterized by continual change and improvement in technology, and multiple technologies that have been or are under development. Some of the companies in this industry have significantly greater manufacturing, marketing and financial resources than the Company. See ''Background.'' 11 The Company believes that competition in the field of DXA bone densitometry is based upon price, precision, speed of measurement, patient radiation dose, cost and ease of operation, product versatility, product reliability and quality of service. The Company believes that it competes effectively with respect to these criteria. The Company believes that its DXA systems will also compete with other X-ray based modalities, including a radiographic absorptiometry product developed by CompuMed Inc. which has been licensed to Merck. The Company's DXA systems also compete with specially-equipped CT scanners and may compete with used and refurbished DXA systems. See ''Background'' for a discussion of the technical advantages and disadvantages of these other systems. The Company believes that competition in the field of ultrasound systems is based on price, precision, speed of measurement, cost and ease of operation, product versatility, product reliability and quality of service. The Company believes that advantages of its Sahara ultrasound bone analyzer system include the system's dry operation, simple single-button operation, and a compact and self-contained design that does not require the use of a separate computer. No ultrasound bone analyzer has been approved for commercial sale in the United States. The timing of FDA clearance or approval for ultrasound bone analyzers in the United States, developed by the Company and others, could have a significant impact on their respective market shares. The Company believes that ultrasound systems will compete with DXA systems in the diagnostic market for initial screening of patients. However, the Company believes that because ultrasound systems can only measure peripheral skeletal sites and do not have the precision of DXA systems, DXA systems will continue to be the predominant means of monitoring bone density for patients being treated for or at high risk of osteoporosis. Three companies have obtained FDA clearance to market biochemical marker tests that evaluate bone turnover in a microtitre format which require samples to be sent to the lab for evaluation. One or more of these companies may develop point-of-care, over-the-counter or other real-time biochemical marker tests that would compete with the biochemical marker strip tests being developed by the Company and Serex. The Company believes that competition in this market will be based upon price, product reliability, diagnostic sensitivity, precision and ease of use. There can be no assurance that the Company and Serex will be able to compete effectively in this market. The Company believes that competition for its mini c-arm systems is based largely on price, quality, service and production capabilities. The Company believes that key advantages of its FluoroScan Systems include low levels of radiation, low costs, mobility, quality and durability. Manufacturing The Company's manufacturing operations for its DXA and ultrasound systems consist primarily of assembly, test, burn-in and quality control. The Company purchases a major portion of the parts and peripheral components for its products, and manufactures certain subsystems, such as the high-voltage X-ray power supply, from raw materials. Parts and materials are readily available from several supply sources. The Company is required to purchase all of its requirements for Scanora from Soredex. Failure of Soredex to manufacture those systems on time and in accordance with specifications would have an adverse impact on the Company's sales of those systems. The Company manufactures all the FluoroScan System models and related products at its manufacturing facility in Northbrook, Illinois. Current manufacturing capacity permits the production of approximately 30 units per month. Generally, units for use in the health care field are manufactured without a prior order, while units for use in industrial applications are custom made to the customer's specifications. The Company performs final assembly and test of the FluoroScan System. All of the materials and most of the purchased components used in manufacturing the Company's products are readily available from numerous sources. Several key components require high technology including the X-ray tube, image intensifier, video camera and fiberoptic taper and are manufactured by only one or a small number of suppliers. 12 Although the Company uses materials in its manufacturing process that may be subject to federal, state and/or local environmental laws, the costs and effects of compliance with these laws have not had a material effect on the Company's financial condition or results of operations during any of the past three years. Backlog Backlog for the Company's systems as of November 30, 1996 and November 30, 1995 totaled approximately $9.5 million and $5.9 million, respectively. Backlog consists of purchase orders for which a delivery schedule within the next twelve months has been specified by the customer. Orders included in backlog may be canceled or rescheduled by customers without significant penalty. Backlog as of any particular date should not be relied upon as indicative of the Company's net revenues for any future period. Research and Development The Company's research and development efforts are focused on enhancing its existing products and developing new products for the bone assessment and mini C-arm market. The Company's research and development personnel also are involved in establishing protocols, monitoring, interpreting and submitting test data to the FDA and other regulatory agencies to obtain the requisite clearances and approvals for its products. At November 30, 1996, the Company had 44 persons engaged in research and development, of whom 10 persons were engaged in software development. The research and development group was responsible for the introduction of the Company's fourth generation QDR ACCLAIM series of DXA bone densitometers during 1995, the ongoing development of the Company's Sahara bone analyzer and the ongoing development of FluoroScan III. During fiscal 1996, 1995 and 1994, the Company's research and product development expenses were approximately, $7.3 million, $4.5 million and $3.8 million, respectively. Patents and Proprietary Rights The Company relies upon trade secrets and patents to protect its technology. Due to the rapid technological change that characterizes the medical instrumentation industry, the Company believes that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. Nevertheless, the Company has obtained patents and will continue to make efforts to obtain patents, when available, in connection with its product development program. The Company has obtained 12 patents, licensed five patents and has pending 18 patent applications in the United States relating to its DXA technology, and has obtained three patents, licensed four patents and has pending two patent applications in the United States relating to its ultrasound technology. The Company has obtained or applied for corresponding patents and patent applications for certain of these patents and patent applications in certain foreign countries. There can be no assurance that any of the Company's patent applications will be granted or that any patent or patent application will provide significant protection for the Company's products and technology. Moreover, there can be no assurance that foreign intellectual property laws will protect the Company's intellectual property rights. In the absence of significant patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products, processes or technology. In September 1994, Serex granted the Company an exclusive license to use Serex's technology to manufacture, market, sell and distribute the biochemical marker strip test being developed under a joint development agreement between Serex and the Company. Serex further granted the Company the right of first negotiation with respect to the development and distribution of new products conceived of by Serex for application in bone metabolism. In order to maintain its exclusive rights once the product is developed, the Company is required to purchase a certain minimum number of tests or pay Serex amounts that would have been paid had the Company purchased the minimum number of tests. If the Company does not meet these minimum requirements, its rights become nonexclusive. In June 1989, the Company granted an exclusive worldwide license of certain of its DXA technology to Vivid Technologies, Inc., an affiliate of S. David Ellenbogen and Jay A. Stein, the Chief Executive Officer and Senior Vice President of the Company, for the sole purpose of developing a baggage inspection and security system. In September 13 1996, the Company also granted Vivid Technologies, Inc. a nonexclusive license to be used for the development of X-ray based products for process control applications in the food and beverage industry. Until recently, the Company had been involved in extensive patent litigation with Lunar, with each party claiming that the other was infringing certain patents held by the other. This litigation was settled by agreement dated November 22, 1995. The agreement provides for certain royalties to be paid by each party to the other for future sales of products using certain defined technologies. The Company does not believe that amounts to be paid by either party under this arrangement will be material. The agreement also provides that neither party will engage the other party in patent litigation for a period of ten years following the date of the agreement, regardless of the infringement claimed and regardless of whether the technology in question currently exists or is developed or acquired by the other party in the future. Neither party is required to disclose to the other any of its technology during this ten year period or otherwise. However, there can be no assurance that Lunar will not use the Company's technology in a manner that would materially and adversely affect the Company's business and results of operations. The Company has two license agreements for technology used in its mini c-arms with the United States government as represented by NASA that are exclusive within the United States. The first agreement gives the Company exclusive rights to manufacture and distribute a nonradioactive isotope version of NASA's low intensity X-ray and gamma ray imaging device. This technology provides the ability to amplify X-rays that have been converted to visible light. This license agreement and underlying patent previously had an expiration date of February 1996 but was extended as a result of GATT and now expires in July 1997. The second agreement gives the Company exclusive rights to manufacture and distribute NASA's high voltage isolation transformer and high voltage power supply. This technology allows the Company products to produce low levels of radiation. This second license and underlying patent previously had an expiration date of 2002 but was extended as a result of GATT and now expires 2003. Pursuant to the licenses, the Company may be required to grant sublicenses to the extent that NASA believes such sublicenses are necessary for the health and safety needs of the United States and such needs cannot be fulfilled by the Company. In 1992, the Company and the U.S. Department of Justice representing NASA brought suit against Dow Corning Wright and Xi Tec for alleged infringement of the NASA low intensity X-ray and gamma ray imaging device patent. In 1993, the parties agreed to settle the litigation. As part of the settlement, the Company granted Xi Tec a nonexclusive, nonassignable and nontransferable sublicense under the NASA license covering the X-ray and gamma ray imaging device patent which patent previously had an expiration date of February 26, 1996 and was extended as a result of GATT to July 1997. Third Party Reimbursement In the United States, the Health Care Finance Administration, which establishes guidelines for the reimbursement of healthcare providers treating Medicare and Medicaid patients, provided validation for DXA bone densitometry examinations as a clinically useful procedure by recommending the reimbursement for DXA bone examinations in April 1994, and recently clarifying its guidelines by recommending reimbursement for hip and spine examinations, the important fracture sites, of approximately $121 per patient examination. Reimbursement for densitometry done at peripheral sites declined to approximately $37. This differential in reimbursement recognizes the important benefit of DXA measurements of the critical fracture sites, the hip and spine, in assisting in the detection and monitoring of bone disease. In part, as a result of the reimbursement policy recommendations implemented by HCFA, bone density examinations are paid for by many private third party insurers in the United States. In several European countries, Japan and other international markets, there has generally been an earlier adoption of reimbursement for bone densitometry exams. Countries in which reimbursement for the use of X-ray bone densitometers has been approved include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and Switzerland. In addition, in Japan, where there is a general aversion to ionizing devices, the government has initiated a program to subsidize purchases of ultrasound bone densitometers. As a result, there is much greater use of ultrasound bone densitometers in Japan than in any other country. However, DXA bone densitometers continue to account for a substantial portion of the Japanese market. 14 Regulation The medical devices manufactured and marketed by the Company are subject to regulation by the FDA and, in many instances, by foreign governments. Under the Federal Food, Drug and Cosmetic Act (the "FDA Act"), manufacturers of medical devices must comply with certain regulations governing the testing, manufacturing, packaging and marketing of medical devices. The Company's products are also subject to the Radiation Control for Health and Safety Act, administered by the FDA, which imposes performance standards and record keeping, reporting, product testing and product labeling requirements for devices using radiation, such as X-rays. The FDA generally must approve the commercial sale of new medical devices. Commercial sales of the Company's medical devices within the United States must be preceded by either a premarket notification filing pursuant to Section 510(k) of the FDA Act or the granting of a premarket approval. The 510(k) notification filing must contain information that establishes that the device is substantially equivalent to an existing device that has been continuously marketed since May 28, 1976. The Company received FDA market clearance under 510(k) for its DXA bone densitometers and expects to be eligible to seek 510(k) clearance for its biochemical marker strip test for use by physicians, once developed. The premarket approval procedure involves a more complex and lengthy testing and review process by the FDA than the 510(k) premarket notification procedure and often requires at least several years to obtain. The Company must first obtain an investigational device exemption ("IDE") for the product to conduct extensive clinical testing of the device to obtain the necessary clinical data for submission to the FDA. The FDA will thereafter only grant premarket approval if, after evaluating this clinical data, it finds that the safety and efficacy of the product has been sufficiently demonstrated. This approval may restrict the number of devices distributed or require additional patient follow-up for an indefinite period of time. The Company believes that the approval to market its ultrasound products and its over-the-counter biochemical market strip test, once developed, in the United States may be subject to this more stringent FDA review process. The Company's systems are also subject to approval by certain foreign regulatory and safety agencies. The FluoroScan System technology is governed by the International Traffic in Arms Regulations of the United States Department of State. As a result, the export of FluoroScan Systems to certain countries may be limited or prohibited. No assurance can be given that the FDA or foreign regulatory agencies will give the requisite approvals or clearances for any of the Company's medical devices under development on a timely basis, if at all. Moreover, after clearance is given, these agencies can later withdraw the clearance or require the Company to change the device or its manufacturing process or labeling, to supply additional proof of its safety and effectiveness, or to recall, repair, replace or refund the cost of the medical device, if it is shown to be hazardous or defective. The process of obtaining clearance to market products is costly and time-consuming and can delay the marketing and sale of the Company's products. As a manufacturer of medical devices, the Company is subject to certain other FDA regulations and the Company's manufacturing processes and facilities are subject to continuing review by the FDA. Most states and certain other foreign countries monitor and require licensing of X-ray devices. Federal, state and foreign regulations regarding the manufacture and sale of medical devices are subject to future change. The Company cannot predict what impact, if any, such changes might have on its business. Employees As of November 30, 1996, the Company had 294 full-time employees, including 85 in manufacturing operations, 44 in research and development, 117 in marketing, sales and support services, 38 in finance and administration and 10 in medical data management. None of the Company's employees are represented by a union. The Company considers its employee relations to be good. 15 Item 2. Properties The Company leases a 83,500 square foot building located in Waltham, Massachusetts under a lease which expires in 2002 for its corporate headquarters and manufacturing facility for its bone assessment products. The Company also utilizes approximately 13,500 square feet of space in Northbrook, Illinois pursuant to a lease that expires in February 1997 for operations of its wholly- owned subsidiary, FluoroScan. The Company believes that its facilities will be adequate for its needs for the foreseeable future. The Company also maintains sales and service offices in France, Belgium and Spain. The Company believes that it has adequate space for its anticipated needs and that suitable additional space will be available at commercially reasonable prices as needed. Item 3. Legal Proceedings On November 22, 1995, the Company and Lunar entered into a settlement agreement relating to litigation involving allegations of each party against the other of patent infringement. See "Patents and Proprietary Rights." Until recently, the Company had been involved in litigation brought in January 1995 by B.V. Optische Industrie de Oude Delft and two subsidiaries ("Oldelft") claiming damages relating to a prior patent dispute. On December 14, 1995, the United States District Court for the Southern District of New York granted the Company's Motion to Dismiss and dismissed all claims against the Company. In January 1996, Oldelft filed a motion for reconsideration of the dismissal and amended its complaint. In April 1996, the Court denied Oldelft its motion for reconsideration of the dismissal, and in May 1996 the Company and Oldelft settled this matter. Item 4. Submission of Matter to a Vote of Security Holders. None. 16 Part II Item 5. Market Information, Holders and Dividends. Market Information. The Company's Common Stock is traded on the Nasdaq National Market under the symbol "HOLX." The following table sets forth, for the periods indicated, the high and low sales prices per share of Common Stock, as reported by the Nasdaq National Market. All stock prices have been retroactively restated to reflect a 2-for-1 stock split that occurred on March 25, 1996.
Fiscal Year Ended September 30, 1995 High Low First Quarter $ 9 1/16/ $ 6 1/8/ Second Quarter $ 9 3/8/ $ 6 5/8/ Third Quarter $ 8 11/16/ $ 4 1/2/ Fourth Quarter $ 12 9/16/ $ 7 11/16/ - ------------------------------------------------------------------------------ Fiscal Year Ended September 28, 1996 First Quarter $ 22 3/4/ $ 10 3/8/ Second Quarter $ 26 3/4/ $ 17 1/4/ Third Quarter $ 49 1/2/ $ 21 Fourth Quarter $ 45 $ 26 - ------------------------------------------------------------------------------
Number of Holders. As of December 16, 1996, there were approximately 343 holders of record of the Company's Common Stock. Dividend Policy. The Company has never declared or paid cash dividends on its capital stock and does not plan to pay any cash dividends in the foreseeable future. The Company's current policy is to retain all of its earnings to finance future growth. 17 Item 6. Selected Financial Data. The historical selected financial data of the Company has been retroactively restated to reflect the acquisition of FluoroScan in a pooling-of-interests transaction. See Note 3 of the accompanying Notes to the Consolidated Financial Statements.
Fiscal Years Ended September 30, September 25, September 24, September 30, September 28, 1992 1993 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------------------ Consolidated Statement of Operations Data (In thousands, except per share data) Revenues: Product sales $32,180 $31,068 $46,227 $54,276 $ 88,201 Other revenue 73 708 1,427 2,270 3,390 ------- ------- ------- ------- -------- 32,253 31,776 47,654 56,546 91,591 ------- ------- ------- ------- -------- Costs and Expenses: Cost of product sales 16,146 16,462 24,522 27,549 41,253 Research and development 3,786 3,400 3,668 4,499 7,283 Selling and marketing 6,209 7,328 7,781 11,052 16,504 General and administrative 4,410 5,066 5,795 6,879 9,081 Restructuring costs (2) --- 900 --- --- --- Litigation expenses (3) --- --- --- 2,533 798 Acquisition expenses --- --- --- --- 1,949 ------- ------- ------- ------- -------- 30,551 33,156 41,766 52,512 76,868 ------- ------- ------- ------- -------- Income (loss) from operations 1,702 (1,380) 5,888 4,034 14,723 Interest income 505 314 437 883 2,583 Other income (expense) 223 (36) 70 (56) (249) ------- ------- ------- ------- -------- Income (loss) before income taxes 2,430 (1,102) 6,395 4,861 17,057 Provision (benefit) for income taxes 533 (785) 1,627 1,513 5,700 ------- ------- ------- ------- -------- Net income (loss) $ 1,897 $ (317) $ 4,768 $ 3,348 $ 11,357 ======= ======= ======= ======= ======== Net income (loss) per common and common equivalent share: Primary (1) $.21 $(.04) $.51 $.34 $.91 ======= ======= ======= ======= ======== Fully diluted $.49 $.33 ======= ======= Weighted average number of common and common equivalent shares outstanding: Primary 8,967 8,726 9,355 9,831 12,524 ======= ======= ======= ======= ======== Fully diluted 9,649 10,230 ======= ======= - --------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheet Data Working capital $16,420 $15,336 $23,967 $27,189 $ 97,199 Total liabilities 6,149 7,681 9,426 12,551 15,835 Total assets 24,452 25,652 36,670 44,083 123,107 Stockholders' equity 18,303 17,971 27,244 31,532 107,272 - ---------------------------------------------------------------------------------------------------------------------
(1) All share and per share data has been restated to reflect the 2-for-1 stock split that occurred on March 25, 1996. (2) The fiscal 1993 restructuring charge of $900,000, or $.10 per share, relates to the reorganization of the Company's European operations. (3) The fiscal 1995 litigation expenses of $2.5 million before income taxes ($1.8 million after tax, or $.18 per share) relate primarily to certain patent litigation. A definitive agreement was reached by the Company and the other party to this litigation in November 1995, settling all outstanding disputes. See "Patents and Proprietary Rights" 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the "Selected Consolidated Financial Data" and the Consolidated Financial Statements included elsewhere in this Report. This Report contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The Company's actual results could differ materially from those anticipated in the forward-looking statements. Overview Since inception, the Company has experienced generally increasing annual sales as interest in bone diseases, such as osteoporosis, has grown, as new drug therapies have become available in the United States and other countries to treat these diseases and as the use of DXA systems to measure bone density has become more widespread. In fiscal 1996, sales of the Company's X-Ray bone densitometers reached record levels, especially in the United States, as Merck began marketing Fosamax, its recently approved drug for the treatment of osteoporosis. The Company introduced the first DXA bone densitometer in 1987 and continued with a string of new product advancements including the introduction of the fourth- generation clinically-oriented ACCLAIM series of bone densitometers in fiscal 1995. In fiscal 1996, ACCLAIM sales represented approximately 86% of the Company's total DXA sales. The Company achieved a slightly higher gross margin on this product line because of higher selling prices and lower overall manufacturing costs than the older DXA line. In July 1996, the Company began international shipments of Sahara, a completely dry ultrasound system that does not require water as a coupling medium like the other competitive devices. On August 29, 1996, the Company acquired all of the common stock of FluoroScan, an industry leader in the field of mini c-arm imaging systems. All results have been restated to reflect the acquisition of FluoroScan in a pooling-of-interests transaction. All share and per share data has been retroactively restated to reflect a 2-for-1 stock split that occurred on March 25, 1996. On a combined basis, the Company recognized total revenues of $91.6 million, a 62% increase when compared to revenues of $56.5 million for fiscal 1995. Net income for fiscal 1996 would have been approximately $12 million, or $1.03 per share, as compared to $10.9 million, or $.96 per share, for Hologic, absent the one time charges incurred in the fourth quarter relating to the merger with FluoroScan. 19 Results of Operations The following table sets forth, for the periods indicated, the percentage of revenues represented by items as shown in the Company's consolidated statements of operations.
Fiscal Years Ended --------------------------------------------- September 24, September 30, September 28, 1994 1995 1996 ------ ------ ------ Revenues: Product sales 97.0% 96.0% 96.3% Other revenue 3.0 4.0 3.7 ------ ------ ------ 100.0 100.0 100.0 ------ ------ ------ Cost and expenses: Cost of product sales 51.5 48.7 45.0 Research and development 7.7 8.0 8.0 Selling and marketing 16.3 19.5 18.0 General and administrative 12.2 12.2 9.9 Litigation expenses -- 4.5 .9 Acquisition expenses -- -- 2.1 ------ ------ ------ 87.7 92.9 83.9 ------ ------ ------ Income from operations 12.3 7.1 16.1 Interest income 0.3 1.6 2.8 Other income (expense) 0.8 (0.1) (0.3) ------ ------ ------ Income before income taxes 13.4 8.6 18.6 Provision for income taxes 3.4 2.7 6.2 ------ ------ ------ Net income 10.0% 5.9% 12.4% ====== ====== ======
Fiscal Years Ended September 28, 1996, September 30, 1995 and September 24, 1994 Revenues. Total revenues were $91.6 million in fiscal 1996, $56.5 million in fiscal 1995 and $47.7 million in fiscal 1994. Total revenues in fiscal 1996 increased 62% when compared to fiscal 1995 as a result of the acceleration in demand for the Company's x-ray bone densitometers in both the domestic and international markets, but especially in the United States where DXA sales increased more than 300% in fiscal 1996 over fiscal 1995. The increase in total revenues of 19% in fiscal 1995 compared to fiscal 1994 was primarily due to the increase in the total number of DXA product shipments in both the Company's domestic and international markets, particularly to Europe where product sales increased 30% over the prior year. In addition, to a lesser extent, the increases in annual revenues were attributable to increased sales of mini c-arm imaging systems. There was also a shift in product sales mix in 1996 and 1995 to the Company's new line of bone densitometers, the ACCLAIM series, which the Company began shipping in January 1995. The new ACCLAIM products have higher average selling prices than the comparable DXA bone densitometers which they replace. The ACCLAIM product line accounted for over 78% and 42% of product sales in fiscal 1996 and 1995, respectively. Other revenues consist primarily of royalty revenues from the Company's licensing of its technology to a related party and revenue relating to medical data management services provided to pharmaceutical companies to assist in the collection and monitoring of clinical trial data. In fiscal 1996, other revenue increased 49% to $3.4 million from $2.3 million in fiscal 1995, and in fiscal 1995, other revenue increased 59% from $1.4 million in fiscal 1994. These increases were primarily due to an increase in revenue relating to medical data management services. 20 In fiscal 1996, approximately 60% of product sales were generated in the United States, 17% in Asia, 17% in Europe and 6% in other international markets. In fiscal 1995, approximately 42% of product sales were generated in the United States, 28% in Europe, 22% in Asia and 8% in other international markets. In fiscal 1994, approximately 40% of product sales were generated in the United States, 30% in Asia, 25% in Europe and 5% in other international markets. Costs and Expenses. The cost of product sales decreased as a percentage of product sales to 47% in fiscal 1996 from 51% in fiscal 1995 and from 53% in fiscal 1994. In fiscal 1996, these costs decreased as a percentage of product sales primarily due to (i) increased shipments of a new family of DXA bone densitometers, the ACCLAIM series, which earns a better gross margin than the Company's older DXA systems, (ii) a volume increase in the number of DXA systems sold resulting in certain manufacturing efficiencies and (iii) an increase in sales by the Company's direct sales force (primarily in the United States) which results in higher average selling prices. Partially offsetting these decreases were increased costs primarily relating to mini c-arm systems. In fiscal 1996, the Company realized lower margins on the newly introduced FluoroScan III model, which is slightly more expensive to produce than the FluoroScan I model which it replaced, and due to an increase in international sales through distributors which result in lower selling prices. In fiscal 1995, the cost of product sales decreased as a percentage of product sales when compared to 1994 primarily due to initiating shipments of the ACCLAIM series and a volume increase in the number of DXA systems sold, resulting in certain manufacturing efficiencies. The Company began selling the ACCLAIM product in the second quarter of fiscal 1995 and has recognized higher gross margins than on the older DXA product lines due to higher average selling prices and lower labor and overhead-related manufacturing costs. Research and development expenses increased 62% to $7.3 million (8% of total revenues) in fiscal 1996 from $4.5 million (8% of total revenues) in fiscal 1995 and $3.7 million (8% of total revenues) in fiscal 1994. These increases were primarily due to the addition of engineering personnel, outside consultants working on the development of new products and the funding of Serex to develop a biochemical marker strip test. Selling and marketing expenses increased 49% to $16.5 million (19% of product sales) in fiscal 1996 from $11.1 million (20% of product sales) in fiscal 1995 primarily due to an increase in sales personnel and related expenses, marketing and promotional costs incurred in connection with the ACCLAIM series and increased sales commissions based on the higher sales volume. In addition, the Company incurred additional costs in connection with its strategic alliances for the development of new products and the distribution of products through new sales channels. The 42% increase in fiscal 1995 expenses from the $7.8 million (17% of product sales) in fiscal 1994 was primarily due to an increase in sales personnel and related expenses, marketing and promotional costs incurred in connection with the introduction of new products and increased sales commissions based on higher sales volume. General and administrative expenses increased to $9.1 million (10% of total revenues) in fiscal 1996 from $6.9 million (12% of total revenues) in fiscal 1995 and $5.8 million (12% of total revenues) in fiscal 1994. The increase of 32% in fiscal 1996 when compared to fiscal 1995 was primarily due to increased headcount and other compensation-related expenditures, and an increase in accounts receivable reserves, as a result of the increase in accounts receivable. The increase in fiscal 1995 when compared to fiscal 1994 was primarily due to increased headcount and other compensation-related expenditures. Litigation expenses incurred in fiscal 1996 and in fiscal 1995 were in connection with the Company's disputes with Lunar Corporation (Lunar) and B.V. Optische Industrie de Oude Delft ("Oldelft"). Legal expenses in connection with the patent litigation with Lunar began in October 1994 and represent a substantial portion of the total litigation expenses. In November 1995, a definitive agreement that provides for the cross-licensing of certain patent rights and a non-assertion agreement for all patents involving DXA and ultrasound technologies for a period of ten years was reached by the Company and Lunar. The complaint brought by Oldelft against the Company was settled in May 1996. 21 Acquisition expenses incurred in fiscal 1996 were direct transaction costs related to the Company's merger with FluoroScan Imaging Systems, Inc. These costs were expensed in the period incurred in accordance with the pooling-of- interests accounting for business combinations. Interest Income. Interest income increased to $2.6 million in fiscal 1996 from $900,000 in fiscal 1995 as the Company earned a higher rate of return on a higher investment base than in the prior year. In January 1996, the Company received proceeds of approximately $49.2 million from a public sale of Common Stock which increased the investment base. The Company also received approximately $8.0 million from the exercise of FluoroScan warrants in July 1996. The Company has invested these proceeds in investment grade corporate and government securities. In fiscal 1996, the Company also increased the number of long-term receivables to Latin American customers resulting in additional interest income. In fiscal 1995, the Company's interest income increased from $440,000 in fiscal 1994 as the Company earned a higher rate of return on a slightly higher investment base than in the prior year and the number of long- term receivables to Latin American customers also increased. In addition, the proceeds of FluoroScan's initial public offering in July 1994 were available for investment for all of fiscal 1995. Other Income/Expense. In fiscal 1996 and 1995, the Company incurred other expenses of $250,000 and $60,000, respectively. These expenses were primarily attributable to the interest costs on a line of credit established by the Company in the third quarter of fiscal 1994 for use by the Company's European subsidiaries to borrow funds in their local currencies to pay for all intercompany sales, thereby reducing the foreign currency exposure on those transactions. These interest costs were offset in part by royalty income earned by FluoroScan. In fiscal 1994, other income of $70,000 was attributable to royalty income earned by FluoroScan which was partially offset by the interest expense associated with the Company's foreign line of credit which was in place only part of the year. To the extent that foreign currency exchange rates fluctuate in the future, the Company may be exposed to continued financial risk. Although the Company has established a borrowing line denominated in the two foreign currencies (the French franc and the Belgian franc) in which the subsidiaries currently conduct business to minimize this risk, there can be no assurance that the Company will be successful or can fully hedge its outstanding exposure. Provision for Income Taxes. The Company's effective tax rate was 33.4% in fiscal 1996, 31.1% in fiscal 1995 and 25.4% in fiscal 1994. The Company's effective tax rate is lower than the statutory tax rates due primarily to the tax benefits associated with the Company's foreign sales corporation and the utilization of net operating losses in foreign jurisdictions and tax credits. The increase in the effective tax rate is primarily due to the significant increase in U.S. income. See Note 5 of the Consolidated Financial Statements. Liquidity and Capital Resources At September 28, 1996, working capital was $97.2 million and cash, cash equivalents and short-term investments totaled $75.7 million. The Company has funded its operations primarily through cash flows from operations and the issuance of securities. The cash, cash equivalents and short-term investments balance increased approximately $60.3 million from September 30, 1995 primarily due to the net proceeds of approximately $49.2 million from the public offering of common stock and $8.0 million from the exercise of certain FluoroScan common stock warrants. In addition, the cash, cash equivalents and short-term investments balance increased approximately $3.1 million primarily due to the proceeds and tax benefits from the exercise of stock options and an increase in the Company's accrued expenses, which were partially offset by an increase in accounts receivable. The increase in accrued expenses and accounts receivable reflects the Company's introduction of its new ACCLAIM family of bone densitometers and the increase in sales activity. At September 28, 1996, one customer had accounts receivable outstanding of approximately $2.2 million which were within their payment terms. The Company finances certain sales to Latin America over a two to three year time frame. At September 28, 1996, the Company had long-term accounts receivable outstanding of approximately $1.3 million relating to these sales, which were included in other assets. In fiscal 1996, the Company purchased approximately $2.4 million of 22 property and equipment, primarily computers and other equipment associated with the hiring of additional personnel. The Company does not currently have any significant capital commitments and believes that existing sources of liquidity, funds expected to be generated from operations and a $3.0 million credit line for use by its European subsidiaries, will provide adequate cash to fund the Company's anticipated working capital and other cash needs for the foreseeable future. Recent Accounting Pronouncements In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 123 "Accounting for Stock-Based Compensation," which becomes effective for fiscal years beginning after December 15, 1995. SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. However, entities are allowed to elect whether to measure compensation expense for stock-based compensation under SFAS 123 or Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees." The Company has elected to remain with the accounting under APB Opinion No. 25 and will make the required pro forma disclosures of net income and earnings per share as if the provisions of SFAS 123 had been applied in its fiscal 1997 financial statements. The potential impact of adopting this standard on the Company's pro forma disclosures of net income and earnings per share cannot be quantified at this time. Item 8. Financial Statements and Supplementary Data. Report of Independent Public Accountants To Hologic, Inc.: We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a Delaware corporation) and subsidiaries as of September 30, 1995 and September 28, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of FluoroScan Imaging Systems, Inc., a company acquired during 1996 in a transaction accounted for as a pooling of interests, as discussed in Note 3. Such statements are included in the consolidated financial statements of Hologic, Inc. and reflect total revenues of 19% in 1994 and total assets and total revenues of 23% in 1995, of the related consolidated totals. The statements for 1994 and 1995 were audited by other auditors whose reports thereon have been furnished to us. Our opinion expressed herein, insofar as it relates to amounts included for FluoroScan Imaging Systems, Inc., is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Hologic, Inc. and subsidiaries as of September 30, 1995 and September 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 28, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts November 6, 1996 23 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Hologic, Inc.: We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a Delaware corporation) and subsidiaries as of September 30, 1995 and September 28, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of FluoroScan Imaging Systems, Inc., a company acquired during 1996 in a transaction accounted for as a pooling of interests, as discussed in Note 3. Such statements are included in the consolidated financial statements of Hologic, Inc. and reflect total revenues of 19% in 1994 and total assets and total revenues of 23% in 1995, of the related consolidated totals. The statements for 1994 and 1995 were audited by other auditors whose reports thereon have been furnished to us. Our opinion expressed herein, insofar as it relates to amounts included for FluoroScan Imaging Systems, Inc., is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Hologic, Inc. and subsidiaries as of September 30, 1995 and September 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 28, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts November 6, 1996 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To The Board of Directors of FluoroScan Imaging Systems, Inc.: We have audited the accompanying consolidated balance sheet of FluoroScan Imaging Systems, Inc. and subsidiary as of December 31, 1995 and the related consolidated statements of income, stockholder's equity, cash flows for each of the two years in the period ended December 31, 1995 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express and opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FluoroScan Imaging Systems, Inc., and subsidiary at December 31, 1995, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. BDO Seidman, LLP Chicago, Illinois February 23, 1996 HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, September 28, ASSETS 1995 1996 CURRENT ASSETS: Cash and cash equivalents $ 12,886,413 $ 28,754,023 Short-term investments 2,492,671 46,907,728 Accounts receivable, less reserves of $850,000 and $1,360,000 in 1995 and 1996, respectively 13,544,746 21,735,613 Inventories 8,556,505 11,122,988 Prepaid expenses and other current assets 2,260,216 4,513,375 ----------------- ----------------- Total current assets 39,740,551 113,033,727 ----------------- ----------------- PROPERTY AND EQUIPMENT, AT COST: Equipment 3,326,465 4,813,647 Furniture and fixtures 1,129,061 1,349,659 Leasehold improvements 848,876 1,494,936 ----------------- ----------------- 5,304,402 7,658,242 Less--Accumulated depreciation and amortization 3,254,750 3,973,723 ----------------- ----------------- 2,049,652 3,684,519 ----------------- ----------------- OTHER ASSETS, NET 2,292,555 6,389,210 ----------------- ----------------- $ 44,082,758 $123,107,456 =============== =================
September 30, September 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996 CURRENT LIABILITIES: Line of credit $ 2,058,898 $ 2,534,740 Accounts payable 4,483,275 4,025,790 Accrued expenses 4,616,273 7,515,365 Deferred revenue 1,392,667 1,758,871 ----------------- ------------------ Total current liabilities 12,551,113 15,834,766 ----------------- ------------------ COMMITMENTS (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value- Authorized--1,622,685 shares Issued and outstanding--none - - Common stock, $.01 par value- Authorized--30,000,000 shares Issued and outstanding--9,323,077 shares and 12,871,274 shares in 1995 and 1996, respectively 93,231 128,713 Capital in excess of par value 24,467,440 89,253,570 Retained earnings 7,115,983 18,069,697 Cumulative translation adjustment (145,009) (179,290) ----------------- ------------------ Total stockholders' equity 31,531,645 107,272,690 ----------------- ------------------ $ 44,082,758 $123,107,456 ================ ==================
The accompanying notes are an integral part of these consolidated financial statements. HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, September 28, ASSETS 1995 1996 CURRENT ASSETS: Cash and cash equivalents $ 12,886,413 $ 28,754,023 Short-term investments 2,492,671 46,907,728 Accounts receivable, less reserves of $850,000 and $1,360,000 in 1995 and 1996, respectively 13,544,746 21,735,613 Inventories 8,556,505 11,122,988 Prepaid expenses and other current assets 2,260,216 4,513,375 ----------------- ----------------- Total current assets 39,740,551 113,033,727 ----------------- ----------------- PROPERTY AND EQUIPMENT, AT COST: Equipment 3,326,465 4,813,647 Furniture and fixtures 1,129,061 1,349,659 Leasehold improvements 848,876 1,494,936 ----------------- ----------------- 5,304,402 7,658,242 Less--Accumulated depreciation and amortization 3,254,750 3,973,723 ----------------- ----------------- 2,049,652 3,684,519 ----------------- ----------------- OTHER ASSETS, NET 2,292,555 6,389,210 ----------------- ----------------- $ 44,082,758 $123,107,456 =============== =================
September 30, September 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996 CURRENT LIABILITIES: Line of credit $ 2,058,898 $ 2,534,740 Accounts payable 4,483,275 4,025,790 Accrued expenses 4,616,273 7,515,365 Deferred revenue 1,392,667 1,758,871 ----------------- ------------------ Total current liabilities 12,551,113 15,834,766 ----------------- ------------------ COMMITMENTS (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value- Authorized--1,622,685 shares Issued and outstanding--none - Common stock, $.01 par value- Authorized--30,000,000 shares Issued and outstanding--9,323,077 shares and 12,871,274 shares in 1995 and 1996, respectively 93,231 128,713 Capital in excess of par value 24,467,440 89,253,570 Retained earnings 7,115,983 18,069,697 Cumulative translation adjustment (145,009) (179,290) ----------------- ------------------ Total stockholders' equity 31,531,645 107,272,690 ----------------- ------------------ $ 44,082,758 $123,107,456 ================ ==================
The accompanying notes are an integral part of these consolidated financial statements. HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
------------------------Years Ended------------------------ September 24, September 30, September 28, 1994 1995 1996 REVENUES: Product sales $ 46,226,614 $ 54,276,761 $ 88,200,646 Other revenue 1,427,634 2,270,068 3,389,979 ------------------ ------------------ ------------------ 47,654,248 56,546,829 91,590,625 ------------------ ------------------ ------------------ COSTS AND EXPENSES: Cost of product sales 24,521,726 27,548,992 41,252,990 Research and development 3,667,765 4,498,857 7,283,430 Selling and marketing 7,781,351 11,052,233 16,504,076 General and administrative 5,795,030 6,878,759 9,080,580 Litigation expenses - 2,533,493 797,819 Acquisition expenses - - 1,948,889 ------------------ ------------------ ------------------ 41,765,872 52,512,334 76,867,784 ------------------ ------------------ ------------------ Income from operations 5,888,376 4,034,495 14,722,841 INTEREST INCOME 436,881 883,245 2,583,404 OTHER INCOME (EXPENSE) 69,687 (56,484) (249,379) ------------------ ------------------ ------------------ Income before provision for income taxes 6,394,944 4,861,256 17,056,866 PROVISION FOR INCOME TAXES 1,627,000 1,513,000 5,700,000 ------------------ ------------------ ------------------ Net income $ 4,767,944 $ 3,348,256 $ 11,356,866 ================== ================== ================== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Primary $ .51 $ .34 $ .91 ======= ======= ======= Fully diluted $ .49 $ .33 ======= ======= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Primary 9,355,055 9,830,637 12,523,983 ============= ============= ============= Fully diluted 9,648,847 10,229,729 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Capital in Number $.01 Excess of of Shares Par Value Par Value BALANCE, SEPTEMBER 25, 1993 8,719,525 $ 87,195 $ 19,098,069 Issuance of common stock 222,210 2,222 3,997,755 Repurchase and retirement of common stock (9,321) (93) (97,407) Amortization of deferred compensation - - - Exercise of stock options 156,328 1,564 364,866 Tax benefit from stock options exercised - - 200,000 Net income - - - Translation adjustments - - - ------------- ------------- ---------------- BALANCE, SEPTEMBER 24, 1994 9,088,742 90,888 23,563,283 Exercise of common stock warrants 39,297 393 (393) Amortization of deferred compensation - - - Exercise of stock options 129,436 1,294 241,965 Issuance of common stock under employee stock purchase plan 9,560 96 59,057 Stock issuance in conjunction with collaboration agreement 56,042 560 323,528 Tax benefit from stock options exercised - - 280,000 Net income - - - Translation adjustments - - - ------------- ------------- ---------------- BALANCE, SEPTEMBER 30, 1995 9,323,077 93,231 24,467,440 Exercise of common stock warrants 357,037 3,570 8,040,811 Issuance of common stock, net of issuance costs of $390,774 2,492,000 24,920 49,168,876 Compensation expense related to issuance of stock options - - 109,780 Adjustment for FluoroScan Imaging Systems, Inc. pooling of interests from year-end change (Note 3) - - - Exercise of stock options 684,310 6,843 2,374,909 Issuance of common stock under employee stock purchase plan 14,850 149 161,754 Tax benefit from stock options exercised - - 4,930,000 Net income - - - Translation adjustments - - - ------------- ------------- ---------------- BALANCE, SEPTEMBER 28, 1996 12,871,274 $ 128,713 $ 89,253,570 ============= ============= ================
Retained Cumulative Total Earnings Deferred Translation Stockholders' (Deficit) Compensation Adjustment Equity BALANCE, SEPTEMBER 25, 1993 $ (1,000,217) $ (46,896) $ (167,579) $ 17,970,572 Issuance of common stock - - - 3,999,977 Repurchase and retirement of common stock - - - (97,500) Amortization of deferred compensation - 37,591 - 37,591 Exercise of stock options - - - 366,430 Tax benefit from stock options exercised - - - 200,000 Net income 4,767,944 - - 4,767,944 Translation adjustments - - (1,454) (1,454) ------------- ------------ ------------- -------------- BALANCE, SEPTEMBER 24, 1994 3,767,727 (9,305) (169,033) 27,243,560 Exercise of common stock warrants - - - - Amortization of deferred compensation - 9,305 - 9,305 Exercise of stock options - - - 243,259 Issuance of common stock under employee stock purchase plan - - - 59,153 Stock issuance in conjunction with collaboration agreement - - - 324,088 Tax benefit from stock options exercised - - - 280,000 Net income 3,348,256 - - 3,348,256 Translation adjustments - - 24,024 24,024 ---------------- -------------- ------------- ----------------- BALANCE, SEPTEMBER 30, 1995 7,115,983 - (145,009) 31,531,645 Exercise of common stock warrants - - - 8,044,381 Issuance of common stock, net of issuance costs of $390,774 - - - 49,193,796 Compensation expense related to issuance of stock options - - - 109,780 Adjustment for FluoroScan Imaging Systems, Inc. pooling of interests from year-end change (Note 3) (403,152) - - (403,152) Exercise of stock options - - - 2,381,752 Issuance of common stock under employee stock purchase plan - - - 161,903 Tax benefit from stock options exercised - - - 4,930,000 Net income 11,356,866 - - 11,356,866 Translation adjustments - - (34,281) (34,281) ---------------- -------------- ------------- ----------------- BALANCE, SEPTEMBER 28, 1996 $ 18,069,697 $ - $ (179,290) $ 107,272,690 ================ ============ ============= =================
The accompanying notes are an integral part of these consolidated financial statement. HOLOGIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------Years Ended------------------ September 24, September 30, September 28, 1994 1995 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,767,944 $ 3,348,256 $ 11,356,866 Adjustments to reconcile net income to net cash provided by (used in) operating activities- Depreciation and amortization 773,896 704,471 889,550 Adjustment for FluoroScan Imaging Systems, Inc. pooling of interests from year-end change (Note 3) - - (403,152) Compensation expense related to issuance of stock options - - 109,780 Changes in assets and liabilities- Accounts receivable (5,688,781) (1,413,830) (8,853,238) Inventories (992,714) (2,979,382) (2,666,599) Prepaid expenses and other current assets (333,513) (247,043) (2,268,108) Accounts payable (183,706) 2,094,602 (403,566) Accrued expenses (517,462) 771,440 2,936,322 Deferred revenue 27,344 505,765 384,142 ------------ ------------ ------------ Net cash provided by (used in) operating activities (2,146,992) 2,784,279 1,081,997 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of held-to-maturity investments - - (3,830,832) Purchases of available-for-sale investments (8,979,190) (4,367,946) (75,561,809) Sales of available-for-sale investments 8,899,850 5,394,790 31,146,752 Purchase of property and equipment, net (890,568) (1,042,792) (2,382,639) (Increase) decrease in other assets (267,857) (365,011) 71,161 ------------ ------------ ------------ Net cash used in investing activities (1,237,765) (380,959) (50,557,367) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (settlement) under line of credit 2,311,352 (536,200) 604,654 Payment of reorganization debt (214,892) - - Net proceeds from exercise of common stock warrants - - 8,044,381 Net proceeds from sale of common stock 4,366,407 302,412 51,737,451 Purchase and retirement of common stock (97,500) - - Tax benefit from stock options exercised 200,000 280,000 4,930,000 ------------ ------------ ------------ Net cash provided by financing activities 6,565,367 46,212 65,316,486 ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (94,627) (15,082) 26,494 ------------ ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 3,085,983 2,434,450 15,867,610 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,365,980 10,451,963 12,886,413 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,451,963 $ 12,886,413 $ 28,754,023 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for income taxes $ 1,287,440 $ 860,309 $ 2,959,167 ============ ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS: Preferred stock investment acquired in exchange for common stock $ - $ 324,088 $ - ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS Hologic, Inc. (the Company) is engaged in the development, manufacture and distribution of proprietary x-ray and other medical systems. On August 29, 1996, the Company completed a merger with FluoroScan Imaging Systems, Inc., a manufacturer of low-intensity, real-time x-ray imaging devices (see Note 3). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements. (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. (b) Fiscal Year The Company's fiscal year ends on the last Saturday in September. Fiscal 1994, 1995 and 1996 ended on September 24, 1994, September 30, 1995 and September 28, 1996, respectively. Operations for fiscal 1994 and 1996 include 52 weeks and 1995 includes 53 weeks. (c) Stock Split On March 25, 1996, the Company affected a two-for-one stock split. The stock split has been retroactively reflected in the accompanying consolidated financial statements and notes for all periods presented. (d) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Cash and Cash Equivalents and Investments The Company considers all highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents. Included in cash equivalents at September 30, 1995 and September 28, 1996 are approximately $4,217,000 and $8,735,000, respectively, of securities purchased under agreements to resell. The securities purchased under agreements to resell are collateralized by U.S. Government securities. Short-term investments have maturities of greater than three months and consist of securities issued by the U.S. Government and its agencies. Investments with maturities of greater than one year have been classified as long-term. As of September 28, 1996, the Company had long-term investments of approximately $3,831,000, with an average maturity period of 25 months, which are included in other assets in the accompanying consolidated balance sheets. The Company accounts for investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, investments that the Company has the positive intent and ability to hold to maturity are reported at amortized cost, which approximates fair market value, and are classified as held-to-maturity. The investments that the Company has deemed held-to- maturity include cash equivalents and securities issued by U.S. Government agencies, which total approximately $10,305,000 and $20,473,000 at September 30, 1995 and September 28, 1996, respectively. Investments purchased to be held for indefinite periods of time and not intended at the time of purchase to be held until maturity are classified as available-for-sale; the investments that the Company has deemed available for sale total approximately $1,803,000 and $54,396,000 at September 30, 1995 and September 28, 1996, respectively. These investments consist of securities issued by the U.S. Government and are carried at cost, which approximates fair market value. (f) Concentration of Credit Risk SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of trade accounts receivable. The Company utilizes distributors in certain countries with various credit terms, depending on the individual circumstances. One distributor had amounts due to the Company of approximately $2,231,000 and $2,633,000 as of September 30, 1995 and September 28, 1996, respectively. This distributor accounted for 22%, 15%, and 10% of product sales for fiscal 1994, 1995 and 1996, respectively. The Company has not experienced any material losses related to receivables from individual customers or groups of customers in the x-ray and medical devices industry. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (g) Disclosure of Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, short-term investments, accounts receivable, line of credit and accounts payable. The carrying amounts of the Company's cash and cash equivalents, short-term investments, accounts receivable, line of credit and accounts payable approximate fair value due to the short-term nature of these instruments. (h) Inventories Inventories are stated at the lower of cost (first-in, first- out) or market and consist of the following:
September 30, September 28, 1995 1996 Raw materials and work-in-process $ 5,669,780 $ 8,291,870 Finished goods 2,886,725 2,831,118 ----------- ----------- $ 8,556,505 $11,122,988 =========== ===========
Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. (i) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations, using the straight-line and declining-balance methods, which allocate the cost of property and equipment over the following estimated useful lives: Estimated Asset Classification Useful Life Equipment 5 Years Furniture and fixtures 5-7 Years Leasehold improvements Life of lease HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Long-Lived Assets The Company assesses the realizability of its long-lived assets, including intangible assets, in accordance with SFAS No. 121, Accounting for Impairment of Long-lived Assets and for Long-lived Assets To Be Disposed Of. (k) Foreign Currency Translation The Company translates the financial statements of its foreign subsidiaries in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at year-end, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. Gains and losses from foreign currency translation are credited or charged to cumulative translation adjustment, included in stockholders' equity in the accompanying consolidated balance sheets. Transaction gains in fiscal 1994, 1995 and 1996 were not significant. (l) Revenue Recognition The Company recognizes product revenue upon shipment. A provision is made at that time for estimated warranty costs to be incurred. Other revenues are recorded at the time the product is shipped or the service rendered. Maintenance revenues are recognized over the term of the contract. Cash received in excess of revenues recognized is included in deferred revenue in the accompanying consolidated balance sheets. (m) Research and Development and Software Development Costs Research and development costs, other than software development costs, have been charged to operations as incurred. SFAS No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, requires the capitalization of certain computer software development costs incurred after technological feasibility is established. The Company believes that once technological feasibility of a software product has been established, the additional development costs incurred to bring the product to a commercially acceptable level are not significant. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Net Income per Common and Common Equivalent Share Net income per share data are computed using the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from stock options and warrants have been included in the computation using the treasury stock method only when their effect would be dilutive. Fully diluted net income per share has been separately presented only when the difference from primary net income per share is significant. (o) Derivative Financial Instruments During fiscal 1996, the Company adopted SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments, which requires disclosures about derivative financial instruments. The adoption of this standard did not have an effect on its consolidated financial position or results of operations. At September 30, 1995 and September 28, 1996, the Company had no instruments requiring disclosure under SFAS No. 119. (3) ACQUISITION OF FLUOROSCAN IMAGING SYSTEMS, INC. On August 29, 1996, the Company acquired all the common stock of FluoroScan Imaging Systems, Inc. (FluoroScan) in exchange for 1,454,901 shares of the Company's common stock. Under the terms of the agreement, FluoroScan shareholders received .31069 of a share of the Company's common stock in exchange for each share of FluoroScan common stock. Additionally, all outstanding options and warrants to acquire FluoroScan common stock were converted to options and warrants to acquire 297,517 shares of the Company's common stock. FluoroScan is a manufacturer and distributor of low-intensity, real-time X-ray imaging devices. The merger qualifies as a tax-free reorganization and was accounted for as a pooling of interests. Accordingly, the Company's financial statements have been restated to include the results of FluoroScan for all periods presented. FluoroScan's fiscal year-end has been changed from December 31 to the last Saturday in September to conform to the Company's fiscal year-end. Fiscal 1994 represents the results of Hologic, Inc. (Hologic) and FluoroScan for the years ended September 24, 1994 and December 31, 1994, respectively. Fiscal 1995 represents the results of Hologic and FluoroScan as of and for the year ended September 30, 1995 and December 31, 1995, respectively. Fiscal 1996 represents the results of Hologic and FluoroScan as of and for the twelve months ended September 28, 1996. Based on the difference in fiscal year-ends, results of operations for the three months ended December 31, 1995 for FluoroScan have been included in the accompanying consolidated statements of income for both fiscal 1995 and 1996. For the three months ended December 31, 1995, FluoroScan recorded total revenues of $3,877,968 and net income of $403,152. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (3) ACQUISITION OF FLUOROSCAN IMAGING SYSTEMS, INC. (Continued) Accordingly, the retained earnings (deficit) and net income in the accompanying consolidated statement of stockholders' equity and cash flows, respectively, have been adjusted in fiscal 1996 to reflect the net income of FluoroScan for the three months ended December 31, 1995. Separate and combined results of Hologic and FluoroScan during the periods preceding the merger were as follows:
Hologic FluoroScan Combined Nine Months Ended June 29, 1996 (Unaudited)- Net revenues $ 56,349,729 $ 10,870,000 $ 67,219,729 Net income 8,271,037 972,557 9,243,594 Fiscal Year Ended September 30, 1995- Net revenues $ 43,399,850 $ 13,146,979 $ 56,546,829 Net income 1,869,519 1,478,737 3,348,256 Fiscal Year Ended September 24, 1994- Net revenues $ 38,483,743 $ 9,170,505 $ 47,654,248 Net income 2,995,177 1,772,767 4,767,944
(4) LINE OF CREDIT The Company maintains a line of credit with a bank for the equivalent of $3,000,000, which bears interest at the Paris Interbank Offered Rate (4.62% at September 28, 1996) plus 1.50%. The borrowings under this line are primarily used by the Company's European subsidiaries to settle intercompany sales and are denominated in the respective local currencies of its European subsidiaries. The line of credit may be canceled by the bank with a 30-day notice. The average outstanding balance during fiscal 1996 was approximately $2,177,000, and the weighted average interest rate for fiscal 1996 was 6.29%. Interest expense on this line of credit of approximately $79,000, $204,000 and $154,000 has been included in other expenses in the accompanying consolidated statements of income for 1994, 1995 and 1996, respectively. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) INCOME TAXES The Company provides for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. The provision for income taxes in the accompanying consolidated statements of income consists of the following:
--------------------------Years Ended------------------------- September 24, September 30, September 28, 1994 1995 1996 Federal- Current $ 2,236,800 $ 1,073,100 $ 5,942,000 Deferred (778,800) 198,900 (569,000) ----------------- ----------------- ------------------- 1,458,000 1,272,000 5,373,000 ----------------- ----------------- ------------------- State- Current 169,000 231,000 315,000 ----------------- ----------------- ------------------- Foreign- Current - 10,000 12,000 ----------------- ----------------- ------------------- $ 1,627,000 $ 1,513,000 $ 5,700,000 ================= ================ =================
A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
----------------------Years Ended----------------------- September 24, September 30, September 28, 1994 1995 1996 Income tax provision at federal statutory rate 34.0 % 34.0 % 34.0 % Increase (decrease) in tax resulting from- Net effect of (income) losses of foreign subsidiaries not provided (0.6) (3.5) 0.1 State tax provision, net of federal benefit 2.4 4.1 1.1 Research and development tax credit (0.3) (1.0) (2.0) Effect of not providing U.S. taxes on exempt FSC income (3.1) (2.8) (1.0) Nondeductible pooling of interest expenses - - 2.9 Decrease in valuation allowance (9.3) - - Other 2.3 0.3 (1.7) ------ ------ ------ Effective tax rate 25.4 % 31.1 % 33.4 % ====== ====== ======
HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) INCOME TAXES (Continued) The components of domestic and foreign income (loss) before the provision for income taxes are as follows:
Years Ended September 24, September 30, September 28, 1994 1995 1996 Domestic $ 6,276,206 $ 4,330,083 $ 17,481,453 Foreign 118,738 531,173 (424,587) ------------- ------------- ------------- $ 6,394,944 $ 4,861,256 $ 17,056,866 ============= ============= =============
During fiscal 1994, 1995 and 1996, the Company realized tax benefits of approximately $200,000, $280,000 and $4,930,000, respectively, relating to the exercise of certain stock options. These benefits are reflected as a component of capital in excess of par value. The components of the net deferred tax asset recognized as other current assets in the accompanying consolidated balance sheets are as follows:
September 30, September 28, 1995 1996 Deferred tax assets $ 1,188,000 $ 2,437,000 Valuation allowance (488,000) (658,000) ------------ ------------ $ 700,000 $ 1,779,000 ============ ============
The approximate income tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is approximately as follows:
September 30, September 28, 1995 1996 Foreign net operating loss carryforwards $ 353,000 $ 523,000 Nondeductible accruals 290,000 864,000 Nondeductible reserves 511,000 1,005,000 Other temporary differences 34,000 45,000 ------------- ------------- $ 1,188,000 $ 2,437,000 ============= =============
HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) INCOME TAXES (Continued) In fiscal 1996, the valuation allowance increased $170,000 as a result of the foreign net operating losses incurred in fiscal 1996. The valuation allowance relates primarily to certain deferred tax assets in foreign jurisdictions, for which realization is uncertain. (6) COMMON STOCK (a) Stock Option Plans The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is administered by the Board of Directors and authorizes the Company to issue options to purchase up to 1,900,000 shares that have been reserved by the Company. Under the terms of the 1986 Plan, the Company granted employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock at a price not less than fair market value at the date of grant. In addition, the Company may grant nonqualified options to other participants. During fiscal 1996, the 1986 Plan was terminated. Options granted under the 1986 Plan vest over a five-year period and are exercisable at varying dates. The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995 Stock Option Plan (the 1995 Plan), both of which were originally adopted by FluoroScan, are administered by the Board of Directors and the Company has issued options to purchase 289,252 shares of the Company's common stock, as of September 28, 1996. Under the terms of the 1994 Plan and the 1995 Plan, the Company may grant employees either incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and deferred stock awards at a price not less than the fair market value on the date of grant. The Company does not intend to grant any additional options under this plan. In June 1995, the Board of Directors adopted the 1995 Combination Stock Option Plan (the 1995 Combination Plan), pursuant to which the Company is authorized to issue 1,100,000 options to purchase shares. Under the terms of the 1995 Combination Plan, the Company may grant employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock at a price not less than the fair market value at the date of grant. In addition, the Company may grant nonqualified options to other participants. As of September 28, 1996, the Company had 404,914 options available for grant under this plan. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) COMMON STOCK (Continued) (a) Stock Option Plans (Continued) The Company's 1990 Nonemployee Director Stock Option Plan (the Directors' Plan) allows for eligible directors to receive options to purchase 10,000 shares of common stock upon election as a director. The options vest ratably over a five-year period. In addition, eligible directors are entitled to annual option grants to purchase 8,000 shares of common stock, which vest after six months. Option grants under the Directors' Plan are at not less than fair market value on the date of grant. The Company has reserved 200,000 shares of common stock for issuance under the Directors' Plan. As of September 28, 1996, the Company had 96,000 options available for grant. The Company's 1994 Directors' Stock Option Plan (the 1994 Directors' Plan), originally adopted by FluoroScan, allows for eligible directors to receive options to purchase an aggregate of 9,321 shares of common stock. Option grants under the 1994 Directors' Plan are at not less than the fair market value on the date of grant. As of September 28, 1996 the Company has issued options to purchase 22,370 shares of common stock under the 1994 Directors' Plan. The Company does not intend to grant any additional options under this plan. The following table summarizes all stock option activity under all of the plans for the three years ended September 28, 1996.
Number Exercise Price of Shares per Share Outstanding, September 25, 1993 743,300 $ .05-$ 8.88 Granted 688,511 1.82- 21.69 Terminated (26,991) .50- 19.92 Exercised (156,328) .05- 4.25 ---------- ------------------------ Outstanding, September 24, 1994 1,248,492 .05- 21.69 Granted 892,624 6.19- 32.59 Terminated (15,821) 1.94- 19.92 Exercised (129,436) .05- 7.07 ---------- ------------------------ Outstanding, September 30, 1995 1,995,859 .05- 32.59 Granted 312,072 11.50- 46.88 Terminated (36,374) 1.94- 30.58 Exercised (667,372) .05- 20.72 ---------- ------------------------ Outstanding, September 28, 1996 1,604,185 $ .50-$ 46.88 ========== ======================== Exercisable, September 28, 1996 205,956 $ .50-$ 18.75 =========== =========================
HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) COMMON STOCK (Continued) (a) Stock Option Plans (Continued) In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the measurement of the fair value of stock options or warrants to be included in the statement of income or disclosed in the notes to the financial statements. The Company is required to adopt SFAS No. 123 in fiscal 1997 and has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to financial statements using the fair-value-based method beginning in the year ending September 27, 1997, with comparable disclosures for the year ended September 28, 1996. The Company has not determined the impact of these pro forma adjustments. (b) Employee Stock Purchase Plan In December 1994, the Company adopted the 1995 Employee Stock Purchase Plan (the ESP Plan) in compliance with Section 423 of the Internal Revenue Code. Employees who have completed 12 consecutive months or two years, whether or not consecutive, of employment with the Company are eligible to participate in the ESP Plan. The ESP Plan allows participants to purchase common stock of the Company at 85% of the fair market value, as defined. The Company may issue up to 200,000 shares under the ESP Plan. During fiscal 1995 and 1996, the Company issued 9,560 and 14,850 shares, respectively, under the ESP Plan. At September 28, 1996, the Company has 175,590 shares available for purchase under the ESP Plan. (c) Rights Agreement In December 1992, the Company adopted a shareholder rights plan. The plan is intended to protect shareholders from unfair or coercive takeover practices. In accordance with the plan, the Board of Directors declared a dividend distribution of one common stock purchase right for each share of common stock outstanding until the rights become detachable. Each right entitles the registered holder to purchase from the Company one share of common stock for $15, adjusted for certain events. In the event that the Company is acquired in a merger or other business combination transaction or more than 50% of its assets or earning power is sold, each holder shall thereafter have the right to receive, upon exercise of each right, that number of shares of common stock of the acquiring company which, at the time of such transaction, would have a market value of two times the $15 per share exercise price. The rights will not be detachable or exercisable until certain events occur. The Board of Directors may elect to terminate the rights under certain circumstances. Subsequent to year end, the Board of Directors increased the exercise price per share to $90. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) COMMON STOCK (Continued) (d) Secondary Public Offering On January 26, 1996, the Company completed a secondary public offering of 2,492,000 shares of its common stock. The proceeds to the Company, net of underwriting discounts, commissions and offering expenses were approximately $49,194,000. (e) Initial Public Offering In July 1994, prior to becoming a wholly owned subsidiary of the Company through the merger discussed in Note 3, in July 1994, FluoroScan completed an initial public offering of 222,210 shares of common stock. The proceeds to the Company net of underwriting discounts, commissions and offering expenses were approximately $4,000,000. (f) Warrants In conjunction with FluoroScan's initial public offering, the Company issued 357,294 warrants to purchase common stock at an exercise price of $22.53. In July 1996, the Company redeemed 357,037 warrants resulting in proceeds to the Company of approximately $8 million. Of the warrants issued to underwriters, which were not subject to redemption, 257 remained outstanding at September 28, 1996. The underwriters' warrants expire in July 1999. (g) Underwriter's Option In conjunction with FluoroScan's initial public offering, the Company sold to the underwriter an option to purchase up to 31,069 shares of common stock at an exercise price of $33.80. As of September 28, 1996, there were 14,131 options outstanding. The options expire in July 1999. (7) PROFIT-SHARING 401(k) PLAN The Company has a qualified profit-sharing plan covering substantially all of its employees. Contributions to the plan are at the discretion of the Company's Board of Directors. The Company has recorded approximately $120,000, $135,000 and $309,000 as a provision for the profit-sharing contribution for fiscal 1994, 1995 and 1996, respectively. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (8) RELATED-PARTY TRANSACTIONS (a) Management Services Agreement The Company has an agreement with Vivid Technologies, Inc. (Vivid), an affiliated company, whereby the Company provides management, administrative and support services. In addition, the Company leased a portion of its facilities to Vivid through February 1996 for approximately $15,000 per month. Vivid paid the Company for all direct costs incurred, as well as a portion of the Company's overhead costs, as defined, representing the pro rata portion of costs attributable to Vivid. The Company charged Vivid approximately $544,000, $530,000 and $325,000 under the agreement during fiscal 1994, 1995 and 1996, respectively, which have been offset against operating expenses of the Company. Vivid also purchased approximately $229,000 and $210,000 of inventory and spare parts from the Company in fiscal 1994 and 1995, respectively. Vivid did not make any purchases from the Company in fiscal 1996. Of these amounts, approximately $463,000 and $34,000 were unpaid as of September 30, 1995 and September 28, 1996, respectively. (b) License and Technology Agreement The Company has an agreement with Vivid whereby Vivid obtained a perpetual, exclusive worldwide license to utilize certain of the Company's technology and patents for the sole purpose of developing baggage and inspection security systems (the Exclusive License). In September 1996, this license was amended to grant Vivid a nonexclusive license to utilize these patents and technology for certain new product development for other applications (the Nonexclusive License). Royalty payments to the Company under the Exclusive License are 5% of product revenue on Vivid's first $50 million in sales; thereafter, payments are 3% of Vivid's sales up to $200 million. Royalty payments under the Nonexclusive License are 3% on sales up to $200 million. No royalty payments will be made on aggregate revenues in excess of $200 million for either the Exclusive License or the Nonexclusive License. The agreement terminates by mutual agreement of the two parties or under certain other circumstances, as defined. The Company recognized approximately $688,000, $719,000 and $775,000 of royalty revenue under the Exclusive License for fiscal 1994, 1995 and 1996, respectively. Approximately $351,000 and $624,000 were outstanding at September 30, 1995 and September 28, 1996, respectively. The Company has not recognized any royalty revenue under the Nonexclusive License. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (9) COMMITMENTS (a) Operating Leases The Company and its subsidiaries lease certain equipment and conduct their operations in leased facilities under operating lease agreements that expire through fiscal 2002. In addition, the facility lease requires the Company to pay a percentage of real estate taxes and certain operating costs of the property. Future minimum lease payments under the operating leases are approximately as follows:
Fiscal Year Ending Amount September 27, 1997 $ 914,000 September 26, 1998 863,000 September 25, 1999 801,000 September 24, 2000 794,000 September 30, 2001 713,000 Thereafter 285,000 ------------- $ 4,370,000
Rental expense, net of subrentals from Vivid, was approximately $721,000, $736,000 and $796,000 for fiscal 1994, 1995 and 1996, respectively. The lease agreement for the Company's headquarters included a free rent and reduced rent period. The Company recognized the rent expense evenly over the term of the lease agreement. (b) Patent Acquisition In fiscal 1992, the Company acquired certain patents pertaining to technology incorporated into certain of the Company's products. The Company paid approximately $245,000 for these patents and related expenses upon entering into the agreement. In May 1993, this agreement was amended such that the Company paid approximately $344,000 for additional patent rights and related expenses, of which $50,000 was paid through the issuance of 21,334 shares of common stock. The Company may be required to make additional payments of common stock (up to a maximum of 64,000 shares) for certain additional patent rights, if and when available. The cost of these patents is being amortized over their expected life of 10 years. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (9) COMMITMENTS (Continued) (c) Royalty Agreements The Company, through its FluoroScan subsidiary, has two license agreements covering three patents. Under the agreements, the Company is required to pay royalties ranging from 3.5% to 4.5% of sales, as defined. Royalty expense under these agreements was approximately $81,000, $19,000 and $8,000 in 1994, 1995 and 1996, respectively. The Company has also entered into a sublicense agreement on one of the patents. Royalties earned under this sublicense agreement were approximately $154,000, $204,000 and $35,000 in 1994, 1995 and 1996, respectively. (10) COLLABORATION AGREEMENT In June 1995, the Company acquired a 5% minority interest in a collaborating company. To acquire this minority interest, the Company issued 56,042 shares of common stock and paid $75,912 in cash in return for all of the outstanding convertible preferred stock of the collaborating company. The Company also entered into a development agreement with the collaborating company related to a certain product. As part of the development agreement, the Company will reimburse the collaborating company for expenses incurred in the development of this product. In order to maintain its exclusive rights in the collaborating company's technology, the Company must meet required sales volumes, as defined, in the five years commencing 90 days after approval of the product by the Food and Drug Administration. The Company is also required to pay royalties to the collaborating company based on net sales of the product, as defined. No royalties were due under the agreement as of September 28, 1996. (11) FEE PER SCAN PROGRAM The Company has entered into a strategic fee per scan program with a leasing company whereby the Company sells its systems to the leasing company, which, in turn, leases the systems to third parties. Under the terms of the agreement, the Company is contingently liable for a certain amount per system, up to a maximum of the greater of (i) the sale price of four systems or (ii) 10% of the aggregate value of systems sold under the program. At September 28, 1996, the Company has deferred revenue of approximately $280,000 in connection with this program. HOLGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) GEOGRAPHIC INFORMATION Revenues, net income (loss) and identifiable assets for the Company's U.S. and European operations are summarized as follows:
-----------------------------------1994------------------------------------ United European States Subsidiaries Eliminations Consolidated Revenues from unaffiliated customers $ 38,816,948 $ 8,837,300 $ - $ 47,654,248 Transfers between geographic areas 2,833,417 1,452,712 (4,286,129) - ------------------ ----------------- ----------------- ------------- Total revenues $ 41,650,365 $ 10,290,012 $ (4,286,129) $ 47,654,248 ================== ================= ================= ============ Net income $ 4,642,345 $ 118,738 $ 6,861 $ 4,767,944 ================== ================= ================= ============ Identifiable assets $ 32,871,307 $ 5,091,193 $ (1,292,657) $36,669,843 ================== ================= ================= ============ -------------------------------------1995--------------------------------- Revenues from unaffiliated customers $ 44,396,343 $ 12,150,486 $ - $ 56,546,829 Transfers between geographic areas 4,105,914 2,085,185 (6,191,099) - ------------------ ----------------- ----------------- ------------ Total revenues $ 48,502,257 $ 14,235,671 $ (6,191,099) $ 56,546,829 ================== ================= ================= ============ Net income (loss) $ 2,843,413 $ 519,941 $ (15,098) $ 3,348,256 ================== ================= ================= ============ Identifiable assets $ 39,213,833 $ 6,353,095 $ (1,484,170) $44,082,758 ================== ================= ================= ============ -------------------------------------1996---------------------------------- Revenues from unaffiliated customers $ 79,688,198 $ 11,902,427 $ - $91,590,625 Transfers between geographic areas 6,038,947 1,187,355 (7,226,302) - ------------------ ----------------- ------------------ ------------ Total revenues $ 85,727,145 $ 13,089,782 $ (7,226,302) $91,590,625 ================== ================= ================= ============ Net income (loss) $ 11,702,269 $ (436,053) $ 90,650 $11,356,866 ================== ================= ================== ============ Identifiable assets $ 120,749,056 $ 6,549,660 $ (4,191,260) $123,107,456 ================== ================= ================= ============
Export sales from the United States to unaffiliated customers primarily in Europe and Asia during fiscal 1994, 1995 and 1996 totaled approximately $16,755,000, $16,620,000 and $21,468,000, respectively. PAGE> HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) GEOGRAPHIC INFORMATION (Continued) Transfers between the Company and its European subsidiaries are generally recorded at amounts similar to the prices paid by unaffiliated foreign dealers. All intercompany profit is eliminated in consolidation. Export product sales as a percentage of total product sales are as follows:
-----------------Years Ended------------------ September 24, September 30, September 28, 1994 1995 1996 Europe 25% 28% 17% Asia 30 22 17 All others 5 8 6 ---- ---- ---- 60% 58% 40% ==== ==== ====
(13) ACCRUED EXPENSES Accrued expenses consist of the following:
September 30, September 28, 1995 1996 Accrued payroll and employee benefits $ 975,814 $2,993,389 Accrued commissions 1,350,356 2,355,126 Accrued legal 639,654 458,447 Other accrued expenses 1,650,449 1,708,403 ---------- ---------- $4,616,273 $7,515,365 ========== ==========
HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (14) LITIGATION On September 7, 1994, Lunar Corporation (Lunar) filed a complaint in United States District Court against the Company, alleging, among other things, that two of the Company's patents are not valid and infringe on three of Lunar's patents. The Company filed a counterclaim against Lunar with respect to the infringement of two of the Company's patents and a declaration that certain of Lunar's patents are invalid and unenforceable. On November 22, 1995, the Company and Lunar executed a definitive agreement settling all disputes between the parties. The agreement provides for the cross-licensing of certain patent rights and continuing payments between the parties related to future sales. The Company and Lunar have agreed not to engage each other in patent litigation in the area of x-ray densitometry and ultrasound for a ten-year period. Management believes that the financial terms of this agreement will not have a material adverse effect on the Company's financial position or results of operations. On January 24, 1995, B.V. Optische Industrie de Oude Delft (Oldelft) filed suit in the United States District Court against the Company seeking unspecified treble damages, attorneys' fees and costs relating to a prior patent dispute between the Company and Oldelft relating to equalization radiography. On December 14, 1995, the litigation was dismissed by the United States District Court. In April 1996, a motion for reconsideration filed by Oldelft was dismissed, and in May 1996, the Company and Oldelft settled the matter. HOLOGIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (15) QUARTERLY INCOME STATEMENT INFORMATION (UNAUDITED) The following table presents a summary of quarterly results of operations for 1995 and 1996:
-------------------------------------1995--------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total revenue $ 12,689,777 $ 12,604,857 $14,505,672 $ 16,746,523 Net income 984,342 571,299 804,942 987,673 Primary net income per common and common equivalent share .10 .06 .08 .10 Fully diluted net income per common and common equivalent share .10 .06 .08 .09 -------------------------------------1996--------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total revenue $ 18,692,144 $ 22,294,277 $ 26,233,308 $ 24,370,896 Net income 1,717,869 3,419,901 4,105,824 2,113,272 Primary net income per common and common equivalent share .16 .28 .31 .15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item is incorporated by reference to the sections entitled "Election of Directors" and "Executive Officers" in the Registrant's Proxy Statement. Item 11. Executive Compensation. The information required by this item is incorporated by reference to the sections entitled "Executive Compensation" in the Registrant's Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated by reference to the section entitled "Share Ownership of Directors, Officers and Certain Beneficial Owners" in the Registrant's Proxy Statement. Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated by reference to the section entitled "Certain Transactions" in the Registrant's Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets as of September 30, 1995 and September 28, 1996 Consolidated Statements of Operations for the years ended September 24, 1994, September 30, 1995 and September 28, 1996 Consolidated Statements of Stockholders' Equity for the years ended September 24, 1994, September 30, 1995 and September 28, 1996 Consolidated Statements of Cash Flows for the years ended September 24, 1994, September 30, 1995 and September 28, 1996 Notes to Consolidated Financial Statements (2) Financial Statement Schedules The following financial statement schedules are filed as part of this report and should be read in conjunction with the consolidated financial statements: Schedule -------- Report of Independent Public Accountants on Schedule II Valuation and Qualifying Accounts All other schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. (3) Listing of Exhibits Exhibit Number Reference - ------- --------- 2.01 Merger Agreement between the Company and its Massachusetts predecessor...... A 2.02 Agreement and Plan of Merger between the Company, Fenway Acquisition Corp., and FluoroScan Imaging Systems, Inc....................... I-2.01 3.01 Certificate of Incorporation of the Company......... A 3.02 By-laws of the Company............. A 4.01 Specimen certificate for shares of the Company's Common Stock............. A 4.02 Description of capital stock (contained in the Certificate of Incorporation of the Company filed, as Exhibit 3.01)... A
4.03 Rights Agreement dated December 22, 1992................ C 4.04 Amendment No. 1 to Rights Agreement................. G 10.07 1986 Combination Stock Option Plan, as amended............ F* 10.08 Amended and Restated 1990 Non-Employee Director Stock Option Plan.................... H 10.09 Employee Stock Purchase Plan of the Company............... F 10.10 1995 Combination Stock Option Plan........................ H* 10.12 Form of Indemnification Agreement for directors and certain officers of the Company.................... A* 10.17 Management Agreement between the Company and Vivid Technologies, Inc............................... A* 10.18 License Agreement between the Company and Vivid Technologies, Inc., as amended...................... A 10.19 Distribution Agreement between the Company, Toyo Medic Company Limited and Yokogawa Medical Systems, Ltd......... B* 10.20 Facility lease between the Company and Lincoln Street Trust.......................... B 10.21 Orion Corporation Soredex Distribution Agreement for Scanora............................ D** 10.22 Employment Agreement with an officer of the Company..................... E 10.23 Form of Selling Stockholders Agreement............ 10.24 Serex License Agreement................. H** 10.25 Amendment No.1 to the License Agreement between the Company and Vivid Technologies, Inc........... Filed herewith 10.26 Facility Lease between the Company and Mangen Management Company.......... Filed herewith 10.27 Employment Agreement with an officer of the Company...... I-10.13 10.28 Employment Agreement with an officer of the Company....... I-10.14 10.29 FluoroScan Imaging Systems, Inc. 1994 Amended and Restated Stock Incentive Plan.............. J-99.1 10.30 FluoroScan Imaging Systems, Inc. 1995 Stock Incentive Plan...................... J-99.2 10.31 FluoroScan Imaging Systems, Inc. 1994 Directors Stock Option Plan................... J-99.3 10.32 First Amendment to the facility lease between the Company and Lincoln Street Trust........... I-10.17 11.01 Statement re: Computation of Per Share Earnings........ Filed herewith 22.01 Subsidiaries of the Company........ Filed herewith 24.01 Consent of Arthur Andersen LLP..... Filed herewith 28.01 Press Release dated December 22, 1992..................... C 28.02 Letter to Stockholders dated December 22, 1992........... C - ----------------------
* Management compensation plan or arrangement ** Confidentiality requested as to certain provisions A. The above exhibits were previously filed as an exhibit of the same number to the Company's Registration Statement on Form S-1 (Registration No. 33-33128) filed on January 24, 1990 and are incorporated herein by reference. B. The above exhibits were previously filed as an exhibit of the same number to the Company's 1990 Annual Report on Form 10-K and are incorporated herein by reference. C. The above exhibits were previously filed as an exhibit of the same number to the Company's 1992 Annual Report on Form 10-K and are incorporated herein by reference. D. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated herein by reference. E. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Annual Report on Form 10-K and is incorporated herein by reference. F. The above exhibits were previously filed as an exhibit of the same number to the Company's 1994 Annual Report on Form 10-K and is incorporated herein by reference G. The above exhibit was previously filed as an exhibit of the above referenced number of the Company's Registration Statement on Form S-3 (Registration No. 33-65019) filed on December 14, 1995 and is incorporated herein by reference. H The above exhibits were previously filed as an exhibit of the same number to the Company's 1995 Annual Report on Form 10-K and is incorporated herein by reference. I. The above exhibit was previously filed as an exhibit of the above referenced number of the Company's Proxy Statement and Prospectus on Form S-4 filed (Registration No. 333-08977) on August 6, 1996 and is incorporated herein by reference. J. The above exhibit was previously filed as an exhibit of the same number of the Company's Registration Statement on Form S-8 (Registration No. 333-11853) filed on September 12, 1996 and is incorporated herein by reference. (d) Financial Statement Schedules: The financial statement schedules required are included as part of Item (2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOLOGIC, INC. By: /s/ S. DAVID ELLENBOGEN ------------------------------- S. DAVID ELLENBOGEN Chief Executive Officer Dated: December 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ S. DAVID ELLENBOGEN Director - --------------------------- and Chief Executive Officer December 27, 1996 S. DAVID ELLENBOGEN Vice President, Finance and /s/ GLENN P. MUIR Principal Financial and - --------------------------- Accounting Officer December 27, 1996 GLENN P. MUIR /s/ JAY A. STEIN Director and - --------------------------- Senior Vice President December 27, 1996 JAY A. STEIN /s/ LARRY GROSSMAN Director and Vice President December 27, 1996 - --------------------------- LARRY GROSSMAN /s/ IRWIN JACOBS Director December 27, 1996 - --------------------------- IRWIN JACOBS /s/ WILLIAM A. PECK Director December 27, 1996 - --------------------------- WILLIAM A. PECK /s/ GERALD SEGEL Director December 27, 1996 - --------------------------- GERALD SEGEL /s/ ELAINE ULLIAN Director December 27, 1996 - --------------------------- ELAINE ULLIAN REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Hologic, Inc. We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Hologic, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated November 6, 1996. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 is the responsibility of the Company's management and is presented for the purposes of complying with the Securities Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts November 6, 1996 SCHEDULE II HOLOGIC, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts (in Thousands)
Balance at Charged to Balance Beginning Costs and at End of of Period Expenses Period ---------- ---------- --------- Allowance for Uncollectible Amounts Year Ended: September 24, 1994 $195 655 850 September 30, 1995 850 850 September 28, 1996 850 510 1,360
EXHIBIT INDEX
Exhibit Number Reference - ------ --------- 2.01 Merger Agreement between the Company and its Massachusetts predecessor.............................................. A 2.02 Agreement and Plan of Merger between the Company, Fenway Acquisition Corp., and FluoroScan Imaging Systems, Inc... I-2.01 3.01 Certificate of Incorporation of the Company.............. A 3.02 By-laws of the Company................................... A 4.01 Specimen certificate for shares of the Company's Common Stock.................................................... A 4.02 Description of capital stock (contained in the Certificate of Incorporation of the Company filed, as Exhibit 3.01)............................................ A 4.03 Rights Agreement dated December 22, 1992................. C 4.04 Amendment No. 1 to Rights Agreement...................... G 10.07 1986 Combination Stock Option Plan, as amended........... F* 10.08 Amended and Restated 1990 Non-Employee Director Stock Option Plan.............................................. H 10.09 Employee Stock Purchase Plan of the Company.............. F 10.10 1995 Combination Stock Option Plan....................... H* 10.12 Form of Indemnification Agreement for directors and certain officers of the Company.......................... A* 10.17 Management Agreement between the Company and Vivid Technologies, Inc........................................ A* 10.18 License Agreement between the Company and Vivid Technologies, Inc., as amended........................... A 10.19 Distribution Agreement between the Company, Toyo Medic Company Limited and Yokogawa Medical Systems, Ltd........ B* 10.20 Facility lease between the Company and Lincoln Street Trust.................................................... B 10.21 Orion Corporation Soredex Distribution Agreement for Scanora.................................................. D** 10.22 Employment Agreement with an officer of the Company...... E 10.23 Form of Selling Stockholders Agreement................... 10.24 Serex License Agreement.................................. H** 10.25 Amendment No.1 to the License Agreement between the Company and Vivid Technologies, Inc......................Filed herewith 10.26 Facility Lease between the Company and Mangen Management Company..................................................Filed herewith 10.27 Employment Agreement with an officer of the Company...... I-10.13 10.28 Employment Agreement with an officer of the Company...... I-10.14 10.29 FluoroScan Imaging Systems, Inc. 1994 Amended and Restated Stock Incentive Plan............................ J-99.1 10.30 FluoroScan Imaging Systems, Inc. 1995 Stock Incentive Plan..................................................... J-99.2 10.31 FluoroScan Imaging Systems, Inc. 1994 Directors Stock Option Plan.............................................. J-99.3 10.32 First Amendment to the facility lease between the Company
and Lincoln Street Trust................................. I-10.17 11.01 Statement re: Computation of Per Share Earnings.........Filed herewith 22.01 Subsidiaries of the Company..............................Filed herewith 24.01 Consent of Arthur Andersen LLP...........................Filed herewith 28.01 Press Release dated December 22, 1992.................... C 28.02 Letter to Stockholders dated December 22, 1992........... C - -----------------------
* Management compensation plan or arrangement ** Confidentiality requested as to certain provisions A. The above exhibits were previously filed as an exhibit of the same number to the Company's Registration Statement on Form S-1 (Registration No. 33-33128) filed on January 24, 1990 and are incorporated herein by reference. B. The above exhibits were previously filed as an exhibit of the same number to the Company's 1990 Annual Report, on Form 10-K and are incorporated herein by reference. C. The above exhibits were previously filed as an exhibit of the same number to the Company's 1992 Annual Report on Form 10-K and are incorporated herein by reference. D. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Third Quarter Report on Form 10-Q and is incorporated herein by reference. E. The above exhibit was previously filed as an exhibit of the same number to the Company's 1993 Annual Report on Form 10-K and is incorporated herein by reference. F. The above exhibits were previously filed as an exhibit of the same number to the Company's 1994 Annual Report on Form 10-K and is incorporated herein by reference G. The above exhibit was previously filed as an exhibit of the above referenced number of the Company's Registration Statement on Form S-3 (Registration No. 33-65019) filed on December 14, 1995 and is incorporated herein by reference. H. The above exhibits were previously filed as an exhibit of the same number to the Company's 1995 Annual Report on Form 10-K and is incorporated herein by reference. I. The above exhibit was previously filed as an exhibit of the above referenced number of the Company's Proxy Statement and Prospectus on Form S-4 filed (Registration No. 333-08977) on August 6, 1996 and is incorporated herein by reference. J. The above exhibit was previously filed as an exhibit of the same number of the Company's Registration Statement on Form S-8 (Registration No. 333-11853) filed on September 12, 1996 and is incorporated herein by reference. EX-10.25 2 FIRST AMENDMENT TO THE LICENSE & TECH. AGREEMENT Exhibit 10.25 FIRST AMENDMENT TO LICENSE AND TECHNOLOGY AGREEMENT First Amendment to License Agreement dated as of September 25, 1996 by and between Vivid Technologies, Inc., a Massachusetts Corporation (f/k/a Vivitech, Inc., "Vivid"), and Hologic, Inc., a Delaware corporation (formerly a Massachusetts corporation, "Hologic"). WHEREAS the parties entered into a License Agreement dated as of June 22, 1989 (the "Original Agreement") pursuant to which Hologic licensed certain technology and know-how to Vivid to design, develop, improve, enhance, manufacture, market, distribute and sell X-ray screening security systems that are capable of screening luggage and cargo for particular types of contraband; and WHEREAS the parties desire to clarify and modify the license as set forth herein. NOW, THEREFORE, the parties agree as follows: 1. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Original Agreement. 2. Section 2(g) of the Original License Agreement is hereby amended and restated in its entirety to read as follows: "Product" shall mean collectively (i) any X-ray screening security system embodying the Base Technology and/or the Patents that is capable of screening luggage, cargo, parcels, mail, personal effects and other similar items for contraband, including without limitation explosives, drugs and currency (the "Original Product"), or (ii) any X-ray screening system embodying the Base Technology and/or the Patents that is capable of being used for process control applications in the food and/or beverage industry (the "Additional Product"). 3. Hologic hereby grants to Vivid a nonexclusive license to utilize the Base Technology for the purpose of designing, developing, improving, enhancing, manufacturing, marketing and selling the Additional Product. In connection therewith Section 3(a) of the Original Agreement is hereby amended and stated in its entirety to read as follows: (a) Subject to the terms and conditions set forth in this Agreement, Hologic hereby grants Vivid (i) a perpetual, exclusive, worldwide license to utilize the Base Technology, Patents and Know-how to design, develop, improve, enhance, manufacture, market and sell the Original Product and (ii) a perpetual, nonexclusive, worldwide license to utilize the Base Technology, Patents and Know-how to design, develop, improve, enhance, manufacture, market and sell the Additional Product. Vivid may not use the Base Technology, Patents and Know-how for any other purpose. 4. The royalties payable by Vivid to Hologic as set forth in Section 5 of the Original Agreement in respect of sales of the Original Product shall remain unaffected by the inclusion the Additional Product in the definition of "Product," and Vivid shall pay a further royalty in respect of sales of the Additional Product as set forth below. In connection therewith, Section 5 of the Original Agreement shall be amended and restated in its entirety to read as follows: 5. Royalties --------- In consideration of the rights and privileges granted herein, Vivid hereby agrees to pay Hologic (a) royalties with respect to actual commercial sales of the Original Product by Vivid or any of Vivid's Affiliated Parties in accordance with the following schedule:
------------------------------------------------------ Original Product Aggregate Net Sales Price Royalty Rate ------------------------------------------------------ $0 -- $50,000,000.00 5% ------------------------------------------------------ $50,000,000.01 to $200,000,000.00 3% ------------------------------------------------------ Over $200,000,000.000 0% ------------------------------------------------------
and (b) royalties with respect to actual commercial sales of the Additional Product by Vivid or any of Vivid's Affiliated Parties in accordance with the following schedule:
---------------------------------------------- Additional Product Aggregate Net Sales Price Royalty Rate ---------------------------------------------- $0 -- $200,000,000.00 3% ---------------------------------------------- Over $200,000,000.000 0% ----------------------------------------------
Royalties computed pursuant to this Section 5 shall be payable within 60 days following the end of each quarter of Vivid's fiscal year. 5. Section 17 of the Original License Agreement is hereby amended and restated in its entirety to read as follows: 17. Non-Competition. --------------- So long as this Agreement is in effect, Hologic shall not manufacture, or distribute any product, whether now existing or hereafter developed, that is used for a purpose that is the same as or substantially similar to the purpose for which the Original Product is used. 6. Hologic hereby consents to the reincorporation of Vivid in the State of Delaware. 7. In all other respects, the Original License is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as an instrument under seal as of the date first above written. HOLOGIC, INC. VIVID TECHNOLOGIES, INC. By:/s/ S. David Ellenbogen By:/s/ James J. Aldo ----------------------- ----------------- EX-10.26 3 FACILITY LEASE WITH MANGEN MANAGEMENT Exhibit 10.26 September 21, 1994 Mr. Larry Grossman, Chairman Mr. Arlen Issette, President FluoroScan Imaging Systems, Inc. 650 B Anthony Trail Northbrook, Illinois 60062 Dear Larry and Arlen: This letter will act as an addendum to the Lease between FluoroScan Imaging Systems, Inc. (and its' predecessor HealthMate, Inc.) and Margen Management Company for the premises at 650 B Anthony Trail, Northbrook, Il. dated February 8, 1989. The following items, with our mutual approvals, can simply be attached to the existing Lease. Term: March 1, 1995 -- February 28, 1997 Monthly Rent Schedule: 3/1/95 - 2/28/96 $7,007.77 Per Month 3/1/96 - 2/28/97 $7,218.00 Per Month FluoroScan Imaging Systems, Inc. shall have the first right of refusal on any contiguous space as it becomes available. Except as otherwise stated herein, all terms and conditions of the original Lease dated February 8, 1989 shall continue to remain in force and effect throughout the term of this Lease extension. Please indicate your acceptance and approval of the foregoing by signing and dating this addendum. This letter shall then constitute a binding Lease pursuant to the terms and conditions herein set forth. Sincerely, MARGEN MANAGEMENT COMPANY /s/Richard J. Pearlman - ---------------------- Richard J. Pearlman President Accepted by: /s/ Arlen Issette --------------------------------------- FluoroScan Imaging System, Inc. President Date: 9/18/94 --------------------------------------- March 5, 1990 Mr. Larry Grossman - Chairman Mr. Arlen Issette - President HealthMate, Inc. 650B Anthony Trail Northbrook, Illinois 60062 Dear Larry and Arlen: This letter will act as an addendum to the Lease for (13,412 Sq. Ft.) 650B Anthony Trail between Margen Management Co. and HealthMate, Inc. dated February 8, 1989. The following items, with our mutual approvals, can simply be attached to the existing lease. Term: Five years commencing on March 1, 1990 and expiring on February 28, 1995. Monthly Rent Schedule: 3/1/90 - 8/31/90 $5,000.00 Per Month 9/1/90 - 2/28/91 $5,500.00 Per Month 3/1/91 - 8/31/91 $6,000.00 Per Month 9/1/91 - 8/31/92 $6,236.58 Per Month 9/1/92 - 8/31/93 $6,486.02 Per Month 9/1/93 - 8/31/94 $6,739.53 Per Month 9/1/94 - 2/28/95 $7,007.77 Per Month Additional Work: Installation by landlord of 2 new outside windows (Approx. size 3' x 6') in west front office. Cost is to be split between the tenant and landlord. Tenants share will not exceed $1,700.00. Payment is due upon completion of work and presentation of contractors invoice. Front office ceiling tiles to be repositioned to tenants satisfaction. Landlord will provide a $200.00 allowance for an electric opener for van door. /s/ /s/ - ----------------------------------- ----------------------------------- L. Grossman A. Issette /s/ ----------------------------------- R. Pearlman Future construction: Landlord hereby grants tenant, at tenant's expense, permission to construct additional offices and work areas including, flooring and lighting in accordance with local zoning and building codes of the Village of Northbrook. Except as otherwise stated herein, all terms and conditions of the Lease shall continue to remain in force and effect throughout the five year period of this addendum. Please indicate your acceptance and approval of the foregoing by the signing and dating of this letter. This letter shall constitute a binding lease pursuant to the terms and conditions herein set forth. Sincerely yours, Margen Management Co. Richard J. Pearlman Vice President ACCEPTED BY: HealthMate, Inc. /s/ ------------------------------- ---------------------- Larry Grossman, Chairman Date /s/ ------------------------------- ---------------------- Arlen Issette, President Date CC: Florrie Gottainer RP/pg SUMMARY OF BASIC LEASE PROVISIONS ---------------------------------
A. Building and address: HARBOR INDUSTRIAL 650 B ANTHONY TRAIL NORTHBROOK, ILLINOIS 60062 B. Landlord and Current Address: Margen Management Co., E.B. Shapiro 710 Anthony Trail Northbrook, Illinois 60062 C. Rent Payable to: _______________________ c/o Margen Management Co. - E.B. Shapiro 710 Anthony Trail Northbrook, Illinois 60062 D. Tenant and Current Address: HealthMate Inc. 3175 McArthur Northbrook, IL 60062 E. Date of Lease: February 8, 1989 F. Lease Term: 36 1/2 Months G. Commencement Date of Term February 11, 1989 H. Expiration Date of Term: February 28, 1992 I. Monthly Rent (Initial): $4,750.00 J. Square Footage Applicable to Premises 13,412 Sq. Ft. K. Square Footage of the Building 97,841 Sq. Ft. Stops: R.E. Taxes $1.00 per Sq. Ft. Operating Expenses $0.10 per Sq. Ft. L. Adjustment Lease Term: Prior Year M. Tenant's Proratable Share of Building 13.71% N. Amount of Security Deposit (1 month) $4,750.00 O. Space/Premises Address 650 B P. Specified Use of Premises: Assembly of Medical Equipment Q. H.V.A.C. Filter Change Service: Tenant's Responsibility R. Fire Alarm Service by Landlord: Total System by Landlord: Individual Premises by Tenant if so desired. S. Guarantor(s) an Current Address: ______________________ ______________________ ______________________ T. Option to Renew: ______________________
MARGEN MANAGEMENT COMPANY COMMERCIAL LEASE AGREEMENT THIS LEASE is made this 8th day of February, 1989, by and between: LANDLORD: HARBOR INDUSTRIAL PLAZA as agent for the Beneficiaries of American National Bank and Trust Company of Chicago Trust No. 42683 dated April 28, 1978 c/o Margen Management Co. 710 Anthony Trail Northbrook, Illinois 60062 Attention: Eugene B. Shapiro TENANT: HealthMate Inc. Address: 650 B. Anthony Trail Northbrook, IL 60062 who hereby mutually covenant and agree as follows: 1. GRANT: Landlord for and in consideration of the rents herein reserved and ----- of the covenants and agreements herein contained on the part of Tenant to be performed, hereby leases to Tenant, and Tenant hereby lets from Landlord, premises consisting of approximately 13,412 square feet, commonly known as Space No. B (the "Premises") in the building located at 650 Anthony Trail, Northbrook, Illinois (the "Building"), being the real estate legally described on Exhibit "A" attached hereto (the "Real Estate"), which Premises are outlined on the site plan attached hereto as Exhibit "A". 2. TERM: The Term of this Lease shall commence on February 11, 1989, (the ----- "Commencement Date") and shall expire on February 28, 1992 (the "Expiration Date"), unless sooner terminated as herein set forth. 3. TENANT'S PRO RATA SHARE: As used in this Lease, Tenant's Pro Rata Share ----------------------- shall be 13.71%. 4. RENT: ---- (a) Tenant agrees to pay monthly as base rental (the "Base Rental") during the first twelve months of the Term of this Lease the sum of ($4,750.00), which amount shall be payable to Landlord at the address shown above on the first day of each month. The Base Rental for each successive twelve (12) month period during the Term of this Lease shall increase as follows: MONTHLY RENTAL SCHEDULE February 11, 1989 February 28, 1989 0 Rent March 1, 1989 February 28, 1990 $4,750.00 March 1, 1990 February 28, 1991 $6,985.42 March 1, 1991 February 28, 1992 $7,264.83
One monthly installment of Base Rental shall be due and payable on March 1, 1989 by Tenant for the first month's Base Rental and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the "Commencement Date" during the demise Term; provided, that if the Commencement Date should be a date other than the first day of a calendar month, the monthly rental set forth above shall be pro rated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the Term. Tenant shall pay, as additional rental, all other sums due under this Lease. (b) Tenant agrees to pay Landlord as additional rental Tenant's Pro Rata Share of (i) the Real Estate Taxes (as defined below) for the Property in excess of $1.00/square foot and (ii) the Operating Expenses (as defined below) for the Building in excess of the sum of $.10 per square foot. Landlord shall, within nine months following determination such sums for which additional rental is due under this paragraph, invoice Tenant for the additional rental. The invoice shall include in reasonable detail all computations of the additional rental, and Tenant agrees to pay the additional rental within ten days following receipt of such invoice. If the Expiration Date is other than the last day of a calendar year, the amount of any additional rental payable by Tenant applicable to the year in which the Expiration Date shall occur shall be prorated on the ratio that the number of days from the commencement of such year to and including the Expiration Date bears to 365. If at any time during the Term of this Lease, Landlord has reason to believe the per square foot Operating Expenses for the calendar year will exceed the sum set forth above, Landlord may direct Tenant to prepay monthly one-twelfth of an amount equal to the additional rental paid for such item in the previous year. If the invoice delivered in accordance with this subparagraph 4(b) shows an amount owing by Tenant that is less than the sum of the monthly payments made by Tenant in the previous calendar year , Landlord may elect to apply such excess payment toward an additional rental due in the current year or to refund the excess to Tenant. If such invoice shows an amount owing by Tenant which is more than the sum of the monthly payments made by Tenant in the previous calendar year, Tenant shall pay such deficiency to Landlord within ten (10) days after receipt of the invoice. During the year in which this Lease terminate Landlord shall have the option to invoice Tenant for Tenant's Pro Rata Share of the excess Real Estate Taxes and/or Operating Expenses based upon the previous year's Real Estate Taxes and/or Operating Expenses; Landlord shall invoice Tenant under this option within thirty (30) days prior to the termination of the Lease or at any time thereafter. Tenant shall have the right, at its own expense and at a reasonable time, to audit Landlord's books relevant to the additional rentals due under this paragraph. The term "Operating Expenses" as used herein includes all expenses incurred with ------------------ respect to the maintenance and operation of the Building and/or the Property including, but not limited to, maintenance and repair costs, sewer, security, trash and snow removal, landscaping, utility bills repairs, maintenance, or other expenses for maintaining and operating the Building including the common area and parking area maintenance, and all insurance premiums Landlord is required to pay or deems necessary to pay, including public liability insurance, with respect to the Building. The term "Operating Expenses" does not include any capital improvement to the Building nor shall it include repairs, restoration or other work occasioned by fire, windstorm or other casualty, income and franchise taxes of Landlord, expenses incurred in leasing to or procuring of tenants, leasing commissions, advertising expenses, expenses for the renovating space for new tenants, interest or principal payments on any mortgage or other indebtedness of Landlord, compensation paid to any employee of Landlord for any depreciation allowance or expense. The term "Real Estate Taxes" as used above includes any and all federal, state ----------------- and local governmental taxes, assessments and charges of every kind and nature whatsoever, whether general, special, ordinary or extraordinary which Landlord shall pay or become obligated to pay in connection with or because of ownership, leasing, management, control or operation of the Building and/or the Property and all other matters with respect thereto, including but not limited to attorney's fees, appraisal charges, and all other costs and expenses incurred by Landlord in seeking a reduction of the Real Estate Taxes. (c) If any increase in the fire insurance premiums paid by Landlord for the Building is caused by Tenant's use and occupancy of the Premises, or if Tenant vacates the Premises and causes an increase in such premiums, then Tenant shall pay as additional rental the amount of such increases to Landlord. (d) Other remedies for nonpayment of rent notwithstanding, if the monthly rental payment is not received by Landlord on or before the 7th day of the month for which rent is due, or if any other payment due from Tenant is not received by Landlord on or before the 7th day of the month next following the month in which Tenant was invoiced, a service charge of five per cent (5%) of such past due amount shall become due and payable in addition to such amounts owed under this Lease. Tenant's duty to pay base rental, additional rental or any other sums due hereunder shall survive termination of this Lease by lapse of time or otherwise. (e) No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Rent due shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of Rent shall be deemed in accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Term. 5. SECURITY DEPOSIT: On the date of execution of this Lease by Tenant, there ---------------- shall be due and payable by Tenant a Security Deposit in an amount equal to one monthly Rental installments in the amount due during the last year of this Lease to be held for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that the deposit shall not be considered an advance payment of rental nor a measure of Landlord's damage in case of default by Tenant. Upon the occurrence of an event of default by Tenant or breach by Tenant of Tenant's covenants under this Lease, Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrears of rent and/or damage, injury, expense or liability caused to Landlord thereby and Tenant shall promptly reimburse Landlord such amount. If Tenant has fully performed this Lease, any remaining balance of the Security Deposit shall be returned by Landlord to Tenant upon termination of this Lease. Landlord shall not pay interest on the Security Deposit. Landlord may commingle the Security Deposit with other funds. Amount of Security Deposit $4,750.00. 6. SIGNS: Tenant shall not exhibit, inscribe, paint or affix any sign on the ----- exterior of the Building or the Property. Tenant may letter paint a sign on the glass panel of the front entry door or the glass window adjacent to the entry front door. All signage must have the consent of the Landlord prior to installation and such consent shall not be unreasonably withheld. Landlord, in addition to its other remedies available hereunder, may remove such sign without any liability to Tenant and Tenant shall reimburse Landlord for the cost of such removal immediately upon demand therefor. If Landlord installs a building directory, Tenant shall advise Landlord of name it desires and reimburse Landlord for costs only of Tenant's sign. 7. USAGE: Tenant warrants and represents to Landlord that the Premises shall ----- be used and occupied only for the purpose of assembly of medical equipment. Tenant shall occupy the Premises, conduct its business and control its agents, employees, invitees and visitors in such a manner as is lawful, reputable and will not create any nuisance or otherwise interfere with, annoy or disturb any other tenant in its normal business operations or Landlord in its management of the building. Tenant shall not commit, or suffer to be committed, any waste on the Premises, nor shall Tenant permit the Premises to be used in any way which would, in the opinion of Landlord, be extra hazardous on account of fire or otherwise which would in any way increase or render void the fire insurance on the Premises or contents of the building. 8. SERVICES: Tenant at its sole cost and expense, shall pay all charges for -------- gas, water (only if necessary) and electricity used by Tenant and during the term of this Lease. Gas and electric meters will be provided for tenant's premises. 9. HOUSEKEEPING: Tenant will instruct its employees to cooperate and keep ------------ the common areas in an orderly manner. The Tenant will be responsible for any nuisance caused by its employees, contractors, invitees, licensees or visitors. 10. REPAIRS AND MAINTENANCE. ----------------------- (a) Unless otherwise expressly provided, Landlord shall not be required to make any improvements, replacements or repairs of any kind or character to the Premises during the Term of this Lease. Landlord shall maintain only the roof, foundation, parking area, landscaped areas, and the structural soundness of the exterior walls (excluding all exterior glass and overhead doors, if any) of the Building in good repair and condition except for reasonable wear and tear. Landlord's cost of maintaining the items set forth in this subparagraph are subject to the additional rental provisions in paragraph 4. Tenant shall repair and pay for any damage caused by the negligence or default of Tenant or Tenant's agents, employees, invitees, licensees or visitors. Landlord shall not be liable to Tenant, except as expressly provided in this Lease, for any damage or inconvenience, and Tenant shall not be entitled to any abatement or reduction of rent by reason of any repairs, alterations or additions made by Landlord under this Lease. Tenant shall at its own costs and expense, maintain all other parts of the Premises and other improvements on the Premises in good repair and condition including all necessary replacements, particularly, plumbing, electrical heating and air conditioning equipment. (b) Tenant shall, at its own cost and expense, repair or replace any damage or injury to all or any part of the Premises or the dock or other common areas caused by Tenant or Tenant's agents, employees, invitees, licensees or visitors; provided, however, if Tenant fails to make the repairs or replacements promptly, Landlord may, at its option, make the repairs or replacements and the cost of such repairs or replacements shall be charged to Tenant as additional rental and shall become payable by Tenant with the payment of the rental next due hereunder. Tenant's duty under this paragraph shall survive termination of this Lease by lapse of time or otherwise. (c) Tenant shall not allow any damages to be committed on any portion of the Premises, and at the termination of this Lease, by lapse of time or otherwise, Tenant shall deliver the Premises to Landlord in as good condition as existed at the Commencement Date, ordinary wear and tear excepted. The cost and expense of any repairs necessary to restore the condition of the Premises shall be borne by Tenant, and if Landlord undertakes to restore the Premises it shall have a right of reimbursement against Tenant. (d) All requests for repairs or maintenance that are the responsibility of Landlord pursuant to any provision of this Lease must be made in writing to Landlord at the address set forth above. 11. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Tenant, at Tenant's expense, ------------------------------------------- shall comply with all laws, ordinances, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction relating to the use, condition and occupancy of the Premises. Tenant will comply with the rules of the Building adopted by Landlord which are set forth on a schedule attached to this Lease. Landlord shall have the right at all times to change the rules and regulations of the Building or to amend them in any reasonable manner as may be deemed advisable for the safety, care and cleanliness, and for the preservation of good order, of the Premises. All changes and amendments in the rules and regulations of the Building will be sent by Landlord to Tenant in writing and shall therefore be carried out and observed by Tenant. 12. LANDLORD IMPROVEMENTS: If construction to the Premises is to be performed --------------------- by Landlord prior to Tenant's occupancy, Landlord will commence and/or complete the construction of the improvements constituting the Premises, including partitions, in accordance with the floor plan and its specifications agreed to by the parties and made a part of this Lease by reference. The floor plan shall be approved and signed by the parties prior to the commencement of construction. Any changes or modifications to the approved plans and specifications shall be made and accepted by written change order signed by Landlord and Tenant and shall constitute an amendment to this Lease. Upon completion of the Premises and other improvements in accordance with the plans and specifications, Tenant agrees to execute and deliver to Landlord a letter accepting delivery of the Premises. 13. ALTERATIONS AND IMPROVEMENTS: Tenant shall not make or allow to be made ---------------------------- any alterations or physical additions in or to the Premises without first obtaining the written consent of Landlord. Any alterations, physical additions or improvements to the Premises made by Tenant shall at once become the property of Landlord and shall be surrendered to Landlord upon the termination of this Lease. Landlord, at its option, may require Tenant to remove any physical additions and/or repair any alterations in order to restore the Premises to the condition existing at the time Tenant took possession, all costs of removal and/or alterations to be borne by Tenant. This clause shall not apply to moveable equipment or furniture owned by Tenant which may be removed by Tenant at the end of the Term of this Lease if Tenant is not then in default and if such equipment and furniture is not then subject to any other rights, liens and interests of Landlord. 14. CONDEMNATION: ------------ (a) If, during the Term of this Lease, all or a substantial part of the Building or the Premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the Premises for the purpose for which they are then being used, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. Tenant shall have no claim to the condemnation award. (b) In the event a portion of the Building or the Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in subparagraph (a) above, the base rental payment under this Lease during the unexpired portion of the Term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. Tenant shall have no claim to the condemnation award. 15. FIRE AND CASUALTY: ----------------- (a) If the Premises should be totally destroyed by fire or other casualty, or if the Premises should be so damaged so that rebuilding cannot reasonably be completed with one hundred eighty (180) working days after the date of written notification by Tenant to Landlord of the destruction, this Lease shall terminate and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification. (b) If the Premises or the Building should be partially damaged by fire or other casualty, and rebuilding or repairs can reasonably be completed within one hundred eighty (180) working days from the date of written notification by Tenant to Landlord of the destruction, this Lease shall not terminate, but Landlord may at its sole risk and expense proceed with reasonable diligence to rebuild or repair the Building or other improvements to substantially the same condition in which they existed prior to the damage. If the Premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, and provided the damage or destruction was not caused or contributed to by act, failure to act or negligence of Tenant, its agents, employees, invitees or those for whom Tenant is responsible, the rent payable under this Lease during the period for which the Premises are untenantable shall be adjusted to such an extent as may be fair and reasonable under the circumstances. In the event that Landlord fails to complete the necessary repairs or rebuilding within one hundred eighty (180) working days from the date of written notification by Tenant to Landlord of the destruction, Tenant may at its option terminate this Lease by delivering written notice of termination to Landlord, whereupon all rights and obligations under this Lease shall cease to exist. 16. INSURANCE: (a) At all times subsequent to Tenant's taking possession of --------- the Premises, Tenant shall, at its sole cost and expense maintain: (i) Comprehensive General Public Liability Insurance against claims for personal injury, death or property damage occurring in connection with the use and occupancy of the Premises, naming Tenant and Trustee and its beneficiaries and the management of the Building as the named insurers, such insurance to afford protection to the limit of not less than Five Hundred Thousand Dollars ($500,000.00) in respect to injury or death of a single person and to the limit of not less than One Million Dollars ($1,000,000.00) in respect to any one accident, and to the limit of not less than One Hundred Thousand Dollars ($100,000.00) in respect to property damage. (ii) Steam Boiler Insurance on all steam boilers, pressure tanks and other such apparatus, if any, as shall from time to time be installed by Tenant on the Premises, in such amount as Landlord may from time to time reasonably require. (iii) Worker's Compensation Insurance shall be maintained at all times when any work is in process in connection with any change or alteration being made by Tenant and Tenant shall maintain or hire only such contractors who maintain Worker's Compensation Insurance covering all persons employed in connection within the work and with respect to whom death or bodily injury claims could be asserted against Landlord, the Trustee or its beneficiaries, as well as Tenant or the Premises. (iv) Fire and Extended Coverage Insurance (contents broad form) on Tenant's personal property located in the Premises in amounts reasonably deemed adequate by Tenant to fully insure such personal property. (b) With respect to policies which Tenant is required to procure and maintain hereunder: (i) Each such policy shall contain an agreement or endorsement that it will not be canceled by insurer without at least thirty (30) days' prior written notice to Landlord. (ii) Each such policy, or a certification therefor issued by insurer thereunder, shall be deposited by Tenant with Landlord. (iii) If Tenant furnishes any insurance in the form of a blanket policy, it will furnish satisfactory proof that such blanket policy complies in all respects with the provisions of this Lease, and that the coverage thereunder is at least equal to the coverage which would be provided under a separate policy covering only the Premises. (iv) Each such policy shall be issued by insurers of recognized responsibility licensed to do business in Illinois. (v) Not less than thirty (30) days prior to the expiration date of any such policy, Tenant will furnish Landlord with a new policy or certificate therefor or a renewal thereof in substitution of the expiring policy. (vi) Tenant will not do, suffer or permit any act or omission, whether upon the Premises or otherwise, which might or would void or impair the obligation of such policy or insurance. (c) Landlord agrees to maintain for the Building in force during the Term: (i) Comprehensive General Liability Insurance on an occurrence basis with minimum limits of liability in an amount of Five Hundred Thousand Dollars ($500,000) for bodily injury, personal injury or death to any one person and One Million Dollars ($1,000,000) for bodily injury, personal injury or death to more than one person and One Hundred Thousand Dollars ($100,000) with respect to damage to property, including water and sprinkler damage to the Building; and (ii) Fire Insurance, with extended coverage and vandalism and malicious mischief endorsements, in an amount adequate to cover at least eighty percent (80%) of the replacement value of the Building. (d) Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 17. HOLD HARMLESS: Landlord shall not be liable to Tenant's employees, ------------- agents, invitees, licensees or visitors, or to any other person, for any injury to person or damage to property on or about the Property caused by the negligence or misconduct of its agents, servants or employees, or of any other person entering upon the Property under express or implied invitation by Tenant, or caused by the Building and improvements located on the Property becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the Building. Tenant agrees to indemnify and hold harmless Landlord of and from any loss, attorney's fees, expenses or claims arising out of any such damage or injury. 18. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and --------------- to perform this Lease and to grant the estate demised and that Tenant, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the premises during the full Term of this Lease as well as any extension or renewal thereof. Landlord shall not be responsible for the acts or omissions of any other tenant or third party that may interfere with Tenant's use and enjoyment of the Premises. 19. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right, at all ------------------------- reasonable hours, to enter the Premises for the following reasons: inspection, making repairs; making alterations or additions as Landlord may deem necessary or desirable; determining Tenant's use of the Premises; determining if an act of default under this Lease has occurred; and to show the Premises to prospective tenants or purchasers of the Property. 20. ASSIGNMENT OR SUBLEASE: Landlord shall have the right to transfer and ---------------------- assign, in whole or in part, its rights and obligations in the Building and the Property. Tenant shall not assign this Lease or sublet all or any part of the Premises without the prior written Consent of Landlord. In addition, Landlord shall have the option, upon receipt from Tenant of written request for Landlord's consent to subletting or assignment, to cancel this Lease as of the date the requested subletting or assignment is to be effective by delivering written notice of such exercise within twenty (20) days. In the event of any assignment or subletting, Tenant shall nevertheless at all times remain fully responsible and liable for the payment of the rent and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an "event of default" as defined below, if all or any part of the Premises are then assigned or sublet, Landlord, in addition to any other remedies provided by this Lease or provided by law, may, at its option, collect directly from the assignee or sublessee all rents becoming due to Tenant by reason of the assignment or sublease, and Landlord shall have a security interest in all properties on the Premises to secure payment of such sums. Any collection directly by Landlord from the assignee or sublessee shall not be construed to constitute a notation or a release of Tenant from the further performance of its obligations under this Lease. 21. LANDLORD'S LIEN: As security for payment of rent, damages and all other --------------- payments required to be made by this Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now or subsequently located upon the Premises. If Tenant abandons or vacates any substantial portion of the Premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Landlord may enter upon the Premises, by picking or changing locks if necessary, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Tenant, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Tenant's title and interest in the personal property sold to him. The proceeds of the sale of the personal property shall be applied by Landlord toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment for all sums then due by Tenant to Landlord under the terms of this Lease; any excess remaining shall be paid to Tenant or any other person entitled thereto by law. 22. UNIFORM COMMERCIAL CODE OF ILLINOIS: This Lease is intended as and ----------------------------------- constitutes a security agreement within the meaning of the Uniform Commercial Code of the State of Illinois and Landlord, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Tenant's property now or hereafter located upon the Premises which are granted a secured party, as that term is defined, under the Uniform Commercial Code to secure the payment to Landlord of the various amounts provided in this Lease. Tenant will on request execute and deliver to Landlord a financial statement for the purpose of perfecting Landlord's security interest under this Lease or Landlord may file this Lease or a copy thereof as a financial statement. 23. DEFAULT BY TENANT: The following shall be deemed to be events of default ----------------- by Tenant under this Lease: (a) Tenant shall fail to pay when due any installment of rent or any other payment required pursuant to this Lease: (b) Tenant shall vacate or abandon any portion of the Premises; (c) Tenant shall fail to comply with any term provision or covenant of this Lease, other than the payment of rent, and the failure is not cured within thirty (30) days after written notice to Tenant; (d) Tenant shall file a petition or be adjudged bankrupt or insolvent under the National Bankruptcy Act, as amended, or any similar law or statute of the United States or any state; or a receiver or trustee shall be appointed for all or substantially all of the assets of Tenant; or Tenant shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; or (e) Tenant shall do or permit to be done any act which results in a lien being filed against the Property or the Building. 24. REMEDIES FOR TENANT'S DEFAULT: Upon the occurrence of any event of ----------------------------- default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand: (a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to surrender the Premises, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises, by picking or changing locks if necessary, and lock out, expel, or remove Tenant and any other person who may be occupying all or any part of the Premises without being liable for prosecution of any claim for damages. Tenant agrees to pay on demand the amount of all loss and damage which Landlord may suffer by reason of the termination of the Lease under this subparagraph, whether through inability to relet the Premises on satisfactory terms or otherwise. (b) Enter upon and take possession of the Premises, by picking or changing locks if necessary, and lock out, expel or remove Tenant and any other person who may by occupying all or any part of the Premises without being liable for any claim for damages, and relet the Premises on behalf of Tenant and receive directly the rent by reason of the reletting. Tenant agrees to pay Landlord on demand any deficiency that may arise by reason of any reletting of the Premises; further, Tenant agrees to reimburse Landlord for any costs or expenses incurred by it for the reletting of the Premises, including attorneys' fees and broker's commission. (c) Enter upon the Premises, by picking or changing locks if necessary, without being liable for prosecution of any claim for damages, and do whatever Tenant is obligated to do under the term of this Lease. Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in effecting compliance with Tenant's obligations under this Lease; further, Tenant agrees that Landlord shall not be liable for any damages resulting to Tenant from effecting compliance with Tenant's obligations under this subparagraph caused by the negligence of Landlord or otherwise. 25. WAIVER OF DEFAULT OR REMEDY: Failure of Landlord to declare an event of --------------------------- default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of the default, but Landlord shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in paragraph 24 above shall not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided by law, nor shall pursuit of any remedy provided constitute forfeiture or waiver of any rent or damages accruing to Landlord by reason of the violation of any of the terms, provisions or covenants of this Lease. Failure by Landlord to enforce one or more of the remedies provided upon an event of default shall not be deemed or constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. Waiver of a default shall not constitute waiver of any other or further default. 26. ACTS OF GOD: Landlord shall not be required to perform any covenant or ----------- obligation in this Lease, or be liable in damages to Tenant, so long as the performance or non-performance of the covenant or obligation is delayed, caused by or prevented by an act of God or force majeure. 27. ATTORNEY'S FEES: In the event Tenant defaults in the performance of any ---------------- of the terms, covenants, agreements or conditions contained in this Lease and Landlord places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the Premises, Tenant agrees to pay Landlord reasonable attorney's fees for the services of the attorney, whether suit is actually filed or not. In no event shall the attorney's fees be less than fifteen percent (15%) of the outstanding balance owed by Tenant to Landlord. 28. HOLDING OVER: In the event of holding over by Tenant after the expiration ------------ or termination of this Lease, the hold over shall be as a Tenant at will and all of the terms and provisions of this Lease shall be applicable during that period, except that Tenant shall pay Landlord as rental for the period of such hold over an amount equal to double the rent payable for the month immediately preceding said holding over, computed on a month to month basis (without reduction for any partial months). Tenant agrees to vacate and deliver the Premises to Landlord upon Tenant's receipt of notice from Landlord to vacate. The rental payable during the hold over period shall be payable to Landlord on demand. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except Landlord shall have option to elect to treat such hold over as a renewal of this Lease for one (1) year on all terms and conditions herein, which election may be exercised by Landlord at any time from time to time during a hold over by giving written notice thereof to Tenant. The provisions of this Paragraph 28 shall not be deemed to limit or exclude any of Landlord's rights of re-entry or any other right or remedy granted to Landlord hereunder or by law. In the event Tenant fails to surrender the Premises upon termination or expiration of this Lease or such month-to-month tenancy, then Tenant shall indemnify Landlord against all loss, cost, expenses or liability resulting from any delay of Tenant in not surrendering the Premises, including, but not limited to, any amounts required to be paid to third parties who were to have occupied the Premises and any attorney's fees or broker's commissions related thereto. 29. RIGHTS OF MORTGAGEE: Tenant accepts this Lease subject and subordinate to ------------------- any recorded mortgage or deed of trust lien presently existing or hereafter created upon the Premises by Landlord. Landlord is hereby irrevocably vested with full power and authority to subordinate Tenant's interest under this Lease to any mortgage or deed of trust lien hereafter placed on the Premises, and Tenant agrees upon demand to execute additional instruments subordinating this Lease as Landlord may require. If the interests of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any mortgage or deed of trust on the Premises, Tenant shall be bound to the transferee (sometimes called the "Purchaser"), at the option of the Purchaser, under the Terms, covenants and conditions of this Lease for the balance of the term remaining, and any extensions or renewals, with the same force and effect as if the Purchaser were Landlord under this Lease, and, if requested by the Purchaser, Tenant agrees to attorn to the Purchaser, including the mortgagee under any such mortgage if it be the Purchaser, as its Landlord. 30. ESTOPPEL CERTIFICATE: Tenant agrees to furnish promptly, from time to -------------------- time, upon request of Landlord or Landlord's mortgagee, a statement certifying, if applicable, that Tenant is in possession of the Premises; the Premises are acceptable; the Lease is in full force and effect; the Lease is unmodified; Tenant claims no present charge, lien, or claim of offset against rent; the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance; there is no existing default by reason of some act or omission by Landlord; and such other matters as may be reasonably required by Landlord or Landlord's mortgagee. 31. SUCCESSORS: This Lease shall be binding upon and inure to the benefit of ---------- Landlord and Tenant and their respective heirs, personal representatives, successors and assigns. It is hereby covenanted and agreed that should Landlord's interest in the Premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event this Lease nevertheless shall remain unimpaired and in full force and effect and Tenant hereunder agrees to attorn to the then owner of the Premises. If Landlord sells, assigns or otherwise transfers its interest in the Property, Landlord shall have the right to transfer the Security Deposit to such purchaser to be held under the terms of this Lease and, in such event, Landlord shall be released from all liability for holding or returning the Security Deposit to Tenant. 32. RENT TAX: If applicable at any time during the Term, Tenant shall pay and -------- be liable for all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Landlord by Tenant under the terms of this Lease. Any such payment shall be paid concurrently with the payment of the rent upon which the tax is based. 33. DEFINITION: The following definitions apply to the terms set forth below ---------- as used in this Lease: (a) "Abandon" means the vacating of all or a substantial portion of the Premises by Tenant, whether or not Tenant is in default of the rental payments due under this Lease. (b) An "act of God" or "force majeure" is defined for purposes of this Lease as strikes, lockouts, sit-downs, material or labor restrictions, by any governmental authority, unusual transportation delays, riots, floods, washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of public enemy, wars, insurrections and any other cause not reasonably within the control of Landlord and which by the exercise of due diligence Landlord is unable, wholly or in part, to prevent or overcome. (c) The "Commencement Date" shall be the date set forth in Paragraph 2. The Commencement Date shall constitute the commencement of this Lease for all purposes, whether or not Tenant has actually taken possession. (d) "Square Feet" or "square foot" as used in this Lease includes the area contained within the space occupied by Tenant together with a common area percentage factor of Tenant's space proportionate to the total building area as determined by the architect by measuring to the outside of the exterior walls and to the center of the demising walls of the Building. 34. MISCELLANEOUS: The captions appearing in this Lease are inserted only as ------------- a matter of convenience and in no way define, limit, construe or describe the scope or intent of such paragraph. If any provision of this Lease shall ever be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Lease, and such other provisions shall continue in full force and effect. This Lease shall be deemed to have been made in and shall be construed in accordance with the laws of the State of Illinois. In the absence of fraud, no person, firm, or corporation or the heirs, legal representatives, successors or assigns respectively, executing this Lease in a representative capacity shall be held individually liable hereunder. A default in this Lease or in any other Lease made between Landlord and Tenant shall, at the option of the Landlord, be deemed a default under this Lease, the other Lease or both Leases. This Lease shall become effective only upon execution by both Landlord and Tenant and Tenant's payment of the Security Deposit and first month's rent. 35. NOTICE: ------ (a) All rent and other payments required to be made by Tenant shall be payable to Landlord at the address set forth on page 1. (b) All payments required to be made by Landlord to Tenant shall be payable to Tenant at the address set forth on page 1 or at any other address within the United States as Tenant may specify from time to time by written notice. (c) Any notice or document required or permitted to be delivered by this Lease shall be deemed to be delivered (whether or not actually received) when hand delivered or when deposited in the United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the parties at the respective addresses set forth on Page 1. 36. REAL ESTATE BROKER: Tenant warrants that it has no dealings with any ------------------ broker or agent other than Howard Ecker and Florrie Gottainer in connection with this Lease and covenants to pay, defend hold harmless and indemnify Landlord from and against any and all costs, expense or liability for any compensation, commission or charges claimed by any broker or agent with respect to this Lease or the negotiation thereof. 37. BINDING EFFECT AND LIMITATION OF LIABILITY: Except as expressly provided ------------------------------------------ herein, this Lease shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns, and all covenants and agreements herein contained to be observed and performed by Tenant shall be joint and several. Anything in this Lease to the contrary notwithstanding, Tenant agrees that Tenant shall look solely to the estate and interest of Landlord, its successors and assigns, in and to the project of which the Premises are a part or the proceeds therefrom for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord hereunder, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use, or occupancy of the Premises. 38. ENTIRE AGREEMENT AND LIMITATION OR WARRANTIES: IT IS EXPRESSLY AGREED BY --------------------------------------------- TENANT, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE. LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. IT IS LIKEWISE AGREED THAT THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LANDLORD AND TENANT. 39. AUTHORITY: If Tenant is a corporation, Tenant agrees to provide a --------- certified copy of resolutions duly adopted by its Board of Directors and a certified copy of such relative portion of its By-Laws setting forth that the execution and delivery of this Lease have been duly and validly authorized by all necessary and appropriate corporate action and that this Lease is valid and binding and fully enforceable in accordance with its terms. Tenant does hereby warrant and represent that its signatories whose signatures appear below have been and are on the date of this Lease duly authorized by all necessary and appropriate corporate action to execute this Lease. 40. CONTROL OF TENANT: If Tenant is a corporation, and if at any time during ----------------- the Term the persons, firms or corporations who own a majority of its shares at the time of execution of this Lease cease to own such shares and such succession shall not first have been approved in writing by Landlord, then such succession shall, at the option of Landlord, be deemed a default by Tenant under this Lease. If Tenant is a limited partnership, and if at any time during the terms of this Lease any person, from a corporation, who, at the date hereof, is a general partner thereof ceases to be such a general partner and such succession shall not first have been approved in writing by Landlord, then such succession shall, at the option of Landlord, be deemed a default by Tenant under this Lease. 41. FINANCIAL STATEMENTS: Tenant shall provide Landlord with a copy of its -------------------- annual Financial Statements prepared in accordance with generally accepted accounting principles within thirty days (30) when requested by Landlord. IN WITNESS WHEREOF, the parties hereto have duly executed the foregoing instrument or caused the same to be executed the day and year first above written. LANDLORD: TENANT: Harbor Industrial Plant ------------------------------- By: /s/ By: /s/ ------------------------- ---------------------------- Vice President (Name and Title) /s/ ------------------------- EUGENE B. SHAPIRO Eugene B. Shapiro ATTEST: as agent for the beneficiaries of American National Bank (Seal) - ---------------------- Trust No. 42807 and 42683 --------------- By: -------------------------- Title CERTIFICATE (if Tenant is a Corporation) I, _________________________, Secretary of ________________________________ __________________________, Tenant, hereby Certify that the officers executing the foregoing Lease on behalf of ___________________________________________________________, a ______________________ corporation, were duly authorized to act in their capacities as the (Vice) President and (Assistant) Secretary of said corporation and their actions are the action of said corporation, as Tenant. Dated: ----------------------- ----------------------- Secretary (Corporate Seal) GUARANTY -------- The undersigned hereby agree to guarantee the full and prompt performance of Tenant of all of the terms, covenants, conditions and obligations of Tenant under the foregoing Lease and to pay all costs and attorneys' fees incurred by Landlord in enforcing the foregoing Lease or this Guaranty and Landlord shall have the right, in its sole discretion, to proceed first directly against the undersigned Guarantors without exhausting any other remedies which it may have. Date: -------------------------- Guarantor's Signature Name and Address - --------------------- ---------------- - -------------------------------- -------------------------------- -------------------------------- - -------------------------------- -------------------------------- -------------------------------- RULES AND REGULATIONS 1. Tenant shall not make any alterations or additions in or about the Premises without Landlord's prior written consent and all such work shall comply with Village of Northbrook's ordinances, rules and regulations. 2. Tenant shall not at any time occupy any part of the Premises or project as sleeping or lodging quarters. 3. Tenant shall not place, install or operate on the Premises or in any part of the Building, any engine, stove or machinery, or conduct mechanical operations or cook thereon or therein, or place or use in or about the Premises or Property any explosives, gasoline, kerosene, oil, acids, caustics, or any flammable, explosive or hazardous material without written consent of Landlord. 4. Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from the Premises or the Property regardless of whether such loss occurs when the area is locked against entry or not. 5. No dogs, cats, fowl, or other animals shall be brought into or kept in or about the Premises or Property. 6. Employees of Landlord shall not receive or carry messages for or to any Tenant or other person, nor contract with or render free or paid services to any Tenant or Tenant's agents, employees or invitees. 7. None of the parking, plaza, recreation or lawn areas, entries, passages, doors, hallways or stairways shall be blocked or obstructed, or any rubbish, litter, trash, or material of any nature placed, emptied or thrown into these areas nor such area be used by Tenant's agents, employees or invitees at any time for purposes inconsistent with their designation by Landlord. 8. The water closets and other water fixtures shall not be used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse, or by the defacing or injury of any part of the Building shall be borne by the person who shall occasion it. No person shall waste water by interfering with the faucets or otherwise. 9. No person shall disturb occupants of the Building by the use of any radios, record players, tape recorders, musical instruments, the making of unseemly noises, or any unreasonable use. 10. Nothing shall be thrown out in common areas (freight docks, etc.) and Tenant shall promptly pay for any costs resulting in clean up of common areas caused by its employees or invitees. 11. Tenant and its employees, agents and invitees shall park their vehicles only in those parking areas designated by Landlord. Upon request Tenant shall furnish Landlord with state automobile license numbers of Tenant's vehicles and its employees' vehicles. Tenant shall not leave any vehicle in a state of disrepair (including without limitation, flat tires, out of date inspection stickers or license plates) on the Premises or Property. If Tenant or its employees, agents or invitees park their vehicles in areas other than the designated parking areas or leave any vehicle in a state of disrepair, Landlord, after giving written notice to Tenant of such violation, shall have the right of remove such vehicles at Tenant's expense. 12. No additional locks or similar devices shall be attached to any door and no locks shall be changed except by Landlord. A master key system has been provided with key given to the fire department to be kept in their lock box to which only the fire department has a key. Upon termination of this lease, or Tenant's possession of the Premises, Tenant shall surrender all keys for all locks to the Premises. It is Landlord's desire to maintain in the Building and Property the highest standard of dignity and good taste consistent with comfort and convenience for Tenants. Any action or condition not meeting this high standard should be reported directly to Landlord. Your cooperation will be mutually beneficial and sincerely appreciated. Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary, for the safety, care and cleanliness of the Premises and the preservation of good order therein. EXHIBIT A (650 Anthony Trail) 1. LEGAL DESCRIPTION LOT 2 IN MARLENES RESUBDIVISION OF LOTS 11 AND 12 IN THE RESUBDIVISION OF PART OF LOT 4 IN BLOCK 3 IN FIRST RESUBDIVISION OF SKY HARBOR INDUSTRIAL PARK UNIT ONE IN THE SOUTH HALF OF SECTION 5, TOWNSHIP 42 NORTH, RANGE 12, EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS. 2. BUILDING FLOOR PLAN, ADDRESS: Square footage Diagram of property layout at 650B Anthony Trail
Unit/Space: Total Area: Pro Rata Share% ----------- ----------- --------------- C 19,545 19.97 B 13,412 13.71 A 25,433 25.99 D 20,470 20.92 E 7,940 8.12 F 11,043 11.29 ------ ------ 97,841 100.00% ------ ------
This Rider Is To Be Made Part Of The Lease Dated February 8, 1989 By And Between HealthMate Inc., Lessee and Eugene B. Shapiro As Agent For The Beneficiaries Of American National Bank Trust No. 42807 and 42683 1. Lessee's Work: Lessor will allow Lessee to install their own exhaust fan through existing opening in roof deck, and add additional electrical according to Northbrook Village Codes. 2. Lease Term: Lessee will give written notice to Lessor no later than November 28, 1989 as to their intent to remain in tenancy for years 2 and 3, or their intent to vacate the premises by February 28, 1990 with no penalty. Should Lessee vacate the premises at the end of (1) one year they must restore the premises to its original move-in condition. 3. Lessor's Work: Lessor agrees to remove one existing wall in the offices and bring such to proper repair in the event Lessee notifies Lessor that they are remaining for years 2 and 3. LANDLORD: TENANT: HARBOR INDUSTRIAL PLAZA /s/ ------------------------------- By: /s/ By: /s/ ----------------------------------- -------------------------- /s/ (Name and Title) - ---------------------------------------- Kenneth Wiefelman, President EUGENE B. SHAPIRO HealthMate Inc. Eugene B. Shapiro as agent for the beneficiaries of American National Bank Trust No. 42807 and 42683 EX-11.01 4 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11.01 Hologic, Inc. and Subsidiaries Statement RE: Computation of Earnings Per Share
Fiscal years ended PRIMARY: September 24, September 30, September 28, 1994 1995 1996 Net Income $4,767,944 $3,348,256 $11,356,866 ========== ========== =========== Weighted average number of common shares outstanding 8,892,393 9,201,947 11,698,371 Common Stock equivalents outstanding pursuant to treasury stock method 462,662 628,690 825,612 ------- ------- ------- Weighted average number of common and common equivalent shares outstanding 9,355,055 9,830,637 12,523,983 ========= ========= ========== Per share amount $0.51 $0.34 $0.91 ===== ===== ===== FULLY DILUTED: Net Income $4,767,944 $3,348,256 -- ---------- ---------- ------------- Weighted average number of common shares outstanding 8,892,393 9,201,947 Common Stock equivalents outstanding pursuant to treasury stock method 756,454 1,027,782 -- ---------- ---------- ------------- Weighted average number of common and common equivalent shares outstanding 9,648,847 10,229,729 -- =========== ========== ============= Per share amount $0.49 $0.33 -- ===== ===== =============
EX-22.01 5 SUBSIDIARIES OF THE COMPANY Exhibit 22.01 Hologic Subsidiaries Hologic Europe N.V. avenue H. Matisse Laan 14 Bruxelles 1140 Brussel Belgium Hologic France S.A. Parc du Moulin de Massy 35 rue du Saule Trapu F-91882 Massy Cedex France FluoroScan Imaging Systems, Inc. 650B Anthony Trail Northbrook, Illinois 60062 FluoroScan International, Inc. 72, rue du Faubourg St. Honore 75008 Paris France EX-24.01 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 24.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this Form 10K, into the Company's previously filed Registration Statement File Nos. 33-35191 and 33-47830. ARTHUR ANDERSEN LLP Boston, Massachusetts December 27, 1996 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL STATEMENTS. YEAR SEP-28-1996 OCT-01-1995 SEP-28-1996 28,754,023 46,907,728 21,735,613 1,360,000 11,122,988 113,033,727 7,658,242 3,973,723 123,107,456 15,834,766 0 0 0 128,713 107,143,977 123,107,456 88,200,646 91,590,625 41,252,990 76,867,784 249,379 0 0 17,056,866 5,700,000 11,356,866 0 0 0 11,356,866 .91 0
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