As filed with the Securities and Exchange Commission on September 3, 2010

Registration No. 333-161329

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 11

to

 

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

MIRION TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

3000 Executive Parkway, Suite 222

San Ramon, CA 94583

(925) 543-0800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

 

Jack A. Pacheco

Vice President and Chief Financial Officer

Mirion Technologies, Inc.

3000 Executive Parkway, Suite 222

San Ramon, CA 94583

(925) 543-0800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

(Do not check if a smaller reporting company)

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 2010

 

 

            Shares

 

Mirion Technologies, Inc.

 

Common Stock

 

 

 

This is an initial public offering of shares of common stock of Mirion Technologies, Inc.

 

We are selling            shares of common stock, and the selling stockholders named in this prospectus are selling            additional shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

Prior to this offering, there has been no public market for our common stock. We expect the initial public offering price to be between $      and $      per share. Our common stock has been approved for listing on The NASDAQ Global Market under the symbol “MION.”

 

The underwriters have an option to purchase a maximum of            additional shares of common stock from the selling stockholders. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Investing in our common stock involves risks. See “Risk Factors” on page 12 of this prospectus.

 

 

Delivery of the shares of common stock in book-entry form only will be made on or about          , 2010.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

 

Baird

 

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. We, the underwriters and the selling stockholders have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We, the underwriters and the selling stockholders are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

“Mirion Technologies,” “Mirion,” “GDS,” “Global Dosimetry Solutions,” “HandFoot-Fibre,” “Imaging and Sensing Technology,” “IST,” “MGP Instruments,” “MGPI,” “SPIR Ident,” “Synodys,” “TwoStep-Exit” and any corresponding logos, are our common law and registered trademarks. Solely for convenience, we refer to our trademarks in this prospectus without the ^tm and ^® symbols, but such references are not intended to indicate that we will not assert our rights to our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their owners.

 

References to “fiscal” before any year refer to our fiscal year ending on June 30th of the year referenced.

 

Dealer Prospectus Delivery Obligation

 

Until and including          , 2010 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to unsold allotments or subscriptions.

 

PROSPECTUS SUMMARY

Fiscal 2010 Revenue by End Markets		Fiscal 2010 Revenue by Geography
Fiscal 2010 Revenue: $228.1 Million

	•	Exploit under-penetrated market opportunities.
	•	Expand addressable market.

	•	Geographic expansion.  We believe we can increase our presence in the international market. For example, we intend to leverage our relationships with leading reactor design firms to capitalize on the opening of India’s nuclear end market to U.S. firms due to a recent treaty ratification.
	•	Customer outsourcing.  Some NPP operators have recently outsourced their dosimetry services in order to reduce costs. We have been able to benefit from economies of scale as well as advantages in materials procurement and processing technology to provide enhanced dosimetry services to many of these NPPs at a lower cost.
	•	Service privatization.  In some regions outside the United States, dosimetry services have historically been provided by government agencies. However, privatization of dosimetry services is accelerating in some regions, such as Europe, as providers seek to reduce costs and benefit from enhanced service offerings, providing an opportunity to leverage our expertise and North American service experience.
	•	New applications for existing technologies.

	•	Develop new products and services.
	•	Continuously improve our cost structure and productivity.
	•	Pursue strategic acquisitions.

	•	the long and unpredictable nature of our sales cycle;
	•	fluctuations in our financial performance;
	•	our short operating history as a consolidated entity;
	•	material weaknesses in our internal controls over financial reporting;
	•	the highly competitive nature of our markets and the resources of our competitors;
	•	the uncertain fulfillment of our backlog;

	•	the effect of the recent global financial crisis and worldwide economic conditions; and

	•	changes in our customers’ budgets for radiation detection products and services and the timing of their purchasing decisions.

Common stock offered by us		shares

Common stock offered by the selling stockholders		shares

Total offered		shares

Common stock to be outstanding after this offering		shares based on the number of shares of common stock outstanding as of          , 2010

Over-allotment option		The underwriters have a 30-day option to purchase from the selling stockholders up to an additional           shares of common stock to cover over-allotments.

Dividend policy		We do not anticipate paying any dividends on our common stock in the foreseeable future. See “Dividend Policy.”
Risk factors		Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

Use of proceeds and benefits to be received by related persons in connection with this offering		We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $      million, assuming the shares are offered at $      per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use approximately $      million of the net proceeds from the shares that we sell in this offering to repay borrowings from ACAS and its affiliates. We intend to repay all other debt held by ACAS and its affiliates ($      million as of          , 2010) with borrowings under our anticipated new bank credit facilities that we expect to enter into upon the consummation of this offering. We also intend to use net proceeds from this offering to make a one-time payment of $8.0 million to American Capital Financial Services, Inc., or ACFS, a subsidiary of ACAS, to terminate an investment banking services agreement between us and ACFS. We intend to use $0.8 million of the net proceeds from this offering to make bonus payments upon the completion of this offering to certain of our employees, including an aggregate of $0.6 million to certain of our executive officers in the respective amounts set forth on page 113 of this prospectus. ACAS is our controlling stockholder and is a selling stockholder in this offering. We will not receive any proceeds from the sale of shares of common stock held by the selling stockholders. See “Use of Proceeds” and “Principal and Selling Stockholders.”

		In addition, certain of our executive officers and non-ACAS director nominees will receive cash bonus payments, stock option grants and the accelerated vesting of certain stock options upon the completion of this offering. In addition, we expect certain of our equityholders that are also related persons, including ACAS, our

		principal stockholder, and Thomas D. Logan, our President, Chief Executive Officer and Chairman of the Board, to agree with us to receive cash dividends in lieu of paid-in-kind dividends on convertible preferred stock held by them that will accrue from and after          , 2010. All warrants held by such equityholders will also become exercisable upon consummation of this offering. See “Certain Relationships and Related Party Transactions” for a discussion of the expected benefits that such related persons will receive upon the completion of this offering.

Proposed NASDAQ Global Market symbol		MION

	•	856,694 shares of common stock subject to outstanding options at a weighted average exercise price of $14.22 per share;

	•	an aggregate of 1,054,531 shares of common stock either reserved for issuance under our existing stock option plan or to be reserved for issuance under our amended and restated stock plan to become effective in connection with this offering, of which 124,448 shares are expected to be granted in the form of stock options to our employees, including options to purchase 34,008 shares to be granted to our executive officers (in the respective amounts set forth on page 113 of this prospectus), and, under the director compensation policy described on page 105 of this prospectus, to outside directors immediately following the pricing of this offering at an exercise price equal to the initial public offering price; and

	•	3,420,636 shares of common stock subject to outstanding warrants at a weighted average exercise price of $0.00018 per share. These warrants only become exercisable upon a sale, liquidation or dissolution of the Company or approval by our Board of Directors. Our Board of Directors has resolved that all of these warrants will become exercisable at the option of the holder thereof upon the consummation of this offering and thereafter.

	•	all of the outstanding shares of our convertible preferred stock will be converted into shares of our common stock;

	•	all of the outstanding shares of our Class A Voting Common Stock and Class B Non-Voting Common Stock will be converted into shares of our common stock on a one-for-one basis; and

	•	the underwriters will not exercise their over-allotment option.

		Year Ended June 30,
		2008				2009				2010
Consolidated Statement of Operations Data:
Revenue		$	191,769			$	201,763			$	228,124
Cost of revenue			102,790				105,954				126,707
Gross profit			88,979				95,809				101,417
% of revenue			46.4	%			47.5	%			44.5	%
Operating expenses
Selling, general and administrative expenses			63,177				65,649				64,510
Research and development expenses			14,865				11,282				8,729
Total operating expenses			78,042				76,931				73,239
Income from operations			10,937				18,878				28,178
Interest expense, net			20,207				17,711				15,120
Other income, net			(1,759	)			(490	)			(639	)
(Loss) Income before provision for income taxes			(7,511	)			1,657				13,697
Provision for income taxes			5,838				5,612				7,732
Net (loss) income		$	(13,349	)		$	(3,955	)		$	5,965
Paid-in-kind preferred dividends			(8,993	)			(9,892	)			(10,923	)
Net loss allocable to common stockholders		$	(22,342	)		$	(13,847	)		$	(4,958	)
Pro forma net loss per common share before conversion of preferred shares — basic and diluted(1)										$
Pro forma net income per common share — diluted(1)										$
Pro forma net income per common share — diluted as adjusted(1)										$

		As of June 30, 2010
						Pro Forma as
Consolidated Balance Sheet Data:		Actual				Adjusted(1)
Cash and cash equivalents(3)		$	9,936			$
Total assets			307,363
Notes payable to ACAS(4)			183,252
New indebtedness(4)(5)			—
Total stockholders’ equity			2,190

		Year Ended June 30,
		2008				2009				2010
Other Data:
Adjusted EBITDA(6)		$	34,218			$	40,625			$	46,300
Amortization of intangible assets			10,140				8,144				6,432
Capital expenditures			4,953				6,649				10,437

		As of June 30,
		2008				2009				2010
Backlog(7)		$	177,956			$	183,960			$	191.734
Deferred contract revenue			53,539				62,031				44,730

(1)		Pro forma net loss per common share before conversion of preferred shares — basic and diluted and pro forma net income per common share — diluted and diluted as adjusted for the year ended June 30, 2010 is calculated as follows:

		Year Ended
		June 30,
		2010
Numerator:
Net loss allocable to common stockholders		$	(4,958	)
Interest expense from paydown of ACAS debt using proceeds of offering(a)
Pro forma net loss allocable to common stockholders before conversion of preferred shares
Effect of preferred stock dividends(b)			10,923
Pro forma net income allocable to common stockholders
Interest expense reduction from refinancing of ACAS debt(c)
Compensation expense from employee stock options and call options(d)
Pro forma net income allocable to common stockholders — as adjusted		$

		Year Ended
		June 30, 2010
Denominator:
Weighted average shares outstanding from conversion of Class A and B Voting Common Stock(e)			405,796
Common shares issued in this offering(f)
Shares used in computing pro forma net loss per common share before conversion of preferred shares — basic and diluted(i)
Weighted average shares outstanding from conversion of convertible preferred stock(g)			10,233,721
Shares used in computing pro forma net income per common share — basic
Weighted average common shares outstanding from exercise of warrants(h)			3,420,636
Weighted average common share equivalents of stock option(i)			73,879
Shares used in computing pro forma net income per common share — diluted and diluted as adjusted

(a)		The pro forma reduction in interest expense assumes the repayment of $      million of ACAS debt using the net proceeds from this offering, giving effect to the elimination of the related interest expense as of the beginning of the period presented. The amount of interest expense eliminated by this adjustment is calculated from actual interest expense of $      million recorded in fiscal 2010 in connection with the specific debt arrangements that will be repaid with a portion of the net proceeds of this offering. No tax expense has been provided related to this reduction in interest expense because we are in a net operating loss position and have a full valuation allowance in the affected jurisdiction.

(b)		The effect of preferred stock dividends is added back as a reduction to net loss allocable to common stockholders, assuming that all preferred stock has been converted into common shares as of the beginning of the period presented.

(c)		All ACAS debt not assumed to be repaid from the net proceeds from this offering is assumed to be refinanced with a loan from a third-party bank, at interest rates averaging approximately     % lower than existing average interest rates with ACAS giving effect to the elimination of the related interest expense as of the beginning of the period presented. The amount of interest expense eliminated by this adjustment is calculated by taking the difference between the actual interest expense of $      million recorded in fiscal 2010 in connection with the specific debt arrangements that will be repaid with a portion of the net proceeds of the new debt arrangements entered into concurrently with the completion of this offering and the interest expense on the new debt arrangements, calculated as the total of the new debt arrangements of $      million multiplied by the average interest rate on those arrangements of approximately     % for fiscal 2010. No tax expense has been provided related to this reduction in interest expense because we are in a net operating loss position and have a full valuation allowance in the affected jurisdictions.

(d)		The pro forma increase in compensation expense associated with employee stock options and call options reflects:

	•	A compensation charge associated with 124,448 stock options that are expected to be granted to our employees and outside directors immediately following the pricing of this offering at an exercise price equal to the initial public

	•	A compensation charge associated with 463,794 performance-based call options with market conditions held by Thomas D. Logan, our Chief Executive Officer. These options contain vesting provisions based upon successful completion of an initial public offering or change in control and achievement by ACAS of certain internal rates of return or returns on investment. The value of these options was estimated to be $2.1 million using a Monte Carlo simulation model and key assumptions are as follows: at the January 1, 2006 modification, expected option term of 4.5 years, risk-free interest rate of 4.3%, dividend yield of 0%, volatility of 41.8%, exercise price of $10.45 per share and fair value of $2.22 per share; at the December 7, 2007 modification, expected option term of 2.6 years, risk-free interest rate of 3.1%, dividend yield of 0%, volatility of 39.8%, exercise price of $10.45 per share and fair value of $4.44 per share. The compensation expense associated with these options for fiscal 2010 was calculated to be $1.5 million based on the implied requisite service period for the market conditions (30 days for one-half of the shares, and 24 months for one-half of the shares).

(e)		The weighted average common shares outstanding from the conversion of common stock assumes the conversion of all outstanding shares of Class A Voting Common Stock and Class B Non-Voting Common Stock on a one-for-one basis into 405,796 shares of common stock.

(f)		Includes           shares of our common stock to be sold in connection with this offering. Because distributions to ACAS, our principal stockholder, consisting of obligations under existing debt arrangements of $183.3 million as of June 30, 2010 and amounts due of $8.0 million to terminate an existing investment banking services agreement, exceed our earnings plus gross proceeds from this offering of $      million, all common shares are included in the calculation under existing rules on pro forma calculations. Following is a calculation of the deemed dividend in excess of proceeds from this offering (in thousands):

		For the Twelve
		Months Ended
		June 30, 2010
Gross proceeds from offering		$
Distributions to ACAS:
Termination of investment banking services agreement
Repayment of notes payable to ACAS from proceeds of offering
Repayment of notes payable to ACAS from new debt arrangements
Total distribution to ACAS
Last twelve months earnings
Excess of dividend to be paid over proceeds from offering		$

(g)		The weighted average common shares outstanding from the conversion of preferred stock assumes the conversion of all outstanding convertible preferred stock into common stock, including the conversion into common stock of all accrued and unpaid paid-in-kind dividends on convertible preferred stock. The 10,233,721 weighted average at June 30, 2010 is comprised of 936,573 A-1 preferred shares, which includes 257,769 accrued but unpaid paid-in-kind dividends, which are convertible at a rate of 9.6288 and 137,941 A-2 preferred shares, which includes 67,941 accrued but unpaid paid-in-kind dividends, which are convertible at a rate of 8.8128.

(h)		These warrants only become exercisable upon a sale, liquidation or dissolution of the Company or approval by our Board of Directors. Our Board of Directors has resolved that all of these warrants will become exercisable upon the consummation of this offering.

(i)		The shares used in computing pro forma net loss per common share before conversion of preferred shares — diluted for the year ended June 30, 2010 exclude options to purchase 924,830 shares of common stock because we recorded a pro forma net loss allocable to common stockholders before conversion of preferred shares, and therefore the impact of such shares would be anti-dilutive. The shares used in computing pro forma net income per common share — diluted and diluted as adjusted for the year ended June 30, 2010 exclude options to purchase 662,353 shares of common stock because the effect would be anti-dilutive. 476,841 of these shares were excluded because the option exercise prices exceeded the average market value of our common stock during the period. 185,512 of these shares were excluded because after applying the treasury stock method of calculating earnings per share, the impact would be anti-dilutive. The shares used in computing pro forma net loss per common share before conversion of preferred shares — basic and diluted and pro forma net income per common share — diluted and diluted as adjusted for the year ended June 30, 2010 also exclude options to purchase 124,448 shares of common stock which are expected to be granted immediately following the pricing of this offering because their impact would be anti-dilutive, either because we generated a net loss or because after applying the treasury stock method of calculating earnings per share, the impact would be anti-dilutive.

(2)		On a pro forma as adjusted basis to give effect to (i) the sale of           shares of our common stock to be sold by us in this offering at an assumed initial public offering price of $      per share (the midpoint of the price range set forth on the cover page of this prospectus), (ii) the application of a portion of the net proceeds from the shares sold to repay $      million of our indebtedness to ACAS and its affiliates, to make a one-time, $8.0 million payment to ACFS and to make aggregate bonus payments of $0.8 million to certain of our employees, including an aggregate of $0.6 million to certain of our executive officers, (iii) the increase in additional paid-in capital and corresponding increase in accumulated deficit to reflect the compensation expense associated with stock options that will vest upon this offering and (iv) our intent to repay all other debt held by ACAS and its affiliates with borrowings under our anticipated new bank credit facilities that we expect to enter into upon the consummation of this offering. The compensation expense relates to unrecognized compensation expense associated with           unvested employee stock options granted in August 2008, that, under the original terms of the grant, vest ratably over four years from the date of grant, with accelerated vesting of any unvested shares upon consummation of an initial public offering. We estimated the value of these options on the date of grant using the Black-Scholes model and based on the valuation assumptions detailed in Note 13 to the consolidated financial statements.

(3)		As of June 30, 2010, we also had $6.6 million of restricted cash.

(4)		In addition, as of June 30, 2010, we had $2.6 million of outstanding debt held by third parties not affiliated with ACAS.

(5)		See “Description of Certain Indebtedness” for information about our anticipated new bank credit facilities that we expect to enter into upon the consummation of this offering.

(6)		We include Adjusted EBITDA in this prospectus because (i) it is a basis upon which our management assesses our operating performance, (ii) it is a factor in the evaluation of the performance of our management in determining compensation and (iii) certain maintenance covenants under our debt agreements are tied to ratios based upon Adjusted EBITDA, as defined. Adjusted EBITDA for any period, as defined in our debt agreements, is calculated as net income (loss) for such period plus (a) without duplication and to the extent deducted in determining net income for such period, the sum of (i) interest expense for such period, (ii) income tax expense for such period, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any extraordinary cash charges for such period in an amount not to exceed $4,000,000, (v) any extraordinary non-cash charges for such period, (vi) any other non-cash charges for such period (but excluding any non-cash charge for such period in respect of an item that was included in net income in a prior period) and (vii) any non-recurring fees, costs and expenses as reflected in our June 30, 2010 financial statements and any non-recurring fees, costs and expenses incurred in connection with this offering or in connection with the new bank credit facilities and any fees paid to ACAS and its affiliates pursuant to, or in connection with the termination of, the investment banking services agreement with ACFS after June 30, 2010 on or prior to the closing of this offering minus (b) without duplication and to the extent included in net income, (i) any cash payments made during such period in respect of non-cash charges described in clauses (a)(vi) or (a)(vii) taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such period, all calculated on a consolidated basis in accordance with U.S. GAAP provided that net income excludes (a) the income (or deficit) of any person (other than a subsidiary) in which we or any of our subsidiaries has an ownership interest, except to the extent that such income is actually received by us or such subsidiary in the form of dividends or similar distributions and (b) the undistributed earnings of any of our subsidiaries (other than subsidiaries party to the debt agreement) to the extent that the declaration or payment of dividends or similar distributions by such subsidiary is not at the time permitted by the terms of any contractual obligation (other than under any loan documents associated with the debt agreement) or requirement of law applicable to such subsidiary. Adjusted EBITDA is not a measure of financial performance calculated in accordance with U.S. GAAP, and should be viewed as a supplement to—not a substitute for—our results of operations presented on the basis of U.S. GAAP. Adjusted EBITDA also does not purport to represent cash flow provided by, or used in, operating activities in accordance with U.S. GAAP. Our statements of cash flows, included elsewhere in this prospectus, present our cash flow activity in accordance with U.S. GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

		Year Ended June 30,
		2008				2009				2010
Cash (used in) provided by operating activities		$	(6,712	)		$	10,031			$	8,202
Interest expense, net			20,207				17,711				15,120
Income tax expense			5,838				5,612				7,732
Fees paid to ACFS			1,625				1,739				1,643
Other nonrecurring charges(*)			5,458				5,867				2,605
Actuarial (gain) loss			226				(208	)			(530	)
Paid-in-kind interest expense			(1,904	)			(1,992	)			(2,091	)
Loss on disposal of property, plant and equipment			(502	)			(592	)			(859	)
Amortization of loan fees, debt discount and preferred stock discount			(785	)			(522	)			(458	)
Provision for doubtful accounts			(30	)			(140	)			(138	)
Provision for deferred income taxes			1,238				1,013				(3,062	)
Change in operating assets and liabilities			9,559				2,084				18,136
Currency effects and other			—				22				—
Adjusted EBITDA		$	34,218			$	40,625			$	46,300

(*)		Represents non-recurring expenses, including severance expenses and costs associated with the preparation for our initial public offering, as well as certain professional and legal expenses.

(7)		Represents purchase orders or contracts received by us that have not been shipped. Amounts representing backlog are not recorded in our financial statements.

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information contained in this prospectus, before deciding whether to purchase our common stock. If any of the following risks occurs, the trading price of our common stock could decline and you could lose all or part of your investment.

 

Risks Related to Our Business

 

Our sales cycle can be long and unpredictable, and we may be unable to recognize revenue until many months or years after an order is placed. As a result, our revenue can be difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate.

 

Our sales efforts for many of our products involve substantial discussion with customers regarding product customization and deployment. This process can be extremely lengthy and time consuming and typically involves a significant product evaluation process. The typical sales cycle for products whose procurement relates to the construction of new, or the refurbishment of existing, NPPs ranges from 12 to 36 months and has, in some cases, extended up to 60 months. In addition, these customers generally make a significant commitment of resources to test and evaluate our products prior to purchase. As a result, our sales process is often subject to delays associated with the lengthy approval processes that typically accompany the design, testing and adoption of new, technologically complex products. This results in our investing significant resources prior to orders being placed for our products, with no assurances that we will secure a sale.

 

In addition, a significant amount of time can pass before we recognize the revenue associated with an order once it has been placed. We may not recognize revenue for sales of certain of our products until the customer certifies the successful installation and operation of the product, which can be many months or, particularly with regard to our Sensing Systems and Radiation Monitoring Systems products, years following the receipt of a customer order. Additionally, under prevailing accounting guidance applicable to sales arrangements entered into prior to fiscal 2010, we may be required to delay revenue recognition on products delivered to our customers until we have completed delivery of all products associated with our arrangement with the customer. The installation of our systems are also subject to construction or scheduled outage delays unrelated to our products, which can further defer the recognition of revenue.

 

Our long and uncertain sales cycle and the unpredictable period of time between the placement of an order and our ability to recognize the revenue associated with the order makes revenue predictions difficult, particularly on a quarterly basis, and can cause our operating results to fluctuate significantly.

 

Our financial performance is unpredictable.

 

Our business depends on the demand for our radiation detection, measurement, analysis and monitoring products and services in the nuclear, defense and medical end markets. In the past, the demand for our products in these markets has fluctuated due to a variety of factors, many of which are beyond our control. This has caused our financial performance to fluctuate. Among the factors affecting our performance are:

 

 

 

We have a short operating history as a consolidated entity and have incurred net losses since our inception.

 

We were formed in 2005 as a merger of several companies acquired by ACAS but operated separately. Accordingly, we rely on the employees, goodwill, brand strength, product history and qualifications of our legacy acquired companies. In addition, some of our senior executive officers have a limited history with us and no prior experience in the industries in which we compete. Furthermore, although we had $6.0 million in net income for fiscal 2010, we did not achieve positive net income in any prior period and, as of June 30, 2010, had an accumulated deficit of $96.6 million. We cannot assure you that we will achieve positive net income in any future period.

 

Our independent registered public accounting firm reported to us that, at each of June 30, 2008, 2009 and 2010, we had material weaknesses in our internal controls over financial reporting that, if not remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.

 

Our independent registered public accounting firm reported to us that at each of June 30, 2008, 2009 and 2010, we had material weaknesses in our internal controls over financial reporting that have not been remediated as of the time of this filing. Under standards established by the Public Company Accounting Oversight Board, or PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified were with respect to our controls in our financial accounting and reporting functions, which are necessary in order to produce U.S. generally accepted accounting principles (U.S. GAAP) compliant financial statements. These weaknesses related to a lack of sufficient accounting personnel and depth of knowledge, lack of formal policies and procedures to ensure that subsidiary financial information reflect accounting under U.S. GAAP, lack of account reconciliation procedures and untimely review and approval procedures. While we are in the process of hiring additional finance personnel, documenting and enhancing formal policies and procedures and implementing software upgrades throughout our operations, a significant number of audit adjustments continue to be necessary to appropriately reflect account balances in accordance with U.S. GAAP. Management continues to develop and implement sustainable internal controls through formalization of policies and procedures and hiring of additional qualified personnel; however, these and other remediation efforts may not enable us to remedy the material weaknesses or avoid other material weaknesses in the future. Because of these material weaknesses, there is heightened risk that a material misstatement of our annual or quarterly financial statements will not be prevented or detected. In the event that we have not adequately remedied these material weaknesses, and if we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results, financial condition, ability to run our business effectively and our ability to timely meet our reporting requirements and could cause investors to lose confidence in our financial reporting. In addition, these and any other material weaknesses will need to be addressed as part of the evaluation of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and may impair our ability to comply with Section 404.

 

We operate in highly competitive markets and in some cases compete against larger companies with greater financial resources.

 

The market for radiation detection, measurement, analysis and monitoring products and services is fragmented, with a variety of small and large competitors, where the degree of fragmentation and the identities of our competitors vary among our target end markets. Some of our competitors have greater financial resources than do we, and they may be able to focus those resources on developing products or services that

are more attractive to potential customers than those that we offer, or on lobbying efforts to enhance their prospects of obtaining government contracts. Some of our competitors, for example, are substantially larger and better capitalized than we are and have the ability to combine solutions into an integrated offering at attractive prices. Our competitors may offer these solutions at prices below cost in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, cause us to lower our prices to compete, and reduce our market share and revenue, any of which could have a material adverse effect on our business, financial condition and results of operations.

 

Amounts included in our order backlog may not result in actual revenue or translate into profits.

 

Although the amount of our backlog is based on signed purchase orders or other written contractual commitments, we cannot guarantee that our order backlog will result in actual revenue in the originally anticipated period or at all. In addition, the mix of contracts included in our order backlog can greatly affect our margins in future periods, which may not be comparable to our historical product mix and operating results. Our customers may experience project delays or cancel orders due to factors beyond our control. If our order backlog fails to result in revenue in a timely manner or at all, we could experience a reduction in revenue and liquidity.

 

The recent global financial crisis and adverse worldwide economic conditions may have significant effects on our business, financial condition and results of operations.

 

The recent global financial crisis—which has included, among other things, significant reductions in available capital and liquidity, substantial reductions and fluctuations in equity and currency values, a reduction in global demand for energy and a worldwide recession, the effects of which are likely to be significant and prolonged—may have a material adverse effect on our business. We have begun to experience some weakening in demand for certain of our products and services, particularly for our high-temperature cameras used as monitoring tools in petrochemical facilities and cement kilns. Factors such as lack of business investment, government spending, the volatility and strength of the capital markets and inflation all affect the business and economic environment and, ultimately, our business, financial condition and results of operations. Continued market disruptions and broader economic downturns may affect our and our customers’ access to capital, lead to lower demand for our products and services, increase our exposure to losses from bad debts or result in our customers ceasing operations, any of which could materially adversely affect our business, financial condition and results of operations.

 

The credit markets have been experiencing extreme volatility and disruption for more than twelve months, and the volatility and disruption have reached unprecedented levels. In many cases, the markets have limited credit capacity for certain issuers, and lenders have requested shorter terms. The market for new debt financing is extremely limited and in some cases not available at all. In addition, the markets have increased the uncertainty that lenders will be able to comply with their previous commitments. If recent levels of market disruption and volatility continue or worsen, we may not be able to refinance our existing debt, or incur additional debt, which may require us to seek alternative funding sources to meet our liquidity needs or to fund planned expansion. Such alternative sources of funding may not be available on acceptable terms or at all.

 

Furthermore, the tightening of credit in financial markets may delay or prevent our customers from securing funding adequate to operate their businesses and purchase our products and services and could lead to an increase in our bad debt levels.

 

Unfavorable currency exchange rate fluctuations could adversely affect our profitability.

 

Our international sales and our operations in foreign countries expose us to risks associated with fluctuating currency values and exchange rates. Most of our sales, costs, assets and liabilities are denominated in foreign currencies. For fiscal 2010, 51.8% and 3.8% of our sales were denominated in euros and pounds sterling. Gains and losses on the conversion of accounts receivable, accounts payable and other monetary assets and liabilities to U.S. dollars may contribute to fluctuations in our results of operations. In addition, increases in the value of the U.S. dollar relative to the euro and the pound sterling could have an adverse

effect on our results of operations. We do not currently purchase forward contracts to hedge against the risks associated with fluctuations in exchange rates.

 

We may be less competitive if we fail to develop new or enhanced products and introduce them in a timely manner.

 

The markets in which we compete are subject to technological change, product obsolescence and evolving industry standards. Our ability to successfully compete in these markets and to continue to grow our business depends in significant part upon our ability to develop, introduce and sell new and enhanced products in a timely and cost-effective manner, and to anticipate and respond to changing customer requirements. We have experienced, and may in the future experience, delays in the development and introduction of new products. These delays could provide a competitor a first-to-market advantage and allow a competitor to achieve greater market share. Defects or errors found in our products after commencement of commercial shipment could result in delays in market acceptance of these products. Lack of market acceptance for our new products will jeopardize our ability to recoup research and development expenditures, hurt our reputation and harm our business, financial condition and results of operations. Accordingly, we can not assure you that our future product development efforts will be successful.

 

Our existing and future customers may reduce or halt their spending on radiation detection, measurement, analysis and monitoring products and services.

 

A variety of factors may cause our existing or future customers to reduce or halt their spending on radiation detection, measurement, analysis and monitoring products and services. These factors include:

 

 

Certain of these events could also adversely affect us to the extent that they result in the suspension or reduction of nuclear reactor construction, refurbishment or operation; the reduction of supplies of nuclear raw materials; increased regulation; increased operational costs for us or our customers; or increased liability for actual or threatened property damage or personal injury.

 

If we are unable to obtain adequate supplies in a timely manner, our results of operations would be adversely affected.

 

We are dependent upon certain sole or limited source suppliers for critical raw materials or components of some of our products. For example, we rely on the U.S. government for the enriched uranium used in certain equipment employed in our sensing systems. We also rely on limited source suppliers of certain precious metals used in some of our reactor instrumentation, scintillator materials used in our detection & identification equipment and for analog sensor tubes used in certain of our imaging products. Most of our suppliers are not required to supply us with any minimum quantities, and we cannot assure you that we will receive adequate quantities of components on a timely basis in the future. For example, a sole source supplier has recently informed us that its supplier is discontinuing the manufacture of a component that we use in certain of our dosimetry badges used by our Dosimetry Services division to provide dosimetry services to a majority of its dosimetry badge wearers. The notification prompted us to secure a final end-of-life order in an amount sufficient to meet our anticipated production requirements for the affected type of dosimetry badge at least through December 2013 and potentially through December 2015, the exact duration depending on the timing and degree to which our existing customers migrate to our other dosimetry badges that are unaffected by this discontinued component. We and our current suppliers already offer substitute dosimetry badges that

meet the requirements of our customers, that do not require requalification and that are available at a substantially similar cost to us. Our suppliers could have financial or other problems that could cause a disruption in the supply of components to us. In addition, were we to change suppliers of components in some of our products, we may be required to seek new qualifications for such products, which can be a time-consuming and costly process. As a result of interruption of supply, we may not be able to obtain the raw materials or components that we need to fill customer orders. The inability to fill these orders could cause delays, disruptions or reductions in product shipments, require us to negotiate alternate supply arrangements with replacement suppliers where available or require product redesigns which could, in turn, damage relationships with current or prospective customers, increase costs or prices and have a material adverse effect on our business, financial condition and results of operations.

 

We rely on third-party manufacturers to produce non-core components for certain of our products and services. If our manufacturers are unable to meet our demand or requirements, our business could be harmed.

 

We use third-party manufacturers to produce certain non-core components for some of our products. From time to time demand for our products has grown faster than the supply capabilities of these vendors. In many cases, these manufacturers have no obligation to supply products to us for any specific period, in any specific quantity or at any specific price, except as set forth in a particular purchase order. Our requirements represent a small portion of the total production capacities for many of our manufacturers, and our manufacturers may reallocate capacity to other customers, even during periods of high demand for our products or services. We have in the past experienced, and may in the future experience, quality control issues and delivery delays with our manufacturers due to factors such as high industry demand or the inability of our manufacturers to consistently meet our quality or delivery requirements. In addition, third-party manufacturers may have financial difficulties and face the risk of bankruptcy, especially in light of the current worldwide economic downturn. If one of our suppliers was to cancel or materially change a commitment with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell our products or services cost effectively or on a timely basis, if at all, and have significantly decreased revenue, which would harm our business, financial condition and results of operations. We may qualify additional suppliers in the future which would require time and resources. If we do not qualify additional suppliers, we may be exposed to increased risk of capacity shortages due to our dependence on our current suppliers.

 

Some of our suppliers and customers are also our competitors.

 

Some of our competitors are also our suppliers and customers. For example, Canberra, one of our chief competitors in the nuclear and defense end markets, supplies us with some of the detectors employed in the radiation monitoring systems that we supply to the nuclear end market. At the same time, Areva, the controlling shareholder of Canberra, is a customer for our radiation monitoring systems for use in its EPR reactors and in other fuel cycle industry applications. Similarly, Thermo Fisher Scientific both supplies our Dosimetry Services division with TLD crystals used in some of our thermoluminescent dosimeters that we deploy as part of providing dosimetry services to our customers, and sells products competitive with those offered by our Health Physics division. As with our other suppliers, our competitor suppliers are not required to supply us with any minimum quantities, and we cannot assure you that we will receive adequate quantities of components on a timely basis in the future. The loss of orders stemming from the actions of our supplier or customer competitors could cause delays, disruptions or reductions in product shipments or require product redesigns which could, in turn, damage relationships with current or prospective customers, increase costs or prices and have a material adverse effect on our business, financial condition and results of operations.

 

We could lose money if we fail to accurately estimate our costs or fail to execute within our cost estimates on fixed-price contracts.

 

Many of our contracts are fixed-price contracts which do not provide for price escalation in the event of unanticipated cost overruns. Under these contracts, we perform our services and provide our products at a fixed price. Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs, operational difficulties and other changes that may occur over the contract period. We have in the past

experienced unanticipated cost overruns on some of our fixed-price contracts. If our cost estimates for a contract are inaccurate, or if we do not execute the contract within our cost estimates, we may incur losses or the contract may not be as profitable as we expected. In addition, we are sometimes required to incur costs in connection with modifications to a contract that may not be approved by the customer as to scope or price, or to incur unanticipated costs, including costs for customer-caused delays, errors in specifications or designs or contract termination, that we may not be able to recover. These, in turn, could adversely affect our business, financial condition and results of operations. The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to changes in a variety of factors, such as:

 

 

Many of our large contracts have penalties for late completion.

 

In some cases, including many of our fixed-price contracts, we have agreed to complete a project by a scheduled date. If we fail to complete the project as scheduled, we may be held responsible for costs associated with the delay, generally in the form of liquidated damages, in some cases up to the full value of the contract. We have in the past incurred penalties associated with late completion on some of our contracts. In the event that a project is delayed, the total costs of the project could exceed our original estimates, and we could experience reduced profits or a loss for that project.

 

Our products and services involve the detection and monitoring of radiation, and the failure of our products or services to perform to specification could adversely affect our business, financial condition or results of operations.

 

Our products and services involve the detection and monitoring of radiation and are crucial components of the safety measures employed with respect to ionizing radiation. The failure of our products to perform to specification could result in personal injury or death and property damage (including environmental contamination). Legal and regulatory actions taken in response to product failure could result in significant costs to us. Additionally, the failure of our products to perform to specification could adversely affect market perception of the quality and effectiveness of our products and services, which would harm our ability to attract new customers and could cause our existing customers to cease doing business with us.

 

While we have attempted to secure appropriate insurance coverage at a reasonable cost, we do not insure against all risks and a claim can exceed the limits of our policies. We cannot assure you that our insurers will pay a particular claim, or that we will be able to maintain coverage at reasonable rates in the future, or at all. We may also be subject to significant deductibles.

 

Our contracts with customers generally seek to limit our liability in connection with product failure, but we cannot assure you that these contractual limitations on liability will be effective or sufficient in scope in all cases or that our insurance will cover the liabilities we have assumed under these contracts. The costs of defending against a claim arising out of such failure, and any damages awarded as a result of such a claim, could adversely affect our business, financial condition and results of operations.

 

Certain of our products and technologies for the defense end market may be eligible for designation or certification as “qualified anti-terrorism technologies” under the “SAFETY Act” provisions of The Homeland Security Act of 2002 and its implementing regulations. Under the SAFETY Act, the federal government

provides for certain liability limitations and a presumption that the “government contractor” defense applies if the Department of Homeland Security “designates” or “certifies” technologies or products as “qualified anti-terrorism technologies,” and if certain other conditions apply. We may seek to qualify some or all of our products and technologies under the SAFETY Act’s provisions in order to obtain such liability protections, but there is no guarantee that the Department of Homeland Security will designate or certify our products and technologies as qualified anti-terrorism technology. To date, we have not sought such designation or certification, and our products have been sold without such qualification, and we may continue to sell our products and technologies without such qualification. To the extent we do so, we will not be entitled to the benefit of the SAFETY Act’s limitations on tort liability or to any U.S. government indemnification.

 

We and our customers operate in a politically sensitive environment, and the public perception of nuclear power can affect our customers and us.

 

We and our customers operate in a politically sensitive environment. The risks associated with radioactive materials and the public perception of those risks can affect our business. Opposition by third parties can delay or prevent the construction of new NPPs and can limit the operation of nuclear reactors. Adverse public reaction to developments in the use of nuclear power, including incidents involving the discharge of radioactive materials, could directly affect our customers and indirectly affect our business. In the past, adverse public reaction, increased regulatory scrutiny and litigation have contributed to extended construction periods for new nuclear reactors, sometimes delaying construction schedules by decades or more. For example, no new reactor has been ordered in the United States since the 1970s and anti-nuclear groups in Germany successfully lobbied for the adoption of the Nuclear Exit Law in 2002, which requires the shutdown of all German NPPs by 2021. Adverse public reaction could also lead to increased regulation or limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers and our business.

 

Our operations in foreign countries are subject to political, economic and other risks, which could have a material adverse effect on us.

 

Revenue outside of the Americas accounted for approximately 64.1%, 61.6% and 65.1% of our net sales in fiscal 2008, 2009 and 2010. We anticipate that international sales will continue to constitute a material percentage of our total net sales in future periods. As a result, our operations are subject to risks associated with global operations and sales, including:

 

 

We are also subject to risks associated with the imposition of legislation and regulations relating to the import or export of radiation detection and monitoring technology. For example, certain export control

approvals of our sales, including sales to NPP operators located in Pakistan and India, were granted because of the supervision of customer sites by the International Atomic Energy Agency, or the IAEA. If the IAEA ceases to supervise such sites, our ability to sell to certain customers would be limited and our sales could be adversely affected. Furthermore, the failure to comply with export control regulations and to obtain required approvals could result in loss of the ability to export products, fines and penalties.

 

We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries. Some of our customers’ purchase orders and agreements are governed by foreign laws, which often differ significantly from the laws of the United States. Therefore, we may be limited in our ability to enforce our rights under such agreements and to collect damages, if awarded. These factors may have a material adverse effect on our business, financial condition and results of operations.

 

Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

 

Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:

 

 

In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service or other tax authorities. If tax authorities challenge the relative mix of our U.S. and international income, our future effective income tax rates could be adversely affected. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, we cannot assure you that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our business, financial condition and results of operations.

 

Localization requirements could adversely affect our business.

 

Many emerging markets, including China and South Korea, impose localization requirements which favor locally based component manufacturers in the construction of NPPs and which require some degree of technology transfer to local manufacturers. Over time, such localization requirements could limit our ability to sell into such markets and could affect our ability to maintain our trade secrets. In the past, international development agencies have, as a condition of funding, imposed localization requirements that require the transfer of technology to local manufacturers, and this requirement has affected our ability to monitor and maintain control over our intellectual property. We may be subject to similar requirements as a condition of funding in the future.

We must comply with the U.S. Foreign Corrupt Practices Act, or FCPA. Failure to comply with the FCPA could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

 

We are required to comply with the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business and/or other benefits. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, we have government customers and we utilize a number of third-party sales representatives. Although we have begun to inform our personnel and third-party sales representatives regarding the requirements of the FCPA and have developed and will continue to develop and implement systems for formalizing contracting processes, performing diligence on agents and improving our record-keeping and auditing practices, we cannot assure you that our employees, third-party sales representatives or other agents have not or will not engage in conduct for which we might be held responsible under the FCPA.

 

If our employees, third-party sales representatives or other agents are found to have engaged in such practices, we could suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures (including further changes or enhancements to our procedures, policies and controls, as well as potential personnel changes and disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities also could have an adverse impact on our business, financial condition and results of operations.

 

Certain foreign companies, including some of our competitors, are not subject to prohibitions as strict as those under the FCPA or, even if subjected to strict prohibitions, such prohibitions may be laxly enforced in practice. If our competitors engage in corruption, extortion, bribery, pay-offs, theft or other fraudulent practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business, or from government officials, who might give them priority in obtaining new licenses, which would put us at a disadvantage.

 

We may make acquisitions that involve numerous risks. If we are not successful in integrating the technologies, operations and personnel of acquired businesses or fail to realize the anticipated benefits of an acquisition, our operations may be adversely affected.

 

As part of our business and growth strategy, we may acquire or make significant investments in businesses, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our engineering workforce or enhance our technological capabilities. Any future acquisitions or investments would expose us to many risks, including:

 

 

Our inability to overcome problems encountered in connection with any acquisition could divert the attention of management, utilize scarce corporate resources and otherwise harm our business. In addition, we are unable to predict whether or when any prospective acquisition candidate will become available or the

likelihood that any acquisition will be completed. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms or realize the anticipated benefits of any acquisitions we do undertake.

 

A failure to expand our manufacturing capacity and scale our capabilities to manufacture new products could constrain our ability to grow our business.

 

We have needed to increase our manufacturing capacity, particularly in our locations in Lamanon, France and Hamburg, Germany to support the fulfillment of certain large contracts and to put us in position to accommodate growth in our business. Accordingly, we have initiated an expansion of our manufacturing facilities in Lamanon and renovated and reorganized our facilities in Hamburg. The future growth of our business depends on our ability to successfully expand our manufacturing capacity. Expansion of our manufacturing capacity may require us to obtain regulatory approvals or additional financing. Delay in the expansion of our manufacturing capacity could constrain our ability to grow our business, which would adversely affect our business, financial condition and results of operations.

 

Similarly, we could have substantial difficulty in dealing with rapid growth in markets for new products that we may introduce. If demand for our new products increases rapidly, we will need to expand internal production capacity or implement additional outsourcing. Success in developing, manufacturing and supporting products manufactured in small volumes does not guarantee comparable success in operations conducted on a larger scale. Manufacturing yields and product quality may decline as production volumes increase. If we are unable to deliver products quickly and cost effectively and in the requisite volumes, our customers may decline to purchase our new products or may purchase substitute products offered by our competitors. The costs associated with implementing new manufacturing technologies, methods, and processes, including the purchase of new equipment, and any resulting delays, inefficiencies and loss of sales, could harm our results of operations.

 

We rely on third-party sales representatives to assist in selling our products and services, and the failure of these representatives to perform as expected could reduce our future sales.

 

We typically derive a portion of our revenue from sales to our customers through third-party sales representatives. We have established relationships with some of our third-party sales representatives recently, and we are unable to predict the extent to which our third-party sales representatives will be successful in marketing and selling our products and services. Moreover, many of our third-party sales representatives also market and sell competing products and services, which may affect the extent to which our third-party sales representatives promote our products and services. Even where our relationships are formalized in contracts, our third-party sales representatives often have the right to terminate their relationships with us at any time. Our future performance will also depend, in part, on our ability to attract additional third-party sales representatives who will be able to market and support our products and services effectively, especially in markets in which we have not previously sold our products and services. If we cannot retain our current third-party sales representatives or recruit additional or replacement third-party sales representatives, our business, financial condition and results of operations could be harmed.

 

The elimination or any modification of the Price-Anderson Act’s indemnification authority could have adverse consequences for our business.

 

In the United States, the Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the manufacture, use and storage of radioactive materials. Section 170 of the AEA, which is known as the Price-Anderson Act, supports the nuclear services industry by offering broad indemnification to commercial NPP operators and Department of Energy, or DOE, contractors for liabilities arising out of nuclear incidents at power plants licensed by the Nuclear Regulatory Commission, or NRC, and at DOE nuclear facilities. The indemnification authority of the NRC and DOE under the Price-Anderson Act was extended through 2025 by the Energy Policy Act of 2005. Some of our customers are covered by the indemnification provisions of the Price-Anderson Act. In addition, other jurisdictions have similar indemnification authority. If the indemnification authority in the United States or other countries is eliminated or adversely modified in the

future, our business could be adversely affected if the owners and operators of NPPs cancel or delay plans to build new plants or curtail the operations of existing plants.

 

Our ability to provide bid bonds, performance bonds or letters of credit is limited and could negatively affect our ability to bid on or enter into significant contracts.

 

We are sometimes required to provide bid or performance bonds or letters of credit to guarantee performance under contracts across our various divisions. Our ability to obtain such bonds and letters of credit depends upon several factors, including our capitalization, working capital, past performance, management expertise and reputation and external factors beyond our control, including the overall capacity of the surety market. Surety companies consider those factors in relation to the amount of our tangible net worth and other underwriting standards that may change from time to time. Events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly higher cost. Our inability to obtain adequate bonding and, as a result, to bid for, or enter into, significant contracts, could adversely affect our future financial condition and results of operations.

 

As a U.S. government contractor, we are subject to a number of procurement rules and regulations.

 

U.S. government contractors and subcontractors must comply with specific procurement regulations and other requirements and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, we could be subject to reductions in the value of our government contracts, contract modification or termination, the assessment of penalties and fines, and/or suspension or debarment from government contracting or subcontracting for a period of time or permanently.

 

Furthermore, we have bid, and may in the future submit bids, for U.S. government contracts that require our employees to maintain various levels of security clearances and require us or our subsidiaries to maintain certain facility security clearances in compliance with Department of Defense and other government requirements. Obtaining and maintaining security clearances for employees involves a lengthy process, and it can be difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances, or if our employees who hold security clearances stop working for us, we may face delays in fulfilling contracts, or be unable to fulfill or secure new contracts, with any customer involved in classified work. Any breach of security for which we are responsible could seriously harm our business, damage our reputation and make us ineligible to work on any classified programs.

 

The classified work that we currently perform at one of our facilities subjects us to the industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against unauthorized access by foreigners and others to classified and other sensitive information. We may be subject to penalties for violations of these regulations. If we were to come under foreign ownership, control, or influence, the U.S. government could terminate our contracts with it or decide not to renew them and such a situation could also impair our ability to obtain new contracts and subcontracts. The government may also change its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts.

 

We are subject to a variety of federal, state, local and foreign laws and regulatory regimes. Failure to comply with laws and regulations could subject us to, among other things, penalties and legal expenses which could have an adverse effect on our business.

 

Our business is subject to regulation by various federal, state, local and foreign governmental agencies. In the U.S., such regulation includes the radioactive material and exposure regulatory activities of the NRC, the anti-trust regulatory activities of the Federal Trade Commission and Department of Justice, the import/export regulatory activities of the Department of Commerce, the Department of State and the Department of Treasury, the regulatory activities of the Occupational Safety and Health Administration, the environmental regulatory activities of the Environmental Protection Agency, the labor regulatory activities of the Equal Employment Opportunity Commission and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business. We are also subject to regulation in other countries where we

conduct business. In certain jurisdictions, such regulatory requirements may be more stringent than in the United States. We are also subject to a variety of U.S. federal and state employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labor Standards Act, the Worker Adjustment and Restructuring Notification Act, which requires employers to give affected employees at least 60 days’ notice of a plant closing or mass layoff, and other regulations related to working conditions, wage-hour pay, overtime pay, employee benefits, anti-discrimination and termination of employment. We are also subject to the employment and labor laws and regulations of the foreign jurisdictions, including France and Germany, where the majority of our employees are located.

 

Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions or debarment from government contracting or subcontracting. In addition, from time to time we have received, and may in the future receive, correspondence from former employees terminated by us who threaten to bring claims against us alleging that we have violated one or more labor or employment regulations. An adverse outcome in any such litigation could require us to pay damages.

 

Governmental enforcement actions could harm our business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any civil or criminal litigation, our business, financial condition and results of operations could be materially adversely affected. In addition, responding to any action could be costly and result in a significant diversion of management’s attention and resources.

 

Certain of our products require the use of radioactive sources or incorporate radioactive materials, which subjects us and/or our customers to regulation, related costs and delays and potential liabilities for injuries or violations of environmental, health and safety laws.

 

Certain products in our Health Physics, Radiation Monitoring Systems and Sensing Systems divisions require the use of radioactive sources. For certain of our products, these radioactive sources are often obtained by our customers directly from third-party providers, and for others, we directly incorporate these radioactive sources into our products. Certain of our reactor instrumentation and control equipment and systems in our Sensing Systems division incorporate radioactive materials. In all such cases, licenses for radioactive sources and materials are provided by the appropriate regulatory authority in the relevant jurisdiction and such authorities may be at the state or national level. Our failure or any customer’s failure to obtain the necessary license for radioactive sources or materials required by or incorporated into our products could result in the cancellation or delay of purchases by our customers.

 

While the specific process and criteria for receiving a license differ from jurisdiction to jurisdiction, it generally involves an application process in which we: identify a person or persons who have appropriate training and experience to be a health physics/radiation safety officer; specify the radioactive sources or materials sought to be licensed, their physical form (i.e., sealed or unsealed) and maximum possession limits on the amount of each type of radioactive element or compound sought under the license; specifies their intended use (e.g., calibration, testing, quality assurance, manufacturing); and, set forth written policies and procedures to ensure that we have adequate measures in place to ensure health and safety. These policies and procedures typically must be designed to ensure worker, workplace, and public safety, including emergency plans; set forth the proper handling, control and security of radioactive sources or materials on site; detail any disposal or decommissioning considerations; and adequately train personnel at the site in proper access to, and handling of, radioactive sources or materials. Our noncompliance with or failure to properly implement such policies and procedures could delay or otherwise preclude us from obtaining the necessary license for radioactive sources or materials required by or incorporated into our products, which could result in the cancellation or delay of purchases by our customers.

 

The particular license requirements in a given jurisdiction are normally tailored to the specific radioactive elements or compounds involved, their physical form, and possession limits. Once authorities complete their application review and any required follow-up, the authority issues the site a license which imposes specific on-going compliance obligations that typically include requirements for us to pay periodic licensing fees, submit periodic written compliance reports, and agree to periodic site inspections by regulators, which may be

announced or unannounced. Our failure to comply with any of these on-going obligations could result in the revocation of the necessary license for radioactive sources or materials required by or incorporated into our products, which could result in the cancellation or delay of purchases by our customers.

 

We are subject to federal, state and local regulations governing storage, handling and disposal of these radioactive materials and waste products. Outside of the United States, we are also subject to radiation regulations that vary from country to country. The improper storage, use and disposal of such materials by us and/or our customers could result in direct or secondary liability, including penalties and fines, to us in the event of environmental contamination or physical injury. Although we believe that our safety procedures for storing, handling and disposing of these hazardous materials comply in all material respects with the standards prescribed by law and regulation, we cannot eliminate the risk of accidental contamination or injury from those hazardous materials nor can we control the practices of our customers. The sale and use of our products with radioactive sources or materials could also lead to the filing of claims if someone were to allege injury from the use of one of our products or allege that one of our products was defective. Such a claim could result in substantial damages, be costly and time-consuming to defend and adversely affect the marketability of our products and our reputation.

 

We and our customers operate in highly regulated industries that require us and them to obtain, and to comply with, federal, state, local and foreign government permits and approvals.

 

We and our customers operate in a highly regulated environment. Many of our products and services must comply with various domestic and international standards that are used by regulatory and accreditation bodies for approving such services and products. Many of our products, particularly those offered by our Radiation Monitoring Systems and Sensing Systems divisions, are subject to an array of product testing under extreme temperature, pressure, radiation and seismic conditions, known collectively as a qualification, for any given nuclear reactor design. The qualification is typically owned by the party who pays for the testing and so, in certain cases, we license such qualifications from a third party. In addition, many of our products and services, particularly those offered by our Dosimetry Services division, must be certified by the National Voluntary Laboratory Accreditation Program in the United States and by other governmental agencies in international markets. The termination of any such accreditation or our failure to obtain and maintain required qualification or accreditation for our products and services may adversely affect our revenue and results of operations.

 

Changes in these standards and accreditation requirements may also result in our having to incur substantial costs to adapt our products. Such adaptations may introduce quality assurance issues during transition as new features and products may not perform as expected. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and corresponding changes in regulations, may impact how our services are used by our customers and may, in some circumstances, cause us to alter our products and services.

 

In addition, our customers are required to obtain, and to comply with, federal, state, local and foreign government licenses, permits and approvals with respect to either their facilities or possession and use of radioactive sources or other radioactive materials. Any of these licenses, permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of licenses, permits or approvals may adversely affect our customers’ operations by suspending their activities or delaying or preventing the receipt of radioactive sources or other radioactive materials, and may subject them to penalties and other sanctions. Although existing licenses, permits or approvals are routinely renewed by various regulators, renewal could be denied or jeopardized by various factors, including:

 

 

Furthermore, if new environmental legislation or regulations are enacted or existing laws or regulations are amended or are interpreted or enforced differently, our customers may be required to obtain additional operating licenses, permits or approvals. Regulatory issues experienced by our customers may lead to delay or cancellation of their orders for our products and services or the discontinuance of future orders. We cannot assure you that we or our customers will be able to meet all potential regulatory challenges.

 

We could incur substantial costs as a result of violations of or liabilities under environmental laws.

 

Our operations and properties are subject to a variety of federal, state, local and foreign environmental laws and regulations governing, among other things, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste and remediation of releases of hazardous materials. Our failure to obtain any necessary permits or to comply with present and future laws, regulations or permits, or the identification of contamination at our or our predecessors’ former or current facilities or at third-party waste disposal sites, could cause us to incur substantial costs, including clean-up costs, fines and penalties, investments to upgrade our facilities or curtailment of operations. The future identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws, regulations or permit requirements or other unanticipated events may arise in the future and give rise to material environmental liabilities and related costs which could have a material adverse effect on our business, financial condition and results of operations.

 

A European Union, or EU, directive relating to the restriction of hazardous substances in electrical and electronic equipment, or RoHS directive, and an EU directive relating to waste electrical and electronic equipment, or WEEE directive, have been and are being implemented in EU member states. Among other things, the RoHS directive restricts the use of certain hazardous substances in the manufacture of electrical and electronic equipment and the WEEE directive requires producers of electrical goods to be responsible for the collection, recycling, treatment and disposal of these goods. In addition, laws similar to the RoHS and WEEE directives were passed in China in 2006 and South Korea in 2007. Governments in other countries and states, including the United States, are considering implementing similar laws or regulations.

 

In addition, a regulation regarding the registration, authorization and restriction of chemical substances in industrial products, or REACH, became effective in the EU in 2007. REACH and other regulations require us or our suppliers to substitute certain chemicals contained in our products with substances the EU considers less dangerous. We have assessed the impact that REACH is expected to have on us and have determined the impact at this time to be immaterial to our business and operations, but we cannot assure you that it or similar regulations will not materially affect us in the future.

 

The costs associated with complying with future laws and regulations could include costs associated with modifying or requalifying our products, recycling and other waste processing costs, legal and regulatory costs and insurance costs. We have recorded in the past and may be required to record in the future additional expenses for costs associated with compliance with regulations. The costs of complying with future environmental and worker health and safety laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

 

Our future success is dependent on our ability to retain key personnel, including our executive officers, and attract qualified personnel. If we lose the services of these individuals or are unable to attract new talent, our business will be adversely affected.

 

Our future operating results depend in significant part upon the continued contributions of our key technical and senior management personnel, many of whom would be difficult to replace. We are particularly dependent on the continued service of Thomas D. Logan, our President, Chief Executive Officer and Chairman of the Board, W. Antony Besso, our Regional Vice President, EMEA, and President, Health Physics Division, Iain F. Wilson, our Regional Vice President, Asia, and President, Sensing Systems Division, and Jean-Louis Gouronc, our President, Radiation Monitoring Systems.

 

Our future operating results also depend in significant part upon our ability to attract, train and retain qualified management, manufacturing and quality assurance, engineering, marketing, sales and support personnel. In particular, engineers skilled in the analog technologies used in certain of our products are in high

demand and competition to attract such personnel is intense. In addition, the expected increase in construction of new NPPs may exacerbate the shortage of radiation engineers and other qualified personnel. We are continually recruiting such personnel; however, we cannot assure you that we will be successful in attracting, training or retaining such personnel now or in the future. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for us to hire such persons over time. The high demand for such personnel may increase the costs to us to recruit and retain employees.

 

The loss of any key employee, the failure of any key employee to perform in his or her current position, our inability to attract, train and retain skilled employees as needed or the inability of our officers and key employees to expand, train and manage our employee base could materially and adversely affect our business, financial condition and results of operations.

 

Our ability to compete successfully and achieve future growth will depend on our ability to protect our intellectual property and to operate without infringing the intellectual property of others.

 

Our business is largely dependent upon our design, engineering, manufacturing and testing know-how. We attempt to protect our intellectual property rights through trade secret laws, non-disclosure agreements, confidentiality procedures and employee disclosure and invention assignment agreements. To a lesser extent, we may also seek to protect our intellectual property through patents, trademarks and copyrights. We rely upon unpatented proprietary radiation detection expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position, some of which is licensed from third parties. Confidentiality agreements with our employees and third parties are often limited in duration and could be breached, and therefore they may not provide meaningful protection for our trade secrets or proprietary radiation detection expertise. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets. Others may obtain knowledge of our trade secrets through independent development or other access by legal means. It is possible that our efforts to protect our intellectual property rights may not:

 

 

The laws of foreign countries also may not adequately protect our intellectual property rights. Many U.S. companies have encountered substantial infringement problems in foreign countries. Because we conduct a substantial portion of our operations and a majority of our sales have been outside of the United States, we have significant exposure to foreign intellectual property risks.

 

Others have in the past attempted, and may in the future attempt, to copy or otherwise obtain and use our intellectual property without our consent. Monitoring the unauthorized use of our intellectual property is difficult. There is a risk that our customers or their end users’ customers may attempt to copy or otherwise obtain and use our intellectual property without our consent. It may be necessary, from time to time, to initiate litigation against one or more third parties, including our customers or companies with whom we have manufacturing relationships, to preserve our intellectual property rights or to challenge the validity and scope of proprietary rights asserted by others, and we could face counterclaims. Legal disputes with our customers or companies with whom we have manufacturing relationships could substantially harm our relationships and

sales. Litigation is expensive and time consuming, and an adverse outcome could subject us to significant liability for damages or invalidate our proprietary rights.

 

From time to time, third parties may claim that we have infringed upon, misappropriated or misused other parties’ proprietary rights, and we may already be infringing without knowing it. Any of these events or claims could result in litigation. Such litigation, whether as plaintiff or defendant, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is ultimately determined in our favor. In the event of an adverse result in such litigation, we could be required to pay substantial damages, cease the manufacture, use and sale of certain products, expend significant resources to develop or acquire non-infringing technology, discontinue the use of certain processes, obtain licenses to use the infringed technology, or indemnify our customers. Product development or license negotiating would likely result in significant expense to us and divert the efforts of our technical and management personnel. We cannot assure you that we would be successful in such development or acquisition or that such licenses would be available on reasonable terms, or at all.

 

Our obligations to indemnify our customers for the infringement by our products of the intellectual property rights of others could require us to pay substantial damages.

 

We currently have in effect a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs that may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights. We may periodically have to respond to claims and initiate or participate in litigation in connection with these indemnification obligations, which may result in our paying substantial damages. Our insurance does not cover intellectual property infringement.

 

Some of our workforce is represented by labor unions in the United States and by works councils and trade unions in the EU, which may lead to work stoppages that could adversely affect our business.

 

As of June 30, 2010, approximately 33, or 12%, of our U.S. employees were unionized, and the majority of our EU employees are members of, or are represented by, works councils or trade unions. Since 1988, we have experienced only two work stoppages, at our facility in Lamanon, France. We may experience work stoppages or other labor problems in the future, which could adversely affect our business. We cannot predict how stable our relationships will be or whether we will be able to satisfy union or works council requirements without impacting our operating results and financial condition. Union and works council rules may limit our flexibility to respond to changing market conditions and the application of these rules could harm our business. The unions and works councils may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our relationships could negatively impact the timely production of our products, which could strain relationships with customers and cause a loss of revenue that would adversely affect our results of operations.

 

Our operations could be subject to natural disasters and other business disruptions, which could materially adversely affect our business and increase our expenses.

 

Our operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. For example, our corporate headquarters in San Ramon, California and the center of operations of our Dosimetry Services division in Irvine, California are located near major earthquake fault lines. In the event of a major earthquake or other natural or manmade disaster, we could experience business interruptions, destruction of or damage to facilities and/or loss of life, any of which could have a material adverse effect on our business and increase our expenses.

 

Risks Related to this Offering and Our Common Stock

 

If we cannot generate sufficient operating cash flow and obtain external financing, we may be unable to make all of our planned capital expenditures and other expenses.

 

Our ability to fund anticipated capital expenditures and other expenses depends on generating sufficient cash flow from operations and the availability of external financing. Since our inception in 2005, ACAS and its affiliates have provided us with the capital and debt financing that we have used to fund our growth and

operations. Although ACAS will continue to be a significant stockholder in our company upon completion of this offering, ACAS is under no obligation to continue making capital investments in us or to provide debt financing to us and is unlikely to do so.

 

Our debt service obligations and our capital expenditures, together with on-going operating expenses, will be a substantial drain on our cash flow and may decrease our cash balances. The timing and amount of our capital requirements cannot be precisely determined at this moment and will depend on a number of factors, including demand for our products, product mix, changes in industry conditions and market competition. We intend to regularly assess markets for external financing opportunities, including debt and equity. Such financing may not be available when needed or, if available, may not be available on satisfactory terms, particularly in light of the limited financing available as a result of the recent global financial crisis. Any equity financing would cause further dilution to our stockholders. See “Dilution.” Our inability to obtain needed financing or to generate sufficient cash from operations may require us to abandon projects or curtail capital expenditures, and we could be materially adversely affected. If we are not able to independently generate excess free cash flow and obtain third party debt or equity financing, our ability to grow our business may be materially adversely affected.

 

Upon completion of this offering, ACAS will continue to have a significant influence over matters determined by our Board of Directors and will be in a position to significantly influence the outcome of all matters submitted to our stockholders for approval, which will limit your ability to influence corporate actions and may adversely affect the market price of our common stock.

 

Upon completion of this offering, ACAS, our principal stockholder, will beneficially own           shares of our common stock (approximately     % of our outstanding common stock), which includes shares of our common stock underlying warrants, or           shares of our common stock (approximately     % of our common stock) if the underwriters exercise in full their over-allotment option to purchase additional shares of common stock from the selling stockholders. As a result, ACAS will continue to have significant influence over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our amended and restated Certificate of Incorporation and Bylaws and approval of significant corporate transactions, as long as it continues to hold a significant percentage of our outstanding common stock.

 

On June 28, 2010, American Capital, Ltd. completed the restructuring of its unsecured revolving line of credit and its outstanding public and private notes by partially repaying and converting the line of credit into a term loan facility and partially repaying and exchanging outstanding public and private notes (the “Restructuring”). The new debt issued upon conversion of the existing line of credit and exchange of existing public and private notes is in the form of (i) secured loans made under a term loan facility for which Citicorp North America, Inc. serves as administrative agent, dated as of June 28, 2010 (the “Term Loan”) and (ii) secured notes (the “Secured Notes”) issued under an indenture with Wilmington Trust FSB, as trustee, dated as of June 28, 2010 (the “Indenture” and together with the Term Loan, the “ACAS Secured Financing”). The Term Loan and the Secured Notes are collectively secured by liens on substantially all of ACAS’s assets, including 8,419,715 shares of our outstanding common stock beneficially owned by American Capital, Ltd. prior to this offering or           shares (approximately     % of our outstanding shares) upon completion of this offering (or           shares (approximately     % of our outstanding shares) if the underwriters exercise in full their over-allotment option) (the “Pledge”). The shares of our capital stock beneficially owned by American Capital Equity I, LLC and American Capital Equity II, LP are not subject to the Pledge. If there is an event of default under the ACAS Secured Financing and either the lenders or the holders of the Secured Notes accelerate the Term Loan or the Secured Notes, as applicable, and exercise their rights under the Pledge, the purchasers of such shares, which may include the creditors secured by the Pledge, would hold a substantial percentage of our outstanding shares of common stock and would collectively become our largest stockholder. While such purchasers would not succeed to any of the rights specifically reserved to ACAS under our amended and restated Certificate of Incorporation and Bylaws, they may, under certain circumstances, succeed to the registration rights agreement into which we expect to enter upon the consummation of this offering, and they would have the ability to exert significant influence over the votes on all matters requiring approval by our stockholders by virtue of their large shareholdings.

 

Furthermore, in the event that ACAS were to sell fewer shares than contemplated hereby such that following the consummation of this offering ACAS and its affiliated funds continue to hold shares representing more than a majority of our outstanding shares, ACAS will receive the benefit of a provision of our amended and restated Bylaws that provides that at least one of the directors designated by ACAS must be part of the majority in any action taken by our Board of Directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, other than on matters in which ACAS has a conflict of interest (as it would if it appointed a majority of our directors). Our amended and restated Bylaws also provide that ACAS will have the right to designate three of our seven directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, two directors so long as they hold at least 25% but less than 50.1% and one director so long as they hold at least 10% but less than 25%.

 

ACAS will also be able to take actions that have the effect of delaying or preventing a change in control of us or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. In addition, this significant concentration of stock ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. This concentration of control could be disadvantageous to other stockholders with interests different from those of our principal stockholder and the trading price of our common stock could be adversely affected. See “Principal and Selling Stockholders” for a more detailed description of the ownership of our common stock.

 

Conflicts of interest may arise because some of our directors are principals of ACAS.

 

Three persons designated by ACAS will serve on our Board of Directors upon the consummation of this offering. ACAS and its affiliates may invest in entities that directly or indirectly compete with us, or companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of ACAS and the interests of our other stockholders arise, these directors may not be disinterested.

 

Although our directors and officers will have a duty of loyalty to us under Delaware law and our amended and restated Certificate of Incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our Board of Directors and a majority of our disinterested directors, or a committee consisting solely of disinterested directors, approves the transaction.

 

ACAS and its affiliates do not have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do.

 

Under our amended and restated Certificate of Incorporation, none of ACAS or its affiliates and investment funds, or any other ACAS entity, nor any director, officer, stockholder, member, manager and/or employee of an ACAS entity, has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any ACAS entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both itself and us, the ACAS entity will not have any duty to communicate or offer the corporate opportunity to us and may pursue or acquire the corporate opportunity for itself or offer the opportunity to another person. In addition, none of ACAS’s designees on our Board of Directors will be required to offer to us any transaction opportunity of which he or she becomes aware and could take any such opportunity for him or herself or offer it to other companies (including ACAS and its other portfolio companies) in which they have an investment, unless such opportunity is expressly offered to him or her solely in his or her capacity as a director of us.

If ACAS were to sell fewer shares than currently contemplated, we would elect to be a “controlled company,” as defined in the NASDAQ Stock Market Rules, and, as a result, we would take advantage of exemptions from certain corporate governance requirements; in any event, we are permitted to phase-in certain corporate governance requirements over the course of one year.

 

If ACAS were to sell fewer shares in this offering than currently contemplated, such that following the offering ACAS owned common stock representing more than a majority of the voting power in the election of our directors, we would elect to be considered a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Stock Market Rules. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement that a majority of its board of directors consist of independent directors, the requirement that it have a nominating/corporate governance committee that is composed entirely of independent directors for the purposes of director nominations and the requirement that it have a compensation committee that is composed entirely of independent directors for the purposes of approving executive compensation. As a result, a majority of our directors would not be independent and our compensation and nominating and corporate governance committees would not consist entirely of independent directors. Furthermore, until one year following this offering, as permitted by applicable rules, we would not anticipate having an audit committee consisting solely of independent directors. Accordingly, you would not have the same protection afforded to stockholders of companies that are subject to all of the NASDAQ Stock Market corporate governance requirements.

 

Upon the consummation of this offering, ACAS, our principal stockholder, will beneficially own           shares of our common stock (approximately     % of our outstanding common stock), which includes shares of our common stock underlying warrants held by ACAS, or           shares of our common stock (approximately     % of our common stock) if the underwriters exercise in full their over-allotment option to purchase additional shares of common stock from the selling stockholders. As a result, we do not expect to be a “controlled company.” However, under the applicable rules of The Nasdaq Stock Market, we will have a one year phase-in period to comply with those corporate governance requirements of The Nasdaq Stock Market from which we would have been exempt had we continued to remain a controlled company. Accordingly, for at least one year following the consummation of this offering, you may not have the same protection afforded to stockholders of companies that are subject to all of The Nasdaq Stock Market corporate governance requirements.

 

The price of our common stock may be volatile and subject to wide fluctuations.

 

The market price of our common stock may be subject to wide fluctuations due to a number of factors. We may experience significant period-to-period fluctuations in our backlog, revenue and operating results in the future and any such variations may cause our stock price to fluctuate. It is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If this occurs, our stock price could drop significantly. A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our backlog, revenue and operating results, including:

 

 

Broad market and industry factors may also adversely affect the market price of our common stock, regardless of our actual operating performance. Market and industry factors that could cause fluctuations in our stock price may include, among other things:

 

 

The market price of our common stock also might decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. The initial public offering price of our common stock will be determined through negotiations between the representatives of the underwriters, ACAS and us and may not be representative of the price that will prevail in the open market. You might be unable to resell your shares at or above the offering price. In the past, companies that have experienced volatility in the market price of their stock have been the subjects of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.

 

We have and will continue to incur increased costs as a result of becoming a reporting company.

 

We have and will continue to face increased legal, accounting, administrative and other costs as a result of becoming a reporting company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and the Public Company Accounting Oversight Board, have required changes in the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time consuming and costly. For example, upon the consummation of this offering we will add independent directors, create additional committees of our Board of Directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect to incur substantially higher costs to obtain directors and officers’ insurance. In addition, as we gain experience with the costs associated with being a reporting company, we may identify and incur additional overhead costs.

 

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us.

 

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, standards that we will be required to meet in the course of preparing our fiscal 2012 financial statements. We currently have material weaknesses in our internal controls and do not currently have comprehensive documentation of our internal controls, nor do we document or test our compliance with these controls on a periodic basis in accordance with Section 404 of the Sarbanes-Oxley Act. Furthermore, we have not tested our internal controls in accordance with Section 404 and, due to our lack of documentation, such a test would not be possible to perform at this time.

 

We are in the early stages of addressing our internal control procedures to satisfy the requirements of Section 404, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. If, as a public company, we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a

timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under our credit facilities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.

 

Future sales of shares could depress our stock price.

 

If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. Based on 11,271,548 shares outstanding as of August 31, 2010, upon completion of this offering we will have outstanding approximately             shares of common stock. Of these shares, only the            shares of common stock (plus up to             additional shares if the over-allotment option is exercised in full) sold in this offering will be freely tradable, without restriction, in the public market. After the lock-up agreements that ACAS has entered into, and that we expect our directors, officers and all of our other stockholders to enter into, pertaining to this offering expire, our existing stockholders will be able to sell their remaining shares in the public market, subject to legal restrictions on transfer. Upon the consummation of this offering, we will enter into a registration rights agreement that provides for registration rights with respect to the up to           shares of our common stock that will be held by ACAS and its affiliates, Thomas D. Logan, W. Antony Besso and certain other stockholders following this offering. Registration of the sale of the common stock would permit their sale into the market immediately.

 

On June 28, 2010, American Capital, Ltd. completed the Restructuring. In connection with the Restructuring, lenders to ACAS and holders of its public and private notes received cash and new secured debt in the form of the Term Loan and Secured Notes. As of June 28, 2010, the total amount of such new secured debt was $1.31 billion. The Term Loan and the Secured Notes are collectively secured by the Pledge. The shares of our capital stock beneficially owned by American Capital Equity I, LLC and American Capital Equity II, LP are not subject to the Pledge. If there is an event of default under the ACAS Secured Financing and either the lenders or the holders of the Secured Notes accelerate the Term Loan or the Secured Notes, as applicable, and exercise their rights under the Pledge, the purchasers of such shares, which may include the creditors secured by the Pledge, would hold a substantial percentage of our outstanding shares of common stock and would collectively become our largest stockholder. While such purchasers would not succeed to any of the rights specifically reserved to ACAS under our amended and restated Certificate of Incorporation and Bylaws, they may, under certain circumstances, succeed to the registration rights agreement into which we expect to enter upon consummation of this offering, and may otherwise be free to sell their shares in the market, subject to any limitations that may be imposed by applicable securities laws. Although ACAS has entered into a lock-up agreement pertaining to this offering, we do not anticipate that the lenders under the Pledge will enter into a lock-up agreement.

 

If for any reason ACAS voluntarily or involuntarily sells a large number of shares, including any shares of our common stock subject to the Pledge, the market price of our common stock could decline, as these sales may, among other things, be viewed by the public as an indication of an upcoming or recently occurring shortfall in the financial performance of our company. Moreover, the perception in the public market that these investors might sell our common stock could depress the market price of the common stock. See “Shares Eligible for Future Sale” for more detailed information. Additionally, we may sell or issue additional shares of common stock in subsequent public offerings or in connection with acquisitions.

 

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

Some provisions of our amended and restated Certificate of Incorporation and Bylaws may deter third parties from acquiring us and diminish the value of our common stock.

 

Our amended and restated Certificate of Incorporation and Bylaws provide for, among other things:

 

 

These provisions may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interest of our minority stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

 

We do not anticipate paying any cash dividends for the foreseeable future.

 

We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock and the agreements governing our debt significantly restrict our ability to pay dividends. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock. See “Dividend Policy.”

 

New investors in our common stock will experience immediate and substantial book value dilution after this offering.

 

The initial public offering price of our common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of the outstanding common stock immediately after this offering. Based on an assumed initial public offering price of $      per share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of June 30, 2010, if you purchase our common stock in this offering, you will suffer immediate dilution in pro forma as adjusted net tangible book value per share of approximately $     . See “Dilution.”

 

This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

 

The forward-looking statements contained in this prospectus are based on assumptions that we have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve assumptions as well as risks and uncertainties, some of which are beyond our control. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

 

Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses will be approximately $      million, assuming the shares are offered at $      per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use $      million of the net proceeds from this offering to repay certain borrowings from ACAS and its affiliates. We also intend to use net proceeds from this offering to make a one-time payment of $8.0 million to ACFS, a subsidiary of ACAS, to terminate an investment banking services agreement between us and ACFS. See “Certain Relationships and Related Party Transactions.” We also intend to use $0.8 million of the net proceeds from this offering to make bonus payments upon completion of this offering to certain of our employees, including an aggregate of $0.6 million to certain of our executive officers. See “Executive Compensation — Compensation Discussion and Analysis — Elements of Compensation.” We will not receive any proceeds from the sale of shares of common stock by selling stockholders. A $1.00 increase (decrease) in the assumed initial public offering price of $      per share would increase (decrease) the net proceeds to us from this offering by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. In addition, prior to the consummation of this offering, we expect to enter into a letter agreement with each holder of our convertible preferred stock, including ACAS and its affiliates and Thomas Logan, our President, Chief Executive Officer and Chairman of the Board, that in lieu of dividends otherwise payable in the form of additional shares of convertible preferred stock, for the period from the date of such letter agreement through the closing of this offering, we will pay cash dividends on shares of our outstanding preferred stock at a rate equal to the number of shares of common stock they would have received upon conversion of the preferred stock they would have received in dividends during that period multiplied by the initial public offering price. Assuming an initial public offering price of $      per share, the aggregate dividend payment would equal approximately $      per day from the date of such letter agreements until the closing of this offering. We will pay this amount out of our existing cash.

 

We intend to repay with a portion of the net proceeds from this offering the following outstanding debt of our subsidiaries that is held by our principal stockholder, ACAS, or its affiliates. For purposes of this section, EURIBOR means the Euro Interbank Offered Rate and LIBOR means the London Interbank Offered Rate.

 

 

 

 

We intend to repay all other debt held by ACAS and its affiliates ($      million as of June 30, 2010) with borrowings under our anticipated new bank credit facilities that we expect to enter into upon the consummation of this offering.

 

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay dividends to holders of our common stock and the agreements governing our anticipated new bank credit facilities significantly restrict our ability to pay cash dividends.

 

The following table sets forth our consolidated capitalization as of June 30, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

You should read this table along with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 

 

 

 

The table above excludes, as of June 30, 2010:

 

 

 

 

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of common stock initially upon completion of this offering. As of June 30, 2010, our net tangible book value was $(     ) million, or $(     ) per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by 11,103,724, the number of shares of our common stock outstanding after giving effect to the conversion of our Series A Convertible Participating Preferred Stock pursuant to the conversion terms in our amended and restated Certificate of Incorporation and the conversion of our Class A Voting Common Stock and Class B Non-Voting Common Stock on a one-for-one basis.

 

After giving effect to the sale of      shares, assuming the shares are offered at $      per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and estimated offering expenses, the repayment of certain borrowings from ACAS and its affiliates, a one-time payment of $8.0 million to ACFS, a subsidiary of ACAS, to terminate an investment banking services agreement between us and ACFS, bonus payments upon completion of this offering to certain of our employees and the repayment of all remaining debt held by ACAS and its affiliates with borrowings under our anticipated new bank credit facilities, our pro forma as adjusted net tangible book value as of June 30, 2010 would have equaled $(     ) million, or $(     ) per share of common stock. This represents an immediate increase in net tangible book value of $      per share to our existing stockholders and an immediate dilution in net tangible book value of $      per share to new stockholders of common stock in this offering. If the initial public offering price is higher or lower, the dilution to new stockholders will be greater or less. The following table summarizes this per share dilution:

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by $      million, the pro forma as adjusted net tangible book value per share by $      per share, and the dilution in pro forma as adjusted net tangible book value per share to new stockholders by $      per share.

 

The following table summarizes on a pro forma basis, as of June 30, 2010, the differences between our existing stockholders and new stockholders with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid:

 

 

Sales by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to     , or  % of the total number of shares of our common stock to be outstanding after the offering, and will increase the number of shares held by new investors to     , or  % of the total number of shares of our common stock to be outstanding after the offering. If the underwriters exercise their over-allotment option in full, the following will occur: (1) the number of shares of common stock held by existing stockholders will represent approximately  % of the total number of shares of common stock outstanding

after this offering; and (2) the number of shares of common stock held by new public stockholders will be increased to     , or approximately  % of the total number of shares of common stock outstanding after this offering.

 

The number of shares of common stock to be outstanding after this offering is based on 11,103,724 shares outstanding as of June 30, 2010 after giving effect to the conversion of our Series A Convertible Participating Preferred Stock pursuant to the conversion terms in our amended and restated Certificate of Incorporation and excludes:

 

 

 

 

Assuming that the outstanding warrants to purchase 3,420,636 shares of our common stock are exercised, the dilution to new stockholders’ net tangible book value per share would be as follows:

 

 

Assuming that the outstanding warrants are exercised, a $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by $      million, the pro forma as adjusted net tangible book value per share by $      per share, and the dilution in pro forma as adjusted net tangible book value per share to new stockholders by $      per share.

 

Assuming that the outstanding warrants are exercised, the following table summarizes on a pro forma basis, as of June 30, 2010, the differences between our existing stockholders and new stockholders with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid:

 

 

Assuming that the outstanding warrants are exercised, sales by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to     , or  %, of the total number of shares of our common stock to be outstanding after this offering, and will increase the number of shares held by new investors to     , or  %, of the total number of shares of our common stock to be outstanding after this offering. If the underwriters exercise their over-allotment option in full, the following will occur: (1) the number of shares of common stock held by existing stockholders will represent approximately  % of the total number of shares of common stock outstanding after this offering; and (2) the number of shares of common stock held by new public stockholders will be increased to     , or approximately  % of the total number of shares of common stock outstanding after this offering.

 

To the extent that outstanding options are also exercised, there could be a further reduction in dilution to new stockholders as a result of our negative net tangible book value.

 

You should read the following selected consolidated historical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected financial data in this section is not intended to replace the consolidated financial statements and related notes included elsewhere in this prospectus.

 

The selected consolidated statements of operations data for each of the fiscal years ending June 30, 2007, 2008, 2009 and 2010 and the consolidated balance sheet data as of June 30, 2008, 2009 and 2010 are derived from our audited annual consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statements of operations data for the fiscal year ended June 30, 2006, and the consolidated balance sheet data as of June 30, 2006 and 2007 are derived from our unaudited financial statements not included in this prospectus. Until their merger in December 2005 resulting in the formation of Mirion, we were comprised of GDS, IST and Synodys, entities which were under the common control of ACAS. Our historical results are not necessarily indicative of the results that should be expected in the future. The amounts below are in thousands, except percentages, shares and per share data.