SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-14254
THERMO SENTRON INC.
(Exact name of Registrant as specified in its charter)
Delaware 41-1827303
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 90th Avenue N.W.
Minneapolis, Minnesota 55433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
Common Stock, $.01 par value 9,433,151
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO SENTRON INC.
Consolidated Balance Sheet
(Unaudited)
<S> <C> <C>
Assets
July 3, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 9,702 $14,144
Advance to affiliate (Note 7) 98 -
Accounts receivable, less allowances of $1,641 and $1,367 25,566 25,076
Inventories:
Raw materials 5,975 5,603
Work in process 2,979 2,891
Finished goods 6,293 7,535
Prepaid income taxes 4,154 3,330
Prepaid expenses 1,088 859
-------- --------
55,855 59,438
-------- --------
Property, Plant, and Equipment, at Cost 6,409 6,667
Less: Accumulated depreciation and amortization 3,307 2,910
-------- --------
3,102 3,757
-------- --------
Other Assets 4,709 4,768
-------- --------
Cost in Excess of Net Assets of Acquired Companies 71,746 72,201
-------- --------
$135,412 $140,164
======== ========
2
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THERMO SENTRON INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 3, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Note payable to Thermo Electron $ 13,000 $19,000
Notes payable (includes $699 and $791 to affiliated company) 2,865 3,047
Accounts payable 9,163 9,472
Accrued payroll and employee benefits 3,817 4,483
Accrued income taxes 3,324 3,664
Customer deposits 3,265 2,688
Other accrued expenses 8,093 7,098
Due to parent company and affiliated companies 1,273 810
-------- --------
44,800 50,262
-------- --------
Deferred Income Taxes 1,117 909
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 30,000,000 shares authorized; 9,880,250 99 99
and 9,875,000 shares issued
Capital in excess of par value 77,124 77,072
Retained earnings 20,276 17,359
Treasury stock at cost, 447,099 shares (4,965) (4,965)
Accumulated other comprehensive items (Note 2) (3,039) (572)
-------- --------
89,495 88,993
-------- --------
$135,412 $140,164
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMO SENTRON INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $28,106 $21,612
------- -------
Costs and Operating Expenses:
Cost of revenues 17,080 13,012
Selling, general, and administrative expenses 7,277 5,696
Research and development expenses 762 536
Loss on sale of property, plant, and equipment 7 -
------- ------
25,126 19,244
------- -------
Operating Income 2,980 2,368
Interest Income 154 462
Interest Expense (includes $241 and $77 to related party) (315) (178)
Gain on Sale of Investments, Net - 11
Equity in Earnings of Unconsolidated Subsidiary 125 17
------- ------
Income Before Provision for Income Taxes 2,944 2,680
Provision for Income Taxes 1,148 1,034
------- ------
Net Income $ 1,796 $1,646
======= ======
Basic and Diluted Earnings per Share (Note 3) $ .19 $ .17
======= ======
Weighted Average Shares (Note 3):
Basic 9,430 9,690
======= ======
Diluted 9,463 9,695
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMO SENTRON INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $54,662 $40,558
------- -------
Costs and Operating Expenses:
Cost of revenues 33,664 24,598
Selling, general, and administrative expenses 14,473 10,666
Research and development expenses 1,623 1,006
Gain on sale of property, plant, and equipment, net (86) -
------- ------
49,674 36,270
------- -------
Operating Income 4,988 4,288
Interest Income 270 1,033
Interest Expense (includes $483 and $77 to related party) (602) (296)
Gain on Sale of Investments, Net - 11
Equity in Earnings of Unconsolidated Subsidiary 126 57
------- ------
Income Before Provision for Income Taxes 4,782 5,093
Provision for Income Taxes 1,865 1,968
------- ------
Net Income $ 2,917 $3,125
======= ======
Basic and Diluted Earnings per Share (Note 3) $ .31 $ .32
======= ======
Weighted Average Shares (Note 3):
Basic 9,429 9,776
======= ======
Diluted 9,453 9,779
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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THERMO SENTRON INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 2,917 $ 3,125
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,769 1,114
Provision for losses on accounts receivable 181 77
Gain on sale of property, plant, and equipment, net (86) -
Changes in current accounts:
Accounts receivable (1,855) 1,892
Inventories (271) (499)
Other current assets (421) (578)
Accounts payable 818 (1,407)
Other current liabilities (839) (3,035)
-------- -------
Net cash provided by operating activities 2,213 689
-------- -------
Investing Activities:
Acquisitions, net of cash acquired - (44,195)
Proceeds from sale and maturities of available-for-sale investments - 9,511
Advances to affiliate, net (Note 7) (98) -
Proceeds from sale of property, plant, and equipment 759 28
Purchases of property, plant, and equipment (827) (312)
Other (126) (169)
-------- -------
Net cash used in investing activities (292) (35,137)
-------- -------
Financing Activities:
Issuance of short-term obligation to Thermo Electron - 21,000
Repayment of short-term obligation to Thermo Electron (6,000) -
Net proceeds from issuance of Company common stock 52 -
Purchases of Company common stock - (3,222)
Net increase (decrease) in short-term borrowings 43 (1,660)
-------- -------
Net cash provided by (used in) financing activities (5,905) 16,118
-------- -------
Exchange Rate Effect on Cash (458) 272
-------- -------
Decrease in Cash and Cash Equivalents (4,442) (18,058)
Cash and Cash Equivalents at Beginning of Period 14,144 30,283
-------- -------
Cash and Cash Equivalents at End of Period $ 9,702 $12,225
======== =======
Noncash Activities:
Fair value of assets of acquired companies $ - $54,294
Cash paid for acquired companies - (44,195)
-------- -------
Liabilities assumed of acquired companies $ - $10,099
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
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Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Sentron Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 3, 1999, the results of
operations for the three- and six-month periods ended July 3, 1999, and July 4,
1998, and the cash flows for the six-month periods ended July 3, 1999, and July
4, 1998. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses from
available-for-sale investments. During the second quarter of 1999 and 1998, the
Company had comprehensive income of $480,000 and $1,633,000, respectively.
During the first six months of 1999 and 1998, the Company had comprehensive
income of $450,000 and $3,076,000, respectively.
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3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $1,796 $1,646 $2,917 $3,125
------ ------ ------ ------
Weighted Average Shares 9,430 9,690 9,429 9,776
------ ------ ------ ------
Basic Earnings per Share $ .19 $ .17 $ .31 $ .32
====== ====== ====== ======
Diluted
Net Income $1,796 $1,646 $2,917 $3,125
------ ------ ------ ------
Weighted Average Shares 9,430 9,690 9,429 9,776
Effect of Stock Options 33 5 24 3
------ ------ ------ ------
Weighted Average Shares, as Adjusted 9,463 9,695 9,453 9,779
------ ------ ------ ------
Diluted Earnings per Share $ .19 $ .17 $ .31 $ .32
===== ====== ===== ======
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3. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. At July 3, 1999, there were 390,000 of such options
outstanding, with exercise prices ranging from $12.28 to $16.00 per share.
4. Business Segment Information
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
North America (a) $17,013 $12,816 $32,786 $23,587
Europe (b) 12,781 8,440 25,158 15,570
Other (c) 1,995 2,303 4,067 4,739
Intersegment sales elimination (d) (3,683) (1,947) (7,349) (3,338)
------- ------- ------ -------
$28,106 $21,612 $54,662 $40,558
======= ======= ======= =======
Income Before Provision for Income Taxes:
North America $2,302 $ 2,027 $4,102 $ 3,333
Europe 1,053 544 1,703 1,273
Other 93 340 83 583
Corporate (e) (468) (543) (900) (901)
------ ------- ------ -------
Total operating income 2,980 2,368 4,988 4,288
Interest and other income (expense), net (36) 312 (206) 805
------ ------- ------ -------
$2,944 $ 2,680 $4,782 $ 5,093
====== ======= ====== =======
(a) Includes intersegment sales of $1,735,000 and $1,042,000 in the second
quarter of 1999 and 1998, respectively, and $3,329,000 and $2,017,000 in the
first six months of 1999 and 1998, respectively.
(b) Includes intersegment sales of $1,947,000 and $902,000 in the second quarter
of 1999 and 1998, respectively, and $4,016,000 and $1,315,000 in the first
six months of 1999 and 1998, respectively.
(c) Includes intersegment sales of $1,000 and $3,000 in the second quarter of
1999 and 1998, respectively, and $4,000 and $6,000 in the first six months
of 1999 and 1998, respectively.
(d) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(e) Primarily general and administrative expenses.
5. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels and the abandonment of excess
facilities. In connection with these restructuring activities, as part of the
cost of acquisitions, the Company established reserves, primarily for severance
and excess facilities. The Company finalized its restructuring plans for
businesses acquired in June 1998 during the second quarter of 1999. Amounts
accrued at July 3, 1999, represent ongoing lease obligations (net of sublease
income) through 2008 for abandoned facilities as well as severance, which will
be paid during the third quarter of 1999.
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8
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5. Accrued Acquisition Expenses (continued)
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A summary of the changes in accrued acquisition expenses, which are
included in other accrued expenses in the accompanying balance sheet, follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at January 2, 1999 $ 177 $ 788 $ - $ 965
Reserves established 478 1,151 62 1,691
Usage (408) (309) (22) (739)
Currency translation adjustment - (21) - (21)
------ ------ ------ ------
Balance at July 3, 1999 $ 247 $1,609 $ 40 $1,896
====== ====== ====== ======
6. Proposed Reorganization
During 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. Under this plan, Thermedics Inc.'s majority interest in the Company
would be transferred to Thermo Electron. The Company would then be taken private
and become a wholly owned subsidiary of Thermo Electron. Shareholders of the
Company would receive cash in exchange for their shares of common stock. The
proposed transactions are subject to a number of conditions, including the
establishment of prices and exchange ratios; confirmation of anticipated tax
consequences; approval by the Board of Directors of the Company, Thermedics, and
Thermo Electron (including the independent directors of the Company and
Thermedics); negotiation and execution of definitive agreements; clearance by
the Securities and Exchange Commission of any necessary documents in connection
with the proposed transactions; and the receipt of fairness opinions from
investment banking firms on certain financial aspects of the transactions.
7. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, filed with the Securities and Exchange
Commission.
9
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Overview
The Company designs, develops, manufactures, and markets high-speed
precision-weighing and inspection equipment for industrial production and
packaging lines. The Company is managed geographically and operates in three
segments based on the locations from which they conduct business: North America,
Europe, and Other, which principally includes Australia, New Zealand, and South
Africa. Each of the Company's segments serves two principal markets: packaged
goods and bulk materials. The Company's products for the packaged-goods market
include a broad line of checkweighing equipment and metal detectors that can be
integrated at various stages in production lines for process control and quality
assurance. These products are sold to customers in the food-processing,
pharmaceutical, mail-order, and other diverse industries. In June 1998, the
Company expanded its packaged-goods product line through the acquisition of the
three businesses that constituted the product-monitoring group of Graseby
Limited (the product-monitoring businesses), a subsidiary of Smiths Industries
plc. The Company's bulk-materials product line includes conveyor-belt scales,
solid level-measurement and conveyor-monitoring systems, sampling systems, and
small-capacity feeders. These products are sold primarily to customers in the
mining and material-processing industries, as well as to electric utilities and
chemical and other manufacturing companies.
A substantial portion of the Company's sales are derived from sales of
products outside the United States, through export sales, and sales by the
Company's foreign subsidiaries. Although the Company seeks to charge its
customers in the same currency as its operating costs, the Company's financial
performance and competitive position can be affected by currency exchange rate
fluctuations affecting the relationship between the U.S. dollar and foreign
currencies.
Results of Operations
Second Quarter 1999 Compared With Second Quarter 1998
Revenues increased 30% to $28.1 million in the second quarter of 1999 from
$21.6 million in the second quarter of 1998. Revenues increased $7.1 million due
to the inclusion of a full three months of revenues from the product-monitoring
businesses, which were acquired in June 1998. Excluding the impact of the
acquisition and foreign exchange, revenues from existing businesses decreased
$0.2 million. Revenues from existing businesses in the European and Other
segments decreased $0.4 million and $0.3 million, respectively, primarily due to
decreased demand. This decrease was offset in part by an increase in revenues of
$0.5 million from existing businesses in the North American segment, primarily
due to increased demand for packaged-goods products in the U.S. Revenues
decreased by $0.4 million due to a stronger U.S. dollar relative to currencies
in foreign countries in which the Company operates.
The gross profit margin decreased to 39% in the second quarter of 1999
from 40% in the second quarter of 1998, primarily due to the inclusion of
lower-margin revenues from the acquired product-monitoring businesses for the
full three-month period.
Selling, general, and administrative expenses as a percentage of revenues
were unchanged at 26% in the second quarter of 1999 and 1998.
Research and development expenses increased to $0.8 million in the second
quarter of 1999 from $0.5 million in the second quarter of 1998, primarily due
to the inclusion of a full three months of expenses from the acquired
product-monitoring businesses.
Interest income decreased to $0.2 million in the second quarter of 1999
from $0.5 million in the second quarter of 1998, primarily due to a decrease in
invested cash balances. The decrease in invested cash balances was principally
due to cash expended for the acquisition of the product-monitoring businesses.
Interest expense increased to $0.3 million in the second quarter of 1999 from
$0.2 million in the second quarter of 1998, primarily due to the inclusion of a
full three months of interest expense on borrowings to partially finance the
acquisition of the product-monitoring businesses.
The effective tax rate was 39% in the second quarter of 1999 and 1998. The
effective tax rate exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes and foreign tax rate differences.
10
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First Six Months 1999 Compared With First Six Months 1998
Revenues increased 35% to $54.7 million in the first six months of 1999
from $40.6 million in the first six months of 1998. Revenues increased $15.9
million due to the inclusion of a full six months of revenues from the
product-monitoring businesses, which were acquired in June 1998. Excluding the
impact of the acquisition and foreign exchange, revenues from existing
businesses decreased $1.2 million. Revenues from existing businesses in the
European and Other segments decreased $1.6 million and $0.5 million,
respectively, primarily due to decreased demand. This decrease was offset in
part by an increase in revenues of $0.9 million from existing businesses in the
North American segment, primarily due to increased demand for packaged-goods
products in the U.S. Revenues decreased by $0.6 million due to a stronger U.S.
dollar relative to currencies in foreign countries in which the Company
operates.
The gross profit margin decreased to 38% in the first six months of 1999
from 39% in the first six months of 1998, primarily due to the inclusion of
lower-margin revenues from the acquired product-monitoring businesses for the
full six-month period.
Selling, general, and administrative expenses as a percentage of revenues
were unchanged at 26% in the first six months of 1999 and 1998, respectively.
Research and development expenses increased to $1.6 million in the first
six months of 1999 from $1.0 million in the first six months of 1998, primarily
due to the inclusion of a full six months of expenses from the acquired
product-monitoring businesses.
Interest income decreased to $0.3 million in the first six months of 1999
from $1.0 million in the first six months of 1998. Interest expense increased to
$0.6 million in the first six months of 1999 from $0.3 million in the first six
months of 1998. These changes were primarily due to the reasons discussed in the
results of operations for the second quarter.
The effective tax rate was 39% in the first six months of 1999 and 1998.
The effective tax rate exceeded the statutory federal income tax rate primarily
due to the impact of state income taxes and foreign tax rate differences.
Liquidity and Capital Resources
Consolidated working capital was $11.1 million at July 3, 1999, compared
with $9.2 million at January 2, 1999. Included in working capital are cash and
cash equivalents of $9.7 million at July 3, 1999, compared with $14.1 million at
January 2, 1999. During the first six months of 1999, operating activities
provided cash of $2.2 million. Cash provided by the Company's operations was
offset in part by the use of $1.9 million of cash to fund an increase in
accounts receivable, primarily due to delays in the pursuit of collections of
accounts receivable at certain of the Company's subsidiaries, due principally to
disruptions to collection activities caused by restructuring and integration of
acquired businesses. The Company has substantially completed these actions and
expects to improve collections over the remainder of 1999.
During the first six months of 1999, the Company's investing activities
used $0.3 million of cash. The Company expended $0.8 million for purchases of
property, plant, and equipment and received proceeds of $0.8 million from the
sale of property, plant, and equipment. During the remainder of 1999, the
Company expects to make capital expenditures for the purchase of property,
plant, and equipment of approximately $1.2 million.
During the first six months of 1999, the Company's financing activities
used $5.9 million in cash. In June 1999, the Company repaid $6.0 million of its
note payable to Thermo Electron and issued Thermo Electron a new note for $13.0
million in exchange for the initial note. Notes payable in the accompanying 1999
balance sheet includes $2.1 million of short-term borrowings of foreign
subsidiaries under foreign-currency-denominated line-of-credit arrangements with
banks. As of July 3, 1999, unused lines of credit totaled $9.6 million.
11
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Liquidity and Capital Resources (continued)
Generally the Company expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may consider acquiring one
or more complementary businesses if they are presented to the Company on terms
the Company believes to be attractive. Such acquisitions may require a
significant amount of cash. While the Company currently has no agreements to
acquire other businesses, the Company expects that it would finance any such
acquisition through a combination of internal funds, additional debt or equity
financing from the capital markets, or short-term borrowings from Thermedics or
Thermo Electron, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all. Thermo Electron has
indicated its willingness to require payment of the Company's $13.0 million
principal amount note payable, due March 2000, only to the extent that the
Company's cash flows permit. Accordingly, the Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and noninformation technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
noninformation technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical noninformation technology systems, which efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material noncompliant systems or noninformation
technology systems that were identified during phase one are prioritized and
remediated. The Company is currently upgrading or replacing its noncompliant
information technology systems, and this process was approximately 95% complete
as of July 3, 1999. In many cases, such upgrades or replacements are being made
in the ordinary course of business, without accelerating previously scheduled
upgrades or replacements. The Company expects that all of its material
information technology systems and critical noninformation technology systems
will be year 2000 compliant by the end of 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate third- party products, and operate on computer systems that are
not under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. The Company
believes that certain of its older products, which it no longer manufactures or
sells, may not be year 2000 compliant. The Company is continuing to test and
evaluate such products. The Company is focusing its efforts on products that are
still under warranty and/or early in their expected life. The Company is
offering upgrades and/or identifying potential solutions where reasonably
practicable.
12
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Year 2000 (continued)
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and distributed questionnaires relating to year 2000 compliance to its
significant suppliers and vendors. To date, no significant supplier or vendor
has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has substantially completed its
assessment of third-party risk.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products, and significant suppliers and vendors, it will modify and
adjust its contingency plan as may be required. The Company expects to complete
its contingency plan by October 1999.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had incurred expenses to third parties (external costs)
related to year 2000 issues of approximately $330,000 as of July 3, 1999, and
the total external costs of year 2000 remediation are expected to be
approximately $400,000. All of the external costs incurred as of July 3, 1999,
were spent on testing and upgrading information technology and communications
systems. All internal costs and related external costs other than capital
additions related to year 2000 remediation have been and will continue to be
expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
The Company is not currently able to determine the most reasonably likely
worst case scenario to result from the year 2000 issue. One possible worst case
scenario would be that certain of the Company's material suppliers or vendors
experience business disruptions due to the year 2000 issue and are unable to
provide materials and services to the Company on time. The Company's operations
could be delayed or temporarily shut down, and it could be unable to meet its
obligations to customers in a timely fashion. The Company's business,
operations, and financial condition could be adversely affected in amounts that
cannot be reasonably estimated at this time. If the Company believes that any of
its key suppliers or vendors may not be year 2000 compliant, it will seek to
identify and secure other suppliers or vendors as part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected. If
any countries in which the Company operates experience
13
<PAGE>
Year 2000 (continued)
significant year 2000 disruption, the Company could also be materially adversely
affected. There is expected to be a significant amount of litigation relating to
the year 2000 issue and there can be no assurance that the Company will not
incur material costs in defending or bringing lawsuits. In addition, if any year
2000 issues are identified, there can be no assurance that the Company will be
able to retain qualified personnel to remedy such issues. Any unexpected costs
or delays arising from the year 2000 issue could have a material adverse impact
on the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates has not changed materially from its exposure at year-end 1998.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On May 27, 1999, at the Annual Meeting of Shareholders, the shareholders
elected five incumbent directors to a one-year term expiring in 2000. The
Directors elected at the meeting were: Mr. Marshall J. Armstrong, Mr. John T.
Keiser, Mr. Donald E. Noble, Mr. Lewis J. Ribich, and Mr. Peter Richman. Each
director received 9,287,341 shares voted in favor of his election and 2,835
shares voted against. No abstentions or broker nonvotes were recorded on the
election of directors.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 5th day of August 1999.
THERMO SENTRON INC.
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Master Cash Management, Guarantee Reimbursement, and Loan Agreement
dated as of June 1, 1999, between the Registrant and Thermo
Electron Corporation.
10.2 Amended and Restated $13,000,000 Promissory Note dated as of
June 30, 1999, issued by Thermo Sentron Inc. to Thermo Electron
Corporation.
10.3 Deferred Compensation Plan for Directors of the Registrant,
as amended and restated as of June 8, 1999.
27 Financial Data Schedule.
</TABLE>
MASTER CASH MANAGEMENT, GUARANTEE
REIMBURSEMENT AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 1st day of June, 1999 by and
between Thermo Electron Corporation, a Delaware corporation ("Thermo Electron")
and Thermo Sentron Inc., a Delaware corporation (the "Subsidiary").
WITNESSETH:
WHEREAS, Thermo Electron and the Subsidiary are party to a Master
Repurchase Agreement, as amended and restated, which contains terms governing a
cash management arrangement between them and a Master Guarantee Reimbursement
and Loan Agreement, as amended and restated, which contains terms relating to
intercompany credit support and a short term borrowing facility;
WHEREAS, Thermo Electron and the Subsidiary desire to establish a new
cash management arrangement and short term borrowing facility between them in
lieu of the arrangements set forth in the Master Repurchase Agreement and the
Master Guarantee Reimbursement and Loan Agreement and also to consolidate the
terms relating to intercompany credit support in one agreement;
WHEREAS, the Subsidiary and other majority owned subsidiaries of Thermo
Electron that join in this Agreement (collectively, the "Majority-Owned
Subsidiaries") and their wholly-owned subsidiaries wish to enter into various
financial transactions, such as convertible or nonconvertible debt, loans,
equity offerings, and other contractual arrangements with third parties (the
"Underlying Obligations") and may provide credit support to, on behalf of or for
the benefit of, other subsidiaries of Thermo Electron ("Credit Support
Obligations");
WHEREAS, the Majority Owned Subsidiaries and Thermo Electron acknowledge
that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be
unable to enter into many kinds of Underlying Obligations without a guarantee of
their performance thereunder from Thermo Electron (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority Owned
Subsidiaries;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority
Owned Subsidiaries") may themselves be majority owned subsidiaries of other
Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second Tier
Majority Owned Subsidiary's Underlying Obligations may be demanded and given
without the respective First Tier Majority Owned Subsidiary also issuing a
guarantee of such Underlying Obligation;
WHEREAS, Thermo Electron may itself make a loan or provide other credit
to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries
under circumstances where the applicable First Tier Majority Owned Subsidiary
does not provide such credit; and
WHEREAS, Thermo Electron is willing to consider continuing to issue
Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are
willing to consider continuing to provide Credit Support Obligations, on the
terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party hereto, the parties agree as follows:
1. Cash Management Arrangement. The Subsidiary directly, or through its
wholly-owned U.S. subsidiaries, may, from time to time, lend its excess cash to
Thermo Electron (a "Transaction"), on an unsecured basis, bearing interest at a
rate equal to the 30-day Dealer Commercial Paper Rate as reported in the Wall
Street Journal (the "DCP Rate") plus 50 basis points, which rate shall be
adjusted on the second business day of each fiscal month of the Subsidiary and
shall be in effect for the entirety of such fiscal month. The Subsidiary shall
institute a Transaction by depositing its excess cash in the Subsidiary's
concentration account at BankBoston Corporation ("BankBoston") or other bank
designated by Thermo Electron. At the end of each business day, the cash balance
deposited in the Subsidiary's concentration account shall be transferred to
Thermo Electron's intercompany account at BankBoston or other bank designated by
Thermo Electron. Thermo Electron shall indicate on its books the balance of the
Subsidiary's cash held by Thermo Electron under this arrangement. After each
fiscal month end, Thermo Electron shall provide the Subsidiary a report
indicating the Subsidiary's aggregate cash balance ("Excess Cash") held by
Thermo Electron hereunder. The Subsidiary shall have the right to withdraw all
or part of its Excess Cash upon 30 days' prior notice to Thermo Electron. Within
30 days of receipt of such withdrawal notice, Thermo Electron shall transfer the
portion of the Excess Cash requested for withdrawal to an account designated by
the Subsidiary. Thermo Electron shall maintain, at all times, cash, cash
equivalents and/or immediately available bank lines of credit equal to at least
50% of the cash balances of the Subsidiary and of all other participating
subsidiaries of Thermo Electron, other than wholly-owned subsidiaries of Thermo
Electron, held by Thermo Electron under this arrangement. Interest shall be
payable on the Excess Cash by Thermo Electron to the Subsidiary each fiscal
month in arrears. In addition, the Subsidiary's non-U.S. subsidiaries may, from
time to time, lend or advance their excess cash to Thermo Electron, on an
unsecured basis, bearing interest at rates set by Thermo Electron at the
beginning of each month, based to the extent practicable on comparable interest
rates generally available in the local jurisdiction of such participating
non-U.S. subsidiary. Further, Thermo Electron and such non-U.S. subsidiaries
participating in the cash management arrangement with Thermo Electron shall
establish mutually agreeable procedures governing such cash management
arrangement.
2. Loans and Advances. Upon request from the Subsidiary, Thermo Electron
may make loans and advances to the Subsidiary on a short-term, revolving credit
basis, from time to time, in such amounts as mutually determined by Thermo
Electron and the Subsidiary. The aggregate principal amount of such loans and
advances shall be reflected on the books and records of the Subsidiary and
Thermo Electron. All such loans and advances shall be on an unsecured basis
unless specifically provided otherwise in separate loan documents executed at
that time. The Subsidiary shall pay interest on the aggregate unpaid principal
amount of such loans from time to time outstanding at a rate equal to the DCP
Rate plus one hundred fifty (150) basis points, which rate shall be adjusted on
the second business day of each fiscal month of the Subsidiary and shall be in
effect for the entirety of such fiscal month. If, however, one or more of the
Subsidiary's majority-owned U.S. subsidiaries (i.e., not wholly-owned) is also
participating in the cash management arrangement with Thermo Electron, then the
rate payable on the Subsidiary's outstanding principal balance shall be
calculated as follows: If the aggregate amount of the Subsidiary's
majority-owned U.S. subsidiaries' cash balances under the cash management
arrangement ("Majority-Owned Excess Cash") equals or exceeds the Subsidiary's
outstanding principal balance, then the Subsidiary shall pay interest on the
aggregate unpaid principal amount of such loans at a rate per annum equal to the
DCP Rate plus fifty (50) basis points. If the aggregate amount of the
Majority-Owned Excess Cash is less than the Subsidiary's outstanding principal
balance, then (A) the Subsidiary shall pay interest at a rate per annum equal to
the DCP Rate plus fifty (50) basis points on that portion of the unpaid
principal amount equal to the Majority-Owned Excess Cash, and (B) the Subsidiary
shall pay interest at a rate per annum equal to the DCP Rate plus one hundred
fifty (150) basis points on that portion of the unpaid principal amount equal to
(i) the Subsidiary's outstanding principal balance, minus (ii) the
Majority-Owned Excess Cash. The interest rates set forth in the prior two
sentences shall be adjusted on the second business day of each fiscal month of
the Subsidiary and shall be in effect for the entirety of such fiscal month.
Interest shall be computed on a 360-day basis. Interest is payable each fiscal
month in arrears. The aggregate principal amount outstanding shall be payable
within 30 days of demand by Thermo Electron. Overdue principal and interest
shall bear interest at a rate per annum equal to the rate of interest published
from time to time in the Wall Street Journal as the "prime rate" plus one
percent (1%). The principal and accrued interest may be paid by the Subsidiary
at any time or from time to time, in whole or in part, without premium or
penalty. All payments shall be applied first to accrued interest and then to
principal. At the end of each business day, Thermo Electron shall apply the
balance of the Subsidiary's Excess Cash held by Thermo Electron under the cash
management arrangement toward the payment of any loans or advances to the
Subsidiary. Principal and interest shall be payable in lawful money of the
United States of America, in immediately available funds, at the principal
office of Thermo Electron or at such other place as Thermo Electron may
designate from time to time in writing to the Subsidiary. The unpaid principal
amount of any such borrowings, and accrued interest thereon, shall become
immediately due and payable, without demand, upon occurrence of any of the
following events:
(a) the failure of the Subsidiary to pay any amount due hereunder within
fifteen (15) days of the date when due;
(b) the failure of the Subsidiary to pay its debts as they become due,
the filing by or against the Subsidiary of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under the
insolvency law of any jurisdiction), or the making by the Subsidiary of
an assignment or trust mortgage for the benefit of creditors or the
appointment of a receiver, custodian or similar agent with respect to,
or the taking by any such person of possession of, any material property
of the Subsidiary;
(c)the sale by the Subsidiary of all or substantially all of its
assets;
(d) the merger or consolidation of the Subsidiary with or into any other
corporation in a transaction in which the Subsidiary is not the
surviving entity;
(e) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction against or affecting
the person or property of the Subsidiary that is not removed, repealed
or dismissed within thirty (30) days of issuance and as a result has a
material adverse effect on the business, operations, assets or
condition, financial or otherwise, of the Subsidiary or its ability to
discharge any of its liabilities or obligations to Thermo Electron; and
(f) the suspension of the transaction of the usual business of the
Subsidiary.
3. Guarantee Arrangements.
(a) If Thermo Electron provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the
Parent Guarantee, or Thermo Electron performs under the Parent Guarantee
for any other reason, then the Majority Owned Subsidiary that is
obligated, either directly or indirectly through a wholly-owned
subsidiary, under such Underlying Obligation shall indemnify and save
harmless Thermo Electron from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by Thermo Electron as a
result of the Parent Guarantee. If the Underlying Obligation is issued
by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary
thereof, and such Second Tier Majority Owned Subsidiary is unable to
fully indemnify Thermo Electron (because of the poor financial condition
of such Second Tier Majority Owned Subsidiary, or for any other reason),
then the First Tier Majority Owned Subsidiary that owns the majority of
the stock of such Second Tier Majority Owned Subsidiary shall indemnify
and save harmless Thermo Electron from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees) suffered by
Thermo Electron as a result of the Parent Guarantee. If a Majority Owned
Subsidiary or a wholly-owned subsidiary thereof provides a Credit
Support Obligation for any subsidiary of Thermo Electron, other than a
subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies)
of the Credit Support Obligation enforce the Credit Support Obligation,
or the Majority Owned Subsidiary or its wholly-owned subsidiary performs
under the Credit Support Obligation for any other reason, then Thermo
Electron shall indemnify and save harmless the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, from any liability, cost,
expense or damage (including reasonable attorneys' fees) suffered by the
Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable,
as a result of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of funds by a
Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a
credit arrangement with a banking facility whereby such funds are
available to the banking facility as collateral for overdraft
obligations of other Majority Owned Subsidiaries or their subsidiaries
also participating in the credit arrangement with such banking facility.
Nothwithstanding the foregoing, in order to obtain the benefits of the
indemnification obligations of the First Tier Majority Owned Subsidiary
set forth above in this Section 3(a), Thermo Electron must have notified
the First Tier Majority Owned Subsidiary prior to guaranteeing the
obligations of the Second Tier Majority Owned Subsidiary. If after five
(5) business days, Thermo Electron has not received from the First Tier
Majority Owned Subsidiary a notice of objection stating that the First
Tier Majority Owned Subsidiary objects to Thermo Electron guaranteeing
the obligations of the Second Tier Majority Owned Subsidiary, then
Thermo Electron may proceed to issue its guarantee of the Underlying
Obligation and such guarantee shall be subject to the benefits of the
indemnification obligations of the First Tier Majority Owned Subsidiary
set forth above in this Section 3(a). If Thermo Electron does receive
such notice of objection, then Thermo Electron's guarantee shall not be
subject to the indemnification obligations of the First Tier Majority
Owned Subsidiary set forth above in this Section 3(a).
(b) For purposes of this Agreement, the term "guarantee" shall include
not only a formal guarantee of an obligation, but also any other
arrangement where Thermo Electron is liable for the obligations of a
Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other
arrangements include (a) representations, warranties and/or covenants or
other obligations joined in by Thermo Electron, whether on a joint or
joint and several basis, for the benefit of the Majority Owned
Subsidiary or its wholly-owned subsidiaries and (b) responsibility of
Thermo Electron by operation of law for the acts and omissions of the
Majority Owned Subsidiary or its wholly-owned subsidiaries, including
controlling person liability under securities and other laws.
(c) Promptly after Thermo Electron receives notice that a beneficiary of
a Parent Guarantee is seeking to enforce such Parent Guarantee, Thermo
Electron shall notify the Majority Owned Subsidiary(s) obligated, either
directly or indirectly through a wholly-owned subsidiary, under the
relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have the right, at
its own expense, to contest the claim of such beneficiary. If a Majority
Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is
contesting the claim of such beneficiary, Thermo Electron will not
perform under the relevant Parent Guarantee unless and until, in Thermo
Electron's reasonable judgment, Thermo Electron is obligated under the
terms of such Parent Guarantee to perform. Subject to the foregoing, any
dispute between a Majority Owned Subsidiary or wholly-owned subsidiary
thereof, as applicable, and a beneficiary of a Parent Guarantee shall
not affect such Majority Owned Subsidiary's obligation to promptly
indemnify Thermo Electron hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as applicable, receives
notice that a beneficiary of a Credit Support Obligation is seeking to
enforce such Credit Support Obligation, the Majority Owned Subsidiary
shall notify Thermo Electron. Thermo Electron shall have the right, at
its own expense, to contest the claim of such beneficiary. If Thermo
Electron or the subsidiary of Thermo Electron on whose behalf the Credit
Support Obligation is given is contesting the claim of such beneficiary,
the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, will not perform under the relevant Credit Support
Obligation unless and until, in the Majority Owned Subsidiary's
reasonable judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the terms of such
Credit Support Obligation to perform. Subject to the foregoing, any
dispute between Thermo Electron or the subsidiary of Thermo Electron on
whose behalf the Credit Support Obligation was given, on the one hand,
and a beneficiary of a Credit Support Obligation, on the other, shall
not affect Thermo Electron's obligation to promptly indemnify the
Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable,
hereunder.
(d) If Thermo Electron makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the First Tier
Majority Owned Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier
Majority Owned Subsidiary's obligations to Thermo Electron thereunder.
Such guaranty shall be enforced only after Thermo Electron, in its
reasonable judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its obligations under the Credit
Extension. If Thermo Electron provides Credit Extension to a
wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the
Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to Thermo Electron thereunder and the First
Tier Majority Owned Subsidiary that owns the majority of the stock of
such Second Tier Majority Owned Subsidiary hereby guarantees the Second
Tier Majority Owned Subsidiary's obligations to Thermo Electron
hereunder. Such guaranty by the First Tier Majority Owned Subsidiary
shall be enforced only after Thermo Electron, in its reasonable
judgment, determines that the Second Tier Majority Owned Subsidiary is
unable to fully perform its guaranty obligation hereunder.
Notwithstanding the foregoing, in order for a Credit Extension to be
deemed guaranteed by the First Tier Majority Owned Subsidiary as set
forth above in this Section 3(d), Thermo Electron must have notified the
First Tier Majority Owned Subsidiary prior to providing the Credit
Extension to the Second Tier Majority Owned Subsidiary. If after five
(5) business days, Thermo Electron has not received from the First Tier
Majority Owned Subsidiary a notice of objection stating that the First
Tier Majority Owned Subsidiary objects to Thermo Electron providing a
Credit Extension to the Second Tier Majority Owned Subsidiary, then
Thermo Electron may proceed to issue the Credit Extension to the Second
Tier Majority Owned Subsidiary and the First Tier Majority Owned
Subsidiary shall be deemed to have guaranteed such Credit Extension as
set forth above in this Section 3(d). If Thermo Electron does receive
such notice of objection, then Thermo Electron's Credit Extension shall
not be deemed guaranteed by the First Tier Majority Owned Subsidiary as
set forth in this Section 3(d).
(e) All payments required to be made under this Section 3 by a Majority
Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall
be made within two days after receipt of notice from Thermo Electron.
All payments required to be made under this Section 3 by Thermo Electron
shall be made within two days after receipt of notice from the Majority
Owned Subsidiary.
4. Waivers. No delay or omission on the part of either party in
exercising any right hereunder shall operate as a waiver of such right or of any
other right of the party, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion. The Subsidiary hereby waives demand, notice of prepayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of the Subsidiary's obligations
hereunder. The Subsidiary hereby assents to any indulgence and any extension of
time for payment of any indebtedness hereunder granted or permitted by the
party.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and performed therein without giving effect to any choice of law
provision or rule that would cause the application of laws of any jurisdiction
other than the Commonwealth of Massachusetts.
6. Severability. Each provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and shall
be enforceable notwithstanding the unenforceability of any such other provision
or agreement.
7. Non-assignability. The rights and obligations of the parties under
this Agreement shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
successors and assigns.
8. Other Agreements. The parties agree that, effective as of the date
hereof, each of the Master Repurchase Agreement, as amended and restated,
between the Subsidiary and Thermo Electron and the Master Guarantee
Reimbursement and Loan Agreement, as amended and restated, between the
Subsidiary and Thermo Electron, is hereby terminated and is of no further force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THERMO ELECTRON CORPORATION
By: /s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Title: Vice President and
Chief Financial Officer
THERMO SENTRON INC.
By: /s/ Lewis J. Ribich
Lewis J. Ribich
Title: President and
Chief Executive Officer
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT, AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE SECURITIES OR (2)
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THERMO SENTRON INC.
Amended and Restated Promissory Note Due March 31, 2000
Minneapolis, Minnesota
June 30, 1999
For value received, Thermo Sentron Inc., a Delaware corporation (the
"Company"), hereby promises to pay to Thermo Electron Corporation (hereinafter
referred to as the "Payee"), or registered assigns, on March 31, 2000, as
described below, the principal sum of thirteen million dollars ($13,000,000) or
such part thereof as then remains unpaid, to pay interest from the date hereof
on the whole amount of said principal sum remaining from time to time unpaid at
a rate per annum equal to the rate of the Dealer Commercial Paper Rate for
30-day maturities as reported in The Wall Street Journal on the first business
day of each fiscal month of the Company (the "DCP Rate") plus one-hundred fifty
(150) basis points, which rate shall be adjusted on the second business day of
each fiscal month of the Company and shall be in effect for the entirety of such
fiscal month. Interest is payable in arrears on the first business day of each
fiscal month of the Company, until all amounts outstanding are paid in full.
Overdue principal and interest shall bear interest at a rate per annum equal to
the rate of interest announced from time to time by BankBoston, N.A. at its head
office in Boston, Massachusetts as its "base rate" plus one percent (1%).
Principal and all accrued but unpaid interest shall be repaid on March 31, 2000.
Principal and interest shall be payable in lawful money of the United States of
America, in immediately available funds, at the principal office of the Payee or
at such other place as the legal holder may designate from time to time in
writing to the Company. Interest shall be computed on an actual 360-day basis.
This Note may be prepaid at any time or from time to time, in whole or
in part, without any premium or penalty. All prepayments shall be applied first
to accrued interest and then to principal.
<PAGE>
The then unpaid principal amount of, and interest outstanding on, this
Note shall be and become immediately due and payable without notice or demand,
at the option of the holder hereof, upon the occurrence of any of the following
events:
(a) the failure of the Company to pay any amount due hereunder
within ten (10) days of the date when due;
(b) any representation, warranty or statement made or furnished
to the Payee by the Company in connection with this Note or the
transaction from which it arises shall prove to have been false or
misleading in any material respect as of the date when made or
furnished;
(c) the failure of the Company to pay its debts as they become
due, the insolvency of the Company, the filing by or against the Company
of any petition under the U.S. Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any jurisdiction), or the
making by the Company of an assignment or trust mortgage for the benefit
of creditors or the appointment of a receiver, custodian or similar
agent with respect to, or the taking by any such person of possession
of, any property of the Company;
(d) the sale by the Company of all or substantially all of
its assets;
(e) the merger or consolidation of the Company with or into any
other corporation in a transaction in which the Company is not the
surviving entity;
(f) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction not removed, repealed
or dismissed within thirty (30) days of issuance, against or affecting
the person or property of the Company or any liability or obligation of
the Company to the holder hereof; and
(g) the suspension of the transaction of the usual business of
the Company.
Upon surrender of this Note for transfer or exchange, a new Note or new
Notes of the same tenor dated the date to which interest has been paid on the
surrendered Note and in an aggregate principal amount equal to the unpaid
principal amount of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all reasonable
attorneys' fees.
<PAGE>
No delay or omission on the part of the Payee in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Payee, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Company hereby waives presentment, demand, notice of prepayment, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note. The undersigned hereby assents
to any indulgence and any extension of time for payment of any indebtedness
evidenced hereby granted or permitted by the Payee.
This Note amends and restates in its entirety that certain promissory
note issued by the Company to Thermo Electron Corporation dated December 15,
1998.
This Note shall be governed by and construed in accordance with, the
laws of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
THERMO SENTRON INC.
By: _____________________________
Lewis J. Ribich
President
[Corporate Seal]
Attest:
- ----------------------------
Sandra L. Lambert
Secretary
THERMO SENTRON INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
As amended and restated as of June 8, 1999
Section 1. Participation. Any director of Thermo Sentron Inc. (the "Company")
may elect to have such percentage as he or she may specify of the fees otherwise
payable to him or her deferred and paid to him or her as provided in this Plan.
A director who is also an employee of the Company or any subsidiary or parent of
the Company, shall not be eligible to participate in this Plan. Each election
shall be made by notice in writing delivered to the Secretary of the Company, in
such form as the Secretary shall designate, and each election shall be
applicable only with respect to fees earned subsequent to the date of the
election for the period designated in the form. The term "participant" as used
herein refers to any director who shall have made an election. No participant
may defer the receipt of any fees to be earned after the later to occur of
either (a) the date on which the participant shall retire from or otherwise
cease to engage in his or her principal occupation or employment or (b) the date
on which he or she shall cease to be a director of the Company, or such earlier
date as the Board of Directors of the Company, with the participant's consent,
may designate (the "deferral termination date"). In the event that the
participant's deferral termination date is the date on which he or she ceases to
engage in his or her principal occupation or employment, the participant or a
personal representative shall advise the Company of that date by written notice
delivered to the Secretary of the Company.
Section 2. Establishment of Deferred Compensation Accounts. There shall be
established for each participant an account to be designated as that
participant's deferred compensation account.
Section 3. Allocations to Deferred Compensation Accounts. There shall be
allocated to each participant's deferred compensation account, as of the end of
each quarter, an amount equal to his or her fees for that quarter which that
participant shall have elected to have deferred pursuant to Section 1.
Section 4. Stock Units and Stock Unit Accounts. All amounts allocated to a
participant's deferred compensation account pursuant to Section 3 and Section 5
shall be converted, at the end of each quarter, into stock units by dividing the
accumulated balance in the deferred compensation account as of the end of that
quarter by the average last sale price per share of the Company's common stock
as reported in The Wall Street Journal, for the five business days up to and
including the last business day of that quarter. The number of stock units, so
determined, rounded to the nearest one-hundredth of a share, shall be credited
to a separate stock unit account to be established for the participant, and the
aggregate value thereof as of the last business day of that quarter shall be
charged to the participant's deferred compensation account. No amounts credited
to the participant's deferred compensation account pursuant to Section 5
subsequent to the close of the fiscal year in which occurs the participant's
deferral termination date shall be converted into stock units. Any such amount
shall be distributed in cash as provided in Section 8. A maximum number of
25,000 shares of the Company's common stock may be represented by stock units
credited under this Plan, subject to proportionate adjustment in the event of
any stock dividend, stock split or other capital change affecting the Company's
common stock.
Section 5. Cash Dividend Credits. Additional credits shall be made to a
participant's deferred compensation account, until all distributions shall have
been made from the participant's stock unit account, in amounts equal to the
cash dividends (or the fair market value of dividends paid in property other
than dividends payable in common stock of the Company) which the participant
would have received from time to time had he or she been the owner on the record
dates for the payment of such dividends of the number of shares of the Company's
common stock equal to the number of units in his or her stock unit account on
those dates.
Section 6. Stock Dividend Credits. Additional credits shall be made to a
participant's stock unit account, until all distributions shall have been made
from the participant's stock unit account, of a number of units equal to the
number of shares of the Company's common stock, rounded to the nearest
one-hundredth share, which the participant would have received from time to time
as stock dividends had he or she been the owner on the record dates for the
payments of such stock dividends of the number of units of the Company's common
stock equal to the number of units credited to his or her stock unit account on
those dates.
Section 7. Adjustments in the Event of Certain Transactions. In the event of a
stock dividend, stock split or combination of shares, or other distribution with
respect to holders of Common Stock other than normal cash dividends, the number
of units then credited to a partipant's stock unit account shall be
appropriately adjusted on the same basis. In the event of any recapitalization,
merger or consolidation involving the Company, any transaction in which the
Company becomes a subsidiary of another entity, any sale or other disposition of
all or a substantial portion of the assets of the Company or any similar
transaction, as determined by the Board, the Board in its discretion may
terminate the Plan pursuant to Section 11.
Section 8. Distribution of Stock and Cash After Participant's Deferral
Termination Date. When a participant's deferral termination date shall occur,
the Company shall become obligated to make the distributions prescribed in the
following paragraphs (a) and (b).
(a) The Company shall distribute to the participant the number of shares
of the common stock of the Company which shall equal the total number of units
accumulated in his or her stock unit account as of the close of the fiscal year
in which the participant's deferral termination date occurs. Such distribution
of stock shall be made in ten annual installments, unless, at least six months
prior to his or her deferral termination date, the participant shall have
elected, by notice in writing filed with the Secretary of the Company, to have
such distribution made in five annual installments. In either such case, the
installments shall be of as nearly equal number of shares as practicable,
adjusted to reflect any changes pursuant to Sections 6 and 7 in the number of
units remaining in the participant's stock unit account. The first such
installment shall be distributed within 60 days after the close of the fiscal
year in which the participant's deferral termination date occurs. The remaining
installments shall be distributed at annual intervals thereafter. Anything
herein to the contrary notwithstanding, the Company shall have the option, if
its Board of Directors shall by resolution so determine, in lieu of making
distribution in ten or five annual installments as set forth above, with the
participant's consent, to distribute stock or any remaining installments thereof
in a single distribution at any time following the close of the fiscal year in
which the participant's deferral termination date occurs. Distribution of stock
made hereunder may be made from shares of common stock held in the treasury
and/or from shares of authorized but previously unissued shares of common stock.
(b) The Company shall distribute to the participant sums in cash equal
to the balance credited to his or her deferred compensation account as of the
close of the fiscal year in which his or her deferral termination date occurs
plus such additional amounts as shall be credited thereto from time to time
thereafter pursuant to Section 5. The cash distribution shall be made on the
same dates as the annual distributions made pursuant to paragraph (a) above, and
each cash distribution shall consist of the entire balance credited to the
participant's deferred compensation account at the time of the annual
distribution.
If a participant's deferral termination date shall occur by reason of
his or her death or if he or she shall die after his or her deferral termination
date but prior to receipt of all distributions of stock and cash provided for in
this Section 8, all stock and cash remaining distributable hereunder shall be
distributed to such beneficiary as the participant shall have designated in
writing and filed with the Secretary of the Company or, in the absence of
designation, to the participant's personal representative. Such distributions
shall be made in the same manner and at the same intervals as they would have
been made to the participant had he or she continued to live.
Section 9. Participant's Rights Unsecured. The right of any participant to
receive distributions under Section 8 shall be an unsecured claim against the
general assets of the Company. The Company may but shall not be obligated to
acquire shares of its outstanding common stock from time to time in anticipation
of its obligation to make such distributions, but no participant shall have any
rights in or against any shares of stock so acquired by the Company. All such
stock shall constitute general assets of the Company and may be disposed of by
the Company at such time and for such purposes as it may deem appropriate.
10. Change in Control
10.1 Impact of Event
In the event of a "Change in Control" as defined in Section 10.2, the Plan shall
terminate and full distribution shall be made from all participants' deferred
compensation accounts and stock unit accounts effective upon the Change of
Control.
10.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
Section 11. Amendment and Termination of the Plan. The Board of Directors of the
Company may amend or terminate the Plan at any time and from time to time,
provided, however, that no amendment adversely affecting credits already made to
any participant's deferred compensation account or stock unit account may be
made without the consent of that participant or, if that participant has died,
that participant's beneficiary. Upon termination of the Plan, the Company shall
be obligated to distribute to the participant either of the following as the
Board of Directors of the Company, in its sole discretion, may determine: (i)
the number of shares of the common stock of the Company which shall equal the
total number of units accumulated in the participant's stock unit account as of
the effective date of termination of the Plan or (ii) a sum in cash equal to the
balance credited to the participant's deferred compensation account as of the
effective date of termination of the Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
SENTRON INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 9,702
<SECURITIES> 0
<RECEIVABLES> 27,207
<ALLOWANCES> 1,641
<INVENTORY> 15,247
<CURRENT-ASSETS> 55,855
<PP&E> 6,409
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<TOTAL-ASSETS> 135,412
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0
0
<COMMON> 99
<OTHER-SE> 89,396
<TOTAL-LIABILITY-AND-EQUITY> 135,412
<SALES> 54,662
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<CGS> 33,664
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