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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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THERMO SENTRON INC.
(NAME OF SUBJECT COMPANY)
THERMO SENTRON INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
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CUSIP NO. 883593 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
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PETER RICHMAN
WILLIAM W. HOOVER
MEMBERS OF THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
C/O CONSTANTINE ALEXANDER, ESQ.
NUTTER, MCCLENNEN & FISH, LLP
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 439-2000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
WITH A COPY TO:
Constantine Alexander, Esq.
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110
(617) 439-2000
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[ ] Check this box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is Thermo Sentron Inc., a Delaware
corporation ("Sentron"), and the address of the principal executive offices of
Sentron is 501 90th Avenue N.W., Minneapolis, Minnesota 55433 and its telephone
number is (612) 783-2589. The title of the class of equity securities to which
this Statement relates is the common stock, $.01 par value per share (the
"Common Stock"), of Sentron. As of February 29, 2000, there were 9,447,056
shares of Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
The name and business address of Sentron, which is the entity filing this
Statement, are set forth in Item 1 above.
This Statement relates to the tender offer by Sentron Acquisition, Inc., a
Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of
Thermedics Inc., a Massachusetts corporation ("Thermedics"), to purchase all of
the outstanding shares of Sentron's Common Stock (the "Shares") other than those
owned by Thermo Electron Corporation, a Delaware corporation ("Thermo
Electron"), and Thermo Electron's subsidiaries (including Thermedics) at a price
of $15.50 per Share (the "Offer Price"), net to each seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated March 3, 2000 (the "Offer to Purchase") and the related
Letter of Transmittal and any supplement thereto (which together constitute the
"Offer"). The Offer is disclosed in a Tender Offer Statement on Schedule TO
dated March 3, 2000 (the "Schedule TO"), as filed with the Securities and
Exchange Commission (the "Commission"). The Purchaser is a wholly-owned
subsidiary of Corpak Inc., a Massachusetts corporation ("Corpak"). Corpak is a
wholly-owned subsidiary of Thermedics. Thermedics is a majority-owned subsidiary
of Thermo Electron.
The Schedule TO states that if the tender offer is completed, Thermo
Electron and its subsidiaries, including Thermedics, will together own at least
90% of Sentron's outstanding shares, and that promptly following the closing of
the Offer, Corpak and Thermo Electron plan to contribute their Shares to the
Purchaser in exchange for common stock of the Purchaser. Corpak and Thermo
Electron would then cause the Purchaser to merge with and into Sentron in a
so-called "short-form" merger (the "Merger"). After the Merger, Sentron would be
owned exclusively by Thermedics, through its ownership of Corpak, and Thermo
Electron.
The Schedule TO states that the principal executive offices of Purchaser,
Corpak and Thermo Electron are located at 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02454-9046 and the principal executive offices of
Thermedics are located at 470 Wildwood Street, P.O. Box 2999, Woburn,
Massachusetts 01888-1799.
ITEM 3. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Except as described herein (including in the Exhibits and Schedules
hereto), to the knowledge of Sentron, as of the date hereof there are no
material agreements, arrangements or understandings and no actual or potential
conflicts of interest between Sentron or its affiliates and (i) Sentron's
executive officers, directors or affiliates or (ii) the Purchaser or the
Purchaser's executive officers, directors or affiliates.
EXECUTIVE OFFICERS AND DIRECTORS OF SENTRON
The executive officers and certain directors of Sentron have interests in
connection with the Offer and the Merger that present them with actual or
potential conflicts of interest, as summarized below.
According to the Schedule TO, following the consummation of the Offer and
the Merger, Thermedics anticipates that the Board of Directors of Sentron, as
the corporation surviving the Merger, will be composed solely of members of
Sentron's and Thermedics' management. Outside directors of Sentron are
compensated for their services as directors of Sentron. The compensation
provided to directors of Sentron is described in the section entitled
"Compensation of Directors" in Sentron's Proxy Statement for its 1999 Annual
Meeting of Stockholders as filed with the Commission on April 19, 1999 (the
"Proxy Statement"), which section is
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incorporated herein by this reference. See Item 4 of this Statement for a
description of the compensation paid to the members of the Special Committee of
the Board of Directors of Sentron for their service as members of the Special
Committee.
Directors and executive officers of Sentron who own Shares will receive the
Offer Price for their shares in the Offer or the Merger on the same terms as the
other public stockholders. As of January 31, 2000, the directors and executive
officers of Sentron owned in the aggregate 7,500 Shares and will receive a
payment for their Shares in the aggregate amount of $116,250, assuming that they
tender all of their Shares in the Offer or their Shares are acquired in the
Merger. See Schedule I hereto for a listing of ownership of Shares by the
directors and executive officers of Sentron.
As of January 31, 2000, the directors and executive officers of Sentron
held options under Sentron's option plans ("Options") to acquire an aggregate of
268,800 Shares, with exercise prices ranging from $9.53 to $16.00. According to
the Schedule TO, unvested Options held by such persons will be assumed by Thermo
Electron in the Merger and converted into options to acquire shares of Thermo
Electron's common stock on the same terms as are applicable to all the other
holders of Options. The Schedule TO further indicates that, in the case of
vested Options held by such persons, the holders will be given the opportunity
to elect in the Merger either to convert the Options into options for Thermo
Electron common stock or to receive cash for their Options at the Offer Price
less the applicable exercise price.
As of January 1, 2000, deferred units equal to 298, 2,573 and 485 Shares
had accumulated under Sentron's deferred compensation plan for directors for the
benefit of William W. Hoover, Donald E. Noble and Peter Richman, respectively.
Messrs. Hoover and Richman are members of the Special Committee of the Board of
Directors of Sentron. According to the Schedule TO, these units will be
converted into the right to receive the Offer Price in the Merger per unit for
an aggregate cash payment of $4,619, $39,881 and $7,517, respectively.
Lewis J. Ribich, President, Chief Executive Officer and a director of
Sentron, is party to an executive retention agreement with Thermo Electron that
provides for certain severance benefits if there is a change of control of
Thermo Electron and Mr. Ribich's employment is terminated by Thermo Electron
"without cause" or by Mr. Ribich for "good reason" (as those terms are defined
in the agreement) within 18 months thereafter. The terms of the executive
retention agreement between Thermo Electron and Mr. Ribich are described in the
section entitled "Executive Retention Agreements" in Sentron's Proxy Statement,
which section is incorporated herein by this reference.
Certain directors and certain executive officers of Sentron are directors
or officers of Thermo Electron and/or Thermedics. All of such directors and
executive officers of Sentron hold equity interests in Thermo Electron and
Thermedics. See Schedule I hereto for a listing the positions that the directors
and executive officers of Sentron hold with Thermo Electron and/or Thermedics
and their ownership of common stock of Thermo Electron and/or Thermedics. Theo
Melas-Kyriazi, the Chief Financial Officer of Sentron, is also the Chief
Financial Officer of Thermo Electron and Thermedics. John T. Keiser, a director
of Sentron, is Chief Operating Officer, Biomedical of Thermo Electron and is
President and Chief Executive Officer of Thermedics. Paul F. Kelleher, the Chief
Accounting Officer of Sentron, is also the Chief Accounting Officer of Thermo
Electron and Thermedics. Consequently, certain of these directors and officers
receive or have received compensation not only from Sentron but also from Thermo
Electron, Thermedics and their affiliates.
INDEMNIFICATION AGREEMENTS
Each of Sentron's directors and officers have entered into separate
indemnification agreements with Thermo Electron providing for indemnification of
and advancement of expenses to such persons directly by Thermo Electron in the
event that such person, by reason of his or her status as a director or officer
of Sentron (or service as a director, officer or fiduciary of another enterprise
at the request of Thermo Electron), is made or threatened to be made a party to
any threatened, pending, or completed action, suit or other proceeding, whether
civil, criminal, administrative or investigative, if the indemnitee acted in
good faith and in a manner the indemnitee reasonably believed to be in or not
opposed to the best interests of Thermo Electron, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was
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unlawful. In the case of any threatened, pending or completed action, suit or
proceeding by or in the right of Thermo Electron, indemnification shall be made
to the maximum extent permitted under Delaware law.
DIRECTORS OF THERMO ELECTRON AND THERMEDICS
The members of the Boards of Directors of Thermo Electron and Thermedics
own common stock of, or hold options to purchase the common stock of, Thermo
Electron, Thermedics and/or Sentron. In addition, certain members of the Boards
of Directors of Thermo Electron and Thermedics are also officers of Sentron.
These positions and equity interests present these directors with actual or
potential conflicts of interest in determining the fairness of the Offer and the
Merger to Sentron's public stockholders. See Schedule I to the Offer to Purchase
for a listing of the positions that the members of the Boards of Directors of
Thermo Electron and Thermedics hold with Thermo Electron, Thermedics and Sentron
and their ownership of the common stock of Thermo Electron, Thermedics and
Sentron.
MINNEAPOLIS LEASE
Sentron has entered into a fifteen-year lease arrangement with Thermo
Electron, effective as of January 1, 2000, with respect to Sentron's principal
executive offices in Minneapolis, Minnesota. Thermo Electron purchased the
building in December 1999 from Baker Hughes Corporation for $5.5 million. The
rent payable by Sentron to Thermo Electron under this lease is $50,000 per month
for the first five years of the lease term, $55,000 per month for the second
five years of the lease term and $60,000 per month for the third five years of
the lease term.
RELATIONSHIP WITH AFFILIATES
Certain other agreements, arrangements and understandings between Sentron
and Thermo Electron or its subsidiaries are described in the section entitled
"Relationship With Affiliates" in Sentron's Proxy Statement, which section as
supplemented by the following description is incorporated by this reference.
In June 1998, Sentron borrowed $21.0 million from Thermo Electron pursuant
to a promissory note due December 1998, bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, determined at the
beginning of each quarter. Sentron entered into this note in order to partially
finance its acquisition of the three businesses that constituted the
product-monitoring group of Graseby Limited, a subsidiary of Smiths Industries
plc ("Graseby"), for $44.0 million in cash, net of cash acquired, and the
assumption of certain liabilities. In December 1998, Sentron repaid $2.0 million
of this amount and issued Thermo Electron a new promissory note for $19.0
million in exchange for the initial note. Subsequently, in June 1999, Sentron
repaid $6.0 million of this amount and issued Thermo Electron a new promissory
note for $13.0 million in exchange for the December 1998 note. Sentron repaid an
additional $1.0 million of the amount owed under the note in each of the third
and fourth quarters of 1999. The new note is due March 2000 and bears interest
at the 30-day Dealer Commercial Paper Rate plus 150 basis points, determined on
the second business day of each fiscal month of Sentron.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
BACKGROUND
On December 10, 1998, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including Sentron. As part
of this reorganization, Thermedics' majority interest in Sentron would be
transferred to Thermo Electron. Sentron would then be taken private and become a
wholly-owned subsidiary of Thermo Electron. Sentron's Proxy Statement for its
1999 Annual Meeting of Stockholders held on May 27, 1999 stated that it was
currently contemplated that Sentron's stockholders would receive cash in
exchange for their shares of Sentron Common Stock. The completion of these
transactions would be subject to numerous conditions, including the
establishment of prices and exchange ratios, approval by the Board of Directors
of Sentron (including the independent directors of Sentron), negotiation and
execution of definitive agreements, and the receipt of fairness opinions from
investment banking firms on certain financial aspects of the transactions.
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On May 24, 1999, the Sentron Board of Directors held a special meeting by
conference telephone. At this meeting, the Board appointed a Special Committee
of the Board, consisting of independent directors, to act on behalf of, and in
the interests of, the stockholders of Sentron other than Thermedics and Thermo
Electron and the officers and directors of each of Sentron, Thermedics and
Thermo Electron (the "Sentron public stockholders") for the purpose of
evaluating the merits of, and negotiating the terms of, any proposed transaction
with Thermo Electron and/or Thermedics; considering such alternatives as the
Special Committee deemed appropriate; and making a recommendation to the full
Board of Directors of Sentron as to whether to approve any such transaction. The
Board appointed Peter Richman to serve as the member of the Special Committee.
The Board also authorized the Special Committee to retain a financial advisor, a
legal advisor and any other professional advisors the Special Committee in its
discretion deemed necessary to assist it in carrying out its responsibilities.
Additionally, the Sentron Board of Directors granted the Special Committee and
its professional advisors access to all of the officers and other members of
management of Sentron and to all information and materials about Sentron,
including its books, records, projections and financial statements, that were
deemed necessary by the Special Committee and its advisors for their review.
Lastly, the Board voted that each member of the Special Committee shall be paid
a one-time retainer of $20,000 for his service as a member of the Special
Committee and shall receive meeting fees of $1,000 for each meeting of the
Special Committee attended in person and $500 for each meeting attended by means
of conference telephone.
By a unanimous written consent of the Board of Directors of Sentron dated
May 28, 1999, the Sentron Board of Directors was increased from five to six
members, William W. Hoover was elected a director of Sentron and Mr. Hoover was
appointed a member of the Special Committee of the Board of Directors so that
the Special Committee would consist of two independent directors.
In June 1999, the Special Committee interviewed two law firms to act as the
legal advisor to the Special Committee. Following these interviews, the Special
Committee retained Nutter, McClennen & Fish, LLP ("Nutter, McClennen") of Boston
to act as its legal advisor. In making its decision, the Special Committee took
steps to assure itself of the independence of Nutter, McClennen and the lack of
any conflicts of interest with regard to representing the Special Committee in a
transaction involving Thermo Electron and/or Thermedics and Sentron.
Following its retention, Nutter, McClennen advised the Special Committee as
to its duties and responsibilities to the Sentron public stockholders and, at
the request of the Special Committee, confirmed that its members were
independent directors with respect to any proposed transaction between Thermo
Electron and/or Thermedics and Sentron.
Thereafter, in July 1999, the Special Committee interviewed four investment
banking firms to serve as the Special Committee's financial advisor in
evaluating the terms of any proposed transaction between Thermo Electron and/or
Thermedics and Sentron. The Special Committee retained HSBC Securities (USA)
Inc. ("HSBC") as its exclusive financial advisor in connection with the
acquisition of the Shares held by the Sentron public stockholders. In making its
decision, the Special Committee took steps to assure itself of the independence
of HSBC and the lack of any conflicts of interest with regard to advising the
Special Committee in a transaction involving Thermo Electron and/or Thermedics
and Sentron.
At the request of the Special Committee, HSBC undertook to perform a due
diligence investigation of Sentron during August 1999. In connection with this
investigation, HSBC interviewed members of Sentron's management and visited
Sentron facilities. HSBC also reviewed financial information concerning Sentron,
including budgets and financial projections, prepared by members of Sentron
management.
By a letter dated September 8, 1999, Theo Melas-Kyriazi, the Chief
Financial Officer of Thermo Electron, Thermedics and Sentron, offered on behalf
of Thermo Electron a price of $15.50 per Share in cash for the Shares held by
the Sentron public stockholders. The offer was subject to the approval of the
Boards of Directors of Thermo Electron and Thermedics. The letter stated that
the offer was based upon an analysis of financial multiples for selected
comparable publicly traded companies and a discounted cash flow analysis as set
forth in the letter.
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The Special Committee met with its advisors by conference telephone on
September 9, 1999. At this meeting, the Special Committee received a report from
HSBC concerning its due diligence investigation and discussed with its advisors
the offer from Thermo Electron. The Special Committee determined that the offer
was inadequate. The Special Committee reached its conclusion based upon
discounted cash flow, comparable mergers and acquisitions, minority interest
buyout and comparable publicly-traded company analyses prepared for it at its
direction by HSBC.
By a letter to Mr. Melas-Kyriazi dated September 13, 1999, at the
instruction of the Special Committee, HSBC responded to the Thermo Electron
offer by proposing a price of $20.83 per Share for the Shares held by the
Sentron public stockholders, with the condition that any merger between Sentron
and Thermo Electron or any of Thermo Electron's subsidiaries must be approved by
a majority of the Shares held by the Sentron public stockholders. As discussed
in the letter, the rationale for the Special Committee's counterproposal was
based upon a discounted cash flow analysis, a comparable mergers and
acquisitions analysis, a minority interest buyout analysis and a comparable
publicly traded company analysis.
Thermo Electron orally rejected any condition that a transaction be subject
to approval of a majority of the Shares held by the Sentron public stockholders.
From September 13 to October 13, 1999, Thermo Electron and HSBC exchanged
further information and discussed appropriate ways to value the Shares held by
the Sentron public stockholders. During this period, the Special Committee met
twice by conference telephone to review the situation but made no determination
that a price less than $20.83 would be acceptable to the Special Committee.
On October 12, 1999, Mr. Melas-Kyriazi orally advised HSBC he was willing
to propose, subject to the approval of the Board of Directors of Thermo
Electron, a price of $16.25 per Share for the Shares held by the Sentron public
stockholders. On October 13, 1999, Mr. Melas-Kyriazi sent a letter to the
Special Committee advising the Special Committee that Thermo Electron was
rethinking its $16.25 per Share offer because it had just become aware that
Sentron's bookings "fell meaningfully short of budget in Q3 '99 and that
[Sentron's] management was reducing its projections for 1999 and 2000". As a
result, Mr. Melas-Kyriazi advised that Thermo Electron was now prepared to offer
$15.25-$15.75 per Share for the Shares held by the Sentron public stockholders.
The letter sets forth and discusses the rationale for Thermo Electron's original
$16.25 offer: analysis of financial multiples for selected comparable publicly
traded companies, a valuation comparison with Mettler-Toledo International, Inc.
("Mettler-Toledo") (cited by Thermo Electron as a particularly appropriate
benchmark), a discounted cash-flow analysis and a premium over current stock
price.
The Special Committee discussed the Thermo Electron letter with its
advisors at a meeting held by conference telephone on October 21, 1999. The
Special Committee instructed HSBC to discuss with Sentron's management Sentron's
financial performance and projections and agreed that it could not respond to
Thermo Electron's proposal until it had additional information. By a letter
dated October 26, 1999, on behalf of the Special Committee Nutter, McClennen
advised Thermo Electron that further discussions concerning an appropriate price
to be paid for the Shares should be suspended until the Special Committee could
review and analyze with its advisors Sentron's actual complete financial results
for the third quarter and any revised forecasts for the fourth quarter and
future periods prepared by Sentron's management.
On November 4, 1999, Thermo Electron provided the Special Committee with
the additional information requested by the Special Committee, including
Sentron's reported financial results for the quarter ended October 2, 1999. The
Special Committee thereupon directed HSBC to analyze this information and to
conduct, and to report to the Special Committee the results of, further due
diligence with Sentron's management concerning the corporation's future
prospects. HSBC did so and reported to the Special Committee that the views of
Sentron's management concerning Sentron's future prospects remained unchanged.
Sentron's management attributed the budgetary shortfall in bookings for the
third quarter to delays caused by customer concerns over year 2000 (Y2K) issues
and advised HSBC that Sentron's management believed its competitors were
experiencing similar delays. Sentron's management also advised HSBC that the
reduction in projections for 1999 and 2000 resulted solely from a directive from
Thermo Electron to revise the projections based upon 90% certainty of
achievement as compared to 80% certainty of achievement, the prior practice.
HSBC also noted that Sentron's reported financial results for the quarter
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ended October 2, 1999 were higher than the reported results for the comparable
quarter one year earlier. For the 1999 quarter, Sentron reported earnings per
share of $0.50 on revenues of approximately $81.8 million as compared to
earnings per share of $0.45 and revenues of approximately $69.6 million for the
quarter one year earlier.
Between October 26, 1999 and December 10, 1999, the Special Committee met
four times by conference telephone with its professional advisors to monitor and
discuss the activities of HSBC. During these meetings, the Special Committee
also discussed the significance of public announcements, brought to the
attention of the Special Committee by HSBC, made on October 20, 1999 of the
terms on which Thermo Electron would acquire the minority ownership position of
three subsidiaries, ThermoRetec Corporation, Thermo TerraTech Inc. and The
Randers Killam Group Inc. During the latter part of November, Mr. Melas-Kyriazi
orally indicated to HSBC that Thermo Electron was willing to offer $16.00 per
Share for the Shares held by the Sentron public stockholders, subject to the
approval of the Thermo Electron and Thermedics Boards of Directors.
On December 10, 1999, on behalf of the Special Committee Nutter, McClennen,
sent a letter to Mr. Melas-Kyriazi stating the Special Committee's conclusion
that a fair price for the Shares held by the Sentron public stockholders was
$19.25. The letter stated in detail the basis for the Special Committee's
conclusion. Inasmuch as the Special Committee believed that the current market
price for the Shares approximated the intrinsic value of these Shares, the
letter stressed in particular the Special Committee's belief that the correct
way to value Sentron is based upon an appropriate premium to market for the
minority interest in a going-private transaction. The letter pointed out that
the $19.25 per Share proposal represented an approximate 29.5% premium to the
closing price for the Shares on December 9, 1999, the same approximate premium
paid in the ThermoRetec, Thermo TerraTech and the Randers Killam transactions
and a premium below the average premium paid in comparable minority transactions
from January 1998 through July 1999 and below the average premium announced in
eight Thermo Electron minority buyout transactions since March 1998. A copy of
this letter was sent also to Dr. George Hatsopoulos, Chairman of Thermo
Electron, asking his assistance in the resolution of a price that would be
acceptable to the Special Committee and to Thermo Electron.
On December 23, 1999, Mr. Melas-Kyriazi sent a letter to the Special
Committee rejecting the analysis contained in the Special Committee's letter. No
counteroffer was made by Thermo Electron. The Special Committee requested HSBC
to consider Mr. Melas-Kyriazi's letter with a view toward formulating a
response. The Special Committee met by conference telephone on January 5 and 14,
2000 to monitor HSBC's efforts and to discuss an appropriate response. During
these meetings, HSBC reported that at the request of the Special Committee it
had again met with Sentron's management and that Sentron's management had not
changed their views concerning Sentron's prospects.
On January 17, 2000, Mr. Melas-Kyriazi advised Nutter, McClennen by
telephone and Thermo Electron's counsel confirmed by letter an offer to acquire
by merger the Shares held by the Sentron public stockholders at a price of
$15.50 per Share, subject to the condition that the merger is approved by an
affirmative vote of the majority of the Shares held by the Sentron public
stockholders. The letter stated that the Thermo Electron offer would expire as
of noon, Friday, January 21, 2000.
The Special Committee met by conference telephone with its advisors on
January 17 and 20, 2000 to discuss Thermo Electron's letters of December 23,
1999 and January 17, 2000. The Special Committee concluded that its analysis of
a fair price for the Shares held by the Sentron public stockholders continued to
be correct and directed Nutter, McClennen on behalf of the Special Committee to
send a detailed response to Mr. Melas-Kyriazi's letter of December 23, 1999,
which Nutter, McClennen did on January 20, 2000.
On the morning of January 21, 2000, on behalf of the Special Committee
Nutter, McClennen delivered a letter to Thermo Electron's counsel in response to
his letter of January 17, 2000. Nutter, McClennen's letter noted that Thermo
Electron's $15.50 per Share offer was the same offer that had been initially
made by Thermo Electron in September. For the reasons expressed by and on behalf
of the Special Committee since September, the Special Committee did not believe
that $15.50 per Share represented an adequate price for the Shares held by the
Sentron public stockholders. The Special Committee also advised that it had
taken note of
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the condition that a $15.50 per Share merger price would be subject to approval
by the affirmative vote of a majority of the Shares held by the Sentron public
stockholders. The Special Committee advised that if Thermo Electron and the
Sentron Board wished to proceed on the basis of a merger involving a price of
$15.50 per Share conditioned upon approval by a majority of the Shares held by
the Sentron public stockholders, the Special Committee would not seek to oppose
such a transaction. The Special Committee stated that it would be obliged to
convey to the Sentron public stockholders the view of the Special Committee that
it cannot conclude that $15.50 per Share represents an adequate price for the
Shares held by them. The Special Committee also advised that the members of the
Special Committee in their capacities as directors of Sentron would abstain with
respect to any vote taken by the Sentron Board of Directors relating to such a
merger or any other transaction in which the Sentron public stockholders would
receive $15.50 per Share for their Shares so long as the merger or other
transaction had to be approved by the affirmative vote of a majority of the
Shares held by the Sentron public stockholders.
A special meeting of the Sentron Board of Directors was held on Saturday,
January 29, 2000, by conference telephone. Attending this meeting were
representatives from Thermo Electron. The purpose of this meeting was to advise
the Sentron Board of Directors of Thermo Electron's reorganization plan which
was to be publicly announced the following Monday, January 31, 2000. Under this
reorganization plan, Thermo Electron advised that Thermedics would make a tender
offer for the Shares held by the Sentron public stockholders at a price of
$15.50 per Share. Thermo Electron further stated that if, as a result of the
tender offer, Thermedics and Thermo Electron own 90% or more of Sentron's
outstanding Shares, Thermedics and Thermo Electron would cause a short-form
merger of Sentron into Thermedics and pay to the then stockholders of Sentron,
other than Thermedics, in cash, the sum of $15.50 per Share. During the meeting,
members of the Special Committee pointed out to the Sentron Board of Directors
that inasmuch as Thermedics and/or Thermo Electron and its other subsidiaries
owned approximately 86% of Sentron's outstanding Shares, Thermedics could obtain
ownership of 90% or more of Sentron's outstanding Shares even if significantly
less than a majority of the Shares held by the Sentron public stockholders were
tendered. As a result, the Sentron public stockholders would receive a price of
$15.50 per Share even if the $15.50 per Share price was not deemed acceptable by
a majority of the Sentron public stockholders.
On February 29, 2000, the Board of Directors of Sentron held a special
meeting by conference telephone. At this meeting, the Board voted to delegate to
the Special Committee the response to be made on behalf of Sentron to any tender
offer made by Thermedics to the extent required under the federal securities
laws. This vote was carried by a margin of four-to-two, with the two members of
the Special Committee voting against on the basis that they believed any
position to be taken in response to such a tender offer should be taken by a
vote of the entire Board.
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RECOMMENDATION OF THE SPECIAL COMMITTEE
THE SPECIAL COMMITTEE UNANIMOUSLY RECOMMENDS THAT THE SENTRON PUBLIC
STOCKHOLDERS DO NOT TENDER THEIR SHARES TO THERMEDICS BECAUSE THE SPECIAL
COMMITTEE DOES NOT BELIEVE THAT $15.50 PER SHARE REPRESENTS AN ADEQUATE PRICE
FOR THEIR SHARES. THE REASONS FOR THE SPECIAL COMMITTEE'S CONCLUSION ARE SET
FORTH IN DETAIL IN THE LETTERS DATED DECEMBER 10, 1999 AND JANUARY 20, 2000
REFERRED TO ABOVE SENT TO THERMO ELECTRON BY NUTTER, MCCLENNEN ON BEHALF OF THE
SPECIAL COMMITTEE. THESE LETTERS INCLUDED ARE INCLUDED IN THIS STATEMENT AS
SCHEDULES II AND III. THE PRINCIPAL REASONS FOR THE SPECIAL COMMITTEE'S
RECOMMENDATIONS ARE SUMMARIZED BELOW.
- The Special Committee believes that the market price for the Shares one
week prior to the January 31, 2000 announcement by Thermo Electron of its
reorganization plan approximates the intrinsic value of these Shares and,
therefore, that a fair price for the Shares held by the Sentron public
stockholders is an appropriate premium to market. Recent transactions,
involving both minority interest buyout transactions generally and
minority interest buyout transactions of Thermo Electron's subsidiaries
particularly, justify a Sentron minority interest buyout premium in
excess of that represented by the $15.50 per Share price. The average
market premium for the 24 minority interest buyout transactions that
occurred from January 1998 through July 1999 based upon the trading price
one week prior to the announcement was 38.5%. The average market premium
for the ten transactions during the past two years in which Thermo
Electron agreed to buy back the stock of a subsidiary in which Thermo
Electron held a stake greater than 50% was 30.7% based upon the trading
price one week prior to the announcement of the transaction. A $15.50 per
Share price for the Shares held by the Sentron public stockholders
represents only a 7% premium to market based upon the trading price for
the Shares one week prior to the January 31, 2000 announcement by Thermo
Electron of its reorganization plan.
- The public trading price for the Shares at the time of the Thermo
Electron plan of reorganization announcement on January 31, 2000 did not
already reflect a sufficient buyout premium. With the assistance of its
professional advisors, the Special Committee compared the trading history
for the Shares with that of three other Thermo Electron subsidiaries, The
Randers Killam Group Inc., Thermo TerraTech Inc. and ThermoRetec
Corporation (the "Comparable Companies"). On May 5, 1999, it was public
information that Thermo Electron and/or its affiliates intended to
acquire the minority stockholder interest in each of Sentron and the
Comparable Companies. From May 5, 1999 to October 19, 1999, the stock
price for each company moved independently, ranging from an increase of
115% in the case of ThermoRetec to an increase of 23% in the case of
Thermo TerraTech. On October 20, 1999, Thermo Electron announced that it
was acquiring the minority interest in the Comparable Companies -- at an
average premium of 29% to the closing prices for shares of these
companies on October 19. Presumably in response to the announcements, the
price per share for the Comparable Companies rose an average of
approximately 20% on October 20. On October 20, Sentron's stock price
rose only 1.8%. From October 20 until January 28, 2000, the last trading
day before Thermo Electron's announcement of its reorganization plan,
Sentron's stock price increased only 4%.
- Thermo Electron's assertion that a $15.50 price represents a 73% premium
over the price for the Shares on December 9, 1998, the day before Thermo
Electron announced a proposed going-private transaction involving
Sentron, fails to convey all of the relevant facts. In point of fact,
Sentron's stock price rose less than 6% in the days following the
announcement on December 9, 1998 and approximately 11% during the
five-month period between December 10, 1998 and May 20, 1999. On May 21,
1999 Thermo Instrument, a subsidiary of Thermo Electron, announced that
it would acquire all outstanding shares of Thermo Spectra for cash. At
that point, the price for the Shares rose significantly, 30% from May 20
to May 24, 1999. But so did the share price for the Comparable
Companies -- the increase in their individual share prices from May 20,
1999 to May 24, 1999 ranged between 25% and 27%. And as the previous
paragraph points out, Thermo Electron thereafter acquired the minority
interest in the Comparable Companies -- at a significant 29% average
premium to their then-higher stock prices.
9
<PAGE> 10
- Thermo Electron has contended that the preferred method of valuing the
Shares held by the Sentron public stockholders is by comparison to
Mettler-Toledo, a major competitor of Sentron, and at one point
acknowledged that it would consider paying a premium to any valuation of
Sentron obtained by such a comparison. The Special Committee disagrees
that the preferred method of valuing the Shares held by the Sentron
public stockholders is by comparison to Mettler-Toledo but believes that
under a variety of analyses deemed appropriate by the Special Committee,
any valuation of Sentron based upon a comparison with Mettler-Toledo,
assuming an appropriate premium is applied, would require a range of
higher prices for the Shares held by the Sentron public stockholders than
$15.50 per Share.
- Despite revised reduced projections for 1999 and 2000 resulting from a
directive from Thermo Electron as to how budgets should be prepared, the
Special Committee shares the belief of Sentron's management that
Sentron's future prospects remain undiminished. In this regard, the
Special Committee notes that Sentron reported a 20% increase in earnings
per share for the fourth quarter of 1999, from $0.15 to $0.18, as
compared to the same quarter one year earlier notwithstanding a more than
10% decrease in revenues for the fourth quarter of 1999 as compared to
the same quarter one year earlier. For the full fiscal 1999 year as
compared to the fiscal 1998 year, Sentron's revenues increased almost 10%
and its earnings per share increased approximately 14%, from $0.59 for
1998 to $0.68 per share ($0.67 per share diluted).
In reaching its conclusions, the Special Committee relied upon advice,
information and analyses provided to it by its professional advisors. The
Special Committee did not receive, nor did it seek, an opinion from HSBC as to
the fairness, from a financial point of view, of $15.50 per Share for the Shares
held by the Sentron public stockholders.
INTENT TO TENDER
To Sentron's knowledge after reasonable inquiry, Peter Richman intends to
hold his Shares and not tender such Shares in the Offer. William W. Hoover
currently does not own any Shares that can be tendered in the Offer. Except as
set forth above, to Sentron's knowledge after reasonable inquiry, all of the
directors and executive officers of Thermo Electron, Thermedics and Sentron who
own Shares have advised Thermedics that they intend to tender their Shares in
the Offer.
ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
In July 1999, the Special Committee retained HSBC as its financial advisor
in connection with the Special Committee's evaluation of the terms of any
proposed transaction between Thermo Electron and/or Thermedics and Sentron. At
the Special Committee's request, Sentron and Thermo Electron entered into an
engagement letter with HSBC dated August 26, 1999, pursuant to which HSBC agreed
to provide financial advisory services to the Special Committee in connection
with the proposed transaction.
Pursuant to the terms of the engagement letter, HSBC received a
non-reimbursable retainer fee of $50,000. Sentron also agreed to reimburse HSBC
for reasonable out-of-pocket expenses (including the reasonable fees and
expenses of its legal counsel) up to a maximum of $50,000. The engagement letter
also provided for additional fees to be paid if the Special Committee requested
an opinion from HSBC as to the fairness, from a financial point of view, of the
Offer; the Special Committee did not request such an opinion.
Neither Sentron nor any person acting on its behalf has employed, retained
or agreed to compensate any person or class of persons to make solicitations or
recommendations on its behalf with respect to the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
On February 17, 2000, John W. Wood, Jr., an executive officer and director
of Thermedics, exercised an option to purchase 400 Shares at an exercise price
of $9.80 per share. Except for the exercise of the option by Mr. Wood, no
transactions in the Shares have been effected during the past 60 days by Sentron
or, to the best of Sentron's knowledge, by any of its executive officers,
directors, affiliates or subsidiaries.
10
<PAGE> 11
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
Except as set forth in this Statement, Sentron is not engaged in any
negotiation in response to the Offer that relates to or would result in (i) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving Sentron or any subsidiary of Sentron, (ii) a purchase, sale or
transfer of a material amount of assets by Sentron or any subsidiary of Sentron,
(iii) a tender offer for or other acquisition of securities by or of Sentron or
(iv) any material change in the present dividend policy or indebtedness or
capitalization of Sentron.
There are no transactions, Board of Directors resolutions, agreements in
principle or signed contracts in response to the Offer that relate to or would
result in one or more of the events referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION
None.
ITEM 9. EXHIBITS
The following Exhibits have been filed with the Commission but, in
accordance with Commission rules, are not included with the copy of this
Schedule 14D-9 that Sentron intends to mail to its stockholders. The Exhibits to
this Schedule 14D-9 may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from such offices, upon payment of the fees
prescribed by the Commission. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that submit electronic filings to the
Commission.
<TABLE>
<S> <C>
(a)(1) Letter to Shareholders dated March 17, 2000
(a)(2) Press release dated March 7, 2000
(a)(3) Press release dated January 31, 2000 (filed as Exhibit 99 to
Sentron's Current Report on Form 8-K dated February 1, 2000
and incorporated herein by reference)
(e)(1) Selected Sections of Sentron's Proxy Statement for its 1999
Annual Meeting of Stockholders as filed with the Securities
and Exchange Commission on April 19, 1999
(e)(2) Form of Indemnification Agreement for Officers and Directors
(filed as Exhibit 10.10 to Sentron's Registration Statement
on Form S-1 (Reg. No. 333-806) and incorporated herein by
reference)
(e)(3) Amended and Restated $13.0 Million Promissory Note dated as
of June 30, 1999, issued by Sentron to Thermo Electron
(filed as Exhibit 10.2 to Sentron's Quarterly Report on Form
10-Q for the quarter ended July 3, 1999 (File No. 1-14254)
and incorporated herein by reference)
(g) None
</TABLE>
11
<PAGE> 12
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
THERMO SENTRON INC.
By: /s/ WILLIAM W. HOOVER
------------------------------------
Name: William W. Hoover
Title: Member of the Special
Committee
of the Board of Directors
By: /s/ PETER RICHMAN
------------------------------------
Name: Peter Richman
Title: Member of the Special
Committee
of the Board of Directors
Dated: March 17, 2000
12
<PAGE> 13
SCHEDULE I
MEMBERS OF THE BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS OF THERMO SENTRON, INC.
The name, positions with Thermo Sentron Inc. ("Thermo Sentron"), present
principal occupation or employment and five-year employment history of each of
the directors and executive officers of Thermo Sentron are set forth below.
MARSHALL J. ARMSTRONG Mr. Armstrong, 64, has been a director of
Thermo Sentron since September 1996. Mr.
Armstrong was the Senior Vice President,
Government Affairs of Thermo Electron from
March 1997 until September 1999 and was a Vice
President of Thermo Electron from 1986 until
his promotion. He also served as Chairman of
the Board of Thermo Power Corporation, a
wholly-owned subsidiary of Thermo Electron that
develops and commercializes intelligent
traffic-control systems and related products,
industrial refrigeration equipment, and
commercial cooling and cogeneration systems,
from 1990 to 1996, as its Chief Executive
Officer from 1991 to 1996, and as its President
from 1992 to 1995. He is also a director of
SatCon Technology Corporation.
WILLIAM W. HOOVER Mr. Hoover, 67, has been a director of Thermo
Sentron since May 1999. Mr. Hoover is a retired
U.S. Air Force Major General and former
Assistant Secretary of the U. S. Department of
Energy. Since 1993, Mr. Hoover has been
President of Hoover Associates, a consulting
firm.
JOHN T. KEISER Mr. Keiser, 64, has been a director of Thermo
Sentron since September 1998 and Chairman of
the Board since December 1998. He has been the
Chief Operating Officer, Biomedical, of Thermo
Electron since September 1998, and was a Vice
President from April 1997 until his promotion.
Mr. Keiser has been the President and Chief
Executive Officer of Thermedics since March
1998 and December 1998, respectively, and was a
Senior Vice President of Thermedics from 1994
until his promotion to President. He has also
been the President of Thermo Electron's wholly
owned biomedical group, a manufacturer of
medical equipment and instruments, since 1994.
Mr. Keiser is a director of Metrika Systems
Corporation, Thermedics Detection Inc.,
Thermedics, Thermo Cardiosystems Inc.,
ThermoLase Corporation, ThermoTrex Corporation
and Trex Medical Corporation.
DONALD E. NOBLE Mr. Noble, 85, has been a director of Thermo
Sentron since January 1996. For more than 20
years, from 1959 to 1980, Mr. Noble served as
the Chief Executive Officer of Rubbermaid
Incorporated, first with the title of president
and then as Chairman of the Board. Mr. Noble is
also a director of Thermo Fibertek Inc. and
Thermo TerraTech Inc.
LEWIS J. RIBICH Mr. Ribich, 55, has been the Chief Executive
Officer, President and a director of Thermo
Sentron since its inception in 1995. He has
also been President of Ramsey Technology Inc.,
the predecessor of Thermo Sentron, since 1990.
PETER RICHMAN Mr. Richman, 72, has been a director of Thermo
Sentron since January 1996. Mr. Richman was a
consultant to Thermedics and
I-1
<PAGE> 14
its subsidiaries on corporate development and
acquisition strategies from March 1993 to March
1995.
PAUL F. KELLEHER Mr. Kelleher, 57, has been Chief Accounting
Officer of Thermo Sentron since 1995. He has
been the Senior Vice President, Finance and
Administration, of Thermo Electron since June
1997, and served as its Vice President, Finance
from 1987 until 1997. Mr. Kelleher served as
Thermo Electron's Controller from 1982 until
January 1996. Mr. Kelleher is a director of
ThermoLase Corporation.
THEO MELAS-KYRIAZI Mr. Melas-Kyriazi, 40, has been Chief Financial
Officer of Thermo Sentron since January 1999.
He has been a Vice President of Thermo Electron
since March 1998 and its Chief Financial
Officer since January 1999. Prior to his
appointment as a Vice President at Thermo
Electron, Mr. Melas-Kyriazi served as President
and Chief Executive Officer of ThermoSpectra
Corporation, a wholly-owned subsidiary of
Thermo Electron that develops, manufactures,
and markets precision imaging, inspection,
measurement, and temperature-control
instrumentation for customers in an array of
industries from its inception until March 1998.
He is a director of ThermoRetec Corporation.
DANIEL E. WALSH Mr. Walsh, 36, has been the Vice President,
Finance of Thermo Sentron since December 1999.
Prior to promotion, Mr. Walsh served as
Director of Finance from March 1998 until
November 1999. Mr. Walsh was the Internal Audit
and Tax Manager for Cowles Media Company from
June 1994 until March 1998.
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermedics, Thermo Sentron's parent company, and of
Thermo Electron, Thermedics' parent company, as of January 31, 2000, with
respect to each director and each executive officer of Thermo Sentron and all
such directors and executive officers as a group.
While certain directors and executive officers of Thermo Sentron are also
directors and executive officers of Thermo Electron or its subsidiaries other
than Thermo Sentron, all such persons disclaim beneficial ownership of the
shares of Common Stock owned by Thermo Electron.
<TABLE>
<CAPTION>
THERMO ELECTRON
NAME(1) THERMO SENTRON INC.(2) THERMEDICS INC.(3) CORPORATION(4)
- ------- ----------------------- ------------------- ---------------
<S> <C> <C> <C>
Marshall J. Armstrong.................. 2,000 1,448 199,732
William W. Hoover...................... 298 5,900 0
John T. Keiser......................... 19,500 194,693 331,636
Paul F. Kelleher....................... 5,000 20,360 213,530
Theo Melas-Kyriazi..................... 0 11,861 458,532
Donald E. Noble........................ 18,873 17,173 67,868
Lewis J. Ribich........................ 207,500 52,001 27,918
Peter Richman.......................... 16,485 5,000 0
Daniel E. Walsh........................ 10,000 0 312
All directors and executive officers as
a group (9 persons).................. 279,656 308,436 1,299,528
</TABLE>
- ---------------
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children and all share ownership includes sole voting
and investment power.
(2) Shares of Common Stock beneficially owned by Mr. Armstrong, Mr. Keiser, Mr.
Kelleher, Mr. Noble, Mr. Ribich, Mr. Richman, Mr. Walsh and all directors
and executive officers as a group include 2,000,
I-2
<PAGE> 15
19,500, 5,000, 15,000, 202,300, 15,000, 10,000 and 268,800 shares,
respectively, that such person or group has the right to acquire within 60
days of January 31, 2000, through the exercise of stock options. Shares of
Common Stock beneficially owned by Mr. Hoover, Mr. Noble, Mr. Richman and
all directors and executive officers as a group include 298, 2,573, 485, and
3,356 shares, respectively, allocated to their respective accounts through
January 1, 2000, maintained under Thermo Sentron's deferred compensation
plan for directors. No director or executive officer beneficially owned more
than 1% of the Common Stock outstanding as of January 31, 2000, except for
Mr. Ribich, who owned 2.15% of such Common Stock; all directors and
executive officers as a group beneficially owned 2.91% of the Common Stock
outstanding as of such date.
(3) Shares of the common stock of Thermedics beneficially owned by Mr. Hoover,
Mr. Keiser, Mr. Kelleher, Mr. Noble, Mr. Ribich, Mr. Richman, and all
directors and executive officers as a group include 5,900, 187,900, 10,000,
7,500, 51,200, 5,000 and 267,500 shares, respectively, that such person or
group has the right to acquire within 60 days of January 31, 2000, through
the exercise of stock options. Shares of the common stock of Thermedics
beneficially owned by Mr. Armstrong, Mr. Kelleher, Mr. Melas-Kyriazi and all
directors and executive officers as a group include 1,448, 1,294, 1,119 and
3,861 shares, respectively, allocated through January 31, 2000, to their
accounts maintained pursuant to Thermo Electron's employee stock ownership
plan (the "ESOP"), of which the trustees, who have investment power over its
assets, are executive officers of Thermo Electron. No director or executive
officer beneficially owned more than 1% of the Thermedics common stock
outstanding as of January 31, 2000; all the directors and executive officers
as a group did not beneficially own more than 1% of the common stock of
Thermedics outstanding as of January 31, 2000.
(4) Shares of the common stock of Thermo Electron beneficially owned by Mr.
Armstrong, Mr. Keiser, Mr. Kelleher, Mr. Melas-Kyriazi, Mr. Noble, Mr.
Ribich and all directors and executive officers as a group include 137,676,
263,230, 179,359, 384,361, 14,929, 26,748 and 1,006,303 shares,
respectively, that such person or group has the right to acquire within 60
days of January 31, 2000, through the exercise of stock options. Shares of
common stock of Thermo Electron beneficially owned by Mr. Noble and all
directors and executive officers as a group include 46,813 shares allocated
through January 1, 2000, to Mr. Noble's account, maintained pursuant to
Thermo Electron's deferred compensation plan for directors. Shares of the
common stock of Thermo Electron beneficially owned by Mr. Armstrong Mr.
Kelleher, Mr. Melas-Kyriazi and all directors and executive officers as a
group include 2,598, 1,426, 1,071 and 5,095 shares, respectively, allocated
through January 31, 2000, to their accounts maintained pursuant to the ESOP.
Shares of the common stock of Thermo Electron beneficially owned by Mr.
Armstrong include 249 shares owned by his spouse. No director or executive
officer beneficially owned more than 1% of the Thermo Electron common stock
outstanding as of January 31, 2000; all the directors and executive officers
as a group did not beneficially own more than 1% of the common stock of
Thermo Electron outstanding as of January 31, 2000.
I-3
<PAGE> 16
SCHEDULE II
NUTTER, MCCLENNEN & FISH, LLP
ATTORNEYS AT LAW
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2699
TELEPHONE: 617-439-2000 FACSIMILE: 617-973-9748
CAPE COD OFFICE CONSTANTINE ALEXANDER
HYANNIS, MASSACHUSETTS DIRECT DIAL NUMBER
617-439-2595
E-MAIL ADDRESS
[email protected]
December 10, 1999
DELIVER
Theo Melas-Kyriazi
Thermo Electron
81 Wyman Street
Waltham, MA 02254
Dear Theo:
In view of the continuing substantial disagreement between Thermo Electron
and the Special Committee of the Board of Directors of Thermo Sentron as to the
fair value of the Thermo Sentron shares not held by an affiliate of Thermo
Electron, the Special Committee has asked its advisors to set forth to you in
writing the basis for the Special Committee's position.
The attached materials set forth in detail the basis for the Special
Committee's position. In summary, the Special Committee believes the correct way
to value the Thermo Sentron shares is based upon an appropriate premium to
market for the minority interest in a going private transaction. It disagrees
with the approach of attempting to value Thermo Sentron with reference to
Mettler-Toledo, although Mettler-Toledo is discussed in the attached materials
because the comparison does not justify a price as low as a price in the range
of $15.50 to $16.00 as Thermo Electron is proposing. The Special Committee,
furthermore, believes that an analysis of trading histories of relevant
comparable Thermo Electron subsidiaries demonstrates that Thermo Sentron's
current market price does not reflect any anticipation of a buyout premium. The
basis for this conclusion is set forth in the attachment. In the Special
Committee's view, the correct premium is 29.5%, the approximate average premium
to market for the three buyouts of Thermo Electron subsidiaries announced on
October 20, 1999, since the facts and circumstances of these buyouts are very
similar to Thermo Sentron's.
The Special Committee has concluded that a fair price for the Thermo
Sentron minority shares is $19.25, an approximate 29.5% premium to the closing
price for Thermo Sentron's shares on December 9 (the 29.5% premium is below the
average premium paid in comparable minority buyout transactions from January
1998 through July 1999 and below the average premium announced in eight Thermo
Electron minority buyout transactions since March 1998). The Special Committee
is willing to continue discussions based on this price.
Sincerely yours,
/s/ CONSTANTINE ALEXANDER
Constantine Alexander
CA/eab
Enc.
cc: Peter Richman
William Hoover
Thomas Callahan
James W. Marley
Jonathan Wilk
II-1
<PAGE> 17
ATTACHMENT
A premium to market for the minority interest in a going private
transaction is not only a generally accepted method of valuing a minority
interest in a transaction such as proposed by Thermo Electron but it is
especially meaningful in the Thermo Electron context, since there is ample
precedent that Thermo Electron has in fact paid a substantial premium to market
in a number of transactions quite similar to Thermo Sentron. An examination of
the premium paid for minority interests in a going private transaction, both
generally and specific to Thermo Electron, supports a price for the Thermo
Sentron shares far higher than Thermo Electron is proposing.
Thermo Electron has insisted on attempting to value Thermo Sentron with
reference to Mettler-Toledo. The Special Committee disagrees with this approach.
Mettler-Toledo is only one company, and reference to only one company is not
generally an appropriate method to value another company. Moreover, Mettler-
Toledo is a far larger company than Thermo Sentron, and that segment of its
business which is comparable to Thermo Sentron's is only a small portion of
Mettler-Toledo's over-all business. Nevertheless, the Special Committee asked
its advisors to examine Mettler-Toledo, and even an analysis based upon the
current market valuation of Mettler-Toledo supports a significantly higher value
for the Thermo Sentron minority shares than what Thermo Electron is proposing.
MINORITY INTEREST GOING PRIVATE TRANSACTIONS
Empirical evidence demonstrates that a premium is paid when a majority
owner acquires the publicly-held minority interest in a going private
transaction. As discussed below, the data indicate that the average premium
involved in such a transaction is substantial.
The following discussion of minority interest buyout premia is divided into
three segments. Recent Transactions reviews general market data for such
transactions during the past two years. Recent Thermo Electron Transactions
examines information for eight such transactions involving Thermo Electron
subsidiaries announced by Thermo Electron during the past two years. Finally,
Thermo Electron Transactions in October 1999 analyzes three transactions
involving Thermo Electron subsidiaries announced by Thermo Electron on October
20, 1999.
RECENT TRANSACTIONS
Transactions completed from January 1998 through July 1999 in which the
parent owned more than 50% of the target were included in the sample. The
analysis is based upon statistics provided by Securities Data Corporation and
includes 24 companies that were acquired during this time period.
The analysis of the acquired companies established that the average premium
paid at closing relative to the price of the shares of the target one week prior
to the announcement was 38.5% (see Appendix A). Based upon Thermo Sentron's
closing price of $14.875 on December 9, this would suggest a price for the
Thermo Sentron shares of $20.60.
RECENT THERMO ELECTRON TRANSACTIONS
Since March 1998, Thermo Electron has announced eight transactions in which
it will buy back shares of a subsidiary in which Thermo Electron held a stake
greater than 50%. These examples demonstrate that Thermo Electron has agreed to
pay a significant premium to acquire the stake of the minority shareholders.
The analysis reveals that Thermo Electron paid an average premium of 36.8%
relative to the price of the shares of the subsidiary one-week prior to the
announcement of the offer (for those transactions not yet closed, the most
recent offer from Thermo Electron is used). Please see Appendix B for a table
representing these transactions. Based upon Thermo Sentron's closing price of
$14.875 on December 9, this would suggest a price for the Thermo Sentron shares
of $20.35.
II-2
<PAGE> 18
THERMO ELECTRON TRANSACTIONS IN OCTOBER 1999
On October 20, 1999, three Thermo Electron subsidiaries made public
announcements that their boards had approved definitive merger agreements under
which Thermo Electron would acquire all of the outstanding stock held by
minority shareholders of the subsidiaries. The three subsidiaries making these
announcements were:
- ThermoRetec (THN)
- Thermo TerraTech Inc. (TTT)
- Randers Killam Group, Inc. (RGI)
The comparison to these three companies is telling. On May 24, 1999, Thermo
Electron announced that it intended to buy out the minority interest in these
three companies as well as the minority interest in Thermo Sentron. Thermo
Electron has contended that Thermo Sentron's current market price already
reflects a minority buy-out premium and, therefore, a premium to market now is
unwarranted. But a comparison of Thermo Sentron's market price to those of the
three companies refutes this and provides strong support for the position of the
Special Committee. Moreover, the current market price for Thermo Sentron shares
reflects the inherent value of these shares as demonstrated by analyses
previously furnished to Thermo Electron by HSBC Securities.
From May 25, 1999 until October 19, 1999, it was known that each of the
four subsidiaries was a candidate for a takeout offer from Thermo Electron, but
no definitive agreements on transaction values had been announced. While the
expectations of such minority interest acquisitions presumably were equivalent
during this time period for the four subsidiaries, the share prices of each of
the subsidiaries appear to have moved during this period on the basis of
operating results and fundamentals and not on buy-out expectations. For
instance, the price per share of ThermoRetec (THN) and The Randers Killam Group
(RGI) rose 37.5% and 18.5% during this period, respectively. On the other hand,
the price per share of Thermo Sentron (TSR) and Thermo TerraTech (TTT) increased
by 2.8% and decreased by 4.4%, respectively, during this same period.
On October 20, 1999, the above-mentioned public announcements were made
concerning three of the four subsidiaries: ThermoRetec, The Randers Killam Group
and Thermo TerraTech. The agreed takeout prices for the three subsidiaries
averaged 30.8% above the closing prices of the shares of the subsidiaries one
week prior to announcement. In response to the announcements, the price per
share of the three subsidiaries rose an average of approximately 20% on October
20. Meanwhile, the price per share of Thermo Sentron, which was not the subject
of any new announcement, rose merely 1.8% on October 20 (please refer to the
related table in Appendix C).
In the aftermath of October 20, the price per share of THN, RGI and TTT has
each risen toward the level of the respective takeout offers. (It is significant
to note that despite the significant premium represented by its takeout price,
one company has already been the subject of a shareholder suit complaining that
the price is inadequate. On November 24, it was announced that a ThermoRetec
shareholder had filed a complaint with the Chancery Court of the State of
Delaware, naming as defendants Thermo Electron and certain ThermoRetec
directors.) By comparison, Thermo Sentron has seen its price per share rise
merely 8% since October 19, the day before the three announcements (please see
Appendix D for a related indexed price graph).
A premium of 30.8% to market (the average premium to market to be paid for
the three subsidiaries) would suggest a price of $19.46 for the Thermo Sentron
shares based upon a Thermo Sentron closing price of $14.875 on December 9.
The Special Committee does not believe it is appropriate to reduce this
premium by the modest increase (8%) in Thermo Sentron's price since October 19.
The trading history for THN, TTT, RGT and TSR from May 25, 1999 to October 19,
1999 clearly demonstrates that all four companies' stocks, including TSR, trade
without any reference to an expected buy-out premium to market. Indeed, if the
trading markets are applying a buy-out premium, one would have expected TSR's
price to increase by close to 31% and not by 8% as has been the case.
II-3
<PAGE> 19
METTLER-TOLEDO VALUATION
An October 13, 1999 memorandum from Thermo Electron to the Special
Committee claimed that Mettler-Toledo is a particularly appropriate benchmark
for valuing Thermo Sentron since Mettler-Toledo addresses the same markets as
Thermo Sentron and has approximately the same exposure to the packaged goods
markets and the bulk materials markets. As indicated earlier, the Special
Committee feels that such comparisons are not the best way to determine the fair
value of the Thermo Sentron minority position. Nevertheless, it will discuss
them.
In the memorandum, Thermo Electron valued Thermo Sentron (TSR) by applying
Mettler-Toledo's revenue, EBIT, EBITDA and P/E multiples to TSR's historical
calendar year 1998 financials and to TSR's projected financials for calendar
year 1999 and 2000. Thermo Electron also introduced the concept of an after-tax
EBITDA multiple for Mettler-Toledo, a measure which is then also applied to TSR.
Attached schedules in Appendix E and Appendix F update these valuations based on
closing market prices as of December 2, 1999.
In a subsequent conversation regarding TSR on November 17, 1999, Thermo
Electron reiterated that Mettler-Toledo (MTD) was the "gold standard" for
valuations in the industry. Thermo Electron also acknowledged that it would
consider paying for TSR a premium of 10-15% above the levels implied by
Mettler-Toledo's market valuation. To simplify comparisons, the analysis
presented in Appendix E and Appendix F does not factor in this suggested
premium.
The analysis presented in Appendix E, which uses the projected calendar
year 2000 financials for TSR from the August budget, produces a value for TSR
ranging from $16.58 per share (based on after-tax EBITDA) to $19.92 per share
(based on P/E multiples). Applying a premium of $12.5% (the mid-point between
10% and 15%) produces a value for TSR ranging from $18.65 to $22.41.
The analysis presented in Appendix F results in valuations for TSR ranging
from $15.22 per share (based on after-tax EBITDA) to $19.92 per share (based on
P/E). Again using the 12.5% premium, this produces a value for TSR ranging from
$17.12 to $22.41. The calculations in Appendix F use projected calendar year
2000 financials for TSR which were produced in October 1999 under the procedures
of a new Thermo Electron budgeting process.
With regard to the Thermo Sentron projections, at the direction of Thermo
Electron, the management teams at its subsidiaries were directed to revise the
existing budgets to adhere to a new "90% probability" threshold, as opposed to
the previous "80% probability" standard. Although the management team at TSR
insists that its outlook for calendar year 2000 has not changed since the budget
was set in August 1999, the new procedures imposed by Thermo Electron resulted
in reductions in the projections; for instance, the projected calendar year 2000
revenue was revised from $118 million to $116 million under the new budget
process. The Special Committee is greatly troubled by this shift in approach by
Thermo Electron in the context of the discussions between Thermo Electron and
the Special Committee, given the timing of the directive, and seriously
questions whether it should accept the resulting reductions in the projections.
Nevertheless, for purposes of this analysis only and not because the Special
Committee accepts the reductions, the Special Committee has permitted its
advisors to use the revised projections.
II-4
<PAGE> 20
HSBC Securities (USA) Inc. Thermo Sentron Inc.
- --------------------------------------------------------------------------------
APPENDIX A
MINORITY INTEREST GOING PRIVATE TRANSACTIONS
RECENT TRANSACTIONS
JANUARY 1998 - JULY 1999
<TABLE>
<CAPTION>
PREMIUM 1 DAY PREMIUM 1 WEEK PREMIUM 4 WEEKS
PRIOR TO PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
------------- -------------- ---------------
<S> <C> <C> <C>
AVERAGE....................................... 32.5% 38.5% 39.4%
</TABLE>
The sample set is comprised of 24 companies and is provided by Securities Data
Corporation.
- --------------------------------------------------------------------------------
December 1999 Confidential
II-5
<PAGE> 21
HSBC Securities (USA) Inc. Thermo Sentron Inc.
- --------------------------------------------------------------------------------
APPENDIX B
MINORITY INTEREST GOING PRIVATE TRANSACTIONS
RECENT THERMO ELECTRON TRANSACTIONS
<TABLE>
<CAPTION>
PREMIUM PREMIUM PREMIUM
1 DAY 1 WEEK 4 WEEKS
PRIOR TO PRIOR TO PRIOR TO
PRICE ANNOUNCE- ANNOUNCE- ANNOUNCE-
DATE DATE PER MENT MENT MENT
EFFECTIVE ANNOUN. ACQUIROR NAME TARGET NAME SHARE DATE(A) DATE DATE
--------- -------- ------------------------- ------------------------ ------ --------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1. 03/26/99 03/31/98 Thermedics Thermo Voltek $ 7.00 45.5% 60.0% 40.0%
2. 10/29/99 04/29/99 Thermo Electron Thermo Power(a) 12.00 33.3% 32.4% 50.0%
3. pending 05/21/99 Thermo Instrument ThermoSpectra 16.00 39.1% 43.8% 61.0%
4. pending 06/03/99 Thermo Electron ThermoTrex(b) 11.25 39.5% 38.5% 44.0%
5. 10/24/99 07/13/99 Thermo Instrument Thermo Vision 7.00 27.3% 27.3% 16.7%
6. pending 10/20/99 Thermo Electron ThermoRetec 7.00 27.3% 33.3% 34.9%
7. pending 10/20/99 Thermo Electron The Randers Killam Group 4.50 24.1% 24.1% 33.3%
8. pending 10/20/99 Thermo Electron Thermo TerraTech 7.25 34.9% 34.9% 28.9%
---------------------------------------
AVERAGE 33.9% 36.8% 38.6%
MEDIAN 34.1% 34.1% 37.5%
---------------------------------------
</TABLE>
(a) Premium is based on price two days prior to the announcement.
(b) Price per share based on $11.25 paid by Thermo Electron in private placement
transaction.
- --------------------------------------------------------------------------------
December 1999 Confidential
II-6
<PAGE> 22
HSBC Securities (USA) Inc. Thermo Sentron Inc.
- --------------------------------------------------------------------------------
APPENDIX C
MINORITY INTEREST GOING PRIVATE TRANSACTIONS
THERMO ELECTRON TRANSACTIONS IN OCTOBER 1999
<TABLE>
<CAPTION>
PREMIUM PREMIUM PREMIUM
1 DAY 1 WEEK 4 WEEKS
OFFER PRIOR TO PRIOR TO PRIOR TO
DATE DATE PER ANNOUN. ANNOUN. ANNOUN.
EFFECTIVE ANNOUN. TARGET SHARE DATE DATE DATE
--------- -------- ------------------------- ----- -------- -------- --------
<C> <C> <C> <S> <C> <C> <C> <C>
1. pending 10/20/99 ThermoRetec $7.00 27.3% 33.3% 34.9%
2. pending 10/20/99 The Randers Killam Group 4.50 24.1% 24.1% 33.3%
3. pending 10/20/99 Thermo TerraTech 7.25 34.9% 34.9% 28.9%
-----------------------------------------
AVERAGE 28.8% 30.8% 32.4%
MEDIAN 27.3% 33.3% 33.3%
-----------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
December 1999 Confidential
II-7
<PAGE> 23
APPENDIX D
[THERMOSENTRON INC. PERFORMANCE CHART]
Thermo Electron continues to pay significant premiums to take out the minority
shareholders in transactions similar to Thermo Sentron's.
[Illustration of premiums paid in recent Thermo Electron transactions]
II-8
<PAGE> 24
APPENDIX E
VALUATION COMPARISONS
THERMO SENTRON VS. METTLER-TOLEDO
TSR 2000 BUDGET PER PREVIOUS TMO PROCESS
<TABLE>
<CAPTION>
TSR IMPLIED
THERMO METTLER VALUE PER SHARE
SENTRON TOLEDO @ MTD MULTIPLE
------- ------- ---------------
<S> <C> <C> <C>
AFTER-TAX EBITDA
1998....................................................... 19.0 18.0 $13.99
1999....................................................... 15.3 15.3 $14.74
2000....................................................... 12.3 13.7 $16.58
REVENUES
1998....................................................... 1.5 1.8 $17.34
1999....................................................... 1.4 1.6 $17.10
2000....................................................... 1.3 1.5 $17.17
EBIT
1998....................................................... 17.2 18.0 $15.53
1999....................................................... 14.0 15.2 $16.13
2000....................................................... 10.4 13.3 $19.38
EBITDA
1998....................................................... 13.3 13.4 $14.89
1999....................................................... 10.7 11.3 $15.61
2000....................................................... 8.4 10.1 $17.93
PE
1998....................................................... 25.1 29.6 $17.48
1999....................................................... 21.5 25.7 $17.75
2000....................................................... 16.3 21.9 $19.92
</TABLE>
II-9
<PAGE> 25
APPENDIX F
VALUATION COMPARISONS
THERMO SENTRON VS. METTLER-TOLEDO
TSR 2000 BUDGET REDUCED PER NEW TMO PROCESS
<TABLE>
<CAPTION>
TSR IMPLIED
THERMO METTLER VALUE PER SHARE
SENTRON TOLEDO @ MTD MULTIPLE
------- ------- ---------------
<S> <C> <C> <C>
AFTER-TAX EBITDA
1998....................................................... 19.0 18.0 $13.99
1999....................................................... 15.3 15.3 $14.74
2000....................................................... 13.3 13.7 $15.22
REVENUES
1998....................................................... 1.5 1.8 $17.34
1999....................................................... 1.4 1.6 $17.10
2000....................................................... 1.3 1.5 $17.17
EBIT
1998....................................................... 17.2 18.0 $15.53
1999....................................................... 14.0 15.2 $16.13
2000....................................................... 11.6 13.3 $17.21
EBITDA
1998....................................................... 13.3 13.4 $14.89
1999....................................................... 10.7 11.3 $15.61
2000....................................................... 9.2 10.1 $16.30
PE
1998....................................................... 25.1 29.6 $17.48
1999....................................................... 21.5 25.7 $17.75
2000....................................................... 16.3 21.9 $19.92
</TABLE>
II-10
<PAGE> 26
SCHEDULE III
NUTTER, MCCLENNEN & FISH, LLP
ATTORNEYS AT LAW
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2699
TELEPHONE: 617-439-2000 FACSIMILE: 617-973-9748
CAPE COD OFFICE
CONSTANTINE ALEXANDER
HYANNIS, MASSACHUSETTS
DIRECT DIAL NUMBER
617-439-2595
E-MAIL ADDRESS
[email protected]
January 20, 2000
101860-1
FAX
Jonathan Wilk, Esq.
Thermo Electron
P. O. Box 9046
Waltham, MA 02254-9046
Dear Jonathan:
The Special Committee has considered with its advisers Theo's letter of
December 23, 1999 and has asked me to respond to it on behalf of the Special
Committee. I will be responding separately to your letter of January 17, 2000.
EXECUTIVE SUMMARY
- Recent transactions, involving both minority interest buyout transactions
generally and minority interest buyout transactions of Thermo Electron
subsidiaries particularly, clearly justify a Thermo Sentron ("TSR")
minority buyout premium.
- TSR's current stock price does not already reflect this buy-out premium
as is demonstrated by The Randers Killam Group ("RGI"), Thermo Terratech
("TTT") and ThermoRetec ("THN") (the "Comparable Companies") situations.
Neither the stock price of TSR nor that of the Comparable Companies
increased measurably following the announcement that all of these
companies would be taken private (12/10/98 in the case of TSR and 5/5/99
in the case of the Comparable Companies). The stock price of all four
companies spiked on May 21, 1999 when the cash offer for Thermo Spectra
was announced. Even if the stock price of the Comparable Companies began
to reflect a buy-out premium following May 21, 1999, Thermo Electron has
announced that it will pay a price for the minority interest in these
companies which represents an approximate 30% premium to the then stock
prices for these companies on October 20, 1999, the day the terms of the
minority buy-outs for these companies were announced. There is no reason
not to pay the same premium for TSR.
- ThermoLase ("TLZ") and ThermoTrex ("TKN") are not relevant comparisons,
given their operating performance as compared to that of Thermo Sentron.
- Comparisons with Mettler-Toledo ("MTD"), which may not be a perfect
comparable, support a higher price for Thermo Sentron than Thermo
Electron is proposing, for the reasons stated in my letter to you of
December 10, 1999.
- HSBC has supplied Thermo Electron with pertinent analyses. The hiatus in
presenting analyses to Thermo Electron resulted from the Special
Committee's decision to suspend negotiations for the reasons set out
under the heading "Recent Analyses Provided by HSBC" below.
III-1
<PAGE> 27
PREMIUM TO MARKET
The evidence clearly justifies a TSR minority interest buyout premium.
To begin with, the average market premium on the 24 minority interest
transactions that occurred from January 1998 through July 1999 one week prior to
the announcement was 38.5%. (Please refer to the related table in Appendix A)
Furthermore, Thermo Electron has announced ten transactions during the past
two years in which it agreed to buy back the stock of a subsidiary in which TMO
held a stake greater than 50%. The analysis reveals that Thermo Electron paid an
average premium of 30.7% relative to the price of the shares of the subsidiary
one-week prior to the announcement of the offer. (Please refer to the related
table in Appendix B)
Note that Appendix B has been updated to include the new information
regarding the announcements for ThermoLase and ThermoTrex, companies that have
both delivered poor operating results, as discussed below. Nevertheless, even
after including this new data, the average premium paid by TMO was still around
30%.
THERMOLASE AND THERMOTREX QUARTERLY PERFORMANCE
The quarterly EPS performance for ThermoLase and ThermoTrex shown in the
table below demonstrates the consistently weak performance at the two companies.
This chart indicates that ThermoLase has not been profitable in the last two
fiscal years while ThermoTrex has not reported a profit since Q2 1998. Thermo
Sentron has been consistently profitable on a quarterly basis throughout this
period of time.
QUARTERLY PERFORMANCE
<TABLE>
<CAPTION>
1998 1999
---------------------------- -----------------------------
COMPANY Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ---- ---- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TLZ................................ (.05) (.22) (.22) (.57) (.21) (.18) (1.93) (.05)
TKN................................ .07 1.02 (.26) (.96) (.55) (.61) (4.82) (.32)
</TABLE>
Reflecting this performance, Thermo Electron announced on December 15 and
17 agreements to buy ThermoLase and ThermoTrex for premia of only 14.4% and
(4.3%), respectively. The Special Committee of Thermo Sentron believes that a
premium similar to that paid to ThermoLase and ThermoTrex which are in effect
distressed companies is not applicable to Thermo Sentron which has a
consistently profitable operating history.
III-2
<PAGE> 28
RELEVANT ANNOUNCEMENT DATES
Theo's letter to me of December 23, 1999 seeks to emphasize the fact that
Thermo Sentron's share price has increased 66% since December 10, 1998 and
therefore the current stock price already reflects a buy-out premium. An
analysis of Thermo Sentron's trading history and the trading history of relevant
TMO subsidiaries does not support this because Thermo Electron has not taken
into account the timing and significance of certain relevant announcements and
events, which occurred during this period. The table below examines the market
reaction two days following relevant announcements. Note that Thermo Sentron's
share price only increased 11% during the five month period between December 10,
1998 and May 20, 1999 when the cash offer for ThermoSpectra was announced. The
table below examines the sequence of events that have affected the share prices
of the four indicated Thermo subsidiaries:
RELEVANT ANNOUNCEMENT DATES
<TABLE>
<CAPTION>
COMPANY 12/10(A) 5/5(B) 5/21(C) 10/19(D)
- ------- -------- ------ ------- --------
<S> <C> <C> <C> <C>
TSR............................................ 8.75 10.19 12.75 13.63
RGI............................................ 1.88 2.50 3.00 3.63
TTT............................................ 4.50 4.38 5.13 5.38
THN............................................ 2.69 2.56 3.06 5.50
</TABLE>
(a) TMO announced that it would take TSR private.
(b) TMO announced that it would take RGI, TTT and THN private.
(c) THI announced a cash offer for THS.
(d) TMO announced that it had agreed to take RGI ($4.50 cash), TTT ($7.25
TMO stock) and THN ($7.00 cash) private.
THERMO SENTRON ANNOUNCEMENT
On December 10, 1998 Thermo Electron announced that Thermo Sentron would
become a wholly owned subsidiary of Thermo Electron. Thermo Sentron closed at
$8.75 on December 10, 1998. In the two days following the announcement the stock
traded at $9.25 and $9.13, respectively (Please note that December 11 was a
Friday). This represented an increase of only 4.3% as shown in the table below.
TSR ANNOUNCEMENT
<TABLE>
<CAPTION>
COMPANY 12/10 12/11 12/14
- ------- ----- ----- -----
<S> <C> <C> <C>
TSR................................................... 8.75 9.25 9.13
</TABLE>
THE RANDERS KILLAM GROUP, THERMO TERRATECH AND THERMORETEC ANNOUNCEMENTS
On May 5, 1999 Thermo Electron announced that The Randers Killam Group,
Thermo Terratech and ThermoRetec would become wholly owned subsidiaries of
Thermo Electron. Following this announcement it was public knowledge that each
of the four subsidiaries (including TSR) was a candidate for a takeout offer
from Thermo Electron. RGI, TTT and THN were trading at $2.50, $4.38 and $2.56 on
May 5, 1999, respectively. In the two days following the announcement the
subsidiaries traded at $2.50, $4.38 and $3.06, respectively. This represented an
increase of 0%, 0% and 20% as shown in the table below. Although Thermo Sentron
was not involved in this announcement, its stock price did increase 2%.
III-3
<PAGE> 29
RGI, TTT AND THN ANNOUNCEMENT
<TABLE>
<CAPTION>
COMPANY 5/5 5/6 5/7
- ------- ----- ----- -----
<S> <C> <C> <C>
TSR................................................. 10.19 10.50 10.38
TTT................................................. 4.38 4.38 4.38
THN................................................. 2.56 2.56 3.06
</TABLE>
THERMOSPECTRA OFFER PRICE ANNOUNCEMENT
Before the markets opened on May 21, 1998 Thermo Instrument announced that
it would acquire all outstanding shares of ThermoSpectra in an all cash
transaction. None of the four Thermo Electron subsidiaries under discussion were
mentioned in the article. Presumably, however, the expectations created by the
ThermoSpectra announcement affected their share prices. TSR, RGI, TTT and THN
were trading at $10.38, $2.88, $4.44 and $3.00 on May 20, 1999, respectively. In
the two days following the announcement the subsidiaries traded at $13.50,
$3.13, $5.63 and $3.75, respectively (Please note that May 21 was a Friday).
This represented an increase of 30%, 9%, 27% and 25% as shown in the table
below.
THS OFFER PRICE ANNOUNCEMENT
<TABLE>
<CAPTION>
COMPANY 5/20 5/21 5/24
- ------- ----- ----- -----
<S> <C> <C> <C>
TSR................................................. 10.38 12.75 13.50
RGI................................................. 2.88 3.00 3.13
TTT................................................. 4.44 5.13 5.63
THN................................................. 3.00 3.06 3.75
</TABLE>
RGI, TTT AND THN OFFER PRICE ANNOUNCEMENTS
On October 20, 1999, RGI, TTT and THN made public announcements that their
boards had approved definitive merger agreements under which the ultimate parent
company, Thermo Electron, would acquire all of the outstanding stock held by
minority shareholders.
Thus, while from May 25, 1999 until October 19, 1999, it was known that
each of the four subsidiaries was a candidate for a takeout offer from the
parent, no definitive agreements on cash offers had been announced. While the
expectations of such potential developments were equivalent during this time
period for the four subsidiaries, the prices on each of the subsidiaries moved
independent of each other during this period. For instance, the price per share
of ThermoRetec (THN) and The Randers Killam Group (RGI) rose 37.5% and 18.5%
during this period, respectively. On the other hand, the price per share of
Thermo Sentron (TSR) and Thermo Terratech (TTT) changed by 2.8% and (4.4%),
respectively, during this same period.
Thus, on October 19, 1999, the four subsidiaries reflected similar
circumstances: 1) there had been public announcements that each of the four
subsidiaries represented a potential takeout situation; 2) on May 24, 1999 the
stock price of each had risen between 9% and 30% in conjunction with the Thermo
Spectra announcement; 3) each subsidiary had a Special Committee reviewing the
situation with regard to a potential purchase of the minority positions by the
parent; and 4) finally, the publicly traded shares of each subsidiary had moved
independently since May 25, 1999 presumably in accordance with the market's
reaction to announced operating results, the market's view of the fundamentals,
and the market's opinion of future expectations for each subsidiary. Therefore,
as of October 19th, the four subsidiaries represented a nearly textbook example
with regard to comparisons of subsequent announcements and related minority
interest buyout premia.
Then, on October 20, 1999, the above-mentioned public announcements were
made concerning three of the four subsidiaries: ThermoRetec, The Randers Killam
Group and Thermo Terratech. The agreed takeout prices for the three subsidiaries
were an average of 29% above the closing prices from the preceding day. In
response to the announcements, the price per share of the three subsidiaries
rose an average of approximately
III-4
<PAGE> 30
20% on October 20th. Meanwhile, the price per share of Thermo Sentron, which was
not the subject of any new announcement, rose merely 1.8% on October 20th.
OFFER PRICE ANNOUNCEMENTS
<TABLE>
<CAPTION>
TAKEOUT %
COMPANY 10/19 10/20 10/21 PRICE PREMIUM*
------- ----- ----- ----- ------- --------
<S> <C> <C> <C> <C> <C>
TSR.................................... 13.63 13.88 14.38 -- --
RGI.................................... 3.63 4.25 4.25 4.50 24%
TTT.................................... 5.38 6.50 6.50 7.25 35%
THN.................................... 5.50 6.56 6.63 7.00 27%
</TABLE>
- ---------------
* Percentage premium of takeout price relative to 10/19 closing price
In the aftermath of October 20th, the price per share of THN, RGI and TTT
has each risen toward the level of the respective takeout offers. By comparison,
Thermo Sentron has seen its price per share rise merely 6.4% (compared to the
29% average of the three other Thermo subsidiaries) since October 19th, the day
before the three relevant announcements.
On the basis of the foregoing, the Special Committee does not agree with
Thermo Electron's contention that Thermo Sentron's current market price includes
the full takeout premium.
PERCENTAGE INCREASE TO JANUARY 18, 2000
The Special Committee's conclusion is further supported by the following
observations:
PERCENTAGE INCREASE TO 1/18/00
<TABLE>
<CAPTION>
COMPANY SINCE 12/10 SINCE 5/5
- ------- ----------- ---------
<S> <C> <C>
TSR.................................................... 66% 42%
RGI.................................................... 140% 80%
TTT.................................................... 50% 54%
THN.................................................... 151% 164%
</TABLE>
The percentage increases shown have been calculated using the prices as of
the two different buyout announcement dates (December 10, 1998 and May 5, 1999)
relative to each company's closing price as of January 18, 2000.
PERFORMANCE BY THERMO SENTRON
Subsequent to Theo's letter on December 23, 1999, HSBC has had further
conversations with Thermo Sentron's management. The conversations with
management have reconfirmed HSBC's original understanding that there are no
revisions to the FY 2000 budget. After speaking with TSR's customers, TSR's
management believes that Q4 was impacted due to the Y2K issue and sales were
only being deferred until FY 2000 and were not being lost to their competitors.
METTLER-TOLEDO ANALYSIS
Concerning Mettler-Toledo, while MTD may not be a perfect comparison for
TSR, it is perhaps the single most relevant comparable. An October 13, 1999 memo
from Thermo Electron to the Special Committee conceded that Mettler-Toledo is a
particularly appropriate benchmark for valuing Thermo Sentron since
Mettler-Toledo addresses the same markets as Thermo Sentron and has
approximately the same exposure to the packaged goods markets and the bulk
materials markets. It is therefore appropriate to consider recent developments
in the public market valuation of Mettler-Toledo.
III-5
<PAGE> 31
In a subsequent conversation regarding TSR on November 17, 1999, Thermo
Electron reiterated that Mettler-Toledo was the "gold standard" for valuations
in the industry. Thermo Electron also acknowledged that it would consider paying
a premium of 10-15% above the levels implied by Mettler-Toledo's market
valuation. In Theo's letter dated December 23,1999 he acknowledged that "Thermo
did indicate it was willing to pay a small premium over Thermo Sentron's
valuation as implied by the Mettler-Toledo valuation, but that was before both
companies' Q3 1999 results were released". In fact his statement was made on
November 17, 1999, well after the earnings release date for both TSR and MTD.
TSR's earnings were released on November 5, 1999 while Mettler-Toledo's earnings
were released on November 4, 1999.
Theo's letter dwells on Thermo Sentron's actual performance versus budget.
However, the Special Committee notes that the budgets are unknown to the market.
Accordingly, the Special Committee believes TSR's market value has been
positively influenced due to Thermo Sentron's year on year quarterly EPS growth.
Thermo Sentron's EPS growth in Q2 and Q3 was 11.8% and 46.2%, respectively. The
Special Committee believes TSR's value has also been favorably impacted by other
fundamental factors such as the announcement that Thermo Sentron had signed an
agreement with a leading Internet retailer.
RECENT ANALYSES PROVIDED BY HSBC
The Special Committee is surprised by Theo's statement that HSBC has not
recently provided him with any analysis. Until October, HSBC had shared with
Theo various analyses it had prepared. On October 13, Theo advised HSBC that
TSR's bookings would not meet budget in the third quarter and that management
was reducing its projections for 1999. At the time he also informed HSBC of
Thermo Electron's reduced offer of $15.50, down from $16.25, and that TSR's
management had been requested by TMO to revise its FY 2000 budget from, as Theo
described it, "80% probability to 90% probability". Then, as a result, I advised
you on October 26 that the Special Committee had decided to suspend discussions
until it had a better handle on TSR's current and projected financial results.
This was accomplished in November and, following discussions between Thermo
Electron and HSBC, HSBC prepared the analyses which were attached as appendix
A-F to my letter of December 10. The appendices included the minority interest
buyout premia, recent minority interest transactions that have taken place in
the Thermo Electron family, the Thermo Electron transactions that were announced
on October 20, 1999 and a comparison of Thermo Sentron and Mettler-Toledo.
Very truly yours,
/s/ CONSTANTINE ALEXANDER
Constantine Alexander
CA/eab
Atts.
cc: Mr. Peter Richman
Mr. William Hoover
Thomas R. Callahan
III-6
<PAGE> 32
HSBC Securities (USA) Inc. Thermo Sentron Inc.
- --------------------------------------------------------------------------------
APPENDIX A
SELECTED PREMIUMS FOR MINORITY INTEREST ACQUISITIONS
THERMO ELECTRON FAMILY OF COMPANIES
<TABLE>
<CAPTION>
PREMIUM PREMIUM PREMIUM PREMIUM
1 DAY 1 WEEK 4 WEEKS 60 DAYS
PRIOR TO PRIOR TO PRIOR TO PRIOR TO
PRICE ANNOUNCE- ANNOUNCE- ANNOUNCE- ANNOUNCE-
DATE DATE PER MENT MENT MENT MENT
EFFECTIVE ANNOUN. ACQUIROR NAME TARGET NAME SHARE DATE(A) DATE DATE DATE
--------- -------- ----------------- ------------------- ------ --------- --------- --------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1. 03/26/99 03/31/96 Thermedics Thermo Voltek $ 7.00 45.5% 60.0% 40.0% 23.1%
2. 10/29/99 04/29/99 Thermo Electron Thermo Power(a) 12.00 33.3% 32.4% 50.0% 15.7%
3. 12/10/99 05/21/99 Thermo Instrument ThermoSpectra 16.00 39.1% 43.8% 61.0% 43.8%
4. 06/03/99 06/03/99 Thermo Electron ThermoTrex(b) 11.25 39.5% 38.5% 44.0% 102.2%
5. 01/06/00 07/13/99 Thermo Instrument Thermo Vision 7.00 27.3% 27.3% 16.7% 133.3%
6. pending 10/20/99 Thermo Electron ThermoRetec 7.00 27.3% 33.3% 34.9% 43.6%
7. pending 10/20/99 Thermo Electron The Randers Killam 4.50 24.1% 24.1% 33.3% 38.5%
Group
8. pending 10/20/99 Thermo Electron Thermo Terratech 7.25 34.9% 34.9% 28.9% 33.3%
9. pending 12/15/99 Thermo Electron ThermoLase 2.43 14.4% 14.4% 29.3% 34.1%
10. pending 12/17/99 Thermo Electron ThermoTrex 8.25 (4.3%) (1.5%) 3.1% 32.0%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------
AVERAGE 28.1% 30.7% 34.1% 50.0%
MEDIAN 28.1% 32.4% 34.1% 38.5%
HIGH 45.5% 60.0% 61.0% 133.3%
LOW (4.3%) (1.5%) 3.1% 15.7%
------------------------------------------------------
</TABLE>
(a) Premium is based on price two days prior to the announcement.
(b) Price per share based on $11.25 paid by Thermo Electron in private placement
transaction.
- --------------------------------------------------------------------------------
January 2000 Confidential
III-7
<PAGE> 33
HSBC Securities (USA) Inc. Thermo Sentron Inc.
- --------------------------------------------------------------------------------
APPENDIX B
SELECTED M&A TRANSACTION PREMIUMS FOR MINORITY INTEREST ACQUISITIONS
IN GOING PRIVATE TRANSACTIONS
JANUARY 1998 - JULY 1999
<TABLE>
<CAPTION>
PREMIUM 1 DAY PREMIUM 1 WEEK PREMIUM 4 WEEKS
PRIOR TO PRIOR TO PRIOR TO
ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE
----------------- ----------------- -----------------
<S> <C> <C> <C>
AVERAGE................................. 32.5 % 38.5 % 39.4 %
</TABLE>
The sample set is comprised of 24 companies and is provided by Securities Data
Corporation.
- --------------------------------------------------------------------------------
January 2000 Confidential
III-8
<PAGE> 1
EXHIBIT (a)(1)
[THERMOSENTRON LOGO]
501 90th Avenue N.W.
Minneapolis, Minnesota 55433
March 17, 2000
To: Thermo Sentron Stockholders other than
Thermo Electron and its Subsidiaries
Dear Stockholder:
The undersigned are the independent directors of the Board of Directors of
Thermo Sentron Inc. and constitute a Special Committee of the Board of Directors
of Thermo Sentron which was created in connection with proposed transactions
between Thermo Sentron and Thermo Electron Corporation and/or Thermedics Inc. We
are writing to you in connection with the tender offer which Thermedics has
commenced for all of the outstanding shares of Thermo Sentron's common stock
other than those owned by Thermedics, Thermo Electron and other subsidiaries of
Thermo Electron at a price of $15.50 net per share in cash.
THE SPECIAL COMMITTEE RECOMMENDS THAT YOU DO NOT TENDER YOUR SHARES FOR A
PRICE OF $15.50 PER SHARE BECAUSE THE SPECIAL COMMITTEE DOES NOT BELIEVE THAT
$15.50 PER SHARE REPRESENTS AN ADEQUATE PRICE FOR YOUR SHARES. THE REASONS FOR
THE SPECIAL COMMITTEE'S RECOMMENDATION AND THE BACKGROUND LEADING TO THE TENDER
OFFER ARE SET FORTH IN DETAIL IN ITEM 4 OF THE ENCLOSED SCHEDULE 14D-9 THAT IS
BEING FILED TODAY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE SPECIAL
COMMITTEE URGES YOU TO READ THE ENTIRE SCHEDULE 14D-9 CAREFULLY BEFORE MAKING
YOUR DECISION WITH RESPECT TO THE TENDER OFFER.
Very truly yours,
WILLIAM W. HOOVER
PETER RICHMAN
<PAGE> 1
EXHIBIT (a)(2)
Tuesday March 7, 10:08 am Eastern Time
Company Press Release
Thermedics Cash Tender Offer Under Review by
Special Committee of Thermo Sentron Board of Directors
MINNEAPOLIS, March 7 -- The special committee of Thermo Sentron Inc.'s board of
directors announced today that on or before March 17, 2000, it will advise
Thermo Sentron shareholders whether it recommends acceptance or rejection of
Thermedics' recently announced cash tender offer.
The special committee is made up of the independent directors of the Thermo
Sentron board. The committee will detail its recommendation and the reasons
underlying it in materials that will be mailed to Thermo Sentron shareholders
and filed with the Securities and Exchange Commission.
The special committee requests that Thermo Sentron shareholders do not make a
determination about whether to accept or reject the cash tender offer until they
have been advised of its position with respect to the offer.
<PAGE> 1
EXHIBIT (e)(1)
SELECTED SECTIONS OF THERMO SENTRON INC.'S
PROXY STATEMENT FOR ITS 1999 ANNUAL MEETING OF STOCKHOLDERS
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Outside directors receive an annual retainer of $2,000 and a fee of
$1,000 per meeting for attending regular meetings of the board of directors and
$500 per meeting for participating in meetings of the board of directors held by
means of conference telephone and for participating in certain meetings of
committees of the board of directors. Payment of directors' fees is made
quarterly. Messrs. Armstrong, Keiser and Ribich are all employees of Thermo
Electron or its subsidiaries and do not receive any cash compensation from the
Corporation for their services as directors. Directors are also reimbursed for
out-of-pocket expenses incurred in attending such meetings.
DEFERRED COMPENSATION PLAN
Under the Corporation's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change in control or proposed change in
control of the Corporation that is not approved by the board of directors,
deferred amounts become payable immediately. Either of the following is deemed
to be a change in control: (a) the acquisition, without the prior approval of
the board of directors, directly or indirectly, by any person of 50% or more of
the outstanding Common Stock or the outstanding common stock of Thermedics or
25% or more of the outstanding common stock of Thermo Electron; or (b) the
failure of the persons serving on the board of directors immediately prior to
any contested election of directors or any exchange offer or tender offer for
the Common Stock or the common stock of Thermedics or 25% or more of the
outstanding common stock of Thermo Electron to constitute a majority of the
board of directors at any time within two years following any such event.
Amounts deferred pursuant to the Deferred Compensation Plan are valued at the
end of each quarter as units of the Corporation's Common Stock. When payable,
amounts deferred may be disbursed solely in shares of Common Stock accumulated
under the Deferred Compensation Plan. A total of 25,000 shares of Common Stock
has been reserved for issuance under the Deferred Compensation Plan. As of
January 2, 1999, deferred units equal to approximately 2,470 shares of Common
Stock were accumulated under the Deferred Compensation Plan.
DIRECTORS STOCK OPTION PLAN
The Corporation's directors stock option plan (the "Directors Plan")
provides for the grant of stock options to purchase shares of Common Stock of
the Corporation to outside directors as additional compensation for their
service as directors. The Directors Plan provides for the grant of stock options
upon a director's initial appointment and, beginning in 2000, awards options to
purchase 1,000 shares annually to outside directors. A total of 100,000 shares
of Common Stock has been reserved for issuance under the Directors Plan.
Under the Directors Plan, each outside director who joined the board of
directors prior to or during 1996 was granted an option to purchase 15,000
shares of Common Stock upon the effective date of the Corporation's initial
public offering. The size of awards to new directors appointed to the board of
directors after 1996 is reduced by 3,750 shares in each subsequent year. Outside
directors who join the board of directors after 1999 would not receive an option
grant upon their appointment or election to the board of directors, but would be
eligible to participate in the annual option awards described below. Options
evidencing initial grants to directors are exercisable six months after the date
of grant. The shares acquired upon exercise are subject to restrictions on
transfer and the right of the Corporation to repurchase such shares at the
exercise price in the event the director ceases to serve as a director of the
Corporation or
<PAGE> 2
any other Thermo Electron company. The restrictions and repurchase rights lapse
or are deemed to have lapsed in equal annual installments of 3,750 shares per
year, starting with the first anniversary of the grant date, provided the
director has continuously served as a director of the Corporation or any other
Thermo Electron company since the grant date. These options expire on the fifth
anniversary of the grant date, unless the director dies or otherwise ceases to
serve as a director of the Corporation or any other Thermo Electron company
prior to that date.
Outside directors will also receive an annual grant of options to
purchase 1,000 shares of Common Stock commencing with the Annual Meeting of the
Stockholders to be held in 2000. The annual grant will be made at the close of
business on the date of each Annual Meeting of the Stockholders of the
Corporation to each outside director then holding office. Options evidencing
annual grants will be exercisable at any time from and after the six-month
anniversary of the grant date of the option and prior to the expiration of the
option on the third anniversary of the grant date. Shares acquired upon exercise
of the options would be subject to repurchase by the Corporation at the exercise
price if the recipient ceased to serve as a director of the Corporation or any
other Thermo Electron company prior to the first anniversary of the grant date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then publicly traded, at the last price per
share paid by third parties in an arms-length transaction prior to the option
grant. As of January 31, 1999, options to purchase 30,000 shares of Common Stock
were outstanding under the Directors Plan, no options had lapsed or been
exercised, and options to purchase 70,000 shares of Common Stock were reserved
and available for future grant.
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive
officers and key employees of Thermo Electron and its subsidiaries that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by Thermo Electron "without cause" or by the individual
for "good reason", as those terms are defined therein, within 18 months
thereafter. For purposes of these agreements, a change in control exists upon
(i) the acquisition by any person of 40% or more of the outstanding common stock
or voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement
with Mr. Ribich. This agreement provides that in the event Mr. Ribich's
employment is terminated under the circumstances described above, he would be
entitled to a lump sum payment equal to the sum of (a) one times his highest
annual base salary in any 12 month period during the prior five-year period,
plus (b) one times his highest annual bonus in any 12 month period during the
prior five-year period. In addition, Mr. Ribich would be provided benefits for
a period of one year after such termination substantially equivalent to the
benefits package he would have been otherwise entitled to receive if he was not
terminated. Further, all repurchase rights of Thermo Electron and its
subsidiaries shall lapse in their entirety with respect to all options that Mr.
Ribich holds in Thermo Electron and its subsidiaries, including the Corporation,
as of the date of the
2
<PAGE> 3
change in control. Finally, Mr. Ribich would be entitled to a cash payment equal
to $15,000, to be used toward outplacement services.
Assuming that the severance benefits would have been payable as of
January 1, 1999, the lump sum salary and bonus payment under such agreement to
Mr. Ribich would have been approximately $275,000. In the event that payments
under this agreement are deemed to be so called "excess parachute payments"
under the applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), Mr. Ribich would be entitled to receive a
gross-up payment equal to the amount of any excise tax payable by him with
respect to such payment plus the amount of all other additional taxes imposed on
him attributable to the receipt of such gross-up payment.
RELATIONSHIP WITH AFFILIATES
Thermo Electron has, from time to time, caused certain subsidiaries to
sell minority interests to investors, resulting in several majority-owned
private and publicly-held subsidiaries. Thermedics has created the Corporation
as a publicly-held, majority-owned subsidiary. The Corporation and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries".
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Corporation, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others, and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.
To achieve these ends, the Charter identifies the general principles to
be followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long
as Thermo Electron and at least one Thermo Subsidiary participate. The Charter
may be amended at any time by agreement of the participants. Any Thermo
Subsidiary, including the Corporation, can withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a
subsidiary's participation in the Charter in the event the subsidiary ceases to
be controlled by Thermo Electron or ceases to comply with the Charter or the
policies and procedures applicable to the Thermo Group. A withdrawal from the
Charter automatically terminates the corporate services agreement and tax
allocation agreement (if any) in
3
<PAGE> 4
effect between the withdrawing company and Thermo Electron. The withdrawal from
participation does not terminate outstanding commitments to third parties made
by the withdrawing company, or by Thermo Electron or other members of the Thermo
Group, prior to the withdrawal. In addition, a withdrawing company is required
to continue to comply with all policies and procedures applicable to the Thermo
Group and to provide certain administrative functions mandated by Thermo
Electron so long as the withdrawing company is controlled by or affiliated with
Thermo Electron.
As provided in the Charter, the Corporation and Thermo Electron have
entered into a Corporate Services Agreement (the "Services Agreement") under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services to the
Corporation. The Corporation was assessed an annual fee equal to 0.8% of the
Corporation's revenues for these services in fiscal 1998. The annual fee will
remain at 0.8% of the Corporation's total revenues in fiscal 1999. The fee is
reviewed annually and may be changed by mutual agreement of the Corporation and
Thermo Electron. During fiscal 1998, Thermo Electron assessed the Corporation
$790,000 in fees under the Services Agreement. Management believes that the
charges under the Services Agreement are reasonable and that the terms of the
Services Agreement are fair to the Corporation. In 1998, the Corporation was
billed an additional $58,239 by Thermo Electron for certain administrative
services required by the Corporation that were not covered by the Services
Agreement. The Services Agreement automatically renews for successive one-year
terms, unless canceled by the Corporation upon 30 days' prior notice. In
addition, the Services Agreement terminates automatically in the event the
Corporation ceases to be a member of the Thermo Group or ceases to be a
participant in the Charter.
In the event of a termination of the Services Agreement, the
Corporation will be required to pay a termination fee equal to the fee that was
paid by the Corporation for services under the Services Agreement for the
nine-month period prior to termination. Following termination, Thermo Electron
may provide certain administrative services on an as-requested basis by the
Corporation or as required in order to meet the Corporation's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Corporation a fee equal to the market rate for comparable services if such
services are provided to the Corporation following termination.
The Corporation has entered into a Tax Allocation Agreement with Thermo
Electron that outlines the terms under which the Corporation will be included in
Thermo Electron's consolidated Federal and state income tax returns. Under
current law, the Corporation will be included in such tax returns so long as
Thermo Electron owns at least 80% of the outstanding common stock of Thermedics
and Thermedics and Thermo Electron collectively own at least 80% of the
outstanding Common Stock of the Corporation. In years in which the Corporation
has taxable income, it will pay to Thermo Electron amounts comparable to the
taxes the Corporation would have paid if it had filed its own separate company
tax returns. If Thermedics' and Thermo Electron's equity ownership of the
Corporation were to drop below 80%, the Corporation would file its own tax
returns. In 1999, because Thermedics' and Thermo Electron's combined equity
ownership of the Corporation now exceeds 80%, the Corporation will be included
in Thermo Electron's consolidated tax returns and will be assessed for amounts
due to Thermo Electron in accordance with the Tax Allocation Agreement.
From time to time, the Corporation may transact business with other
companies in the Thermo Group. During 1998 these transactions included the
following:
In June 1998, the Corporation borrowed $21 million from Thermo Electron
pursuant to a promissory note due December 1998, bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. The Corporation entered into this note in order to partially
finance its acquisition of the three businesses that constituted the
product-monitoring group of Graseby Limited, a subsidiary of Smiths Industries
plc ("Graseby"), for $43,976,000 in cash, net of cash acquired, and the
assumption of certain liabilities. In December 1998, the Corporation repaid $2
million of this amount and issued Thermo Electron a new promissory note for $19
million in exchange for the initial note. This note is due June 1999 and bears
interest under the same terms as the initial note.
4
<PAGE> 5
The Corporation acts as a distributor in Europe for process measurement
instruments manufactured by another Thermo Subsidiary. In 1998, the Corporation
purchased such products from this Thermo Subsidiary for $528,000.
The Corporation, along with certain other Thermo Subsidiaries,
participates in a notional pool arrangement with Barclays Bank, which includes a
$71,017,000 credit facility. The Corporation has access to $6,266,000 under this
credit facility. Only U.K.-based Thermo Subsidiaries participate in this
arrangement. Under this arrangement the Bank notionally combines the positive
and negative cash balances held by the participants to calculate the net
interest yield/expense for the group. The benefit derived from this arrangement
is then allocated based on balances attributable to the respective participants.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. As of January 2, 1999, the Corporation had a negative cash balance
of approximately $2,458,000, based on an exchange rate of $1.6708/GBP 1.00. For
1998, the average annual interest rate earned on GBP deposits by participants in
this credit arrangement was approximately 7.7225% and the average annual
interest rate paid on overdrafts was approximately 7.485%.
Until mid-December 1998, the Corporation, along with certain other
Thermo Subsidiaries, participated in a notional pool arrangement with ABN AMRO,
which included a $29,719,000 credit facility. The Corporation had access to
$2,654,000 under this credit facility. Only European-based Thermo Subsidiaries
participated in this arrangement. Under this arrangement the Bank notionally
combined the positive and negative cash balances held by the participants to
calculate the net interest yield/expense for the group. The benefit derived from
this arrangement was then allocated based on balances attributable to the
respective participants. Thermo Electron guaranteed all of the obligations of
each participant in this arrangement. For 1998, the average annual interest rate
earned on NLG deposits by participants in this credit arrangement was
approximately 5.00% and the average annual interest rate paid on overdrafts was
approximately 5.00%.
As of mid-December 1998, the Corporation, along with certain other
Thermo Subsidiaries, has entered into a modification of the above-described
arrangement with ABN AMRO. Only European-based Thermo Subsidiaries participate
in this arrangement. The new arrangement with ABN AMRO consists of a zero
balance arrangement, which includes a $29,719,000 credit facility. The
Corporation has access to $2,654,000 under this credit facility. Funds borrowed
by the Corporation under this arrangement pay interest at a rate set by Thermo
Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the beginning of
each month, based on Netherlands market rates. Funds invested by the Corporation
under the arrangement earn a rate set by Thermo Finance B.V. at the beginning of
each month, based on Netherlands market rates. Such invested funds are
collateralized with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. Thermo
Electron guarantees all of the obligations of each participant in this
arrangement. As of January 2, 1999, the Corporation had a negative cash balance
of approximately $798,000, based on an exchange rate of $0.5307/NLG 1.00. As of
January 2, 1999, the average annual interest rate earned on NLG deposits by
participants in this credit arrangement was approximately 3.63% and the average
annual interest rate paid on overdrafts was approximately 4.5%.
At January 2, 1999, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $19,810,000 for borrowings relating to the Graseby
acquisition, discussed above, for amounts due under the Corporate Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items. The largest amount of net indebtedness owed by the
Corporation to Thermo Electron and its other subsidiaries since January 3, 1998
was $21,925,000. With the exception of the Graseby borrowing described above,
these amounts do not bear interest and are expected to be paid in the normal
course of business.
As of January 2, 1999, $3,741,000 of the Corporation's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Corporation in effect lends excess cash to Thermo Electron, which
Thermo Electron collateralizes with investments principally consisting of
corporate notes, U.S. government agency securities, money market funds,
commercial paper and other
5
<PAGE> 6
marketable securities, in the amount of at least 103% of such obligation. Thermo
Electron maintains possession of the underlying securities and has the right of
substitution at its discretion. The Corporation's funds subject to the
repurchase agreement will be readily convertible on demand into cash by the
Corporation and have an original maturity of three months or less. The
repurchase agreement earns a rate based on the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter.
Thermo Electron has announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Corporation. As part of
this reorganization, Thermedics' majority interest in the Corporation would be
transferred to Thermo Electron. The Corporation would then be taken private and
become a wholly owned subsidiary of Thermo Electron. It is currently
contemplated that the Corporation's shareholders would receive cash in exchange
for their shares of common stock of the Corporation. The completion of these
transactions is subject to numerous conditions, including the establishment of
prices and exchange ratios; confirmation of anticipated tax consequences;
approval by the Boards of Directors of the Corporation, Thermedics and Thermo
Electron (including the independent directors of the Corporation 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.
STOCK HOLDING ASSISTANCE PLAN
The human resources committee of the Corporation's board of directors
(the "Committee") established a stock holding policy that required executive
officers to acquire and hold a minimum number of shares of Common Stock. In
order to assist the executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which it could make
interest-free loans to certain key employees, including its executive officers,
to enable such employees to purchase the Common Stock in the open market. This
policy and plan have been amended to apply only to the chief executive officer
of the Corporation. In 1996, Mr. Lewis J. Ribich, the Corporation's chief
executive officer, and Mr. M. Preston Luman, the Corporation's vice president,
operations, each received loans in the respective principal amounts of $75,384
and $58,329 under this plan to purchase 5,200 and 4,800 shares of Common Stock,
respectively, of which amounts $56,144 and $46,663, respectively, were
outstanding as of January 31, 1999. During 1997, Mr. Luman received an
additional loan in the principal amount of $11,681 under the plan to purchase
1,000 shares of Common Stock, of which amount $9,345 was outstanding as of
January 31, 1999. These loans are repayable upon the earlier of demand or the
fifth anniversary of the date of the loan, unless otherwise determined by the
Committee.
6
