SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-12137
THERMO FIBERGEN INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3311544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Alfred Circle
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Redemption Rights
Units
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to the filing requirements for at least the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of January 24, 1997, was approximately $42,291,000.
As of January 24, 1997, the Registrant had 14,715,000 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 28, 1996, are incorporated by reference into Parts I and
II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 2, 1997, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Fibergen Inc. (the Company or the Registrant) was established
as a subsidiary of Thermo Fibertek Inc. (Thermo Fibertek) to develop and
commercialize equipment and systems to recover materials from papermaking
sludge generated by plants that produce virgin and recycled pulp and
paper. The Company intends to finance, build, own, and operate recovery
plants on sites at, or immediately adjacent to, virgin and recycled pulp
mills. Employing a proprietary process, the Company's plants will recover
and clean long cellulose fibers for sale to paper mills, clarify water
for reuse by mills, and process the remaining recoverable components of
papermaking sludge, such as short fibers, fines, and minerals, into
commercial products. In July 1996, the Company's wholly owned subsidiary
GranTek Inc. (GranTek), acquired substantially all of the assets, subject
to certain liabilities, of Granulation Technology, Inc. (Granulation
Technology) and Biodac, a division of Edward Lowe Industries, Inc., for
approximately $12.1 million in cash. GranTek employs patented technology
to produce absorbing granules from papermaking sludge. These granules,
marketed under the trade name BIODAC(R), are currently used as a carrier
to deliver agricultural chemicals for professional turf, home lawn and
garden, and mosquito control applications. Prior to its July 1996
acquisition of Granulation Technology and Biodac, the Company was in the
development stage.
The Company's strategy is to generate revenues from several sources.
First, the Company will seek to enter into long-term contracts with pulp
and paper mills under which the Company will charge the customer a fee to
accept the customer's papermaking sludge. Second, the Company intends to
sell much of the clean long fibers it recovers directly back to the
customer for use in the papermaking process. Third, the Company will
apply existing technologies, such as its granulation process, and expects
to develop new technologies to maximize the value of the other
recoverable components of the papermaking sludge for sale into other
markets.
The Company is actively developing a process to recover long fibers
from papermaking sludge, and has completed the construction of a mobile
pilot recovery system, which the Company is using for initial mill
demonstrations of its fiber-recovery process. The Company's strategy is
to target the United States and European virgin and recycling mills that
have the highest papermaking sludge-disposal costs, enter into long-term
contracts with these mills, and construct plants that feature the
Company's granulation technology, its fiber-recovery technology, or both.
The Company was incorporated in Delaware in February 1996 as a wholly
owned subsidiary of Thermo Fibertek. In September 1996 the Company sold
4,715,000 units, each unit consisting of one share of Company common
stock and one redemption right, in an initial public offering at $12.75
per unit for net proceeds of approximately $55.8 million. The common
stock and redemption rights began trading separately on December 13,
1996. Holders of a redemption right have the option to require the
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Company to redeem, in September 2000 and 2001, one share of Thermo
Fibergen common stock at $12.75 per share. The redemption rights carry
terms that generally provide for their expiration if the closing price of
the Company's common stock exceeds $19 1/8 for 20 of any 30 consecutive
trading days prior to September 2001. The redemption rights are
guaranteed, on a subordinated basis, by Thermo Electron Corporation
(Thermo Electron). As of December 28, 1996, Thermo Fibertek owned
10,000,000 shares of the Company's common stock, representing 68% of such
stock outstanding.
A publicly traded subsidiary of Thermo Electron, Thermo Fibertek
develops, manufactures, and markets a range of equipment and products for
the paper and paper-recycling industries. Thermo Electron is a world
leader in environmental monitoring and analysis instruments, biomedical
products such as heart-assist devices and mammography systems,
papermaking and paper-recycling equipment, biomass electric power
generation, and other specialized products and technologies. Thermo
Electron also provides a range of services related to environmental
quality.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements" in the Registrant's 1996* Annual Report to Shareholders
incorporated herein by reference.
(b) Information About Industry Segments
The Company is engaged in one business segment.
(c) Description of Business
(i) Principal Products and Services
The Company currently produces BIODAC, an agricultural carrier that
is virtually dust-free and is uniform in particle size, absorptivity, and
bulk density. BIODAC is chemically neutral to a range of pesticides and
breaks down into elements naturally occurring in the soil. BIODAC is sold
in bulk to chemical companies for use as a carrier to deliver
agricultural chemicals for professional turf, home lawn and garden, and
mosquito control applications. The Company intends to further develop
GranTek's technology to produce granules for the oil- and
grease-absorption and the cat-box filler markets.
*References to 1996, 1995, and 1994 herein are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
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(ii) and (xi) New Products; Research and Development
The Company is developing a proprietary process to recover long
cellulose fibers from papermaking sludge and has completed the
construction of a mobile pilot recovery system that the Company is using
for initial mill demonstrations of its fiber-recovery process. During
this period, the Company will continue to modify its technology and will
also determine where to build its first permanent facilities. However,
until the Company obtains meaningful data from commercial operations, it
will not be in a position to determine exactly what modifications may be
necessary.
The Company's research and development efforts are currently focused
on developing and improving its fiber-recovery process. Modifications to
existing equipment are also under consideration to improve washing and
de-inking capabilities. The Company is also exploring cost-effective
processes to produce higher-value products from papermaking sludge.
GranTek operates a manufacturing plant in Green Bay, Wisconsin, at
which it processes sludge provided by a nearby paper mill into BIODAC. A
pilot plant is located within GranTek's main manufacturing plant. This
pilot plant is permitted to process 24 tons of material per day, and has
been used to develop many of the innovations implemented in GranTek's
main plant. The Company believes that this pilot plant will give the
Company the ability to process waste streams from other paper mills under
operating conditions and in quantities sufficient to determine final
product and operating characteristics and costs, as well as to develop
new technologies.
GranTek is presently engaged in research and development of absorbing
granular products that, if successful, would provide an opportunity to
enter the oil- and grease-absorption and cat-box filler markets.
The Company currently intends to limit the pace and amount of its
research and development on both its fiber-recovery system and on new
products, if any, that may be developed so that its internally funded
research and development expenditures will be approximately equivalent to
the interest or dividend income earned on its cash balances, plus the
Company's operating earnings, if any.
Research and development expenses for the Company were $1,300,000,
$601,000, and $128,000 in 1996, 1995, and 1994, respectively.
(iii) Raw Materials
Under GranTek's contract with a paper mill, the mill has the
exclusive right to supply papermaking sludge to GranTek's commercial
plant. In exchange, the mill is required to use its best efforts to
provide GranTek with up to a maximum of 250 tons of sludge per day,
required for the recovery process. The contract terminates on December
26, 1997, subject to successive mutual two-year extensions.
The inability of the Company to obtain papermaking sludge from this
paper mill would have a material adverse effect upon the Company's
operations.
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(iv) Patents, Licenses, and Trademarks
The Company currently holds several issued U.S. patents, expiring at
various dates ranging from 2004 to 2012, relating to various aspects of
the processing of cellulose-based granular materials and the use of such
materials in the agricultural, general absorption, oil- and
grease-absorption, and cat-box filler markets. The Company also has
foreign counterparts to its U.S. patents in Canada and in various
European countries, and has additional patents pending in three European
countries. In addition, Thermo Fibertek holds two U.S. patents, expiring
in 2011 and 2014, respectively, and expects to file additional U.S.
patent applications relating to the "scalping" technology that is a key
component of the Company's fiber-recovery system. Although the Company
has licensed the technology covered by Thermo Fibertek's patents for use
in pulp and paper industry applications, the Company does not itself hold
any patents or patent applications with respect to its pilot
fiber-recovery system.
GranTek has granted two companies nonexclusive licenses under two of
its patents to sell cellulose-based granules produced at an existing site
for sale in the oil- and grease-absorption and cat-box filler markets.
The Company believes that its technology, services, products, and
other proprietary rights do not infringe on the proprietary rights of
third parties. There can be no assurance, however, that third parties
will not assert infringement claims in the future.
(v) Seasonal Influences
In 1996, the Company's sales were exclusively in the agricultural-
carrier market. The Company's primary customers in this market, chemical
formulators, typically purchase carriers during the winter and spring for
the cultivation and planting season. As a result, the Company expects to
earn a disproportionately high share of its revenues for its
agricultural- carrier products during the first two quarters of the year.
The Company believes that its planned entrance into the oil and grease
absorption and cat box filler markets if successful, may mitigate the
seasonality of the Company's sales.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
The Company derived 56% and 21% of its revenues during 1996 from
Monsanto Solaris Group and Rhone-Poulenc AG Company, respectively.
(viii) Backlog
The Company's backlog of firm orders was $106,000 as of December 28,
1996. The Company had no backlog of firm orders as of December 30, 1995.
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The Company believes that substantially all of the backlog at December
28, 1996, will be shipped or completed during the next twelve months. The
Company does not believe that the size of its backlog is necessarily
indicative of intermediate or long-term trends in its business.
(xi) Government Contracts
Not applicable.
(x) Competition
The Company expects that its principal competitors for access to
papermaking sludge will be landfills, which currently have a collective
70% market share in North America, and approximately 40% market share in
Europe. The Company believes, however, that landfill costs will tend to
increase over time and that regulations governing landfills will become
more strict, particularly in Europe and Japan. The balance of the
papermaking sludge produced in the U.S. and Europe is currently
incinerated or used to manufacture composting materials, egg cartons, and
other low-value industrial products.
Several large waste-management companies have increased their
marketing activities to provide landfill disposal services to the pulp
and paper industry. Although the Company does not believe that these
companies are able to provide a sludge processing capability, the Company
can expect that if its technology is successful, others will seek to
develop similar technologies and products that may be superior to those
of the Company. As other companies attempt to provide landfill services,
sludge processing capability to the pulp and paper industry, or both, the
Company expects to encounter increasing competition.
The Company believes that its approach to the management of
environmental problems associated with papermaking sludge and its ability
to take advantage of Thermo Fibertek's name recognition, financial
strength, and experience constitute significant competitive advantages.
The Company believes that GranTek is currently the only producer of
cellulose-based agricultural carriers. GranTek's principal competitors in
the U.S. are producers of clay-based agricultural carriers for row crops
and professional turf protection, including Oil-Dri Corporation of
America, Floridin/Engelhard, Aimcor, and American Colloid, and producers
of corncob granules traditionally used in the home, lawn and garden, and
professional turf markets, including The Andersons, Mt. Pulaski, Green
Products, Independence Cob, and Junior Weisner. GranTek's principal
competitive advantages are that BIODAC contains virtually no dust and is
more uniform in absorptivity and particle-size distribution than are
clay-based and corncob granular carriers, and is chemically neutral,
requiring little or no chemical deactivation.
As the Company attempts to develop new markets for the components of
the papermaking sludge it processes, the Company will encounter
competition from established companies within those markets. Some of
these competitors may have substantially greater financial, marketing,
and other resources than those of the Company, and the Company expects
that such competition may be intense. The Company believes that the
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absorbing-products industry considers price to be a significant
competitive factor and therefore, expects that the demand for the
Company's products in such markets will be significantly influenced by
the Company's prices for such products.
(xii) Environmental Protection Regulations
The Company's operations are subject to significant government
regulation, including stringent environmental laws and regulations. Among
other things, these laws and regulations impose requirements to control
air, soil, and water pollution, and regulate health, safety, zoning, and
land use, as well as the handling and transportation of industrial
byproducts and waste materials. These requirements may also be required
as conditions of operating permits or licenses that are subject to
renewal, modification, or revocation. This regulatory framework imposes
significant compliance burdens and costs on the Company. Notwithstanding
the burdens of this compliance, the Company believes that its business
prospects are enhanced by the enforcement of environmental laws and
regulations by government agencies.
Among the principal laws governing the Company's operations are the
federal Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) and its similar state equivalents, the Federal Toxic
Substances Control Act (TSCA), and the Resource Conservation and Recovery
Act of 1976 (RCRA). TSCA imposes limitations on the presence in
commercial products of polychlorinated biphenyls (PCBs), and on the
generation, handling, storage, and disposal of PCB-containing materials
and wastes. CERCLA imposes joint and several liability for the costs of
remediation and natural resource damages on the owner or operator of a
facility from which there is a release, or a threat of a release, of a
hazardous substance into the environment, and on the generators and
transporters of those hazardous substances. RCRA provides a comprehensive
framework for the regulation of the generation, transportation,
treatment, storage, and disposal of hazardous waste. Under TSCA, RCRA,
and equivalent state laws, regulatory authorities may require, pursuant
to administrative order or as a condition of an operating permit, that
the owner or operator of a regulated facility take corrective action with
respect to contamination resulting from past or present operations. The
intent of RCRA is to control hazardous wastes from the time they are
generated until they are properly recycled or treated and disposed. Such
laws also require that the owner or operator of regulated facilities
provide assurance that funds will be available for the closure and
post-closure care of its facilities. Because Subtitle D of RCRA imposes
strict requirements on landfills, such as the requirement that new
landfills must be lined, RCRA creates an incentive for pulp mills to use
sludge-management technologies such as those offered by the Company.
GranTek currently uses papermaking sludge from a nearby mill in Green
Bay, Wisconsin, to make its granules. The papermaking sludge GranTek
receives from the mill contains trace amounts of PCBs, dioxins, and
furans, as well as residual amounts of other regulated compounds. During
the granulation process, GranTek evaporates approximately 95 percent of
the water contained in the papermaking sludge. Approximately 1.6 pounds
per year of PCBs, as well as other compounds such as formaldehyde,
benzene, and volatile organic compounds (VOCs), are thus emitted into the
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atmosphere from its Green Bay facility. Applicable Wisconsin regulations
limit PCB emissions to de minimis amounts unless the generator can
demonstrate that it is using the best available control technology to
limit emissions. GranTek has been issued an air operating permit by the
Wisconsin Department of Natural Resources (the WDNR). GranTek's current
operating permit and its application for a new Title V operating permit
each require GranTek to reduce PCB and VOC emissions, and to file
bi-annual reports on the amounts of PCBs being emitted. In August 1995,
GranTek submitted materials to the WDNR requesting that GranTek be
relieved of its obligation to reduce emissions, asserting that there are
presently no technologically or economically feasible methods to reduce
PCB or VOC emissions from its facility that can be implemented. GranTek
has received no response from the WDNR to date. Although the Company
believes that the WDNR will accept GranTek's findings, and although
GranTek's facility is currently fully permitted by Wisconsin regulatory
authorities, no assurance can be given that the WDNR will not require
GranTek to reduce or eliminate its emissions, that such compliance will
not require the Company to make significant expenditures, or that such
compliance will be technologically or economically feasible. Such
compliance may have material adverse effects on the Company's capital
expenditures, earnings, and/or competitive position.
GranTek's BIODAC agricultural carrier is subject to regulation under
the Federal Insecticide, Fungicide, and Rodenticide Act, which, among
other things, empowers the U.S. Environmental Protection Agency (EPA) to
establish and enforce acceptable tolerance levels for agricultural
chemicals. In 1989, however, at GranTek's request, the EPA granted an
exemption from the requirement that a tolerance level be established for
de-inked paper fiber used as a carrier in pesticide formulations applied
to growing crops.
The governmental regulatory process requires the Company to obtain
and retain numerous approvals, licenses, and permits to conduct its
operations, any of which may be subject to revocation, modification, or
denial. Operating permits need to be renewed periodically and may be
subject to revocation, modification, denial, or nonrenewal for various
reasons, including failure of the Company to satisfy regulatory concerns.
Adverse decisions by governmental authorities on permit applications
submitted by the Company may result in abandonment or delay of projects,
substantially increased operating costs or capital expenditures, and
premature closure of facilities or restriction of operations, all of
which could have a material adverse effect on the Company's business and
prospects.
(xiii) Number of Employees
As of December 28, 1996, the Company employed 34 people. None of the
Company's employees is represented by a union. The Company believes that
relations with its employees are good.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
Not applicable.
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(e) Executive Officers of the Registrant
Present Title
Name Age (Year First Became Executive Officer)
------------------------ --- -------------------------------------
Dr. Yiannis A. Monovoukas 36 President, Chief Executive Officer,
and Director (1996)
John N. Hatsopoulos 62 Vice President, Chief Financial
Officer, and Director (1996)
Paul F. Kelleher 54 Chief Accounting Officer (1996)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until his earlier
resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have
held comparable positions for at least five years with Thermo Fibertek
and Thermo Electron. Dr. Monovoukas has been President, Chief Executive
Officer, and Director of the Company since its incorporation in February
1996. Dr. Monovoukas was a Corporate Business Analyst at Thermo Electron
from July 1995 through February 1996. From 1993 through June 1995, Dr.
Monovoukas was a graduate student at the Harvard Business School. From
1990 until 1993, he was a staff scientist and engineer with Raychem
Corporation, a materials science company, which he joined upon completion
of a Ph.D. program in chemical engineering at Stanford University.
Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo
Electron, but devote such time to the affairs of the Company as the
Company's needs reasonably require.
Item 2. Properties
The Company leases a 6,000-square foot, stand-alone building in
Bedford, Massachusetts, which holds its administrative offices and
research laboratory. This lease expires in April 2001, subject to the
Company's option to extend the lease for two three-year terms. The
Company also has the right to terminate the lease without penalty in
April 1999.
GranTek owns approximately 3.3 acres of land in Green Bay, Wisconsin,
on which its 26,000 square foot processing plant is situated.
The Company believes that these facilities are adequate for its
current operations.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's common equity securities and redemption rights and dividend
policy is included under the sections labeled "Common Stock Market
Information" and "Dividend Policy" in the Registrant's 1996 Annual Report
to Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and Supplementary
Data are included in the Registrant's 1996 Annual Report to Shareholders
and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A, not later than 120 days after the close of the fiscal
year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
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PART IV
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2)The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
During the Company's quarter ended December 28, 1996, the
Company was not required to file, and did not file, any Current
Report on Form 8-K.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 12, 1997 THERMO FIBERGEN INC.
By: Yiannis A. Monovoukas
-------------------------------
Yiannis A. Monovoukas
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated below, as of March 12,
1997.
Signature Title
--------- -----
By: Dr. Yiannis A. Monovoukas President, Chief Executive Officer,
-------------------------
Dr. Yiannis A. Monovoukas and Director
By: John N. Hatsopoulos Vice President, Chief Financial
-------------------------
John N. Hatsopoulos Officer, and Director
By: Paul F. Kelleher Chief Accounting Officer
-------------------------
Paul F. Kelleher
By: William A Rainville Chairman of the Board and Director
-------------------------
William A Rainville
By Anne T. Barrett Director
-------------------------
Anne T. Barrett
By Jonathan W. Painter Director
-------------------------
Jonathan W. Painter
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Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of Thermo Fibergen Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo
Fibergen Inc.'s Annual Report to Shareholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated February 3,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14 on page 12 is
the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
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SCHEDULE II
THERMO FIBERGEN INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Accounts
Provision Recovered
Balance at Charged and Balance
Beginning to Written at End
of Year Expense Off Other(a) of Year
---------- ---------- --------- -------- --------
Year Ended
December 28, 1996
Allowance for
Doubtful Accounts $ - $ - $ - $ 30 $ 30
(a)Allowance of business acquired during the year as described in Note 2
to Consolidated Financial Statements in the Registrant's 1996 Annual
Report to Shareholders.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company, as amended
(filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-07585] and incorporated
herein by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-07585] and incorporated herein by reference).
4.1 Form of Guarantee of Thermo Electron (filed as Exhibit 4.1
to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-07585] and incorporated herein by reference).
4.2 Guarantee Agreement among the Company, Thermo Electron, and
the Representatives of the Underwriters (filed as Exhibit
4.2 to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-07585] and incorporated herein by reference).
4.3 Form of Common Stock Certificate (filed as Exhibit 4.3 to
the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-07585] and incorporated herein by reference).
4.4 Form of Redemption Right Certificate (filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-07585] and incorporated herein by reference).
10.1 Asset Transfer Agreement dated as of July 2, 1996, between
Thermo Fibertek Inc. and the Company (filed as Exhibit 10.1
to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-07585] and incorporated herein by reference).
10.2 License and Supply Agreement dated as of July 2, 1996,
between Thermo Fibertek and the Company (filed as Exhibit
10.2 to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-07585] and incorporated herein by reference).
10.3 Corporate Services Agreement dated July 2, 1996, between
Thermo Electron and the Company (filed as Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-07585] and incorporated herein by reference).
10.4 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
16PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.5 Tax Allocation Agreement dated as of July 2, 1996, between
Thermo Fibertek and the Company (filed as Exhibit 10.5 to
the Registrant's Registration Statement on Form S-1 [Reg.
No. 333-07585] and incorporated herein by reference).
10.6 Amended and Restated Master Repurchase Agreement dated as
of December 28, 1996, between Thermo Electron and the
Company.
10.7 Master Guarantee Reimbursement Agreement dated as of July
2, 1996, among Thermo Electron, Thermo Fibertek, and the
Company (filed as Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-07585] and
incorporated herein by reference).
10.8 Master Guarantee Reimbursement Agreement dated as of July
2, 1996, between Thermo Fibertek and the Company (filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-07585] and incorporated herein by
reference).
10.9 Lease dated as of April 12, 1996, by and between Al and Lee
Realty and the Company (filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-07585] and incorporated herein by reference).
10.10 Equity Incentive Plan of the Company (filed as Exhibit
10.11 to the Registrant's Registration Statement on Form
S-1 [Reg. No. 333-07585] and incorporated herein by
reference).
10.11 Deferred Compensation Plan for Directors of the Company
(filed as Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-07585] and incorporated
herein by reference).
10.12 Directors Stock Option Plan of the Company (filed as
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-07585] and incorporated herein by
reference).
10.13 Form of Indemnification Agreement for Officers and
Directors of the Company (filed as Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 [Reg. No.
333-07585] and incorporated herein by reference).
17PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of
Thermo Electron and Thermo Fibertek Inc. for services
rendered to the Registrant or to such affiliated
corporations. Thermo Electron's plans were filed as
Exhibits 10.21 through 10.44 to the Annual Report on Form
10-K of Thermo Electron for the year ended December 30,
1995 [File No. 1-8002] and as Exhibit 10.19 to the Annual
Report on Form 10-K of Trex Medical Corporation for the
fiscal year ended September 28, 1996 [File No. 1-11827] and
Thermo Fibertek's plans were filed as Exhibits 10.19
through 10.24 to the Annual Report on Form 10-K of Thermo
Fibertek for the fiscal year ended December 28, 1996 [File
No. 1-11406] and are incorporated herein by reference.
11 Statement re: Computation of Loss per Share.
13 Annual Report to Shareholders for the year ended
December 28, 1996 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 10.6
AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
The Master Repurchase Agreement dated as of July 2, 1996
between Thermo Electron Corporation, a Delaware corporation
("Seller"), and Thermo Fibergen Inc., a Delaware corporation (the
"Buyer"), is hereby amended and restated in its entirety as
follows on and as of December 28, 1996.
1. Applicability
From time to time Buyer and Seller may enter into
transactions in which Seller agrees to transfer to Buyer certain
securities and/or financial instruments ("Securities") against
the transfer of funds by Buyer, with a simultaneous agreement by
Buyer to transfer to Seller such Securities on demand, against
the transfer of funds by Seller. Each such transaction shall be
referred to herein as a "Transaction" and shall be governed by
this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i)
the commencement by such party as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar
official for such party or any substantial part of its property;
or (ii) the commencement of any such case or proceeding against
such party, or another seeking such an appointment, which (A) is
consented to or not timely contested by such party, (B) results
in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not
dismissed within 15 days; or (iii) the making by a party of a
general assignment for the benefit of creditors; or (iv) the
admission in writing by a party of such party's inability to pay
such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or
other distributions thereon;
(d) "Market Value", with respect to any Securities as of
any date, the price for such Securities on such date obtained
from a generally recognized source agreed to by the parties or
the most recent closing bid quotation from such a source, plus
accrued Income to the extent not included therein (other than any
Income transferred to Seller pursuant to Paragraph 6 hereof) as
of such date (unless contrary to market practice for such
Securities);
PAGE
<PAGE>
(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this
Agreement;
(f) "Pricing Rate", a rate equal to the Commercial Paper
Composite rate for 90-day maturities provided by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (or, if such rate is not
available, a substantially equivalent rate agreed to by Buyer and
Seller) plus 25 basis points, which rate shall be adjusted on the
first business day of each fiscal quarter and shall be in effect
for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased
Securities are transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by
Seller to Buyer in a Transaction hereunder, and any Securities
substituted therefor in accordance with Paragraph 9 hereof. The
term "Purchased Securities" with respect to any Transaction at
any time also shall include Additional Purchase Securities
transferred pursuant to Paragraph 4(a) and shall exclude
Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account
maintained by Seller containing, among other Securities, the
Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an
amount equal to the Purchase Price paid by Buyer to Seller for
such Purchased Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the
transfer of the Purchase Price to Seller's account. Upon such
transfer, Seller shall transfer to Buyer Purchased Securities
having a Market Value equal to 103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer
by Seller in the Repurchase Collateral Account. Seller shall
indicate on its books for such account Buyer's ownership of the
Purchased Securities. Upon reasonable request from Buyer, Seller
shall provide Buyer with a complete list of Purchased Securities
owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase
from Buyer, and Buyer shall sell to Seller, for the Repurchase
Price all or any part of the Purchased Securities then owned by
Buyer.
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4. Margin Maintenance
(a) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer is less than 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller shall transfer to Buyer additional Securities ("Additional
Purchased Securities"), so that the aggregate Market Value of
such Purchased Securities, including any such Additional
Purchased Securities, will thereupon equal or exceed 103% of such
aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer exceeds 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller may transfer Purchased Securities to Seller, so that the
aggregate Market Value of such Purchased Securities will
thereupon not exceed 103% of such aggregate Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities,
then on the first day of the next following fiscal month Seller
shall pay to Buyer an amount equal to the sum of the aggregate
Repurchase Prices of the Purchased Securities owned by Buyer at
the close of each day during the preceding fiscal month divided
by the number of days in such month and the product multiplied by
the Pricing Rate times the number of days in such month divided
by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income
payment date on the Purchased Securities subject to that
Transaction, Buyer shall, on the date such Income is payable,
transfer to Seller an amount equal to such Income payment or
payments with respect to any Purchased Securities subject to such
Transaction. Seller shall retain all voting rights with respect
to Purchased Securities sold to Buyer under this Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such
Transactions are deemed to be loans, Seller shall be deemed to
have pledged to Buyer as security for the performance by Seller
of its obligations under each such Transaction and this
Agreement, and shall be deemed to have granted to Buyer a
security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
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8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds
hereunder shall be in immediately available funds. As used
herein with respect to Securities, "transfer" is intended to have
the same meaning as when used in Section 8-313 of the
Massachusetts Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
9. Substitution
Buyer hereby grants Seller the authority to manage, in
Seller's sole discretion, the Purchased Securities held in
custody for Buyer by Seller in the Repurchase Collateral Account.
Buyer expressly agrees that Seller may (i) substitute other
Securities for any Purchased Securities and (ii) commingle
Purchased Securities with other Securities held in the Repurchase
Collateral Account. Substitutions shall be made by transfer to
Buyer of such other Securities and transfer to Seller of the
Purchased Securities for which substitution is being made. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities. Securities which are substituted for
Purchased Securities shall have a Market Value at the time of
substitution equal to or greater than the Market Value of the
Purchase Securities for which such Securities were substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the
other that (i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder
and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and
performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so on its behalf, (iii) it has obtained
all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and
such authorizations are in full force and effect and (iv) the
execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by
which it is bound or by which any of its assets are affected. On
the date for any Transaction Buyer and Seller shall each be
deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer
fails to transfer Purchased Securities upon demand for repurchase
from either Buyer or Seller, (ii) Seller or Buyer fails, after
one business day's notice, to comply with Paragraph 4 hereof,
(iii) Buyer fails to make payment to Seller pursuant to Paragraph
6 hereof, (iv) Seller fails to comply with Paragraph 5 hereof,
(v) an Act of Insolvency occurs with respect to Seller or Buyer,
4PAGE
<PAGE>
(vi) any representation made by Seller or Buyer shall have been
incorrect or untrue in any material respect when made or repeated
or deemed to have been made or repeated, or (vii) Seller or Buyer
shall admit to the other its inability to, or its intention not
to, perform any of its obligations hereunder (each an "Event of
Default"):
(a) At the option of the nondefaulting party, exercised by
written notice to the defaulting party (which option shall be
deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of any Act of Insolvency), Seller
shall become obligated to repurchase, and Buyer shall become
obligated to sell, all Purchased Securities then owned by Buyer
for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises
or is deemed to have exercised the option referred to in
subparagraph (a) of this Paragraph, (i) the Seller's obligations
hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable,
(ii) all Income paid after such exercise or deemed exercise shall
be retained by Buyer and applied to the aggregate unpaid
Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to
such Transactions then in Seller's possession.
(c) In all Transactions in which Buyer is the defaulting
party, upon tender by Seller of payment of the aggregate
Repurchase Prices for all such Transactions, Buyer's right, title
and interest in all Purchased Securities subject to such
Transactions shall be deemed transferred to Seller, and Buyer
shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party
(which notice need not be given if an Act of Insolvency shall
have occurred, and which may be the notice given under
subparagraph (a) of this Paragraph or the notice referred to in
clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which Seller is the
defaulting party, (A) immediately sell, in a recognized market at
such price or prices as Buyer may reasonably deem satisfactory,
any or all Purchased Securities subject to such Transactions and
apply the proceeds thereof to the aggregate unpaid Repurchase
Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of
such Purchased Securities, to give Seller credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder; and
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(ii) as to Transactions in which Buyer is the
defaulting party, (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased
Securities that are not delivered by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which Buyer is the defaulting
party, Buyer shall be liable to Seller (i) with respect to
Purchased Securities (other than Additional Purchased
Securities), for any excess of the price paid (or deemed paid) by
Seller for Replacement Securities therefor over the Repurchase
Price for such Purchased Securities and (ii) with respect to
Additional Purchased Securities, for the price paid (or deemed
paid) by Seller for the Replacement Securities therefor.
(g) The defaulting party shall be liable to the
nondefaulting party for the amount of all reasonable legal or
other expenses incurred by the nondefaulting party in connection
with or as a consequence of an Event of Default.
(h) The nondefaulting party shall have, in addition to its
rights hereunder, any rights otherwise available to it under any
other agreement or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto
and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder
constitute a single business and contractual relationship and
have been made in consideration of each other. Accordingly, each
of Buyer and Seller agrees (i) to perform all of its obligations
in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that
each of them shall be entitled to set off claims and apply
property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers
made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries
and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other
and netted.
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13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for
repurchase transactions. Each provision and agreement and
agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such
other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this
Agreement and under any Transactions shall not be assigned by
either party without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. This
Agreement may be canceled by either party upon giving written
notice to the other, except that this Agreement shall,
notwithstanding such notice, remain applicable to any
Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without giving effect to the
conflict of law principles thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by
either party shall constitute a waiver of any other Event of
Default and no exercise of any remedy hereunder by any party
shall constitute a wavier of its right to exercise any other
remedy hereunder. No modification or waiver of any provision of
this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
17. Intent
(a) The parties recognize that each Transaction is a
"repurchase agreement" as that term is defined in Section 101 of
Title 11 of the United States Code, as amended (except insofar as
the type of Securities subject to such Transaction or the term of
such Transaction would render such definition inapplicable), and
a "securities contract" as that term is defined in Section 741 of
Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions
hereunder or to exercise any other remedies pursuant to Paragraph
11 hereof, is a contractual right to liquidate such Transaction
7PAGE
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as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of December 28, 1996.
THERMO ELECTRON CORPORATION THERMO FIBERGEN INC.
By: Jonathan W. Painter By: Yiannis A. Monovoukas
Name: Jonathan W. Painter Name: Yiannis A. Monovoukas
Title: Treasurer Title: President
Exhibit 11
THERMO FIBERGEN INC.
Computation of Loss per Share
1996 1995 1994
------------ ------------ -----------
Computation of Primary
Loss per Share:
Net Loss (a) $ (367,000) $ 601,000 $ (128,000)
----------- ----------- -----------
Shares:
Weighted average shares
outstanding 11,321,236 10,000,000 10,000,000
Add: Shares issuable from
assumed exercise of
options (as determined
by the application
of the treasury stock
method) 36,451 72,902 72,902
----------- ----------- -----------
Weighted average shares
outstanding, as adjusted
(b) 11,357,687 10,072,902 10,072,902
----------- ----------- -----------
Primary Loss per Share
(a) / (b) $ (.03) $ (.06) $ (.01)
=========== =========== ===========
Exhibit 13
THERMO FIBERGEN INC.
Consolidated Financial Statements
1996
PAGE
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Thermo Fibergen Inc. 1996 Financial Statements
Consolidated Statement of Operations
(In thousands except per share amounts) 1996 1995 1994
-----------------------------------------------------------------------
Revenues (Note 8) $ 2,223 $ - $ -
------- ------- -------
Costs and Operating Expenses:
Cost of revenues 1,388 - -
Selling, general, and administrative
expenses (Note 6) 1,126 - -
Research and development expenses 1,300 601 128
------- ------- -------
3,814 601 128
------- ------- -------
Operating Loss (1,591) (601) (128)
Interest Income 1,224 - -
------- ------- -------
Loss Before Income Taxes (367) (601) (128)
Income Taxes (Note 5) - - -
------- ------- -------
Net Loss $ (367) $ (601) $ (128)
======= ======= =======
Loss Per Share $ (.03) $ (.06) $ (.01)
======= ======= =======
Weighted Average Shares 11,358 10,073 10,073
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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Thermo Fibergen Inc. 1996 Financial Statements
Consolidated Balance Sheet
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $58,388 $ -
Accounts receivable, less allowance of
$30 in 1996 (Note 8) 738 -
Inventories 312 -
Other current assets 64 -
------- -------
59,502 -
------- -------
Property, Plant, and Equipment, at Cost, Net 5,821 -
------- -------
Patents and Other Assets 969 -
------- -------
Cost in Excess of Net Assets of Acquired
Company (Note 2) 4,741 -
------- -------
$71,033 $ -
======= =======
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 429 $ -
Accrued payroll and employee benefits 181 -
Other accrued liabilities 649 -
Due to parent company and affiliated companies 1,766 -
------- -------
3,025 -
------- -------
Commitments (Note 7)
Common Stock Subject to Redemption ($60,116
redemption value), 4,715,000 shares issued
and outstanding (Note 1) 56,087 -
------- -------
Shareholders' Investment (Notes 3 and 4):
Common stock, $.01 par value, 25,000,000 shares
authorized; 10,000,000 shares issued and
outstanding in 1996 100 -
Capital in excess of par value 12,094 -
Accumulated deficit (273) -
------- -------
11,921 -
------- -------
$71,033 $ -
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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Thermo Fibergen Inc. 1996 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Operating Activities:
Net loss $ (367) $ (601) $ (128)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 701 - -
Changes in current accounts,
excluding the effects of
acquisition:
Accounts receivable (11) - -
Inventories (73) - -
Other current assets (64) - -
Accounts payable 281 - -
Other current liabilities 568 - -
-------- -------- --------
Net cash provided by (used in) operating
activities 1,035 (601) (128)
-------- -------- --------
Investing Activities:
Acquisition, net of cash acquired
(Note 2) (12,066) - -
Purchases of property, plant, and
equipment (711) - -
Other (11) - -
-------- -------- --------
Net cash used in investing activities (12,788) - -
-------- -------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 1) 55,781 - -
Cash transfer from parent company in
connection with capitalization of
the Company (Note 1) 12,500 - -
Net transfer from parent company prior
to capitalization of the Company 94 601 128
Increase in due to parent company 1,766 - -
-------- -------- --------
Net cash provided by financing activities 70,141 601 128
-------- -------- --------
Increase in Cash and Cash Equivalents 58,388 - -
Cash and Cash Equivalents at Beginning
of Year - - -
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 58,388 $ - $ -
======== ======== ========
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Thermo Fibergen Inc. 1996 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired
company $ 12,480 $ - $ -
Cash paid for acquired company (12,070) - -
-------- -------- --------
Liabilities assumed of acquired
company $ 410 $ - $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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Thermo Fibergen Inc. 1996 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ - $ - $ -
Capitalization of the Company 100 - -
-------- -------- --------
Balance at end of year 100 - -
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year - - -
Capitalization of the Company 12,400 - -
Accretion of common stock subject
to redemption (Note 1) (306) - -
-------- -------- --------
Balance at end of year 12,094 - -
-------- -------- --------
Accumulated Deficit
Balance at beginning of year - - -
Net loss after capitalization
of the Company (273) - -
-------- -------- --------
Balance at end of year (273) - -
-------- -------- --------
Net Parent Company Investment
Balance at beginning of year - - -
Net loss prior to capitalization
of the Company (94) (601) (128)
Net transfer from parent company
prior to capitalization of the
Company 94 601 128
Cash transfer from parent company
in connection with capitalization
of the Company (Note 1) 12,500 - -
Capitalization of the Company (12,500) - -
-------- -------- --------
Balance at end of year - - -
-------- -------- --------
Total Shareholders' Investment $ 11,921 $ - $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Fibergen Inc. (the Company) was established as a subsidiary of
Thermo Fibertek Inc. (Thermo Fibertek) to develop and commercialize
equipment and systems to recover materials from papermaking sludge
generated by plants that produce virgin and recycled pulp and paper. In
July 1996, the Company's wholly owned subsidiary, GranTek Inc. (GranTek),
acquired substantially all of the assets, subject to certain liabilities,
of Granulation Technology, Inc. (Granulation Technology) and Biodac, a
division of Edward Lowe Industries, Inc. GranTek employs patented
technology to produce absorbing granules from papermaking sludge. These
granules, marketed under the trade name BIODAC(R), are currently used as
a carrier to deliver agricultural chemicals for professional turf, home
lawn and garden, and mosquito control applications. Prior to GranTek's
July 1996 acquisition of Granulation Technology and Biodac, the Company
was in the development stage.
Relationship with Thermo Fibertek and Thermo Electron Corporation
The Company was incorporated in February 1996 as a wholly owned
subsidiary of Thermo Fibertek. In connection with the capitalization of
the Company, Thermo Fibertek transferred to the Company a license to use
certain technology and its business relating to the development of its
fiber-recovery system in the paper and pulp industries, together with
$12,500,000 in cash, in exchange for 10,000,000 shares of the Company's
common stock. As of December 28, 1996, Thermo Fibertek owned 10,000,000
shares of the Company's common stock, representing 68% of such stock
outstanding. Thermo Fibertek is an 84%-owned subsidiary of Thermo
Electron Corporation (Thermo Electron).
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiary. All material intercompany
accounts have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1996, 1995, and 1994 are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
Income Taxes
In the period prior to its initial public offering, the Company and
Thermo Fibertek were included in Thermo Electron's consolidated federal
and certain state income tax returns. Subsequent to the Company's initial
7PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
public offering in September 1996, Thermo Fibertek's equity ownership of
the Company was reduced below 80%, and as a result, the Company is
required to file its own federal income tax returns.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Loss per Share
Loss per share has been computed based on the weighted average number
of shares outstanding during the year. Pursuant to Securities and
Exchange Commission requirements, loss per share has been presented for
all periods. Weighted average shares for all periods includes the
10,000,000 shares issued to Thermo Fibertek in connection with the
capitalization of the Company, and for periods prior to the Company's
initial public offering, the effect of the assumed exercise of stock
options issued within one year prior to the Company's initial public
offering. Because the effect of the assumed exercise of stock options
would be anti-dilutive, they have been excluded from weighted average
shares subsequent to the Company's initial public offering.
Cash and Cash Equivalents
Prior to its incorporation in February 1996, the Company's cash
disbursements were combined with other Thermo Fibertek corporate cash
balances.
As of December 28, 1996, $58,366,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government agency securities, corporate
notes, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. 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. Cash equivalents are
carried at cost, which approximates market value.
Inventories
Inventories, which represent finished goods, are stated at the lower
of cost (on a first-in, first-out basis) or market value and include
labor and manufacturing overhead.
8PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property as follows: buildings, 15
to 40 years; machinery and equipment, 3 to 10 years; and leasehold
improvements, the shorter of the term of the lease or the life of the
asset. Property, plant, and equipment consists of the following:
(In thousands) 1996 1995
----------------------------------------------------------------------
Land $ 87 $ -
Buildings 4,077 -
Machinery, equipment, and leasehold improvements 2,195 -
------ ------
6,359
Less: Accumulated depreciation and amortization 538 -
------ ------
$5,821 $ -
====== ======
Patents and Other Assets
Patents and other assets in the accompanying balance sheet includes
the cost of patents acquired in 1996 that are amortized using the
straight-line method over an estimated useful life of 12 years. The
carrying value of patents was $958,000, net of accumulated amortization
of $42,000, at year-end 1996.
Cost in Excess of Net Assets of Acquired Company
The excess of cost over the fair value of net assets of acquired
company is amortized using the straight-line method over 20 years.
Accumulated amortization was $121,000 at year-end 1996. The Company
assesses the future useful life of this asset whenever events or changes
in circumstances indicate that the current useful life has diminished.
The Company considers the future undiscounted cash flows of the acquired
company in assessing the recoverability of this asset. If impairment has
occurred, any excess of carrying value over fair value is recorded as a
loss.
Common Stock Subject to Redemption
In September 1996, the Company sold 4,715,000 units, each unit
consisting of one share of the Company's common stock and one redemption
right, in an initial public offering at $12.75 per unit for net proceeds
of $55,781,000. The common stock and redemption rights began trading
separately on December 13, 1996. Holders of a redemption right have the
option to require the Company to redeem, in September 2000 and 2001, one
share of the Company's common stock at $12.75 per share. The redemption
rights carry terms that generally provide for their expiration if the
closing price of the Company's common stock exceeds $19 1/8 for 20 of any
9PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
30 consecutive trading days prior to September 2001. The redemption
rights are guaranteed, on a subordinated basis, by Thermo Electron. The
difference between the redemption value and the original carrying amount
of common stock subject to redemption is accreted over the period ending
September 2000, which corresponds with the first redemption period. The
accretion is charged to capital in excess of par value in the
accompanying balance sheet.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, accounts receivable, accounts payable, and due to
parent company and affiliated companies. Their respective carrying
amounts in the accompanying balance sheet approximate fair value due to
their short-term nature.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Acquisition
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Granulation Technology and Biodac for
$12,070,000 in cash. The acquisition has been accounted for using the
purchase method of accounting and the combined results of operations of
Granulation Technology and Biodac have been included in the accompanying
financial statements from the date of acquisition. The cost of the
acquisition exceeded the estimated fair value of the acquired net assets
by $4,862,000, which is being amortized over 20 years. Allocation of the
purchase price for the acquisition was based on the estimated fair value
of net assets acquired and is subject to adjustment upon finalization of
the purchase price allocation.
Based upon unaudited data, the following table presents selected
financial information for the Company and Granulation Technology and
Biodac on a pro forma basis, assuming the companies had been combined
since the beginning of 1995.
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues $ 5,377 $ 4,233
Net loss (471) (4,107)
Loss per share (.04) (.41)
10PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Acquisition (continued)
The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisition of Granulation Technology and Biodac been made at the
beginning of 1995.
3. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
In July 1996, the Company adopted a stock-based compensation plan for
its key employees, directors, and others, which permits the grant of a
variety of stock and stock-based awards as determined by the human
resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. The option recipients and the terms
of options granted under this plan are determined by the Board Committee.
Options granted to date became exercisable in December 1996, and are
subject to certain transfer restrictions and the right of the Company to
repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five to ten year period, depending on the
term of the option, which may range from ten to twelve years.
Nonqualified stock options may be granted at any price determined by the
Board Committee, although incentive stock options must be granted at not
less than the fair market value of the Company's common stock on the date
of grant. To date, all options have been granted at fair market value.
The Company also has a directors' stock option plan, adopted in July
1996, that provides for the grant of stock options, at fair market value,
to outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms
as options granted under the stock-based compensation plan described
above, except that the restrictions and repurchase rights generally lapse
ratably over a four-year period and the option term is five years. In
addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermo Electron and Thermo Fibertek.
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's employees are eligible to
participate in an employee stock purchase program sponsored by Thermo
Fibertek and Thermo Electron. Under this program, shares of Thermo
Fibertek's and Thermo Electron's common stock may be purchased at the end
of a 12-month period at 95% of the fair market value at the beginning of
the period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages.
11PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards granted in 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net loss and loss per share would have been
as follows:
(In thousands except per share amounts) 1996
-----------------------------------------------------------------------
Net loss:
As reported $(367)
Pro forma (479)
Loss per share:
As reported (.03)
Pro forma (.04)
Pro forma compensation expense for options granted is reflected over
the vesting period, therefore future pro forma compensation expense may
be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1996
----------------------------------------------------------------------
Volatility 29%
Risk-free interest rate 6.6%
Expected life of options 8.3 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
12PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's 1996 stock option activity is as follows:
Weighted
Number Average
of Exercise
(In thousands except per share amounts) Shares Price
----------------------------------------------------------------------
Options outstanding, beginning of year - $ -
Granted 340 10.16
----
Options outstanding, end of year 340 $10.16
==== ======
Options exercisable 340 $10.16
==== ======
Options available for grant 485
====
Weighted average fair value per share of $ 5.19
options granted during year ======
As of December 28, 1996, the options outstanding were exercisable at
prices ranging from $10.00 to $12.75 and had a weighted-average remaining
contractual life of 11.4 years.
401(k) Savings Plan
Substantially all of the Company's full-time employees are eligible
to participate in Thermo Electron's 401(k) savings plan. Contributions to
the plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For
this plan, the Company contributed and charged to expense $17,000 in
1996.
4. Common Stock
At December 28, 1996, the Company had reserved 825,000 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
13PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes
The income taxes in the accompanying statement of operations differs
from the amounts calculated by applying the statutory federal income tax
rate of 34% to loss before income taxes due to the following:
(In thousands) 1996 1995 1994
---------------------------------------------------------------------
Income tax benefit at statutory rate $ 125 $ 204 $ 44
Decreases resulting from:
Losses not benefited (125) (204) (44)
----- ----- -----
$ - $ - $ -
===== ===== =====
Prepaid income taxes consists of the following:
(In thousands) 1996 1995
------------------------------------------------------------
Net operating loss carryforwards $ 447 $ 334
Reserves and accruals 110 -
----- -----
557 334
Less: Valuation allowance (557) (334)
----- -----
$ - $ -
===== =====
Due to cumulative losses, a valuation allowance equal to the total
net deferred tax asset has been established. Of the 1996 valuation
allowance, $84,000 will be used to reduce cost in excess of net assets of
acquired company when the underlying asset becomes realizable.
6. Related Party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate 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, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. For these
services, the Company was charged $22,000 in 1996. The Company was not
charged for these services in 1995 and 1994 since no revenues were
recorded by the Company during these periods and the amount of services
received was not material. The annual fee is reviewed and adjusted
annually by mutual agreement of the parties. The corporate services
agreement is renewed annually but can be terminated upon 30 days' prior
notice by the Company or upon the Company's withdrawal from the Thermo
Electron Corporate Charter (the Thermo Electron Corporate Charter defines
14PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
6. Related Party Transactions (continued)
the relationships among Thermo Electron and its majority-owned
subsidiaries). Management believes that the service fee charged by Thermo
Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For
additional items such as employee benefit plans, insurance coverage, and
other identifiable costs, Thermo Electron charges the Company based upon
costs attributable to the Company.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
License Agreement
In July 1996, the Company entered into a supply and license agreement
with Thermo Fibertek in which Thermo Fibertek granted to the Company a
worldwide, perpetual, royalty-free license to use Thermo Fibertek's
proprietary fiber "scalping" technology in the pulp and paper industries.
The agreement has an initial term of eight years and is subject to annual
renewals thereafter. The Company's rights under the agreement are
exclusive for a period of at least five years and such exclusivity will
continue thereafter if the Company has purchased at least 35 scalping
units from Thermo Fibertek within the first five years of the license and
at least five such units in each subsequent year. The agreement also
provides that Thermo Fibertek will be the exclusive manufacturer of
products based on the licensed technology. The purchase price to be paid
by the Company to Thermo Fibertek for these products will be based on
Thermo Fibertek's manufacturing cost plus a gross profit margin of 55%.
Thermo Fibertek has agreed not to sell these components or any other
technology or products proprietary to Thermo Fibertek for use in
competition with the Company in the pulp and paper industries.
7. Commitments
The Company occupies office space under various operating leases. The
accompanying statement of operations includes expense from operating
leases of $43,000 in 1996. The future minimum payments due under a
noncancelable operating lease as of December 28, 1996, are $60,000 in
1997 and 1998 and $20,000 in 1999. Total future minimum lease payments
are $140,000.
15PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Significant Customers and Concentrations of Risk
Revenues from two customers accounted for 56% and 21% of the
Company's total revenues in 1996. At year-end 1996, substantially all
accounts receivable due to the Company were from three customers. The
Company does not normally require collateral or other security to support
its accounts receivable. Management does not believe that this
concentration of credit risk has or will have a significant negative
impact on the Company.
The Company's product is sold exclusively as an agricultural carrier
and therefore, the Company is dependent upon the agricultural market.
Papermaking sludge, the raw material used in the manufacture of the
Company's BIODAC product, is obtained from a single paper mill. The mill
has the exclusive right to supply papermaking sludge to the Company under
a contract which expires in December 1997, subject to successive mutual
two-year extensions. Although the Company believes that its relationship
with the mill is good, no assurance can be given that the mill will agree
to renew the contract upon its termination. The inability of the Company
to obtain papermaking sludge from this paper mill would have a material
adverse effect upon the Company's operations.
9. Unaudited Quarterly Information
(In thousands except per share amounts)
1996 First Second Third(a) Fourth
----------------------------------------------------------------------
Revenues $ - $ - $ 984 $1,239
Gross profit - - 298 537
Net income (loss) (104) (177) (380) 294
Earnings (loss) per share (.01) (.02) (.04) .02
1995 First Second Third Fourth
----------------------------------------------------------------------
Revenues $ - $ - $ - $ -
Gross profit - - - -
Net loss (137) (139) (123) (202)
Loss per share (.01) (.01) (.01) (.02)
(a) Reflects the July 1996 acquisition of Granulation Technology and
Biodac and the net proceeds from the Company's September 1996 initial
public offering.
16PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Fibergen Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Fibergen Inc. (a Delaware corporation and 68%-owned subsidiary of Thermo
Fibertek Inc.) and subsidiary as of December 28, 1996, and December 30,
1995, and the related consolidated statements of operations,
shareholders' investment, and cash flows for each of the three years in
the period ended December 28, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Fibergen Inc. and subsidiary as of December 28, 1996, and December
30, 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
17PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
caption "Forward-looking Statements."
Overview
The Company was established as a subsidiary of Thermo Fibertek Inc.
(Thermo Fibertek) to develop and commercialize equipment and systems to
recover materials from papermaking sludge generated by plants that
produce virgin and recycled pulp and paper. In July 1996, the Company's
wholly owned subsidiary, GranTek Inc. (GranTek), acquired substantially
all of the assets, subject to certain liabilities, of Granulation
Technology, Inc. (Granulation Technology) and Biodac, a division of
Edward Lowe Industries, Inc. GranTek employs patented technology to
produce absorbing granules from papermaking sludge. These granules,
marketed under the trade name BIODAC(R), are currently used as a carrier
to deliver agricultural chemicals for professional turf, home lawn and
garden, and mosquito control applications. Prior to GranTek's July 1996
acquisition of Granulation Technology and Biodac, the Company was in the
development stage.
The Company currently intends to limit the pace and amount of its
research and development on both its fiber-recovery system and on new
products, if any, which may be developed from recovered fibers and other
components of pulp residue, so that its internally funded research and
development expenditures will be approximately equivalent to the interest
or dividend income earned on its cash balances, plus the Company's
operating earnings, if any.
Results of Operations
1996 Compared With 1995
Revenues of $2,223,000 in 1996 represent revenues from GranTek, which
acquired Granulation Technology and Biodac in July 1996. No revenues were
recorded during 1995 as the Company was in the development stage, and its
principal business consisted of conducting research and development
associated with the Company's fiber-recovery system.
The gross profit margin was 38% in 1996.
Selling, general, and administrative expenses as a percentage of
revenues were 51% in 1996. Research and development expenses increased to
$1,300,000 in 1996 from $601,000 in 1995. This increase was primarily due
to the acceleration of the Company's research and development efforts
18PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
1996 Compared With 1995 (continued)
associated with the Company's fiber-recovery system, expenditures on
research and development relating to the extraction and purification of
minerals, and the inclusion of $188,000 of expenses at GranTek. The
Company expects that its spending on research and development will
continue to increase in 1997.
Interest income in 1996 resulted primarily from interest earned on
cash received in connection with the initial capitalization of the
Company in February 1996, and the invested proceeds from the Company's
September 1996 initial public offering.
1995 Compared With 1994
No revenues were recorded during either period as the Company was in
the development stage, and its principal business consisted of conducting
research and development associated with the Company's fiber-recovery
system.
Research and development expenses increased to $601,000 in 1995 from
$128,000 in 1994 due to the acceleration of the Company's research and
development efforts associated with the development of the Company's
fiber-recovery system, increased personnel, and higher engineering
consulting expenses.
Liquidity and Capital Resources
Consolidated working capital was $56,477,000 at December 28, 1996,
compared with no working capital at December 30, 1995. Included in
working capital at December 28, 1996, are cash and cash equivalents of
$58,388,000. Operating activities provided $1,035,000 of cash in 1996.
During 1996, the Company expended $12,788,000 for investing
activities. In July 1996, the Company acquired substantially all of the
assets, subject to certain liabilities, of Granulation Technology and
Biodac for $12,070,000 in cash (Note 2). During 1996, the Company
expended $711,000 for purchases of property, plant, and equipment.
During 1996, $70,141,000 of cash was provided by financing
activities. In September 1996, the Company sold units, each unit
consisting of one share of the Company's common stock and one redemption
right, in an initial public offering for net proceeds of $55,781,000
(Note 1). The common stock and redemption rights began trading separately
on December 13, 1996. Holders of a redemption right have the option to
require the Company to redeem, in September 2000 and 2001, one share of
the Company's common stock at $12.75 per share. The rights are
guaranteed, on a subordinated basis, by Thermo Electron Corporation
(Thermo Electron). In connection with the capitalization of the Company
in February 1996, Thermo Fibertek transferred $12,500,000 in cash to the
Company (Note 1).
In 1997, the Company plans to make capital expenditures of
approximately $10,000,000, which includes expenditures for the
construction of one or more fiber-recovery plants. Construction of
fiber-recovery plants is dependent upon the Company entering into
long-term contracts with paper mills, under which the Company will charge
fees to accept the mills' pulp sludge. The Company does not currently
19PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources (continued)
have such agreements in place nor is there any assurance that the Company
will be able to obtain such contracts. The Company anticipates it will
require significant amounts of cash to complete the commercialization of
its fiber-recovery system. The Company expects to finance
commercialization of its fiber-recovery system through a combination of
internal funds, including the net proceeds from its initial public
offering, additional debt or equity financing, and/or short-term
borrowings from Thermo Fibertek and Thermo Electron, although there is no
agreement with Thermo Fibertek or Thermo Electron under which such
parties would be obligated to lend funds to the Company. The Company
believes that its existing resources will be sufficient to meet the
Company's capital requirements for the foreseeable future.
20PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1997 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Operating Losses. The Company has not been profitable since its
inception as a division of Thermo Fibertek Inc. (Thermo Fibertek) on
December 29, 1991. As of December 28, 1996, the cumulative operating
losses of the Company were approximately $1,349,000. The Company expects
to continue to incur operating losses for at least the next several
years.
Uncertainty of Product Development; Dependence on Thermo Fibertek.
The Company's fiber-recovery system incorporates new technology currently
under development. Although the Company has completed the construction of
its mobile pilot fiber-recovery system, it has not yet begun the
commercial production of full-scale fiber-recovery systems. The Company's
success will depend in part on Thermo Fibertek, which has licensed to the
Company a proprietary "scalping" technology currently under development
that is a key component of the Company's fiber-recovery system. The
principal development risk associated with the technology comprising the
Company's mobile pilot system, including the "scalping" technology under
development by Thermo Fibertek, is that such technology may not be
readily scaleable. Accordingly, further engineering will be required to
adapt such technology to allow it to process papermaking sludge at
volumes necessary for successful commercial operation. In addition, while
papermaking sludge from all recycled pulp mills share certain defining
principal characteristics, such technology must be further engineered to
maximize its ability to scalp fibers from the sludge streams of specific
mills. No assurance can be given that the development efforts of the
Company or of Thermo Fibertek will be successful. Failure to successfully
develop the Company's recovery equipment and system would have a material
adverse effect on the business of the Company. The Company's success will
depend to some degree on its ability to identify and develop technologies
to maximize the value of the components of papermaking sludge, such as
minerals, for sale into other markets. There can be no assurance that the
Company will succeed in obtaining or developing any such technologies.
Failure of the Company to obtain or develop such technologies, or to
develop active markets for the components of the papermaking sludge it
processes, would both increase the Company's ultimate waste-disposal
costs, and reduce the Company's anticipated revenue stream. Accordingly,
such a failure would have a material adverse effect on the business of
the Company.
Risks of Uncertain Market Acceptance. The Company's proposed
fiber-recovery process and market approach are significantly different
from processing and disposal methods that are currently available
commercially. There is a substantial risk with any new technology that
the marketplace may not accept or be receptive to the potential benefits
of such technology. Market acceptance of the Company's proposed services
and products will depend, in large part, upon the ability of the Company
to demonstrate the economic advantage of its system over available
alternatives. There can be no assurance that the Company's services will
21PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
be accepted by the pulp and paper industry, that any products the Company
may develop from the recoverable components of papermaking sludge will be
accepted in their respective markets, or that the Company will be able to
sell such products, if accepted, at commercially viable prices. Failure
of either the Company's technology to gain market acceptance by the pulp
and paper industry, or of any such products to gain market acceptance,
generally would have a material adverse effect on the business of the
Company.
Lack of Operating History and Management. The Company has no
operating history other than research and development relating to its
fiber-recovery equipment and process, and the business recently acquired
by its GranTek Inc. (GranTek) subsidiary. No assurance can be given that
management experienced in building a research and development or
manufacturing organization, or additional skilled personnel necessary to
successfully commercialize and expand the Company's business and
operations, can be recruited and retained. Failure of the Company to
achieve these objectives would have a material adverse effect on the
business of the Company.
Risks Associated with Protection, Defense, and Use of Proprietary
Technology and Intellectual Property. The Company holds several United
States and foreign patents relating to various aspects of the processing
and use of cellulose-based granular materials, including the processing
and use of such materials as an agricultural carrier. Thermo Fibertek
holds two United States patents and several foreign patents, and expects
to file additional United States patent applications relating to the
"scalping" technology licensed to the Company. Proprietary rights
relating to the Company's technology are protected from unauthorized use
by third parties only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets.
Moreover, although the Company is developing methods to separate the
various components of the sludge stream for which it believes that it may
be able to obtain patent protection, there can be no assurance that
patents will issue from any pending or future patent applications owned
by or licensed to the Company, or that the claims allowed under any
issued patents will be sufficiently broad to protect the Company's
technology. In the absence of patent protection, the Company may be
vulnerable to competitors who attempt to copy the Company's services or
products, or gain access to its trade secrets and know-how. Proceedings
initiated by the Company to protect its proprietary rights could result
in substantial costs to the Company. There can be no assurance that
competitors of the Company will not initiate litigation to challenge the
validity of the Company's patents, or that they will not use their
resources to design comparable products that do not infringe on the
Company's patents. There may also be pending or issued patents held by
parties not affiliated with the Company that relate to the Company's
products or technologies. The Company may need to acquire licenses to, or
contest the validity of, any such patents. There can be no assurance that
any license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
The Company could incur substantial costs in defending itself in suits
brought against it or in suits in which the Company may assert its
22PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
patent rights against others. If the outcome of any such litigation is
unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its
collaborators, employees, and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently developed by
competitors.
Commodity Price Risks. The Company expects to recover high quality
long fiber from the sludge streams of pulp and paper mills and to sell it
back to mills under long-term contracts. The prices at which the Company
may be able to sell such fiber will generally not be fixed over the term
of the contracts and will depend on several factors, including the
prevailing prices for both finished paper products and wastepaper. These
prices tend to be cyclical and to vary according to paper type. The
Company also anticipates that it will seek to sell other recoverable
components of the sludge streams, such as fines, wastewater, and
minerals. The Company will be exposed to commodity price risk during the
period that it has title to these products held in inventory. Prices of
these commodities can be volatile, and no assurance can be given that the
Company will be able to sell recovered components at a profit.
Future Capital Needs; Project Financing; Dependence on Capital
Markets. The Company's future capital requirements will depend on many
factors, including continued progress in its research and development
program, the magnitude of such program, competing technological and
market developments, the cost of manufacturing activities, and the
Company's ability to market its services and products successfully. Any
equity or debt financings, if available at all, may be on terms that are
not favorable to the Company and, in the case of equity financings, could
result in dilution to the Company's stockholders. If adequate funds are
not available, the Company may be required to curtail development and
commercialization of its fiber-recovery technology.
In addition, the Company expects to seek to finance each of its
recovery plants in a manner that is substantially nonrecourse to the
Company. To minimize its equity commitment, the Company will be required
to borrow substantial amounts from third party lenders. These borrowings
typically would be secured only by the recovery plant assets and/or by
the capital stock of a subsidiary operating such plant. If the Company
were unable to repay the principal of, and all interest on, such
borrowings, the lender would have the right to foreclose on, and obtain
title to, such assets or capital stock. The Company anticipates that it
will require substantial financing to fund both the equity and debt
components of future plants. The ability to finance the Company's
recovery plants on a nonrecourse basis will depend on a number of
factors, including interest coverage ratios, the length and terms of the
Company's contracts with pulp mill customers, and the perception of
technology risks by lenders. The Company has had no discussions with
potential lenders, and no assurance can be given that financing for
future plants will be available on acceptable terms, or at all. Any
failure by the Company to obtain adequate amounts of project financing on
23PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
acceptable terms would have a material adverse effect on the future
growth of the Company.
Competition. The Company expects to encounter intense competition in
the sale of its services and products. The Company expects that its
principal competitors will be landfills, which currently have a
collective 70% market share in North America, and approximately 40% in
Europe. In addition, many pulp mills have already made substantial
investments in de-watering and drying equipment to reduce their landfill
costs. Mills are familiar with such methods and may be reluctant to
switch to a new solution unless the Company demonstrates significant cost
savings to them. Several large waste-management companies have increased
their marketing activities to provide landfill disposal services to the
pulp and paper industry. Certain competitors are seeking to develop
similar technologies and services to treat and process papermaking
sludge. No assurance can be given that these technologies may not be
superior to those of the Company or that they may not make the Company's
technology obsolete. Some of these competitors may have substantially
greater financial, marketing, and other resources than those of the
Company. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their services and
products than the Company. There can be no assurance that the Company's
current technology, technology under development, or ability to discover
new technologies will be sufficient to enable it to compete effectively
with its competitors.
Risk of Dependence on Pulp and Paper Mill Customers. Each of the
Company's fiber-recovery plants will rely upon long-term agreements with
a single pulp or paper mill customer, or a cluster of mills within a
small geographic area, for its papermaking sludge and tipping fee
revenue. The failure of any one mill customer to fulfill its contractual
obligations could have a substantial negative impact on the Company. No
assurance can be given that a particular mill will not be unwilling or
unable, at some time, to make required payments under, or to otherwise
honor, its agreements with the Company. The Company expects that each of
its commercial plants will generally occupy approximately two acres of
land to be acquired at, or immediately adjacent to, a pulp or paper mill.
To date, the Company has not acquired any such sites, and no assurance
can be given that the Company will be able to acquire any such sites on
terms that are favorable to the Company or at all. The Company's GranTek
subsidiary obtains its papermaking sludge from a single paper mill
located near its Wisconsin plant, under a contract that provides the mill
with the exclusive right to supply papermaking sludge to GranTek. The
contract terminates on December 26, 1997, subject to successive mutual
two-year extensions. Although the Company believes that GranTek's
relationship with the mill is good, no assurance can be given that the
mill will agree to renew the contract upon its termination in December
1997.
Environmental and Regulatory Risks. Federal, state, and local
environmental laws govern air emissions and discharges into water, as
well as the generation, transportation, storage, treatment, and disposal
of solid and hazardous waste. These laws establish standards governing
most aspects of the construction and operation of the Company's
facilities, and often require multiple governmental permits before these
24PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
facilities can be constructed, modified, or operated. There can be no
assurance that all required permits will be issued for the Company's
recovery plants, or that the requirements for continued permitting under
environmental regulatory laws and policies governing their enforcement
may not change, requiring new technology or stricter standards for the
control of discharges of air or water pollutants, or for solid or
hazardous waste handling and disposal. Such future developments could
affect the manner in which the Company constructs and operates its plants
and could require significant additional expenditures to achieve
compliance with such requirements. It is possible that compliance may not
be technically or economically feasible. Changes in these regulations
could also affect the characteristics of the waste generated by pulp and
paper mills. As a result, it is possible that disposal of papermaking
sludge could be accomplished in a manner that may not involve the
Company's facilities or that would require the Company to purchase
papermaking sludge.
Federal, state, and local laws also frequently impose liability on
the present and former owners or operators of facilities that release
hazardous substances into the environment. Furthermore, companies may be
required by law to provide financial assurances for operating facilities
in order to ensure their performance of obligations is in compliance with
applicable laws and regulations. Similar liability may be imposed upon
the generators and transporters of waste which contains hazardous
substances. In the United States, such liability stems primarily from the
federal Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), and similar state equivalents, the Federal Toxic Substances
Control Act (TSCA), and the Resource Conservation and Recovery Act of
1976 (RCRA), and similar state equivalents. TSCA imposes limitations on
the presence in commercial products of polychlorinated biphenyls (PCBs),
and on the generation, handling, storage, and disposal of PCB-containing
materials, byproducts, and wastes. CERCLA imposes joint and several
liability for the costs of remediation and natural resource damages on
the owner or operator of a facility from which there is a release, or a
threat of a release, of a hazardous substance into the environment, and
on the generators and transporters of those hazardous substances. RCRA
provides a comprehensive framework for the regulation of the generation,
transportation, treatment, storage, and disposal of hazardous waste.
Under TSCA, RCRA, and equivalent state laws, regulatory authorities may
require, pursuant to administrative order or as a condition of an
operating permit, that the owner or operator of a regulated facility take
corrective action with respect to contamination resulting from past or
present operations. The intent of RCRA is to control hazardous wastes
from the time they are generated until they are properly recycled or
treated and disposed. Such laws also require that the owner or operator
of regulated facilities provide assurance that funds will be available
for the closure and post-closure care of its facilities. Because Subtitle
D of RCRA imposes strict requirements on landfills, such as the
requirement that new landfills must be lined, RCRA creates an incentive
for pulp mills to use sludge-management technologies such as those
offered by the Company.
25PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
GranTek currently uses papermaking sludge from a nearby paper mill in
Green Bay, Wisconsin, to make its granules. The papermaking sludge
GranTek receives from the mill contains trace amounts of PCBs, dioxins,
and furans, as well as residual amounts of other regulated compounds.
During the granulation process, GranTek evaporates approximately 95% of
the water contained in the papermaking sludge. Approximately 1.6 pounds
per year of PCBs, as well as other compounds, such as formaldehyde,
benzene, and volatile organic compounds (VOCs), are thus emitted into the
atmosphere from its Green Bay facility. Applicable Wisconsin regulations
limit PCB emissions to de minimis amounts unless the generator can
demonstrate that it is using the best available control technology to
limit emissions. GranTek has been issued an air operating permit by the
Wisconsin Department of Natural Resources (the WDNR). GranTek's current
operating permit and its application for a new Title V operating permit
each require GranTek to reduce PCB and VOC emissions, and to file
bi-annual reports on the amounts of PCBs being emitted. In August 1995,
GranTek submitted materials to the WDNR requesting that GranTek be
relieved of its obligation to reduce emissions, asserting that there are
presently no technologically or economically feasible methods to reduce
PCB or VOC emissions from its facility that can be implemented. GranTek
has received no response from the WDNR to date. Although the Company
believes that the WDNR will accept GranTek's findings, and although
GranTek's facility is currently fully permitted by Wisconsin regulatory
authorities, no assurance can be given that the WDNR will not require
GranTek to reduce or eliminate its emissions, that such compliance will
not require the Company to make significant expenditures, or that such
compliance will be technologically or economically feasible. Such
compliance may have material adverse effects on the Company's capital
expenditures, earnings, and/or competitive position.
Because the papermaking sludge contains trace amounts of PCBs,
dioxins, furans, and other compounds when GranTek receives it from the
mill, residual amounts of these compounds are also found in GranTek's
Biodac product. Although these substances are present in residual
quantities well below the maximum levels currently permitted under TSCA,
RCRA, and applicable federal and state regulations, no assurance can be
given that such regulations may not be made more stringent in the future
that papermaking sludge containing such substances may not be regulated
as hazardous under TSCA or RCRA, or that federal or state regulations may
not in the future prohibit the use of materials containing these
substances in agricultural applications. Any such regulatory changes may
have material adverse effects on the Company's capital expenditures,
earnings, and/or competitive position. Changes in these regulations could
also affect the characteristics of the waste generated by pulp and paper
mills. As a result, it is possible that disposal of papermaking sludge
could be accomplished in a manner that may not involve the Company's
facilities or that would require the Company to purchase papermaking
sludge.
The Company may be required as a practical matter to assume all
environmental liabilities associated with the treatment and final
disposal of all components of the pulp mills' residue stream that cannot
be returned to mills or sold elsewhere. The Company will endeavor to
26PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Forward-looking Statements
operate its business to minimize its exposure to environmental
liabilities. In entering into contracts with customers, the Company will
seek to maximize its insulation from environmental liabilities associated
with paper mill waste streams by controlling the content of the waste
streams it will accept, and by preventing customers from sending any
waste streams containing hazardous components to the Company's
facilities. Any such disposal of hazardous waste could cause the Company
to be responsible for the clean-up or remediation of the disposal site in
the future under CERCLA, TSCA, RCRA, and similar state laws. No assurance
can be given that claims for environmental liabilities may not be
asserted against the Company.
27PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1996(a) 1995 1994 1993 1992
------------------------------------------------------------------------
(Unaudited)
Statement of Operations
Data:
Revenues $ 2,223 $ - $ - $ - $ -
Net loss (367) (601) (128) (106) (147)
Loss per share (.03) (.06) (.01) (.01) (.01)
Balance Sheet Data:
Working capital $56,477 $ - $ - $ - $ -
Total assets 71,033 - - - -
Common stock subject
to redemption 56,087 - - - -
Shareholders'
investment 11,921 - - - -
(a) Reflects the February 1996 transfer of $12,500,000 in cash to the
Company from Thermo Fibertek in connection with the initial
capitalization of the Company, the July 1996 acquisition of
Granulation Technology and Biodac, and the net proceeds from the
Company's September 1996 initial public offering.
28PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Common Stock Market Information
The Company's common stock and redemption rights traded together as
units until December 12, 1996, after which the Company's common stock and
redemption rights traded separately. The following table shows the market
range for the Company's equity securities based on reported sales prices
on the American Stock Exchange (symbols TFG-U, TFG, and TFG-R) for 1996.
Units Common Stock Redemption Rights
----------------- ------------------ -----------------
Quarter High Low High Low High Low
------------------------------------------------------------------------
Fourth $14 1/8 $11 3/4 $11 3/4 $10 3/4 $2 5/16 $1 3/4
As of January 24, 1997, the Company had 37, 5, and 4 holders of
record of its units, common stock, and redemption rights, respectively.
This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common
stock on January 24, 1997, was $9.00 per share.
Transfer Agent
American Stock Transfer & Trust Company is the transfer agent for the
Company's common stock and redemption rights and maintains holders'
activity records. The agent will respond to questions on issuance of
stock and redemption right certificates, change of ownership, lost stock
and redemption right certificates, and change of address. For these and
similar matters, please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Security Holder Services
Holders of Thermo Fibergen Inc. units, common stock, and redemption
rights who desire information about the Company are invited to contact
John N. Hatsopoulos, Chief Financial Officer, Thermo Fibergen Inc., 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617)
622-1111. A mailing list is maintained to enable holders whose units,
stock, and redemption rights are held in street name, and other
interested individuals, to receive quarterly reports, annual reports, and
press releases as quickly as possible. Beginning in 1997, quarterly
distribution will be limited to the second quarter report only. All
quarterly reports and press releases are available through the Internet
from Thermo Electron's home page on the World Wide Web
(http://www.thermo.com/subsid/tfg.html).
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
29PAGE
<PAGE>
Thermo Fibergen Inc. 1996 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Fibergen Inc., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 2,
1997, at 8:00 a.m. at the Hyatt Regency Hotel, Hilton Head, South
Carolina.
Exhibit 21
THERMO FIBERGEN INC.
Subsidiaries of the Registrant
At February 28, 1997, Thermo Fibergen Inc. owned the following companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
--------------------------------- ---------------- ------------
GranTek Inc. Wisconsin 100%
Exhibit 23
THERMO FIBERGEN INC.
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the use of
our reports, dated February 3, 1997, included in or incorporated by
reference into this Annual Report on Form 10-K.
Arthur Andersen LLP
Boston, Massachusetts
March 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERGEN INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 58,388
<SECURITIES> 0
<RECEIVABLES> 768
<ALLOWANCES> 30
<INVENTORY> 312
<CURRENT-ASSETS> 59,502
<PP&E> 6,359
<DEPRECIATION> 538
<TOTAL-ASSETS> 71,033
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0
0
<COMMON> 100
<OTHER-SE> 11,821
<TOTAL-LIABILITY-AND-EQUITY> 71,033
<SALES> 2,223
<TOTAL-REVENUES> 2,223
<CGS> 1,388
<TOTAL-COSTS> 1,388
<OTHER-EXPENSES> 1,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (367)
<INCOME-TAX> 0
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