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 January 3, 1998
[ ] 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: (781) 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 30, 1998, was approximately $37,696,000.
As of January 30, 1998, 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 January 3, 1998, 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 1, 1998, 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) is developing
and commercializing 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
fiber-recovery facilities at or near pulp and paper mills, pump the
sludge directly into its fiber-recovery facilities under long-term
contracts with mills, and assume responsibility for the processing and
ultimate recycling of the sludge into new products. The Company intends
to recover and clean long cellulose fibers, which are used to make paper,
and extract and clarify water from the sludge for reuse by the mill, and
convert the remaining components of papermaking sludge -- solid minerals,
short fibers, and fines -- into products which the Company expects to
market and sell. The Company expects to receive revenues from the
services it offers the mill and from the sale of long fiber and
sludge-based products. In December 1997, the Company entered into its
first long-term contract to provide fiber-recovery and
water-clarification services to a paper mill located in the Southeastern
United States.
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Granulation Technology, Inc. and
Biodac, a division of Edward Lowe Industries, Inc., for $12,070,000 in
cash. This business has been renamed GranTek. GranTek employs patented
technology to produce absorbing granules from papermaking sludge. These
granules, marketed under the trade name Biodac(R), are principally used
as a carrier to deliver chemicals for agricultural, professional turf,
home lawn and garden, and mosquito-control applications. In 1997*,
GranTek introduced an agricultural row-crop granule and an oil and grease
absorption granule, and completed development and market testing of a cat
box filler product. Prior to its July 1996 acquisition of GranTek, the
Company was in the development stage.
The Company was incorporated in Delaware in February 1996 as a wholly
owned subsidiary of Thermo Fibertek Inc. 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 $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 one
share of Thermo Fibergen common stock at $12.75 per share in September
2000 or 2001. A redemption right may only be exercised if the holder owns
a share of common stock at that time. The redemption rights are
guaranteed, on a subordinated basis, by Thermo Electron Corporation. As
of January 3, 1998, Thermo Fibertek owned 10,419,950 shares of the
Company's common stock, representing 71% of such stock outstanding, which
includes 419,950 shares purchased during 1997. Purchases of Company
*References to 1997, 1996, and 1995 herein are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively.
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common stock by Thermo Fibertek during 1997 consisted of 268,000 shares
purchased in the open market for $2,328,000 and 151,950 shares purchased
from Thermo Electron for $1,463,000. During 1997, Thermo Electron had
purchased 151,950 shares of Company common stock that were subsequently
sold to Thermo Fibertek. There are currently more redemption rights than
shares of common stock held by non-affiliates of the Company. Affiliates
of the Company, including Thermo Fibertek, may acquire additional shares
of the Company's common stock in the open market, and there can be no
assurance that the Company will issue additional shares of its common
stock through the exercise of employee stock options or other
transactions.
A publicly traded subsidiary of Thermo Electron, Thermo Fibertek
develops, manufactures, and markets a range of equipment and products for
the pulp and paper recycling industries. In addition to Thermo Fibertek's
products, Thermo Electron provides analytical and monitoring instruments;
biomedical products including heart-assist devices, respiratory
equipment, and mammography systems; alternative-energy systems;
industrial process equipment; and other specialized products. Thermo
Electron also provides industrial outsourcing, particularly in
environmental-liability management, laboratory analysis, and
metallurgical processing; and conducts advanced-technology research and
development.
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 heading "Forward-looking
Statements" in the Registrant's 1997 Annual Report to Shareholders, which
statements are 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's GranTek subsidiary produces Biodac, organic-based
granules that are sold principally to chemical formulators for use as
carriers for chemicals in the agricultural, professional turf, home lawn
and garden, and mosquito-control markets. Biodac is virtually dust-free,
uniform in size and absorptivity, and chemically neutral. The Company
believes that these features give Biodac a competitive advantage over
clay- and corncob-based granules.
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In December 1997, the Company entered into a ten-year contract with a
paper mill to provide fiber-recovery and water-clarification services to
the mill. The Company will construct a fiber-recovery and water-
clarification facility adjacent to the mill. Once operational, the
Company will provide the paper mill with fiber-recovery and
water-clarification services for established monthly fees. The Company
has also entered into an engineering, procurement, and construction
contract with a third party to construct the facility.
(ii) and (xi) New Products; Research and Development
--------------------------------------
The Company has developed technology to recover and clean the long
cellulose fiber and extract and clarify the water from papermaking sludge
for reuse by paper mills. In 1996, the Company constructed a mobile pilot
plant, which it is using to demonstrate its fiber-recovery process and
test the sludge streams of mills in the United States and Canada. The
Company also tested sludge from several European mills at a pilot lab set
up at Thermo Fibertek's E. & M. Lamort facility in France.
Thermo Fibergen continues research and development efforts to develop
higher-value products from papermaking sludge, including pure minerals,
commodity and specialty chemicals, controlled-release granules for
crop-protection chemicals and fertilizers, as well as new, composite
materials for building, automobile manufacturing, and other applications.
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 processes up to 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.
In 1997, GranTek successfully completed commercial introduction of a
new row-crop granule in the South African market. The granule was used in
large-scale applications during the fall planting season. The Company
intends to introduce the row-crop product to the U.S. market during 1998.
In addition, GranTek introduced a granule for oil and grease absorption
on a limited basis. Compared to competing clay granules which tend to be
dusty, this product is virtually dust free. GranTek also completed
development of two different formulations of cat box filler product,
conventional and clumping. The Company performed market testing in five
regions of the country, including in-home placement and focus-group
studies, evaluating the product formulations as well as potential product
names and packaging designs. The Company expects to begin marketing the
product to distributors during the first half of 1998 under the trade
name PaPurr(TM) (pronounced paper).
The Company currently intends to limit the pace and amount of its
research and development so that its internally funded research and
development expenditures will not exceed the interest income earned on
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its cash, cash equivalents, and available-for-sale investments, plus the
Company's operating earnings before research and development expenses, if
any.
Research and development expenses for the Company were $1,877,000,
$1,300,000, and $601,000 in 1997, 1996, and 1995, respectively.
(iii) Raw Materials
-------------
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 GranTek's
existing granulation plant in Green Bay, Wisconsin, under a contract
which expires in December 1999, 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.
During 1997, the Company entered into a contract with a supplier to
purchase all natural gas requirements and natural gas management
services, which are used by its GranTek subsidiary, from the supplier
through October 31, 1998. The Company has the option to enter into
forward contracts with the supplier to purchase specified quantities of
natural gas at the then-current posted price through specified future
dates.
(iv) Patents, Licenses, and Trademarks
---------------------------------
The Company currently holds several 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 Canada and two
European countries.
The Company has filed four U.S. patent applications for various
sludge-based products and processes and expects to file additional patent
applications in the future. In addition, Thermo Fibertek holds two U.S.
patents relating to the "scalping" technology that is an important
component of the Company's fiber-recovery system which expire in 2011 and
2014. 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 a company a nonexclusive license 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.
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(v) Seasonal Influences
-------------------
The Company's sales are principally 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 earns 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, as well as the international agricultural
row-crop market, 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
-------------------------------
Revenues from The Solaris Group accounted for 54% and 56% of the
Company's total revenues in 1997 and 1996, respectively. Revenues from
Rhone-Poulenc AG Company accounted for 15% and 21% of the Company's total
revenues in 1997 and 1996, respectively. Revenues from American Cyanamid
Company accounted for 14% of the Company's total revenues in 1997.
The Solaris Group has indicated that it will reduce its level of
purchases from the Company in 1998, relative to 1997. In addition,
Monsanto Company, its parent, has announced its intent to divest of this
business. No assurance can be given that the Company's relationship with
The Solaris Group will continue subsequent to such divestiture.
(viii) Backlog
-------
The Company's backlog of firm orders was $188,000 as of January 3,
1998, and $106,000 as of December 28, 1996. The Company believes that
substantially all of the backlog at January 3, 1998, will be shipped or
completed during the next twelve months. Certain of these orders may be
canceled by the customer upon payment of a cancellation fee. 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
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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. The Company competes principally on
the basis of price and its ability to offer environmentally acceptable
disposal alternatives.
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 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
or sludge processing capabilities, or both, to the pulp and paper
industry, 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-based 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- and corncob-based granular carriers. Biodac is also 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
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. Compliance with these regulations may
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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 fair and uniform
enforcement of environmental laws and regulations by government agencies
against all of the regulated community.
Among the principal laws governing the Company's operations are the
Federal Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA), the Federal Toxic Substances Control Act (TSCA), the Clean
Air Act (CAA), and the Resource Conservation and Recovery Act of 1976
(RCRA), and equivalent state laws. 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 damage 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 an 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 remediation of its facilities. Because
Subtitle D of RCRA imposes strict requirements on landfills, such as the
requirement that new landfills be lined, RCRA creates an incentive for
pulp mills to use sludge-management technologies such as those offered by
the Company.
GranTek 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% 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 emitted into the atmosphere from
its Green Bay facility as a result of the evaporation process. 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 an annual report 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
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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
results of operations, financial condition, and/or competitive position.
GranTek's agricultural carrier, Biodac, 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 results of
operations, financial condition, and future operations.
(xiii) Number of Employees
-------------------
As of January 3, 1998, the Company employed 41 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 (Year First Became
Name Age Executive Officer)
--------------------------------------------------------------------
Dr. Yiannis A. Monovoukas 37 President and Chief Executive
Officer (1996)
John N. Hatsopoulos 63 Chief Financial Officer and
Senior Vice President (1996)
Paul F. Kelleher 55 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. Dr. Monovoukas has been President and
Chief Executive Officer 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 have held comparable
positions for at least five years with Thermo Fibertek and Thermo
Electron. Mr. Hatsopoulos and Mr. 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 1997 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 1997 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 1997 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 1997 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" 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 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
-------------------
None.
(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 20, 1998 THERMO FIBERGEN INC.
By: Yiannis A. Monovoukas
-----------------------------------
Yiannis A. Monovoukas
President, Chief Executive Officer,
and Director
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 20,
1998.
Signature Title
--------- -----
By: Dr. Yiannis A. Monovoukas President, Chief Executive Officer,
--------------------------
Dr. Yiannis A. Monovoukas and Director
By: John N. Hatsopoulos Chief Financial Officer and
--------------------------
John N. Hatsopoulos Senior Vice President
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: Francis L. McKone Director
--------------------------
Francis L. McKone
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 9,
1998. 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 13 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 9, 1998
15PAGE
<PAGE>
SCHEDULE II
THERMO FIBERGEN INC.
Valuation and Qualifying Accounts
(In thousands)
Accounts
Balance Provision Recovered
at Charged and Balance
Beginning to Written at End
Description of Year Expense Off Other(a) of Year
------------------------------------------------------------------------
Allowance for Doubtful
Accounts
Year Ended
January 3, 1998 $ 30 $ - $ - $ - $ 30
Year Ended
December 28, 1996 $ - $ - $ - $ 30 $ 30
(a)Allowance of business acquired during the year-ended December 28,
1996, as described in Note 3 to Consolidated Financial Statements in
the Registrant's 1997 Annual Report to Shareholders.
16PAGE
<PAGE>
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).
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).
17PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.6 Amended and Restated Master Repurchase Agreement dated as
of December 28, 1996, between Thermo Electron and the
Company (filed as Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the year ended December 28, 1996
[File No. 1-12137] and incorporated herein by reference).
10.7 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated as of December 8, 1997, between Thermo
Electron and the Company.
10.8 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated as of December 8, 1997, between Thermo
Fibertek and the Company.
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).
10.14 Restated Stock Holding Assistance Plan and Form of
Promissory Note.
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. The terms of such plans are substantially the
same as those of the Registrant's Equity Incentive Plan.
18PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
13 Annual Report to Shareholders for the year ended
January 3, 1998 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 10.7
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 8th day of
December, 1997 by and among Thermo Electron Corporation (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second
Tier Majority Owned Subsidiary's Underlying Obligations may be
demanded and given without the respective First Tier Majority
Owned Subsidiary also issuing a guarantee of such Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other
credit to a Second Tier Majority Owned Subsidiary or its
wholly-owned subsidiaries under circumstances where the
applicable First Tier Majority Owned Subsidiary does not provide
such credit; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
PAGE
<PAGE>
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
PAGE
<PAGE>
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
PAGE
<PAGE>
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
an assignment or trust mortgage for the benefit of creditors
or the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
PAGE
<PAGE>
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO ELECTRON CORPORATION
By: /s/ Melissa F. Riordan
------------------------------
Title: Treasurer
THERMO FIBERGEN INC.
By: /s/ Yiannis A. Monovoukas
------------------------------
Title: President and Chief
Executive Officer
Exhibit 10.8
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 8th day of
December, 1997 by and among Thermo Fibertek Inc. (the "Parent")
and those of its subsidiaries that join in this Agreement by
executing the signature page hereto (the "Majority Owned
Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
PAGE
<PAGE>
Parent as a result of the Parent Guarantee. If a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof
provides a Credit Support Obligation for any subsidiary of
the Parent, other than a subsidiary of such Majority Owned
Subsidiary, and the beneficiary(ies) of the Credit Support
Obligation enforce the Credit Support Obligation, or the
Majority Owned Subsidiary or its wholly-owned subsidiary
performs under the Credit Support Obligation for any other
reason, then the Parent shall indemnify and save harmless
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, from any liability, cost, expense
or damage (including reasonable attorneys' fees) suffered by
the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, as a result of the Credit Support
Obligation. Without limiting the foregoing, Credit Support
Obligations include the deposit of funds by a Majority Owned
Subsidiary or a wholly-owned subsidiary thereof in a credit
arrangement with a banking facility whereby such funds are
available to the banking facility as collateral for
overdraft obligations of other Majority Owned Subsidiaries
or their subsidiaries also participating in the credit
arrangement with such banking facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
PAGE
<PAGE>
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
PAGE
<PAGE>
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
an assignment or trust mortgage for the benefit of creditors
or the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
6. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO FIBERTEK INC.
By: /s/ William A. Rainville
------------------------------
Title: President and Chief
Executive Officer
THERMO FIBERGEN INC.
By: /s/ Yiannis A. Monovoukas
------------------------------
Title: President and Chief
Executive Officer
Exhibit 10.14
THERMO FIBERGEN INC.
--------------------
RESTATED STOCK HOLDING ASSISTANCE PLAN
--------------------------------------
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Fibergen Inc.
(the "Company") and its stockholders by encouraging Key Employees
to acquire and maintain share ownership in the Company, by
increasing such employees' proprietary interest in promoting the
growth and performance of the Company and its subsidiaries and by
providing for the implementation of the Stock Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermo Fibergen Inc., a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermo Fibergen Inc. Stock Holding Assistance
Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
PAGE
<PAGE>
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
---------
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
absolute discretion, authorize such other maturity and repayment
PAGE
<PAGE>
schedule as the Committee may determine. Each Loan shall also
become immediately due and payable in full, without demand, upon
the occurrence of any of the events set forth in the Note;
provided that the Committee may, in its sole and absolute
discretion, authorize an extension of the time for repayment of a
Loan upon such terms and conditions as the Committee may
determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMO FIBERGEN INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Fibergen Inc. (the "Company"),
or assigns, ON DEMAND, but in any case on or before [insert date
which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without
interest. Principal shall be payable in lawful money of the
United States of America, in immediately available funds, at the
principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), beginning with the first such bonus payment to
occur after the date of this Note and on each of the next four
bonus payment dates occurring prior to the Maturity Date, such
amount as may be designated by the Company. Any amount remaining
unpaid under this Note shall be due and payable on the Maturity
Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 13
THERMO FIBERGEN INC.
Consolidated Financial Statements
1997
PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Consolidated Statement of Operations
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Revenues (Note 9) $ 4,836 $ 2,223 $ -
------- ------- -------
Costs and Operating Expenses:
Cost of revenues 2,656 1,388 -
Selling, general, and administrative
expenses (Note 7) 2,727 1,126 -
Research and development expenses
(Note 7) 1,877 1,300 601
------- ------- -------
7,260 3,814 601
------- ------- -------
Operating Loss (2,424) (1,591) (601)
Interest Income 3,522 1,224 -
------- ------- -------
Income (Loss) Before Income Taxes 1,098 (367) (601)
Income Taxes (Note 6) - - -
------- ------- -------
Net Income (Loss) $ 1,098 $ (367) $ (601)
======= ======= =======
Basic and Diluted Earnings (Loss)
per Share (Note 10) $ .07 $ (.03) $ (.06)
======= ======= =======
Weighted Average Shares (Note 10):
Basic 14,715 11,321 10,000
======= ======= =======
Diluted 16,414 11,321 10,000
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Consolidated Balance Sheet
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $21,752 $58,388
Available-for-sale investments, at quoted market
value (amortized cost of $36,273; Note 2) 36,319 -
Accounts receivable, less allowance of $30
(Note 9) 645 738
Inventories 507 312
Prepaid income taxes and other current assets
(Note 6) 300 64
Due from parent company and affiliated companies 115 -
------- -------
59,638 59,502
------- -------
Property, Plant, and Equipment, at Cost, Net 5,311 5,821
------- -------
Other Assets 885 969
------- -------
Cost in Excess of Net Assets of Acquired
Company (Note 3) 4,330 4,741
------- -------
$70,164 $71,033
======= =======
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 338 $ 429
Accrued payroll and employee benefits 344 181
Other accrued liabilities 347 649
Due to parent company and affiliated companies - 1,766
------- -------
1,029 3,025
------- -------
Commitments (Note 8)
Common Stock Subject to Redemption ($60,116
redemption value), 4,715,000 shares issued
and outstanding 57,176 56,087
------- -------
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 25,000,000 shares
authorized; 10,000,000 shares issued and
outstanding 100 100
Capital in excess of par value 11,830 12,094
Accumulated deficit - (273)
Net unrealized gain on available-for-sale
investments (Note 2) 29 -
------- -------
11,959 11,921
------- -------
$70,164 $71,033
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 1,098 $ (367) $ (601)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,204 701 -
Deferred tax benefit (100) - -
Other noncash items (481) - -
Changes in current accounts,
excluding the effects of
acquisition:
Accounts receivable 93 (11) -
Inventories (195) (73) -
Other current assets (151) (64) -
Accounts payable (91) 281 -
Other current liabilities 31 568 -
-------- -------- --------
Net cash provided by (used in) operating
activities 1,408 1,035 (601)
-------- -------- --------
Investing Activities:
Acquisition, net of cash acquired
(Note 3) - (12,066) -
Purchases of available-for-sale
investments (48,050) - -
Proceeds from sale and maturities of
available-for-sale investments 12,256 - -
Purchases of property, plant, and
equipment (377) (711) -
Other 8 (11) -
-------- -------- --------
Net cash used in investing activities (36,163) (12,788) -
-------- -------- --------
Financing Activities:
Change in due to parent company and
affiliated companies (1,881) 1,766 -
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
-------- -------- --------
Net cash provided by (used in)
financing activities (1,881) 70,141 601
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents (36,636) 58,388 -
Cash and Cash Equivalents at Beginning
of Year 58,388 - -
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 21,752 $ 58,388 $ -
======== ======== ========
4PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired
company $ - $ 12,310 $ -
Cash paid for acquired company - (12,070) -
-------- -------- --------
Liabilities assumed of acquired
company $ - $ 240 $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 100 $ - $ -
Capitalization of the Company - 100 -
-------- -------- --------
Balance at end of year 100 100 -
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 12,094 - -
Capitalization of the Company - 12,400 -
Accretion of common stock subject
to redemption (Note 1) (264) (306) -
-------- -------- --------
Balance at end of year 11,830 12,094 -
-------- -------- --------
Accumulated Deficit
Balance at beginning of year (273) - -
Net income (loss) after capitalization
of the Company 1,098 (273) -
Accretion of common stock subject to
redemption (Note 1) (825) - -
-------- -------- --------
Balance at end of year - (273) -
-------- -------- --------
Net Unrealized Gain on Available-
for-sale Investments
Balance at beginning of year - - -
Change in net unrealized gain on
available-for-sale investments
(Note 2) 29 - -
-------- -------- --------
Balance at end of year 29 - -
-------- -------- --------
Net Parent Company Investment
Balance at beginning of year - - -
Net loss prior to capitalization of
the Company - (94) (601)
Net transfer from parent company
prior to capitalization of the
Company - 94 601
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 $ 11,959 $ 11,921 $ -
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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. to develop and commercialize equipment and systems
to recover materials from papermaking sludge generated by plants that
produce virgin and recycled pulp and paper. Through its GranTek Inc.
subsidiary, acquired July 1996, the Company 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, agricultural row crop, and mosquito-control applications. The
Company has also completed development and market testing of a cat box
filler product. Prior to the acquisition of GranTek, the Company was in
the development stage.
Relationship with Thermo Fibertek Inc. 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 industry, together with
$12,500,000 in cash, in exchange for 10,000,000 shares of the Company's
common stock. As of January 3, 1998, Thermo Fibertek owned 10,419,950
shares of the Company's common stock, representing 71% of such stock
outstanding. Thermo Fibertek is a 90%-owned subsidiary of Thermo Electron
Corporation.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiary. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
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 4). 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
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.
7PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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.
Earnings (Loss) per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 10). As a result, all previously reported
earnings (loss) per share have been restated; however, basic and diluted
loss per share equals the Company's previously reported loss per share
for the 1996 and 1995 periods presented. Basic earnings (loss) per share
have been computed by dividing net income (loss) by the weighted average
number of shares outstanding during the year. For periods prior to the
Company's February 1996 capitalization, shares issued in connection with
such capitalization have been shown as outstanding for purposes of
computing loss per share. Diluted earnings per share for 1997 have been
computed assuming the redemption of redeemable common stock and the
exercise of stock options, as well as their related income tax effect.
Diluted loss per share for 1996 excludes the effect of assuming the
redemption of redeemable common stock and the exercise of outstanding
stock options because the effect would be antidilutive due to the
Company's net loss during the year. In 1995, the Company had no common
stock subject to redemption or stock options outstanding.
Cash and Cash Equivalents
At year-end 1997 and 1996, $5,777,000 and $58,366,000, respectively,
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 corporate notes, commercial paper,
U.S. government-agency securities, 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. As of year-end 1997,
the Company's cash equivalents also include $15,964,000 of U.S.
government-agency securities, which have original maturities of three
months or less.
Inventories
Inventories, which represent finished goods, are stated at the lower
of cost (on a weighted average basis) or market value and include labor
and manufacturing overhead.
8PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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, 2 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) 1997 1996
----------------------------------------------------------------------
Land $ 87 $ 87
Buildings 4,120 4,077
Machinery, equipment, and leasehold improvements 2,520 2,195
------ ------
6,727 6,359
Less: Accumulated depreciation and amortization 1,416 538
------ ------
$5,311 $5,821
====== ======
Other Assets
Other assets in the accompanying balance sheet includes the cost of
patents that are amortized using the straight-line method over an
estimated useful life of 12 years. The carrying value of patents was
$875,000 and $958,000, net of accumulated amortization of $125,000 and
$42,000, at year-end 1997 and 1996, respectively.
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 $363,000 and $121,000 at year-end 1997 and
1996, respectively. 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 one share of the Company's common
stock at $12.75 per share in September 2000 or 2001. A redemption right
may only be exercised if the holder owns a share of common stock at that
time. The redemption rights carry terms that generally provide for their
9PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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. 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 retained earnings to the
extent of income, and the excess is charged to capital in excess of par
value.
Forward Contracts
The Company uses short-term forward contracts to manage exposure to
natural gas price fluctuations by entering into forward contracts to
purchase specified quantities of natural gas from its supplier. Losses
are recognized on forward purchase contracts when the accumulated cost of
inventory, including the overhead component, exceeds its net realizable
value. No losses on forward contracts were recorded in the statement of
operations for 1997, 1996, and 1995. (Note 8)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
due from parent company and affiliated companies, accounts payable, and
due to parent company and affiliated companies. Available-for-sale
investments are carried at fair value in the accompanying balance sheet
(Note 2). The fair value of available-for-sale investments was determined
based upon quoted market prices. The carrying amounts of the Company's
remaining financial instruments 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. Available-for-sale Investments
In accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt securities are
considered available-for-sale investments in the accompanying 1997
balance sheet and are carried at market value, with the difference
between cost and market value, net of related tax effects, recorded
currently as a component of shareholders' investment titled "Net
unrealized gain on available-for-sale investments."
10PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
The aggregate market value, cost basis, and gross unrealized gains of
available-for-sale investments at year-end 1997 by major security type
are as follows:
Gross
Market Cost Unrealized
(In thousands) Value Basis Gains
------------------------------------------------------------------------
Government-agency securities $35,826 $35,780 $ 46
Other 493 493 -
------- ------- -------
$36,319 $36,273 $ 46
======= ======= =======
Available-for-sale investments in the accompanying 1997 balance sheet
includes $24,657,000 with contractual maturities of one year or less and
$11,662,000 with contractual maturities of more than one year through
five years. Actual maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity
and as a result of put and call options that enable either the Company,
the issuer, or both to redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification.
3. Acquisition
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Granulation Technology, Inc. and
Biodac, a division of Edward Lowe Industries, Inc. for $12,070,000 in
cash. This business was renamed GranTek Inc. The acquisition has been
accounted for using the purchase method of accounting and the combined
results of operations of GranTek 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 $4,692,000, 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.
Based upon unaudited data, the following table presents selected
financial information for the Company and GranTek 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 (301) (4,107)
Basic and diluted loss per share (.03) (.41)
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 GranTek been made at the beginning of 1995.
11PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. 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 through the date of the Company's initial public offering
became exercisable in December 1996, and subsequent grants are
exercisable immediately. Options granted 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 seven 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.
12PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's stock option activity is as follows:
1997 1996
-------------------- --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price
----------------------------------------------------------------------
Options outstanding,
beginning of year 340 $10.27 - $ -
Granted 55 9.05 340 10.27
Forfeited (12) 9.25 - -
--- ---
Options outstanding,
end of year 383 $10.13 340 $10.27
=== ====== === ======
Options exercisable 383 $10.13 340 $10.27
=== ====== === ======
Options available for
grant 416 360
=== ===
As of January 3, 1998, the options outstanding were exercisable at
prices ranging from $8.50 to $13.65 per share and had a weighted-average
remaining contractual life of 10.1 years.
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.
13PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. 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 1997 and 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 income (loss) and basic and diluted
earnings (loss) per share would have been as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Net income (loss):
As reported $1,098 $ (367)
Pro forma 847 (479)
Basic earnings (loss) per share:
As reported .07 (.03)
Pro forma .06 (.04)
Diluted earnings (loss) per share:
As reported .07 (.03)
Pro forma .05 (.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 weighted average fair value per share of options granted was
$5.18 and $5.19 in 1997 and 1996, respectively. 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:
1997 1996
------------------------------------------------------------------------
Volatility 35% 29%
Risk-free interest rate 6.3% 6.6%
Expected life of options 7.1 years 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.
14PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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 $60,000 in 1997
and $17,000 in 1996.
5. Common Stock
At January 3, 1998, the Company had reserved 825,000 unissued shares
of its common stock for possible issuance under stock-based compensation
plans.
6. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $ 77 $ - $ -
State 23 - -
----- ----- -----
100 - -
----- ----- -----
Prepaid:
Federal (77) - -
State (23) - -
----- ----- -----
(100) - -
----- ----- -----
$ - $ - $ -
===== ===== =====
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 income (loss) before income taxes due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Income tax provision (benefit) at
statutory rate $ 373 $(125) $(204)
Increases (decreases) resulting from:
State income taxes, net of federal benefit 63 - -
Nondeductible expenses 8 - -
Other 96 - -
Change in valuation allowance (540) 125 204
----- ----- -----
$ - $ - $ -
===== ===== =====
15PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Prepaid income taxes consists of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Net operating loss carryforwards $ - $ 447
Reserves and accruals 160 110
Available-for-sale investments (17) -
----- -----
143 557
Less: Valuation allowance - (557)
----- -----
$ 143 $ -
===== =====
The reduction in the valuation allowance in 1997 is primarily due to
the utilization of net operating loss carryforwards.
7. 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 has paid Thermo
Electron annually an amount equal to 1.0% of the Company's revenues in
1997 and 1996. For these services, the Company was charged $48,000 in
1997 and $22,000 in 1996. The Company was not charged for these services
in 1995 since no revenues were recorded by the Company during this period
and the amount of services received was not material. Beginning in fiscal
1998, the Company will pay an annual fee equal to 0.8% of the Company's
revenues. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. 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. 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 the relationships among Thermo
Electron and its majority-owned subsidiaries). 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.
16PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Related-party Transactions (continued)
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 industry.
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. No scalping units have been
purchased by the Company through year-end 1997. 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%.
Other Related Party Transactions
During 1997, the Company purchased equipment for $92,000 from a
wholly owned subsidiary of Thermo Fibertek for use in its fiber-recovery
demonstration system.
During 1997, two wholly owned subsidiaries of Thermo Fibertek
performed certain laboratory and administrative services for the Company,
for which the Company paid $63,000 and $50,000, respectively.
8. Commitments
Operating Leases
The Company occupies office space under several operating leases. The
accompanying statement of operations includes expense from operating
leases of $71,000 and $43,000 in 1997 and 1996, respectively. The future
minimum payments due under noncancelable operating leases as of January
3, 1998, are $70,000 in 1998 and $23,000 in 1999. Total future minimum
lease payments are $93,000.
Purchase Commitment and Forward Contract
During 1997, the Company entered into a contract with a supplier to
purchase all natural gas requirements and natural gas management
services, which are used by its GranTek subsidiary, from the supplier
through October 31, 1998. The Company has the option to enter into
forward contracts with the supplier to purchase specified quantities of
natural gas at the then-current posted price through specified future
dates. At January 3, 1998, the Company had committed to purchase natural
gas for $69,000 during January 1998.
17PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Commitments (continued)
Long-term Contract
In December 1997, the Company entered into a ten-year contract with a
paper mill to provide fiber-recovery and water-clarification services to
the mill. In addition, the Company and the paper mill have entered into
lease and services agreements, under which the Company will lease land
from the paper mill for a nominal fee and the paper mill will provide
certain utilities and services to the Company. The Company plans to
construct a fiber-recovery and water-clarification facility on the leased
property. Once operational, the Company will provide the paper mill with
fiber-recovery and water-clarification services for established monthly
fees, with increases upon the attainment of certain performance goals by
the Company. The contract may be canceled by either party at the end of
the fourth year of the contract, or within one year's notice thereafter,
if certain benefits or profitability levels are not achieved. If either
party elects to terminate the agreement, the paper mill will be required
to purchase the facility from the Company at its net book value.
The Company has entered into an engineering, procurement, and
construction contract for the fiber-recovery and water-clarification
facility discussed above. Under the contract, the contractor will receive
reimbursement for costs incurred on the contract, not to exceed a maximum
specified amount, plus a fee. The fee paid to the contractor is subject
to increases to the extent that the costs incurred by the contractor for
the facility are less than the maximum specified amount. The cost of the
facility, including additional expenditures for equipment purchased from
Thermo Fibertek, is estimated at $3.5 million.
9. Significant Customers and Concentrations of Risk
Revenues from one customer accounted for 54% and 56% of the Company's
total revenues in 1997 and 1996, respectively. Revenues from a second
customer accounted for 15% and 21% of the Company's total revenues in
1997 and 1996, respectively. Revenues from a third customer accounted for
14% of the Company's total revenues in 1997. The Company's largest
customer has indicated that it will reduce its level of purchases from
the Company in 1998, relative to 1997. In addition, the parent company of
this customer has announced its intent to divest of its home, lawn, and
garden group, the Company's largest customer. No assurance can be given
that the Company's relationship with this customer will continue
subsequent to such divestiture.
At year-end 1997, a significant portion of the accounts receivable
due to the Company were from two 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 Biodac product is sold principally 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
18PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Significant Customers and Concentrations of Risk (continued)
has the exclusive right to supply papermaking sludge to GranTek's
existing granulation plant in Green Bay, Wisconsin, under a contract
which expires in December 1999, 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.
10. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as
follows:
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Basic
Net income (loss) $ 1,098 $ (367) $ (601)
-------- -------- --------
Weighted average shares 14,715 11,321 10,000
-------- -------- --------
Basic earnings (loss) per share $ .07 $ (.03) $ (.06)
======== ======== ========
Diluted
Net income (loss) $ 1,098 $ (367) $ (601)
-------- -------- --------
Weighted average shares 14,715 11,321 10,000
Effect of:
Redemption rights 1,698 - -
Stock options 1 - -
-------- -------- --------
Weighted average shares, as adjusted 16,414 11,321 10,000
-------- -------- --------
Diluted earnings (loss) per share $ .07 $ (.03) $ (.06)
======== ======== ========
The computation of diluted earnings per share for 1997 excludes the
effect of assuming the exercise of certain outstanding stock options
because the effect would be antidilutive. As of January 3, 1998, there
were 360,000 of such options outstanding, with exercise prices ranging
from $10.00 to $13.65 per share. The computation of diluted loss per
share for 1996 excludes the effect of assuming the redemption of
redeemable common stock and the exercise of outstanding stock options
because the effect would be antidilutive due to the Company's net loss
during the year.
19PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third Fourth
----------------------------------------------------------------------
Revenues $1,526 $1,598 $ 906 $ 806
Gross profit 724 854 372 230
Net income 367 568 158 5
Earnings per share:
Basic .02 .04 .01 -
Diluted .02 .03 .01 -
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:
Basic (.01) (.02) (.04) .02
Diluted (.01) (.02) (.04) .02
(a) Reflects the acquisition of GranTek in July 1996 and the net proceeds
from the Company's initial public offering in September 1996.
20PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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 71%-owned subsidiary of Thermo
Fibertek Inc.) and subsidiary as of January 3, 1998, and December 28,
1996, and the related consolidated statements of operations,
shareholders' investment, and cash flows for each of the three years in
the period ended January 3, 1998. 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 January 3, 1998, and December
28, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 9, 1998
21PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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
heading "Forward-looking Statements."
Overview
The Company is developing and commercializing equipment and systems
to recover materials from papermaking sludge generated by plants that
produce virgin and recycled pulp and paper. Through its GranTek Inc.
subsidiary, acquired in July 1996, the Company 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, agricultural row crop, and mosquito-control
applications. The Company has also completed development and market
testing of a cat box filler product.
The Company's sales are principally 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 earns 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, as well as the international
agricultural row-crop market, if successful, may mitigate the seasonality
of the Company's sales.
The Company currently intends to limit the pace and amount of its
research and development so that its internally funded research and
development expenditures will not exceed the interest income earned on
its cash, cash equivalents, and available-for-sale investments, plus the
Company's operating earnings before research and development expenses, if
any.
Results of Operations
1997 Compared With 1996
Revenues increased to $4,836,000 in 1997 from $2,223,000 in 1996,
primarily due to the inclusion of revenues for the full twelve-month
period from GranTek, acquired July 1996, offset in part by a $511,000
decrease in revenues in the second half of 1997, primarily due to a
22PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
decrease in demand from the Company's largest customer. The Company's
largest customer, which accounted for $2,625,000 of revenues in 1997, has
indicated that it will reduce its level of purchases from the Company in
1998, relative to 1997. In addition, the parent company of this customer
has announced its intent to divest of its home, lawn, and garden group,
the Company's largest customer. No assurance can be given that the
Company's relationship with this customer will continue subsequent to
such divestiture. (Note 9)
The gross profit margin increased to 45% in 1997 from 38% in 1996,
primarily due to an increase in revenues, a decrease in manufacturing
costs, and a change in product mix. In addition, 1996 included an
adjustment to expense relating to the revaluation of finished goods
inventory acquired from GranTek in 1996.
Selling, general, and administrative expenses as a percentage of
revenues increased to 56% in 1997 from 51% in 1996, principally due to
the hiring of additional sales, marketing, and administrative staff to
expand the Company's fiber-recovery business.
Research and development expenses increased to $1,877,000 in 1997
from $1,300,000 in 1996. This increase was primarily due to the
acceleration of the Company's research and development efforts associated
with the Company's fiber-recovery system and the extraction and
purification of minerals, as well as the inclusion of expenses from
GranTek for the full twelve-month period.
Interest income increased to $3,522,000 in 1997 from $1,224,000 in
1996, primarily due to an increase in average invested balances resulting
from the proceeds from the Company's September 1996 initial public
offering, as well as cash received in connection with the initial
capitalization of the Company in February 1996.
The Company had no income tax expense in 1997 due to a benefit
recorded from the use of net operating loss carryforwards. The Company
has no remaining net operating loss carryforwards to benefit in future
years.
1996 Compared With 1995
Revenues of $2,223,000 in 1996 represent revenues from GranTek,
acquired 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 associated
with the Company's fiber-recovery system and the extraction and
purification of minerals, as well as the inclusion of $188,000 of
expenses at GranTek.
23PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
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.
The Company had no income tax benefit in 1996 due to a valuation
allowance established for net operating loss carryforwards and other tax
assets due to the uncertainty surrounding their realization.
Liquidity and Capital Resources
Consolidated working capital was $58,609,000 at January 3, 1998,
compared with $56,477,000 at December 28, 1996. Included in working
capital at January 3, 1998, are cash, cash equivalents, and
available-for-sale investments of $58,071,000, compared with $58,388,000
at December 28, 1996. During 1997, $1,408,000 of cash was provided by
operating activities.
During 1997, the Company's primary investing activity, excluding
available-for-sale investments activity, was the purchase of property,
plant, and equipment for $377,000. During 1997, $1,881,000 of cash was
used in financing activities to reduce "Due to parent company and
affiliated companies."
The Company's common stock subject to redemption is redeemable by
holders of redemption rights in September 2000 or 2001 for a total
redemption value of $60,116,000. The redemption rights are guaranteed, on
a subordinated basis, by Thermo Electron Corporation.
In 1998, the Company plans to make expenditures for property, plant,
and equipment of approximately $5 million, which includes expenditures
for the construction of a fiber-recovery and water-clarification facility
(Note 8). In addition, the Company may make additional capital
expenditures for the construction of additional fiber-recovery
facilities. Construction of fiber-recovery facilities is dependent upon
the Company entering into long-term contracts with paper mills, under
which the Company will charge fees to accept the mills' papermaking
sludge. The Company currently has only one such agreement in place and
there is no assurance that the Company will be able to obtain such
additional contracts. The Company anticipates it will require significant
amounts of cash for the construction of its fiber-recovery facilities.
The Company expects to finance the construction of its fiber-recovery
facilities through a combination of internal funds, additional debt or
equity financing, and/or 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.
24PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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 1998 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. on December 29, 1991. As
of January 3, 1998, the cumulative operating losses of the Company were
approximately $4,997,000. The Company expects to continue to incur
operating losses for at least the next several years.
Concentration of Revenues. Historically, a significant portion of the
Company's revenues in any particular period has been attributable to
sales to a limited number of customers. Revenues from the Company's
largest customer accounted for 54% and 56% of the Company's total
revenues in 1997 and 1996, respectively. Revenues from a second customer
accounted for 15% and 21% of the Company's total revenues in 1997 and
1996, respectively. Revenues from a third customer accounted for 14% of
the Company's total revenues in 1997. The Company's largest customer has
indicated that it will reduce its level of purchases from the Company in
1998, relative to 1997. In addition, the parent company of this customer
has announced its intent to divest of its home, lawn, and garden group,
the Company's largest customer. No assurance can be given that the
Company's relationship with this customer will continue subsequent to
such divestiture. The loss of a significant customer, any reduction in
orders from a significant customer, or the cancellation of a significant
order from a customer could have a material adverse effect on the
Company's results of operations.
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
and certain testing of its mobile pilot fiber-recovery system, it has not
yet completed installation of a full-scale fiber-recovery system. 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 shares
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
25PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
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 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 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 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, composite materials and pure
minerals, and its GranTek Inc. 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 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
26PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
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 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 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 in certain cases 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.
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, after successful installation of one or more of its
fiber recovery plants, the Company expects to seek to finance its
recovery plants in a manner that is substantially nonrecourse to the
27PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
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, the capital
stock of a subsidiary operating such plant, or both. 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 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. The Company also competes with incineration facilities in Europe.
In addition, many pulp mills have already made substantial investments in
dewatering 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
technologies and services to treat and process papermaking sludge which
are similar to those of the Company. No assurance can be given that these
technologies will not be superior to those of the Company or that they
will 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
28PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
its commercial plants will be located on property leased from a pulp or
paper mill or acquired at, or immediately adjacent to, a pulp or paper
mill. 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's existing granulation plant. The contract terminates on
December 26, 1999, 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 1999.
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
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
will 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 operations are 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), the Federal Toxic Substances Control Act (TSCA), the Resource
Conservation and Recovery Act of 1976 (RCRA), the Clean Air Act (CAA),
and equivalent state laws. 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 damage on the owner or
operator of a facility from which there is a release, or a threat of a
29PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
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 remediation of its facilities. Because
Subtitle D of RCRA imposes strict requirements on landfills, such as the
requirement that new landfills 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 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 emitted into the
atmosphere from its Green Bay facility as a result of the evaporation
process. 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 an annual report 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,
30PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Forward-looking Statements
RCRA, and applicable federal and state regulations, no assurance can be
given that such regulations will not be made more stringent in the future
or that papermaking sludge containing such substances will not be
regulated as hazardous under TSCA or RCRA, or that federal or state
regulations will 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
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.
31PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997 1996(a) 1995 1994 1993
-----------------------------------------------------------------------
Statement of Operations
Data:
Revenues $ 4,836 $ 2,223 $ - $ - $ -
Net income (loss) 1,098 (367) (601) (128) (106)
Basic and diluted
earnings (loss)
per share .07 (.03) (.06) (.01) (.01)
Balance Sheet Data:
Working capital $58,609 $56,477 $ - $ - $ -
Total assets 70,164 71,033 - - -
Common stock subject
to redemption 57,176 56,087 - - -
Shareholders'
investment 11,959 11,921 - - -
(a) Reflects the transfer of $12,500,000 in cash to the Company from
Thermo Fibertek in connection with the capitalization of the Company
in February 1996, the acquisition of GranTek in July 1996, and the
net proceeds from the Company's initial public offering in September
1996.
32PAGE
<PAGE>
Thermo Fibergen Inc. 1997 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 Company's common stock and
redemption rights are traded on the American Stock Exchange under the
symbols TFG and TFG-R, respectively. The following table sets forth the
high and low sale prices of the Company's equity securities for 1997 and
1996, as reported in the consolidated transaction reporting system.
Units Common Stock Redemption Rights
----------------- -------------------- ------------------
Quarter High Low High Low High Low
------------------------------------------------------------------------
1997
First $ - $ - $10 10/16 $ 7 1/2 $ 4 1/2 $ 2 9/16
Second - - 10 3/8 7 13/16 3 15/16 2 1/2
Third - - 10 1/2 9 1/4 3 1/8 2 9/16
Fourth - - 10 1/4 8 3/4 3 1/2 2 9/16
1996
Fourth 14 1/8 11 3/4 11 3/4 10 3/4 2 5/16 1 3/4
As of January 30, 1998, the Company had 10, 5, and 32 holders of
record of its common stock, redemption rights, and units, 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 30, 1998, was $8 13/16 per share.
Security-holder Services
Holders of Thermo Fibergen Inc. common stock, redemption rights, and
units 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, (781)
622-1111. A mailing list is maintained to enable holders whose 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. Distribution of printed quarterly
reports is limited to the second quarter only. All material will be
available from Thermo Electron's Internet site (http://www.thermo.
com/subsid/tfg1.html).
Transfer Agent
American Stock Transfer & Trust Company is the transfer agent and
maintains holders' activity records. The agent will respond to questions
on issuance of stock and rights certificates, change of ownership, lost
stock and rights 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
33PAGE
<PAGE>
Thermo Fibergen Inc. 1997 Financial Statements
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.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, 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 1,
1998, at 8:15 a.m., at the Hyatt Regency Hotel, Scottsdale, Arizona.
Exhibit 21
THERMO FIBERGEN INC.
Subsidiaries of the Registrant
At February 20, 1998, Thermo Fibergen Inc. owned the following
companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
------------------------------------------------------------------------
Fibergen Securities Corporation Massachusetts 100%
GranTek Inc. Wisconsin 100%
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERGEN INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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