<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d) (4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
THERMEDICS INC.
(NAME OF SUBJECT COMPANY)
THERMEDICS INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.10 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
883901 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
T. ANTHONY BROOKS AND NICHOLAS T. ZERVAS
MEMBERS OF THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
C/O JAMES WESTRA, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
JAMES WESTRA, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
[ ] check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is Thermedics Inc., a
Massachusetts corporation (the "Company"). The address of the principal
executive offices of the Company is 470 Wildwood Street, P.O. Box 2999, Woburn,
Massachusetts 01888-1799. The telephone number of the principal executive
offices is (781) 622-1000.
The title of the class of equity securities to which this Schedule 14D-9
relates is the common stock, $.10 par value per share, of the Company (the
"Common Stock" or the "Shares"). As of March 31, 2000, there were 42,049,606
shares of Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
This Schedule 14D-9 is being filed by the subject company, Thermedics Inc.
The business address, and business telephone number of the Company are set forth
in Item 1 above.
This Schedule 14D-9 relates to the exchange offer by Thermo Electron
Corporation, a Delaware corporation ("Thermo Electron"), to exchange 0.45 shares
(the "Exchange Ratio") of common stock, $1.00 par value per share, of Thermo
Electron (the "Thermo Electron Common Stock") for each outstanding share of
Common Stock of the Company not currently owned by Thermo Electron (the
"Publicly Held Shares"), upon the terms and subject to the conditions set forth
in the Prospectus, dated May 1, 2000 (the "Prospectus"), and the related Letter
of Transmittal (the "Letter of Transmittal" which, together with the Prospectus,
as amended or supplemented from time to time, constitute the "Offer"). Thermo
Electron filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") on
May 1, 2000, of which the Prospectus forms a part.
The Prospectus states that if the tender offer is completed, Thermo
Electron will own at least 90% of the Company's outstanding Shares and will
cause the Company to merge with and into Thermo Electron (the "Merger") in a
so-called "short-form" merger. A short-form merger would not require the
approval of the Company's Board of Directors or the stockholders of the Company
other than Thermo Electron.
Thermo Electron's principal executive offices, as set forth in the
Prospectus, are located at 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02454-9046 and its business telephone number is (781) 622-1000.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Thermo Electron or its direct and indirect affiliates, or
actions or events with respect to any of them, was provided for inclusion herein
by Thermo Electron or obtained from reports or statements filed by Thermo
Electron with the Commission, including, without limitation, the Registration
Statement and the Prospectus, and the Company takes no responsibility for such
information.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
History of the Company. The Company was incorporated as a Massachusetts
corporation in June 1983 as a wholly owned subsidiary of Thermo Electron. In
August 1983 the Company conducted an initial public offering of its Common
Stock. Following the offering, Thermo Electron, through its ownership of Common
Stock, maintained a controlling interest in the Company. According to the
Exchange Offer, Thermo Electron is a global leader in the development,
manufacture and sale of measurement and detection instruments used to monitor,
collect and analyze data that provides knowledge for the user. The instruments
are used in a wide range of industries, including industrial processing, food
and beverage production, life science research and medical diagnostics.
As described below under "Item 4 -- The Solicitation or Recommendation," on
January 31, 2000, Thermo Electron announced a restructuring plan pursuant to
which it expects to spin in, spin off and sell various businesses to focus
solely on its core measurement and detection instruments business. In that
announcement, Thermo Electron stated that it planned to take private certain of
its majority owned
2
<PAGE> 3
subsidiaries, including the Company. On March 8, 2000, the Exchange Ratio was
announced by Thermo Electron. On May 1, 2000, Thermo Electron filed the
Registration Statement with the Commission and commenced the Offer. The
Prospectus also has been filed with the Commission as part of the Registration
Statement and as Exhibit 6 hereto.
Based on the Prospectus, as of March 31, 2000, Thermo Electron beneficially
owned 31,759,424 Shares, representing approximately 75.5% of the then issued and
outstanding Shares.
Composition of the Company's Board of Directors. The Company's Board of
Directors currently consists of the following six members (George N. Hatsopoulos
retired from the Board of Directors effective March 31, 2000):
T. Anthony Brooks.......Mr. Brooks, 60, Chairman of the Special Committee, has
been a director of the Company since September 1998. Mr.
Brooks was a managing director and member of the
operating committee of Lehman Brothers Inc. from 1991
until his retirement in 1997. While at Lehman Brothers
Inc., Mr. Brooks was the head of global equity capital
markets from 1991 to 1994 and the head of the European
equity division from 1995 to 1996.
Peter O. Crisp..........Mr. Crisp, 67, has been a director of the Company since
1983. Mr. Crisp was a general partner of Venrock
Associates, a venture capital investment firm, for over
five years until his retirement in September 1997. He
has been the vice chairman of Rockefeller Financial
Services, Inc. since December 1997. Mr. Crisp is also a
director of American Superconductor Corporation, Evans &
Sutherland Computer Corporation, Thermo Electron, Thermo
Trex Corporation and United States Trust Corporation.
Paul F. Ferrari.........Mr. Ferrari, 69, has been a director of the Company
since 1991. Mr. Ferrari was a vice president of Thermo
Electron from 1988 until his retirement at the end of
1990, its secretary from 1981 to 1990, and its treasurer
from 1967 to 1988. He served as the Company's clerk from
1983 to 1990 and its treasurer from 1983 to 1988. Mr.
Ferrari is also a director of General Scanning Inc. and
ThermoTrex Corporation.
John T. Keiser..........Mr. Keiser, 64, has been a director of the Company since
April 1997. He has been the president and chief
executive officer of the Company since March 1998 and
December 1998, respectively. From 1994 until March 1998,
Mr. Keiser was a senior vice president of the Company.
Mr. Keiser has been the chief operating officer,
biomedical and emerging technologies, of Thermo Electron
since September 1998, and a vice president from April
1997 until his promotion. He has also been the president
of Thermo Electron's wholly owned biomedical group, a
manufacturer of medical equipment and instruments, since
1994. Mr. Keiser was president of Eberline Instrument, a
division of Thermo Instrument Systems Inc., a
manufacturer of measurement and detection instruments
and a majority owned subsidiary of Thermo Electron, from
1985 to July 1994. The Eberline Instrument division
manufactures radiation detection and counting
instrumentation and radiation monitoring systems. Mr.
Keiser is a director of Thermo Cardiosystems Inc.,
ThermoLase Corporation, ThermoTrex Corporation and Trex
Medical Corporation.
John W. Wood Jr. .......Mr. Wood, 56, has been a director of the Company since
1984 and chairman of the board since March 1998. Mr.
Wood was president and chief executive officer of the
Company from 1984 to March 1998. Mr. Wood has been a
senior vice president of Thermo Electron since December
1995, and, prior to that
3
<PAGE> 4
promotion was a vice president of Thermo Electron from
September 1994 to December 1995.
Nicholas T. Zervas......Dr. Zervas, 70, a member of the Special Committee, has
been a director of the Company since 1987. Dr. Zervas
has been Chief of Neurosurgical Service, Massachusetts
General Hospital, since 1977. Dr. Zervas is also a
director of Thermo Cardiosystems Inc., ThermoLase
Corporation and ThermoTrex Corporation.
Executive Officers of the Company. The following persons are currently
executive officers of the Company:
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
John T. Keiser........................... President and Chief Executive Officer
Theo Melas-Kyriazi....................... Chief Financial Officer
Victor L. Poirier........................ Senior Vice President
Daniel L. Brown.......................... Vice President
</TABLE>
According to the Prospectus, following the consummation of the Offer and
the Merger, Thermo Electron anticipates that the Board of Directors of the
Company will be comprised solely of members of the Company's and Thermo
Electron's management.
Conflicts of Interest. Certain directors and the executive officers of the
Company have interests in connection with the Offer that present them with
actual or potential conflicts of interest, as summarized herein.
Mr. Brooks, the Chairman of the Special Committee is deemed to beneficially
own 5,367 Shares. The Shares deemed beneficially owned by Mr. Brooks include
1,000 Shares that Mr. Brooks has the right to acquire within 60 days of January
31, 2000 through the exercise of stock options. The Shares deemed beneficially
owned by Mr. Brooks also include 1,367 Shares that have been allocated to Mr.
Brooks' account maintained under the Company's Deferred Compensation Plan for
directors.
Dr. Zervas, a member of the Special Committee is deemed to beneficially own
22,064 Shares. The Shares deemed beneficially owned by Dr. Zervas include 10,364
Shares that have been allocated to Dr. Zervas' account maintained under the
Company's Deferred Compensation Plan for directors.
Officers and directors of the Company who own Shares and tender such Shares
will receive the same Exchange Ratio on the same terms as set forth in the
Exchange Offer. As of January 31, 2000, the members of the Board of Directors
and executive officers of the Company owned, in the aggregate, 178,766 Shares.
Assuming all the members of the Board of Directors and all executive officers
actually tender their Shares, they would receive an aggregate of 80,444 shares
of Thermo Electron Common Stock in exchange for their Shares.
In addition, as of January 31, 2000, the directors, including Mr. Brooks,
and executive officers of the Company held options to acquire an aggregate of
406,000 Shares with exercise prices ranging from $7.14 to $17.11 per Share. In
connection with the acquisition of the Shares and the Merger, Thermo Electron
will assume the options to acquire Shares and will convert such options into
options to acquire shares of Thermo Electron Common Stock on the same terms as
Thermo Electron assumes and converts all of the other outstanding Company
options in connection with the Exchange Offer and the Merger.
Certain directors and certain executive officers of the Company are
directors or officers of Thermo Electron. Certain of such directors and
executive officers of the Company hold equity interests in Thermo Electron. John
T. Keiser, a Director, President and Chief Executive Officer of the Company, is
also Chief Operating Officer, biomedical, of Thermo Electron. Theo
Melas-Kyriazi, the Chief Financial Officer of the Company, is also the Chief
Financial Officer of Thermo Electron. Peter O. Crisp, a Director, is also a
Director of Thermo Electron. Consequently, certain of these directors and
officers receive or have received compensation not only from the Company but
also from Thermo Electron.
4
<PAGE> 5
The members of the Board of Directors of Thermo Electron own common stock
of, or hold options to purchase the common stock of, Thermo Electron and/or the
Company. In addition, certain members of the Board of Directors of Thermo
Electron are also officers of the Company. These positions and equity interests
present these directors with actual or potential conflicts of interest in
determining the fairness of the Offer and the Merger to the Public Shareholders.
See Annex A to the Prospectus, which is Exhibit 6 hereto and incorporated herein
by reference, for a listing of the positions that the members of the Board of
Directors of Thermo Electron hold with Thermo Electron and/or the Company and
their ownership of the common stock of Thermo Electron and/or the Company.
Thermo Electron has entered into separate indemnification agreements with
each of the Company's executive officers and directors, including Mr. Brooks and
Dr. Zervas, providing for the indemnification and advancement of expenses to
such person directly by Thermo Electron in the event that such person, by reason
of his or her status as a director or officer of the Company (or service as a
director, officer or fiduciary of another entity at the request of Thermo
Electron), is made or is threatened to be made party to any threatened, pending
or completed action, suit or other proceeding, whether civil, criminal,
administrative or investigative, if such officer or director acted in good faith
and in a manner believed to be in or not opposed to the best interests of Thermo
Electron and, in the case of a criminal action or proceeding, had no reason to
believe his or her conduct was unlawful. Each of the directors of the Company,
including Mr. Brooks and Dr. Zervas, also has entered into an indemnification
agreement with the Company, on terms and conditions similar to the Thermo
Electron indemnification agreement. Forms of such indemnification agreements are
attached hereto as Exhibit 9 and Exhibit 10.
Certain Compensation Matters; Agreements. Certain contracts, agreements,
arrangements and understandings between the Company or its affiliates and
certain of the Company's executive officers or directors are summarized below.
Thermo Electron has entered into agreements with certain executive officers and
key employees of Thermo Electron and its subsidiaries, including the Company,
that provide severance benefits if there is a change in control of Thermo
Electron and their employment is terminated by Thermo Electron "without cause"
or by the individual for "good reason," as those terms are defined therein,
within 18 months thereafter. For purposes of these agreements, a change in
control exists upon (i) the acquisition by any person of 40% or more of the
outstanding common stock or voting securities of Thermo Electron; (ii) the
failure of the Thermo Electron board of directors to include a majority of
directors who are "continuing directors", which term is defined to include
directors who were members of Thermo Electron's board on the date of the
agreement or who subsequent to the date of the agreement were nominated or
elected by a majority of directors who were "continuing directors" at the time
of such nomination or election; (iii) the consummation of a merger,
consolidation, reorganization, recapitalization or statutory share exchange
involving Thermo Electron or the sale or other disposition of all or
substantially all of the assets of Thermo Electron unless immediately after such
transaction (a) all holders of Thermo Electron common stock immediately prior to
such transaction own more than 60% of the outstanding voting securities of the
resulting or acquiring corporation in substantially the same proportions as
their ownership immediately prior to such transaction and (b) no person after
the transaction owns 40% or more of the outstanding voting securities of the
resulting or acquiring corporation; or (iv) approval by stockholders of a
complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
each of Mr. John T. Keiser and Mr. Victor L. Poirier. These agreements provide
that in the event the individual's employment is terminated under circumstances
described above, the individual would be entitled to a lump sum payment equal to
the sum of (a) in the case of Mr. Keiser, two times, and in the case of Mr.
Poirier, one times, the individual's highest annual base salary in any 12 month
period during the prior five-year period, plus (b) in the case of Mr. Keiser,
two times, and in the case of Mr. Poirier, one times, the individual's highest
annual bonus in any 12 month period during the prior five-year period. In
addition, the individual would be provided benefits for a period of, in the case
of Mr. Keiser, two years, and in the case of Mr. Poirier, one year, after such
termination substantially equivalent to the benefits package the individual
would have been otherwise entitled to receive if the individual was not
terminated. Further, all repurchase rights of Thermo Electron and its
subsidiaries shall lapse in their entirety with respect to all options and
restricted stock that the individual holds
5
<PAGE> 6
in Thermo Electron and its subsidiaries, including the Company, as of the date
of the change in control. Finally, the individual would be entitled to a cash
payment equal to, in the case of Mr. Keiser, $20,000, and in the case of Mr.
Poirier, $15,000, to be used toward outplacement services. These executive
retention agreements supercede and replace any and all prior severance
arrangements which these individuals had with Thermo Electron.
Assuming that the severance benefits would have been payable as of January
1, 2000, the lump sum salary and bonus payment under such agreement to Messrs.
Keiser and Poirier would have been approximately $920,000 and $364,500,
respectively. In the event that payments under these agreements are deemed to be
so called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individuals would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by such individual with respect to such payment plus
the amount of all other additional taxes imposed on such individual attributable
to the receipt of such gross-up payment.
The above mentioned executive retention agreements are also described in
Section 11 -- "Executive Compensation, Executive Retention Agreements" of the
Company's Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for
its fiscal year ended January 1, 2000 (the "Form 10-K/A"). Such section of the
Form 10-K/A is filed as Exhibit 11 hereto.
In addition to the fees they receive for serving as a director of the
Company, Mr. Brooks and Dr. Zervas receive from the Company a quarterly fee of
$15,000 for serving on the Special Committee. They also receive an attendance
fee of $1,000 for each in-person Special Committee meeting, $500 for each
telephonic Special Committee meeting, and reimbursement for out-of-pocket
expenses incurred in connection with their service on the Special Committee.
Transactions Between the Company (and certain of its subsidiaries) and
Thermo Electron. The Company (and certain of its subsidiaries) and Thermo
Electron are also parties to certain other agreements, arrangements and
understandings as summarized below. In accordance with the Thermo Electron
Charter, the Company and Thermo Electron have entered into a Corporate Services
Agreement (the "Services Agreement") under which Thermo Electron's corporate
staff provides certain administrative services, including certain legal advice
and services, risk management, employee benefit administration, tax advice and
preparation of tax returns, centralized cash management and financial and other
services to the Company. The Company was assessed an annual fee equal to 0.8% of
the Company's revenues for these services for fiscal 1999. The annual fee will
remain at 0.8% of the Company's total revenues for fiscal 2000. The fee is
reviewed annually and may be changed by mutual agreement of the Company and
Thermo Electron. During fiscal 1999, Thermo Electron assessed the Company
$1,788,000 in fees under the Services Agreement. Management believes that the
charges under the Services Agreement are reasonable and that the terms of the
Services Agreement are fair to the Company. In fiscal 1999, the Company was
billed an additional $56,318 by Thermo Electron for certain administrative
services required by the Company that were not covered by the Services
Agreement. The Services Agreement automatically renews for successive one-year
terms, unless canceled by the Company upon 30 days' prior notice. In addition,
the Services Agreement terminates automatically in the event the Company ceases
to be a Thermo Electron subsidiary or ceases to be a participant in the Thermo
Electron Charter. In the event of a termination of the Services Agreement, the
Company will be required to pay a termination fee equal to the fee that was paid
by the Company for services under the Services Agreement for the nine-month
period prior to termination. Following termination, Thermo Electron may provide
certain administrative services on an as-requested basis by the Company or as
required in order to meet the Company's obligations under Thermo Electron's
policies and procedures. Thermo Electron will charge the Company a fee equal to
the market rate for comparable services if such services are provided to the
Company following termination.
As of January 1, 2000, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $3,121,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services
and for miscellaneous items, net of amounts owed to the Company by Thermo
Electron and its other subsidiaries for products, services and for miscellaneous
items. The largest amount of such net
6
<PAGE> 7
indebtedness owed by the Company to Thermo Electron and its other subsidiaries
since January 2, 1999 was $7,138,000. These amounts do not bear interest and are
expected to be paid in the normal course of business.
Thermedics Detection, a subsidiary of the Company, purchases an X-ray
source that is used as a component in its InScan systems from Trex Medical
Corporation, a publicly traded, majority owned subsidiary of ThermoTrex
Corporation ("ThermoTrex"), which is itself a publicly traded, majority owned
subsidiary of Thermo Electron. Thermedics Detection paid Trex Medical
Corporation $81,000 for these products in fiscal 1999.
Pursuant to an international distributorship agreement, Thermedics
Detection appointed Arabian Business Machines Co. ("ABM") as its exclusive
distributor of Thermedics Detection's security instruments in certain Middle
Eastern countries. ABM is a member of the Olayan Group. Ms. Hutham S. Olayan, a
director of Thermo Electron, is the president and a director of Olayan America
Corporation, a member of The Olayan Group, which is indirectly controlled by
Suliman S. Olayan, Ms. Olayan's father. Revenues recorded under this agreement
totaled $147,000 in fiscal 1999.
In June 1998, Thermo Sentron, a subsidiary of the Company, borrowed $21
million from Thermo Electron pursuant to a promissory note due December 1998,
bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Thermo Sentron entered into this
note in order to partially finance its acquisition of the three businesses that
constituted the product-monitoring group of Graseby Limited, a subsidiary of
Smiths Industries plc ("Graseby"), for $44 million in cash, net of cash
acquired, and the assumption of certain liabilities. In December 1998, Thermo
Sentron repaid $2 million of this amount and issued Thermo Electron a new
promissory note for $19 million in exchange for the initial note. This note is
due June 1999 and bears interest under the same terms as the initial note.
Subsequently, in June 1999, Thermo Sentron repaid $6 million of this amount and
issued a new note for $13 million. Thermo Sentron repaid an additional $1
million under the note in each of the third and fourth quarters of 1999. In
March 2000, Thermo Sentron refinanced the note under the Thermo Electron Cash
Management arrangement which bears interest at a rate equal to the 30-day Dealer
Commercial Paper Rate plus 150 basis points set at the beginning of each month
and was 7.55% at April 1, 2000.
In January 2000, Thermo Sentron entered into a fifteen year lease
arrangement with Thermo Electron with respect to Thermo Sentron's principal
executive offices in Minneapolis, Minnesota. The rent payable by Thermo Sentron
to Thermo Electron under the lease is $50,000 per month for the first five years
of the lease, $55,000 per month for the second five years of the lease and
$60,000 per month for the final fives years of the lease.
Thermo Sentron acts as a distributor in Europe for process measurement
instruments manufactured by another Thermo Electron subsidiary. In 1999, Thermo
Sentron purchased such products from this Thermo Electron subsidiary for
$326,000.
Thermo Electron's Tecomet division provides metal fabrication services in
connection with the manufacture of the heart assist devices sold by Thermo
Cardiosystems, a subsidiary of the Company. During 1999, Thermo Cardiosystems
paid Tecomet $3,651,000 for these services.
On February 5, 1998, the Company's board of directors voted to issue
4,880,533 shares of Common Stock to Thermo Electron in exchange for 100% of the
stock of TMO TCA Holdings, Inc., which is the beneficial owner of 3,355,705
shares of Thermo Cardiosystems' common stock. Thermo Electron had acquired such
shares of Thermo Cardiosystems common stock as consideration for the acquisition
by Thermo Cardiosystems of International Technidyne Corporation ("ITC") from
Thermo Electron in May 1997. The Thermo Cardiosystems shares were valued at
$75,000,000 at the time of the acquisition by Thermo Cardiosystems of ITC. The
issuance of the 3,355,705 shares of Thermo Cardiosystems' common stock was
subject to the approval of Thermo Cardiosystems' stockholders of the listing of
such shares for trading on the American Stock Exchange, which was obtained at a
special meeting of the stockholders of Thermo Cardiosystems held on April 13,
1998. The Company's issuance of the 4,880,533 shares of Common Stock to Thermo
Electron was subject to approval by the Company's stockholders, which was
obtained at a special meeting of the Stockholders held on March 31, 1999. The
number of shares of Common Stock was determined based on the
7
<PAGE> 8
respective fair market values of the Common Stock and the Thermo Cardiosystems
common stock as of February 5, 1998. The fair market values of the 4,880,553
shares of Common Stock and the 3,355,705 shares of Thermo Cardiosystems common
stock as of February 5, 1998 were each $75,587,000.
The Company, along with other U.K.-based Thermo Electron companies,
participates in a notional pool arrangement in the U.K. with Barclays Bank,
which includes a $114,943,000 credit facility. The Company has access to
$6,065,000 under this credit facility. Under this arrangement, Barclays
notionally combines the positive and negative cash balances held by the
participants to calculate the net interest yield/expense for the group. The
benefit derived from this arrangement is then allocated based on balances
attributable to the respective participants. Thermo Electron guarantees all of
the obligations of each participant in this arrangement. As of January 1, 2000,
the Company had a positive cash balance of approximately and a $1,441,000 and a
negative cash balance of approximately $2,640,000 based on an exchange rate of
$1.6171/ GBP 1.00. For 1999, the average annual interest rate earned on GBP
deposits by participants in this credit arrangement was approximately 5.44% and
the average annual interest rate paid on overdrafts was approximately 5.8025%.
At year-end 1998, $35,256,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government agency securities, commercial paper, money market funds and other
marketable securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement were readily convertible
into cash by the Company. The repurchase agreement earned a rate based on the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
Effective June 1999, the Company and Thermo Electron commenced use of a new
domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. At
year-end 1999, the Company had invested $46,285,000 under this arrangement. In
addition, certain of the Company's European-based subsidiaries participate in a
new cash management arrangement with a wholly owned subsidiary of Thermo
Electron on terms similar to the domestic cash management arrangement. The
Company has access to a $36,473,000 line of credit under this arrangement, of
which the Company had invested $411,000 and had borrowed $34,600,000 at year-end
1999. Interest under this arrangement is calculated based on Euro market rates
and was 3.95% on the negative balance at year-end 1999.
The Company, along with certain other Thermo Electron subsidiaries, has
entered into a cash management arrangement with ABN AMRO. Only European-based
Thermo Electron Subsidiaries participate in this arrangement. The new
arrangement with ABN AMRO consists of a zero balance arrangement, which includes
a $25,417,000 credit facility. The Company has access to $2,280,000 under this
credit facility. Funds borrowed by the Company under this arrangement pay
interest at a rate set by Thermo Finance B.V., a wholly owned subsidiary of
Thermo Electron, at the beginning of each month, based on Netherlands market
rates. Funds invested by the Company under the arrangement earn a rate set by
Thermo Finance B.V. at the beginning of each month, based on Netherlands market
rates. Such invested funds are collateralized with investments principally
consisting of corporate notes, U.S. government-agency securities, commercial
paper, money market funds, and other marketable securities, in the amount of at
least 103% of such obligation. Thermo Electron guarantees all of the obligations
of each participant in this arrangement. As of January 1, 2000, the Company had
a negative cash balance of approximately $698,000, based on an exchange rate of
$0.4599/NLG 1.00. As of January 1, 2000, the average annual interest rate earned
on NLG deposits by participants in this credit arrangement was approximately
3.19% and the average annual interest rate paid on overdrafts was approximately
3.74%.
8
<PAGE> 9
The above referenced contracts, agreements, arrangements and understandings
between the Company or its affiliates and Thermo Electron and its subsidiaries
are also described in Section 13 -- "Certain Relationships and Related
Transactions" of the Form 10-K/A, and such section is filed as Exhibit 11
hereto.
Material Agreements, Arrangements or Understandings Relating to the Company
and the Offer. Thermo Electron has adopted a major reorganization plan under
which, among other things, it is acquiring the minority interest in most of its
subsidiaries that have minority investors. In furtherance of this plan, Thermo
Electron has commenced the Exchange Offer. As part of this reorganization plan,
the Company has completed the acquisition of the minority interest in each of
its Thermo Voltek, Thermo Sentron and Thermedics Detection subsidiaries. The
consideration paid in each of these transactions was $7.00, $15.50 and $8.00 per
share in cash, respectively, without interest.
Executive officers and directors of the Company who held shares of common
stock in the Company's subsidiaries described above that were taken private
received the same cash consideration per share of subsidiary stock as all other
stockholders of such subsidiaries. In addition, the executive officers' and
directors' options to acquire shares of such subsidiaries' common stock, for
which the granting company's repurchase rights had not lapsed ("unvested
options"), were automatically assumed by either the Company or Thermo Electron,
as applicable, and converted into options to purchase shares of the Company's
common stock or Thermo Electron's common stock on the same terms as were
applicable to all the other holders of such subsidiary's options, as described
below. In the case of options to acquire shares of such subsidiaries' common
stock, for which the granting company's repurchase rights had lapsed ("vested
options"), the holders were given the opportunity to elect either to convert the
options into vested options to acquire shares of the Company's common stock or
Thermo Electron's common stock, as applicable, or to receive cash at the
applicable cash transaction price less the applicable exercise price, on the
same terms as were applicable to all the other holders of such subsidiary's
options.
Vested and unvested options that were assumed by the Company or Thermo
Electron in these completed transactions generally were converted as follows:
The number of shares of the Company's common stock or Thermo Electron's common
stock underlying each assumed option equaled the number of shares of subsidiary
common stock underlying the option before the transaction, multiplied by the
applicable "cash exchange ratio" described below, rounded down to the nearest
whole number of shares of the Company's common stock or Thermo Electron's common
stock. The exercise price for each assumed option was calculated by dividing the
exercise price of the subsidiary stock option before the transaction by the
applicable "cash exchange ratio" described below, rounded up to the nearest
whole cent. The applicable "cash exchange ratio" for each transaction was a
fraction, the numerator of which was the applicable cash price described above
and the denominator of which was the closing price of the Company's common stock
or Thermo Electron's common stock, as applicable, on the day preceding the
effective date of the transaction.
Additionally, certain directors participated in the deferred compensation
plans of the various subsidiaries. On the effective date of each of the
completed cash transactions listed above, each of the affected subsidiaries'
deferred compensation plans terminated and the participants received cash in an
amount equal to the balance of such participant's stock units credited to his or
her account under the respective deferred compensation plan, multiplied by the
applicable cash price described above. Any such stock units held by directors
are included in their stock ownership information described above.
In the Thermo Voltek Corp. transaction, Mr. Melas-Kyriazi and Mr. Wood
received a cash payment of $7.00 per share for 5,581 and 14,621 shares of common
stock of Thermo Voltek Corp. held by such individuals, respectively.
Additionally, Mr. Crisp, Mr. Ferrari, Mr. Wood and Mr. Zervas held options to
acquire 2,250, 2,250, 82,350 and 2,250 shares of Thermo Voltek Corp. common
stock, respectively, that were converted into options to acquire shares of
common stock of the Company, as described above.
In the Thermedics Detection Inc. transaction, Mr. Ferrari and Mr. Wood
received a cash payment of $8.00 per share for 599 and 17,251 shares of common
stock of Thermedics Detection Inc. held by such individuals, respectively.
Additionally, Mr. Keiser and Mr. Wood held options to acquire 17,000 and 20,000
shares of Thermedics Detection Inc. common stock, respectively, that were
converted into options to acquire shares of Thermo Electron common stock, as
described above.
9
<PAGE> 10
In the Thermo Sentron Inc. transaction, Mr. Wood received a cash payment of
$15.50 per share for 4,000 shares of common stock of Thermo Sentron Inc. held by
Mr. Wood. Additionally, Mr. Keiser, Mr. Poirier and Mr. Wood held options to
acquire 19,500, 7,500 and 31,000 shares of Thermo Sentron Inc. common stock,
respectively, that were converted into options to acquire shares of Thermo
Electron common stock, as described above.
Executive officers and directors of the Company who hold shares of the
Company's common stock will receive the same consideration per share for such
stock as all other stockholders of the Company.
In addition, certain executive officers and directors of the Company hold
options to acquire shares of common stock of the Company, which options will be
treated in the same manner as options held by other employees. All options held
by such persons will be assumed by Thermo Electron and converted into options to
acquire shares of Thermo Electron's common stock on the same terms as are
applicable to all the other holders of the Company's options.
Specifically, vested and unvested options that are being assumed by Thermo
Electron in the proposed transaction will be converted as follows: The number of
shares of Thermo Electron common stock underlying each assumed option will equal
the number of shares of the Company common stock underlying the option before
the transaction, multiplied by the exchange ratio, rounded down to the nearest
whole number of shares of Thermo Electron common stock. The exercise price for
each assumed option will be calculated by dividing the exercise price of the
Company stock option before the transaction by the Exchange Ratio, rounded up to
the nearest whole cent.
On the effective date of the proposed transaction, the Company's deferred
compensation plan will be assumed by Thermo Electron, and the stock units
credited to each participant's account under the deferred compensation plan will
be converted into stock units for Thermo Electron common stock at the Exchange
Ratio.
Certain of the above mentioned contracts, agreements, arrangements and
understandings relating to the Company and the Offer are also described in
Section 13 -- "Certain Relationships and Related Transactions, Thermo Electron
Corporate Reorganization" of the Form 10-K/A, and such section is filed as
Exhibit 11 hereto. Other than as a result of being the subject of the Offer, the
Company is not a party to any of such contracts, agreements, arrangements and
understandings relating to the Company and the Offer.
Intent to Tender. To the Company's knowledge, after reasonable inquiry,
all directors and all executive officers of the Company who own Shares currently
intend to tender their Shares pursuant to the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Position of the Special Committee. The Special Committee, whose members
consist of the two independent directors of the Company, T. Anthony Brooks and
Nicholas T. Zervas, recommends that holders of Shares other than Thermo Electron
(the "Public Shareholders") accept the Offer and tender their Shares pursuant to
the Offer. At a meeting of the Special Committee held on May 8, 2000, the
Special Committee determined that the Exchange Ratio proposed by Thermo Electron
was fair to the Public Shareholders and resolved to recommend that the Public
Shareholders accept the Offer and tender their Shares pursuant to the Offer. The
Special Committee makes this recommendation with the understanding that the
Company is seeking a buyer for one of its principal subsidiaries, Thermo
Cardiosystems Inc. ("Cardiosystems"). The Committee cannot predict whether or
not Cardiosystems will be sold, or if sold, what price will be paid.
Accordingly, the Committee's recommendation is predicated upon its analysis of
the value of Cardiosystems at this time. However, the holders of the Publicly
Held Shares should be aware that if the price realized in a sale of
Cardiosystems is materially higher than its value at this time, such a sale
could materially increase the value of the Shares.
As a result of the conflict of interest among the members of the Company's
Board of Directors (other than Mr. Brooks and Dr. Zervas) and Thermo Electron,
the Board of Directors of the Company has delegated to the Special Committee the
sole and exclusive authority to respond to the Offer and to either recommend
10
<PAGE> 11
for, recommend against or remain neutral and express no opinion with respect to
whether or not Public Shareholders should accept the Offer and tender their
Shares pursuant to the Offer.
Background; Reasons for the Special Committee's Position. On January 31,
2000, as part of its overall restructuring plan pursuant to which it expects to
spin in, spin off and sell various businesses to focus solely on its core
measurement and detection instruments business, Thermo Electron announced that
it planned to take private certain of its majority owned subsidiaries, including
the Company. On March 8, 2000, Thermo Electron announced that it would make a
tender offer for the Publicly Held Shares of the Company whereby Thermo Electron
would exchange 0.45 shares of its common stock for each outstanding share of
Company Common Stock not currently owned by Thermo Electron. According to the
Prospectus, the Offer is conditioned upon Thermo Electron acquiring sufficient
number of Publicly Held Shares such that Thermo Electron will own at least 90%
of the total outstanding Shares. As stated in the Prospectus, structuring the
transaction as a tender offer to acquire ownership of at least 90% of the
outstanding Shares permits Thermo Electron to cause a merger of the Company and
Thermo Electron without any vote of the shareholders of the Company, pursuant to
the "short-form" merger provisions of the Massachusetts Business Corporation Law
and the Delaware General Corporation Law. Pursuant to such a "short-form"
merger, the remaining Public Shareholders who have not opted for appraisal
rights also would receive 0.45 shares of Thermo Electron Common Stock per Share.
As the controlling stockholder of the Company, Thermo Electron could cause
the Company to call a special meeting of shareholders for the purpose of seeking
the approval of a merger of the Company and Thermo Electron, pursuant to which
the holders of Publicly Held Shares would receive 0.45 shares of Thermo Electron
Common Stock per Share. At such a meeting, Thermo Electron would have sufficient
votes by virtue of its ownership of Shares to approve such a transaction
regardless of how holders of Publicly Held Shares vote their Shares. Such a
transaction is commonly referred to as a "long-form" merger because approval of
the shareholders is required to consummate the transaction. As set forth in the
Prospectus, Thermo Electron has chosen to pursue a tender offer followed by a
"short-form" merger rather than a "long-form" merger in an effort to acquire the
Publicly Held Shares in an expeditious manner and provide the Public
Shareholders with a prompt opportunity to exchange their Shares pursuant to the
Offer. Because Thermo Electron owns approximately 75.5% of the total outstanding
Shares, Thermo Electron only needs to acquire an additional 14.5% of the total
outstanding Shares, or approximately 58% of the total outstanding Publicly Held
Shares, in order for Thermo Electron to own sufficient Shares to effect a
"short-form" merger. According to the Prospectus, if the Offer is not
successful, Thermo Electron may make open market or privately negotiated
purchases of Publicly Held Shares to the extent necessary in order for Thermo
Electron to own at least 90% of the total outstanding Shares. For additional
information about the terms and conditions of the Offer and Thermo Electron's
reasons for making the Offer, shareholders should read the Prospectus, which has
been mailed to shareholders directly by Thermo Electron and which forms a part
of the Registration Statement filed with the Commission on May 1, 2000.
Because all of the current members of the Company's Board of Directors,
except Mr. Brooks and Dr. Zervas, are, or have been, directors or officers of
Thermo Electron, the Board of Directors established the Special Committee. The
Special Committee was given the sole and exclusive authority to respond to the
Offer and to either recommend for, recommend against or remain neutral and
express no opinion with respect to whether or not Public Shareholders should
accept the Offer and tender their Shares pursuant to the Offer. Other than as
described in the preceding sentence, the Special Committee was given no other
authority or responsibilities, and in particular, was not given the authority to
"shop" the Company to prospective third-party purchasers or explore other
strategic alternatives that might enhance or maximize shareholder value for the
Public Shareholders. To assist it in performing its responsibilities, Chase
Securities Inc. ("Chase") was engaged as separate independent financial advisor
to the Special Committee and Hutchins, Wheeler & Dittmar, A Professional
Corporation, was engaged as separate independent legal counsel to the Special
Committee.
Pursuant to the authority granted to it by the Company's Board of
Directors, the Special Committee undertook to determine independently, with the
advice of its legal counsel and financial advisor, the adequacy of the terms of
the Offer and whether to recommend for, recommend against or remain neutral and
express no
11
<PAGE> 12
opinion with respect to the Offer based primarily on the information furnished
to the Special Committee by the Company's management and Thermo Electron. The
Special Committee also reviewed the information concerning the Offer set forth
in the Prospectus and was given access to representatives of Thermo Electron's
financial advisors, J.P. Morgan Securities Inc. ("J.P. Morgan") and The Beacon
Group Capital Services, LLC ("The Beacon Group"). After receiving advice from
its legal counsel and financial advisor concerning the adequacy of the Offer,
the Special Committee inquired as to whether Thermo Electron would consider
increasing the Exchange Ratio, but was informed that Thermo Electron believed
that the terms of the Offer were fair to the Public Shareholders from a
financial point of view and would not engage in any negotiations concerning the
Exchange Ratio. The Special Committee also discussed with representatives of
Thermo Electron the anticipated timing of the Offer and other administrative
matters relating to the Offer. Except as described above, the Special Committee
did not participate in any communications or negotiations concerning the terms
and conditions of the Offer, including the Exchange Ratio, with Thermo Electron.
The Special Committee, prior to expressing its position with respect to the
Offer, received advice, opinions, views or presentations from, and discussed the
Offer with Chase. As noted above, the Special Committee also was given access to
representatives of J.P. Morgan and The Beacon Group, with whom Chase, after
completing its independent analysis of the fairness from a financial point of
view of the Exchange Ratio, discussed certain matters relating to such analysis.
In expressing its position with respect to the Offer, the Special Committee
considered a number of factors, including, but not limited to, the following:
(i) Business and Prospects. The Special Committee received presentations
from Chase concerning the historical and current financial condition
and operating results of the Company and Thermo Electron, as well as
the future prospects of the Company and Thermo Electron, based on
discussions with senior management of the Company and Thermo Electron,
respectively. In particular, the Special Committee considered the
following:
- Continued Investment in Research and Development. The Special
Committee recognized the fact that the Company must continue to invest
in its research and development efforts in order to remain
competitive. The Special Committee noted that due to the highly
competitive, rapidly evolving nature of the healthcare products and
measurement and detection instrument industries, the Company will not
only have to increase the absolute amount of resources devoted to
research and development, but it also will have to invest a greater
amount of such resources as a percentage of overall revenues than it
has done historically if the Company is to increase internal revenue
growth, improve margins, and continue to offer a competitive product
line.
- Acquisition-Related Integration Issues. The Special Committee
considered the fact that the Company has completed the acquisition of
a number of domestic and international companies during the past five
fiscal years. The Special Committee believes that integrating these
companies with the Company's existing businesses has required
substantial management time and resources. In addition, the Special
Committee noted the probable need for future acquisitions to broaden
the Company's product offerings and to improve its strength in the
distribution channels.
(ii) Fixed Exchange Ratio. The 0.45 per Share Exchange Ratio is fixed.
Accordingly, the Exchange Ratio will not be adjusted to reflect
changes in the price at which the shares of Thermo Electron Common
Stock trade during the pendency of the Offer and the Merger. The fact
that the Exchange Ratio is fixed may be favorable or unfavorable to
the Public Shareholders depending on the price at which the shares of
Thermo Electron Common Stock trade during the pendency of the Offer
and the Merger. For example, if the market price of the Thermo
Electron Common Stock increases between now and the completion of the
Offer and the Merger, Public Shareholders who tender their Shares will
receive shares of Thermo Electron Common Stock having greater value
than such shares have today. Conversely, if the market price of the
Thermo Electron Common Stock decreases between now and the completion
of the Offer and the Merger, Public Shareholders who tender their
Shares will receive shares of Thermo Electron Common Stock having
lesser value than such shares have today.
12
<PAGE> 13
(iii) Potential Benefits Associated with Thermo Electron's
Reorganization. The Special Committee considered the anticipated
benefits of Thermo Electron's reorganization plan, which according to
the Prospectus consists principally of the acquisition of the public
minority interest in most of its subsidiaries, including the Company,
the spin-off of two of Thermo Electron's businesses and the sale of
certain of its non-core businesses. As described in the Prospectus,
one of the objectives of Thermo-Electron's reorganization plan is to
permit Thermo Electron to focus primarily on a variety of segments in
the instruments business. In addition, Thermo Electron's
reorganization plan seeks to eliminate the complexity of Thermo
Electron's corporate structure, permit Thermo Electron to conduct its
operations in a more coordinated manner with its other instruments
subsidiaries, eliminate additional burdens on management associated
with public reporting, and achieve cost savings, particularly those
associated with the Company having public shareholders. The Special
Committee believes that the foregoing aspects of Thermo Electron's
reorganization plan will yield significant benefits to the Public
Shareholders if the reorganization plan is successfully implemented.
(iv) Risks Associated with Thermo Electron's Reorganization. The Special
Committee considered the various risks associated with Thermo
Electron's reorganization plan. As more fully described in the
Prospectus, these risks included, but are not limited to, the fact
that: (i) the reorganization plan is subject to various third party
consents and approvals, including, without limitation, favorable
rulings from the Internal Revenue Service with respect to the
proposed spin-offs; (ii) the divestitures to be effected by Thermo
Electron may not occur for various reasons more full described in the
Prospectus; (iii) Public Shareholders who tender their Shares in the
Offer will be subject to the risk that Thermo Electron's management
will fail to successfully integrate and consolidate its instrument
businesses; (iv) the reorganization contemplates the issuance of a
significant number of additional shares of Thermo Electron Stock,
which may depress the price of such stock in the future; (v) Thermo
Electron's acquisition strategy may not be implemented successfully;
and (vi) Thermo Electron may not complete the reorganization in a
timely manner, which could negatively affect the public market's
confidence in Thermo Electron's management, and may in turn adversely
affect the market price of Thermo Electron's Common Stock. As stated
in the Prospectus, if Thermo Electron is not able to effect all
aspects of the reorganization, it may not achieve some or all of the
anticipated benefits of the reorganization. For a more detailed
discussion of the risks associated with Thermo Electron's
reorganization plan, see the section entitled "Risk Factors" in the
Prospectus, which has been filed with the Commission and as Exhibit 6
hereto.
(v) Participation in the Future Growth. The Special Committee also
considered the fact that Public Shareholders who tender their shares
in the Offer will have the opportunity to participate in the future
growth prospects of the Company through their ownership of Thermo
Electron Common Stock. As stated in the Prospectus, Thermo Electron
intends to retain the Company (except for its subsidiaries Thermo
Cardiosystems and Jaeger) as part of its core instruments business
following completion of the Offer and the Merger.
(vi) Market Information Regarding Publicly Held Shares. The Special
Committee considered historical market prices and trading information
with respect to the Publicly Held Shares and Thermo Electron's common
stock as well as a comparison of these market prices and trading
information with those of selected publicly held companies operating
in industries similar to that of the Company and Thermo Electron, and
the sales, earnings and price to earnings multiples at which the
Publicly Held Shares, Thermo Electron's common stock and the
securities of these other companies trade. See "Opinion of Financial
Advisor" below.
(vii) Financial Analysis of Exchange Ratio. The Special Committee
considered a financial analysis of the Exchange Ratio performed by
Chase using various methodologies. A summary of Chase's analysis
appears on pages 15 through 23 of this Schedule 14D-9 under the
section entitled "Opinion of Financial Advisor."
13
<PAGE> 14
(viii) Market Price Considerations. The Special Committee considered the
fact that (assuming a Thermo Electron Common Stock price per share
of $20.00) the Exchange Ratio represents (A) a 54.8% premium over
the closing price of the Publicly Held Shares on the American Stock
Exchange (the "AMEX") one week prior to the public announcement of
the Offer on January 31, 2000, and (B) a 69.4% premium over the
closing price of the Publicly Held Shares on the AMEX four weeks
prior to the public announcement of the Offer on January 31, 2000.
(ix) Liquidity and Trading Volume. The Special Committee considered the
fact that historically there has been relatively low trading volume
of the Publicly Held Shares and that tendering Shares in the Offer
would result in increased liquidity for the Public Shareholders
because they would become holders of Thermo Electron common stock, a
more widely held and heavily traded security. The Special Committee
believes that the Common Stock is a relatively illiquid security and
that this limited liquidity has had an adverse effect on the trading
price of the Publicly Held Shares. In this regard, the Special
Committee noted the limited trading volume of the Publicly Held
Shares on the AMEX, as evidenced by its average monthly trading
volume (approximately 27,710 Shares per month over the twelve months
prior to January 28, 2000, the last trading day prior to the first
public announcement of the Offer) as compared with that of Thermo
Electron (approximately 559,002 shares per month over the twelve
months prior to January 28, 2000, the last trading day prior to the
first public announcement of the Offer) and the limited public float
of the Publicly Traded Shares resulting from the majority ownership
of the Company by Thermo Electron.
(x) Fairness Opinion. The Special Committee considered the opinion of
Chase, delivered to the Special Committee on May 8, 2000, that, as
of May 5, 2000 and based upon and subject to the limitations set
forth therein, the Exchange Ratio to be offered by Thermo Electron
to the Public Shareholders was fair, from a financial point of view,
to such holders (a copy of such opinion is attached hereto as
Schedule I to this Schedule 14D-9) and is incorporated herein by
reference).
(xi) Inability to Negotiate Offer Price and "Shop" the Company. The
Special Committee considered the fact that Thermo Electron was not
willing to negotiate the Exchange Ratio, did not authorize the
Special Committee to "shop" the Company to prospective purchasers
and did not authorize the Special Committee to explore other
strategic alternatives that might enhance or maximize shareholder
value for the Public Shareholders. The Special Committee noted that
receiving actual offers from unaffiliated third parties might have
been another means by which to determine the value of the Publicly
Held Shares.
(xii) Availability of Dissenters' Appraisal Rights. The Special Committee
considered the fact that Public Shareholders who do not tender their
shares in the Offer will have dissenters' appraisal rights under
Massachusetts law in connection with the merger of the Company with
Thermo Electron. However, Public Shareholders who exercise their
appraisal rights may receive more or less for their Publicly Held
Shares than the Exchange Ratio.
(xiii) Alternative Squeeze-Out Structures. The Special Committee
considered the fact that Thermo Electron could also have pursued,
and could pursue if the Offer is not successful, a "long-form"
merger pursuant to which they could cause the Company to call a
special meeting of shareholders for the purpose of seeking the
approval of a merger of the Company and Thermo Electron, at which
meeting Thermo Electron would have sufficient votes to obtain such
approval. If the Offer is not successful, Thermo Electron also may
make open market or privately negotiated purchases of Publicly Held
Shares to the extent necessary in order for Thermo Electron to own
at least 90% of the total outstanding Shares and therefore effect a
"short-form" merger.
In view of the variety of factors considered by the Special Committee, the
Special Committee did not find it practicable to and did not assign relative
weight to the above factors or determine that any factor was of particular
importance. Rather, the Special Committee viewed its position and
recommendations as being based on the totality of the information and advice
presented to it by its legal and financial advisors.
14
<PAGE> 15
In analyzing the Offer, the Special Committee was assisted and advised by
representatives of Chase and the Special Committee's legal counsel, Hutchins,
Wheeler & Dittmar, A Professional Corporation, who reviewed various financial,
legal and other considerations. The full text of the written opinion of Chase,
setting forth the procedures followed, the matters considered, the scope of the
review undertaken and the assumptions made by Chase in arriving at its opinion,
is attached as Schedule I to this Schedule 14D-9 and is incorporated herein by
reference. Public Shareholders are urged to, and should, read such opinion
carefully and in its entirety. The opinion was provided for the information and
assistance of the Special Committee in connection with its consideration of the
Offer. Such opinion is limited to the fairness, from a financial point of view,
to the Public Shareholders of the Exchange Ratio.
Opinion of Financial Advisor. Chase was retained to act as financial
advisor to the Special Committee and to render an opinion to the Special
Committee as to the fairness, from a financial point of view, of the Exchange
Ratio to be received by the Public Shareholders who tender their Shares pursuant
to the Offer.
The Special Committee selected Chase for a number of reasons, including its
knowledge of the instruments industry, and the consumables, diagnostics and
systems segments of the healthcare industry and its experience and reputation in
the area of valuation and financial advisory work generally, and in relation to
transactions of the size and nature of the proposed transaction specifically.
Chase is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, private
placements and valuations for corporate and other purposes. From time to time,
Chase and its affiliates may hold long or short positions in the Common Stock or
the common stock of Thermo Electron.
Chase rendered its opinion to the Special Committee as of May 5, 2000, to
the effect that, as of that date, the Exchange Ratio to be received by the
Public Shareholders pursuant to the Offer was fair from a financial point of
view, to the Public Shareholders. Chase's opinion is necessarily based on
market, economic and other conditions as they existed and could be evaluated on
the date the opinion was delivered. Chase has not been requested to, and will
not, update its opinion unless the Special Committee requests such an update.
The Special Committee has advised Chase that it will not seek an update to the
fairness opinion unless:
- there is a modification to the Exchange Ratio or other material amendment
to the Offer that the Special Committee determines would be reasonably
likely to impact the overall fairness from a financial point of view of
the Offer to the Public Shareholders; or
- a material event occurs that the Special Committee determines would be
reasonably likely to affect Chase's opinion if the opinion was reissued
taking into account such event.
The Special Committee has informed Chase that to its knowledge, as of the
date of this 14D-9, there has been no material event that the Special Committee
believes could affect Chase's opinion since Chase rendered such opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF CHASE DATED MAY 5, 2000, WHICH SETS
FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY CHASE IN RENDERING ITS OPINION,
IS ATTACHED AS SCHEDULE I TO THIS SCHEDULE 14D-9 AND IS INCORPORATED HEREIN BY
REFERENCE. THE CHASE OPINION IS DIRECTED TO THE SPECIAL COMMITTEE AND RELATES
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO
BE RECEIVED BY THE PUBLIC SHAREHOLDERS PURSUANT TO THE OFFER, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY OF THE PUBLIC SHAREHOLDERS AS TO WHETHER OR
NOT THEY SHOULD ACCEPT THE OFFER AND TENDER THEIR SHARES. THE SUMMARY OF CHASE'S
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE WRITTEN OPINION ATTACHED HERETO AS SCHEDULE I. PUBLIC SHAREHOLDERS
ARE URGED TO READ THE ENTIRE OPINION CAREFULLY.
15
<PAGE> 16
In conducting its investigation and analysis and in arriving at its
opinion, Chase reviewed certain information and took into account such financial
and economic factors as it deemed relevant and material under the circumstances.
The material actions Chase undertook in its analysis were as follows:
- reviewed certain publicly available business and financial information
Chase deemed relevant relating to Thermo Electron and the Company
(including each of the Company's subsidiaries) and the respective
industries in which they operate;
- reviewed certain internal non-public financial and operating data
provided to Chase by or on behalf of the management of the Company
relating to the Company's and its subsidiaries' businesses, including
management forecasts and projections of financial results of the Company
and its subsidiaries for fiscal year 2000;
- discussed with members of the Company's senior management, the Company's
operations, historical financial statements and future prospects, as well
as such other matters as Chase deemed necessary or appropriate;
- discussed with members of Thermo Electron's senior management, Thermo
Electron's operations, historical financial statements and future
prospects, in light of their current restructuring process, as well as
such other matters as Chase deemed necessary and appropriate;
- compared the financial and operating performance of Thermo Electron and
each of the Company's subsidiaries with publicly available information
concerning certain other companies Chase deemed comparable and reviewed
the relevant historical stock prices and trading volumes of the Thermo
Electron common stock, the Shares and certain publicly traded securities
of such other companies;
- reviewed the financial terms of certain recent business combinations and
acquisition transactions Chase deemed reasonably comparable to the
Exchange Offer or otherwise relevant to Chase's inquiry; and
- made such other analyses and examinations as Chase deemed necessary or
appropriate.
As a part of its engagement, Chase was not requested to, and did not,
solicit third party indications of interest in acquiring the Company. The
Special Committee did not place any limitation upon Chase with respect to the
procedures followed or factors considered by Chase in rendering its opinion.
In arriving at its opinion, Chase assumed and relied upon, without assuming
any responsibility for verification, the accuracy and completeness of all of the
financial and other information that was provided to, discussed with, or
reviewed by or for Chase, or publicly available, for purposes of Chase's opinion
and has further relied upon the assurances of management of the Company and
Thermo Electron that they are not aware of any facts that would make such
information inaccurate or misleading. Chase assumed, with the Special
Committee's consent, that:
- the financial forecast and projection information provided to Chase or
discussed with Chase by or on behalf of the Company have been reasonably
determined on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company;
- financial information discussed with Chase by or on behalf of Thermo
Electron has been reasonably determined on bases reflecting the best
currently available estimates and judgments of the management of Thermo
Electron as to the future financial performance of Thermo Electron. Chase
expresses no view as to such financial information or the assumptions on
which they were based;
- all conditions to the consummation of the Exchange Offer will be
satisfied without waiver thereof;
- all material governmental, regulatory or other consents and approvals
will be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any
amendments, modifications or waivers to any documents to which either of
Thermo Electron or the Company are party, no restrictions will be imposed
or amendments, modifications or waivers made that
16
<PAGE> 17
would have any material adverse effect on the contemplated benefits to
Thermo Electron of the Exchange Offer; and
- The Exchange Offer would be consummated in accordance with the terms set
forth in the Prospectus without any amendment thereto.
In performing its analysis, Chase was given access to and relied upon
financial projections for the Company and its subsidiaries for fiscal 2000, (the
"Projections"). Chase assumed that the Projections were reasonably prepared
based upon the best available estimates and good faith judgments of the
Company's senior management as to the future performance of the Company. Chase
expresses no view as to the Projections or the assumptions on which they were
based. For information concerning the Projections, see "Financial Projections"
below on pages 23 through 24.
Chase has neither made nor obtained any independent evaluations or
appraisals of the assets or liabilities of Thermo Electron or the Company, nor
has Chase conducted a physical inspection of the properties and facilities of
Thermo Electron or the Company. Chase's opinion did not predict or take into
account any possible economic, monetary or other changes that may occur, or
information that may become available, after the date of its written opinion,
including any possible sale of Cardiosystems.
Summary of Analyses. The following is a summary of the material financial
analyses performed by Chase in arriving at its opinion. The summary set forth
below does not purport to be a complete description of the analyses performed by
Chase in arriving at its opinion. Arriving at a fairness opinion is a complex
process not necessarily susceptible to partial analysis or summary description.
Chase believes that its analyses must be considered as a whole and that
selecting portions of analyses and of the factors considered by it, without
considering all these factors and analyses, could create a misleading view of
the processes underlying its opinion. No company or transaction used in the
analyses set forth below as a comparison is directly comparable to the Company
or Thermo Electron or the contemplated Exchange Offer. Chase did not assign
relative weights to any of its analyses in preparing its opinion. The matters
considered by Chase in its analyses were based on numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the Company's and Thermo Electron's control and involve the application
of complex methodologies and educated judgment. Any estimates incorporated in
the analyses performed by Chase are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable than
these estimates. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future, and these estimates are inherently subject to uncertainty.
MULTIPLE AND PREMIUM ANALYSIS
Chase noted that Thermo Electron made a public announcement regarding its
reorganization with respect to the Company on January 31, 2000, therefore in
performing its analysis, Chase calculated the multiples set forth above against
both a post-announcement, or affected, stock price for the Shares, and a range
of pre-announcement, or unaffected, stock prices for the Shares. Chase
calculated the premium of per Share value implied by the Exchange Ratio over the
trading price of the Shares based on (a) the closing stock price of the Shares
on May 5, 2000, the closing stock price of the Shares on January 28, 2000, the
closing price of the Shares one week prior to announcement, and the closing
price for the Shares four weeks prior to the announcement of the Offer, and (b)
an equity value per share of $20.00 (based on the closing price on May 5, 2000)
for the Thermo Electron common stock. These calculations showed that the per
Share value implied by the Exchange Ratio constituted a premium of 2.86% over
the May 5, 2000 closing price of the Shares a premium of 46.9% over the January
28, 2000 closing price of the Shares, a premium of 54.8% over the closing price
of the Shares one week prior to the announcement, and a premium of 69.4% over
the closing price of the Shares four weeks prior to the announcement.
Chase analyzed the implied transaction value to the Company of the
Transaction, calculated as equity value (based on the Exchange Ratio and a price
per share of $20.00 for Thermo Electron common stock) plus total debt plus the
face value of preferred stock, if any, plus the value of minority interests, if
any, minus cash
17
<PAGE> 18
and short-term investments (a) as a multiple of revenue for fiscal year 1999,
(b) as a multiple of estimated revenue for fiscal year 2000, (c) as a multiple
of earnings before interest, taxes, deprecation and amortization ("EBITDA") for
fiscal year 1999, (d) as a multiple of estimated EBITDA for fiscal year 2000,
(e) as a multiple of earnings before interest and taxes ("EBIT") for fiscal year
1999 and (f) as a multiple of estimated EBIT for fiscal year 2000. From this
analysis, Chase determined that the ratio of the transaction value to (a)
revenue for fiscal year 1999 was 1.37x, (b) estimated revenue for fiscal year
2000 was 1.22x, (c) EBITDA for fiscal year 1999 was 11.6x, (d) estimated EBITDA
for fiscal year 2000 was 9.4x, (e) EBIT for fiscal year 1999 was 14.7x and (f)
estimated EBIT for fiscal year 2000 was 11.6x.
Chase calculated the implied offer value per share (based on an equity
value per share of $20.00 for Thermo Electron Common Stock) (a) as a multiple of
the Company's earnings per share for the fiscal year ended December 31, 1999 and
(b) as a multiple of the Company's estimated earnings per share for the fiscal
year ended December 31, 2000. Chase determined that the ratio of the offer value
to (a) earnings per share for fiscal year 1999 was 78.9x and (b) to estimated
earnings per share for fiscal year 2000 was 22.0x.
HISTORICAL STOCK PERFORMANCE
Chase reviewed the daily indexed historical prices for Shares and the
Thermo Electron common stock during the period from May 6, 1995 to May 5, 2000,
as compared to industry indices. Chase also reviewed the recent and historical
prices and trading volume for the Shares and the Thermo Electron common stock.
Chase also reviewed the daily indexed historical prices for the shares of
Thermo Cardiosystems, Thermedics Detection and Thermo Sentron, subsidiaries of
the Company whose common stock has historically been public traded, during the
five-year period from May 6, 1995 to May 5, 2000, the three-year period from
April 13, 1997 (the date of Thermedics Detection's initial public offering) to
April 12, 2000 and the five-year period from March 30, 1995 to March 29, 2000
(the five years ending on the date Thermo Sentron's common stock was last
publicly traded), respectively, as compared to industry indices.
PREMIUMS PAID ANALYSIS
Chase examined 57 precedent minority buy-out transactions since January 8,
1998 and seven Thermo Electron precedent minority buy-out transactions between
March 31, 1998 and January 31, 2000, and analyzed the premium of the offer price
in those transactions over the closing price 1-day, 1-week, and 4-weeks
preceding the date of announcement of those transactions. In calculating the
premium offered by the Exchange Ratio, Chase utilized a price per share of
Thermo Electron common stock of $20.00, the closing price on May 5, 2000 and a
price per share of Thermedics Common Stock of $8.75.
MEAN PREMIUMS OF OFFER PRICE TO TARGET PRICE
<TABLE>
<CAPTION>
1-DAY 1-WEEK 4-WEEKS
----- ------ -------
<S> <C> <C> <C>
Initial Offer..................................... 22.4% 27.3% 34.5%
Final Offer....................................... 29.3% 34.5% 42.2%
Final Offer for Thermo Electron and Subsidiaries
Transactions.................................... 21.9% 23.4% 37.0%
THERMO ELECTRON OFFER VALUE PREMIUM TO THERMEDICS
SHARE PRICE..................................... 46.9% 54.8% 69.4%
</TABLE>
THERMEDICS BREAK-UP ANALYSIS
Chase analyzed the break-up value of each of the Company's subsidiaries, in
order to evaluate the Company as a sum-of-its-parts. The break-up value of each
of the publicly-traded subsidiaries was calculated based on the closing stock
prices for Thermo Cardiosystems ($11.50 as of May 5, 2000), and on the offer
prices for Thermedics Detection and Thermo Sentron ($8.00 and $15.50,
respectively). Chase and Company management discussed the break-up values
attributed to the Company's other businesses. Chase calculated an
18
<PAGE> 19
offer value of $378.4 million, or $9.00 per share, based on a Thermo Electron
common stock price per share of $20.00. This represented a discount to the
sum-of-the-parts equity break-up value of 14.8% as at May 5, 2000. Thermedics
market value of equity of $8.75 on May 5, 2000 represents a 17.2% discount to
the sum-of-the-parts equity break-up value per share as at that date.
Chase then compared the historical traded sum-of-the-parts equity value of
the Company to the Company's market equity value, at May 5, 2000, December 31,
1999, June 30, 1999 and December 31, 1998. This analysis showed that on each of
these dates, the Company's market equity value was a discount to the
sum-of-the-parts equity value of 25.7%, 38.0%, 31.3% and 21.2%, respectively.
DISCOUNTED CASH FLOW ANALYSIS
Thermo Cardiosystems
Chase estimated the present value of the unlevered free cash flows that
could be produced by Thermo Cardiosystems in fiscal years 2000 through 2004,
based on discussions with Company management. Chase calculated a discounted cash
flow analysis for Thermo Cardiosystems assuming discount rates ranging from 14%
to 16%, based on Chase's analysis of Cardiosystems' weighted average cost of
capital and terminal multiples of unlevered EBITDA in the year 2004 ranging from
8.0x to 10.0x. This analysis produced present values of Cardiosystems' common
stock ranging from $14.52 to $18.86 per share. Additionally, Chase calculated a
discounted cash flow analysis for Thermo Cardiosystems assuming discount rates
ranging from 14% to 16%, based on Chase's analysis of Cardiosystems' weighted
average cost of capital and terminal values based upon growth rates in
perpetuity of fiscal year 2004 free cash flows ranging from 2% to 3%. This
analysis produced present values of Cardiosystems' common stock ranging from
$8.80 to $11.28 per share.
Chase prepared a sensitivity analysis with respect to revenue growth and
EBITDA margins for Thermo Cardiosystems' left-ventricular assist system ("LVAS")
business. Based on a 15% discount rate and a terminal EBITDA multiple of 9.0x
and perpetuity growth rate of 2.5% representing the midpoints of Chase's
discounted cash flow analysis parameters. Chase calculated the sensitivity to a
decrease in LVAS revenue growth of 0% to 10%, and a decrease in LVAS EBITDA
margin of 0% to 6%. The EBITDA analysis produced present values of
Cardiosystems' common stock ranging from $11.50 to $15.00 per share and the free
cash flow analysis produced present values of Cardiosystems' common stock
ranging from $6.82 to $9.89 per share.
Thermedics Detection
Chase estimated the present value of the unlevered free cash flows that
could be produced by Thermedics Detection in fiscal years 2000 through 2004,
based on discussions Chase had with Company management concerning Thermedics
Detection's top line growth prospects and projected operating margins and
statistics. Chase calculated a discounted cash flow analysis for Thermedics
Detection assuming discount rates ranging from 10% to 12%, based on Chase's
analysis of Thermedics Detection's weighted average cost of capital, and
terminal multiples of unlevered EBITDA in the year 2004 ranging from 7.0x to
11.0x. This analysis produced present values of Thermedics Detection common
stock ranging from $6.44 to $8.38 per share. Additionally, Chase calculated a
discounted cash flow analysis for Thermedics Detection assuming discount rates
ranging from 10% to 12%, based on Chase's analysis of Thermedics Detection's
weighted average cost of capital and terminal values based upon growth rates in
perpetuity of fiscal year 2004 free cash flows ranging from 2% to 3%. This
analysis is produced present values of Thermedics Detection common stock ranging
from $6.66 to $8.36 per share.
Thermo Sentron
Chase estimated the present value of the unlevered free cash flows that
could be produced by Thermo Sentron in fiscal years 2000 through 2004, based on
discussions Chase had with Company management concerning Thermo Sentron's top
line growth prospects and projected operating margins and statistics. Chase
calculated a discounted cash flow analysis for Thermo Sentron assuming discount
rates ranging from 9% to 11%, based on Chase's analysis of Thermo Sentron's
weighted average cost of capital, and terminal multiples of unlevered EBITDA in
the year 2004 ranging from 8.0x to 10.0x. This analysis produced present values
of
19
<PAGE> 20
Thermo Sentron common stock ranging from $14.03 to $18.11 per share.
Additionally, Chase calculated a discounted cash flow analysis for Thermo
Sentron assuming discount rates ranging from 9% to 11%, based on Chase's
analysis of Thermo Sentron's weighted average cost of capital and terminal
values based upon growth rates in perpetuity of fiscal year 2004 free cash flows
ranging from 2% to 3%. This analysis produced present values of Thermo Sentron
common stock ranging from $10.79 to $15.79 per share.
COMPARATIVE COMPANY ANALYSIS
Thermo Cardiosystems
Chase compared publicly available financial, operating and stock market
data of Thermo Cardiosystems to corresponding data of the following selected
companies in the medical device and products and cardiovascular device
industries as of the most recently reported period and stock market information
as of May 5, 2000: Alaris Medical, Inc., Arrow International, Inc., Baxter
International Inc., Boston Scientific Corporation, CONMED Corporation, Datascope
Corp., Edwards Lifesciences Corporation, Guidant Corporation, Medtronic, Inc.,
ResMed Inc. and St. Jude Medical, Inc. The companies were chosen for comparison
because they are publicly-traded companies with operations that for purposes of
Chase's analyses may be considered similar to those of Thermo Cardiosystems.
Chase analyzed the enterprise value of each of the foregoing companies,
calculated as equity value plus total debt plus the face value of preferred
stock, if any, plus the value of minority interests, if any, minus cash and
short-term investments, (a) as a multiple of revenue for the latest twelve
months, (b) as a multiple of EBITDA for the latest twelve months, (c) as a
multiple of estimated revenue for calendar year 2000 and (d) as a multiple of
estimated EBITDA for calendar year 2000. Estimated financial information for the
selected companies listed above, were based on selected analyst research
reports. From the analysis of the comparative companies, Chase determined that
the relevant ratio of enterprise value to revenue for the latest twelve months
ranged from 2.0x to 3.5x, the relevant ratio of enterprise value to EBITDA for
the latest twelve months ranged from 8.0x to 13.0x, the relevant ratio of
enterprise value to estimated revenue for calendar year 2000 was 2.0x to 3.0x
and the relevant ratio of enterprise value to estimated EBITDA was 7.0x to
11.0x.
The application of these ratios resulted in a range of observed values per
share of Thermo Cardiosystems' common stock of between $3.18 and $8.14.
Chase also analyzed equity value per share of each of the above-listed
companies as of May 5, 2000 (a) as a multiple of earnings per share for the
latest twelve months and (b) as a multiple of estimated earnings per share for
calendar year 2000. The mean multiple of price to earnings ratio for the latest
twelve months was 25.2x and the mean multiple of estimated price to earnings
ratio for calendar year 2000 was 20.8x. Although Chase conducted and considered
this analysis, it relied more heavily on its analysis of historical and
projected revenue and EBITDA multiples.
Thermedics Detection
Chase compared publicly available financial, operating and stock market
data of Thermedics Detection to corresponding data of the following selected
companies in the measurement and detection instrument industries as of the most
recently reported period and stock market information as of May 5, 2000:
American Science and Engineering, Inc., AMETEK, Inc., Barringer Technologies
Inc., CEM Corporation, Fairey Group plc, Invision Technologies, Inc. and
Mettler-Toledo International Inc. The companies were chosen for comparison
because they are publicly-traded companies with operations that for purposes of
Chase's analyses may be considered similar to those of Thermedics Detection.
Chase analyzed the enterprise value of each of the foregoing companies,
calculated as equity value plus total debt plus the face value of preferred
stock, if any, plus the value of minority interests, if any, minus cash and
short-term investments, (a) as a multiple of revenue for the latest twelve
months and (b) as a multiple of EBITDA for the latest twelve months. From the
analysis of the comparative companies, Chase determined that the relevant ratio
of enterprise value to revenue for the latest twelve months ranged from 0.5x to
1.6x, the relevant ratio of enterprise value to EBITDA for the latest twelve
months ranged from 6.0x to 11.0x.
20
<PAGE> 21
The application of these ratios resulted in a range of observed values per
share of Thermedics Detection's common stock of between $4.12 and $8.31.
Chase also analyzed equity value per share of each of the above-listed
companies (a) as a multiple of earnings per share for the latest twelve months
and (b) as a multiple of estimated earnings per share for calendar year 2000.
The mean multiple of price to earnings ratio for the latest twelve months was
22.5x and the mean multiple of estimated price to earnings ratio for calendar
year 2000 was 16.2x. Although Chase conducted and considered this analysis, it
relied more heavily on its analysis of historical and projected revenue and
EBITDA multiples.
Thermo Sentron
Chase compared publicly available financial, operating and stock market
data of Thermo Sentron to corresponding data of the following selected companies
in the measurement and detection instrument industries as of the most recently
reported period and stock market information as of May 5, 2000: Badger Meter,
Inc., Fairey Group plc, Keithley Instruments, Inc., K-Tron International, Inc.,
Mettler-Toledo International Inc., PSC Inc. and TSI Incorporated. The companies
were chosen for comparison because they are publicly-traded companies with
operations that for purposes of Chase's analyses may be considered similar to
those of Thermo Sentron. Chase analyzed the enterprise value of each of the
foregoing companies, calculated as equity value plus total debt plus the face
value of preferred stock, if any, plus the value of minority interests, if any,
minus cash and short-term investments, (a) as a multiple of revenue for the
latest twelve months and (b) as a multiple of EBITDA for the latest twelve
months. From the analysis of the comparative companies, Chase determined that
the relevant ratio of enterprise value to revenue for the latest twelve months
ranged from 1.0x to 1.8x and the relevant ratio of enterprise value to EBITDA
for the latest twelve months ranged from 8.0x to 12.0x.
The application of these ratios resulted in a range of observed values per
share of Thermo Sentron's common stock of between $10.79 and $19.68.
Chase also analyzed equity value per share of each of the above-listed
companies (a) as a multiple of earnings per share for the latest twelve months
and (b) as a multiple of estimated earnings per share for calendar year 2000.
The mean multiple of price to earnings ratio for the latest twelve months was
15.8x and the mean multiple of estimated price to earnings ratio for calendar
year 2000 was 13.7x. Although Chase conducted and considered this analysis, it
relied more heavily on its analysis of historical and projected revenue and
EBITDA multiples.
Thermo Electron
Chase compared publicly available financial, operating and stock market
data of Thermo Electron to corresponding data of the following selected
companies in various segments of the instrument industry as of the most recently
reported period and stock market information as of May 5, 2000: AMETEK, Inc.,
Beckman Coulter, Inc., Danaher Corporation, Emerson Electric Co., Mettler-Toledo
International Inc., Millipore Corporation, PE Biosystems Group, PerkinElmer,
Inc., Tektronix, Inc., Varian, Inc. and Waters Corporation. The companies were
chosen for comparison because they are publicly-traded companies with operations
that for purposes of Chase's analyses may be considered similar to those of
Thermo Electron. Chase analyzed the enterprise value of each of the foregoing
companies, calculated as equity value plus total debt plus the face value of
preferred stock, if any, plus the value of minority interests, if any, minus
cash and short-term investments, (i) as a multiple of revenue for the latest
twelve months, (ii) as a multiple of EBITDA for the latest twelve months and
(iii) as a multiple of estimated revenue for calendar year 2000. The observed
mean of each of these multiples was as follows, as of May 5, 2000: (a)
enterprise value as a multiple of revenue for the latest twelve months, 1.8x;
(b) enterprise value as a multiple of EBITDA for the latest twelve months,
12.8x; (c) enterprise value as a multiple of estimated revenue for calendar year
2000, 1.8x; (d) enterprise value as a multiple of estimated EBITDA for calendar
year 2000, 10.1x; (e) latest twelve months price to earnings ratio, 33.4x; (f)
price to earnings for calendar year 2000, 27.5x; and (g) estimated price to
earnings
21
<PAGE> 22
ratio for calendar year 2001, 21.6x. Estimated future financial information for
the selected companies listed above was based on selected analyst research
reports.
The observable multiples for Thermo Electron were as follows: (a)
enterprise value as a multiple of revenue for the latest twelve months, 1.8x;
(b) enterprise value as a multiple of EBITDA for the latest twelve months,
12.5x; (c) enterprise value as a multiple of estimated revenue for calendar year
2000, 1.9x; (d) enterprise value as a multiple of estimated EBITDA for calendar
year 2000, 12.2x; (e) latest twelve months price to earnings ratio, 41.8x; (f)
price to earnings ratio for calendar year 2000, 30.5x; and (g) price to earnings
ratio for calendar year 2001, 25.6x. Estimated future financial information for
the selected companies listed above was based on selected analyst research
reports.
SELECTED PRECEDENT TRANSACTION ANALYSIS
None of the precedent transactions examined in this analysis is identical
to the Exchange Offer. Accordingly, the analyses set forth below necessarily
involve complex considerations and judgments concerning differences between the
precedent transactions and the Exchange Offer.
Thermo Cardiosystems
In its analysis with respect to Thermo Cardiosystems, Chase examined
precedent transactions in two separate industries, in order to reflect the
businesses of Thermo Cardiosystems' two subsidiaries.
Using publicly available information, Chase analyzed the transaction value
multiples of 10 selected transactions in the cardiovascular device industry that
were completed between October 1995 and August 1999 with estimated transaction
values ranging from approximately $91 million to approximately $3.5 billion.
Chase also analyzed the transaction value multiples of seven selected
transactions in the medical product and device industry that were completed
between December 1997 and June 1999 with estimated transaction values ranging
from approximately $231 million to approximately $4 billion. Chase calculated
that relevant multiples of transaction value to latest twelve months revenue
ranged from 3.0x to 6.0x, relevant multiples of transaction value to latest
twelve months EBITDA ranged from 13.3x to 22.7x and relevant multiples of
transaction value to EBIT ranged from 14.0x to 23.0x.
Chase also calculated the price to earnings ratios for the latest twelve
months for the precedent transactions in the cardiovascular device industry and
the transactions in the medical product and device industry. These calculations
resulted in a mean price to earnings ratio for the latest twelve months of 44.6x
for the transactions in the cardiovascular industry, and 37.7x for the
transactions in the medical product device industry. As of May 5, 2000, Thermo
Cardiosystems had a price to earnings ratio of 46.4x for the latest twelve
months, and an estimated price to earnings ratio of 37.1x for calendar year
2000.
The application of the revenue and EBITDA multiples resulted in a range of
observed values per share of Thermo Cardiosystems' common stock of between $4.82
and $13.25.
Thermedics Detection/Thermo Sentron
Using publicly available information, Chase analyzed the transaction value
multiples of 13 selected transactions in the measurement and detection
instrument industry that were completed between February 1998 and December 1999
with estimated transaction values ranging from approximately $24 million to
approximately $794 million. Chase calculated that relevant multiples of
transaction value to latest twelve months revenue ranged from 1.0x to 1.5x for
Thermedics Detection and 1.0x to 2.0x for Thermo Sentron. Chase also calculated
that relevant multiples of transaction value to latest twelve months EBITDA
ranged from 7.0x to 11.0x for Thermedics Detection and 7.0x to 11.0x for Thermo
Sentron.
The application of the revenue and EBITDA multiples resulted in a range of
observed values per share of Thermedics Detection's common stock of between
$5.22 and $8.31.
22
<PAGE> 23
The application of the revenue and EBITDA multiples resulted in a range of
observed values per share of Thermo Sentron's common stock of between $9.93 and
$21.91.
Chase also calculated the price to earnings ratios for the latest twelve
months for the precedent transactions in the measurement and detection
instrument industry. These calculations resulted in a mean price to earnings
ratio for the latest twelve months of 18.9x. Based on its last traded price of
$8.00, Thermedics Detection had a price to earnings ratio of 30.5x for the
latest twelve months, and an estimated price to earnings ratio of 26.7x for
calendar year 2000. Based on its last traded price of $15.50, Thermo Sentron had
a price to earnings ratio of 23.5x for the latest twelve months, and an
estimated price to earnings ratio of 21.2x for calendar year 2000.
EXCHANGE RATIO ANALYSIS
The purpose of this analysis was to compare the 0.45x Exchange Ratio of the
Offer with the implied exchange ratio range based on historical trading prices
for the Company and Thermo Electron. Chase analyzed the historical trading
prices for the Company and Thermo Electron during the one-year period from
January 28, 1999 through January 28, 2000, and calculated the implied exchange
ratio based on prevailing market prices of Thermo Electron common stock and the
Shares one week, one month, three months, six months and one year prior to
January 28, 2000. This analysis resulted in the following average historical
trading ratios for the periods indicated:
<TABLE>
<CAPTION>
PERIOD AVERAGE
- ------ -------
<S> <C>
One Week............................................ 0.41x
One Month........................................... 0.38x
Three Months........................................ 0.37x
Six Months.......................................... 0.41x
One Year............................................ 0.45x
</TABLE>
In the past, Chase has not performed investment banking services for the
Company or Thermo Electron or received any compensation from the Company, other
than as provided for in Item 5.
---------------
Financial Projections
Company Projections. The Company does not, as a matter of course, make
public forecasts or projections as to future sales, earnings or other income
statement data, cash flows or balance sheet and financial position information.
The following summary of the Projections is included in this Schedule 14D-9
because the Projections were made available to the Special Committee and Chase.
The Projections do not reflect any of the effects of the transaction
contemplated by the Offer or other changes that may in the future affect the
Company and its assets, business, operations, properties, policies, corporate
structure, capitalization and management in light of the circumstances then
existing. Further, the Projections include results from the Company's Thermo
Cardiosystems subsidiary and Thermo Voltek business. Thermo Cardiosystems and
Thermo Voltek have been treated as discontinued operations in the Company's
historical financial statements contained in the Prospectus because of the
Company's plan to sell both Thermo Cardiosystems and Thermo Voltek.
To the Special Committee's knowledge, the Projections were not prepared
with a view toward public disclosure or compliance with published guidelines of
the Commission or the American Institute of Certified Public Accountants
regarding forward-looking information or generally accepted accounting
principles. To the Special Committee's knowledge, neither the Company's
independent auditors, nor any other independent accountants, have compiled,
examined or performed any procedures with respect to the prospective financial
information contained in the Projections nor have they expressed any opinion or
given any form of assurance with respect to such information or its
achievability. Furthermore, the Projections necessarily make numerous
assumptions, many of which are beyond the control of the Company and may prove
not to have been, or may no longer be, accurate. Additionally, this information,
except as otherwise indicated, does not reflect revised prospects for the
Company's businesses, changes in general business and economic conditions, or
any other transaction or event that has occurred or that may occur and that was
not anticipated at the time such
23
<PAGE> 24
information was prepared. Accordingly, such information is not necessarily
indicative of current values or future performance, which may be significantly
more favorable or less favorable than as set forth below, and should not be
regarded as a representation that they will be achieved.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE FINANCIAL RESULTS AND SHAREHOLDER
VALUE OF THE COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE
PROJECTIONS. MANY OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES
ARE BEYOND THE COMPANY'S ABILITY TO CONTROL OR PREDICT. SHAREHOLDERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO
ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED OR THAT THE COMPANY'S FUTURE
FINANCIAL RESULTS WILL NOT MATERIALLY VARY FROM THE PROJECTIONS. THE COMPANY
DOES NOT INTEND TO UPDATE OR REVISE THE PROJECTIONS.
FISCAL 2000
SUMMARY PROJECTIONS OF THERMEDICS INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED
2000
---------
<S> <C>
REVENUES.................................................... $373,306
--------
Costs and Operating Expenses
Cost of revenues.......................................... 188,152
Selling, general, and administrative expenses............. 113,966
Research and development expenses......................... 38,038
Restructuring and other unusual costs..................... --
--------
340,156
--------
Operating Income............................................ 33,150
Interest Income............................................. 9,654
Interest Expense............................................ (6,905)
Equity in Earnings of Unconsolidated Subsidiaries........... 220
--------
Income Before Provision for Income Taxes.................... 36,119
Provision for Income Taxes.................................. 14,513
Minority Interest Expense................................... 4,485
--------
NET INCOME.................................................. $ 17,121
========
SELECTED BALANCE SHEET DATA
Accounts Receivable, Net.................................... $ 83,636
Inventories................................................. 67,693
Prepaid Income Taxes and Other Current Assets............... 16,762
--------
Total Current Assets Excluding Cash and Investments......... 168,091
Property, Plant, and Equipment:
Balance, beginning of year................................ 22,799
Additions................................................. 9,679
Depreciation expense...................................... (9,102)
--------
Balance, end of year...................................... 23,376
Cost in Excess of Net Assets of Acquired Companies.......... 159,035
</TABLE>
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
The Special Committee entered into a letter agreement with Chase dated as
of March 10, 1999 (effective February 22, 1999, until February 22, 2000), in
connection with a previously announced restructuring of the Company which was
subsequently superceded by the Offer. In connection with this prior engagement,
Chase
24
<PAGE> 25
provided assistance to the Special Committee, including valuation analysis
concerning the Company and its subsidiaries.
The Special Committee entered into a new letter agreement with Chase dated
as of May 2, 2000 (effective February 22, 2000) (the "Engagement Letter"),
pursuant to which Chase was engaged to act as the Special Committee's financial
advisor in connection with the Offer. Subject to the terms and conditions of the
Engagement Letter, Chase agreed to act as a financial advisor to the Special
Committee and render an opinion to the Special Committee with regard to
fairness, from a financial point of view, to the Public Shareholders of the
Exchange Ratio. In connection with the Engagement Letter, the Company agreed to
pay Chase a fee of $1,500,000, all of which was paid upon the delivery by Chase
of the fairness opinion. Under the terms of Section 2(a) of the letter agreement
dated March 10, 1999, Chase was paid a $350,000 retainer. Section 2 of the
Engagement Letter provides that such retainer shall be credited against the
$1,500,000 fee due under the Engagement Letter, thus reducing the amount paid
from $1,500,000 to $1,150,000. In addition, the Company has agreed to reimburse
Chase for its reasonable legal expenses incurred in connection with its
preparation and delivery of its opinion and up to $25,000 for its other
reasonable out-of-pocket expenses incurred in connection with its engagement and
to indemnify Chase against certain liabilities incurred in connection with its
engagement, including liabilities under Federal securities laws.
The Special Committee also retained Hutchins, Wheeler & Dittmar, A
Professional Corporation, to act as the legal advisor to the Special Committee
in connection with the Offer.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to holders of Shares on the Company's
behalf concerning the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
During the past 60 days no transaction in the Shares has been effected by
the Company, or to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as indicated in Item 3 and 4 above, no negotiations are being
undertaken or are underway by the Company in response to the Offer
which relate to a tender offer or other acquisition of the Company's
securities by the Company, any subsidiary of the Company or any other
person.
(b) Except as set forth in Items 3 and 4 above, the Company is not engaged
in any negotiation in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or
reorganization involving the Company or any subsidiary of the Company;
(ii) a purchase, sale or transfer of a material amount of assets of the
Company or any subsidiary of the Company; (iii) a tender offer for or
other acquisition of securities by or of the Company; or (iv) any
material change in the present capitalization, indebtedness or dividend
rate or policy of the Company.
(c) Except as set forth in Items 3 and 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of
the events referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
The Information contained in the Exhibits referred to in Item 9 below is
incorporated herein by reference.
25
<PAGE> 26
ITEM 9. EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Press release issued by Thermo Electron on January 31, 2000
(incorporated by reference to Exhibit 99 to the Current
Report on Form 8-K of Thermo Electron filed with the
Commission on February 1, 2000)
Exhibit 2 Press release issued by Thermo Electron on March 8, 2000
(incorporated by reference to Rule 425 communication filed
with the Commission on March 8, 2000)
Exhibit 3 Press release issued by Thermo Electron on April 13,2000
(incorporated by reference to the Rule 425 communication
filed with the Commission on April 13, 2000)
Exhibit 4 Press release issued by Thermo Electron on May 1, 2000
(incorporated by reference to the Rule 425 communication
filed with the Commission on May 1, 2000)
Exhibit 5 Press release issued by the Company on May 12, 2000
Exhibit 6 Prospectus dated May 1, 2000 filed by Thermo Electron with
the Commission on May 1, 2000 (incorporated by reference to
Thermo Electron's registration Statement on Form S-4 (File
No. 333-35982) filed with the Commission on May 1, 2000)
Exhibit 7 Letter to Shareholders dated May 12, 2000*
Exhibit 8 Opinion of Chase (included as Schedule I to this Schedule
14D-9)*
Exhibit 9 Form of Indemnification Agreement by and between the Company
and the directors and executive officers of the Company
Exhibit 10 Form of Indemnification Agreement by and between the
directors and executive officers of the Company and Thermo
Electron (incorporated by reference to Exhibit 10.1 of
Thermo Electron's Registration Statement on Form S-4 (File
No. 333-90661))
Exhibit 11 Selected Sections of the Company's Amendment No. 1 on Form
10-K/A to its Annual Report on Form 10-K for its fiscal year
ended January 1, 2000
</TABLE>
- ---------------
* Included in materials being distributed by the Company to the Shareholders of
the Company.
26
<PAGE> 27
SIGNATURE
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
THERMEDICS INC.,
By: /s/ T. ANTHONY BROOKS
------------------------------------
Name: T. Anthony Brooks
Title: Chairman of the Special
Committee of the Board of
Directors
By: /s/ NICHOLAS T. ZERVAS
------------------------------------
Name: Nicholas T. Zervas
Title: Member of the Special
Committee of the Board of
Directors
Dated: May 12, 2000
27
<PAGE> 1
Exhibit 5
THERMEDICS SPECIAL COMMITTEE RECOMMENDS ACCEPTANCE OF
THERMO ELECTRON EXCHANGE OFFER
WOBURN, Mass., May 12, 2000 -- Thermedics Inc. (ASE-TMD) today announced that
the independent special committee of its board of directors is recommending
that shareholders accept the offer made by Thermo Electron on May 1, 2000, to
exchange 0.45 shares of Thermo Electron stock for each Thermedics share, and
tender their shares pursuant to the offer.
The special committee has determined that this exchange ratio is fair to the
minority shareholders of Thermedics. The special committee strongly urges each
shareholder to read the description of the factors considered by the special
committee that is set forth in Thermedics' Schedule 14D-9, which has been filed
with the Securities and Exchange Commission and mailed to the shareholders
today.
<PAGE> 1
THERMEDICS INC.
470 WILDWOOD STREET
P.O. BOX 2999
WOBURN, MASSACHUSETTS 01888-1799
May 12, 2000
Dear Shareholder:
On May 1, 2000, Thermo Electron Corporation ("Thermo Electron") commenced
an exchange offer by which Thermo Electron proposes to exchange 0.45 shares of
Thermo Electron common stock for each outstanding share of common stock of
Thermedics Inc. (the "Company") not currently owned by Thermo Electron (the
"Offer").
Because all of the current members of the Company's Board of Directors,
except the undersigned, are, or have been, directors or officers of Thermo
Electron, the Company's Board of Directors appointed the undersigned as a
Special Committee, and, in connection with such appointment, the Special
Committee has been delegated the sole and exclusive authority to respond to the
Offer. Based on the factors considered by the Special Committee and set forth in
the attached Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which was filed today with the Securities and Exchange
Commission, the Special Committee is recommending that shareholders accept the
Offer and tender their shares of common stock of the Company pursuant to the
Offer.
You should make your decision as to whether or not to tender your shares
based on all of the information available to you, including the factors
considered by the Special Committee and described in the Schedule 14D-9, and, to
that end, the Special Committee strongly urges that you read the enclosed
materials carefully and in their entirety, paying particular attention to Item
4 -- "The Solicitation or Recommendation".
Very truly yours,
T. ANTHONY BROOKS
Chairman of the Special Committee of
the Board of Directors of Thermedics
Inc.
NICHOLAS T. ZERVAS
Member of the Special Committee of the
Board of Directors of Thermedics Inc.
<PAGE> 1
SCHEDULE I
[CHASE LOGO]
CHASE SECURITIES INC.
270 Park Avenue
New York, NY 10017-2070
May 5 2000
Special Committee of the Board of Directors
Thermedics Inc.
81 Wyman Street
Waltham, Massachusetts 02454
Members of the Committee:
You have informed us that Thermo Electron Corp., a Delaware corporation
("Parent"), and owner of 75.5% of the outstanding common stock of Thermedics
Inc., a Massachusetts corporation (the "Company"), has commenced an exchange
offer (the "Transaction"), pursuant to which each then outstanding share of
Common Stock, par value $.10 per share, of the Company (other than shares owned
by Parent or its affiliates) (the "Shares") will be converted into .45 shares
(the "Exchange Ratio") of validly issued, fully paid and nonassessable shares of
Common Stock, par value $1.00 per share, of Parent (the "Parent Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair, from
a financial point of view, to the holders of the Shares (other than Parent and
its affiliates).
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed certain publicly available business and financial information
we deemed relevant relating to Parent and the Company (including each
of the Company's subsidiaries) and the respective industries in which
they operate;
(b) reviewed certain internal non-public financial and operating data
provided to us by or on behalf of the management of the Company
relating to the Company's and its subsidiaries' businesses, including
management forecasts and projections of financial results of the
Company and its subsidiaries for fiscal year 2000;
(c) discussed with members of the Company's senior management, the
Company's operations, historical financial statements and future
prospects, as well as such other matters as we deemed necessary or
appropriate;
(d) discussed with members of Parent's senior management, Parent's
operations, historical financial statements and future prospects, in
light of their current restructuring process, as well as such other
matters as we deemed necessary and appropriate;
(e) compared the financial and operating performance of Parent and each of
the Company's subsidiaries with publicly available information
concerning certain other companies we deemed comparable and reviewed
the relevant historical stock prices and trading volumes of the Parent
Shares, the Shares and certain publicly traded securities of such
other companies;
(f) reviewed the financial terms of certain recent business combinations
and acquisition transactions we deemed reasonably comparable to the
Transaction or otherwise relevant to our inquiry; and
(g) made such other analyses and examinations as we have deemed necessary
or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us,
S-1
<PAGE> 2
or publicly available, for purposes of this opinion and have further relied upon
the assurances of management of the Company and Parent that they are not aware
of any facts that would make such information inaccurate or misleading. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of Parent or the Company, nor have we conducted a physical
inspection of the properties and facilities of Parent or the Company. We have
assumed that the financial forecast and projection information provided to us or
discussed with us by or on behalf of the Company have been reasonably determined
on bases reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
We have assumed that financial information discussed with us by or on behalf of
Parent has been reasonably determined on bases reflecting the best currently
available estimates and judgments of the management of Parent as to the future
financial performance of Parent. We express no view as to such forecast,
projection or financial information or the assumptions on which they were based.
For purposes of rendering our opinion we have assumed, in all respects
material to our analysis, that all conditions to the consummation of the
Transaction will be satisfied without waiver thereof. We have also assumed that
all material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either of Parent or the Company are party, no
restrictions will be imposed or amendments, modifications or waivers made that
would have any material adverse effect on the contemplated benefits to Parent of
the Transaction.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of Shares (other than Parent and its affiliates) of the Exchange Ratio
and we express no opinion as to any of the other merits of the Transaction or
the underlying decision by the holders of Shares to engage in the Transaction.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Special Committee
of the Board of Directors of the Company in connection with the Transaction and
will receive a fee for our services, including for rendering this opinion. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. In the ordinary course of business, we or our affiliates
may trade in the debt and equity securities of Parent and the Company for our
own accounts and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Exchange Ratio is fair, from a financial point of view, to
holders of the Shares (other than Parent and its affiliates).
This opinion is for the use and benefit of the Special Committee of the
Board of Directors of the Company and the Board of Directors of the Company in
their evaluations of the Transaction and shall not be used for any other purpose
without the prior written consent of Chase Securities Inc.
Very truly yours,
/S/ CHASE SECURITIES INC.
CHASE SECURITIES INC.
S-2
<PAGE> 1
Exhibit 9
AGREEMENT
This Agreement, made and entered into this day of , 200 ,
("Agreement"), by and between Thermedics Inc., a Massachusetts corporation (the
"Company") and ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as [director or as executive officers] or in other
capacities unless they are provided with adequate protection through insurance
or adequate indemnification against inordinate risks of claims and actions
against them arising out of their service to, and activities on behalf of, the
corporation;
WHEREAS, uncertainties relating to the continued availability of adequate
directors and officers liability insurance ("D&O Insurance") and the
uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the difficulty in attracting and retaining such persons is detrimental to
the best interest of the Company's stockholders and that the Company should act
to assure such persons that there will be increased certainty of such
protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually
to obligate itself to indemnify such persons to the fullest extent permitted by
applicable law so that they will serve or continue to serve the Company free
from undue concern that they will not be so indemnified;
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified and that such indemnification be so guaranteed.
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to serve
[as a director or executive officer] of the Company. This Agreement shall not
impose any obligation on the Indemnitee or the Company to continue the
Indemnitee's position with the Company beyond any period otherwise applicable.
2. GENERAL. The Company shall indemnify, and shall advance Expenses (as
hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. INDEMNITY. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments,
<PAGE> 2
penalties, fines and amounts paid in settlement incurred by him or on his
behalf in connection with such action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative or any
claim, issue or matter therein; provided, however, that no indemnification shall
be made hereunder (a) with respect to Expenses, judgments, penalties, fines and
amounts paid in settlement incurred in relation to any claim, issue or matter as
to which he shall be finally adjudged in such action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or any other proceeding whether civil, criminal, administrative or investigative
not to have acted in good faith and in the reasonable belief that his action was
in the interests of the Company and (b) if otherwise prohibited by law.
4. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative hearing
or any other proceeding whether civil, criminal, administrative or
investigative, he shall be indemnified against all Expenses incurred by him or
on his behalf in connection therewith. If Indemnitee is not wholly successful
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues of matters, the Company shall indemnify Indemnitee against
all Expenses incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter by dismissal,
or withdrawal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
5. ADVANCE OF EXPENSES. The Company shall advance all reasonable Expenses
incurred by or on behalf of Indemnitee in connection with any action, suit,
arbitration, alternative dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative within twenty days after the receipt by the
Company of a statement or statements from Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of such
action, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of the Indemnitee to
repay any Expenses advanced if it shall shall ultimately be determined that
Indemnitee is not entitled to be indemnified against such Expenses.
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit
to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The
2
<PAGE> 3
Clerk of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to Section
6(a) hereof, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall be made in the specific case: (i) if a
Change in Control (as hereinafter defined) shall have occurred, by Independent
Counsel (as hereinafter defined) in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee (unless Indemnitee shall
request that such determination be made by the Board or the Stockholders, in
which case the determination shall be made in the manner provided below in
clauses (ii) or (iii)); (ii) if a Change of Control shall not have occurred, (A)
by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (B) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable or,
even if obtainable, such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee or (C) by the stockholders of the
Company; or (iii) as provided in Section 7(b) of this Agreement; and if it is so
determined that Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made ten (10) days after such determination. Indemnitee shall cooperate
with the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonable necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) of this Agreement, the
Independent Counsel shall be selected as provided in this Section 6(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within 7 days after such written notice of selection shall
have been given, deliver to the Company or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 12 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected shall not serve as Independent
3
<PAGE> 4
Counsel unless and until a court has determined that such objection is
without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected or, if selected, shall have been objected to,
in accordance with this Section 6(c), either the Company or Indemnitee may
petition any court of competent jurisdiction for resolution of any objection
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom an objection is favorably resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 6(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 8(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a determination with
respect to entitlement of indemnification hereunder, the person, persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 6(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person or entity of any determination contrary
to that presumption.
(b) If the person, persons or entity empowered or selected under Section 6 of
this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made such determination within 60 days after receipt by the
company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall entitled
to such indemnification, absent (i) a misstatement by Indemnitee of a material
fact, or an omission of a material fact necessary to make Indemnitee's statement
not materially misleading, in connection with the request for indemnification or
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 60-day period may be extended for a reasonable time not to
exceed an additional 30 days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and, provided, further, that the foregoing
provisions of this Section 7(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 6(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such
4
<PAGE> 5
receipt for the purpose of making such determination, such meeting is held
for such purpose within 60 days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(c) The termination of any action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative or of any
claim, issue or matter therein by judgment, order, settlement or conviction, or
upon a plea of nolo contendre or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or be deemed to constitute an adjudication that
Indemnitee did not act in good faith and in the reasonable belief that his
action was in the best interests of the Company.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 6 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 6(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 7 of this Agreement, Indemnitee shall be entitled to an adjudication in
any court of competent jurisdiction in the Commonwealth of Massachusetts, of his
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 8(a). The Company
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6
of this Agreement that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section 8 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change in Control shall have occurred, in any judicial proceeding or arbitration
commenced pursuant to this Section 8, the Company shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
5
<PAGE> 6
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 6 or 7 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or
arbitration commenced pursuant to this Section 8 that the procedures and
presumptions of the Agreement are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that the Company is
bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 8, seeks a judicial
adjudication of or an award in arbitration to enforce his right under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Company, and shall be indemnified by the Company against, any
and all expenses (of the types described in the definition of Expenses in
Section 12 of this Agreement) actually and reasonably incurred by him in such
judicial adjudication or arbitration, but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
9. SECURITY. To the extent requested by the Indemnitee and approved by the Board
of Directors, the Company may at any time and from time to time provide security
to the Indemnitee for the Company's obligations hereunder through an irrevocable
bank line of credit, funded trust or other collateral. Any such security, once
provided to the Indemnitee, shall not be revoked or released without the prior
written consent of Indemnitee.
10. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any rights to which
Indemnitee may at any time be entitled under applicable law, the Company's
articles of organization or by-laws, any other agreement, a vote of stockholders
or a resolution of directors, or otherwise. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as a [director or executive officer of the Company or
fiduciary of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which Indemnitee served at the request of the
Company; or (b) the final termination of all pending actions, suits,
arbitrations, alternative dispute resolution mechanisms, investigations,
administrative hearings or any other proceedings whether civil, criminal,
administrative of investigative in respect of which Indemnitee is granted rights
of indemnification or advancement of expenses
6
<PAGE> 7
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 8
of the Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
(b) To the extent that the Company or any other person maintains D&O Insurance
providing liability insurance for [directors or executive officers] of the
Company or fiduciaries of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such [director or executive officer] under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary
to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of
amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee
had otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
11. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of the Agreement
(including without limitation each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, in each portion of
any Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
12. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any action, suit or proceeding, or any claim therein, initiated,
brought or made by him (i) against the Company, unless a Change in Control shall
have occurred, or (ii) against any person other than the Company, unless
approved in advance by the Board.
13. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 5(f) of Schedule 14(A)
of Regulation 14A (or in response to any similar item on any similar schedule of
form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether
or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the
7
<PAGE> 8
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) case for any reason to constitute at
least a majority of the Board.
(b) "Corporate Status" describes the status of a person who is or was or has
agreed to become a director of the Company, or is or was an executive officer or
fiduciary of the Company of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person is or was
serving the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not and was
not a party to the action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorney's fees, retainers, court
costs, transcript costs, fees of experts, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
and all other disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend or
investigating an action, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrating hearing or any other proceeding whether
civil, criminal, administrating or investigative.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither currently is, nor in the
past five years has been, retained to represent: (i) the Company or Indemnitee
in any matter material to either such party, or (ii) any other party to the
action, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement, arising on or after the date of this
Agreement, regardless of when the Indemnitee's act or failure to act occurred.
14. HEADINGS. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
15. MODIFICATION AND WAIVER. This Agreement may be amended from time to time to
reflect changes in Massachusetts law or for other reasons. No supplement,
8
<PAGE> 9
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Company in
writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any matter which may be
subject to indemnification or advancement of Expenses covered hereunder,
provided, however, that failure to give any such notice shall not disqualify the
Indemnitee from indemnification hereunder.
17. NOTICES. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company, to: Thermedics Inc.
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
Attn: Clerk
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the cases may be.
18. GOVERNING LAW. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the law of the Commonwealth
of Massachusetts.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
Attest: THERMEDICS INC.
By: By:
------------------------------ ----------------------------------
INDEMNITEE
-------------------------------------
10
<PAGE> 1
Exhibit 11
Item 11 - EXECUTIVE COMPENSATION (Selected Portions)
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive officers and
key employees of Thermo Electron and its subsidiaries that provide severance
benefits if there is a change in control of Thermo Electron and their employment
is terminated by Thermo Electron "without cause" or by the individual for "good
reason," as those terms are defined therein, within 18 months thereafter. For
purposes of these agreements, a change in control exists upon (i) the
acquisition by any person of 40% or more of the outstanding common stock or
voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with each
of Mr. John T. Keiser and Mr. Victor L. Poirier. These agreements provide that
in the event the individual's employment is terminated under circumstances
described above, the individual would be entitled to a lump sum payment equal to
the sum of (a) in the case of Mr. Keiser two times, and in the case of Mr.
Poirier, one times, the individual's highest annual base salary in any 12 month
period during the prior five-year period, plus (b) in the case of Mr. Keiser,
two times, and in the case of Mr. Poirier, one times, the individual's highest
annual bonus in any 12 month period during the prior five-year period. In
addition, the individual would be provided benefits for a period of, in the case
of Mr. Keiser, two years, and in the case of Mr. Poirier, one year, after such
termination substantially equivalent to the benefits package the individual
would have been otherwise entitled to receive if the individual was not
terminated. Further, all repurchase rights of Thermo Electron and its
subsidiaries shall lapse in their entirety with respect to all options and
restricted stock that the individual holds in Thermo Electron and its
subsidiaries, including the Corporation, as of the date of the change in
control. Finally, the individual would be entitled to a cash payment equal to,
in the case of Mr. Keiser, $20,000, and in the case of Mr. Poirier, $15,000, to
be used toward outplacement services. These executive retention agreements
supercede and replace any and all prior severance arrangements which these
individuals had with Thermo Electron.
Assuming that the severance benefits would have been payable as of January 1,
2000, the lump sum salary and bonus payment under such agreement to Messrs.
Keiser and Poirier would have been approximately $920,000 and $364,500,
respectively. In the event that payments under these agreements are deemed to be
so called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individuals would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by such individual with respect to such payment plus
the amount of all other additional taxes imposed on such individual attributable
to the receipt of such gross-up payment.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Selected Portions)
The Charter, the Corporation and Thermo Electron have entered into a Corporate
Services Agreement (the "Services Agreement") under which Thermo Electron's
corporate staff provides certain administrative services, including certain
legal advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services to the Corporation. The Corporation was assessed an annual
fee equal to 0.8% of the Corporation's revenues for these services for fiscal
1999. The annual fee will remain at 0.8% of the Corporation's total revenues for
fiscal 2000. The fee is reviewed annually and may be changed by mutual agreement
of the Corporation and Thermo Electron. During fiscal 1999, Thermo Electron
assessed the Corporation $1,788,000 in fees under the Services Agreement.
Management believes that the charges under the Services Agreement are reasonable
and that the terms of the Services Agreement are fair to the Corporation. In
fiscal 1999, the Corporation was billed an additional $56,318 by Thermo Electron
for certain administrative services required by the Corporation that were not
covered by the Services Agreement. The Services Agreement automatically renews
for successive one-year terms, unless canceled by the Corporation upon 30 days'
prior notice. In addition, the Services Agreement terminates automatically in
the event the Corporation ceases to be a Thermo subsidiary or ceases to be a
participant in the Thermo Electron Charter. In the event of a termination of the
Services Agreement, the Corporation will be required to pay a termination fee
equal to the fee that was paid by the Corporation for services under the
Services Agreement for the nine-month period prior to termination. Following
termination, Thermo Electron may provide certain administrative services on an
as-requested basis by the Corporation or as required in order to meet the
Corporation's obligations under Thermo Electron's policies and procedures.
Thermo Electron will charge the Corporation a fee equal to the market rate for
comparable services if such services are provided to the Corporation following
termination.
As of January 1, 2000, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $3,121,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services
and for miscellaneous items, net of amounts owed to the Corporation by Thermo
Electron and its other subsidiaries for products, services and for miscellaneous
items. The largest amount of such net indebtedness owed by the Corporation to
Thermo Electron and its other subsidiaries since January 2, 1999 was $7,138,000.
These amounts do not bear interest and are expected to be paid in the normal
course of business.
<PAGE> 2
Thermedics Detection purchases an X-ray source that is used as a component in
its InScan systems from Trex Medical Corporation, a publicly traded,
majority-owned subsidiary of ThermoTrex Corporation ("ThermoTrex"), which is
itself a publicly traded, majority-owned subsidiary of Thermo Electron.
Thermedics Detection paid Trex Medical Corporation $81,000 for these products in
fiscal 1999.
Pursuant to an international distributorship agreement, Thermedics Detection
appointed Arabian Business Machines Co. ("ABM") as its exclusive distributor of
Thermedics Detection's security instruments in certain Middle Eastern countries.
ABM is a member of the Olayan Group. Ms. Hutham S. Olayan, a director of Thermo
Electron, is the president and a director of Olayan America Corporation, a
member of The Olayan Group, which is indirectly controlled by Suliman S. Olayan,
Ms. Olayan's father. Revenues recorded under this agreement totaled $147,000 in
fiscal 1999.
In June 1998, Thermo Sentron borrowed $21 million from Thermo Electron pursuant
to a promissory note due December 1998, bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. Thermo Sentron entered into this note in order to partially
finance its acquisition of the three businesses that constituted the
product-monitoring group of Graseby Limited, a subsidiary of Smiths Industries
plc ("Graseby"), for $44 million in cash, net of cash acquired, and the
assumption of certain liabilities. In December 1998, Thermo Sentron repaid $2
million of this amount and issued Thermo Electron a new promissory note for $19
million in exchange for the initial note. This note is due June 1999 and bears
interest under the same terms as the initial note. Subsequently, in June 1999,
Thermo Sentron repaid $6million of this amount and issued a new note for $13
million. Thermo Sentron repaid an additional $1 million under the note in each
of the third and fourth quarters of 1999. In March 2000, Thermo Sentron
refinanced the note under the Thermo Electron Cash Management arrangement which
bears interest at a rate equal to the 30-day Dealer Commercial Paper Rate plus
150 basis points set at the beginning of each month and was 7.55% at April 1,
2000.
In January 2000, Thermo Sentron entered into a fifteen year lease arrangement
with Thermo Electron with respect to Thermo Sentron's principal executive
offices in Minneapolis, Minnesota. The rent payable by Thermo Sentron to Thermo
Electron under the lease is $50,000 per month for the first five years of the
lease, $55,000 per month for the second five years of the lease and $60,000 per
month for the final fives years of the lease.
Thermo Sentron acts as a distributor in Europe for process measurement
instruments manufactured by another Thermo Subsidiary. In 1999, Thermo Sentron
purchased such products from this Thermo Subsidiary for $326,000.
Thermo Electron's Tecomet division provides metal fabrication services in
connection with the manufacture of the heart assist devices sold by Thermo
Cardiosystems. During 1999, Thermo Cardiosystems paid Tecomet $3,651,000 for
these services.
On February 5, 1998, the Corporation's board of directors voted to issue
4,880,533 shares of Common Stock to Thermo Electron in exchange for 100% of the
stock of TMO TCA Holdings, Inc., which is the beneficial owner of 3,355,705
shares of Thermo Cardiosystems' common stock. Thermo Electron had acquired such
shares of Thermo Cardiosystems common stock as consideration for the acquisition
by Thermo Cardiosystems of International Technidyne Corporation ("ITC") from
Thermo Electron in May 1997. The Thermo Cardiosystems shares were valued at
$75,000,000 at the time of the acquisition by Thermo Cardiosystems of ITC. The
issuance of the 3,355,705 shares of Thermo Cardiosystems' common stock was
subject to the approval of Thermo Cardiosystems' stockholders of the listing of
such shares for trading on the American Stock Exchange, which was obtained at a
special meeting of the stockholders of Thermo Cardiosystems held on April 13,
1998. The Corporation's issuance of the 4,880,533 shares of Common Stock to
Thermo Electron was subject to approval by the Corporation's stockholders, which
was obtained at a special meeting of the Stockholders held on March 31, 1999.
The number of shares of Common Stock was determined based on the respective fair
market values of the Common Stock and the Thermo Cardiosystems common stock as
of February 5, 1998. The fair market values of the 4,880,553 shares of Common
Stock and the 3,355,705 shares of Thermo Cardiosystems common stock as of
February 5, 1998 were each $75,587,000.
The Corporation, along with other U.K.-based Thermo Electron companies,
participates in a notional pool arrangement in the U.K. with Barclays Bank,
which includes a $114,943,000 credit facility. The Corporation has access to
$6,065,000 under this credit facility. Under this arrangement, Barclays
notionally combines the positive and negative cash balances held by the
participants to calculate the net interest yield/expense for the group. The
benefit derived from this arrangement is then allocated based on balances
attributable to the respective participants. Thermo Electron guarantees all of
the obligations of each participant in this arrangement. As of January 1, 2000,
the Corporation had a positive cash balance of approximately and a $1,441,000
and a negative cash balance of approximately $2,640,000 based on an exchange
rate of $1.6171/GBP 1.00. For 1999, the average annual interest rate earned on
GBP deposits by participants in this credit arrangement was approximately 5.44%
and the average annual interest rate paid on overdrafts was approximately
5.8025%.
At year-end 1998, $35,256,000 of the Corporation's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Corporation in effect lent excess cash to Thermo Electron, which Thermo
Electron collateralized with investments principally consisting of corporate
notes, U.S. government agency securities, commercial paper, money market funds
and other marketable securities, in the amount of at least 103% of such
obligation. The Corporation's funds subject to the repurchase agreement were
readily convertible into cash by the Corporation. The repurchase agreement
earned a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
Effective June 1999, the Corporation and Thermo Electron commenced use of a new
domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Corporation for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Corporation has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice. At
year-end 1999, the Corporation had invested $46,285,000 under this arrangement.
In addition, certain of the Corporation's European-based subsidiaries
participate in a new cash management arrangement with a wholly owned subsidiary
of Thermo Electron on terms similar to the domestic cash management arrangement.
The Corporation has access to a $36,473,000 line of
<PAGE> 3
credit under this arrangement, of which the Corporation had invested $411,000
and had borrowed $34,600,000 at year-end 1999. Interest under this arrangement
is calculated based on Euro market rates and was 3.95% on the negative balance
at year-end 1999.
The Corporation, along with certain other Thermo subsidiaries, has entered into
a cash management arrangement with ABN AMRO. Only European-based Thermo
Subsidiaries participate in this arrangement. The new arrangement with ABN AMRO
consists of a zero balance arrangement, which includes a $25,417,000 credit
facility. The Corporation has access to $2,280,000 under this credit facility.
Funds borrowed by the Corporation under this arrangement pay interest at a rate
set by Thermo Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the
beginning of each month, based on Netherlands market rates. Funds invested by
the Corporation under the arrangement earn a rate set by Thermo Finance B.V. at
the beginning of each month, based on Netherlands market rates. Such invested
funds are collateralized with investments principally consisting of corporate
notes, U.S. government-agency securities, commercial paper, money market funds,
and other marketable securities, in the amount of at least 103% of such
obligation. Thermo Electron guarantees all of the obligations of each
participant in this arrangement. As of January 2, 1999, the Corporation had a
negative cash balance of approximately $698,000, based on an exchange rate of
$0.4599/NLG 1.00. As of January 1, 2000, the average annual interest rate earned
on NLG deposits by participants in this credit arrangement was approximately
3.19% and the average annual interest rate paid on overdrafts was approximately
3.74%.
THERMO ELECTRON CORPORATE REORGANIZATION
Thermo Electron has adopted a major reorganization plan under which, among other
things, it is acquiring the minority interest in most of its subsidiaries that
have minority investors. In furtherance of this plan, Thermo Electron intends to
commence an exchange offer for any and all of the outstanding shares of common
stock of the Corporation that it does not own. The consideration being offered
in the exchange offer is .45 shares of Thermo Electron common stock for each
share of the Corporation's common stock. The goal of the exchange offer is to
bring Thermo Electron's equity ownership in the Corporation to at least 90%. If
Thermo Electron achieves this 90%-ownership level, the Corporation would then be
taken private through a "short-form" merger at the same exchange ratio as the
exchange offer. In addition, as part of this reorganization plan, the
Corporation completed the acquisition of the minority interest in each of its
Thermo Voltek, Thermo Sentron and Thermedics Detection subsidiaries. The
consideration paid in each of these transactions was $7.00, $15.50 and $8.00 per
share in cash, respectively, without interest.
Executive officers and directors of the Corporation who held shares of common
stock in the Corporation's subsidiaries described above that were taken private
received the same cash consideration per share of subsidiary stock as all other
stockholders of such subsidiaries. In addition, the executive officers' and
directors' options to acquire shares of such subsidiaries' common stock, for
which the granting corporation's repurchase rights had not lapsed ("unvested
options"), were automatically assumed by either the Corporation or Thermo
Electron, as applicable, and converted into options to purchase shares of the
Corporation's common stock or Thermo Electron's common stock on the same terms
as were applicable to all the other holders of such subsidiary's options, as
described below. In the case of options to acquire shares of such subsidiaries'
common stock, for which the granting corporation's repurchase rights had lapsed
("vested options"), the holders were given the opportunity to elect either to
convert the options into vested options to acquire shares of the Corporation's
common stock or Thermo Electron's common stock, as applicable, or to receive
cash at the applicable cash transaction price less the applicable exercise
price, on the same terms as were applicable to all the other holders of such
subsidiary's options.
Vested and unvested options that were assumed by the Corporation or Thermo
Electron in these completed transactions generally were converted as follows:
The number of shares of the Corporation's common stock or Thermo Electron's
common stock underlying each assumed option equaled the number of shares of
subsidiary common stock underlying the option before the transaction, multiplied
by the applicable "cash exchange ratio" described below, rounded down to the
nearest whole number of shares of the Corporation's common stock or Thermo
Electron's common stock. The exercise price for each assumed option was
calculated by dividing the exercise price of the subsidiary stock option before
the transaction by the applicable "cash exchange ratio" described below, rounded
up to the nearest whole cent. The applicable "cash exchange ratio" for each
transaction was a fraction, the numerator of which was the applicable cash price
described above and the denominator of which was the closing price of the
Corporation's common stock or Thermo Electron's common stock, as applicable, on
the day preceding the effective date of the transaction.
Additionally, certain directors participated in the deferred compensation plans
of the various subsidiaries. On the effective date of each of the completed cash
transactions listed above, each of the affected subsidiaries' deferred
compensation plans terminated and the participants received cash in an amount
equal to the balance of such participant's stock units credited to his or her
account under the respective deferred compensation plan, multiplied by the
applicable cash price described above. Any such stock units held by directors
are included in their stock ownership information described below.
In the Thermo Voltek Corp. transaction, Mr. Melas-Kyriazi (who is not a named
executive officer of the Corporation for purposes of Securities and Exchange
Commission regulations, and whose ownership information therefore does not
appear in such stock ownership table)and Mr. Wood received a cash payment of
$7.00 per share for 5,581 and 14,621 shares of common stock of Thermo Voltek
Corp. held by such individuals, respectively. Additionally, Mr. Crisp, Mr.
Ferrari, Mr. Wood and Mr. Zervas held options to acquire 2,250, 2,250, 82,350
and 2,250 shares of Thermo Voltek Corp. common stock, respectively, that were
converted into options to acquire shares of common stock of the Corporation, as
described above.
In the Thermedics Detection Inc. transaction, Mr. Ferrari and Mr. Wood received
a cash payment of $8.00 per share for 599 and 17,251 shares of common stock of
Thermedics Detection Inc. held by such individuals, respectively. Additionally,
Mr. Keiser and Mr. Wood held options to acquire 17,000 and 20,000 shares of
Thermedics Detection Inc. common stock, respectively, that were converted into
options to acquire shares of Thermo Electron common stock, as described above.
<PAGE> 4
In the Thermo Sentron Inc. transaction, Mr. Wood received a cash payment of
$15.50 per share for 4,000 shares of common stock of Thermo Sentron Inc. held by
Mr. Wood. Additionally, Mr. Keiser, Mr. Poirier and Mr. Wood held options to
acquire 19,500, 7,500 and 31,000 shares of Thermo Sentron Inc. common stock,
respectively, that were converted into options to acquire shares of Thermo
Electron common stock, as described above.
Executive officers and directors of the Corporation who hold shares of the
Corporation's common stock will receive the same consideration per share for
such stock as all other stockholders of the Corporation. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
In addition, certain executive officers and directors of the Corporation hold
options to acquire shares of common stock of the Corporation (See Item 12 -
"Security Ownership of Certain Beneficial Owners and Management"), which options
will be treated in the same manner as options held by other employees. All
options held by such persons will be assumed by Thermo Electron and converted
into options to acquire shares of Thermo Electron's common stock on the same
terms as are applicable to all the other holders of the Corporation's options.
Specifically, vested and unvested options that are being assumed by Thermo
Electron in the proposed transaction will be converted as follows: The number of
shares of Thermo Electron common stock underlying each assumed option will equal
the number of shares of the Corporation common stock underlying the option
before the transaction, multiplied by the exchange ratio, rounded down to the
nearest whole number of shares of Thermo Electron common stock. The exercise
price for each assumed option will be calculated by dividing the exercise price
of the Corporation stock option before the transaction by the exchange ratio,
rounded up to the nearest whole cent.
In addition to the ownership information that appears in the Item 12 - "Security
Ownership of Certain Beneficial Owners and Management" table, Mr. Melas-Kyriazi
holds 11,861 shares of common stock of the Corporation.
On the effective date of the proposed transaction, the Corporation's deferred
compensation plan will be assumed by Thermo Electron, and the stock units
credited to each participant's account under the deferred compensation plan will
be converted into stock units for Thermo Electron common stock at the exchange
ratio.
