SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 First Avenue
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [
]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
---------------------------- ----------------------------
Common Stock, $.10 par value 19,513,824
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO TERRATECH INC.
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, April 4,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $22,632 and
$29,583 under repurchase agreement with parent
company) $ 27,596 $ 34,711
Available-for-sale investments, at quoted market
value (amortized cost of $2,008) 1,998 2,003
Short-term held-to-maturity investments, at
amortized cost (quoted market value of $13,979) - 13,939
Accounts receivable, less allowances of $4,567
and $4,450 59,549 60,050
Unbilled contract costs and fees 23,622 20,547
Inventories 1,486 1,498
Prepaid and refundable income taxes 6,208 6,224
Prepaid expenses 4,021 3,810
-------- --------
124,480 142,782
-------- --------
Property, Plant, and Equipment, at Cost 149,098 142,368
Less: Accumulated depreciation and amortization 53,492 50,659
-------- --------
95,606 91,709
-------- --------
Other Assets 18,038 18,227
-------- --------
Cost in Excess of Net Assets of Acquired Companies 107,174 107,808
-------- --------
$345,298 $360,526
======== ========
2
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THERMO TERRATECH INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, April 4,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Note payable and current maturities of
long-term obligations $ 14,194 $ 27,165
Accounts payable 18,011 17,728
Accrued payroll and employee benefits 10,174 11,359
Other accrued expenses 11,523 14,870
Due to parent company 3,128 2,341
-------- --------
57,030 73,463
-------- --------
Deferred Income Taxes 2,901 2,901
-------- --------
Other Deferred Items 1,054 1,049
-------- --------
Long-term Obligations:
Subordinated convertible debentures (includes
$3,000 of related-party debt) 149,800 149,800
Other 3,311 3,344
-------- --------
153,111 153,144
-------- --------
Minority Interest 32,226 32,839
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 75,000,000 shares
authorized; 19,583,773 shares issued 1,958 1,958
Capital in excess of par value 71,245 70,437
Retained earnings 28,320 27,319
Treasury stock at cost, 69,949 and 51,188 shares (633) (484)
Accumulated other comprehensive items (Note 3) (1,914) (2,100)
-------- --------
98,976 97,130
-------- --------
$345,298 $360,526
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMO TERRATECH INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues:
Service revenues $76,693 $65,110
Product revenues - 7,409
------- -------
76,693 72,519
------- -------
Costs and Operating Expenses:
Cost of service revenues 61,045 51,820
Cost of product revenues - 6,131
Selling, general, and administrative expenses 11,430 9,938
Product and new business development expenses 145 222
------- -------
72,620 68,111
------- -------
Operating Income 4,073 4,408
Interest Income 644 1,403
Interest Expense (includes $36 and $1,164 to
parent company) (2,257) (3,133)
Equity in Earnings of Unconsolidated Subsidiary - 118
Other Income - 204
------- -------
Income Before Provision for Income Taxes and
Minority Interest 2,460 3,000
Provision for Income Taxes 1,299 1,399
Minority Interest Expense 160 269
------- -------
Net Income $ 1,001 $ 1,332
======= =======
Earnings per Share (Note 2):
Basic $ .05 $ .08
======= =======
Diluted $ .05 $ .07
======= =======
Weighted Average Shares (Note 2):
Basic 19,514 17,646
======= =======
Diluted 19,514 18,116
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 1,001 $ 1,332
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 4,068 3,482
Equity in earnings of unconsolidated
subsidiary - (118)
Minority interest expense 160 269
Provision for losses on accounts receivable 363 (49)
Gain on sale of assets - (204)
Other noncash items 194 119
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (466) (1,748)
Unbilled contract costs and fees (4,014) (11,224)
Other current assets (173) (1,192)
Accounts payable 661 (992)
Current liabilities (3,193) 1,338
-------- --------
Net cash used in operating activities (1,399) (8,987)
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (4,418)
Proceeds from sale and maturities of
available-for-sale and held-to-maturity
investments 14,065 10,264
Purchases of property, plant, and equipment (5,814) (5,032)
Proceeds from sale of property, plant, and
equipment 181 391
Purchase of other assets (262) (88)
-------- --------
Net cash provided by investing activities $ 8,170 $ 1,117
-------- --------
5
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Financing Activities:
Repayment of notes payable to parent company $ - $(38,000)
Proceeds from issuance of Company and subsidiary
common stock 36 198
Repurchase of Company and subsidiaries' common
stock (150) (5,866)
Repayment of long-term notes receivable 487 -
Repayment of notes payable (14,194) -
Other 12 (316)
-------- --------
Net cash used in financing activities (13,809) (43,984)
-------- --------
Exchange Rate Effect on Cash (77) (9)
-------- --------
Decrease in Cash and Cash Equivalents (7,115) (51,863)
Cash and Cash Equivalents at Beginning of Period 34,711 63,172
-------- --------
Cash and Cash Equivalents at End of Period $ 27,596 $ 11,309
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ - $ 8,765
Cash paid for acquired companies - (6,300)
-------- --------
Liabilities assumed of acquired companies $ - $ 2,465
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMO TERRATECH INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo TerraTech Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 4, 1998, and the results of
operations and cash flows for the three-month periods ended July 4, 1998, and
June 28, 1997. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of April 4, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended April 4, 1998,
filed with the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Basic
Net income $ 1,001 $ 1,332
------- -------
Weighted average shares 19,514 17,646
------- -------
Basic earnings per share $ .05 $ .08
======= =======
Diluted
Net income $ 1,001 $ 1,332
Effect of majority-owned subsidiaries' dilutive
securities - (9)
------- -------
Income available to common shareholders, as adjusted $ 1,001 $ 1,323
------- -------
Weighted average shares 19,514 17,646
Effect of stock options and warrants - 470
------- -------
Weighted average shares, as adjusted 19,514 18,116
------- -------
Diluted earnings per share $ .05 $ .07
======= =======
7
<PAGE>
THERMO TERRATECH INC.
2. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of outstanding stock options and warrants because the
effect would be antidilutive. As of July 4, 1998, there were 2,674,450 of such
options and warrants outstanding, with exercise prices ranging from $6.00 to
$14.58 per share. In addition, the computation of diluted earnings per share for
all periods excludes the effect of assuming the conversion of $111,850,000
principal amount of 4 5/8% subordinated convertible debentures, convertible at
$15.90 per share, because the effect would be antidilutive.
3. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain items that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net of tax gains or losses from
available-for-sale investments. During the first quarter of fiscal 1999 and
1998, the Company's comprehensive income totaled $1,079,000 and $1,106,000,
respectively.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 4, 1998, filed with the Securities and Exchange
Commission.
Overview
The Company provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations, including infrastructure
engineering, design and construction, environmental compliance, laboratory
testing, and metal treating.
8
<PAGE>
Overview (continued)
Environmental-liability Management - The Company's majority-owned Thermo
Remediation Inc. subsidiary is a national provider of environmental-liability
management services. Thermo Remediation offers these and related consulting
services in five areas: industrial remediation, nuclear remediation,
waste-fluids collection and recycling, soil remediation, and
environmental-management and information technology consulting. Thermo
Remediation has proposed changing its name to ThermoRetec Corporation, subject
to shareholder approval. The Company's majority-owned Thermo EuroTech N.V.
subsidiary, located in the Netherlands, specializes in converting "off-spec" and
contaminated petroleum fluids into usable oil products. Thermo EuroTech also
provides in-plant waste management and recycling services through its
Ireland-based Green Sunrise Holdings Ltd. subsidiary, acquired in February 1998.
Engineering and Design - The Company's majority-owned subsidiary, The
Randers Group Incorporated, provides comprehensive engineering and outsourcing
services such as water and wastewater treatment, highway and bridge projects,
process engineering, construction management, and inspection and operational
services. Randers has proposed changing its name to The Randers Killam Group
Inc., subject to shareholder approval. The Company's wholly owned Normandeau
Associates Inc. subsidiary provides consulting services that address natural
resource management issues.
Laboratory Testing - The Company's wholly owned Thermo Analytical Inc.
subsidiary operates analytical laboratories that provide environmental-,
pharmaceutical-, and food-testing services, primarily to commercial clients
throughout the U.S.
Metal Treating - The Company performs metallurgical processing services
using thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. The Company also designed, manufactured, and installed advanced
custom-engineered, thermal-processing systems through its equipment division
located in Michigan, until the sale of this business in October 1997.
The Company's revenues were as follows:
Three Months Ended
------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Environmental-liability Management $39,965 $30,740
Engineering and Design 22,776 20,596
Laboratory Testing 9,671 9,355
Metal Treating 4,706 12,094
Intercompany Sales Eliminations (425) (266)
------- -------
$76,693 $72,519
======= =======
9
<PAGE>
Overview (continued)
The Company has acquired a number of businesses in the last three years. The
Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core business. The Company may, however, acquire
one or more additional businesses if they are presented to the Company on terms
the Company believes to be attractive.
Results of Operations
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
Total revenues increased 6% to $76.7 million in the first quarter of fiscal
1999 from $72.5 million in the first quarter of fiscal 1998. Revenues from
environmental-liability management services increased 30% to $40.0 million in
fiscal 1999 from $30.7 million in fiscal 1998. Revenues at Thermo Remediation
increased to $34.4 million in fiscal 1999 from $28.2 million in fiscal 1998,
primarily due to increased revenues from consulting and engineering services at
Remediation Technologies, Inc. (RETEC) and, to a lesser extent, the inclusion of
$2.6 million of revenues from two businesses acquired in fiscal 1998. Revenues
from soil-remediation services increased $1.8 million in fiscal 1999, resulting
from an increase in the volume of soil processed. These increases were offset in
part by a $4.2 million decrease in revenues resulting from a decline in the
number of contracts in process at IEM Sealand. Revenues from Thermo EuroTech
increased $3.0 million to $5.5 million, primarily due to the inclusion of $1.8
million of revenues from Green Sunrise, acquired in February 1998, and, to a
lesser extent, increased revenues relating to contracts to process oil-based
muds and perform soil-remediation services overseas. Revenues from engineering
and design services increased to $22.8 million in fiscal 1999 from $20.6 million
in fiscal 1998. Revenues increased $3.5 million due to the inclusion of revenues
from Randers, acquired in May 1997, offset in part by a decrease in revenues at
Normandeau Associates due to the postponement of several major contracts
previously expected to begin in early fiscal 1999. Revenues from
laboratory-testing services, excluding radiochemistry laboratory services
included in environmental-liability management services, increased to $9.7
million in fiscal 1999 from $9.4 million in fiscal 1998, due to higher demand.
Metal-treating revenues decreased to $4.7 million in fiscal 1999 from $12.1
million in fiscal 1998, due to the sale of the Company's thermal-processing
equipment business in October 1997, which contributed revenues of $7.4 million
in fiscal 1998.
The gross profit margin remained constant at 20% in the first quarter of
fiscal 1999 and 1998. The gross profit margin from environmental-liability
management services increased in fiscal 1999 primarily as a result of improved
margins at Thermo EuroTech due to the inclusion of higher margins at Green
Sunrise, offset in part by lower margin revenue from certain
remedial-construction contracts at IEM Sealand. The gross profit margin from
engineering and design services decreased in fiscal 1999, primarily due to a
change in the mix of projects.
10
<PAGE>
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
(continued)
Selling, general, and administrative expenses as a percentage of revenues
increased slightly to 15% in the first quarter of fiscal 1999 from 14% in the
first quarter of fiscal 1998, primarily due to the inclusion of higher relative
expenses at newly acquired Green Sunrise and, to a lesser extent, lower expenses
in the first quarter of fiscal 1998 during a period of management transition at
Thermo EuroTech.
Interest income decreased to $0.6 million in the first quarter of fiscal
1999 from $1.4 million in the first quarter of fiscal 1998 as a result of lower
average investment balances following the repayment of a $38.0 million
promissory note to Thermo Electron Corporation in June 1997, and due to cash
expended for acquisitions during fiscal 1998. These decreases were offset in
part by cash received from the sale of the Company's thermal-processing
equipment business and Thermo Remediation's interest in a joint venture in
October 1997. Interest expense decreased to $2.3 million in fiscal 1999 from
$3.1 million in fiscal 1998, primarily due to the repayment of a promissory note
to Thermo Electron and the conversion of the Company's 6 1/2% subordinated
convertible debentures during fiscal 1998.
Equity in earnings of unconsolidated subsidiary in fiscal 1998 represented
Thermo Remediation's proportionate share of income from a joint venture sold in
October 1997.
The effective tax rates in the first quarter of fiscal 1999 and 1998 were
53% and 47%, respectively. These rates exceeded the statutory federal income tax
rate primarily due to the nondeductible amortization of cost in excess of net
assets of acquired companies and the impact of state income taxes. The effective
tax rate increased in fiscal 1999 due to the larger relative effect of
nondeductible expenses.
Minority interest expense decreased to $160,000 in the first quarter of
fiscal 1999 from $269,000 in the first quarter of fiscal 1998, primarily due to
lower earnings from the Company's majority-owned subsidiaries.
In July 1998, Thermo Remediation filed suit against a customer, seeking
payment of $2.8 million that has been billed under a contract to provide
remediation services. The customer has disputed its obligation to pay Thermo
Remediation. While the Company generally maintains reserves for these types of
matters, failure to collect this receivable would have a material adverse impact
on the Company's future results of operations.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems as well as products purchased by the Company. The Company
believes that its internal information systems are either year 2000 compliant or
will be so prior to the year 2000 without incurring material costs. There can be
no assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems,
which could result in a material adverse effect on the Company's future results
of operations.
11
<PAGE>
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
(continued)
The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect this might have on the Company.
The Company has not completed its analysis and is unable to conclude at this
time that the year 2000 issue as it relates to products purchased from key
suppliers is not reasonably likely to have a material adverse effect on the
Company's future results of operations.
Liquidity and Capital Resources
Consolidated working capital was $67.5 million at July 4, 1998, compared
with $69.3 million at April 4, 1998. Cash, cash equivalents, and
available-for-sale investments were $29.6 million at July 4, 1998, compared with
$36.7 million at April 4, 1998. Of the $29.6 million balance at July 4, 1998,
$19.9 million was held by the Company's majority-owned subsidiaries, and the
remainder was held by the Company and its wholly owned subsidiaries. During the
first quarter of fiscal 1999, $1.4 million of cash was used in operating
activities. During this period, the Company used $4.0 million of cash to fund an
increase in unbilled costs and fees. This increase is primarily a result of a
large remedial-construction contract at Thermo Remediation and, to a lesser
extent, the timing of billings, and costs incurred for a pipeline project at
Randers, which commenced during the first quarter of fiscal 1999. In addition,
$3.1 million of cash was used to reduce current liabilities, primarily accrued
interest.
Excluding available-for-sale and held-to-maturity investment activity, the
Company's investing activities in the first quarter of fiscal 1999 primarily
consisted of capital additions. The Company expended $5.8 million for purchases
of property, plant, and equipment in the first quarter of fiscal 1999. The
Company expects to spend approximately $9.5 million for property, plant, and
equipment during the remainder of fiscal 1999.
The Company's financing activities used cash of $13.8 million in the first
quarter of fiscal 1999. During the quarter, the Company repaid notes payable
totaling $14.2 million. The Board of Directors of Thermo Remediation, through a
series of actions commencing in September 1996, authorized the repurchase,
through various dates ending in July 1998, of up to $15.0 million of its own
securities. Through July 4, 1998, Thermo Remediation had expended $11.4 million
under these authorizations, of which none was expended in the first quarter of
fiscal 1999. Any such purchases are funded from working capital.
The Company generally expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds
12
<PAGE>
Liquidity and Capital Resources (continued)
and/or short-term borrowings from Thermo Electron, although it has no agreement
with Thermo Electron to ensure that funds will be available on acceptable terms
or at all. The Company believes that its existing resources are sufficient to
meet the capital requirements of its existing businesses for the foreseeable
future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 11th day of August 1998.
THERMO TERRATECH INC.
Paul F. Kelleher
----------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
----------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Deferred Compensation Agreement dated September 16, 1996, between
Elson T. Killam Associates Inc. and Emil C. Herkert.
10.2 Addendum dated 1990, to Deferred Compensation Agreement dated
September 16, 1986, between Elson T. Killam Associates Inc. and
Emil C. Herkert.
10.3 Amendment No. 1, dated April 27, 1990, to Deferred Compensation
Agreement dated September 16, 1986, between Elson T. Killam
Associates Inc. and Emil C. Herkert.
27 Financial Data Schedule.
15
EXHIBIT 10.1
DEFERRED COMPENSATION AGREEMENT
AGREEMENT made as of the 16th day of September, 1986, between Elson T.
Killam Associates, a New Jersey corporation with offices at 27 Bleeker Street,
Millburn, New Jersey, (hereinafter referred to as the "Company") and EMIL C.
HERKERT, residing at 12 Druetzler Court, Whippany, New Jersey, (hereinafter
referred to as "Employee").
WHEREAS, the Employee is employed by the Company to serve as an officer
pursuant to the terms and conditions of a certain Employment Agreement dated as
at September 10, 1986.
WHEREAS, in consideration of anticipated services to be rendered by the
Employee, the Company desires to provide the Employee with additional
compensation as provided below;
NOW, THEREFORE, it is mutually agreed by the Employee and the Company as
follows:
1. DEFINITIONS.
For purposes of this Agreement the words and/or phrases below shall have
the following meaning:
(a) "Deferred Compensation Account" shall mean the account established and
maintained by the Company for the Employee to which Company contributions
hereunder, and earnings and appreciation thereon, are credited, and to which
expenses and depreciation are charged.
(b) "Disability" shall mean if the Company finds, on the basis of medical
evidence satisfactory to the Company, that continuously for at least six months,
the Employee has been unable to perform his duties as an employee of the Company
as a result of bodily injury or disease.
(c) "Full Time Basis" shall mean employment with the Company in excess of
1000 hours or service (as defined in the Company's Internal Revenue Code Section
401(k) Thrift and Savings Plan in effect as of September 16, 1986.
(d) "Normal Retirement Age" shall mean the date the Employee attains the
age of 60 years.
(e) "Post Acquisition Month of Service" shall mean a month, commencing
September 1986 during which the Employee is employed by the Company for at least
one hour.
2. DEFERRED COMPENSATION AMOUNT.
(a) Normal Retirement Benefit. Commencing with the first day of the month
next succeeding the date upon which the Employee attains normal retirement age,
the Company shall pay the Employee the amount in his Deferred Compensation
Account in one of the following optional forms:
(i) One lump sum payment in cash, or
(ii) Purchase of a 15 year sum certain annuity, payable in 180 equal
monthly installments, provided, however, that such annuity shall
not be in a form which will provide for payment over a period
extending beyond either the life expectancy of the employee (or
the life expectancy of the employee and his spouse).
The election of the form of benefit provided for hereunder shall he made
in writing at least 90 days prior to the date on which the Employee's first
retirement benefit payments become due, or with the consent of the Company at
any time prior to the date at which the first retirement benefit payment becomes
due. If the Employee dies prior to electing a payment option, the Company, after
consultation with the spouse or other beneficiary, and a legal representative of
the Estate of the Employee, shall in it's sole and actual discretion, make such
designation in writing within nine months of the Employee's death.
(b) Deferred Retirement Benefit.
In the event that the Employee remains in the employ of the Company on a
full time basis beyond his normal retirement age, the Company shall continue to
make contributions to the Deferred Compensation Account as provided in Paragraph
4(a). The Company shall pay to the Employee, or his spouse, the amount in his
Deferred Compensation Account in one of the optional forms described above at
Paragraph 2(a), commencing on the first day of the month next succeeding the
date upon which the Employee retires.
(c) Pre Retirement Benefit. In the event that employment of the Employee
with the Company is terminated prior to his attaining the normal retirement age
for any reason, other than disability or death, the Company shall immediately
cease making contributions to the Deferred Compensation Account. The Deferred
Compensation Account, however, shall continue to be credited with earnings and
appreciation, and be charged with expenses and depreciation, as the case may be,
until the date the Employee would have attained his normal retirement age if he
had remained in the employ of the Company. The Company shall pay to the
Employee, or his spouse, the amount in his Deferred Compensation Account in one
of the optional forms described above at Paragraph 2(a), commencing on the first
day of the month next succeeding the date on which the Employee would have
reached normal retirement age.
3. DISABILITY OR DEATH.
(a) Amount of Benefit. If the Employee's employment is terminated because
of the disability or death of the Employee before he has retired (whether normal
retirement or deferred retirement) or if the employment of the Employee has been
terminated prior to his attaining normal retirement age and he later becomes
disabled or dies, the Company shall pay to the Employee (in the event of his
disability), or his spouse, (in the event of his death), the amount in his
Deferred Compensation Account as of the date of such disability or death. The
Company shall pay to the employee, or his spouse, the amount in his Deferred
Compensation Account in one of the optional forms described above in Paragraph
2(a), commencing on the first day of the month next succeeding such disability
or death, as the case may be.
(b) Death After Commencement of Benefit. If the employee shall elect to
receive an annuity pursuant to Paragraph 2(a)(ii) and shall die after payments
thereon have commenced, but before a total of 180 monthly payments (or such
lesser amount as provided in the annuity) are made by Company, the remaining
payments should be made to his spouse.
(c) Death of a Spouse. If both the Employee and his spouse should die
before a total of 180 monthly payments (or such lesser amount as provided in the
annuity) are made by the Company, the remaining payments shall be paid per
stirpes to the issue of the Employee who survive both the Employee and his
spouse. If no such issue survives both the Employee and his spouse, payment
shall be made to the Company.
(d) Incapacity of Employee or Other Beneficiary. If any person to whom any
payment is due under this Agreement is legally adjudicated as being under a
disability preventing such person from acting on his or her own behalf, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed guardian, committee, or other legal representative) may be paid, in
the Company's discretion, to such person with whom such person resides for such
person's use and benefit, and the receipt by such person or such person's
guardian or such other person shall be a complete discharge of the Company's
liability under this Agreement to the extent of such payment.
4. DEFERRED COMPENSATION ACCOUNT.
(a) Contributions. Commencing October 1, 1986 and on the first day of
October of each year thereafter during the continuance of the Employees full
time Employment with the Company, the Company shall contribute Twenty Thousand
($20,000.00) Dollars per annum to the Deferred Compensation Account for the
purpose of funding the Employee's retirement benefit provided for hereunder.
(b) Investment Authority. Funds so contributed to the Deferred
Compensation Account shall be invested in certificates of deposit, mutual funds,
annuity contracts, stocks, bonds, or any other assets as may be selected by the
Company in its sole discretion. In the exercise of the foregoing discretionary
investment powers, the Company may engage at its expense investment counsel,
and, if it so desires may delegate to such counsel full or limited authority to
select the assets in which the funds are to be invested.
(c) Investment Ownership. Title to and beneficial ownership of any assets
contributed and allocated to the Deferred Compensation Account hereunder, shall
at all times remain the Companys', and the Employee, and his spouse, as the case
may be, shall not have any proprietary interest whatsoever in any specific
assets hereunder.
(d) Investment Gains and Losses. The Employee, on behalf of himself, his
spouse and his issue, however, assumes all risk in connection with any decrease
in value of the Deferred Compensation Account and will benefit from any increase
in value of the Deferred Compensation Account.
5. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Employee, his heirs, executors, administrators and legal representatives, and
the Company, its successors and assigns.
6. NO ASSIGNMENT BY EMPLOYEE.
The rights of the Employee or his spouse under this Agreement may not
assigned, transferred, pledged or encumbered except by will or by the laws of
intestate distribution.
7. AMENDMENT OF AGREEMENT.
This Agreement may not be altered, changed, amended or terminated except
by written agreement signed by the Employee and the Company.
8. NO TRUST.
Nothing contained in this Agreement, nor any action taken pursuant to or
in furtherance of the provisions of this Agreement shall create or be construed
to create a trust of any kind, or a fiduciary relationship between the Company
and the Employee or between the Company and any other person entitled to
payments under this Agreement.
9. JOINT AND SEVERAL LIABILITY.
The Company, Duncan, Lagnese and Associates, Inc., and Engineering,
Technology and Knowledge Corp., shall be jointly and severally liable for the
payment of any benefits provided for hereunder.
10. COMPLIANCE WITH CODE, ETC.
It is intended and understood by the parties hereto that this Agreement
complies with the provisions of the Internal Revenue Code and Regulations in
effect at the time of its execution. If, at a later date, the laws of the United
States or of the State of New Jersey are construed in such a way as to make this
Agreement void and of no effect, then this Agreement will be given effect in
such manner as will carry out the purposes and intentions of the parties.
11. SEVERABILITY.
If this Agreement shall ever be interpreted by the Internal Revenue
Service as ineffective with regard to deferral of the Employee's income, and
such interpretation shall become final and unappealable, then only those amounts
in the account which would be treated as taxable income by the Internal Revenue
Service at the time of such final interpretation will be paid over to the
Employee. All other assets in the account at the time of such final
interpretation will be distributed to the Employee according to Paragraph 2,
above.
12. EFFECT ON OTHER AGREEMENTS.
Nothing in this Agreement shall prevent the Employee from receiving, in
addition to any amounts he may be entitled to receive under this Agreement, any
amounts that may be distributable to him at any time under any employment
agreement, pension plan, profit sharing plan, or other incentive plan or similar
plan of the Company now in effect or which may hereafter be adopted.
13. GOVERNING LAW.
This Agreement has been made in the State of New Jersey and shall be
interpreted in accordance with and governed by the laws of this State.
14. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association. The arbitration award shall be final and binding and
judgment upon the award rendered in such arbitration may be entered in any court
having jurisdiction thereof. All costs arising out of such arbitration shall be
borne by the party prevailing in any such arbitration.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed on
its behalf by its representatives and the Employee has signed this Agreement all
as of the day and year first above written.
ATTEST: ELSON T. KILLAM ASSOICATES, INC.
By: /s/ Emil C. Herkert
WITNESS:
/s/ Emil C. Herkert
Emil C. Herkert
LIMITED TO PARAGRAPH 9
DUNCAN, LAGNESE AND ASSOCIATES, INC.
By: [signature illegible]
ENGINEERING, TECHNOLOGY & KNOWLEDGE, CORP.
By: [signature illegible]
EXHIBIT 10.2
ADDENDUM TO DEFERRED COMPENSATION AGREEMENT
BETWEEN
ELSON T. KILLAM ASSOCIATES, INC.
a New Jersey Corporation
(the "Company")
and
EMIL C. HERKERT
(the "Employee")
THIS ADDENDUM, dated , 1990, shall constitute a part of and shall amend
the Deferred Compensation Agreement (the "Agreement") dated September 16, 1986
by and between the Company and Employee. In the event of any inconsistencies
between the terms of this Addendum and the terms of the Agreement, the parties
agree that the terms of this Addendum shall prevail. The parties hereby agree to
the following provisions:
1. Paragraphs 2, 3, 4 and 11 of the Agreement are deleted in their
entirety.
2. A new Paragraph 2 is added to the Agreement as follows:
2. DEFERRED COMPENSATION PAYMENTS
(a) The Company shall pay the Employee a single lump sun payment on
or before June 15, 1990 equal to the sum of $100,626.38 plus an additional
gross-up amount to compensate for the Federal and State income tax
liability of the Employee attributable to such payment. The total payment
shall be calculated as follows:
$__________ / (1- Tax Rate), where Tax Rate is equal to the sum of
the highest marginal Federal and New Jersey income tax rate
percentages applicable to married individuals at the time of payment.
(b) The Company shall also make a lump sum payment to the Employee on
October 15, 1990 and on each October 15 thereafter during the term of
employment of the Employee. Such payment shall be an amount equal to the
sum of $20,000 plus an additional gross-up amount to compensate for the
Federal and State income tax liability of the Employee attributable to
such payment. The total annual payment shall be calculated as follows:
$20,000 / (1- Tax Rate), where Tax Rate is equal to the sum of the
highest marginal Federal and New Jersey income tax rate percentages
applicable to married individuals at the time of payment.
(c) Payments by the Company shall be subject to the applicable
withholding requirements of Federal and state laws and regulations.
3. A new paragraph 3 is added to the Agreement as follows:
3. PAYMENTS IN EVENT OF TERMINATION OF EMPLOYMENT.
(a) In the event that the Employee's employment with the Company is
terminated by reason of his death or Disability or is terminated for any
other reason, then within thirty days of such termination the Company
shall pay Employee (or to his personal representative or guardian) an
amount equal to the annual payment provided for under paragraph 2(b)
above, multiplied by a factor, the numerator of which shall be the number
of days between the previous October 1 and the date of termination, and
the denominator of which shall be 365.
4. All other terms and conditions of the Deferred Compensation Agreement
shall remain in full force and effect, which, by the execution of this Addendum,
the parties hereby confirm and ratify.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed on
its behalf by its representatives and the Employee has signed this Agreement all
as of the day and year written above.
ATTEST: ELSON T. KILLIAM
ASSOCIATES, INC
By: /s/ Frank Piedelievre
WITNESS:
/s/ Emil C. Herkert
Emil C. Herkert
EXHIBIT 10.3
AMENDMENT #1 TO DEFERRED COMPENSATION PLAN
FOR
EMIL C. HERKERT
This amendment, dated April 27, 1990 establishes the appreciation of the
Deferred Compensation Plan contributions from the beginning of the Plan and
continuing into the future in the absence of the investment of the funds.
The funds established and contributed to by the company in yearly amounts will
be deemed to have appreciated at a rate equal to the prime rate of interest as
determined in the Wall Street Journal for the first business day of each month,
which amount shall be compounded on a monthly basis from its inception in
September 1986 and continue as long as the funds have not otherwise been
invested.
Agreed to this 27th day of April, 1990.
Frank Piedelievre Emil C. Herkert
/s/ Frank Piedelievre /s/ Emil C. Herkert
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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