THERMO POWER CORP, SC 13E3/A, 1999-09-28

THERMO POWER CORP
SC 13E3/A, 1999-09-28
AIR-COND & WARM AIR HEATG EQUIP & COMM & INDL REFRIG EQUIP

Previous: THERMO POWER CORP, DEFM14A, 1999-09-28

Next: CLEMENTE STRATEGIC VALUE FUND INC, SC 13D/A, 1999-09-28

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------------

AMENDMENT NO. 2
TO
SCHEDULE 13E-3

RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)

Thermo Power Corporation
-----------------------------------------
(Name of Issuer)

Thermo Power Corporation
TP Acquisition Corporation
Thermo Electron Corporation
-----------------------------------------
(Name of Person(s) Filing Statement)

Common Stock, par value $.10 per share
-----------------------------------------
(Title of Class of Securities)

883589103
-----------------------------------------
(CUSIP Number of Class of Securities)

Sandra L. Lambert, Clerk
Thermo Power Corporation
c/o Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, Massachusetts 02454-9046
(781) 622-1000
---------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)

with a copy to:

Seth H. Hoogasian, General Counsel
Thermo Power Corporation
c/o Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, Massachusetts 02454-9046
(781) 622-1000

This statement is filed in connection with (check the appropriate box):

a. /X/ The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.

b. / / The filing of a registration statement under the Securities Act of 1933.

c. / / A tender offer.

<PAGE>

d. / / None of the above.

Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. / /

Calculation of Filing Fee

<TABLE>
- -------------------------------------------------------

Transaction Value* Amount of Filing Fee
- -------------------------------------------------------
<S> <C>
$30,926,412 $6,186
- -------------------------------------------------------

</TABLE>

* Solely for purposes of calculating the filing fee. Assumes purchase of
2,577,201 shares of Common Stock, par value $.10 per share, of Thermo Power
Corporation at $12.00 per share.

/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.

<TABLE>

<S> <C>
Amount previously paid: $6,186
Form or registration no.: Proxy Statement on Schedule 14A
Filing party: Thermo Power Corporation
Date filed: June 16, 1999, August 20, 1999 and
September 28, 1999

</TABLE>

<PAGE>

This Amendment No. 2 to Rule 13e-3 Transaction Statement (as so
amended, the "Statement") is being filed in connection with the filing by
Thermo Power Corporation ("Thermo Power" or the "Company") with the
Securities and Exchange Commission (the "Commission") on September 28, 1999
of a definitive Proxy Statement on Schedule 14A (as amended, the "Proxy
Statement") in connection with a special meeting of the stockholders of
Thermo Power. At such meeting, the stockholders of Thermo Power will vote
upon the approval of an Agreement and Plan of Merger dated as of May 5, 1999
(the "Merger Agreement") by and among Thermo Power, TP Acquisition
Corporation (the "Merger Sub") and Thermo Electron Corporation ("Thermo
Electron"), pursuant to which the Merger Sub, a wholly owned subsidiary of
Thermo Electron, will be merged with and into Thermo Power.

The following cross reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement of the information required to be included in response to the items
of this Statement. The information in the Proxy Statement which is attached
hereto as Exhibit 17(d)(3), including all appendices thereto, is hereby
expressly incorporated herein by reference and the responses to each item are
qualified in their entirety by the provisions of the Proxy Statement.

CROSS REFERENCE SHEET

ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
- ---------------------- ------------------------------------------
<S> <C>

Item 1(a)......................................... "Introduction;" "Summary--Purpose of the Special
Meeting;" "--Parties to the Merger"

Item 1(b)......................................... "Introduction;" "Summary--Purpose of the Special
Meeting;" "--Record Date and Quorum;" "--Market
Prices of Common Stock and Dividends;" "The Special
Meeting--Record Date and Quorum Requirement"

Item 1(c)......................................... "Summary--Market Prices of Common Stock and Dividends"

Item 1(d)......................................... "Summary--Market Prices of Common Stock and Dividends;"
"The Merger--Covenants"

Item 1(e)......................................... Not applicable

Item 1(f)......................................... "Appendix E--Information Concerning Transactions in the
Common Stock of the Company"

Item 2(a)-(c)..................................... "Summary--Parties to the Merger;" "Business of the Company;"
"Management;" "Certain Information Concerning the Merger Sub
and

3
<PAGE>

Thermo Electron;" "Appendix D--Information Concerning Directors
and Executive Officers of the Company, the Merger Sub and Thermo
Electron"

Item 2(d)......................................... "Management;" "Appendix D--Information Concerning Directors
and Executive Officers of the Company, the Merger Sub and
Thermo Electron"

Item 2(e)......................................... Not Applicable

Item 2(f)......................................... Not Applicable

Item 2(g)......................................... "Appendix D--Information Concerning Directors and Executive
Officers of the Company, the Merger Sub and Thermo Electron"

Item 3(a)(1)...................................... "Certain Transactions"

Item 3(a)(2)-3(b)................................. "Summary--The Merger;" "--The Special Committee's Recommendation;"
"--The Board's Recommendation;" "--Purpose and Reasons of Thermo
Electron for the Merger;" "Special Factors--Background of
the Merger;" "--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Purpose and Reasons of Thermo Electron
for the Merger;" "Certain Transactions;" "Appendix E--Information
Concerning Transactions in the Common Stock of the Company"

Item 4(a)......................................... "Introduction;" "Summary--The Merger;" "--Effective Time of
the Merger and Payment for Shares;" "--Assumption of Thermo
Power Stock Options by Thermo Electron;" "--Conflicts of
Interest;" "--Certain Effects of the Merger;" "--Competing
Offers;" "--Conditions to the Merger, Termination and
Expenses;" "Special Factors--Conflicts of Interest;"
"--Certain Effects of the Merger;" "The Merger;"
"Appendix A--Agreement and Plan of Merger"

Item 4(b)......................................... "Introduction;" "Summary--Purpose of the Special Meeting;"
"--The Merger;" "The Merger--Conversion of Securities;"
"--Deferred Compensation Plan for Directors;" "Federal Income
Tax Consequences;" "Appendix A--Agreement and Plan of Merger"

4
<PAGE>

Item 5(a)......................................... "Special Factors--Conduct of Thermo Power's Business After the Merger"

Item 5(b)......................................... "Special Factors--Conduct of Thermo Power's Business After the Merger"

Item 5(c)......................................... "Introduction;" "Special Factors--Conflicts of Interest;" "--Conduct
of Thermo Power's Business After the Merger"

Item 5(d)......................................... "Summary--Certain Effects of the Merger;" "Special Factors--Certain
Effects of the Merger;" "The Merger--Conversion of Securities;"
"--Articles of Organization and By-laws"

Item 5(e)......................................... "Summary--Certain Effects of the Merger;" "Special Factors--Certain
Effects of the Merger;" "--Conduct of Thermo Power's Business After
the Merger"

Item 5(f)......................................... "Summary--Certain Effects of the Merger;" "Special Factors--
Certain Effects of the Merger"

Item 5(g)......................................... "Summary--Certain Effects of the Merger;" "Special Factors--
Certain Effects of the Merger"

Item 6(a)......................................... "Summary--The Merger;" "The Merger--Source of Funds"

Item 6(b)......................................... "Summary--Opinion of Financial Advisor;" "--Conflicts of Interest;"
"Special Factors--Opinion of Financial Advisor;" "--Conflicts of
Interest;" "The Merger--Expenses"

Item 6(c)......................................... Not applicable

Item 6(d)......................................... Not applicable

Item 7(a)-(c)..................................... "Summary--Purpose of the Special Meeting;" "--The Merger;"
"--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Opinion of Financial Advisor;" "--Purpose
and Reasons of Thermo Electron for the Merger;" "Special
Factors--Background of the Merger;" "--The Special Committee's
Recommendation;" "--The Board's Recommendation;""--Opinion
of Financial Advisor;" "--Purpose and Reasons of Thermo Electron
for the Merger"

5
<PAGE>

Item 7(d)......................................... "Summary--The Merger;" "--Assumption of Thermo Power Stock Options
by Thermo Electron;" "--Conflicts of Interest;" "--Certain Effects
of the Merger;" "--Federal Income Tax Consequences;" "Special Factors--
Conflicts of Interest;" "--Certain Effects of the Merger;"
"--Conduct of Thermo Power's Business After the Merger;"
"The Merger--Conversion of Securities;" "--Assumption of Thermo Power
Stock Options by Thermo Electron;" "--Deferred Compensation Plan
for Directors;" "Federal Income Tax Consequences"

Item 8(a)......................................... "Summary--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Position of Thermo Electron as to Fairness of the
Merger;" "Special Factors--The Special Committee's Recommendation;"
"--The Board's Recommendation;" "--Position of Thermo Electron as to
Fairness of the Merger"

Item 8(b)......................................... "Summary--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Position of Thermo Electron as to Fairness of the
Merger;" "Special Factors--Background of the Merger;" "--The Special
Committee's Recommendation;" "--The Board's Recommendation;"
"--Opinion of Financial Advisor;" "--Position of Thermo Electron as
to Fairness of the Merger"

Item 8(c)......................................... "Introduction;" "Summary--Vote Required and Revocation of Proxies;"
"Special Factors--Background of the Merger;" "--The Special Committee's
Recommendation;" "The Special Meeting--Voting Procedures"

Item 8(d)......................................... "Summary--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Opinion of Financial Advisor;" "Special Factors--
Background of the Merger;" "--The Special Committee's Recommendation;"
"--The Board's Recommendation;" "--Opinion of Financial Advisor;"
"Appendix B--Opinion of Invemed Associates LLC"

Item 8(e)......................................... "Summary--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "Special Factors--The Special Committee's Recommendation;"
"--The Board's Recommendation"

6
<PAGE>

Item 8(f)......................................... "Special Factors--Background of the Merger;" "--The Special Committee's
Recommendation;" "--Opinion of Financial Advisor;" "Conduct of Thermo Power's
Business After the Merger"

Item 9(a)-(c)..................................... "Summary--Opinion of Financial Advisor;" "Special
Factors--Background of the Merger;" "--Opinion of
Financial Advisor;" "Appendix B--Opinion of Invemed
Associates LLC"

Item 10(a)........................................ "Introduction;" "Summary--Vote Required and Revocation of Proxies;"
"--The Special Committee's Recommendation;" "--The Board's Recommendation;"
"--Conflicts of Interest;" "Special Factors--Purpose and Reasons of
Thermo Electron for the Merger;" "--Conflicts of Interest;" "The Special
Meeting--Voting Procedures;" "Security Ownership of Certain Beneficial Owners
and Management;" "Appendix E--Information Concerning Transactions in the
Common Stock of the Company"

Item 10(b)........................................ "Appendix E--Information Concerning Transactions in the Common Stock
of the Company"

Item 11........................................... "Introduction;" "Summary--Vote Required and Revocation of Proxies;"
"--The Merger;" "The Special Meeting--Voting Procedures;"
"The Merger;" "Appendix A--Agreement and Plan of Merger"

Item 12(a)........................................ "Introduction;" "Summary--Vote Required and Revocation of Proxies;"
"The Special Meeting--Voting Procedures;" "Appendix D--Information
Concerning Directors and Executive Officers of the Company,
the Merger Sub and Thermo Electron"

Item 12(b)........................................ "Summary--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Position of Thermo Electron as to Fairness of the Merger;"
"Special Factors--The Special Committee's Recommendation;" "--The Board's
Recommendation;" "--Position of Thermo Electron as to Fairness of
the Merger"

Item 13(a)........................................ "Summary--Rights of Dissenting Stockholders;" "The Special Meeting--
Voting Procedures;"

7
<PAGE>

"Rights of Dissenting Stockholders;" "Appendix C--Text of Sections 85
through 98, inclusive, of the Massachusetts Business Corporation Law"

Item 13(b)........................................ Not applicable

Item 13(c)........................................ Not applicable

Item 14(a)........................................ "Selected Quarterly Financial Data;" "Ratio of Earnings (Loss) to Fixed
Charges;" "Selected Financial Information;" "Consolidated Financial
Statements"

Item 14(b)........................................ Not applicable

Item 15(a)........................................ "The Special Meeting--Proxy Solicitation"

Item 15(b)........................................ Not applicable

Item 16........................................... Entirety of Proxy Statement

Item 17(a)........................................ Not applicable

Item 17(b)........................................ Opinion of Invemed Associates LLC dated May 4, 1999
(included as Appendix B to the Proxy Statement)

Item 17(c) ....................................... Agreement and Plan of Merger dated as of May 5, 1999 among Thermo
Power Corporation, Thermo Electron Corporation and TP Acquisition
Corporation (included as Appendix A to the Proxy Statement)

Item 17(d)(1)..................................... Copy of Letter to Stockholders

Item 17(d)(2)..................................... Copy of Notice of Special Meeting of Stockholders

Item 17(d)(3)..................................... Definitive Proxy Statement

Item 17(d)(4)..................................... Form of Proxy

Item 17(e)........................................ Text of Sections 85 through 98, inclusive, of the Massachusetts
Business Corporation Law (included as Appendix C to the Proxy
Statement)

Item 17(f) ...................................... Definitive Proxy Statement

</TABLE>

8
<PAGE>

ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.

(a) The information set forth in the sections entitled
"Introduction," "Summary--Purpose of the Special Meeting" and "--Parties to the
Merger" of the Proxy Statement is incorporated herein by reference.

(b) The information set forth in the sections entitled
"Introduction," "Summary--Purpose of the Special Meeting," "--Record Date and
Quorum," "--Market Prices of Common Stock and Dividends" and "The Special
Meeting--Record Date and Quorum Requirement" of the Proxy Statement is
incorporated herein by reference.

(c) The information set forth in the section entitled "Summary--
Market Prices of Common Stock and Dividends" of the Proxy Statement is
incorporated herein by reference.

(d) The information set forth in the sections entitled "Summary--
Market Prices of Common Stock and Dividends" and "The Merger--Covenants" of the
Proxy Statement is incorporated herein by reference.

(e) Not applicable.

(f) The information set forth in Appendix E of the Proxy Statement
is incorporated herein by reference.

ITEM 2. IDENTITY AND BACKGROUND.

This statement is being filed jointly by the Company (which is the
issuer of the class of equity securities that is the subject of the Rule 13e-3
transaction), the Merger Sub and Thermo Electron.

(a)-(c) The information set forth in the sections entitled "Summary--
Parties to the Merger," "Business of the Company," "Management" and "Certain
Information Concerning the Merger Sub and Thermo Electron," and in Appendix D of
the Proxy Statement is incorporated herein by reference.

(d) The information set forth in the section entitled "Management," and
in Appendix D of the Proxy Statement is incorporated herein by reference.

(e) During the last five years, none of the Company, the Merger Sub or
Thermo Electron, nor (to the knowledge of each of the Company, the Merger Sub or
Thermo Electron, respectively) any executive officer or director of the Company,
the Merger Sub or Thermo Electron, respectively, has been convicted in a
criminal proceeding (excluding traffic violations and similar misdemeanors).

(f) During the last five years, none of the Company, the Merger Sub or
Thermo Electron, nor (to the knowledge of each of the Company, the Merger Sub or
Thermo Electron, respectively) any executive officer or director of the Company,
the Merger Sub or Thermo Electron, respectively, has been a party to a civil
proceeding of a judicial or administrative body

9
<PAGE>

of competent jurisdiction which resulted in a judgment, decree or final order
(i) enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or (ii) finding a violation with
respect to such laws.

(g) The information set forth in Appendix D of the Proxy Statement is
incorporated herein by reference.

ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.

(a)(1) The information set forth in the section entitled "Certain
Transactions" of the Proxy Statement is incorporated herein by reference.

(a)(2)-(b) The information set forth in the sections entitled
"Summary--The Merger," "--The Special Committee's Recommendation," "--The
Board's Recommendation," "--Purpose and Reasons of Thermo Electron for the
Merger," "Special Factors--Background of the Merger," "--The Special
Committee's Recommendation," "--The Board's Recommendation," "--Purpose and
Reasons of Thermo Electron for the Merger" and "Certain Transactions," and in
Appendix E of the Proxy Statement is incorporated herein by reference.

ITEM 4. TERMS OF THE TRANSACTION.

(a) The information set forth in the sections entitled
"Introduction," "Summary--The Merger," "--Effective Time of the Merger and
Payment for Shares," "--Assumption of Thermo Power Stock Options by Thermo
Electron," "--Conflicts of Interest," "--Certain Effects of the Merger,"
"--Competing Offers," "--Conditions to the Merger, Termination and Expenses,"
"Special Factors--Conflicts of Interest," "--Certain Effects of the Merger"
and "The Merger," and in Appendix A of the Proxy Statement is incorporated
herein by reference.

(b) The information set forth in the sections entitled "Introduction,"
"Summary--Purpose of the Special Meeting," "--The Merger," "The Merger--
Conversion of Securities," "--Deferred Compensation Plan for Directors" and
"Federal Income Tax Consequences," and in Appendix A of the Proxy Statement is
incorporated herein by reference.

ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.

(a) The information set forth in the section entitled "Special Factors
- --Conduct of Thermo Power's Business After the Merger" of the Proxy Statement is
incorporated herein by reference.

(b) The information set forth in the section entitled "Special Factors
- --Conduct of Thermo Power's Business After the Merger" of the Proxy Statement is
incorporated herein by reference.

(c) The information set forth in the sections entitled "Introduction,"
"Special Factors--Conflicts of Interest" and "--Conduct of Thermo Power's
Business After the Merger" of the Proxy Statement is incorporated herein by
reference.

10
<PAGE>

(d) The information set forth in the sections entitled
"Summary--Certain Effects of the Merger," "Special Factors--Certain Effects
of the Merger," "The Merger--Conversion of Securities" and "--Articles of
Organization and By-laws" of the Proxy Statement is incorporated herein by
reference.

(e) The information set forth in the sections entitled
"Summary--Certain Effects of the Merger," "Special Factors--Certain Effects
of the Merger" and "--Conduct of Thermo Power's Business After the Merger" of
the Proxy Statement is incorporated herein by reference.

(f) The information set forth in the sections entitled "Summary--
Certain Effects of the Merger" and "Special Factors--Certain Effects of the
Merger" of the Proxy Statement is incorporated herein by reference.

(g) The information set forth in the sections entitled "Summary--
Certain Effects of the Merger" and "Special Factors--Certain Effects of the
Merger" of the Proxy Statement is incorporated herein by reference.

ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

(a) The information set forth in the sections entitled "Summary--The
Merger" and "The Merger--Source of Funds" of the Proxy Statement is
incorporated herein by reference.

(b) The information set forth in the sections entitled "Summary--
Opinion of Financial Advisor," "--Conflicts of Interest," "Special Factors--
Opinion of Financial Advisor," "--Conflicts of Interest" and "The Merger--
Expenses" of the Proxy Statement is incorporated herein by reference.

(d) Not applicable.

ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.

(a)-(c) The information set forth in the sections entitled
"Summary--Purpose of the Special Meeting," "--The Merger," "--The Special
Committee's Recommendation," "--The Board's Recommendation," "--Opinion of
Financial Advisor," "--Purpose and Reasons of Thermo Electron for the
Merger," "Special Factors--Background of the Merger," "--The Special
Committee's Recommendation," "--The Board's Recommendation," "--Opinion of
Financial Advisor" and "--Purpose and Reasons of Thermo Electron for the
Merger" of the Proxy Statement is incorporated herein by reference.

(d) The information set forth in the sections entitled "Summary--The
Merger," "--Assumption of Thermo Power Stock Options by Thermo Electron,"
"--Conflicts of Interest," "--Certain Effects of the Merger," "--Federal
Income Tax Consequences," "Special Factors--Conflicts of Interest,"
"--Certain Effects of the Merger," "--Conduct of Thermo Power's Business
After the Merger," "The Merger--Conversion of Securities," "--Assumption of
Thermo Power Stock Options by Thermo Electron," "--Deferred Compensation
Plan for

11
<PAGE>

Directors" and "Federal Income Tax Consequences" of the Proxy Statement is
incorporated herein by reference.

ITEM 8. FAIRNESS OF THE TRANSACTION.

(a) The information set forth in the sections entitled "Summary--The
Special Committee's Recommendation," "--The Board's Recommendation,"
"--Position of Thermo Electron as to Fairness of the Merger," "Special
Factors--The Special Committee's Recommendation," "--The Board's
Recommendation" and "--Position of Thermo Electron as to Fairness of the
Merger" of the Proxy Statement is incorporated herein by reference.

(b) The information set forth in the sections entitled "Summary--The
Special Committee's Recommendation," "--The Board's Recommendation,"
"--Position of Thermo Electron as to Fairness of the Merger," "Special
Factors--Background of the Merger," "--The Special Committee's
Recommendation," "--The Board's Recommendation," "--Opinion of Financial
Advisor" and "--Position of Thermo Electron as to Fairness of the Merger" of
the Proxy Statement is incorporated herein by reference.

(c) The information set forth in the sections entitled
"Introduction," "Summary--Vote Required and Revocation of Proxies," "Special
Factors--Background of the Merger," "--The Special Committee's
Recommendation" and "The Special Meeting--Voting Procedures" of the Proxy
Statement is incorporated herein by reference.

(d) The information set forth in the sections entitled "Summary--The
Special Committee's Recommendation," "--The Board's Recommendation,"
"--Opinion of Financial Advisor," "Special Factors--Background of the
Merger," "--The Special Committee's Recommendation," "--The Board's
Recommendation" and "--Opinion of Financial Advisor," and in Appendix B of
the Proxy Statement is incorporated herein by reference.

(e) The information set forth in the sections entitled "Summary--The
Special Committee's Recommendation," "--The Board's Recommendation," "Special
Factors--The Special Committee's Recommendation" and "--The Board's
Recommendation" of the Proxy Statement is incorporated herein by reference.

(f) The information set forth in the sections entitled "Special
Factors--Background of the Merger," "--The Special Committee's
Recommendation," "--Opinion of Financial Advisor" and "--Conduct of Thermo
Power's Business After the Merger" of the Proxy Statement is incorporated
herein by reference.

ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.

(a)-(c) The information set forth in the sections entitled "Summary--
Opinion of Financial Advisor," "Special Factors--Background of the Merger" and
"--Opinion of Financial Advisor," and in Appendix B of the Proxy Statement is
incorporated herein by reference.

12
<PAGE>

ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.

(a) The information set forth in the sections entitled
"Introduction," "Summary--Vote Required and Revocation of Proxies," "--The
Special Committee's Recommendation," "--The Board's Recommendation,"
"--Conflicts of Interest," "Special Factors--Purpose and Reasons of Thermo
Electron for the Merger," "--Conflicts of Interest," "The Special
Meeting--Voting Procedures" and "Security Ownership of Certain Beneficial
Owners and Management," and in Appendix E of the Proxy Statement is
incorporated herein by reference.

(b) The information set forth in Appendix E of the Proxy Statement is
incorporated herein by reference.

ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.

The information set forth in the sections entitled "Introduction,"
"Summary--Vote Required and Revocation of Proxies," "--The Merger," "The
Special Meeting--Voting Procedures" and "The Merger," and in Appendix A of the
Proxy Statement is incorporated herein by reference.

ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.

(a) The information set forth in the sections entitled "Introduction,"
"Summary--Vote Required and Revocation of Proxies" and "The Special Meeting--
Voting Procedures," and in Appendix D of the Proxy Statement is incorporated
herein by reference.

(b) The information set forth in the sections entitled "Summary--The
Special Committee's Recommendation," "--The Board's Recommendation,"
"--Position of Thermo Electron as to Fairness of the Merger," "Special
Factors--The Special Committee's Recommendation," "--The Board's
Recommendation" and "--Position of Thermo Electron as to Fairness of the
Merger" of the Proxy Statement is incorporated herein by reference.

ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.

(a) The information set forth in the sections entitled
"Summary--Rights of Dissenting Stockholders," "The Special Meeting--Voting
Procedures" and "Rights of Dissenting Stockholders," and in Appendix C of the
Proxy Statement is incorporated herein by reference.

(b) Not applicable.

13
<PAGE>

ITEM 14. FINANCIAL INFORMATION.

(a) The information set forth in the sections entitled "Selected
Quarterly Financial Data," "Ratio of Earnings (Loss) to Fixed Charges,"
"Selected Financial Information" and "Consolidated Financial Statements" of
the Proxy Statement is incorporated herein by reference.

(b) Not applicable.

ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.

(a) The information set forth in the section entitled "The Special
Meeting--Proxy Solicitation" of the Proxy Statement is incorporated herein by
reference.

(b) Not applicable.

ITEM 16. ADDITIONAL INFORMATION.

The entirety of the Proxy Statement is incorporated herein by
reference.

ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.

(a) Not applicable.

(b) Opinion of Invemed Associates LLC dated May 4, 1999 (included as
Appendix B to the definitive Proxy Statement, which is filed herewith as
Exhibit 17(d)(3)).

(c) Agreement and Plan of Merger dated as of May 5, 1999 among Thermo
Power Corporation, Thermo Electron Corporation and TP Acquisition Corporation
(included as Appendix A to the definitive Proxy Statement, which is filed
herewith as Exhibit 17(d)(3)).

(d)(1) Copy of Letter to Stockholders.

(d)(2) Copy of Notice of Special Meeting of Stockholders.

(d)(3) Definitive Proxy Statement.

(d)(4) Form of Proxy.

(e) Text of Sections 85 through 98, inclusive, of the Massachusetts
Business Corporation Law (included as Appendix C to the definitive Proxy
Statement, which is filed herewith as Exhibit 17(d)(3)).

(f) Definitive Proxy Statement (see Exhibit 17(d)(3)).

14
<PAGE>

SIGNATURES

After due inquiry and to the best of our knowledge and belief, each of
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.

<TABLE>

THERMO POWER CORPORATION

Dated: September 27, 1999 By: /s/ J. TIMOTHY CORCORAN
--------------------------------------------
Name: J. Timothy Corcoran
Title: President and Chief Executive Officer

THERMO ELECTRON CORPORATION

Dated: September 27, 1999 By: /s/ KENNETH J. APICERNO
--------------------------------------------
Name: Kenneth J. Apicerno
Title: Treasurer

TP ACQUISITION CORPORATION

Dated: September 27, 1999 By: /s/ BRIAN D. HOLT
--------------------------------------------
Name: Brian D. Holt
Title: President

</TABLE>

15
<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
99.17 (b) Opinion of Invemed Associates LLC dated May 4, 1999 (included
as Appendix B to the definitive Proxy Statement, which is
filed herewith as Exhibit 99.17(d)(3)).

99.17 (c) Agreement and Plan of Merger dated as of May 5, 1999 among
Thermo Power Corporation, Thermo Electron Corporation and TP
Acquisition Corporation (included as Appendix A to the
definitive Proxy Statement, which is filed herewith as
Exhibit 99.17(d)(3)).

99.17 (d)(1) Copy of Letter to Stockholders.

99.17 (d)(2) Copy of Notice of Special Meeting of Stockholders.

99.17(d)(3) Definitive Proxy Statement.

99.17(d)(4) Form of Proxy.

99.17(e) Text of Sections 85 through 98, inclusive, of the
Massachusetts Business Corporation Law (included as
Appendix C to the definitive Proxy Statement, which is
filed herewith as Exhibit 99.17(d)(3)).

99.17(f) Definitive Proxy Statement (see Exhibit 99.17(d)(3)).

</TABLE>

<PAGE>

<TABLE>
<S> <C>
[LOGO] 45 FIRST AVENUE, WALTHAM, MA 02454
</TABLE>

September 27, 1999

Dear Stockholder:

I am pleased to invite you to a Special Meeting of the stockholders of
Thermo Power Corporation ("Thermo Power") at which you will be asked to approve
an Agreement and Plan of Merger (the "Merger Agreement") dated as of May 5, 1999
among Thermo Power, Thermo Electron Corporation, the parent company of Thermo
Power ("Thermo Electron"), and TP Acquisition Corporation, a newly-formed
subsidiary of Thermo Electron (the "Merger Sub"). The Special Meeting will take
place at 10:00 a.m. on Thursday, October 28, 1999 at the executive offices of
Thermo Electron, 81 Wyman Street, Waltham, Massachusetts 02454.

Under the terms of the Merger Agreement, the Merger Sub would merge with and
into Thermo Power, with Thermo Power being the surviving corporation (the
"Merger"). Each issued and outstanding share of Thermo Power common stock (other
than shares held by Thermo Electron and stockholders who properly dissent under
Massachusetts law) would be converted into the right to receive $12.00 in cash.
Thermo Power would become a private company and a wholly owned subsidiary of
Thermo Electron. The Merger is more fully described in the Merger Agreement,
which is attached as Appendix A to the enclosed Proxy Statement. If you choose
to dissent from the Merger and wish to seek appraisal of the fair value of your
stock, please refer to the sections of the Proxy Statement regarding the rights
of dissenting stockholders under Massachusetts law.

A special committee of Thermo Power's Board of Directors (the "Special
Committee"), acting in the interests of the stockholders of Thermo Power other
than Thermo Electron and the officers and directors of each of Thermo Power and
Thermo Electron (the "Public Stockholders"), evaluated the merits of, and
negotiated the terms of, the Merger. The Special Committee received an opinion
from its financial advisor, Invemed Associates LLC, as to the fairness of the
Merger from a financial point of view to the Public Stockholders. The Special
Committee recommended that Thermo Power's Board of Directors approve the Merger
Agreement. Please read carefully the written opinion of Invemed Associates LLC,
dated May 4, 1999, which is attached as Appendix B to the enclosed Proxy
Statement.

Thermo Power's Board of Directors believes the Merger is fair to the Public
Stockholders and unanimously recommends that stockholders vote "FOR" approval of
the Merger Agreement. In considering the recommendation of the Board of
Directors with respect to the Merger Agreement, stockholders should be aware
that six of the eight members of Thermo Power's Board of Directors are either
directors of Thermo Electron or employees of Thermo Electron or its subsidiaries
and thus have interests that are in addition to, or different from, your
interests as stockholders of Thermo Power.

Massachusetts law requires the affirmative vote of the holders of two-thirds
of the outstanding shares of Thermo Power common stock entitled to vote at the
Special Meeting in order for the Merger Agreement to be approved. Thermo
Electron, which owns approximately 78% of Thermo Power's outstanding common
stock, intends to vote its shares in favor of approving the Merger Agreement,
thus assuring that the Merger Agreement will be approved. Only stockholders of
record at the close of business on September 27, 1999 will receive notice of and
be able to vote at the Special Meeting or any adjournment or adjournments
thereof.

The accompanying Proxy Statement provides you with a summary of the Merger
and additional information about the parties involved and their interests.
Please give all this information your careful attention. You can also obtain
other information about Thermo Power and Thermo Electron from documents filed
with the Securities and Exchange Commission.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE TIME
TO VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD TO US TODAY. IF YOU
DATE, SIGN AND MAIL YOUR PROXY CARD WITHOUT INDICATING
<PAGE>
HOW YOU WISH TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE
MERGER AGREEMENT. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF
SHARES THAT YOU OWN.

Your Board of Directors believes that the transaction with Thermo Electron
is in the best interests of Thermo Power and its Public Stockholders and has
unanimously approved it. Your Board of Directors unanimously recommends that
stockholders vote for approval of the Merger Agreement. On behalf of the Board
of Directors, I urge you to sign, date and return the enclosed proxy today.

Please do not send any stock certificates to us now. Assuming the Merger
Agreement is approved, we will send you instructions concerning the surrender of
your shares.

Thank you for your interest and participation.

<TABLE>
<S> <C>
Yours very truly,

/s/ J. Timothy Corcoran
J. Timothy Corcoran
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

<PAGE>

<TABLE>
<S> <C>
[LOGO] 45 FIRST AVENUE, WALTHAM, MA 02454
</TABLE>

NOTICE OF SPECIAL MEETING

September 27, 1999

TO THE HOLDERS OF THE COMMON STOCK OF
THERMO POWER CORPORATION

I am pleased to give you notice of and cordially invite you to attend in
person or by proxy the Special Meeting of the stockholders of Thermo Power
Corporation, a Massachusetts corporation (the "Company" or "Thermo Power"),
which will be held on Thursday, October 28, 1999, at 10:00 a.m., at the
executive offices of Thermo Electron Corporation ("Thermo Electron"), 81 Wyman
Street, Waltham, Massachusetts 02454, and at any adjournment or adjournments
thereof (the "Special Meeting"). At the Special Meeting, stockholders will:

1. Consider and vote on a proposal to approve an Agreement and Plan of
Merger dated as of May 5, 1999 (the "Merger Agreement") pursuant to which
TP Acquisition Corporation, a newly-formed subsidiary of Thermo Electron
(the "Merger Sub"), would be merged with and into Thermo Power (the
"Merger"). Upon the Merger, each stockholder of the Company (other than
stockholders who perfect their dissenters' rights and Thermo Electron)
would become entitled to receive $12.00 in cash, without interest, for
each outstanding share of common stock, $.10 par value, of the Company
(the "Common Stock") owned by such stockholder immediately prior to the
effective time of the Merger. A copy of the Merger Agreement is attached
as Appendix A to, and is described in, the accompanying Proxy Statement.

2. Transact such other business as may properly come before the Special
Meeting.

Only stockholders of record at the close of business on September 27, 1999
will receive notice of and be able to vote at the Special Meeting.

The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. The
Company's by-laws require that the holders of a majority of the outstanding
shares of Common Stock entitled to vote be present or represented by proxy at
the Special Meeting in order to constitute a quorum for the transaction of
business. It is important that your shares be represented at the Special Meeting
regardless of the number of shares you hold. Whether or not you are able to be
present in person, please sign and return promptly the enclosed Proxy Card in
the accompanying envelope, which requires no postage if mailed in the United
States. You may revoke your proxy in the manner described in the accompanying
Proxy Statement at any time before it is voted at the Special Meeting.

Stockholders who properly demand appraisal prior to the stockholder vote at
the Special Meeting, who do not vote in favor of approval of the Merger
Agreement and who otherwise comply with the provisions of Sections 85 through
98, inclusive, of the Massachusetts Business Corporation Law (the "MBCL") will
be entitled, if the Merger is completed, to statutory appraisal of the fair
value of their shares of Common Stock. See "RIGHTS OF DISSENTING STOCKHOLDERS"
in the accompanying Proxy Statement and the full text of Sections 85 through 98,
inclusive, of the MBCL, which is attached as Appendix C to, and is described in,
the accompanying Proxy Statement, for a description of the procedures that you
must follow in order to exercise your appraisal rights.

This Notice, the Proxy Card and Proxy Statement enclosed herewith are sent
to you by order of the Board of Directors.

SANDRA L. LAMBERT
CLERK
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. TO APPROVE THE MERGER AGREEMENT, THE
AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED. YOU ARE REQUESTED TO PROMPTLY
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE
PROVIDED. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE
MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE
SPECIAL MEETING MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE MERGER
AGREEMENT AT THE SPECIAL MEETING.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATION OF THE BOARD OF
DIRECTORS WITH RESPECT TO THE MERGER AGREEMENT, THE STOCKHOLDERS OF THE COMPANY
OTHER THAN THERMO ELECTRON AND THE DIRECTORS AND OFFICERS OF EACH OF THE COMPANY
AND THERMO ELECTRON (THE "PUBLIC STOCKHOLDERS") SHOULD BE AWARE THAT CERTAIN
OFFICERS AND DIRECTORS OF THE COMPANY HAVE CERTAIN INTERESTS THAT ARE IN
ADDITION TO, OR DIFFERENT FROM, THE INTERESTS OF THE PUBLIC STOCKHOLDERS. SEE
"SPECIAL FACTORS--CONFLICTS OF INTEREST."

IF A PROPERLY EXECUTED PROXY CARD IS SUBMITTED AND NO INSTRUCTIONS ARE
GIVEN, THE SHARES OF COMMON STOCK REPRESENTED BY THAT PROXY WILL BE VOTED "FOR"
APPROVAL OF THE MERGER AGREEMENT.

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO THE COMPANY AT THIS TIME.

<PAGE>
PROXY STATEMENT

INTRODUCTION

This Proxy Statement is being furnished to the stockholders of Thermo Power
Corporation, a Massachusetts corporation (the "Company" or "Thermo Power"), in
connection with the solicitation by its Board of Directors (the "Board" or the
"Board of Directors") of proxies to be used at a Special Meeting of the
stockholders to be held on Thursday, October 28, 1999, at 10:00 a.m., at the
executive offices of Thermo Electron Corporation ("Thermo Electron"), 81 Wyman
Street, Waltham, Massachusetts 02454, and at any adjournment or adjournments
thereof (the "Special Meeting"). The close of business on September 27, 1999 is
the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting.

The Special Meeting has been called to consider and vote on a proposal to
approve an Agreement and Plan of Merger dated as of May 5, 1999 (the "Merger
Agreement"), which is attached to this Proxy Statement as Appendix A. Pursuant
to the Merger Agreement, TP Acquisition Corporation (the "Merger Sub"), a
newly-formed Massachusetts corporation, will be merged with and into Thermo
Power (the "Merger"), with Thermo Power being the surviving corporation (the
"Surviving Corporation"). Thermo Power is a majority-owned subsidiary of, and
the Merger Sub is a wholly owned subsidiary of, Thermo Electron, a Delaware
corporation. The Merger Sub was organized by Thermo Electron solely to
facilitate the Merger.

In the Merger, each outstanding share of common stock, $.10 par value, of
Thermo Power (the "Common Stock") (other than shares held by stockholders who
are entitled to, and who have perfected, their Dissenters' Rights (as defined
below), shares held by Thermo Power in treasury and shares held by Thermo
Electron) will be canceled and converted automatically into the right to receive
$12.00 in cash, payable to the holder thereof, without interest. See "THE
MERGER." On August 11, 1998, the last trading day prior to Thermo Electron's
first public announcement of a proposal to acquire the minority stockholder
interest in Thermo Power, and April 28, 1999, the last trading day prior to the
public announcement of the proposed terms of the Merger, the closing prices per
share of the Common Stock reported in the consolidated transaction reporting
system were $8 1/8 and $12 3/16, respectively. On September 27, 1999, the most
recent practicable date prior to the printing of this Proxy Statement, the
closing price per share of the Common Stock reported in the consolidated
transaction reporting system was $11 7/8.

The directors and officers of Thermo Power immediately prior to the Merger
shall be the initial directors and officers of the Surviving Corporation;
however, Thermo Electron intends to appoint a board of directors comprised
solely of members of the Surviving Corporation's management after the Merger.
All options to purchase Common Stock immediately prior to the Merger shall be
assumed by Thermo Electron and converted into options to purchase the common
stock, $1.00 par value, of Thermo Electron. See "THE MERGER--Assumption of
Thermo Power Stock Options by Thermo Electron."

Under Massachusetts law, approval of the Merger Agreement at the Special
Meeting requires the affirmative vote of the holders of two-thirds of the
outstanding shares of Common Stock entitled to vote at the Special Meeting.
Thermo Electron, which owns approximately 78% of the outstanding Common Stock,
intends to vote its shares in favor of the Merger Agreement, thus assuring that
the Merger Agreement will be approved. In addition, the Company's executive
officers and directors have expressed their intention to vote to approve the
Merger Agreement.

The Board of Directors recommends that stockholders vote "FOR" approval of
the Merger Agreement. In considering the recommendation of the Board of
Directors with respect to the Merger Agreement, the stockholders of the Company
other than Thermo Electron and the directors and officers of each of the Company
and Thermo Electron (the "Public Stockholders") should be aware that certain
officers and directors of the Company have certain interests that are in
addition to, or different from, the interests of the Public Stockholders. See
"SPECIAL FACTORS--Conflicts of Interest."
<PAGE>

Stockholders should read and consider carefully the information contained in
this Proxy Statement. This Proxy Statement, the Notice of Special Meeting and
the enclosed Proxy Card are first being mailed to stockholders of the Company on
or about September 29, 1999.

THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

2
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................ 6
SUMMARY............................................................................... 8
Date, Time and Place of the Special Meeting......................................... 8
Purpose of the Special Meeting...................................................... 8
Record Date and Quorum.............................................................. 8
Vote Required and Revocation of Proxies............................................. 8
Parties to the Merger............................................................... 9
The Merger.......................................................................... 9
Effective Time of the Merger and Payment for Shares................................. 10
Assumption of Thermo Power Stock Options by Thermo Electron......................... 10
The Special Committee's Recommendation.............................................. 11
The Board's Recommendation.......................................................... 11
Opinion of Financial Advisor........................................................ 12
Purpose and Reasons of Thermo Electron for the Merger............................... 12
Position of Thermo Electron as to Fairness of the Merger............................ 13
Conflicts of Interest............................................................... 13
Certain Effects of the Merger....................................................... 14
Competing Offers.................................................................... 15
Conditions to the Merger, Termination and Expenses.................................. 15
Federal Income Tax Consequences..................................................... 16
Rights of Dissenting Stockholders................................................... 16
Accounting Treatment................................................................ 16
Market Prices of Common Stock and Dividends......................................... 17
SPECIAL FACTORS....................................................................... 18
Background of the Merger............................................................ 18
The Special Committee's Recommendation.............................................. 22
The Board's Recommendation.......................................................... 24
Opinion of Financial Advisor........................................................ 25
Purpose and Reasons of Thermo Electron for the Merger............................... 30
Position of Thermo Electron as to Fairness of the Merger............................ 31
Conflicts of Interest............................................................... 31
Certain Effects of the Merger....................................................... 33
Conduct of Thermo Power's Business After the Merger................................. 34
Conduct of Thermo Power's Business if the Merger is Not Consummated................. 34
THE SPECIAL MEETING................................................................... 35
Proxy Solicitation.................................................................. 35
Record Date and Quorum Requirement.................................................. 35
Voting Procedures................................................................... 35
Voting and Revocation of Proxies.................................................... 36
Effective Time...................................................................... 36
THE MERGER............................................................................ 37
Conversion of Securities............................................................ 37
Assumption of Thermo Power Stock Options by Thermo Electron......................... 38
Deferred Compensation Plan for Directors............................................ 38
Articles of Organization and By-laws................................................ 38
Transfer of Shares.................................................................. 39
Conditions.......................................................................... 39
Representations and Warranties...................................................... 39
</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
Covenants........................................................................... 40
Indemnification and Insurance....................................................... 41
Competing Offers.................................................................... 41
Termination, Amendment and Waiver................................................... 42
Source of Funds..................................................................... 42
Expenses............................................................................ 43
Accounting Treatment................................................................ 43
Regulatory Approvals................................................................ 43
RIGHTS OF DISSENTING STOCKHOLDERS..................................................... 43
FEDERAL INCOME TAX CONSEQUENCES....................................................... 45
BUSINESS OF THE COMPANY............................................................... 46
Overview............................................................................ 46
Traffic Control Products and Systems................................................ 46
Industrial Refrigeration Systems.................................................... 47
Cooling and Cogeneration Systems.................................................... 48
Sales and Marketing................................................................. 49
Properties.......................................................................... 49
SELECTED QUARTERLY FINANCIAL DATA..................................................... 50
RATIO OF EARNINGS (LOSS) TO FIXED CHARGES............................................. 50
SELECTED FINANCIAL INFORMATION........................................................ 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 53
Overview............................................................................ 53
Results of Operations............................................................... 54
Liquidity and Capital Resources..................................................... 58
Market Risk......................................................................... 60
Year 2000........................................................................... 61
CERTAIN PROJECTED FINANCIAL DATA...................................................... 64
February 1999 Projections........................................................... 65
RISK FACTORS.......................................................................... 66
MANAGEMENT............................................................................ 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 72
Principal Stockholder............................................................... 72
Management.......................................................................... 72
CERTAIN TRANSACTIONS.................................................................. 74
CERTAIN INFORMATION CONCERNING THE MERGER SUB AND THERMO ELECTRON..................... 77
The Merger Sub...................................................................... 77
Thermo Electron..................................................................... 77
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 77
STOCKHOLDER PROPOSALS................................................................. 78
ADDITIONAL INFORMATION................................................................ 78
AVAILABLE INFORMATION................................................................. 78
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 79
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................ F-1
</TABLE>

<PAGE>
<TABLE>
<S> <C>
APPENDICES

APPENDIX A--Agreement and Plan of Merger............................................ A-1
APPENDIX B--Opinion of Invemed Associates LLC....................................... B-1
APPENDIX C-- Text of Sections 85 through 98, inclusive, of the Massachusetts
Business Corporation Law................................................ C-1
APPENDIX D-- Information Concerning Directors and Executive Officers of the Company,
the Merger Sub and Thermo Electron...................................... D-1
APPENDIX E--Information Concerning Transactions in the Common Stock of the Company.. E-1
</TABLE>

<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER

1. WHEN AND WHERE IS THE THERMO POWER SPECIAL MEETING?

The Thermo Power Special Meeting will take place on Thursday, October 28,
1999, at 10:00 a.m., at the executive offices of Thermo Electron, 81 Wyman
Street, Waltham, Massachusetts 02454.

2. WHAT PROPOSALS ARE THERMO POWER STOCKHOLDERS VOTING ON?

Thermo Power stockholders are being asked to approve the Merger Agreement.
The Merger Agreement provides that a wholly owned subsidiary of Thermo Electron
will merge with and into Thermo Power and, as a result, Thermo Electron will own
all of the outstanding Common Stock of Thermo Power.

3. WHAT WILL THERMO POWER STOCKHOLDERS RECEIVE IN THE MERGER?

In the Merger, Thermo Power stockholders will receive $12.00 in cash per
share of Common Stock. The amount of cash consideration to be paid to Thermo
Power stockholders will equal approximately $31.2 million in the aggregate.

On August 11, 1998 (the last trading day prior to Thermo Electron's first
public announcement of a proposal to acquire the minority stockholder interest
in Thermo Power) and April 28, 1999 (the last trading day before the public
announcement of the terms of the proposed Merger), the closing prices of the
Common Stock reported in the consolidated transaction reporting system were
$8 1/8 and $12 3/16, respectively. On September 27, 1999 (the most recent
practicable date prior to the printing of this Proxy Statement), the closing
price of the Common Stock reported in the consolidated transaction reporting
system was $11 7/8.

4. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?

For federal income tax purposes, each stockholder's receipt of $12.00 per
share in the Merger will be treated as a taxable sale of the holder's Common
Stock. Each stockholder's gain or loss per share will equal the difference
between $12.00 and the stockholder's basis in the share of Common Stock. Thermo
Power stockholders should consult their tax advisors for a full understanding of
the tax consequences of the Merger. No gain or loss for federal income tax
purposes will be recognized by Thermo Power, Thermo Electron or the Merger Sub
by reason of the Merger.

5. WHY IS THERMO POWER'S BOARD OF DIRECTORS RECOMMENDING APPROVAL OF THE MERGER
AGREEMENT?

The Special Committee of Thermo Power's Board of Directors has recommended
that the Board approve the Merger Agreement. Based in part on this
recommendation, Thermo Power's Board of Directors believes that the Merger is in
the best interests of the Company and its stockholders other than Thermo
Electron.

6. WHAT RIGHTS DO STOCKHOLDERS HAVE IF THEY OPPOSE THE MERGER?

Stockholders who wish to dissent from the Merger may seek appraisal of the
fair value of their shares, but only if they strictly comply with all of the
procedures under Massachusetts law that are summarized on pages 43-44 of this
Proxy Statement.

7. WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?

Under Massachusetts law, the holders of two-thirds of the outstanding shares
of Common Stock entitled to vote must vote to approve the Merger Agreement.
Thermo Electron owns approximately 78%

6
<PAGE>
of the outstanding Common Stock and intends to vote in favor of the Merger
Agreement. Accordingly, the vote approving the Merger Agreement is assured.

8. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HOLDING MY SHARES AS TO HOW TO
VOTE THEM OR I ABSTAIN FROM VOTING?

If your shares are held by a broker as nominee, your broker will not be able
to vote your shares without instructions from you. If your broker is unable to
vote your shares or if you abstain, it will have the effect of voting against
approval of the Merger Agreement under Massachusetts law; however, Thermo
Electron owns sufficient shares to satisfy the Massachusetts law voting
requirement.

9. WHO IS ENTITLED TO VOTE?

Holders of record of Common Stock at the close of business on September 27,
1999, the record date for the Special Meeting, are entitled to vote at the
Special Meeting.

10. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?

We are working to complete all aspects of the Merger as quickly as possible.
We currently expect the Merger to be completed by the end of October, 1999.

11. WHAT DO I NEED TO DO NOW?

After you have carefully read this Proxy Statement, please complete, sign
and mail your Proxy Card in the enclosed return envelope as soon as possible.
That way, your shares can be represented at the Special Meeting. If your shares
are held by a broker as nominee, you should receive a Proxy Card from your
broker.

Thermo Power stockholders must return their Proxy Cards before the Special
Meeting in order for their votes to be counted at the Special Meeting.

12. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?

You may change your vote at any time before the vote takes place at the
Special Meeting. To do so, you can attend the Special Meeting and vote in
person, you can complete and send a new Proxy Card with a later date or you can
send a written notice stating you would like to revoke your proxy. The notice
should be sent to: Thermo Power Corporation, c/o Thermo Electron Corporation, 81
Wyman Street, Waltham, MA 02454, Attention: Clerk.

13. SHOULD I SEND IN MY THERMO POWER STOCK CERTIFICATES NOW?

No. You should continue to hold your certificates for Common Stock. Assuming
the Merger Agreement is approved, you will receive instructions on how to
exchange your shares of Common Stock for cash.

14. WHAT WILL HAPPEN TO THERMO POWER STOCK OPTIONS?

Options to purchase Common Stock outstanding on the effective date of the
Merger, whether or not then exercisable, will be assumed by Thermo Electron and
converted into options to purchase the common stock of Thermo Electron.

15. WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?

You should call Thermo Power Investor Relations at (781) 622-1111.

16. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?

We do not expect to ask you to vote on any other matters at the Special
Meeting. If you are voting by proxy, however, we ask that you give the proxies
listed in the Proxy Card the power to act in their discretion upon any other
matters that may properly come before the Special Meeting.

7
<PAGE>
SUMMARY

The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained elsewhere or incorporated
by reference in this Proxy Statement. Stockholders should read this Proxy
Statement and its appendices in their entirety before voting.

DATE, TIME AND PLACE OF THE SPECIAL MEETING

The Special Meeting of stockholders of Thermo Power Corporation, a
Massachusetts corporation (the "Company" or "Thermo Power"), will be held on
Thursday, October 28, 1999, at 10:00 a.m., at the executive offices of Thermo
Electron Corporation ("Thermo Electron"), 81 Wyman Street, Waltham,
Massachusetts 02454.

PURPOSE OF THE SPECIAL MEETING

At the Special Meeting, the stockholders of the Company will consider and
vote on a proposal to approve an Agreement and Plan of Merger dated as of May 5,
1999 (the "Merger Agreement"), which is attached to this Proxy Statement as
Appendix A. The Merger Agreement provides that TP Acquisition Corporation (the
"Merger Sub"), a newly-formed Massachusetts corporation that is a wholly owned
subsidiary of Thermo Electron, a Delaware corporation, will merge with and into
Thermo Power (the "Merger"). Thermo Power will be the surviving corporation (the
"Surviving Corporation") in the Merger, and each outstanding share of common
stock, $.10 par value, of Thermo Power (the "Common Stock"), other than shares
held by stockholders who are entitled to and who have perfected their
Dissenters' Rights (as defined below), shares held by Thermo Power in treasury
and shares held by Thermo Electron, will be converted automatically into the
right to receive $12.00 in cash, payable to the holders thereof, without
interest (the "Cash Merger Consideration"). See "THE MERGER."

RECORD DATE AND QUORUM

The close of business on September 27, 1999 is the record date (the "Record
Date") for the determination of stockholders entitled to notice of, and to vote
at, the Special Meeting. Each holder of record of Common Stock at the close of
business on the Record Date is entitled to one vote for each share then held on
each matter submitted to a vote of stockholders. At the close of business on the
Record Date, there were 11,912,764 shares of Common Stock outstanding. The
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Special Meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business. Abstentions will be counted
as shares present or represented at the Special Meeting for purposes of
determining whether a quorum exists. If you hold your shares of Common Stock
through a broker, bank or other nominee, generally the nominee may only vote the
Common Stock that it holds for you in accordance with your instructions.
However, if it has not timely received your instructions, the nominee may vote
on certain matters for which it has discretionary voting authority. Brokers
generally will not have discretionary voting authority with respect to the
proposal to approve the Merger Agreement. If a nominee cannot vote on a
particular matter because it does not have discretionary voting authority, this
is a "broker non-vote" on that matter. Broker non-votes are also counted as
present or represented at the Special Meeting for purposes of determining
whether a quorum exists. See "THE SPECIAL MEETING--Record Date and Quorum
Requirement."

VOTE REQUIRED AND REVOCATION OF PROXIES

Under Massachusetts law, holders of two-thirds of the outstanding shares of
Common Stock entitled to vote at the Special Meeting must vote to approve the
Merger Agreement. For the purposes of the vote required under Massachusetts law,
a failure to vote, a vote to abstain and a broker non-vote will each have the
same legal effect as a vote cast against approval of the Merger Agreement.
Thermo Electron, which

8
<PAGE>
owns approximately 78% of the outstanding Common Stock, owns enough shares of
Common Stock to vote to approve the Merger Agreement under Massachusetts law
without the vote of any other holders of Common Stock and intends to vote its
shares in favor of the Merger Agreement. In addition, the Company's executive
officers and directors have expressed their intention to vote to approve the
Merger Agreement. See "THE SPECIAL MEETING--Voting Procedures."

A stockholder who returns a proxy may revoke it at any time before the
stockholder's shares are voted at the Special Meeting. The proxy may be revoked
by written notice to the Clerk of the Company received prior to the Special
Meeting, by executing and returning a later-dated proxy or by voting by ballot
at the Special Meeting. See "THE SPECIAL MEETING--Voting and Revocation of
Proxies."

If a properly executed Proxy Card is submitted and no instructions are
given, the shares of Common Stock represented by that proxy will be voted "FOR"
approval of the Merger Agreement.

PARTIES TO THE MERGER

THE COMPANY

The Company manufactures, markets and services intelligent traffic-control
systems and related products, industrial refrigeration equipment and commercial
cooling and cogeneration systems. The Company also conducts research in advanced
power and pollution-control technologies, and offers speciality lighting
products.

The principal executive offices of the Company are located at 45 First
Avenue, Waltham, Massachusetts 02454-9046, and its telephone number is (781)
622-1000. See "BUSINESS OF THE COMPANY."

THE MERGER SUB

The Merger Sub is a newly-formed Massachusetts corporation organized at the
direction of Thermo Electron for the sole purpose of effecting the Merger. It
has not conducted any prior business.

The principal executive offices of the Merger Sub are located at 81 Wyman
Street, P.O Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000. See "CERTAIN INFORMATION CONCERNING THE MERGER SUB AND
THERMO ELECTRON."

THERMO ELECTRON

Thermo Electron is a world leader in monitoring, analytical and biomedical
instrumentation; biomedical products including heart-assist devices,
respiratory-care equipment and mammography systems; and paper recycling and
papermaking equipment. Thermo Electron also develops alternative-energy systems
and clean fuels, provides a range of services including industrial outsourcing
and environmental-liability management, and conducts research and development in
advanced imaging, laser and electronic information-management technologies.

The principal executive offices of Thermo Electron are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000. See "CERTAIN INFORMATION CONCERNING THE MERGER SUB AND
THERMO ELECTRON."

THE MERGER

The Merger Agreement provides that, subject to satisfaction of certain
conditions, the Merger Sub will be merged with and into Thermo Power, and that
following the Merger, the separate existence of the Merger Sub will cease and
Thermo Power will continue as the Surviving Corporation. At the effective time
of the Merger, which shall be the date and time of the submission of the
Articles of Merger to the Secretary of State of the Commonwealth of
Massachusetts (the "Effective Time") (and the date on which the Effective Time
occurs being the "Effective Date"), and subject to the terms and conditions set
forth in

9
<PAGE>

the Merger Agreement, each outstanding share of Common Stock (other than shares
as to which Dissenters' Rights (as defined below) are properly perfected and not
withdrawn, shares held by Thermo Power in treasury and shares held by Thermo
Electron) will, by virtue of the Merger, be automatically canceled and converted
into the right to receive the Cash Merger Consideration. As a result of the
Merger, Thermo Power's Common Stock will no longer be publicly traded and will
be 100% owned by Thermo Electron. The aggregate consideration payable in the
Merger, assuming no Dissenters' Rights (as defined below) are exercised, is
approximately $31.2 million. See "THE MERGER."

EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES

The Effective Time is currently expected to occur as soon as practicable
after the Special Meeting, subject to approval of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the terms and conditions of the
Merger Agreement. See "--Conditions to the Merger, Termination and Expenses" and
"THE MERGER--Conditions." Detailed instructions with regard to the surrender of
stock certificates, together with a letter of transmittal, will be forwarded to
stockholders by the Company's transfer agent, American Stock Transfer & Trust
Company (the "Payment Agent"), promptly following the Effective Time.
Stockholders should not submit their stock certificates to the Payment Agent
until they have received such materials. The Payment Agent will send payment of
the Cash Merger Consideration to stockholders as promptly as practicable
following receipt by the Payment Agent of their stock certificates and other
required documents. No interest will be paid or accrued on the cash payable upon
the surrender of stock certificates. See "THE MERGER--Conversion of Securities."
Stockholders should not send any stock certificates to the Company or the
Payment Agent at this time.

ASSUMPTION OF THERMO POWER STOCK OPTIONS BY THERMO ELECTRON

At the Effective Time, each outstanding option to purchase shares of Common
Stock (each, a "Thermo Power Stock Option") under the Company's Directors Stock
Option Plan, Equity Incentive Plan, Employees' Equity Incentive Plan, Incentive
Stock Option Plan and Nonqualified Stock Option Plan (collectively, the "Thermo
Power Stock Option Plans"), whether or not exercisable, will be assumed by
Thermo Electron. Each Thermo Power Stock Option so assumed by Thermo Electron
will continue to have, and be subject to, the same terms and conditions set
forth in the applicable Thermo Power Stock Option Plan immediately prior to the
Effective Time, except that (i) each Thermo Power Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of common stock, $1.00 par value, of Thermo Electron
("Thermo Electron Common Stock") equal to the product of the number of shares of
Common Stock that were issuable upon exercise of such Thermo Power Stock Option
immediately prior to the Effective Time multiplied by a fraction (the "Exchange
Ratio"), the numerator of which is the Cash Merger Consideration and the
denominator of which is the closing price (the "Closing Price") of Thermo
Electron Common Stock on the day immediately preceding the Effective Date as
reported by the New York Stock Exchange, Inc. (the "NYSE"), rounded down to the
nearest whole number of shares of Thermo Electron Common Stock, and (ii) the per
share exercise price for the shares of Thermo Electron Common Stock issuable
upon exercise of each such assumed Thermo Power Stock Option will be equal to
the quotient determined by dividing the exercise price per share of Common Stock
at which such Thermo Power Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.

10
<PAGE>
share market value of the Common Stock on the grant date of the option divided
by (y) the Exchange Ratio, with the resulting price rounded up to the nearest
whole cent, and (b) 85% of the market value of Thermo Electron Common Stock as
of the exercise date of the option; and (iii) the $25,000 limit under Section
9.2(i) of the Thermo Power ESPP shall be applied by taking into account Thermo
Electron's assumption of the Thermo Power ESPP Stock Options in accordance with
Section 423(b)(8) of the Internal Revenue Code of 1986, as amended, and
applicable regulations.

See "THE MERGER--Assumption of Thermo Power Stock Options by Thermo
Electron."

THE SPECIAL COMMITTEE'S RECOMMENDATION

In January 1999, the Board of Directors of the Company (the "Board" or the
"Board of Directors") appointed a committee (the "Special Committee") of two
directors, Col. Frank Borman and Mr. John J. Setnicka (who are not executive
officers or employees of the Company, the Merger Sub or Thermo Electron and who
are not directors of Thermo Electron or the Merger Sub), to act on behalf of,
and in the interests of, the stockholders of the Company other than Thermo
Electron and the directors and officers of each of the Company and Thermo
Electron (the "Public Stockholders") in their evaluation and negotiation of the
terms of the proposed Merger. Mr. Setnicka owns 1,000 shares of Common Stock and
will receive a payment for his shares of Common Stock in the aggregate amount of
$12,000 upon consummation of the Merger. In addition, each member of the Special
Committee holds options to acquire 1,000 shares of Common Stock, with an
exercise price per share equal to $10.33. Such options will be assumed by Thermo
Electron and converted into options to acquire shares of Thermo Electron Common
Stock on the same terms as all other Thermo Power Stock Options. See "THE
MERGER--Assumption of Thermo Power Stock Options by Thermo Electron." Col.
Borman is also a member of the board of directors of Thermo Instrument Systems
Inc., a majority-owned subsidiary of Thermo Electron. See "SPECIAL FACTORS--The
Special Committee's Recommendation" and "SPECIAL FACTORS--Conflicts of
Interest."

At the conclusion of its review and evaluation, the Special Committee
unanimously recommended to the Company's Board that the Merger Agreement be
approved. In connection with its recommendation, the Special Committee
considered the opinion of its financial advisor, Invemed Associates LLC
("Invemed"), that the consideration of $12.00 per share in cash payable under
the Merger Agreement is fair from a financial point of view to the Public
Stockholders. See "SPECIAL FACTORS--Opinion of Financial Advisor." The Special
Committee also considered the factors set forth elsewhere in this Proxy
Statement. See "SPECIAL FACTORS--The Special Committee's Recommendation."

THE BOARD'S RECOMMENDATION

Following the unanimous recommendation of the Special Committee, the Board
of Directors unanimously approved the Merger Agreement, and recommended that the
stockholders of the Company approve the Merger Agreement. Based in part on the
recommendation of the Special Committee, the Board also unanimously determined
that the Merger is fair to the Public Stockholders. In addition, the Board
determined that the Merger is in furtherance of the Company's business
interests. In reaching its decision to recommend approval of the Merger
Agreement, the Board also considered the factors set forth elsewhere in this
Proxy Statement. See "SPECIAL FACTORS--The Special Committee's Recommendation"
and "SPECIAL FACTORS--The Board's Recommendation."

In considering the recommendation of the Board of Directors with respect to
the Merger Agreement, the Public Stockholders should be aware that certain
officers and directors of the Company have certain interests that are in
addition to, or different from, the interests of the Public Stockholders. See
"SPECIAL FACTORS--Conflicts of Interest."

The Board unanimously recommends that the Thermo Power stockholders vote
"FOR" approval of the Merger Agreement.

11
<PAGE>
OPINION OF FINANCIAL ADVISOR

Invemed provided its oral opinion to the Special Committee on May 4, 1999,
that, as of the date of such opinion, the consideration of $12.00 per share in
cash payable under the Merger Agreement was fair from a financial point of view
to the stockholders of the Company other than Thermo Electron and the officers
and directors of each of Thermo Power and Thermo Electron. The full text of the
written opinion of Invemed dated May 4, 1999, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix B to this Proxy Statement and is
incorporated herein by reference. The opinion of Invemed referred to herein does
not constitute a recommendation as to how any stockholder should vote with
respect to the Merger Agreement. Holders of Common Stock are urged to, and
should, read the opinion in its entirety. See "Special Factors--Opinion of
Financial Advisor."

The Special Committee retained Invemed as financial advisor to assist it in
its evaluation of the proposed Merger. Pursuant to the terms of Invemed's
engagement letter with the Company, the Company paid Invemed a transaction fee
of $405,000 for the preparation and delivery of a written fairness opinion in
connection with the Merger (which fee was payable regardless of the conclusions
expressed therein). In addition, the Company agreed to reimburse Invemed for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, arising in connection with its engagement, and to indemnify Invemed to
the fullest extent permitted by law against certain liabilities relating to or
arising out of its engagement, except for liabilities found to have resulted
primarily or directly from the gross negligence, willful misconduct or bad faith
of Invemed.

PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER

The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of Common Stock. Thermo Electron believes that the acquisition of the
minority stockholder interest in Thermo Power will further the business
interests of the Company. In making this determination, Thermo Electron
considered many factors, including the potential benefits to Thermo Power's
business if it were to become part of a larger business unit. Thermo Electron
also considered the burden that Thermo Power's $160 million borrowing from
Thermo Electron in connection with Thermo Power's acquisition of its Peek
subsidiary ("Peek") places on the Company. If Thermo Power were a private,
wholly owned subsidiary of Thermo Electron, Thermo Electron would have more
flexibility to cancel or postpone payment of all or a part of the borrowing.
Thermo Electron also considered (i) the reduction in the amount of public
information available to competitors about Thermo Power's business that would
result from the termination of the Company's obligations under the Securities
and Exchange Commission (the "Commission") reporting requirements; (ii) the
elimination of additional burdens on management associated with public reporting
and other tasks resulting from the Company's public company status; and (iii)
the decrease in costs, particularly those associated with being a public
company. Thermo Electron also considered the relatively low volume of trading in
the Common Stock and that the Merger would result in immediate availability of
enhanced liquidity for the Public Stockholders.

12
<PAGE>
The advantages to leaving Thermo Power as a majority-owned, public subsidiary
that Thermo Electron considered included (i) the ability of Thermo Electron to
invest the cash that would be required to buy the minority stockholder interest
in Thermo Power in alternative uses and (ii) maintaining the potential access
Thermo Power has to capital in the public markets as a public company. The
disadvantages to leaving Thermo Power as a majority-owned, public subsidiary
that Thermo Electron considered included (i) the burden on Thermo Power of the
Peek debt, (ii) the costs associated with being a public company and (iii) the
public information available to competitors about Thermo Power's business as
result of its filing obligations with the Commission.

Thermo Electron also considered the number of shares of Common Stock held by
the Public Stockholders, recent trends in the price of the Common Stock and the
relative lack of liquidity for the Common Stock. Thermo Electron reviewed the
net overall cost of the transaction and explored alternative uses for the cash
proposed to be used for this transaction. In addition, Thermo Electron
considered that by acquiring the minority stockholder interest in Thermo Power,
it would advance the goal of its proposed corporate reorganization, announced in
August 1998, to reduce the number of Thermo Electron's majority-owned, public
subsidiaries. After consideration of these various factors and extensive
negotiations with the Special Committee, Thermo Electron decided to make a
proposal to Thermo Power to acquire for cash through a merger all of the
outstanding shares of Common Stock that it did not own at a price of $12.00 per
share. Thermo Electron has proposed to structure the transaction as a cash
merger in order to transfer ownership of the equity interest in the Company in a
single transaction and provide the stockholders other than Thermo Electron with
prompt payment in cash in exchange for their shares. Thermo Electron's decision
to propose a transaction with Thermo Power at this time was due, in part, to the
announcement of its proposed corporate reorganization. See "SPECIAL
FACTORS--Purpose and Reasons of Thermo Electron for the Merger."

Thermo Electron beneficially owns approximately 78% of the outstanding
Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--Principal Stockholder."

POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER

Thermo Electron considered the recommendation of Thermo Power's Board with
respect to the fairness of the Merger to the Public Stockholders (see "SPECIAL
FACTORS--The Board's Recommendation"). Thermo Electron adopted the
recommendation of the Board of Directors with respect to the fairness of the
Merger to the Public Stockholders. Based on this recommendation, Thermo Electron
believes that the Merger is fair to the Public Stockholders, including that the
Cash Merger Consideration is fair to the Public Stockholders from a financial
point of view. Thermo Electron is not making any recommendation as to how the
Public Stockholders should vote on the Merger Agreement. See "SPECIAL
FACTORS--Position of Thermo Electron as to Fairness of the Merger."

The Public Stockholders should be aware that certain officers and directors
of Thermo Electron are also officers and directors of the Company and have
certain interests that are in addition to, or different from, the interests of
the Public Stockholders. See "SPECIAL FACTORS--Conflicts of Interest." Thermo
Electron considered these potential conflicts of interest, and based in part
thereon, its proposed offer was conditioned on, among other things, the
recommendation by the Special Committee to approve the Merger and the receipt by
the Special Committee of a fairness opinion from an investment banking firm.

CONFLICTS OF INTEREST

In considering the recommendation of the Board with respect to the Merger,
stockholders should be aware that certain officers and directors of Thermo Power
have interests in connection with the Merger that present them with actual or
potential conflicts of interest, which are described in more detail under
"SPECIAL FACTORS--Conflicts of Interest."

13
<PAGE>
THE SPECIAL COMMITTEE

Mr. Setnicka, a member of the Special Committee, owns 1,000 shares of Common
Stock and will receive a payment for his shares of Common Stock in the aggregate
amount of $12,000 upon consummation of the Merger. In addition, each member of
the Special Committee holds options to acquire 1,000 shares of Common Stock,
with an exercise price per share equal to $10.33. Such options will be assumed
by Thermo Electron and converted into options to acquire shares of Thermo
Electron Common Stock on the same terms as all other Thermo Power Stock Options.
See "THE MERGER--Assumption of Thermo Power Stock Options by Thermo Electron."
The Special Committee formally met ten times, either in person or
telephonically, from January 1999 through the date of this Proxy Statement and,
in addition, had numerous informal discussions and consultations in person and
telephonically. As compensation for serving on the Special Committee, the Board
has authorized that each member of the Special Committee receive a one-time,
special retainer fee of $20,000 and additional fees of $1,000 for each meeting
attended in person and $500 for each meeting attended telephonically. Col.
Borman is also a member of the board of directors of Thermo Instrument Systems
Inc., a majority-owned subsidiary of Thermo Electron. Mr. Setnicka served on the
board of directors of ThermoLyte Corporation, a majority-owned subsidiary of
Thermo Power, until his resignation in January 1999 in connection with a general
reorganization of the composition of such board. See "SPECIAL FACTORS--Conflicts
of Interest."

THE THERMO POWER DIRECTORS AND EXECUTIVE OFFICERS

The members of the Board of Directors (other than the members of the Special
Committee) and the executive officers of Thermo Power own in the aggregate
79,300 shares of Common Stock and will receive a payment for their shares of
Common Stock in the aggregate amount of $951,600 upon consummation of the
Merger. In addition, such Board members and executive officers hold options to
acquire an aggregate of 322,700 shares of Common Stock, with exercise prices
ranging from $6.65 to $11.63, which will be assumed by Thermo Electron and
converted into options to acquire shares of Thermo Electron Common Stock on the
same terms as all other Thermo Power Stock Options. See "THE MERGER--Assumption
of Thermo Power Stock Options by Thermo Electron." Such Board members and
executive officers also beneficially own shares of common stock of Thermo
Electron as set forth in more detail under "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT--Management." Further, certain members of the
Board and certain executive officers hold directorships or officer positions
with Thermo Electron. See "MANAGEMENT."

INDEMNIFICATION AND INSURANCE

The Merger Agreement provides that for a period of six years after the
Effective Time, Thermo Electron will, and will cause the Surviving Corporation
to, fulfill and honor in all respects the indemnification obligations of Thermo
Power, pursuant to Thermo Power's Articles of Organization and by-laws, each as
in effect immediately prior to the Effective Time, to those individuals who were
directors, including the members of the Special Committee, and executive
officers of Thermo Power at the Effective Time. In addition, under the terms of
the Merger Agreement, the directors and executive officers of the Company will
be provided with continuing directors' and officers' liability insurance
coverage for a period of six years following the Merger, subject to certain
limitations. See "SPECIAL FACTORS--Conflicts of Interest" and "THE
MERGER--Indemnification and Insurance."

CERTAIN EFFECTS OF THE MERGER

As a result of the Merger, the entire equity interest in the Company will be
beneficially owned by Thermo Electron. Thermo Electron will have complete
control over the conduct of the Company's business and will have 100% interest
in the net book value and net earnings of the Company and any future increases
in the value of the Company. Thermo Electron's ownership of the Company prior to
the transaction contemplated herein was approximately 78%. Upon completion of
this transaction, Thermo

14
<PAGE>
Electron's interest in the Company's net book value of $54.1 million on July 3,
1999, net income of $2.3 million for the year ended October 3, 1998 and net loss
of $10.4 million for the nine months ended July 3, 1999 would increase from
approximately 78% of such amounts to approximately 100% of such amounts. The
Public Stockholders will no longer have any interest in, and will not be
stockholders of, Thermo Power and therefore will not participate in Thermo
Power's future earnings and potential growth and will no longer bear the risk of
any decreases in the value of the Company. Instead, the stockholders of the
Company other than Thermo Electron and holders who perfect their Dissenters'
Rights (as defined below) will have the right to receive the Cash Merger
Consideration for each share held.

In addition, the Common Stock will no longer be traded on the American Stock
Exchange, Inc. (the "AMEX") and price quotations with respect to sales of shares
of Common Stock in the public market will no longer be available. The
registration of the Common Stock under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), will be terminated, and this termination will
eliminate the Company's obligation to file periodic financial and other
information with the Commission and will make most other provisions of the
Exchange Act inapplicable. See "SPECIAL FACTORS--Certain Effects of the Merger."

COMPETING OFFERS

In the event that Thermo Power receives an unsolicited proposal relating to
the possible acquisition of Thermo Power (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets by any person other than Thermo Electron, and the
Special Committee, in its reasonable good faith judgment, believes that the
proposal may be financially more favorable to the Public Stockholders than the
terms of the Merger, the Board of Directors may provide information to the party
making the proposal, communicate the proposal to the stockholders of Thermo
Power, make a recommendation in favor of the proposal, or terminate the Merger
Agreement to accept the proposal; provided that the Board of Directors, acting
upon the recommendation of the Special Committee, determines in good faith,
after consultation with outside legal counsel, that the Board's fiduciary duties
under applicable law requires it to do so.

CONDITIONS TO THE MERGER, TERMINATION AND EXPENSES

Each party's obligation to effect the Merger is subject to satisfaction of a
number of conditions, including with respect to one or both parties: (i) the
Merger Agreement shall have been approved by the affirmative vote of the holders
of two-thirds of the outstanding shares of Common Stock entitled to vote thereon
in accordance with the provisions of Section 78 of the Massachusetts Business
Corporation Law (the "MBCL"); (ii) no court, administrative agency or commission
or other governmental or regulatory body or authority or instrumentality shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger; (iii) Invemed shall not have withdrawn or materially modified its
opinion as to the fairness of the Merger to the Public Stockholders from a
financial point of view; (iv) the representations and warranties of the parties
shall be true and correct in all material respects as of the Effective Time,
except as permitted by the Merger Agreement; and (v) each of the parties shall
have performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed by them. Certain
conditions that have not been satisfied may be waived by the other party. See
"THE MERGER--Conditions." There can be no assurance that the Merger will be
consummated.

At any time prior to the Effective Time, whether before or after approval of
the Merger Agreement by the stockholders of Thermo Power, the Merger Agreement
may be terminated by the mutual written consent of the board of directors of
Thermo Electron and the Board of Directors of Thermo Power (upon approval of the
Special Committee). In addition, any of the parties, in accordance with the
provisions of the Merger Agreement, may terminate the Merger Agreement prior to
the Effective Time, whether before

15
<PAGE>
or after approval of the Merger Agreement by the stockholders of Thermo Power,
if (i) the Merger has not been consummated by October 31, 1999, subject to
certain exceptions; (ii) a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting the consummation of the
Merger, provided, however, that in the case of an executive order, decree,
ruling or other order it is final and nonappealable; or (iii) the approval of
the stockholders of Thermo Power necessary to consummate the Merger has not been
obtained, subject to certain exceptions. See "THE MERGER--Termination, Amendment
and Waiver."

In addition, Thermo Electron may terminate the Merger Agreement prior to the
Effective Time, whether before or after approval of the Merger Agreement by the
stockholders of Thermo Power, if Thermo Power breaches any representation,
warranty, covenant or agreement and fails to cure such breach within ten
business days after written notice of such breach from Thermo Electron. Thermo
Power, upon approval of the Special Committee, may terminate the Merger
Agreement prior to the Effective Time, whether before or after approval of the
Merger Agreement by the stockholders of Thermo Power, if (i) Thermo Power's
Board of Directors determines in good faith after consultation with outside
legal counsel that the Board's fiduciary duties under applicable law require it
to do so (including, without limitation, to accept a proposal that in the
reasonable good faith judgment of the Special Committee is financially more
favorable to the Public Stockholders than the terms of the Merger); or (ii)
Thermo Electron breaches any representation, warranty, covenant or agreement and
fails to cure such breach within ten business days after written notice of such
breach from Thermo Power. See "THE MERGER-- Termination, Amendment and Waiver."

Each of the parties has agreed to pay its own costs and expenses in
connection with the Merger Agreement, whether or not the Merger is consummated.
See "THE MERGER--Expenses."

FEDERAL INCOME TAX CONSEQUENCES

For federal income tax purposes, the receipt of the Cash Merger
Consideration by holders of Common Stock pursuant to the Merger will be a
taxable sale of the holders' Common Stock. All holders of Common Stock should
consult their tax advisors to determine the effect of the Merger on such holders
under federal, state, local and foreign tax laws. See "FEDERAL INCOME TAX
CONSEQUENCES."

RIGHTS OF DISSENTING STOCKHOLDERS

Any stockholder of Thermo Power who gives proper written objection to the
Merger prior to the Special Meeting, who does not vote in favor of the proposal
to approve the Merger Agreement and who complies strictly with the other
applicable requirements of Sections 85 though 98, inclusive, of the MBCL has the
right to demand payment for, and appraisal of, the fair value of such holder's
shares of Common Stock ("Dissenters' Rights"). Sections 85 through 98,
inclusive, of the MBCL are attached to this Proxy Statement as Appendix C. To
perfect Dissenters' Rights with respect to the Merger, a Thermo Power
stockholder must follow the procedures set forth therein precisely. These
procedures are summarized in this Proxy Statement under "RIGHTS OF DISSENTING
STOCKHOLDERS."

ACCOUNTING TREATMENT

The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.

16
<PAGE>
MARKET PRICES OF COMMON STOCK AND DIVIDENDS

The Common Stock is traded on the AMEX (symbol: THP). The following table
sets forth, for the fiscal periods indicated, the high and low sales prices of
the Company's Common Stock as reported in the consolidated transaction reporting
system.

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <C> <C>
1997
First Quarter................. $ 11 1/4 $ 7 3/4
Second Quarter................ 9 1/4 6 1/8
Third Quarter................. 7 5 1/2
Fourth Quarter................ 9 7/8 5 5/8
1998
First Quarter................. 10 1/4 7 1/4
Second Quarter................ 12 1/8 8 1/2
Third Quarter................. 11 9/16 10 1/4
Fourth Quarter................ 10 7/8 7 5/8
1999
First Quarter................. 9 3/8 7 1/4
Second Quarter................ 11 1/4 7 5/8
Third Quarter................. 12 3/8 8 1/4
Fourth Quarter (through
September 27, 1999)......... 11 7/8 11 1/2
</TABLE>

On August 11, 1998, the last trading day prior to Thermo Electron's first
public announcement of a proposal to acquire the minority stockholder interest
in Thermo Power, the high, low and closing sales price per share of Common Stock
reported in the consolidated transaction reporting system were all $8 1/8. On
April 28, 1999, the last trading day prior to the public announcement of the
proposed terms of the Merger, the high, low and closing sales price per share of
Common Stock reported in the consolidated transaction reporting system were
$12 3/8, $9 1/2 and $12 3/16, respectively. On September 27, 1999, the most
recent practicable date prior to the printing of this Proxy Statement, the high,
low and closing sales price per share of Common Stock reported in the
consolidated transaction reporting system were $11 7/8, $11 3/4 and $11 7/8,
respectively.

At September 27, 1999, there were 331 holders of record of Common Stock and
approximately 925 persons or entities holding in nominee name.

The Company has never paid any cash dividends on its Common Stock. Pursuant
to the Merger Agreement, the Company has agreed not to pay any dividends on the
Common Stock prior to the Effective Time.

17
<PAGE>
SPECIAL FACTORS

BACKGROUND OF THE MERGER

During the beginning of August 1998, Thermo Electron's senior management
initially considered having Thermo Electron acquire the minority stockholder
interest in Thermo Power in connection with a proposed reorganization of Thermo
Electron and certain of its subsidiaries. Thermo Electron's management examined
several factors, including the potential benefits to Thermo Power's business if
it were to become part of a larger business unit. Thermo Electron also
considered the burden that Thermo Power's $160 million borrowing from Thermo
Electron in connection with Thermo Power's acquisition of Peek places on the
Company. If Thermo Power were a private, wholly owned subsidiary of Thermo
Electron, Thermo Electron would have more flexibility to cancel or postpone
payment of all or a part of the borrowing. Thermo Electron also considered the
following factors: (i) the reduction in the amount of public information
available to competitors about Thermo Power's business that would result from
the termination of the Company's obligations under the Commission reporting
requirements; (ii) the elimination of additional burdens on management
associated with public reporting and other tasks resulting from the Company's
public company status; and (iii) the decrease in costs, particularly those
associated with being a public company. Thermo Electron also considered the
relatively low volume of trading in the Common Stock and that the Merger would
result in immediate availability of enhanced liquidity for the Public
Stockholders. Management also considered that Thermo Electron's acquisition of
the minority stockholder interest in Thermo Power would advance the goal of its
proposed corporate reorganization to reduce the number of majority-owned, public
subsidiaries of Thermo Electron. Management also considered recent trends in the
price of Thermo Power's Common Stock, although Thermo Power's current stock
price was not a significant factor in the timing of management's decision to
propose the acquisition of the minority stockholder interest in Thermo Power by
Thermo Electron. In mid-August 1998, Thermo Electron's management decided to
propose to Thermo Electron's board of directors that Thermo Electron make an
offer to acquire all of the shares of Thermo Power Common Stock that it did not
already own for either cash or shares of Thermo Electron common stock.

On August 10 and 11, 1998, the board of directors of Thermo Electron held a
special meeting at which Thermo Electron's management presented the proposal to
have Thermo Electron acquire all of the shares of Thermo Power Common Stock that
it did not already own, as a part of the proposed corporate reorganization of
Thermo Electron and certain of its subsidiaries. The Thermo Electron board of
directors discussed several factors presented by management regarding this
proposal, including (i) the potential benefits to Thermo Power's business if it
were to become part of a larger business unit; (ii) the burden that Thermo
Power's $160 million borrowing from Thermo Electron in connection with Thermo
Power's acquisition of Peek places on the Company, and Thermo Electron's
increased flexibility to cancel or postpone payment of the borrowing if Thermo
Power were to become a private, wholly owned subsidiary of Thermo Electron;
(iii) the reduction in the amount of public information available to competitors
about Thermo Power's business that would result from the termination of the
Company's obligations under the Commission reporting requirements; (iv) the
elimination of additional burdens on management associated with public reporting
and other tasks resulting from the Company's public company status; and (v) the
decrease in costs, particularly those associated with being a public company.
The Thermo Electron board of directors also considered the relatively low volume
of trading in the Common Stock and that the Merger would result in immediate
availability of enhanced liquidity for the Public Stockholders. In addition, the
Thermo Electron board of directors considered the advantages and disadvantages
of certain alternatives to acquiring the minority stockholder interest in Thermo
Power, including (i) selling its equity interest in the Company, (ii) having
Thermo Power raise additional capital through a public debt or equity offering
and (iii) leaving Thermo Power as a majority-owned, public subsidiary. The first
two alternatives, that of selling its equity interest and the possibility of
Thermo Power raising additional capital, were briefly considered by Thermo
Electron management, but they were not alternatives that were pursued as
reasonable, given that Thermo Electron did not want to sell its equity interest
and Thermo Electron's belief that an equity public

18
<PAGE>

offering was unrealistic at that time. In addition, given, among other things,
the Company's sizeable Peek debt, any debt offering by the Company at a
marketable interest rate likely would have required a credit guarantee by Thermo
Electron and Thermo Electron was not interested in providing such a guarantee.
The advantages to leaving Thermo Power as a majority-owned, public subsidiary
that Thermo Electron considered included (i) the ability of Thermo Electron to
invest the cash that would be required to buy the minority stockholder interest
in Thermo Power in alternative uses and (ii) maintaining the potential access
Thermo Power has to capital in the public markets as a public company. The
disadvantages to leaving Thermo Power as a majority-owned, public subsidiary
that Thermo Electron considered included (i) the burden on Thermo Power of the
Peek debt, (ii) the costs associated with being a public company and (iii) the
public information available to competitors about Thermo Power's business as
result of its filing obligations with the Commission. The Thermo Electron board
of directors also discussed that, by acquiring the minority stockholder interest
in Thermo Power, it would advance the goal of Thermo Electron's proposed
corporate reorganization to reduce the number of Thermo Electron's
majority-owned, public subsidiaries. After consideration of these various
factors, Thermo Electron's board authorized a proposed corporate reorganization,
which included acquiring all of the shares of Common Stock that it did not
already own for either cash or Thermo Electron common stock. On August 12, 1998,
Thermo Electron issued a press release announcing its proposed corporate
reorganization.

On December 3, 1998, the board of directors of Thermo Electron held a
meeting at which the proposed plan to acquire the minority stockholder interest
in Thermo Power was discussed. Thermo Electron's management reviewed the
considerations set forth above and recommended that Thermo Electron continue to
move forward with a proposed transaction to acquire the minority stockholder
interest in Thermo Power. Thermo Electron's board discussed the advantages and
disadvantages of acquiring the minority stockholder interest in Thermo Power.
The advantages to acquiring the minority stockholder interest that the Thermo
Electron board considered included a review of the factors considered at its
August 10-11, 1998 meeting set forth above. The disadvantages to acquiring the
minority stockholder interest in Thermo Power that Thermo Electron considered
included (i) the inability of Thermo Electron to invest the cash that would be
required to buy the minority stockholder interest in Thermo Power in alternative
uses and (ii) the elimination of potential access by Thermo Power to capital in
the public markets as a private company. Following these discussions, Thermo
Electron's board authorized a modified corporate reorganization plan, which
included taking Thermo Power private by acquiring all of the shares of Thermo
Power that Thermo Electron did not already own for cash. On December 10, 1998,
Thermo Electron issued a press release announcing its modified proposed
corporate reorganization.

In September 1998, the Company received an unsolicited offer to purchase its
FES division for a net purchase price of $48 million. The Company did not pursue
the offer at that time due to its proposed participation in the corporate
reorganization of Thermo Electron. Such a sale, at the price proposed, prior to
confirmation of and negotiation of any offer from Thermo Electron to acquire the
minority stockholder interest in the Company, would have had a dilutive effect
on the Company's earnings per share, excluding the one-time gain from such sale,
since the proceeds from any such sale would have most likely been applied
against repayment of the Peek debt owed to Thermo Electron or would have been
invested at a lower rate of return than could have been achieved if FES had not
been sold. However, the Company continues to evaluate the offer.

On January 13, 1999, Thermo Power's Board held a meeting during which all
members were present in person or by telephone. The Board's first action was to
appoint Col. Frank Borman as a director of the Company. The Board next
determined that because Thermo Electron was its majority stockholder, it was
desirable to appoint a Special Committee, to act on behalf of, and in the
interests of, the Public Stockholders, for the purpose of evaluating the merits
of, and negotiating the terms of, any proposed transaction with Thermo Electron.
The Board appointed Col. Frank Borman and Mr. John J. Setnicka to serve as
members of the Special Committee. The Board also authorized the Special
Committee to retain a

19
<PAGE>
financial advisor, a legal advisor and any other advisors it deemed necessary to
assist it in carrying out its responsibilities. Additionally, the Board granted
the Special Committee and its advisors access to all of the officers and members
of management of Thermo Power and its subsidiaries, including its books,
records, projections and financial statements deemed necessary by the Special
Committee and its advisors for their review. The Board noted that Col. Borman
was also a director of Thermo Instrument Systems Inc., a majority-owned
subsidiary of Thermo Electron and that Mr. Setnicka was a director of ThermoLyte
Corporation, a majority-owned subsidiary of the Company. The Board determined
that these directorships did not prevent either member from fulfilling his
duties as a member of the Special Committee. Subsequently, Mr. Setnicka resigned
from the ThermoLyte Corporation board in connection with a general
reorganization of the composition of such board.

On January 28, 1999, the Special Committee held its first meeting, at which
time it retained Invemed Associates LLC as its financial advisor and Morgan,
Lewis & Bockius LLP as its counsel. The Special Committee selected Invemed
Associates LLC ("Invemed") and Morgan, Lewis & Bockius LLP partly because
neither currently or in the past had represented Thermo Electron or any of its
subsidiaries.

On February 25, 1999, the board of directors of Thermo Electron held a
special meeting to discuss a proposed transaction with Thermo Power. Thermo
Electron's management discussed the advantages and disadvantages of acquiring
the minority stockholder interest in Thermo Power, as described above. In
addition, Thermo Electron reviewed the net overall cost of the transaction and
explored alternative uses for the cash proposed to be used for this transaction.
After consideration of these various factors, the Thermo Electron board voted to
make a proposal to Thermo Power to acquire, through a merger, all of the
outstanding shares of Thermo Power Common Stock that it did not already own for
a cash purchase price of $10.00 per share.

During February and March, at the request of the Special Committee, Invemed
requested and reviewed information relating to Thermo Power's business. During
March and April, the Special Committee had eight telephonic meetings, at which
its counsel and financial advisors were present. At these meetings, the Special
Committee discussed a number of matters, including Invemed's progress with its
analysis of information relating to the Company's business, the Special
Committee's role in this transaction and the terms of the Merger Agreement.

On March 15, 1999, Invemed reported to the Special Committee that Thermo
Electron had proposed a price of $10.00 per share for the Common Stock held by
the Public Stockholders. The Special Committee expressed concern that the $10.00
per share proposal was less than the current trading price.

On March 23, 1999, Invemed reported to the Special Committee that it
determined that the range of fairness for the proposed transaction was from
$11.00-$13.00 per share and that Thermo Electron's current proposal was not in
this range. Invemed reviewed the factors taken into consideration when
determining the range. The Special Committee then authorized Invemed to
negotiate, on the Special Committee's behalf, the price to be paid by Thermo
Electron in the Merger and Morgan, Lewis & Bockius LLP to negotiate, on the
Special Committee's behalf, the other terms of the Merger Agreement, including a
provision requiring approval of any transaction by a majority of the Public
Stockholders.

On March 31, 1999, Invemed reported to the Special Committee that it had
been successful in raising Thermo Electron's offer from $10.00 per share to
$10.50 per share but this was still not in the range of fairness and represented
only a very slight premium to the then current market price. Morgan, Lewis &
Bockius LLP reported that Thermo Electron was unwilling to include a provision
in the Merger Agreement providing for approval of the transaction by a majority
vote of the Public Stockholders. The Special Committee then determined that it
would communicate directly with the chairman of the board of Thermo Electron,
Dr. George N. Hatsopoulos.

On April 1, 1999, the Special Committee sent a letter to Dr. Hatsopoulos
stating that it would not be prepared to recommend the transaction to the Board
unless the consideration was $11.50-$13.00 per share

20
<PAGE>
and the Merger Agreement included a majority of the minority approval
requirement. During the following week, Col. Borman and Dr. Hatsopoulos
discussed the Special Committee's letter. Dr. Hatsopoulos advised Col. Borman
that Thermo Electron would be willing to pay $11.50 per share but would not
agree to a majority of the minority provision. Col. Borman indicated that he
would not be willing to recommend removal of the majority of the minority
provision if Thermo Electron was only willing to offer an amount at the low end
of the range suggested by the Special Committee. After further discussion, Dr.
Hatsopoulos stated that Thermo Electron would be willing to offer $12.00 per
share.

On April 8, 1999, Col. Borman reported that after several telephone calls
with Dr. Hatsopoulos, Thermo Electron was willing to offer $12.00 per share but
would not include a provision allowing for a majority vote of the Public
Stockholders. Invemed noted that the $12.00 per share price represented a
substantial premium to the current market price, and that Thermo Power's stock
had not traded above $12.00 per share in two years. After further discussion,
the Special Committee authorized Morgan, Lewis & Bockius LLP to negotiate a
Merger Agreement with Thermo Electron that contained a merger consideration of
$12.00 per share and that did not contain a provision requiring majority
approval of the Public Stockholders.

On April 29, 1999, the Company and Thermo Electron issued press releases to
announce that meetings of their respective boards of directors had been
scheduled for the following week to consider a proposal whereby Thermo Electron
would acquire all the shares of Thermo Power that it did not already own for
cash consideration of $12.00 per share.

On May 4, 1999, Invemed met with the Special Committee to give its final
report on the terms of the proposed Merger and render its oral opinion to the
Special Committee that Thermo Electron's proposed $12.00 per share cash offer
was fair, from a financial point of view, to the Public Stockholders. Invemed
reviewed the factors taken into consideration in rendering its decision. The
Special Committee also received a presentation from a representative of the
Company's management team detailing the business purposes of the transaction.
The business purposes included:

- the elimination of inefficiencies by integrating related business segments
through Thermo Electron's reorganization;

- the increased flexibility of Thermo Electron to cancel or postpone Thermo
Power's obligation to repay its $160 million borrowing from Thermo
Electron in connection with its acquisition of Peek;

- the reduction of the amount of public information available to competitors
about Thermo Power's business that would result from the termination of
the Company's obligations under the Commission reporting requirements;

- the elimination of additional burdens on management associated with public
reporting and other tasks resulting from the Company's public company
status;

- the decrease in costs, particularly those associated with being a public
company; and

- the immediate availability of enhanced liquidity for the Public
Stockholders, particularly in light of the relatively low volume of
trading in the Common Stock.

Additionally, the Special Committee reviewed the terms of the Merger
Agreement. It then unanimously recommended approval by the Board of the Merger
Agreement. The full Board then met and heard the report of Invemed. The Board
also reviewed the terms of the Merger Agreement. It unanimously approved the
Merger Agreement and recommended that the stockholders vote in favor of the
Merger Agreement.

On May 5, 1999, the Merger Agreement was presented to the board of directors
of Thermo Electron at a special meeting of the board. Thermo Electron's board of
directors unanimously approved the Merger Agreement. Following Thermo Electron's
board meeting, the Merger Agreement was duly executed by the

21
<PAGE>

parties. Thermo Power then issued a press release announcing that, based in part
on the recommendation of the Special Committee, the Board had approved the
Merger Agreement with Thermo Electron.

THE SPECIAL COMMITTEE'S RECOMMENDATION

In reaching its determination to unanimously recommend approval by the Board
of the Merger Agreement, the Special Committee considered the following factors,
each of which the Special Committee deemed favorable:

- The Cash Merger Consideration of $12.00 per share. Thermo Electron's
willingness to pay $12.00 per share was the most important factor
considered by the Special Committee in making its recommendation to the
Board. The Special Committee considered the history of negotiations with
respect to the Merger Agreement, which led to an increase in Thermo
Electron's initial proposal of $10.00 per share on March 15, 1999 to
$10.50 per share on March 31, 1999 to $11.50 following Dr. Hatsopoulos'
receipt of the Special Committee's April 1, 1999 letter, and finally to
$12.00 per share. In addition, the Special Committee considered Dr.
Hatsopoulos' statement that $12.00 was the best price Thermo Electron was
willing to pay.

- The oral opinion of Invemed delivered to the Special Committee, which was
confirmed by its written opinion dated May 4, 1999, to the effect that,
based upon and subject to certain factors and assumptions stated in the
opinion, as of such date, the consideration to be received by the Public
Stockholders in the Merger is fair to the Public Stockholders from a
financial point of view.

- The analyses performed by Invemed in connection with rendering its
fairness opinion, specifically its discounted cash flow analysis and its
analysis of stock price performance and minority interest buy-outs, its
review of selected comparable companies and its analysis of selected
acquisition transactions. See "--Opinion of Financial Advisor."

- The business purpose of the Merger articulated to the Special Committee by
a representative of Thermo Power's management. See "--Background of the
Merger."

- The overall challenges to Thermo Power resulting from a shift in the focus
of its business from a primary emphasis on power generation and
refrigeration and cooling products to the traffic and control industry.
The Special Committee considered that Thermo Power's success in this new
industry was not assured because of the challenges confronting Thermo
Power in attempting to have Peek achieve the level of profitability
desired by Thermo Power. In this regard, the Special Committee considered
the highly competitive and fragmented market for traffic control systems,
typified in most locations by both smaller, local competitors and larger,
international competitors. The Special Committee also considered the
difficulties Thermo Power confronted in Peek's Asian operations.

- The provisions of the Merger Agreement, including the Cash Merger
Consideration of $12.00 per share, the limited number of conditions to
Thermo Electron's obligations under the Merger Agreement and the absence
of financial conditions. In addition, the Special Committee considered
provisions under the Merger Agreement that would apply if Thermo Power
receives an unsolicited proposal by a third party relating to the possible
acquisition of Thermo Power or any material portion of Thermo Power's
capital stock or assets and the Special Committee, in its reasonable good
faith judgment, believes that the proposal may be financially more
favorable to the Public Stockholders than the terms of the Merger. Under
those circumstances, and provided that the Board, acting upon the
recommendation of the Special Committee, determines in good faith, after
consultation with counsel, that its fiduciary duties to stockholders
require it to do so, the Board may provide information to the party making
the proposal, communicate the proposal to the stockholders of Thermo
Power, make a recommendation in favor of the proposal or terminate the
Merger

22
<PAGE>
Agreement to accept the proposal. Moreover, the Merger Agreement does not
provide for the payment of a termination fee in the event that Thermo
Power terminates the Merger Agreement.

- Although Thermo Electron expressed its intention to enter into this
transaction in August 1998, no third party had expressed an interest in
purchasing all or a portion of Thermo Power's business, other than an
unsolicited offer by one party in September 1998 to purchase the FES
division of Thermo Power, which Thermo Power advised the Special Committee
it was not pursuing due to its proposed participation in the corporate
reorganization of Thermo Electron. Moreover, the Special Committee
considered Thermo Electron's advisement to the Special Committee that it
was not interested in selling Thermo Power at any reasonably obtainable
price. This statement, coupled with Thermo Electron's majority ownership
of Thermo Power, raised a substantial question as to whether the pursuit
of a third party offer would be fruitful.

- The relationship of the Cash Merger Consideration of $12.00 per share to
the historical market prices for the Common Stock. Specifically, the
Special Committee considered that the Cash Merger Consideration
represented a premium of $3.875, or 47.7%, to the closing sale price of
$8.125 per share on August 11, 1998, the last trading day before Thermo
Electron first publicly announced the proposal to acquire the minority
stockholder interest in Thermo Power. In addition, the Cash Merger
Consideration constituted a premium of $3.00 per share or 33.3% over the
closing price of the Common Stock on April 27, 1999, the second day
preceding the announcement of the proposed consideration to be paid
pursuant to the Merger. Although the closing price of the Common Stock was
$12.1875 per share on the day preceding the announcement of the proposed
Merger, the increase in the price of the Common Stock was not generated by
any public announcement of corporate developments by Thermo Power.
Moreover, the Cash Merger Consideration exceeded the maximum trading price
of the Common Stock during the previous year. In considering the amount of
the premium that the Cash Merger Consideration bears to the historical
trading prices of the Common Stock, the Special Committee considered that
the Common Stock was a relatively illiquid security and that the
illiquidity may well have had, and could continue to have, an adverse
effect on the trading price of the Common Stock. Moreover, in light of the
historical trading values of the Common Stock, the Special Committee
considered the likelihood that the price of the Common Stock would decline
if the Merger were not completed. As a result, the Special Committee
viewed favorably the liquidity that would be realized by Thermo Power's
stockholders from the all-cash offer.

The Special Committee also considered the following factors, all of which
they considered as negative factors in its deliberations concerning the
recommendation to the Board with regard to the Merger Agreement:

- The fact that the Merger Agreement was not conditioned on obtaining a
majority vote of the Public Stockholders. In addition, the Special
Committee considered the fact that Thermo Power would not be marketed to
third parties in connection with the Merger Agreement. The Special
Committee contrasted this situation with Thermo Electron's prior similar
transaction involving Thermo Voltek Corp. ("Thermo Voltek"). In that
transaction, Thermo Voltek was marketed to third parties, and the merger
was conditioned upon approval by a majority vote of Thermo Voltek's
minority stockholders. The Special Committee was most concerned about the
absence of a provision requiring majority approval of the Public
Stockholders. However, the Special Committee determined that, in order to
increase the Cash Merger Consideration to a level that would enable it to
make a recommendation to the Board that it approve the Merger Agreement,
it was necessary to withdraw its insistence on the inclusion of such a
provision. Moreover, the Special Committee considered that stockholders
would have appraisal rights under Massachusetts law. The Special Committee
did not view the inability to market to third parities to be as
significant, since only one expression of interest, limited to the FES
division of Thermo Power, was received from a third party following the
public announcement of Thermo Electron's determination to acquire the
minority

23
<PAGE>
interest in Thermo Power in August 1998. In addition, as noted above,
Thermo Electron advised the Special Committee that it was not interested
in selling Thermo Power at any reasonably obtainable price.

- Following the Merger, the Public Stockholders will cease to participate in
the future earnings or growth, if any, of Thermo Power or benefit from
increases, if any, in the value of Thermo Power. However, the Special
Committee also considered the risks and uncertainties associated with
Thermo Power's future prospects, as described above.

- Following the announcement of the proposed consideration to be paid in the
Merger, Thermo Power received two stockholder communications that were
critical of the Cash Merger Consideration.

- Potential or actual conflicts of interest of officers and directors of
Thermo Power in connection with the Merger. See "--Conflicts of Interest."

In considering its recommendation, the Special Committee did not consider
Thermo Power's liquidation value because it did not believe such value to be
indicative of the value of Thermo Power as a going concern.

While the Special Committee considered the foregoing factors, it did not
quantify or attach any particular weight to such factors, other than the Cash
Merger Consideration, which the Special Committee considered the most important
factor. In making its recommendation to the Board, the Special Committee
determined that the positive factors set forth above outweighed the negative
factors set forth above, and, accordingly, the Special Committee recommended
that the Board of Directors approve the Merger Agreement.

THE BOARD'S RECOMMENDATION

The Board believes that the terms of the Merger are fair to, and in the best
interests of, the Company and its stockholders, including the Public
Stockholders. In reaching its determination to unanimously recommend that the
Company's stockholders approve the Merger Agreement, the Board primarily
considered the recommendation of the Special Committee and the material factors
upon which the Special Committee's recommendation was based, which are described
above under "--The Special Committee's Recommendation." In determining to
approve the Merger Agreement, the Board did not quantify or attach any
particular weight to the factors described above. In the view of the Board, each
of the factors listed above that the Special Committee deemed favorable
reinforced their belief that the transaction was in the best interests of the
stockholders of the Company, including the Public Stockholders. In addition, the
Board considered the business purposes for the Merger, which are described above
under "-- Background of the Merger." The factors considered by the Special
Committee and the business purposes for the Merger, both of which are described
above, constitute all the material factors the Board considered in reaching its
decision as to the substantive fairness of the Merger.

The Board's belief as to the procedural fairness of the Merger was based on
its recognition that the Special Committee was formed to protect the interests
of the Public Stockholders and to provide independent consideration of the
transaction. In forming the Special Committee, the Board noted that Col. Borman
was also a director of Thermo Instrument Systems Inc., a majority-owned
subsidiary of Thermo Electron, and that Mr. Setnicka was a director of
ThermoLyte Corporation, a majority-owned subsidiary of the Company. The Board
determined that these directorships did not prevent either member from
fulfilling his duties as a member of the Special Committee. Subsequently, Mr.
Setnicka resigned from the ThermoLyte Corporation board in connection with a
general reorganization of the composition of such board. The Board also
considered that the Special Committee engaged independent counsel and Invemed to
assist in its negotiation and evaluation of the transaction, which also
contributed to the Board's belief as to the procedural fairness of the Merger.

24
<PAGE>
BASED ON THE SPECIAL COMMITTEE'S RECOMMENDATION AND ITS CONSIDERATION OF THE
FACTORS SET FORTH ABOVE, THE BOARD (INCLUDING THE MEMBERS OF THE SPECIAL
COMMITTEE) UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY AND THE PUBLIC STOCKHOLDERS. THE BOARD, BY UNANIMOUS
VOTE, APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATION OF THE BOARD
WITH RESPECT TO THE MERGER AGREEMENT, THE PUBLIC STOCKHOLDERS SHOULD BE AWARE
THAT CERTAIN OFFICERS AND DIRECTORS OF THE COMPANY HAVE CERTAIN INTERESTS THAT
ARE IN ADDITION TO, OR DIFFERENT FROM, THE INTERESTS OF THE PUBLIC STOCKHOLDERS.
SEE "--CONFLICTS OF INTEREST."

OPINION OF FINANCIAL ADVISOR

The Special Committee, on behalf of the Board of Directors, retained Invemed
under an engagement letter dated March 5, 1999 to act as the Special Committee's
financial advisor in connection with evaluating Thermo Electron's proposal to
acquire all of the Common Stock of Thermo Power that it did not already own.
Invemed is an investment banking firm and, as a customary part of its investment
banking business, is engaged in negotiated underwritings, private placements,
the valuation of businesses and their securities in connection with mergers and
acquisitions and valuation for corporate and other purposes. The Special
Committee selected Invemed in part because Invemed has not in the past
represented Thermo Electron or any of its subsidiaries. Invemed rendered its
oral opinion to the Special Committee and to the Board of Directors in two
separate meetings held on May 4, 1999, and it also confirmed its opinion in
writing on that date. As of that date, and based upon and subject to the
considerations and assumptions stated at that time, Invemed's opinion is that
the consideration of $12.00 per share to be paid pursuant to the proposed Merger
is fair, from a financial point of view, to the Public Stockholders.

The full text of the written opinion of Invemed dated May 4, 1999, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Appendix B to this Proxy Statement. The summary of
Invemed's opinion set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of its opinion in Appendix B, and the full text of
its opinion is incorporated in this Proxy Statement by reference to that
Appendix. Invemed's opinion is directed to the Special Committee, is directed
only to the fairness from a financial point of view of the consideration to be
paid to the Public Stockholders pursuant to the Merger Agreement, and does not
constitute a recommendation to any stockholder of Thermo Power as to how that
stockholder should vote at the Special Meeting. Stockholders of Thermo Power
should read the opinion in its entirety.

In arriving at its opinion, Invemed:

- Reviewed the terms and conditions of the merger agreement in the form
distributed to the Board of Directors for review at the May 4, 1999
meeting of the Board of Directors (the "Draft Merger Agreement");

- Analyzed certain publicly available business and financial information
relating to Thermo Power and certain other information, including
financial forecasts, provided to it by Thermo Power;

- Met with and participated in discussions with members of the senior
management and certain other personnel of Thermo Power to discuss the
business and prospects of Thermo Power;

- Reviewed and considered historical financial and stock market data of
Thermo Power;

- Reviewed and compared historical financial, stock market and other public
information for other publicly held companies engaged in businesses
similar to the businesses engaged in by Thermo Power;

- Reviewed and compared the financial terms, to the extent publicly
available or provided to Invemed by Thermo Power (with respect to
information relating to FES, Nutemp, Inc. and Peek), of certain

25
<PAGE>
other recent business combinations and other transactions that it deemed
to be comparable to the Merger; and

- Considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant.

In rendering its opinion, Invemed assumed and relied on the accuracy and
completeness in all material respects of the information reviewed by it or
conveyed to it in discussions with Thermo Power. Invemed assumed no
responsibility for independently verifying that information or undertaking an
independent evaluation or appraisal of any of the assets or liabilities of
Thermo Power, and neither was it furnished with any evaluation or appraisal.
With respect to the financial forecast information furnished to or discussed
with Invemed by Thermo Power, Invemed assumed that that information was
reasonably prepared and reflected the best currently available estimates and
judgment of Thermo Power's management as to the expected future financial
performance of Thermo Power. In rendering its opinion, Invemed also assumed that
the final form of the Merger Agreement would be substantially similar to the
Draft Merger Agreement and that the Merger would be consummated substantially in
accordance with the terms and conditions set forth in the Merger Agreement. (The
final form of the Merger Agreement is, in fact, identical to the Draft Merger
Agreement.) In connection with Invemed's engagement to provide financial
advisory services to the Special Committee concerning strategic alternatives,
Invemed was not authorized to solicit, and did not solicit, interest from other
parties with respect to an acquisition of, or other business combination
involving, Thermo Power.

Invemed's opinion is necessarily based on economic, market and other
conditions and on the information made available to Invemed as of the date of
its opinion. Developments arising after that date may affect the opinion of
Invemed, and Invemed does not have any obligation to update, revise, or reaffirm
its opinion.

SUMMARY OF ANALYSES

The following is a summary of the material financial analyses Invemed
performed in connection with rendering its opinion dated May 4, 1999:

STOCK PRICE PERFORMANCE

Invemed reviewed the historical stock prices and trading volume history for
the shares of Common Stock. This review showed that closing prices ranged
between $5.69 and $12.19 during the two-year period from May 2, 1997 to April
30, 1999.

Invemed also reviewed the closing prices of the Common Stock on the dates
that were one month, one week and one day prior to the April 29, 1999
announcement of the proposed terms of the Merger. This review indicated, based
on a $12.00 per share price to be paid in the Merger, that:

- at one month prior to the announcement, the closing price per share of
Common Stock was $10.25 and the consideration to be paid pursuant to the
Merger represented a premium of 17.1% over the price of a share of Common
Stock on that date;

- at one week prior to the announcement, the closing price per share of
Common Stock was $8.94 and the consideration to be paid pursuant to the
Merger represented a premium of 34.3% over the price of a share of Common
Stock on that date; and

- at one day prior to the announcement, the closing price per share of
Common Stock was $12.19 and the consideration to be paid pursuant to the
Merger represented a discount of 1.5% to the price of a share of Common
Stock on that date.

The closing price of the Company's Common Stock on August 11, 1998, the last
trading day before Thermo Electron first publicly announced a proposal to
acquire the minority stockholder interest in Thermo Power, was $8 1/8.

26
<PAGE>
REVIEW OF SELECTED COMPARABLE COMPANIES

Invemed reviewed and compared certain actual and estimated financial,
operating and stock market information of Thermo Power with that of certain
publicly traded companies in the traffic and refrigeration industries that it
deemed to be relevant (the "Selected Public Companies"). The traffic companies
included in Invemed's analysis were Quixote Corporation, Able Telcom Holding
Corporation and Stimsonite Corporation. The refrigeration companies were York
International Corporation and Aggreko PLC.

Invemed calculated certain financial multiples for Thermo Power and each of
the Selected Public Companies including, among others:

- price to earnings ("P/E") multiples based on estimated calendar 1999
earnings per share ("EPS");

- enterprise value (market capitalization plus debt minus cash) multiples
based on latest twelve months ("LTM") earnings before interest, taxes,
depreciation and amortization ("EBITDA"); and

- enterprise value multiples based on estimated calendar 1999 EBITDA.

The calendar 1999 EPS estimates for the Selected Public Companies were based
on publicly available earnings estimates as provided by I/B/E/S International
Inc., a global financial provider of earnings expectations information. The
calendar 1999 EBITDA estimates for the Selected Public Companies were based on
estimates contained in certain publicly available analyst reports.

The results used in connection with Invemed's opinion, based on a per share
price of $12.00, were as follows:

TRAFFIC COMPANIES

<TABLE>
<CAPTION>
SELECTED PUBLIC AVERAGE OF SELECTED
COMPANIES PUBLIC
ANALYSIS RANGE COMPANIES COMPANY
- ---------------------------------------------------------------- ----------------- ------------------- -----------
<S> <C> <C> <C>
Estimated 1999 P/E.............................................. 8.1x to 12.8x 10.7x 21.8x
Enterprise Value to LTM EBITDA.................................. 4.9x to 9.8x 7.8x 11.6x
Enterprise Value to Estimated 1999 EBITDA*...................... 7.7x to 9.3x 8.5x 9.5x
</TABLE>

- ------------------------

* 1999 EBITDA estimates for Stimsonite were not available to Invemed and thus
Stimsonite has been excluded from the Enterprise Value to Estimated 1999
EBITDA analysis.

REFRIGERATION COMPANIES

<TABLE>
<CAPTION>
SELECTED PUBLIC AVERAGE OF SELECTED
ANALYSIS COMPANIES RANGE PUBLIC COMPANIES COMPANY
- ----------------------------------------------------------------- ---------------- ------------------- -----------
<S> <C> <C> <C>
Estimated 1999 P/E............................................... 10.6x to 21.2x 15.9x 21.8x
Enterprise Value to LTM EBITDA................................... 6.5x to 9.0x 7.8x 11.6x
Enterprise Value to Estimated 1999 EBITDA........................ 6.3x to 8.6x 7.5x 9.5x
</TABLE>

The implied range of values for Thermo Power Common Stock derived from the
analysis of the Selected Public Companies ranged from approximately negative
$2.24 to positive $11.66 per share.

ANALYSIS OF SELECTED ACQUISITION TRANSACTIONS

Using publicly available information and information provided to Invemed by
Thermo Power, Invemed reviewed and compared five selected merger and acquisition
transactions in the traffic and refrigeration industries (and one selected
acquisition proposal in the refrigeration industry) since January 1992 that
Invemed deemed relevant (the "Selected Acquisition Transactions"). The Selected
Acquisition Transaction for traffic was the Company's acquisition of Peek
Traffic. The Selected Acquisition

27
<PAGE>

Transactions for refrigeration were: (i) the Company's acquisition of FES, Inc.;
(ii) the Company's acquisition of NuTemp, Inc.; (iii) Manitowoc's acquisition of
Shannon Group; (iv) Scotsman Industries Inc.'s acquisition of Kysor Industrial
Corp.; and (v) an offer to buy the FES division from Thermo Power.

Invemed calculated certain financial multiples for Thermo Power at a price
of $12.00 per share of Common Stock and, to the extent that relevant information
was publicly available or given to Invemed by Thermo Power (with respect to FES,
NuTemp, Inc. and Peek), for each of the targets in the Selected Acquisition
Transactions, including, among others, enterprise value as a multiple of
revenues, EBITDA and earnings before interest and taxes ("EBIT").

The results, based on a price of $12.00 per share of Common Stock, were as
follows:

TRAFFIC COMPANY ACQUISITIONS

<TABLE>
<CAPTION>
AVERAGE OF SELECTED
SELECTED ACQUISITION ACQUISITION
ANALYSIS TRANSACTION RANGE TRANSACTIONS COMPANY
- --------------------------------------------------------------- --------------------- ------------------- -----------
<S> <C> <C> <C>
Enterprise Value to LTM Revenues............................... 0.9x 0.9x 1.1x
Enterprise Value to LTM EBITDA................................. 19.3x 19.3x 11.6x
Enterprise Value to LTM EBIT................................... 27.4x 27.4x 18.2x
</TABLE>

REFRIGERATION COMPANY ACQUISITIONS

<TABLE>
<CAPTION>
SELECTED AVERAGE OF SELECTED
ACQUISITION ACQUISITION
ANALYSIS TRANSACTION RANGE TRANSACTIONS COMPANY
- --------------------------------------------------------------- ------------------ ------------------- -----------
<S> <C> <C> <C>
Enterprise Value to LTM Revenues............................... 0.3x to 1.6x 1.0x 1.1x
Enterprise Value to LTM EBITDA................................. 10.0x to 12.4x 10.9x 11.6x
Enterprise Value to LTM EBIT................................... 10.5x to 17.6x 14.1x 18.2x
</TABLE>

The implied range of values for Thermo Power Common Stock derived from the
analysis of the Selected Acquisition Transactions ranged from approximately
negative $5.93 to positive $24.46 per share.

DISCOUNTED CASH FLOW ANALYSIS

In connection with rendering its opinion, Invemed performed a discounted
cash flow analysis for Thermo Power for the calendar year 1999 through the end
of calendar year 2003. Invemed discounted back to March 31, 1999 and assumed all
cash flows were received at the end of their respective calendar years. Invemed
estimated the present value of the free cash flows of Thermo Power set forth in
these projections for the calendar year 1999 through the end of calendar year
2003 using discount rates ranging from 9.0% to 12.0%. Invemed also calculated
estimated terminal values for Thermo Power (as of December 31, 2003) by applying
multiples ranging from 5.5x to 7.5x to Thermo Power's estimated calendar year
2003 EBITDA. The range of terminal values was then discounted to present value
using discount rates ranging from 9.0% to 12.0%. The implied range of values for
Thermo Power Common Stock using these values was approximately $9.21 to $17.38.
The results of the discounted cash flow analysis are highly dependent upon the
numerous assumptions that must be made, including cash flow estimates, growth
rates and discount rates.

MINORITY INTEREST BUY-OUT ANALYSIS

Invemed reviewed the premiums paid in thirteen completed and two pending
minority interest acquisitions by majority interest holders and one offer by a
majority interest holder to engage in such an acquisition since May 1990 and
with transaction values less than $50 million. The completed transactions were:
(i) Norfolk & Western Railway Co./ Wabash Railroad Co.; (ii) Pennzoil
Acquisition Corp./ Jiffy Lube

28
<PAGE>

International, Inc.; (iii) Adia SA/ Adia Services Inc; (iv) Kansas City
Southern/ DST Systems, Inc.; (v) WMX Technologies/ Rust International Inc.
(Chemical Waste Management); (vi) The Charter Company/ Spelling Entertainment;
(vii) Hilton Hotels Corp./ Bally's Grand Inc.; (viii) Reliance Group Holdings
Inc./ Frank B. Hall & Co., Inc; (ix) World Access Inc./ NACT Telecomm; (x)
Management led Investor Group/ Seaman Furniture Co.; (xi) Paramount
Communications Inc./ TVX Broadcast Group; (xii) Air &Water Tech. Corp./ Metcalf
& Eddy Companies; and (xiii) Caesar World, Inc./ Caesar New Jersey, Inc. The
pending transactions were: (i) Lab Holdings Inc./ LabOne, Inc.; and (ii)
UtiliCorp United Inc./ Aquila Gas Pipeline Corporation. The offer was an offer
by a management-led investor group to acquire Syms Corp.

Invemed reviewed the premiums paid based on the closing price of the
target's shares at one day, one week and one month prior to the announcement of
the respective transactions. The premiums calculated and the implied per share
equity values for Thermo Power prior to the April 29, 1999 announcement
regarding Thermo Electron's negotiations with Thermo Power were as follows:

<TABLE>
<CAPTION>
AVERAGE PER SHARE PREMIUM
IN MINORITY INTEREST IMPLIED SHARE VALUE
TIME BUY-OUT TRANSACTIONS OF THERMO POWER*
- ----------------------------------------------------------------- ----------------------------- -------------------
<S> <C> <C>
One Day prior to Announcement.................................... 20.7% $ 14.71
One Week prior to Announcement................................... 22.2% $ 10.92
One Month prior to Announcement.................................. 29.2% $ 13.24
</TABLE>

- ------------------------

* Assumes announcement of $12.00 proposed share price was made April 29, 1999.
The closing price of the Company's Common Stock on August 11, 1998, the last
trading day before Thermo Electron first publicly announced a proposal to
acquire the minority stockholder interest in Thermo Power, was $8 1/8.

While the summary set forth above contains the material analyses performed
by Invemed, it does not purport to be a complete description of those analyses.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Invemed
believes that the summary set forth above and its analyses must be considered as
a whole and that reviewing portions thereof, without considering all of its
analyses, could create an incomplete view of the processes underlying its
analyses and opinion. Invemed based its analyses on assumptions that it deemed
reasonable, including assumptions concerning general business and economic
conditions and industry-specific factors.

As described above, certain of the analyses performed by Invemed relied on
forecasts of future financial performance provided by the management of Thermo
Power. Analyses based on forecasts of future results are not necessarily
indicative of actual future results, and actual future results may be
significantly more or less favorable than suggested by those analyses.
Accordingly, because forecasts are inherently subject to substantial
uncertainty, none of Thermo Power, Invemed or any other person can provide any
assurance that future results will not be materially different from those
forecast. The other principal assumptions upon which Invemed based its analyses
are set forth above under the description of each of the analyses. Invemed's
analyses are not necessarily indicative of actual values, trading values or
actual future results that might be achieved, all of which may be higher or
lower than those indicated. None of the transactions or companies used in
Invemed's comparable company, selected acquisition transactions or minority
interest buy-out analyses is identical to Thermo Power or to the proposed
transaction. Accordingly, the analysis of those matters by Invemed necessarily
involved complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
public trading values of Thermo Power. Mathematical analysis (such as
determining the range or average) is not in itself a meaningful method of using
comparable transaction data or comparable company data.

Pursuant to the terms of Invemed's engagement letter with Thermo Power,
Thermo Power paid Invemed a transaction fee of $405,000 upon delivery of
Invemed's opinion. In addition, Thermo Power

29
<PAGE>

agreed to reimburse Invemed for its reasonable out-of-pocket expenses, including
the fees and disbursements of its counsel, arising in connection with its
engagement, and to indemnify Invemed, to the fullest extent permitted by law,
against certain liabilities relating to or arising out of its engagement, except
for liabilities found to have resulted primarily or directly from the gross
negligence, willful misconduct or bad faith of Invemed.

Invemed and its affiliates regularly engage in negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements, the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for corporate and other
purposes. Invemed has not previously provided financial advisory or financing
services to Thermo Electron or its affiliates. In the ordinary course of
business, Invemed may actively trade the securities of Thermo Electron, as well
as securities of affiliates of Thermo Electron, including Thermo Power, and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in those securities.

PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER

The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of Common Stock. Thermo Electron believes that the acquisition of the
minority stockholder interest in Thermo Power will further the business
interests of the Company. In making this determination, Thermo Electron
considered many factors, including the potential benefits to Thermo Power's
business if it were to become part of a larger business unit. Thermo Electron
also considered the burden that Thermo Power's $160 million borrowing from
Thermo Electron in connection with Thermo Power's acquisition of Peek places on
the Company. If Thermo Power were a private, wholly owned subsidiary of Thermo
Electron, Thermo Electron would have more flexibility to cancel or postpone
payment of all or a part of the borrowing. Thermo Electron also considered the
following factors: (i) the reduction in the amount of public information
available to competitors about Thermo Power's business that would result from
the termination of the Company's obligations under the Commission reporting
requirements; (ii) the elimination of additional burdens on management
associated with public reporting and other tasks resulting from the Company's
public company status; and (iii) the decrease in costs, particularly those
associated with being a public company. Thermo Electron also considered the
relatively low volume of trading in the Common Stock and that the Merger would
result in immediate availability of enhanced liquidity for the Public
Stockholders.

Thermo Electron also considered the advantages and disadvantages of certain
alternatives to acquiring the minority stockholder interest in Thermo Power,
including (i) selling its equity interest in the Company, (ii) having Thermo
Power raise additional capital through a public debt or equity offering and
(iii) leaving Thermo Power as a majority-owned, public subsidiary. The first two
alternatives, that of selling its equity interest and the possibility of Thermo
Power raising additional capital, were briefly considered by Thermo Electron
management, but they were not alternatives that were pursued as reasonable,
given that Thermo Electron did not want to sell its equity interest and Thermo
Electron's belief that an equity public offering was unrealistic at that time.
In addition, given, among other things, the Company's sizeable Peek debt, any
debt offering by the Company at a marketable interest rate likely would have
required a credit guarantee by Thermo Electron and Thermo Electron was not
interested in providing such a guarantee. The advantages to leaving Thermo Power
as a majority-owned, public subsidiary that Thermo Electron considered included
(i) the ability of Thermo Electron to invest the cash that would be required to
buy the minority stockholder interest in Thermo Power in alternative uses and
(ii) maintaining the potential access Thermo Power has to capital in the public
markets as a public company. The disadvantages to leaving Thermo Power as a
majority-owned, public subsidiary that Thermo Electron considered included (i)
the burden on Thermo Power of the Peek debt, (ii) the costs associated with
being a public company and (iii) the public information available to competitors
about Thermo Power's business as result of its filing obligations with the
Commission.

30
<PAGE>

Thermo Electron also considered the number of shares of Common Stock held by
the Public Stockholders, recent trends in the price of the Common Stock and the
relative lack of liquidity for the Common Stock. Thermo Electron reviewed the
net overall cost of the transaction and explored alternative uses for the cash
proposed to be used for this transaction. In addition, Thermo Electron
considered that by acquiring the minority stockholder interest in Thermo Power,
it would advance the goal of its proposed corporate reorganization, announced in
August 1998, to reduce the number of Thermo Electron's majority-owned, public
subsidiaries. After consideration of these various factors and extensive
negotiations with Thermo Power's Special Committee, Thermo Electron decided to
make a proposal to Thermo Power to acquire for cash through a merger all of the
outstanding shares of Common Stock that it did not own at a price of $12.00 per
share. Thermo Electron has proposed to structure the transaction as a cash
merger in order to transfer ownership of the equity interest in the Company in a
single transaction and provide the stockholders other than Thermo Electron with
prompt payment in cash in exchange for their shares. Thermo Electron's decision
to propose a transaction with Thermo Power at this time was due, in part, to the
announcement of its proposed corporate reorganization.

Thermo Electron beneficially owns approximately 78% of the outstanding
Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--Principal Stockholder."

POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER

Thermo Electron considered the recommendation of Thermo Power's Board with
respect to the fairness of the Merger to the Public Stockholders (see "--The
Board's Recommendation"). Thermo Electron adopted the recommendation of the
Board of Directors with respect to the fairness of the Merger to the Public
Stockholders. Based on this recommendation, Thermo Electron believes that the
Merger is both procedurally and substantively fair to the Public Stockholders,
including that the Cash Merger Consideration is fair to the Public Stockholders
from a financial point of view. Thermo Electron is not making any recommendation
as to how the Public Stockholders should vote on the Merger Agreement.

Certain officers and directors of Thermo Electron are also officers and
directors of the Company and have certain interests that are in addition to, or
different from, the interests of the Public Stockholders. See "--Conflicts of
Interest." Thermo Electron considered these potential conflicts of interest, and
based in part thereon, Thermo Electron determined that it would not proceed with
the Merger unless the Special Committee received a fairness opinion from an
investment banking firm and recommended approval of the Merger Agreement to the
Board.

CONFLICTS OF INTEREST

In considering the recommendation of the Board with respect to the Merger,
the Public Stockholders should be aware that certain officers and directors of
Thermo Power have interests in connection with the Merger that present them with
actual or potential conflicts of interest, as summarized below. The Special
Committee and the Board were aware of these interests and considered them among
the other matters described above under "--The Special Committee's
Recommendation" and "--The Board's Recommendation."

Following consummation of the Merger, the current executive officers and
directors of Thermo Power will continue as the initial executive officers and
directors of the Surviving Corporation; however, Thermo Electron intends to
appoint a board of directors comprised solely of members of the Surviving
Corporation's management after the Merger. Officers and directors who own Common
Stock will receive the Cash Merger Consideration on the same terms as all the
other stockholders.

31
<PAGE>
SPECIAL COMMITTEE

As compensation for serving on the Special Committee, which formally met on
ten occasions, either in person or telephonically, from January 1999 through the
date of this Proxy Statement, the Board has authorized that each member of the
Special Committee receive a one-time, special retainer fee of $20,000 and
additional fees of $1,000 for each meeting attended in person and $500 for each
meeting attended telephonically.

Col. Borman and Mr. Setnicka, members of the Special Committee, each hold
options to acquire 1,000 shares of Common Stock. The options have an exercise
price per share equal to $10.33. Under the terms of the Merger Agreement, the
options held by the members of the Special Committee will be treated on the same
terms as all other Thermo Power Stock Options and therefore will be assumed by
Thermo Electron and converted into options to acquire shares of Thermo Electron
Common Stock. See "THE MERGER--Assumption of Thermo Power Stock Options by
Thermo Electron." In addition, Mr. Setnicka owns 1,000 shares of Common Stock
and will receive a payment for his shares of Common Stock in the amount of
$12,000 upon consummation of the Merger.

Mr. Setnicka was a director of ThermoLyte Corporation, a majority-owned
subsidiary of Thermo Power, until his resignation in January 1999 in connection
with a general reorganization of the composition of such board. Col. Borman is a
member of the board of directors of Thermo Instrument Systems Inc., a
majority-owned subsidiary of Thermo Electron ("Thermo Instrument"). See
"MANAGEMENT." As compensation for serving on the Thermo Instrument board, Col.
Borman receives an annual retainer of $8,000 and a fee of $1,000 per meeting for
attending regular meetings of the board of directors and $500 per meeting for
participating in meetings of the board of directors held by means of conference
telephone and for participating in certain meetings of committees of the board
of directors. In addition, Col. Borman has been awarded options to purchase
24,407 shares of common stock of Thermo Instrument or its subsidiaries.

THE THERMO POWER DIRECTORS AND EXECUTIVE OFFICERS

The members of the Board of Directors (other than the members of the Special
Committee) and the executive officers of Thermo Power own in the aggregate
79,300 shares of Common Stock and will receive a payment for their shares of
Common Stock in the aggregate amount of $951,600 upon consummation of the
Merger. In addition, such Board members and executive officers hold options to
acquire an aggregate of 322,700 shares of Common Stock, with exercise prices
ranging from $6.65 to $11.63, which will be assumed by Thermo Electron and
converted into options to acquire shares of Thermo Electron Common Stock on the
same terms as all other Thermo Power Stock Options. See "THE MERGER--Assumption
of Thermo Power Stock Options by Thermo Electron." Such Board members and
executive officers also beneficially own shares of common stock of Thermo
Electron. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--Management," for information regarding beneficial ownership by the
Board and executive officers of Common Stock and common stock of Thermo
Electron.

Further, certain members of the Board and certain executive officers hold
directorships or officer positions with Thermo Electron. Mr. Melas-Kyriazi, the
chief financial officer of the Company, is also a vice president and the chief
financial officer of Thermo Electron. Mr. Kelleher, the chief accounting officer
of the Company, is also senior vice president, finance and administration, and
the chief accounting officer of Thermo Electron. Mr. Armstrong, a director of
the Company, is employed part-time by Thermo Electron. Mr. Crisp, a director of
the Company, is also a director of Thermo Electron. Mr. Hatsopoulos, a director
of the Company, is also the vice chairman of the board of directors of Thermo
Electron. Mr. Holt, the chairman of the Company's Board of Directors, is also
chief operating officer, energy and environment of Thermo Electron. Mr. Noble, a
director of the Company, was also a director of Thermo Electron until his
retirement from this board in September 1999. For further description of such
positions and of

32
<PAGE>
positions such individuals have with certain other affiliates of Thermo
Electron, see "MANAGEMENT" and the information contained in Appendix D to this
Proxy Statement.

INDEMNIFICATION AND INSURANCE

The Merger Agreement provides that for a period of six years after the
Effective Time, Thermo Electron will, and will cause the Surviving Corporation
to, fulfill and honor in all respects the indemnification obligations of Thermo
Power, pursuant to Thermo Power's Articles of Organization and by-laws, each as
in effect immediately prior to the Effective Time, to those individuals who were
directors, including the members of the Special Committee, and the executive
officers of Thermo Power at the Effective Time. The Surviving Corporation's
Articles of Organization and by-laws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in Thermo Power's Articles of Organization and by-laws and such provisions
will not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would adversely affect the rights of
those individuals who were directors and executive officers of Thermo Power at
the Effective Time, unless such modification is required by law. See "THE
MERGER--Indemnification and Insurance."

In addition, the Merger Agreement provides that Thermo Electron will cause
the Surviving Corporation, either directly or through participation in Thermo
Electron's umbrella policy, to maintain in effect, for a period of six years
after the Effective Time, a directors' and officers' liability insurance policy
covering the Thermo Power executive officers and directors who, at the Effective
Time, were then covered by Thermo Electron's liability insurance policy with
coverage in amount and scope at least as favorable as such officer's and
director's existing coverage. However, in no event will the Surviving
Corporation be required to pay premiums for such insurance in excess of 175% of
premiums currently allocable to and paid by Thermo Power. See "THE
MERGER--Indemnification and Insurance."

The Merger Agreement provides that each of the current and former directors
and officers of the Company is a third party beneficiary with respect to these
provisions of the Merger Agreement and is entitled to enforce covenants made by
Thermo Electron.

CERTAIN EFFECTS OF THE MERGER

As a result of the Merger, Thermo Electron will beneficially own the entire
equity interest in the Company. Thermo Electron will have complete control over
the conduct of the Company's business and will have a 100% interest in the net
book value and net earnings or loss of the Company and any future increases in
the value of the Company. Thermo Electron's ownership of the Company prior to
the transaction contemplated herein was approximately 78%. Upon completion of
this transaction, Thermo Electron's interest in the Company's net book value of
$54.1 million on July 3, 1999, net income of $2.3 million for the year ended
October 3, 1999 and net loss of $10.4 million for the nine months ended July 3,
1999 would increase from approximately 78% of such amounts to approximately 100%
of such amounts. The Public Stockholders of Thermo Power will not have an
opportunity to continue their equity interest in Thermo Power as an ongoing
corporation and therefore will not share in the future earnings and potential
growth of Thermo Power and will no longer bear the risk of any decrease in the
value of the Company. Upon consummation of the Merger, the Common Stock will no
longer be traded on the AMEX, price quotations will no longer be available and
the registration of the Common Stock under the Exchange Act will be terminated.
The termination of registration of the Common Stock under the Exchange Act will
eliminate the requirement to provide information to the Commission and will make
most of the provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
or information statement in connection with stockholders' meetings, no longer
applicable. In addition, Thermo Power will no longer be subject to the
going-private disclosure obligations of Rule 13e-3 promulgated under the
Exchange Act.

33
<PAGE>
The receipt of cash pursuant to the Merger will be a taxable transaction.
See "FEDERAL INCOME TAX CONSEQUENCES."

CONDUCT OF THERMO POWER'S BUSINESS AFTER THE MERGER

Thermo Electron is continuing to evaluate Thermo Power's business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel and discuss what changes, if any, will be desirable.
For the foreseeable future, Thermo Electron expects that the day-to-day business
and operations of Thermo Power will be conducted substantially as they are
currently being conducted by Thermo Power. On May 24, 1999, Thermo Power
announced its intention to sell its ThermoLyte Corporation subsidiary and a
write-down of its assets at Peek's sales and service subsidiaries located in
Malaysia and Croatia due to business conditions in those regions. In addition,
the Company plans to terminate employees and abandon excess facilities at
certain other Peek subsidiaries. In late May 1999, Thermo Power determined that
it would consider the sale of its NuTemp, Inc. subsidiary ("NuTemp") and its
Tecogen and FES divisions. The Company had received an unsolicited offer to
purchase its FES division in September 1998, but did not pursue the offer at
that time due to its proposed participation in the corporate reorganization of
Thermo Electron. Such a sale, at the net price of $48 million that was proposed,
prior to confirmation of and negotiation of any offer from Thermo Electron to
acquire the minority stockholder interest in the Company, would have had a
dilutive effect on the Company's earnings per share, excluding the one-time gain
from such sale, since the proceeds from any such sale would have most likely
been applied against repayment of the Peek debt owed to Thermo Electron or would
have been invested at a lower rate of return than could have been achieved if
FES had not been sold. Though the Company continues to evaluate this offer, such
a sale at the proposed price would have the same dilutive effect on the
Company's earnings per share described above, whether or not the Company pursues
such sale prior to the consummation of the Merger. In addition, following its
May 24, 1999 announcement, the Company has had preliminary discussions with
potential buyers for certain of the other businesses it is considering for sale,
but the Company currently has no commitment or agreement for any such sale.
Thermo Electron intends to carry out Thermo Power's intention with respect to
these matters to the extent that they are not completed prior to the
consummation of the Merger. Thermo Electron does not currently intend to dispose
of any other material assets of Thermo Power, but it may, in the future,
reconsider its position as it continues to evaluate the Company. Additionally,
Thermo Electron does not currently contemplate any material change in the
composition of Thermo Power's current management except that Thermo Electron
intends to appoint a board of directors comprised of members of the Surviving
Corporation's management after the Merger.

CONDUCT OF THERMO POWER'S BUSINESS IF THE MERGER IS NOT CONSUMMATED

If the Merger is not consummated, the Board of Directors expects that the
Company's current management will continue to operate the Company's business
substantially as currently operated, except with respect to the businesses that
may be sold. See "--Conduct of Thermo Power's Business After the Merger." No
other alternatives are currently being considered.

34
<PAGE>
THE SPECIAL MEETING

PROXY SOLICITATION

This Proxy Statement is being delivered to Thermo Power's stockholders in
connection with the solicitation by the Board of proxies to be voted at the
Special Meeting to be held on Thursday, October 28, 1999 at 10:00 a.m., local
time, at the executive offices of Thermo Electron, 81 Wyman Street, Waltham,
Massachusetts 02454. All expenses incurred in connection with solicitation of
the enclosed proxy will be paid by the Company. Officers, directors and regular
employees of the Company, who will receive no additional compensation for their
services, may solicit proxies by telephone or personal call. The Company has
requested brokers and nominees who hold stock in their names to furnish this
proxy material to their customers and the Company will reimburse such brokers
and nominees for their related out-of-pocket expenses. This Proxy Statement and
the accompanying Proxy Card are first being mailed to stockholders of the
Company on or about September 29, 1999.

RECORD DATE AND QUORUM REQUIREMENT

The close of business on September 27, 1999 is the Record Date for the
determination of stockholders entitled to notice of, and to vote at, the Special
Meeting. Each holder of record of Common Stock at the close of business on the
Record Date is entitled to one vote for each share then held on each matter
submitted to a vote of stockholders. At the close of business on the Record
Date, there were 11,912,764 shares of Common Stock issued and outstanding held
by 331 holders of record and by approximately 925 persons or entities holding in
nominee name.

The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business. If you hold your shares of Common Stock through a broker, bank or
other nominee, generally the nominee may only vote the Common Stock that it
holds for you in accordance with your instructions. However, if it has not
timely received your instructions, the nominee may vote on certain matters for
which it has discretionary voting authority. Brokers generally will not have
discretionary voting authority with respect to the proposal to approve the
Merger Agreement. If a nominee cannot vote on a particular matter because it
does not have discretionary voting authority, this is a "broker non-vote" on
that matter. Broker non-votes are also counted as present or represented at the
Special Meeting for purposes of determining whether a quorum exists.

VOTING PROCEDURES

Under Massachusetts law, holders of two-thirds of the outstanding shares of
Common Stock entitled to vote at the Special Meeting must vote to approve the
Merger Agreement. The Merger Agreement is attached to this Proxy Statement as
Appendix A. For the purposes of the vote required under Massachusetts law, a
failure to vote, a vote to abstain and a broker non-vote will each have the same
legal effect as a vote cast against approval of the Merger Agreement. Thermo
Electron, which owns approximately 78% of the outstanding Common Stock, owns
enough shares of Common Stock to vote to approve the Merger Agreement without
the vote of the Public Stockholders and intends to vote its shares in favor of
the Merger Agreement. In addition, the Company's executive officers and
directors have expressed their intention to vote to approve the Merger
Agreement.

If a properly executed Proxy Card is submitted and no instructions are
given, the shares of Common Stock represented by that proxy will be voted "FOR"
approval of the Merger Agreement.

Under Massachusetts law, holders of Common Stock who comply with certain
notice requirements, do not vote in favor of the Merger Agreement and comply
with certain other procedures will have the right to dissent and to be paid cash
for the fair value of their shares as finally determined in accordance with the

35
<PAGE>
procedures under Massachusetts law. The fair value, as finally determined, may
be more or less than the consideration to be received by other stockholders of
Thermo Power under the terms of the Merger Agreement. Failure to follow such
procedures under Massachusetts law precisely will result in the loss of
Dissenters' Rights. See "RIGHTS OF DISSENTING STOCKHOLDERS."

VOTING AND REVOCATION OF PROXIES

A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Clerk of Thermo Power an instrument
revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii)
voting in person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Clerk of Thermo
Power will be voted in accordance with the instructions indicated thereon, and
if no instructions are indicated, will be voted to approve the Merger Agreement.
The shares represented by the accompanying Proxy Card and entitled to vote will
be voted if the Proxy Card is properly signed and received by the Clerk of the
Company prior to the Special Meeting.

EFFECTIVE TIME

The Merger will be effective as soon as practicable following stockholder
approval of the Merger Agreement and upon the submission of the Articles of
Merger to the Secretary of State of the Commonwealth of Massachusetts. The
Effective Time is currently expected to occur as soon as practicable after the
Special Meeting, subject to approval of the Merger Agreement at the Special
Meeting and satisfaction or waiver of the terms and conditions set forth in the
Merger Agreement. See "THE MERGER-- Conditions."

36
<PAGE>
THE MERGER

The Merger Agreement provides that the Merger Sub, a newly-formed
Massachusetts corporation that is a wholly owned subsidiary of Thermo Electron,
will be merged with and into Thermo Power, and that following the Merger, the
separate existence of the Merger Sub will cease and Thermo Power will continue
as the Surviving Corporation.

The terms of and conditions to the Merger are contained in the Merger
Agreement, which is attached as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger, and the summary description of all material terms of the Merger
Agreement that is contained in this section, are subject to and qualified in
their entirety by reference to the more complete information set forth in the
Merger Agreement.

CONVERSION OF SECURITIES

At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held by stockholders
exercising Dissenters' Rights, shares held in treasury by Thermo Power and
shares held by Thermo Electron) will, by virtue of the Merger, be automatically
canceled and converted into the right to receive the Cash Merger Consideration.
Each holder of a stock certificate formerly representing shares of Common Stock
(other than shares held by stockholders exercising Dissenters' Rights, shares
held in treasury by Thermo Power and shares held by Thermo Electron) will after
the Effective Time cease to have any rights with respect to such shares other
than the right to receive the Cash Merger Consideration for such shares upon
surrender of the stock certificate.

No interest will be paid or accrued on the amount payable upon the surrender
of any stock certificate. Payment to be made to a person other than the
registered holder of the stock certificate surrendered is conditioned upon the
stock certificate so surrendered being properly endorsed and otherwise in proper
form for transfer, as determined by Thermo Electron or the Payment Agent.
Further, the person requesting such payment will be required to pay any transfer
or other taxes required by reason of the payment to a person other than the
registered holder of the stock certificate surrendered or establish to the
satisfaction of Thermo Electron or the Payment Agent that such tax has been paid
or is not payable. Six months following the Effective Time, Thermo Electron may
require the Payment Agent to deliver to it any funds (including any interest
received with respect thereto) made available to the Payment Agent which have
not been disbursed to holders of stock certificates formerly representing shares
outstanding prior to the Effective Time. After such time holders of Thermo Power
stock certificates will be entitled to look to Thermo Electron only as general
creditors with respect to cash payable upon due surrender of their stock
certificates. Notwithstanding the foregoing, neither the Payment Agent nor any
party to the Merger Agreement will be liable to any holder of stock certificates
formerly representing shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.

At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of common stock, $.01 par value, of
the Merger Sub that is issued and outstanding immediately prior to the Effective
Time will, by virtue of the Merger, be converted into one share of common stock,
$.01 par value, of the Surviving Corporation. Each share of Common Stock issued
and outstanding immediately prior to the Merger held by Thermo Electron, as well
as each share of Common Stock held in treasury by Thermo Power, will, at the
Effective Time, cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist. Shares of Common Stock held by
persons properly exercising Dissenters' Rights will not be converted into the
Cash Merger Consideration in the Merger and after the Effective Time will
represent only the right to receive such consideration as is determined to be
due such dissenting stockholder pursuant to Sections 85 through 98, inclusive,
of the MBCL. See "RIGHTS OF DISSENTING STOCKHOLDERS."

37
<PAGE>
ASSUMPTION OF THERMO POWER STOCK OPTIONS BY THERMO ELECTRON

Thermo Power has, from time to time, issued options to acquire Common Stock
pursuant to its Directors Stock Option Plan, Equity Incentive Plan, Employees'
Equity Incentive Plan, Incentive Stock Option Plan and Nonqualified Stock Option
Plan, each as amended (the "Thermo Power Stock Option Plans"). At the Effective
Time, each outstanding Thermo Power Stock Option under the Thermo Power Stock
Option Plans, whether or not exercisable, will be assumed by Thermo Electron.
Each Thermo Power Stock Option so assumed by Thermo Electron will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable Thermo Power Stock Option Plan immediately prior to the Effective
Time, except that (i) each Thermo Power Stock Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of whole
shares of Thermo Electron Common Stock equal to the product of the number of
shares of Common Stock that were issuable upon exercise of such Thermo Power
Stock Option immediately prior to the Effective Time multiplied by the Exchange
Ratio (as defined below), rounded down to the nearest whole number of shares of
Thermo Electron Common Stock, and (ii) the per share exercise price for the
shares of Thermo Electron Common Stock issuable upon exercise of such assumed
Thermo Power Stock Option will be equal to the quotient determined by dividing
the exercise price per share of Common Stock at which such Thermo Power Stock
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. The Exchange Ratio is a fraction,
the numerator of which is the Cash Merger Consideration and the denominator of
which is the closing price of Thermo Electron Common Stock on the day
immediately preceding the Effective Date as reported by the NYSE.

At the Effective Time, each outstanding option to purchase shares of Common
Stock (each a "Thermo Power ESPP Stock Option") under the Thermo Power
Employees' Stock Purchase Plan (the "Thermo Power ESPP") will also be assumed by
Thermo Electron. Each Thermo Power ESPP Stock Option so assumed by Thermo
Electron will continue to have, and be subject to, the same terms and conditions
as set forth in the Thermo Power ESPP immediately prior to the Effective Time
except that (i) the assumed option shall be exercisable for shares of Thermo
Electron Common Stock; (ii) the purchase price per share of Thermo Electron
Common Stock shall be the lower of (a) 85% of (x) the per share market value of
the Common Stock on the grant date of the option divided by (y) the Exchange
Ratio, with the resulting price rounded up to the nearest whole cent, and (b)
85% of the market value of Thermo Electron Common Stock as of the exercise date
of the option; and (iii) the $25,000 limit under Section 9.2(i) of the Thermo
Power ESPP shall be applied by taking into account Thermo Electron's assumption
of the Thermo Power ESPP Stock Options in accordance with Section 423(b)(8) of
the Internal Revenue Code of 1986, as amended, and applicable regulations.

DEFERRED COMPENSATION PLAN FOR DIRECTORS

At the Effective Time, the Thermo Power deferred compensation plan for
directors (the "Deferred Compensation Plan") will terminate, and Thermo Power
will distribute to each participant the sum in cash equal to the balance of
stock units credited to his deferred compensation account under the Deferred
Compensation Plan as of the Effective Time multiplied by the Cash Merger
Consideration.

ARTICLES OF ORGANIZATION AND BY-LAWS

The Articles of Organization and by-laws of the Surviving Corporation shall
be identical to the Articles of Organization and by-laws of the Merger Sub
immediately prior to the Effective Time, except that the Surviving Corporation
shall be identified as "Thermo Power Corporation."

38
<PAGE>
TRANSFER OF SHARES

Shares of Common Stock will not be transferred on the stock transfer books
at or after the Effective Time. If certificates representing such shares are
presented to Thermo Power after the Effective Time, such shares will be canceled
and exchanged for the Cash Merger Consideration.

CONDITIONS

Each party's obligation to effect the Merger is subject to the satisfaction
of each of the following conditions at or prior to the Effective Time:

(i) the Merger Agreement shall have been approved by the affirmative vote of
the holders of two-thirds of the outstanding shares of Common Stock
entitled to vote thereon in accordance with the MBCL;

(ii) no court, administrative agency or commission or other governmental or
regulatory body or authority or instrumentality shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent), which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of
the Merger; and

(iii) Invemed shall not have withdrawn or materially modified its opinion
that the Cash Merger Consideration is fair to the Public Stockholders
from a financial point of view.

The obligations of Thermo Power to effect the Merger are subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time, unless waived by Thermo Power (upon approval of the Special Committee):

(i) the representations and warranties of the Merger Sub and Thermo Electron
in the Merger Agreement shall be true and correct on and as of the
Effective Time, except as otherwise permitted by the Merger Agreement;

(ii) the Merger Sub and Thermo Electron shall have performed or complied in
all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by them at or prior
to the Effective Time; and

(iii) Thermo Power shall have received a certificate of the President, Chief
Executive Officer or Chief Operating Officer of Thermo Electron
certifying to the effect of above clauses (i) and (ii).

The obligations of the Merger Sub and Thermo Electron to effect the Merger
are subject to the satisfaction of each of the following conditions at or prior
to the Effective Time, unless waived by Thermo Electron:

(i) the representations and warranties of Thermo Power in the Merger
Agreement shall be true and correct on and as of the Effective Time,
except as otherwise permitted by the Merger Agreement;

(ii) Thermo Power shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Effective Time;
and

(iii) Thermo Electron shall have received a certificate of the President,
Chief Executive Officer or Vice President of Thermo Power certifying to
the effect of above clauses (i) and (ii).

REPRESENTATIONS AND WARRANTIES

Thermo Power has made representations and warranties in the Merger Agreement
regarding, among other things, its organization and good standing, its authority
to enter into the transaction, its capitalization, requisite governmental and
other consents and approvals, the accuracy of information supplied by

39
<PAGE>
Thermo Power for inclusion in forms and reports required to be filed with the
Commission, and its receipt of a fairness opinion from Invemed.

Thermo Electron and the Merger Sub have made representations and warranties
in the Merger Agreement regarding, among other things, their organization and
good standing, the capitalization of the Merger Sub, their authority to enter
the transaction, the adequacy of Thermo Electron's financial resources to pay
the Cash Merger Consideration, the accuracy of information supplied by Thermo
Electron for inclusion in forms and reports required to be filed with the
Commission, and requisite governmental and other consents and approvals.

The representations and warranties of the parties in the Merger Agreement
will expire upon consummation of the Merger. After such expiration, none of the
parties to the Merger Agreement or their respective officers, directors or
principals will have any liability for any such representations or warranties.

COVENANTS

In the Merger Agreement, Thermo Power has agreed that during the period from
the date of the Merger Agreement and continuing until the earlier of termination
of the Merger Agreement or the Effective Time, Thermo Power will carry on its
business in the usual, regular and ordinary course, substantially consistent
with past practice and will not, without the prior consent of Thermo Electron,
or unless otherwise permitted by the Merger Agreement:

(i) waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant or director stock plans
or authorize cash payments in exchange for any options granted under any
of such plans;

(ii) enter into any material partnership arrangements, joint development
agreements or strategic alliances;

(iii) grant any severance or termination pay to any officer or employee
except payments in amounts consistent with past practices or pursuant
to written agreements outstanding or existing policies, or adopt any
new severance plan;

(iv) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;

(v) issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of its capital stock or any securities convertible
into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other agreements
or commitments of any character obligating it to issue any such shares
or convertible securities, other than the issuance of shares of Common
Stock pursuant to the exercise of stock options outstanding as of the
date of the Merger Agreement;

(vi) cause, permit or propose any amendments to its Articles of Organization
or by-laws;

(vii) acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any other business or any corporation,
partnership interest, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets
or enter into any joint ventures, strategic partnerships or alliances;

(viii) sell, lease, license, encumber or otherwise dispose of any properties
or assets that are material, individually or in the aggregate, to the
business of Thermo Power;

40
<PAGE>
(ix) incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or guarantee any debt
securities of others;

(x) adopt or amend any employee benefit or stock purchase or option plan, or
enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or
wage rates of its officers or employees, except increases in amounts
consistent with past practice;

(xi) pay, discharge or satisfy any claim, liability or obligation, other
than the payment, discharge or satisfaction in the ordinary course of
business;

(xii) make any grant of exclusive rights to any third party; or

(xiii) agree in writing or otherwise to take any of the actions described
above.

INDEMNIFICATION AND INSURANCE

The Merger Agreement provides that for a period of six years after the
Effective Time, Thermo Electron will, and will cause the Surviving Corporation
to, fulfill and honor in all respects the indemnification obligations of Thermo
Power, pursuant to Thermo Power's Articles of Organization and by-laws, each as
in effect immediately prior to the Effective Time, to those individuals who were
directors, including the members of the Special Committee, and the executive
officers of Thermo Power at the Effective Time. The Surviving Corporation's
Articles of Organization and by-laws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in Thermo Power's Articles of Organization and by-laws, and such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights of those individuals who were directors and executive officers of Thermo
Power at the Effective Time, unless such modification is required by law.

In addition, Thermo Electron will cause the Surviving Corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for a period of six years after the Effective Time, a
directors' and officers' liability insurance policy covering Thermo Power
executive officers and directors who, at the Effective Time, were then covered
by Thermo Electron's liability insurance policy, with coverage in amount and
scope at least as favorable as such officer's and director's existing coverage.
However, in no event will the Surviving Corporation be required to pay premiums
for such insurance in excess of 175% of premiums currently allocable to and
payable by Thermo Power.

Each of the current and former directors and officers of Thermo Power is a
third party beneficiary of these sections of the Merger Agreement and is
entitled to enforce the covenants made by Thermo Electron.

COMPETING OFFERS

41
<PAGE>
TERMINATION, AMENDMENT AND WAIVER

Either Thermo Power, with the approval of the Special Committee, or Thermo
Electron may terminate the Merger Agreement prior to the Effective Time, whether
before or after approval of the Merger Agreement by the stockholders of Thermo
Power, if (i) the Merger has not been consummated by October 31, 1999, unless
such party's action or inaction constitutes a breach of the Merger Agreement and
has been a principal cause of or resulted in the failure of the Merger to be
consummated, (ii) a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission issues an order, decree or ruling or
takes any other action enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or action is final and nonappealable or
(iii) approval of the stockholders of Thermo Power necessary to consummate the
Merger has not been obtained, unless such party's action or inaction constitutes
a breach of the Merger Agreement and has been the principal cause of or resulted
in the failure to obtain the requisite stockholder approval to consummate the
Merger.

Thermo Power, with approval of the Special Committee, may terminate the
Merger Agreement prior to the Effective Time, whether before or after approval
of the Merger Agreement by the stockholders of Thermo Power, if (i) Thermo
Power's Board of Directors determines in good faith after consultation with
outside counsel that the Board's fiduciary duties under applicable law require
it to do so (including, without limitation, to accept a proposal that in the
reasonable good faith judgment of the Special Committee is financially more
favorable to the Public Stockholders than the terms of the Merger), or (ii)
Thermo Electron breaches any representation, warranty, covenant or agreement and
fails to cure such breach within ten business days after written notice of such
breach from Thermo Power.

Subject to the provisions of applicable law, the Merger Agreement may be
amended by the parties thereto at any time by written agreement of the parties;
provided, however, that Thermo Power may not amend the Merger Agreement without
the approval of the Special Committee.

SOURCE OF FUNDS

The aggregate cash consideration payable in the Merger is approximately
$31.2 million. Thermo Electron intends to finance the Merger entirely from cash
on hand.

42
<PAGE>
EXPENSES

The parties have agreed to pay their own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby. Assuming
the Merger is consummated, the estimated costs and fees in connection with the
Merger and the related transactions, which will be paid by Thermo Power are as
follows:

<TABLE>
<CAPTION>
COST OR FEE ESTIMATED AMOUNT
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Financial advisory fees........................................................................ $ 415,000
Legal fees..................................................................................... 115,000
Accounting fees................................................................................ 15,000
Special Committee fees......................................................................... 55,000
Printing and mailing fees...................................................................... 150,000
Commission filing fees......................................................................... 6,186
Other regulatory filing fees................................................................... 5,000
Miscellaneous.................................................................................. 53,814
--------
$ 815,000
--------
--------
</TABLE>

See "SPECIAL FACTORS--Opinion of Financial Advisor" for a description of the
fees to be paid to Invemed in connection with its engagement. For a description
of certain fees payable to the members of the Special Committee, see "SPECIAL
FACTORS--Conflicts of Interest."

ACCOUNTING TREATMENT

The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.

REGULATORY APPROVALS

No federal or state regulatory approvals are required to be obtained that
have not already been obtained, nor any regulatory requirements complied with,
in connection with the consummation of the Merger by any party to the Merger
Agreement, except for (i) the requirements of the MBCL in connection with
stockholder approvals and consummation of the Merger and (ii) the requirements
of the federal securities laws.

RIGHTS OF DISSENTING STOCKHOLDERS

Pursuant to the MBCL, Thermo Power stockholders of record have the right to
object to the Merger and, if the Merger is consummated, to be paid the fair
value of their shares of Thermo Power Common Stock determined as of the day
preceding the date of the vote of the stockholders approving the Merger, without
taking into account any element of value arising from the expectation or
accomplishment of the Merger ("Dissenters' Rights"). Thermo Power and any
stockholders desiring to exercise such Dissenters' Rights will have the
respective rights and duties, and must follow the procedures, set forth in
Sections 85 through 98, inclusive, of the MBCL in order to perfect such rights.
A brief summary of Sections 85 through 98, inclusive, of the MBCL is set forth
below. The following summary does not purport to be a complete statement of the
procedures to be followed by stockholders desiring to exercise their appraisal
rights and is qualified in its entirety by express reference to Sections 85
through 98, inclusive, of the MBCL, the full text of which is included as
Appendix C to this Proxy Statement. STOCKHOLDERS ARE URGED TO READ APPENDIX C IN
ITS ENTIRETY SINCE FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN MAY
RESULT IN THE LOSS OF APPRAISAL RIGHTS.

To exercise appraisal rights under Massachusetts law, a stockholder must (i)
deliver to Thermo Power, before the stockholder vote on the Merger Agreement, a
written objection to the Merger Agreement and

43
<PAGE>
the Merger stating that such stockholder intends to demand payment for his
shares through the exercise of his statutory appraisal rights, (ii) not vote in
favor of or consent to the approval of the Merger Agreement and (iii) within
twenty days after the date of mailing to such stockholder of a written notice
that the Merger has become effective, make written demand upon Thermo Power for
payment of his shares and an appraisal of the value thereof. The notice
described in (iii) above is to be mailed by registered or certified mail by
Thermo Power within ten days of the Effective Time to all dissenting
stockholders who have complied with the requirements set forth in (i) and (ii)
above. A stockholder who fails to satisfy all of the conditions set forth above
will acquire no right to payment for such stockholder's shares under the MBCL
other than the Cash Merger Consideration as described in more detail under "THE
MERGER-- Conversion of Securities." Signed proxies returned to Thermo Power but
left blank will be voted for the proposed transaction; therefore in order to be
assured that shares are not voted in favor of the Merger Agreement, a
stockholder must either vote in person or by proxy against the Merger Agreement
or abstain from voting. Failure to vote against the Merger Agreement will not
constitute a waiver of appraisal rights, but voting against the Merger Agreement
will not by itself satisfy the obligations of a stockholder described in clauses
(i) and (iii) above. The written objection described in clause (i) above must be
sent to Thermo Power Corporation, c/o Thermo Electron Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454, Attention: Sandra L.
Lambert, Clerk.

If, following the Merger, a stockholder perfects a demand for payment of his
shares as provided above, and if Thermo Power and such dissenting stockholder
are able to reach agreement on the fair value of the shares, Thermo Power will
pay to the dissenting stockholder the fair value of such shares of Common Stock
within thirty days after the expiration of the period during which the demand
may be made. If within the thirty day period the parties fail to agree as to the
fair value of such shares, either Thermo Power or the dissenting stockholder may
have the fair value of the stock of all dissenting stockholders determined by
judicial proceedings by filing a bill in equity in the Massachusetts Superior
Court for Middlesex County within four months after the thirty day period
expires. If (i) no suit is filed within four months to determine the value of
the stock, (ii) any such suit is dismissed as to that stockholder or (iii) the
stockholder withdraws his objection in writing with the written approval of
Thermo Power, the stockholder will have only the rights of a nondissenting
stockholder to receive the Cash Merger Consideration, in accordance with the
Merger Agreement, as described in more detail under "THE MERGER-- Conversion of
Securities." After the Special Meeting, a dissenting stockholder will not be
entitled to notices of meetings of stockholders, to vote at any such meeting or
to receive dividends.

Under Massachusetts statutory law, the enforcement by a dissenting
stockholder of such stockholder's right to receive payment for his shares in the
manner provided by Sections 85 through 98, inclusive, of the MBCL is stated to
be the exclusive remedy of a stockholder objecting to the Merger Agreement,
except upon the grounds that consummation of the Merger will be or is illegal or
fraudulent as to that stockholder. The Massachusetts Supreme Judicial Court,
however, has held that dissenting stockholders are not limited to the statutory
remedy of judicial appraisal in cases where violations of fiduciary duty are
found.

Stockholders who receive cash for their shares of Thermo Power stock upon
exercise of Dissenters' Rights will realize taxable gain or loss. See "FEDERAL
INCOME TAX CONSEQUENCES."

44
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material federal income tax
considerations relevant to the Merger. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the holders of Common Stock as described herein. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States and
holders who acquired their stock through the exercise of an employee stock
option or otherwise as compensation. In addition, the following discussion does
not include a discussion of any state, local or foreign tax consequences that
may result from the Merger.

THIS TAX DISCUSSION IS BASED UPON PRESENT UNITED STATES FEDERAL INCOME TAX
LAW. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.

For federal income tax purposes, the receipt of the Cash Merger
Consideration in the Merger by holders of Common Stock will be treated as a
taxable sale of the holder's Common Stock. Each holder's gain or loss per share
will equal the difference between $12.00 and the holder's basis in the share of
Common Stock. Such gain or loss generally will be a capital gain or loss
provided that the holder has held the Common Stock as a capital asset. Capital
gain or loss will be treated as long-term capital gain or loss if the holder has
held the Common Stock for more than one year, and will be treated as short-term
capital gain or loss if the holder has held the Common Stock for one year or
less.

A holder of Common Stock may be subject to backup withholding at the rate of
31% with respect to Cash Merger Consideration received pursuant to the Merger,
unless the holder (a) is a corporation or comes within certain other exempt
categories and, when required, adequately demonstrates this fact, or (b)
provides a correct taxpayer identification number ("TIN"), certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. To prevent the
possibility of backup withholding, each holder must provide the Payment Agent
with his or her correct TIN by completing a Form W-9 or Substitute Form W-9 or,
in the case of exempt foreign persons, with certain other information by
completing the appropriate Form W-8 or Substitute Form W-8. A holder of Common
Stock who does not provide the above information may be subject to penalties
imposed by the Internal Revenue Service (the "IRS"), as well as backup
withholding. Any amount withheld under these rules will be creditable against
the holder's federal income tax liability. Thermo Electron (or its agent) will
report to the holders of Common Stock and the IRS the amount of any "reportable
payments," as defined in Section 3406 of the Code, and the amount of tax, if
any, withheld with respect thereto.

Neither the Company nor Thermo Electron will recognize gain or loss for
federal income tax purposes as a result of the Merger.

45
<PAGE>
BUSINESS OF THE COMPANY

OVERVIEW

Thermo Power develops and commercializes intelligent traffic-control systems
and related products, industrial refrigeration equipment and commercial cooling
and cogeneration systems. The Company also conducts research and development in
advanced power and pollution-control technologies, and offers specialty lighting
products. The Company's business is divided into three segments. The Traffic
Control segment develops, manufactures, markets, installs and services equipment
to monitor and regulate traffic flow in cities and towns around the world. The
Industrial Refrigeration Systems segment develops, manufactures, markets,
services and rents industrial refrigeration and commercial cooling equipment.
The Cooling and Cogeneration Systems segment develops, manufactures, markets and
services natural gas cooling and cogeneration systems, and conducts research and
development on applications of thermal energy and pollution control. Through its
majority-owned ThermoLyte Corporation ("ThermoLyte") subsidiary, formed in March
1995, the Company is developing and commercializing various propane-powered
lights, and provides lights for the automotive, sporting goods and marine
markets.

The results of operations of the Company's Engines segment, which consisted
of its Crusader Engines division, have been classified as discontinued
operations in the financial statements included in this Proxy Statement as a
result of the Company's decision to divest this business. In December 1998,
Thermo Power completed the sale of the industrial and marine engine product
lines of its Crusader Engines division to two unrelated third parties. Such
sales represent a complete divestiture of the Engines segment.

Thermo Power was originally incorporated in Massachusetts in June 1985 under
the name Tecogen Inc., as a wholly owned subsidiary of Thermo Electron to
succeed the business of Thermo Electron's Thermal Products Division. In March
1993, the Company's name was changed to Thermo Power Corporation. As of July 3,
1999, Thermo Electron owned approximately 78% of Thermo Power's outstanding
Common Stock.

TRAFFIC CONTROL PRODUCTS AND SYSTEMS

The Company's Peek subsidiary ("Peek"), acquired November 1997, develops,
manufactures, markets, installs and services equipment that monitors and
regulates vehicular traffic flow in cities and towns around the world. Peek
offers hardware products, software and traffic management systems to reduce
roadway congestion, fuel consumption and travel time; improve motorist and
pedestrian safety; collect data; and improve the efficiency and attractiveness
of public transportation. Sales of the Company's traffic control products and
systems generated approximately 62% of the Company's revenues from continuing
operations in fiscal 1998.

HARDWARE PRODUCTS. Hardware products include vehicle detectors, traffic
controllers, conflict monitors, traffic signals, vehicle counters, classifiers,
weigh-in-motion systems and an automated vehicular law enforcement system.
Vehicle detectors determine the presence, speed, size, and direction of travel
of vehicles, and include the Company's VideoTrak-Registered Trademark- video
vehicle tracking and detection system, microwave inductive loop detectors and
electric sensors. Traffic controllers are electronic devices that automatically
control the timing of roadway signals to optimize the flow of traffic, thereby
reducing traffic congestion, fuel consumption and motorist travel time. These
devices also coordinate pedestrian crossing intervals to improve safety. Traffic
controllers are manufactured to meet various worldwide operational and hardware/
software standards. Conflict monitors continually evaluate the functions of
traffic controllers to ensure that, if a traffic controller malfunctions,
conflicting signal indications are not passed on to motorists. Peek manufactures
and markets traffic signals with advanced optical designs for both vehicle
intersections and pedestrian crossways. Vehicle counters and classifiers analyze
the data provided by vehicle detectors in order to determine traffic flow
patterns and vehicle type on roadways for traffic planning. Weigh-in-motion
systems consist of electronic equipment and in-road sensors that determine a
vehicle's weight, classification and speed. Weigh-in-motion systems are used on
highways to guard against premature wear and tear of

46
<PAGE>
pavement from overweight trucks and to protect the integrity of small roads and
bridges. Peek's automated vehicular law enforcement system, the Peek
Guardian-TM-, detects and records digital video images of motorist infractions
such as speeding and red light violations in accordance with local, state or
provincial traffic laws.

TRAFFIC MANAGEMENT SYSTEMS. Peek produces four types of traffic systems:
urban traffic control, motorway management, public transport management and
parking guidance.

Urban Traffic Control (UTC). Peek offers two types of UTC systems: real-time
adaptive control systems and traffic-responsive systems. Real-time adaptive
control systems measure traffic speed, occupancy and flow collected over
specified time periods to optimize traffic signal timing to improve traffic
capacity and overall traffic flow across a city or within a specified region.
Traffic-responsive systems analyze current traffic detector information and
dynamically select optimal intersection signal-timing plans from a set of
patterns that have been generated and reviewed off-line.

Motorway Management. These systems identify when congestion, accidents or
other traffic disruptions occur using traffic detectors, and generate
information for message signs that can be used to broadcast messages imposing
speed restrictions or advising travelers of lane closures and other hazards.
Peek provides systems, predominantly in the Netherlands, that have direct
control over message signs. Peek also offers systems in the United Kingdom that
provide central control over message signs and are controlled by an operator.
The third type of motorway management system is a low-cost, PC-based system,
which directly controls message signs and is sold predominantly in developing
markets.

Public Transport Management. Peek provides a range of public transport
management systems, including intersection priority systems, passenger
information systems, fleet management systems and bus terminal systems.
Intersection priority systems use electronic tags on buses that communicate with
traffic-signal controllers at intersections to ensure that buses are not
delayed. The level of priority can be adjusted based on occupancy levels and
adherence to schedules. Passenger information systems track the position of
buses along a route in order to provide anticipated arrival times to passengers
waiting at stops. Fleet management systems use electronic tags on buses to
monitor the adherence to bus schedules and occupancy levels of buses in order to
monitor the operating performance of the fleet, set vehicle maintenance
schedules, and optimize the size of the fleet to achieve a desired level of
service. Peek also designs and supplies electronic systems to bus terminals to
provide information to waiting passengers and, as a result, to allow the size of
the terminals to be minimized.

Parking Guidance. Peek's parking guidance systems give drivers real-time
information on parking availability in parking areas through the use of traffic
detectors at each space and strategically located variable message signs. These
systems are designed to minimize unnecessary signage, as well as unnecessary
searching and, as a result, minimize the number of vehicles circulating the
parking area.

INDUSTRIAL REFRIGERATION SYSTEMS

The Company's FES division designs, manufactures and services industrial
refrigeration equipment used for cooling, freezing and cold-storage applications
primarily in the food-processing, chemical, petrochemical and pharmaceutical
industries. FES supplies complete industrial refrigeration systems and various
components for these systems. Sales of the Company's industrial refrigeration
equipment generated approximately 31%, 81% and 78% of the Company's revenues
from continuing operations in fiscal 1998, 1997 and 1996, respectively.

FES equipment for food and beverage customers consists primarily of standard
industrial refrigeration products, such as screw-compressor packages,
liquid-refrigerant pump packages, state-of-the-art control systems, plate and
frame heat exchangers, and ASME (American Society of Mechanical Engineers)
pressure vessels. The screw-compressor package, which consists of a screw
compressor, an electric-drive motor, an oil separator, a control panel, and
piping and tubing, constitutes the majority of this equipment.

47
<PAGE>
FES also manufactures screw-compressor packages powered by natural gas engines.
Examples of applications of industrial refrigeration equipment used by food and
beverage processors include the freezing, storing and warehousing of meats,
fish, fruits, prepared meals and vegetables; freezing of fruit juice
concentrates; and controlling process temperatures in brewing and wine-making,
soft drink carbonization, and in dairy applications.

FES supplies custom-designed industrial refrigeration packages to chemical,
petrochemical, pharmaceutical, and other industries for integration into their
plants' refrigeration systems. These higher-cost packages require significant
design engineering and are used in a wide variety of applications, such as
chilling brine that cools chemicals used in the production of penicillin. In
another application of a custom package, FES units are used to chill and
condense toxic effluent gases normally released to flare.

Approximately 83% of the Industrial Refrigeration segment revenues are from
industrial refrigeration packages, of which approximately 60% are standard units
for the food and beverage industry, and approximately 40% are from custom units
for the chemical, petrochemical and pharmaceutical industries. FES refrigeration
packages can be designed for use with any common refrigerant, but the majority
of FES's units operate on ammonia. FES's utilization of ammonia, a
cost-effective and environmentally safe substance compared with conventional
chlorofluorocarbon ("CFC")-based refrigerants, places FES in a leadership
position to target the reduction of CFC systems. The production of CFCs was
phased out in January 1996. Ammonia does not harm the ozone layer, costs much
less than conventional refrigerants and is widely available on a global basis.

The Company's NuTemp subsidiary is a supplier of rental cooling and
industrial refrigeration equipment. The Company also offers custom-made and
remanufactured equipment for sale. NuTemp serves numerous markets with its
equipment, including the commercial heat, ventilating and air conditioning
("HVAC") market, as well as the food-processing, chemical, petrochemical and
pharmaceutical industries. The commercial cooling industry is continuing to come
into compliance with the Montreal Protocol which prohibits the production of CFC
refrigerants effective January 1996. This retrofit process is continuing to
create an increase in the rental market for NuTemp's commercial cooling systems,
which operate on alternative refrigerants, while customers install new
equipment. Its commercial cooling equipment is used primarily in institutions
and commercial buildings, as well as by service contractors. Additionally, one
of NuTemp's key services is responding to emergency cooling situations by
providing large-capacity cooling equipment on short notice. The demand for
NuTemp's equipment is typically highest in the summer period and can be
adversely affected by cool summer weather.

COOLING AND COGENERATION SYSTEMS

The Company develops, manufactures, markets and services preassembled
cooling and cogeneration systems fueled principally by natural gas for sale to a
wide range of commercial, institutional, industrial, and multi-unit residential
users. The Company's Tecochill-Registered Trademark- commercial cooling
equipment includes, as a component, TecoDrive natural gas engines supplied by
the Crusader Engines division. The Company sold the industrial engine product
line, which includes TecoDrive engines, of the Crusader Engines division in
December 1998 and plans to continue purchasing engines from the acquirer of this
business in the future. Sales of the Company's cooling and cogeneration systems
generated approximately 7%, 19% and 22% of the Company's revenues from
continuing operations in fiscal 1998, 1997 and 1996, respectively.

The Company's ThermoLyte subsidiary is developing and commercializing
various propane-powered lighting products. In July 1998, ThermoLyte acquired the
outstanding stock of Optronics, Inc. ("Optronics"). Optronics makes over 400
lighting and associated products, including tail-lights and turn-signal lights
for trailers, portable lights for fishing and hunting, and docking lights, and
serves the automotive, sporting goods, and marine markets. In connection with
restructuring actions commenced during the third quarter of fiscal 1999, the
Company has decided to divest its ThermoLyte subsidiary (See Note 15 to the
Company's Consolidated Financial Statements included elsewhere in this Proxy
Statement).

48
<PAGE>
For financial information about each of the Company's business segments and
geographic areas, see Note 12 to the Company's Consolidated Financial Statements
included elsewhere in this Proxy Statement.

SALES AND MARKETING

The Company markets its traffic control products and systems primarily to
governmental entities worldwide through its direct sales force and distributors.
The Company markets its industrial refrigeration systems to the food-processing,
chemical, petrochemical and pharmaceutical industries worldwide through its
direct sales force and sales representatives. The Company markets its cooling
and cogeneration systems
to commercial, institutional, industrial, and multi-unit residential users
primarily in the United States through its direct sales force and distributors.

PROPERTIES

The location and general character of the Company's principal properties by
industry segment as of July 3, 1999, are as follows:

TRAFFIC CONTROL

The Company owns approximately 101,000 square feet of office, laboratory,
and production space in Florida and the United Kingdom, and leases approximately
292,000 square feet of office, laboratory and production space principally in
California, Florida, the Netherlands, the United Kingdom, Finland, Norway and
Sweden, under leases expiring from fiscal 2001 to 2021.

INDUSTRIAL REFRIGERATION SYSTEMS

The Company owns approximately 158,000 square feet of office and
manufacturing space in Pennsylvania, subject to a mortgage on the property, and
approximately 15,000 square feet of manufacturing space in Texas. The Company
also occupies approximately 172,000 square feet of office and manufacturing
space in Illinois and Louisiana under leases expiring from fiscal 2000 and 2006.

COOLING AND COGENERATION SYSTEMS

The Company owns approximately 65,000 square feet of office and
manufacturing space in Oklahoma. In addition, the Company leases approximately
40,000 square feet of office and laboratory space in Massachusetts under an
agreement providing for the sublease of the facility from Thermo Electron
expiring in 2002, and leases approximately 8,000 square feet of office and
manufacturing space in Maryland under a lease agreement expiring in 1999.

OTHER

The Company's discontinued Engines segment occupied approximately 104,000
square feet of manufacturing, engineering and office space in Michigan under a
lease expiring in 2004. The Company sold the industrial and marine engine
product lines of this division in December 1998. The acquirer of the industrial
engine product line has sublet the facility from the Company through December
1999. Subsequent to the expiration of the sublease, the Company intends to
either renew the sublease with the acquirer or sublet the facility to a third
party, although the Company currently has no such agreement to do so.

49
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL 1999
-------------------------------
FIRST SECOND THIRD
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................... $ 76,261 $ 61,181 $ 68,292
Gross Profit........................................... 21,190 15,883 15,427
Net Income (Loss)...................................... 972 (1,704) (9,644)
Basic and Diluted Earnings (Loss) per Share............ .08 (.14) (.81)
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1998
--------------------------------------------
FIRST(1) SECOND THIRD FOURTH(2)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenues................................................ $ 58,696 $ 62,005 $ 58,345 $ 66,646
Gross Profit............................................ 17,913 16,231 19,020 20,473
Income (Loss) from Continuing Operations................ 1,280 (1,134) 1,350 1,857
Net Income (Loss)....................................... 1,055 (1,288) 1,391 1,178
Basic and Diluted Earnings (Loss) per Share from
Continuing Operations................................. .11 (.10) .11 .16
Basic and Diluted Earnings (Loss) per Share............. .09 (.11) .12 .10
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenues................................................ $ 23,547 $ 21,322 $ 24,919 $ 22,093
Gross Profit............................................ 4,092 4,673 4,976 5,415
Income from Continuing Operations....................... 325 388 633 945
Net Income.............................................. 4 375 716 1,009
Basic and Diluted Earnings per Share from Continuing
Operations............................................ .03 .03 .05 .08
Basic and Diluted Earnings per Share.................... -- .03 .06 .08
</TABLE>

- ------------------------

(1) Reflects the November 1997 acquisition of Peek and borrowings to finance
such acquisition.

(2) Reflects provision for loss on disposal of discontinued operations, net of
tax, of $636,000.

RATIO OF EARNINGS (LOSS) TO FIXED CHARGES

The following table sets forth the historical ratios of earnings (loss) to
fixed charges of the Company and its subsidiaries for the periods indicated. For
purposes of computing the ratios of earnings to fixed charges, "earnings"
represent income from continuing operations before taxes, plus fixed charges,
and "loss" represents loss from continuing operations before taxes, plus fixed
charges. "Fixed charges" for continuing operations consist of interest on
indebtedness and one-third of rental expense, which is deemed to be the interest
component of such rental expense.

<TABLE>
<CAPTION>
FISCAL YEAR(1)
NINE MONTHS ENDED ---------------------------------------------------------
JULY 3, 1999 1998 1997 1996 1995 1994
------------------ --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges..................... N/A 1.72x 10.38x 9.17x 18.13x 15.66x
Ratio of Earnings (Loss) to
Fixed Charges Coverage
Deficiency.................. 11,451 -- -- -- -- --
</TABLE>

- ------------------------

(1) The Company's fiscal years ended on October 3, 1998, September 27, 1997,
September 28, 1996, September 30, 1995, and October 1, 1994.

50
<PAGE>
SELECTED FINANCIAL INFORMATION

The selected financial information presented below as of and for the fiscal
years ended October 3, 1998, and September 27, 1997, and for the fiscal year
ended September 28, 1996, has been derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
in this Proxy Statement. The selected financial information presented below as
of the fiscal year ended September 28, 1996, and as of and for the fiscal years
ended September 30, 1995, and October 1, 1994, has been derived from the
Company's Consolidated Financial Statements, which have been audited by Arthur
Andersen LLP, but have not been included or incorporated by reference herein.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and related notes included elsewhere in this Proxy
Statement. The selected financial information presented below as of and for the
nine months ended July 3, 1999, and July 4, 1998, has not been audited but, in
the opinion of management, includes all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly such information in
accordance with generally accepted accounting principles applied on a consistent
basis. The results of operations for the nine months ended July 3, 1999, are not
necessarily indicative of results for the entire year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------- FISCAL YEAR(1)
JULY 3, JULY 4, ------------------------------------------------------
1999 1998 1998(2) 1997 1996 1995(3) 1994
---------- ---------- ---------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 205,734 $ 179,046 $ 245,692 $ 91,881 $ 93,058 $ 79,113 $ 69,833
---------- ---------- ---------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues......................... 153,234 125,882 172,055 72,725 74,289 58,539 53,187
Selling, general, and administrative
expenses............................... 42,649 37,853 50,801 14,265 13,874 12,963 11,712
Research and development expenses........ 5,622 6,031 7,921 1,929 2,633 2,725 1,528
Restructuring costs...................... 9,614 -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- ---------
211,119 169,766 230,777 88,919 90,796 74,227 66,427
---------- ---------- ---------- --------- --------- --------- ---------
Operating Income (Loss).................... (5,385) 9,280 14,915 2,962 2,262 4,886 3,406
Interest Income............................ 504 1,673 1,930 1,829 1,714 1,919 1,278
Interest Expense........................... (6,492) (6,544) (8,998) (18) (26) (23) (61)
Gain on Sale of Investments, Net........... -- -- 11 53 208 730 582
---------- ---------- ---------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes and Minority
Interest................................. (11,373) 4,409 7,858 4,826 4,158 7,512 5,205
Provision (Benefit) for Income Taxes....... (1,075) 2,568 4,082 2,223 1,772 2,883 2,006
Minority Interest Expense.................. 78 345 423 312 312 182 --
---------- ---------- ---------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations... (10,376) 1,496 3,353 2,291 2,074 4,447 3,199
Income (Loss) From Discontinued
Operations............................... -- (338) (381) (187) (1,189) (259) 49
Provision for Loss on Disposal of
Discontinued Operations.................. -- -- (636) -- -- -- --
---------- ---------- ---------- --------- --------- --------- ---------
Net Income (Loss).......................... $ (10,376) $ 1,158 $ 2,336 $ 2,104 $ 885 $ 4,188 $ 3,248
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
</TABLE>

51
<PAGE>
SELECTED FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------- FISCAL YEAR(1)
JULY 3, JULY 4, ------------------------------------------------------
1999 1998 1998(2) 1997 1996 1995(3) 1994
---------- ---------- ---------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) per Share From Continuing
Operations:
Basic.................................... $ (.88) $ .13 $ .28 $ .19 $ .17 $ .36 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. $ (.88) $ .13 $ .28 $ .19 $ .16 $ .35 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Earnings (Loss) per Share:
Basic.................................... $ (.88) $ .10 $ .20 $ .17 $ .07 $ .34 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. $ (.88) $ .10 $ .20 $ .17 $ .07 $ .33 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Weighted Average Shares
Basic.................................... 11,853 11,841 11,838 12,212 12,466 12,372 12,291
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. 11,853 11,931 11,908 12,218 12,707 12,562 12,323
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(4)....................... $ 29,811 $ 35,133 $ 35,762 $ 54,708 $ 57,719 $ 60,140 $ 43,143
Total assets............................. 312,205 339,190 351,635 107,922 110,711 108,417 82,621
Long-term obligations.................... 160,439 160,435 160,499 252 305 364 344
Long-term common stock of subsidiary
subject to redemption.................. -- -- -- 18,059 17,747 17,435 --
Shareholders' investment................. 54,148 65,197 69,864 66,668 67,368 65,825 60,475
OTHER DATA:
Book value per share..................... 4.55 5.51 5.91 5.60 5.40 5.30 4.92
Cash dividends........................... -- -- -- -- -- -- --
</TABLE>

- ------------------------

(1) The Company has a fiscal year ending the Saturday nearest September 30.
References to fiscal 1998, 1997, 1996, 1995, and 1994 are for the fiscal
years ended October 3, 1998, September 27, 1997, September 28, 1996,
September 30, 1995, and October 1, 1994, respectively.

(2) Reflects the November 1997 acquisition of Peek and borrowing to finance such
acquisition.

(3) Reflects the net proceeds from the private placement of shares of ThermoLyte
in March 1995.

(4) Short-term common stock of subsidiary subject to redemption, redeemable in
December 1998 or December 1999, of $1,380, $18,293, and $18,372 at July 3,
1999, July 4, 1998, and October 3, 1998, respectively, is included as a
reduction of working capital in each period.

52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company's continuing operations are divided into three segments: Traffic
Control, Industrial Refrigeration Systems, and Cooling and Cogeneration Systems.
Through the Company's Peek subsidiary, acquired November 1997, the Traffic
Control segment develops, manufactures, markets, installs, and services
equipment to monitor and regulate traffic flow in cities and towns around the
world. Peek offers a wide range of products, including hardware, such as vehicle
detectors, counters, classifiers, traffic signals and controllers, video
cameras, and variable message signs, as well as traffic management systems that
integrate these products to ease roadway congestion, improve safety, and collect
data. Traffic management systems include variable message systems to advise
drivers of accidents and other roadway hazards, traffic signal-timing systems
that adapt continuously to changing conditions to minimize delays, parking
guidance systems, and public transportation-management systems that give buses
priority at intersections. The Company also offers high-resolution video
equipment to aid police officers in capturing the information necessary to
charge individuals with motor vehicle violations such as speeding and red light
violations.

Sales to governmental entities accounted for 26% of the Company's total
revenues in fiscal 1998, of which 92% related to sales to foreign governmental
entities. Sales to governmental entities related principally to the Traffic
Control segment and represented 39% of its revenues in fiscal 1998. In addition,
a significant portion of the Traffic Control segment's revenues are generated by
sales to distributors whose customers are governmental entities. A decrease in
sales to governmental entities could have an adverse effect on the Company's
business and future results of operations.

The quarterly revenues and income of the Traffic Control segment fluctuate
significantly based on funding patterns of governmental entities and
seasonality. As a result of these factors, Peek has historically experienced
higher sales and income in the first and third fiscal quarters and lower sales
and income in the second and fourth fiscal quarters. Additionally, a portion of
the Traffic Control segment's revenues result from the sale of large systems,
the timing of which can lead to variability in the Company's quarterly revenues
and income.

In fiscal 1998, approximately 44% of the Company's revenues originated
outside the U.S., principally in Europe, and approximately 8% of the Company's
revenues were exports from the U.S. Foreign divisions and subsidiaries
principally sell in their local currencies and generally seek to charge their
customers in the same currency as their operating costs. However, the Company's
financial performance and competitive position can be affected by currency
exchange rate fluctuations affecting the relationship between the U.S. dollar
and foreign currencies. The Company seeks to reduce its exposure to currency
fluctuations through the use of forward contracts. Since the operations of the
Traffic Control segment are conducted principally in Europe, the Company's
operating results could be adversely affected by capital spending levels and
economic conditions in Europe. In addition, on January 1, 1999, several member
countries of the European Union established fixed conversion rates between their
existing sovereign currencies, and adopted the Euro as their new common
currency. As of that date, the Euro traded on currency exchanges although the
legacy currencies will remain legal tender in the participating countries
through 2001. Based on its current assessment, the Company does not expect that
the transition to the Euro will materially affect its results of operations or
cash flows.

Through the Company's FES division, the Industrial Refrigeration Systems
segment supplies standard and custom-designed industrial refrigeration systems
used primarily by the food-processing, chemical, petrochemical, and
pharmaceutical industries. NuTemp is a supplier of rental cooling and industrial
refrigeration equipment. The Company also offers custom-made and remanufactured
equipment for sale. NuTemp's industrial refrigeration equipment is used
primarily in the food-processing, chemical, petrochemical, and pharmaceutical
industries, and its commercial cooling equipment is used primarily in

53
<PAGE>
institutions and commercial buildings, as well as by service contractors. The
demand for NuTemp's equipment is highest in the summer months and can be
adversely affected by cool summer weather.

The Cooling and Cogeneration Systems segment consists of the Company's
Tecogen division and the Company's ThermoLyte subsidiary. Tecogen develops,
markets, and services preassembled cooling and cogeneration systems fueled
principally by natural gas for sale to a wide range of commercial,
institutional, industrial, and multi-unit residential users. Certain
large-capacity cooling systems are manufactured for Tecogen by FES. Tecogen also
conducts research and development on natural gas-engine technology, applications
of thermal energy, and pollution-control technologies. ThermoLyte is developing
and commercializing various propane-powered lighting products. In July 1998,
ThermoLyte acquired the outstanding stock of Optronics. Optronics makes over 400
lighting and associated products, including tail-lights and turn-signal lights
for trailers, portable lights for fishing and hunting, and docking lights, and
serves the automotive, sporting goods, and marine markets. In connection with
restructuring actions commenced during the third quarter of fiscal 1999, the
Company has decided to divest its ThermoLyte subsidiary (See Note 15 to the
Company's Consolidated Financial Statements included elsewhere in this Proxy
Statement). Unaudited revenues and operating losses for ThermoLyte, excluding
restructuring and related costs, were $9.8 million and $0.1 million,
respectively, for the first nine months of fiscal 1999, and $3.1 million and
$1.4 million, respectively, for fiscal 1998.

RESULTS OF OPERATIONS

FIRST NINE MONTHS FISCAL 1999 COMPARED WITH FIRST NINE MONTHS FISCAL 1998

Total revenues increased to $205.7 million in the first nine months of
fiscal 1999 from $179.0 million in the first nine months of fiscal 1998,
primarily due to an increase at the Cooling and Cogeneration Systems segment of
$13.9 million and an increase at the Traffic Control segment of $7.6 million.
Cooling and Cogeneration Systems segment revenues increased principally due to
the inclusion of $9.3 million of revenues from Optronics, acquired in July 1998,
and increased demand for gas-fueled cooling systems. Revenues increased at the
Traffic Control segment in fiscal 1999 due to the inclusion of revenues from
Peek, acquired in November 1997, for the full nine-month period, offset in part
by a decrease in Peek revenues from governmental entities as a result of a
reduction in funding allocated to traffic control projects, primarily in the
Netherlands and the United Kingdom. In addition, the unfavorable effects of
currency translation decreased revenues at the Traffic Control segment by $0.8
million. Industrial Refrigeration Systems segment revenues increased to $60.5
million in fiscal 1999 from $55.5 million in fiscal 1998, primarily due to
increased demand for standard industrial refrigeration packages at FES.

The gross profit margin decreased to 26% in the first nine months of fiscal
1999 from 30% in the first nine months of fiscal 1998, principally due to a
decrease at the Traffic Control segment. The gross profit margin at the Traffic
Control segment decreased to 30% in fiscal 1999 from 34% in fiscal 1998,
primarily due to inventory provisions of $2.0 million and costs for outsourcing
certain warranty repairs of $0.5 million incurred in connection with certain
restructuring actions (See Note 15 to the Company's Consolidated Financial
Statements included elsewhere in this Proxy Statement). In addition, the effect
of a change in sales mix at its subsidiary located in the Netherlands further
reduced the gross profit margin at the Traffic Control segment. These decreases
were offset in part by margin improvement at the U.S. operations of the Traffic
Control segment due to certain cost reduction programs, including outsourcing
and purchasing techniques. The fiscal 1998 gross profit margin included a $0.9
million charge relating to the sale of inventories revalued at the date of the
acquisition of Peek. Changes in gross profit margin from fiscal 1998 to fiscal
1999 at the Industrial Refrigeration Systems segment and the Cooling and
Cogeneration Systems segment did not materially impact the Company's
consolidated gross profit margin.

Selling, general, and administrative expenses as a percentage of revenues
were unchanged at 21% in the first nine months of fiscal 1999 and 1998. Selling,
general, and administrative expenses increased to $42.6 million in fiscal 1999
from $37.9 million in fiscal 1998, principally due to an increase in expenses at
the Cooling and Cogeneration Systems segment, due to the inclusion of expenses
from Optronics, and an

54
<PAGE>
increase in expenses at the Traffic Control segment. The increase in selling,
general, and administrative expenses at the Traffic Control segment was due to
the inclusion of expenses from Peek for the full nine-month period, and was
offset in part by the effect of efforts to reduce expenses at that business.

Research and development expenses decreased to $5.6 million in the first
nine months of fiscal 1999 from $6.0 million in the first nine months of fiscal
1998, primarily due to reduced spending at the Cooling and Cogeneration Systems
segment on natural gas-engine products and propane-powered lighting products,
due to the completion of a phase of development efforts for these products. This
decrease was offset in part by higher research and development expenses at the
Traffic Control segment due to the inclusion of expenses from Peek for the full
nine-month period in fiscal 1999.

During the first nine months of fiscal 1999, the Company undertook certain
restructuring actions and recorded restructuring costs of $9.6 million (See Note
15 to the Company's Consolidated Financial Statements included elsewhere in this
Proxy Statement). Of the total restructuring costs of $9.6 million recorded by
the Company, $5.9 million, $3.6 million, and $0.1 million were recorded by the
Traffic Control, Cooling and Cogeneration Systems, and Industrial Refrigeration
Systems segments, respectively. Of the total restructuring costs, $8.9 million
was recorded in the third quarter of fiscal 1999. These costs related to a
decision by the Cooling and Cogeneration Systems segment to divest its
ThermoLyte subsidiary, a decision by the Traffic Control segment to outsource
certain manufacturing and warranty functions and reduce staffing levels, and a
decision by the Industrial Refrigeration Systems segment to reduce staffing
levels. In addition, the Traffic Control segment wrote down certain assets at
Peek's sales and service subsidiaries located in Malaysia and Croatia that have
become impaired due to business conditions in those regions. In connection with
these actions, restructuring costs recorded in the third quarter of fiscal 1999
include $4.1 million for the write-off cost in excess of net assets of acquired
companies; $2.0 million of severance costs; $1.6 million for the write-down of
certain fixed assets, principally at operations being exited; and $1.2 million
for lease costs at facilities being abandoned. In addition, during the second
quarter of fiscal 1999, the Traffic Control segment recorded restructuring costs
of $0.7 million, primarily for severance and abandoned-facility payments
relating to the consolidation of facilities at Peek. The Company expects to
incur additional restructuring costs totaling approximately $2.5 million,
principally at the Traffic Control segment, through December 1999.

Interest income decreased to $0.5 million in the first nine months of fiscal
1999 from $1.7 million in the first nine months of fiscal 1998. This decrease
was principally due to lower average invested balances resulting from the use of
cash to redeem ThermoLyte common stock in fiscal 1999 and to fund acquisitions
and repay short-term obligations assumed in connection with the Peek acquisition
in fiscal 1998. Interest expense was unchanged at $6.5 million in the first nine
months of fiscal 1999 and 1998. Interest expense increased in fiscal 1999 due to
the inclusion of interest expense on borrowings from Thermo Electron to finance
the November 1997 acquisition of Peek for the full nine-month period in fiscal
1999. This increase was offset by a reduction in interest expense due to the
repayment in fiscal 1998 of short-term obligations assumed in connection with
the Peek acquisition and the effect of lower interest rates.

The Company recorded a tax benefit of $1.1 million in the first nine months
of fiscal 1999 on a pretax loss of $11.4 million, resulting in an effective tax
rate of 9%. The effective tax rate was lower than the statutory federal income
tax rate principally due to nondeductible charges, including the write-off of
cost in excess of net assets of acquired companies of $4.1 million (See Note 15
to the Company's Consolidated Financial Statements included elsewhere in this
Proxy Statement) and the amortization of $3.3 million of cost in excess of net
assets of acquired companies, and foreign tax rate differentials. The Company
recorded a tax provision of $2.6 million in the first nine months of fiscal 1998
on pretax income of $4.4 million, resulting in an effective tax rate of 58%. The
effective tax rate was higher than the statutory federal income tax rate
principally due to the effect of $2.7 million of nondeductible amortization of
cost in excess of net assets of acquired companies, and an increase in the
valuation allowance on net operating loss carryforwards and other tax assets at
the Company's ThermoLyte subsidiary.

55
<PAGE>
Minority interest expense was $0.1 million in the first nine months of 1999,
compared with $0.3 million in the first nine months of 1998. Minority interest
expense primarily represents accretion of ThermoLyte common stock subject to
redemption, which was accreted to its full redemption value in December 1998. In
addition, the fiscal 1998 period also includes minority interest expense on
Peek's earnings for the period from November 1997 to January 1998, prior to Peek
becoming a wholly owned subsidiary of the Company.

In accordance with the provisions of Accounting Principles Board Opinion No.
30 concerning reporting the effect of disposal of a segment of a business, the
results of operations of the Engines segment have been classified as
discontinued in the accompanying statement of operations for fiscal 1998, and
have been recorded as a reduction of previously established reserves in fiscal
1999 (See Note 4 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement). The loss from discontinued operations was
$0.4 million in the first nine months of fiscal 1999 and $0.3 million in the
first nine months of fiscal 1998. The Company retained liability for certain
warranty obligations of this business. The Company does not expect that this
obligation or other costs associated with winding down this business will
materially affect its results of operations or cash flows.

FISCAL 1998 COMPARED WITH FISCAL 1997

Total revenues increased to $245.7 million in fiscal 1998 from $91.9 million
in fiscal 1997, primarily due to the acquisition of Peek in November 1997, which
contributed $152.4 million of revenues in fiscal 1998. Industrial Refrigeration
Systems segment revenues increased to $76.2 million in fiscal 1998 from $74.8
million in fiscal 1997, primarily due to increased demand at FES. Cooling and
Cogeneration Systems segment revenues were relatively unchanged at $17.7 million
in fiscal 1998 and $17.8 million in fiscal 1997. A decrease in revenues from
gas-fueled cooling systems was substantially offset by the inclusion of $2.3
million of revenues from Optronics, acquired in July 1998.

Peek's backlog decreased to $50.7 million at October 3, 1998, from $64.4
million at the date of acquisition, excluding backlog of businesses sold and
divested. The $13.7 million decrease in backlog occurred principally in the
Netherlands and United Kingdom, and was primarily due to a decrease in orders
from foreign governmental entities as a result of a reduction in funding
allocated by those entities to traffic control projects. The decrease in backlog
at Peek was substantially offset by an aggregate increase in backlog at the
Company's other businesses totaling $12.2 million.

The gross profit margin increased to 30% in fiscal 1998 from 21% in fiscal
1997, primarily due to a 34% gross profit margin at Peek. The gross profit
margin for the Industrial Refrigeration Systems segment increased to 23% in
fiscal 1998 from 21% in fiscal 1997, primarily due to manufacturing efficiencies
and lower warranty expenses at FES, and an increase in higher-margin rental
revenues at NuTemp. The gross profit margin for the Cooling and Cogeneration
Systems segment increased to 21% in fiscal 1998 from 19% in fiscal 1997,
primarily due to the inclusion of higher-margin revenues at Optronics.

Selling, general, and administrative expenses as a percentage of revenues
increased to 21% in fiscal 1998 from 16% in fiscal 1997, principally due to
amortization expense related to the excess cost over acquired net assets of Peek
and relatively higher selling, general, and administrative expenses as a
percentage of revenues at Peek. Research and development expenses increased to
$7.9 million in fiscal 1998 from $1.9 million in fiscal 1997, due to the
inclusion of $6.4 million of research and development expenses at Peek.

Interest income increased to $1.9 million in fiscal 1998 from $1.8 million
in fiscal 1997, principally due to an increase in average invested balances.
Interest expense increased by $9.0 million in fiscal 1998 due to borrowings from
Thermo Electron to finance the acquisition of Peek (See Note 10 to the Company's
Consolidated Financial Statements included elsewhere in this Proxy Statement)
and the inclusion of $0.8 million of interest expense at Peek.

The effective tax rate increased to 52% in fiscal 1998 from 46% in fiscal
1997. The effective tax rate for fiscal 1998 exceeded the statutory federal
income tax rate primarily due to the impact of nondeductible

56
<PAGE>
amortization of cost in excess of net assets of acquired companies on the
Company's pretax income. The effective tax rate for fiscal 1997 exceeded the
statutory federal income tax rate primarily due to an increase in the valuation
allowance for net operating loss carryforwards and other tax assets of the
Company's ThermoLyte subsidiary, and the impact of state income taxes. The
effective tax rate increased from fiscal 1997 to fiscal 1998 principally due to
the relative impact of nondeductible amortization of cost in excess of net
assets of acquired companies relating to the Peek acquisition.

Minority interest expense increased to $0.4 million in fiscal 1998 from $0.3
million in fiscal 1997 due to minority interest expense on Peek's earnings from
November, 1997 to January, 1998 prior to Peek becoming a wholly owned subsidiary
of the Company. As of January 16, 1998, the Company had acquired all of the Peek
outstanding ordinary shares.

The results of operations of the Engines segment have been classified as
discontinued operations as a result of the Company's decision to divest this
business (See Note 4 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement). The loss from discontinued operations was
$0.4 million in fiscal 1998 and $0.2 million in fiscal 1997. In addition, in
fiscal 1998, the Company provided $0.6 million, net of tax, for the estimated
loss on disposal of discontinued operations, which includes a provision for
estimated losses from operations through the expected date of disposition. The
Company completed the divestiture of the Engines segment in December 1998 in the
form of a sale of the assets of the segment's two product lines.

FISCAL 1997 COMPARED WITH FISCAL 1996

Total revenues were $91.9 million in fiscal 1997 and $93.1 million in fiscal
1996. Industrial Refrigeration Systems segment revenues increased to $74.8
million in fiscal 1997 from $73.3 million in fiscal 1996, primarily due to
greater demand for custom-designed industrial refrigeration packages and product
services at FES and, to a lesser extent, increased demand for rental equipment
at NuTemp. These improvements were offset in part by a decrease in demand for
standard industrial refrigeration packages at FES. Cooling and Cogeneration
Systems segment revenues were $17.8 million in fiscal 1997, compared with $20.5
million in fiscal 1996. Decreased revenues from sponsored research and
development, gas-fueled cooling systems, and thermoelectric devices were offset
in part by increased service revenues in fiscal 1997.

The gross profit margin increased to 21% in fiscal 1997 from 20% in fiscal
1996. The gross profit margin for the Industrial Refrigeration Systems segment
increased to 21% in fiscal 1997 from 20% in fiscal 1996, primarily due to higher
margins at FES, resulting from lower warranty expenses, manufacturing
efficiencies, and a decrease in the cost of a major component, and higher
margins at NuTemp resulting from increased revenues. FES experienced a cost
increase for a major component in fiscal 1996, for which the Company had begun
receiving deliveries from an additional supplier at a lower cost. The gross
profit margin for the Cooling and Cogeneration Systems segment decreased to 19%
in fiscal 1997 from 22% in fiscal 1996, primarily due to lower revenues and
higher warranty expenses for gas-fueled cooling systems.

Selling, general, and administrative expenses as a percentage of revenues
increased to 16% in fiscal 1997 from 15% in fiscal 1996, primarily due to an
increase in marketing expenses associated with the introduction of the Company's
propane-powered lighting products. Research and development expenses decreased
to $1.9 million in fiscal 1997 from $2.6 million in fiscal 1996, primarily due
to lower spending on natural gas-engine products and propane-powered lighting
products, due to the completion of a phase of development efforts for these
products.

Net gain on sale of investments in fiscal 1996 primarily represents a gain
of $344,000 relating to the sale of the Company's remaining investment in Thermo
Electron common stock and a gain of $125,000 relating to the sale of the
Company's remaining investment in subordinated convertible debentures issued by
Thermo TerraTech Inc., a majority-owned subsidiary of Thermo Electron (See Note
7 to the Company's

57
<PAGE>
Consolidated Financial Statements included elsewhere in this Proxy Statement).
These gains were largely offset by a write-down of other investments.

The effective tax rate increased to 46% in fiscal 1997 from 43% in fiscal
1996. These rates exceeded the statutory federal income tax rate primarily due
to the impact of an increase, in both periods, in the valuation allowance for
net operating loss carryforwards and other tax assets of the Company's
ThermoLyte subsidiary, and the impact of state income taxes. The effective tax
rate increased in fiscal 1997 from fiscal 1996 primarily due to the larger
impact of the increase in the valuation allowance on ThermoLyte tax assets
relative to income for continuing operations.

The loss from discontinued operations decreased to $0.2 million in fiscal
1997 from $1.2 million in fiscal 1996, principally as a result of increased
revenues from lift-truck and TecoDrive-Registered Trademark- engine sales and
margin improvement as a result of a reduction in warranty expenses and lower
overhead expenses, resulting primarily from the consolidation of facilities.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital was $29.8 million at July 3, 1999, compared
with $35.8 million at October 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $10.3 million at July 3,
1999, compared with $26.3 million at October 3, 1998. In addition, the Company
had $0.7 million invested in an advance to affiliate at July 3, 1999. Prior to
the use of a new domestic cash management arrangement between the Company and
Thermo Electron (See Note 15 to the Company's Consolidated Financial Statements
included elsewhere in this Proxy Statement), which became effective June 1,
1999, amounts invested with Thermo Electron were included in cash and cash
equivalents. At July 3, 1999, $8.3 million of the Company's cash and cash
equivalents was held by its foreign subsidiaries. While this cash can be used
outside of the United States, repatriation of this cash into the U.S. would be
subject to a U.S. tax.

During the first nine months of fiscal 1999, $1.0 million of cash was used
by operating activities, which consisted of $2.0 million used by continuing
operations and $1.0 million provided by discontinued operations. The use of cash
by continuing operations was increased principally by a $9.6 million increase in
accounts receivable and a $3.7 million decrease in other current liabilities.
Accounts receivable increased primarily due to the timing of shipments at Peek,
FES, and Tecogen, and increased revenue in the third quarter of fiscal 1999 as
compared to the fourth quarter of fiscal 1998 at FES and Tecogen. Other current
liabilities decreased primarily due to a decrease in accrued income taxes, as a
result of a tax benefit recorded on the Company's operating losses in fiscal
1999 and the timing of payments, a decrease in billings in excess of contract
costs and fees, and utilization of acquisition reserves (See Note 3 to the
Company's Consolidated Financial Statements included elsewhere in this Proxy
Statement). The decrease in other current liabilities was offset in part by
reserves established in connection with certain restructuring activities (See
Note 15 to the Company's Consolidated Financial Statements included elsewhere in
this Proxy Statement). Cash was generated by a $4.0 million decrease in unbilled
contract costs and fees and a $3.0 million decrease in inventories. Inventories
decreased primarily at Peek due to a reduction in inventory levels in the
Netherlands, in response to lower revenues, and lower inventory levels in the
United Kingdom, as a result of outsourcing certain manufacturing functions in
connection with restructuring activities. The change in billings in excess of
contract costs and fees and unbilled contract costs and fees was due to the
timing of billings and completion of contracts.

During the first nine months of fiscal 1999, the Company's investing
activities, excluding activity relating to available-for-sale investments and
net advances to affiliate (See Note 15 to the Company's Consolidated Financial
Statements included elsewhere in this Proxy Statement), included the sale of the
industrial and marine engine product lines of its Crusader Engines division for
$6.4 million in cash and a receivable of $1.0 million (See Note 4 to the
Company's Consolidated Financial statements included elsewhere in this Proxy
Statement), and the December 1998 acquisition of Linne Trafiksystem AB for $1.6
million in cash. In addition, the Company expended $6.6 million for purchases of
property, plant, and

58
<PAGE>
equipment and rental assets, and received $0.9 million in proceeds from the sale
of property, plant, and equipment and rental assets.

The Company's financing activities used $12.4 million of cash during the
first nine months of fiscal 1999, principally to purchase $17.1 million of
ThermoLyte's common stock subject to redemption, which was redeemed in December
1998 (See Note 15 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement). The remaining liability for redeemable
common stock of ThermoLyte of $1.4 million is included in working capital at
July 3, 1999. The remaining ThermoLyte shares are redeemable at the option of
the holder in December 1999. The Company's ownership of ThermoLyte increased to
98% following the December 1998 redemption.

During the remainder of fiscal 1999, the Company expects to make capital
expenditures for the purchase of property, plant, and equipment and rental
assets of approximately $3 million. In addition, in connection with certain
restructuring actions undertaken during fiscal 1999, the Company expects to
incur cash expenditures of approximately $3.6 million during the remainder of
fiscal 1999 and $3.1 million during fiscal 2000 (See Note 15 to the Company's
Consolidated Financial Statements included elsewhere in this Proxy Statement).

During fiscal 1998, $9.3 million of cash was provided by operating
activities, which consisted of $3.6 million provided by continuing operations
and $5.7 million provided by discontinued operations. Cash provided by
continuing operations was reduced by a decrease in accounts payable of $3.7
million, principally at Peek due to the timing of payments, and a decrease in
other current liabilities of $8.8 million, principally at Peek due to a
reduction in accrued costs for acquired contracts and accrued acquisition
expenses (See Note 3 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement). Cash flow provided by continuing operations
was improved by a decrease in accounts receivable of $5.0 million, primarily due
to a decrease at Peek, as well as the timing of billings on
percentage-of-completion contracts. In addition, $5.7 million of cash was
provided by discontinued operations principally as a result of efforts to reduce
working capital at that business.

During fiscal 1998, the primary investing activities, excluding
available-for-sale investments activity, included acquisitions for $156.8
million in cash, net of cash acquired, and dispositions for $20.2 million in
cash (See Note 3 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement). The Company also expended $9.0 million for
purchases of property, plant, and equipment and rental assets, and received $3.4
million in proceeds from the sale of property, plant, and equipment and rental
assets.

The Company's financing activities, all of which related to continuing
operations, provided $130.7 million of cash in fiscal 1998. The Company borrowed
$160.0 million from Thermo Electron to finance the acquisition of Peek and used
$28.3 million to fund a decrease in short-term borrowings (See Note 10 to the
Company's Consolidated Financial Statements included elsewhere in this Proxy
Statement). In addition, the Company expended $1.4 million of cash to purchase
its common stock pursuant to an authorization by its Board of Directors. At
October 3, 1998, the Company had no remaining authorizations to purchase Company
common stock.

Following the acquisition of Peek, the Company undertook a broad
restructuring of Peek's business. This included severance of 87 employees at
Peek, including closure of its former corporate headquarters in London and
termination of most of the staff there. In addition, the Company decided to sell
or close several businesses. Peek's Fleetlogic BV subsidiary, a
Netherlands-based developer, manufacturer, and distributor of "in vehicle"
traffic information systems was sold in August 1998. Signal Control Corporation,
an Oregon-based manufacturer of an earlier generation traffic controller was
closed in December 1998. In addition, Peek's operations in Hong Kong were closed
in August 1998 and operations in Thailand were scaled back to complete
outstanding contracts. The Company has abandoned leased facilities in Oregon,
Florida, London, and Hong Kong as a result of decisions to exit certain
operations of Peek.

59
<PAGE>

During fiscal 1998, the Company expended $3.9 million for severance and $1.4
million of lease costs for abandoned facilities, principally in connection with
the actions described above. The lease costs paid in fiscal 1998 primarily
related to Peek's former London headquarters. At October 3, 1998, the Company
had accrued additional costs that will require future outlays of cash of $0.6
million for severance which will be paid in fiscal 1999. In addition, the
Company had accrued $1.4 million for abandoned facilities, principally for an
Oregon facility that requires payments through 2006, in the event that the
Company's efforts to sublease or buyout the arrangement prove unsuccessful. The
Company finalized its plan for restructuring Peek in fiscal 1998 and all
substantive actions were completed in early fiscal 1999 (see Note 3 to the
Company's Consolidated Financial Statements included elsewhere in this Proxy
Statement). The accounting for this restructuring was in accordance with
Emerging Issues Task Force Pronouncement ("EITF") 95-3.

In addition, the Company acquired certain loss contracts as a result of the
Peek acquisition. The loss contracts relate principally to work in Hong Kong and
Signal Control Corporation, which were exited in calendar 1998, and in Thailand.
The Company is currently in the process of completing contracts in Thailand
assumed at the date of acquisition. The timing of completion is dependent on the
completion of certain aspects of Thailand's infrastructure performed by third
parties and ongoing negotiations with the customer. In connection with these
contracts, in the allocation of purchase price for the Peek acquisition, the
Company recorded $13.6 million of liability as a cost of the acquisition. This
amount includes $8.0 million for liability assumed at acquisition for liquidated
damages and performance bond obligations related to these contracts. The balance
of the costs, $5.6 million, represents estimated losses to complete contracts
outstanding at the date of acquisition, of which $4.1 million had been accrued
by Peek prior to its acquisition. During fiscal 1998, the Company had cash
expenditures of $4.7 million associated with these contracts and expects future
expenditures of $8.9 million, primarily through the first half of fiscal 2000.

The Company's $160.0 million promissory note to Thermo Electron is due in
November 1999. Thermo Electron has issued a commitment letter to the Company
pursuant to which Thermo Electron has agreed to refinance the promissory note at
the option of the Company, on its maturity date, with the net proceeds from its
October 1998 offering of 7.625% Notes due 2008, and other available cash (See
Note 15 to the Company's Consolidated Financial Statement included elsewhere in
this Proxy Statement). In accordance with the commitment letter, the new
promissory note from the Company to Thermo Electron would be due in 2008 and
bear interest at a rate of 7.625%. The Company's Board of Directors has
authorized additional borrowings of up to $10 million from Thermo Electron to
fund working capital requirements and Thermo Electron has expressed its
willingness to lend such funds. The Company believes its existing resources,
together with the funding expected from Thermo Electron as described above, are
sufficient to meet the capital requirements of its existing operations for the
foreseeable future.

MARKET RISK

The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates which could affect its future results of
operations and financial condition. The Company manages its exposure to these
risks through its regular operating and financing activities. Additionally, the
Company uses short-term forward contracts to manage certain exposures to foreign
currencies. The Company enters into forward foreign exchange contracts to hedge
firm purchase and sale commitments denominated in currencies other than its
subsidiaries' local currencies. The Company does not engage in extensive foreign
currency hedging activities; however, the purpose of the Company's foreign
currency hedging activities is to protect the Company's local currency cash
flows related to these commitments from fluctuations in foreign exchange rates.
The Company's forward foreign exchange contracts principally hedge transactions
denominated in Dutch guilders. Gains and losses arising from forward contracts
are recognized as offsets to gains and losses resulting from the transactions
being hedged. The Company does not enter into speculative foreign currency
agreements.

60
<PAGE>
The Company's exposure at July 3, 1999, to market risk from changes in
foreign currency exchange rates and interest rates has not changed materially
from its exposure at fiscal year-end 1998.

FOREIGN CURRENCY EXCHANGE RATES

The fair value of forward foreign exchange contracts is sensitive to changes
in foreign currency exchange rates. The fair value of forward foreign exchange
contracts is the estimated amount that the Company would pay or receive upon
termination of the contract, taking into account the change in foreign exchange
rates. A 10% depreciation in fiscal year-end 1998 foreign currency exchange
rates related to the Company's contracts would result in an increase in the
unrealized loss on forward foreign exchange contracts of $0.1 million. Since the
Company uses forward foreign exchange contracts as hedges of firm purchase and
sale commitments, the unrealized gain or loss on forward foreign currency
exchange contracts resulting from changes in foreign currency exchange rates
would be offset by a corresponding change in the fair value of the hedged item.

The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pounds sterling,
Dutch guilders, Swiss francs, Norwegian kroner, Danish kroner, and Finnish
markkaa. The effect of a change in foreign exchange rates on the Company's net
investment in foreign subsidiaries is reflected in the "Accumulated other
comprehensive items" component of shareholders' investment. A 10% depreciation
in 1998 functional currencies, relative to the U.S. dollar, would result in a
$7.1 million reduction of shareholders' investment.

INTEREST RATES

The Company's cash and cash equivalents and certain long-term obligations
are sensitive to changes in interest rates. Interest rate changes would result
in a change in interest income and expense due to the difference between the
current interest rates on these financial instruments and the variable rate that
these financial instruments may adjust to in the future. A 10% increase in
fiscal year-end 1998 interest rates would result in a negative impact of $0.5
million on the Company's net income.

YEAR 2000

The following constitutes a "Year 2000 Readiness Disclosure" under the Year
2000 Information and Readiness Disclosure Act. The Company continues to assess
the potential impact of the year 2000 date recognition issue on the Company's
internal business systems, products, and operations. The Company's year 2000
initiatives include (i) testing and upgrading significant information technology
systems and facilities; (ii) testing and developing upgrades, if necessary, for
the Company's current products and certain discontinued products; (iii)
assessing the year 2000 readiness of its key suppliers and vendors to determine
their year 2000 compliance status; and (iv) developing a contingency plan.

THE COMPANY'S STATE OF READINESS

The Company has implemented a compliance program to ensure that its critical
information technology systems and non-information technology systems will be
ready for the year 2000. The first phase of the program, testing and evaluating
the Company's critical information technology systems and non-information
technology systems for year 2000 compliance, has largely been completed. During
phase one, the Company tested and evaluated its significant computer systems,
software applications, and related equipment for year 2000 compliance. The
Company also evaluated the potential year 2000 impact on its critical
non-information technology systems, which efforts included testing the year 2000
readiness of its manufacturing, utility, and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any material noncompliant information technology systems or non-
information technology systems that were identified during phase one are
prioritized and remediated.

61
<PAGE>
Based on its evaluations, the Company does not believe it is required to make
any material upgrades to its critical non-information technology systems. The
Company is currently upgrading or replacing its material noncompliant
information technology systems, and this process was approximately 80% complete
as of July 3, 1999. The Company expects that all of its material information
technology systems and critical non-information technology systems will be year
2000 compliant by October 1999.

The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate third party products, and operate on computer systems that are
not under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. The Company
believes that certain of its older products, which it no longer manufactures or
sells, may not be year 2000 compliant. The Company is continuing to test and
evaluate such products. The Company is focusing its efforts on products that are
still under warranty, early in their expected life, and/or may pose a safety
risk. The Company is offering upgrades and/or identifying potential solutions
where reasonably practicable.

The Company also identified and assessed the year 2000 readiness of key
suppliers and vendors that are believed to be significant to the Company's
business operations. As part of this effort, the Company developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. To date, no significant supplier or vendor has indicated
that it believes its business operations will be materially disrupted by the
year 2000 issue. The Company has substantially completed its assessment of third
party risk.

CONTINGENCY PLAN

The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products, and significant suppliers and vendors, it will modify and
adjust its contingency plan as may be required. The Company expects to complete
its contingency plan by October 1999.

ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

The Company had incurred expenses to third parties ("external costs")
related to year 2000 issues of approximately $1.4 million as of July 3, 1999,
and the total external costs of year 2000 remediation are expected to be
approximately $1.9 million. Of the external costs incurred as of July 3, 1999,
approximately $0.7 million had been spent on testing and upgrading information
technology systems, which represents approximately 25% of the Company's total
information technology budget. In addition, as of July 3, 1999, $0.6 million had
been spent on testing and upgrading products and $0.1 million had been spent to
test and upgrade facilities. Year 2000 costs were funded from working capital.
All internal costs and external costs, other than capital additions, related to
year 2000 remediation have been and will continue to be expensed as incurred.

The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.

REASONABLY LIKELY WORST CASE SCENARIO

At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and would be unable to provide materials and services to the Company on time.
The Company's operations

62
<PAGE>
could be delayed or temporarily shut down, and it could be unable to meet its
obligations to customers in a timely fashion. The Company's business,
operations, and financial condition could be adversely affected in amounts that
cannot be reasonably estimated at this time. If the Company believes that any of
its key suppliers or vendors may not be year 2000 compliant, it will seek to
identify and secure other suppliers or vendors as part of its contingency plan.

RISKS OF THE COMPANY'S YEAR 2000 ISSUES

While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected. If
any countries in which the Company operates experience significant year 2000
disruption, the Company could also be materially adversely affected. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. Any unexpected costs or delays
arising from the year 2000 issue could have a material adverse impact on the
Company's business, operations and financial condition in amounts that cannot be
reasonably estimated at this time.

63
<PAGE>
CERTAIN PROJECTED FINANCIAL DATA

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. However, in order to
aid the evaluation of the Company by the Special Committee and Invemed's
assessment of the fairness, from a financial point of view, of the consideration
of $12.00 per share in cash payable pursuant to the Merger Agreement, the
Company, in February 1999, furnished the Special Committee and Invemed with
certain projections (the "Projections") prepared by the Company's management.
The following summary of the Projections is included in this Proxy Statement
solely because the Projections were made available to such parties. The
Projections do not reflect any of the effects of the Merger or other changes
that may in the future be deemed appropriate concerning the Company and its
assets, business, operations, properties, policies, corporate structure,
capitalization and management in light of the circumstances then existing. The
Company has not updated the Projections to reflect changes that have occurred
since their preparation.

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. 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 on such information or its achievability, and assume no
responsibility for, and disclaim any association with, such prospective
financial information. Furthermore, the Projections necessarily make numerous
assumptions, some (but not all) of which are set forth below and 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 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 RESULTS AND STOCKHOLDER 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. STOCKHOLDERS 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.

The Projections included herein have been prepared by the Company based upon
management's estimates of the total market for its traffic control products,
industrial refrigeration systems and cooling and cogeneration systems and the
Company's own performance through 2003.

64
<PAGE>
FEBRUARY 1999 PROJECTIONS

<TABLE>
<CAPTION>
CALENDAR YEAR
-----------------------------------------------------
1999(P) 2000(P) 2001(P) 2002(P) 2003(P)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................................... $ 274,474 $ 277,109 $ 294,625 $ 314,026 $ 337,217
--------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues................................ 190,020 189,777 200,143 211,386 225,125
Operating expenses.............................. 63,224 63,430 65,815 68,836 71,515
Restructuring costs............................. 717 -- -- -- --
--------- --------- --------- --------- ---------
253,961 253,207 265,958 280,222 296,640
--------- --------- --------- --------- ---------
Operating Income.................................. 20,513 23,902 28,667 33,804 40,577
Interest Income................................... 513 636 838 1,040 1,242
Interest Expense.................................. (9,259) (12,589) (12,500) (12,506) (12,507)
--------- --------- --------- --------- ---------

Income Before Provision for Income Taxes.......... 11,767 11,949 17,005 22,338 29,312
Provision for Income Taxes........................ 5,299 5,196 7,778 9,870 12,510
--------- --------- --------- --------- ---------
Net Income........................................ $ 6,468 $ 6,753 $ 9,227 $ 12,468 $ 16,802
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SELECTED BALANCE SHEET DATA (AT YEAR END):
Current Assets, Excluding Cash and Investments:
Accounts Receivable, Net........................ $ 55,506 $ 46,845 $ 48,924 $ 52,449 $ 55,644
Unbilled Contract Costs and Fees................ 9,224 8,686 9,156 9,573 10,106
Inventories..................................... 45,160 44,907 46,596 49,042 51,545
Prepaid Income Taxes and Other Current Assets... 11,210 6,240 5,299 5,413 5,515
--------- --------- --------- --------- ---------
121,100 106,678 109,975 116,477 122,810
--------- --------- --------- --------- ---------
Property, Plant and Equipment:
Balance, beginning of period.................... 25,167 25,573 25,222 25,041 25,005
Additions....................................... 5,421 4,748 5,228 5,577 5,922
Depreciation expense............................ (5,015) (5,099) (5,409) (5,613) (6,065)
--------- --------- --------- --------- ---------
Balance, end of period.......................... 25,573 25,222 25,041 25,005 24,862
--------- --------- --------- --------- ---------
Intangible Assets................................. 154,821 147,745 143,316 138,888 134,460
--------- --------- --------- --------- ---------
Current Liabilities, Excluding Notes Payable...... 91,026 84,146 86,227 88,662 92,271
--------- --------- --------- --------- ---------
</TABLE>

65
<PAGE>
RISK FACTORS

The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause its actual results in the remainder of
fiscal 1999 and beyond to differ materially from those expressed in any forward-
looking statements made by, or on behalf of, the Company.

RELIANCE ON SALES TO GOVERNMENTAL ENTITIES. Sales to governmental entities
accounted for 26% of the Company's total revenues in fiscal 1998, of which 92%
related to sales to foreign governmental entities. Sales to governmental
entities related principally to the Traffic Control segment and represented 39%
of its revenues in fiscal 1998. In addition, a significant portion of the
Company's revenues in the Traffic Control segment are generated by sales to
distributors whose customers are governmental entities. The Company continues to
focus the marketing of its Traffic Control segment's products and services on
various governmental entities, including the U.S. Federal Highway Administration
and comparable overseas agencies, regional counties of governments, state and
city traffic engineers, public transit authorities, public toll operators, law
enforcement agencies, and tunnel and bridge authorities. Any decrease in
purchases by these government bodies, including, without limitation, decreases
as a result of a shift in priorities or overall budgeting limitations, could
have an adverse effect on the Company's business, financial condition, and
results of operations. Sales of the Company's Traffic Control segment's products
and services in the United States are largely dependent on federal funding of
transportation projects, such as appropriations and allocations to states under
the Transportation Equity Act for the 21st Century. Contracts with governmental
entities often permit the purchaser to cancel the agreement at any time.
Cancellation of a significant contract could also result in a material adverse
effect on the Company's business and future results of operations.

CUSTOMIZED CONTRACTS. A significant portion of the Company's contracts for
traffic control systems require the development and integration of customized
products for a fixed fee. Due to the complexity of the Company's traffic control
systems, the Company may experience delays from time to time in developing,
manufacturing, and installing such systems. In addition, the Company may incur
substantial unanticipated costs that cannot be passed on to the customer. The
Company's inability to deliver customized systems in a timely manner and within
budget could result in a material adverse affect on the Company's business,
financial condition and results of operations.

COMPETITION. The market for traffic products and services is extremely
competitive, and the Company expects that competition will continue to increase.
The Company believes that the principal competitive factors in the traffic
industry are price, functionality, reliability, service and support, and vendor
and product reputation. The Company believes that its ability to compete
successfully will depend on a number of factors both within and outside its
control, including the pricing policies of its competitors and suppliers, the
timing and quality of products introduced by the Company and others, the
Company's ability to maintain a strong reputation in the traffic industry, and
industry and general economic trends. In the traffic market, the Company
currently competes with companies with greater financial resources and name
recognition. The introduction by one of these competitors or a new competitor of
a technologically superior product would have a material adverse effect on the
Company's business, financial condition, and results of operations. There can be
no assurance that the Company will be able to compete successfully with existing
or new competitors.

The Company encounters and expects to continue to encounter intense
competition for the sale of its cooling and cogeneration products. The Company's
products are subject to competition from absorption air conditioning systems and
electric motor-driven vapor compressor systems, as well as other natural
gas-fueled, engine-driven cooling systems. Although the Company has a
proprietary position with respect to certain features of its products, the core
technologies relating to its cooling and cogeneration products are mature and
available to other companies. A number of companies, including companies with
greater financial resources than those of the Company, offer products that
compete with those offered by the

66
<PAGE>
Company, and there can be no assurance that other companies will not develop
competitive products. In addition, electric utility pricing programs provide
competition for the Company's cooling and cogeneration products.

The Company's sale of industrial refrigeration systems is subject to intense
competition. The industrial refrigeration market is mature, highly fragmented,
and extremely dependent on close customer contacts. There can be no assurance
that the Company will be able to continue to successfully compete in the
worldwide industrial refrigeration market, which is characterized by strong
local manufacturers.

DEPENDENCE ON NEW PRODUCTS. A substantial portion of the Company's revenues
are derived from the sale of electronics and associated hardware and software
for the traffic industry, as well as from providing integration services for
such electronics, hardware, and software, through the Company's Peek subsidiary.
A substantial portion of the Company's efforts, particularly its product
development and marketing efforts, is now focused on the traffic market. Prior
to the Peek acquisition, the Company had no prior experience in the traffic
industry, and there can be no assurance that the Company will be able to
successfully market and sell Peek's products and services. The Company's future
success will depend significantly on its ability to develop, introduce, and
integrate new products in the traffic market and to continue to improve the
performance, features, and reliability of Peek's current products. In order for
Peek to achieve the level of profitability desired by the Company, the Company
must successfully reduce Peek's expenses and improve market penetration. No
assurance can be given that the Company will be successful in this regard. Any
failure or inability of the Company's traffic products to perform substantially
as anticipated or to achieve market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company intends to
continue to expand its presence in international markets. In fiscal 1998,
approximately 44% of the Company's revenues originated outside the United
States, principally in Europe, and approximately 8% of the Company's revenues
were exports from the United States. International revenues are subject to a
number of risks, including the following: fluctuations in exchange rates may
affect product demand and adversely affect the profitability in U.S. dollars of
products and services provided by the Company in foreign markets where payment
for the Company's products and services is made in the local currency;
agreements may be difficult to enforce and receivables difficult to collect
through a foreign country's legal system; foreign customers may have longer
payment cycles; foreign countries may impose additional withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, or adopt other
restrictions on foreign trade; United States export licenses, if required, may
be difficult to obtain; the protection of intellectual property in foreign
countries may be more difficult to enforce. There can be no assurance that any
of these factors will not have a material adverse impact on the Company's
business, financial condition and results of operations. In addition, on January
1, 1999, several member countries of the European Union established fixed
conversion rates between their existing sovereign currencies, and adopted the
Euro as their new common currency. As of that date, the Euro traded on currency
exchanges although the legacy currencies will remain legal tender in the
participating countries through 2001. Based on its current assessment, the
Company does not expect that the transition to the Euro will materially affect
its results of operations or cash flows.

The Company had planned to expand its traffic control business in Asia.
However, Asia is currently experiencing a severe economic crisis, which has been
characterized by sharply reduced economic activity and liquidity, highly
volatile foreign currency exchange and interests rates, and unstable stock
markets. In fiscal 1998, the Company discontinued certain operations located in
Asia. The economic crisis in Asia may adversely affect the Company's ability to
expand its Traffic Control business.

ABILITY TO MANAGE CHANGE. In November 1997, the Company acquired Peek, a
public company in the United Kingdom, which had, as of July 3, 1999,
approximately 1,000 employees located principally in Europe and the United
States, and had revenues in fiscal 1998, from the date of its acquisition, and
in the

67
<PAGE>
first nine months of fiscal 1999, of $152.4 million and $119.6 million,
respectively. This acquisition has resulted in new and increased
responsibilities for the Company's administrative, operational, development and
financial personnel. In order to manage the Company's changing business, Peek's
management and other employees must be assimilated into the Company's existing
operations. There can be no assurance that the Company will be successful in
retaining Peek's key employees and integrating them into the Company. The
Company's success depends to a significant extent on the ability of its officers
and key employees to operate effectively, both independently and as a group, and
this ability may be impeded by the Company's rapid geographic expansion,
potential disruption of the Company's business, and diversion of management's
attention from other business concerns due to the Peek acquisition. In addition,
there can be no assurance that the Company's systems, procedures and controls
will be adequate to support the significant expansion of the Company's
operations. Any failure of the Company's management to manage change effectively
could have a material adverse effect on the Company's business, financial
condition and results of operations.

SIGNIFICANT QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The quarterly
revenues and income of the Company's Traffic Control segment fluctuate
significantly based on funding patterns of governmental entities as well as
seasonality. As a result of these factors, Peek has historically experienced
higher sales and income in the first and third fiscal quarters and lower sales
and income in the second and fourth fiscal quarters. A portion of the Traffic
Control segment's revenues result from the sale of large systems, the timing of
which can lead to variability in the Company's quarterly revenues and income. In
addition, the demand for the Company's NuTemp subsidiary's equipment is
typically highest in the summer period and can be adversely affected by cool
summer weather.

DEPENDENCE OF MARKETS ON GOVERNMENT REGULATION. The Public Utility
Regulatory Policies Act of 1978 (PURPA) and state laws and regulations
implementing PURPA prohibit discrimination by electric utilities against
cogeneration providers and require utilities to purchase co-generated
electricity under certain conditions. Under these regulations, certain classes
of facilities are exempt from the provisions of the Public Utility Holding
Company Act, as well as many state laws and regulations regarding the setting of
electricity rates and the financial and organizational regulation of electric
utilities, and certain provisions of the Federal Power Act. Because the
Company's current customers typically do not sell power to electric utilities,
the Company does not rely to a significant extent on the provisions of PURPA
that require utilities to purchase electricity from cogeneration providers.
However, recent bills in Congress have proposed amendments to, and in some
cases, the repeal of, certain of these laws or regulations. Any such amendment
or repeal could have a material adverse effect on the Company's cogeneration
business.

IMPORTANCE OF ENERGY PRICES. The cost savings that result from use of the
Company's packaged cooling and cogeneration systems are directly related to the
retail price of electricity. Given prevailing rate structures, demand for the
Company's cooling and cogeneration systems has been less than anticipated.
Although the Company believes that increases in demand, as well as potential
increases in the cost of fuel, will lead to eventual increases in electricity
rates, there can be no assurance that electricity prices will increase in the
future. The economic benefits of the Company's natural gas engine products and
packaged cooling and cogeneration systems are also affected by the cost of
natural gas. A significant increase in the relative cost of natural gas could
also have a material adverse effect on the sale of certain of the Company's
products.

INCENTIVES FOR COOLING SYSTEMS. Purchasers of the Company's
Tecochill-Registered Trademark- cooling systems often receive investment
incentives for the purchase of Tecochill equipment from gas utilities or state
or municipal governments. Although the Company has no reason to believe these
incentives will be discontinued, elimination of these incentives could have a
material adverse effect on sales of the Company's Tecochill systems.

RISKS ASSOCIATED WITH PROTECTION, DEFENSE AND USE OF INTELLECTUAL PROPERTY,
AND OWNERSHIP OF TECHNOLOGY RIGHTS. The Company holds several patents relating
to various aspects of its products. Proprietary rights

68
<PAGE>
relating to the Company's products are protected from unauthorized use by third
parties only to the extent that they are covered by valid and enforceable
patents or are maintained in confidence as trade secrets. There can be no
assurance that patents will be issued from any pending or future patent
applications owned by or licensed to the Company or that the claims allowed
under any issued patents will be sufficiently broad to protect the Company's
technology and, in the absence of patent protection, the Company may be
vulnerable to competitors who attempt to copy the Company's products or gain
access to its trade secrets and know-how. Proceedings initiated by the Company
to protect its proprietary rights could result in substantial costs to the
Company. There can be no assurance that competitors of the Company will not
initiate litigation to challenge the validity of the Company's patents, or that
they will not use their resources to design comparable products that do not
infringe the Company's patents. There may also be pending or issued patents held
by parties not affiliated with the Company that relate to the Company's products
or technologies. The Company may need to acquire licenses to, or contest the
validity of, any such patents. There can be no assurance that any license
required under any such patent would be made available on acceptable terms or
that the Company would prevail in any such contest. The Company could incur
substantial costs in defending itself in suits brought against it or in suits in
which the Company may assert its patent rights against others. If the outcome of
any such litigation is unfavorable to the Company, the Company's business and
results of operations could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks to
protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.

In addition, a significant percentage of the Company's research and
development is sponsored by third parties. Sponsors of these programs generally
own the rights to technology that is developed as a result of the Company's work
under the programs. These rights could limit the Company's ability to
commercialize any technological breakthroughs made in the course of such work.

POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE
INFORMATION. The Company continues to assess the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information technology and non-information technology systems and
on products sold as well as products purchased by the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Year
2000."

RISKS ASSOCIATED WITH CASH MANAGEMENT ARRANGEMENT WITH THE PARENT
COMPANY. The Company participates in a cash management arrangement with its
parent company, Thermo Electron. Under this cash management arrangement, the
Company lends its excess cash to Thermo Electron on an unsecured basis. The
Company has the contractual right to withdraw its funds invested in the cash
management arrangement upon 30 days' prior notice. 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
the cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The funds are held on an unsecured basis and
therefore are subject to the credit risk of Thermo Electron. The Company's
ability to receive its cash upon notice of withdrawal could be adversely
affected if participants in the cash management arrangement demand withdrawal of
their funds in an aggregate amount in excess of the 50% reserve required to be
maintained by Thermo Electron. In the event of a bankruptcy of Thermo Electron,
the Company would be treated as an unsecured creditor and its right to receive
funds from the bankruptcy estate would be subordinated to secured creditors and
would be treated on a pari passu basis with all other unsecured creditors.
Further, all cash withdrawn by the Company from the cash management arrangement
within one year before the bankruptcy would be subject to rescission. The
inability of Thermo Electron to return the Company's cash on a timely basis or
at all could have a material adverse effect on the Company's results of
operations and financial position.

69
<PAGE>
MANAGEMENT

The current directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

J. Timothy Corcoran.................................. 52 President, Chief Executive Officer and Director

Theo Melas-Kyriazi................................... 40 Chief Financial Officer

Paul F. Kelleher..................................... 57 Chief Accounting Officer

Marshall J. Armstrong................................ 64 Director

Frank Borman......................................... 71 Director

Peter O. Crisp....................................... 66 Director

John N. Hatsopoulos.................................. 65 Director

Brian D. Holt........................................ 50 Chairman of the Board

Donald E. Noble...................................... 84 Director

John J. Setnicka..................................... 66 Director
</TABLE>

All of the Company's directors are elected annually by the stockholders and
hold office until their respective successors are duly elected and qualified.
Executive officers are elected annually by the Board of Directors and serve at
its discretion.

J. Timothy Corcoran has been the chief executive officer and a director of
Company since October 1996. He also serves as the Company's president, a
position he has held since April 1995. From November 1992 to April 1995, Mr.
Corcoran was a vice president of the Company, and he served as the president of
the Company's FES division, from June 1990 until June 1998.

Theo Melas-Kyriazi has been the chief financial officer of the Company since
January 1999. Since March 1998, he has also served as a vice president of Thermo
Electron, and since January 1999, he has served as the chief financial officer
of Thermo Electron. Mr. Melas-Kyriazi was the treasurer of the Company from
August 1988 to September 1994 and was the treasurer of Thermo Electron from May
1988 to August 1994. From August 1994 through March 1998, he served as the
president and chief executive officer of ThermoSpectra Corporation, an affiliate
of Thermo Electron, which manufactures precision imaging, inspection,
temperature control and test and measurement instruments. Mr. Melas-Kyriazi is
also a director of ThermoRetec Corporation and the chairman of the board of
directors of ThermoSpectra Corporation, both affiliates of Thermo Electron.

Paul F. Kelleher has been the chief accounting officer of the Company since
1990. He has been the senior vice president, finance and administration, of
Thermo Electron since June 1997, and served as its vice president, finance from
1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982
until January 1996. He is a director of ThermoLase Corporation, an affiliate of
Thermo Electron.

Marshall J. Armstrong has been a director of the Company since December
1990. He also served as the chairman of the board of directors of the Company
from December 1990 to December 1996, its chief executive officer from April 1991
to October 1996, and its president from November 1992 to April 1995. Mr.
Armstrong is currently employed part-time by Thermo Electron, was senior vice
president, government affairs, of Thermo Electron from March 1997 until
September 1999, and was a vice president of Thermo Electron from 1986 until
March 1997. He is also a director of SatCon Technology Corporation and Thermo
Sentron Inc., an affiliate of Thermo Electron.

70
<PAGE>
Frank Borman has been a director of the Company since January 1999. Col.
Borman has been the chairman of DBT Online, Inc. ("DBT"), a company engaged in
the provision of integrated database services and related reports, and in the
exploitation and enforcement of two laser patents, since August 1996. From
September 1995 until August 1996, he served as the chief executive officer and a
director of Patlex Corporation ("Patlex"), a company engaged in the exploitation
and enforcement of two laser patents, which became a subsidiary of DBT in August
1996. Col. Borman served as the chairman and chief executive officer of Patlex
from 1988 to December 1992, and as chairman of AutoFinance Group, Inc. ("AFG")
from December 1992 to September 1995, during the period that Patlex was a
subsidiary of AFG. Col. Borman is a member of the Board of Trustees of the
National Geographic Society. He serves as a director of American Superconductor
Corporation, The Home Depot, Inc. and Thermo Instrument Systems Inc., an
affiliate of Thermo Electron.

Peter O. Crisp has been a director of the Company since 1985. 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, NovaCare Inc., Thermo Electron and United States Trust
Corporation, as well as of Thermedics Inc. and ThermoTrex Corporation, which are
affiliates of Thermo Electron.

Brian D. Holt has been a director and the chairman of the Board of the
Company since September 1998. He has been the president and chief executive
officer of Thermo Ecotek Corporation since February 1994. He has been the chief
operating officer, energy and environment, of Thermo Electron since September
1998. From March 1996 to September 1998, he was a vice president of Thermo
Electron. For more than five years prior to his appointment as an officer of
Thermo Ecotek Corporation, he was the president and chief executive officer of
Pacific Generation Company, a financier, builder, owner and operator of
independent power facilities. Mr. Holt is also a director of KFx, Inc., as well
as The Randers Killam Group Inc., Thermo Ecotek Corporation, ThermoRetec
Corporation and Thermo TerraTech Inc., which are affiliates of Thermo Electron.

Donald E. Noble has been a director of the Company since 1990. For more than
20 years, from 1959 to 1980, Mr. Noble served as the chief executive officer of
Rubbermaid Incorporated, first with the title of president and then as chairman
of the board. Mr. Noble was a director of Thermo Electron until his retirement
from this board in September 1999, and is also a director of Thermo Fibertek
Inc., Thermo Sentron Inc. and Thermo TerraTech Inc., which are affiliates of
Thermo Electron.

John J. Setnicka has been a director of the Company since December 1998. He
has been the president of Excel International Advisors, Inc., an export
management company, since June 1994. He was a vice president of Eveready Battery
Company, a leading manufacturer of dry cell batteries, from 1987 to 1992. Mr.
Setnicka was retired from 1992 until 1994.

71
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDER

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 3, 1999 with respect to the only person
that was known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF OUTSTANDING
OF BENEFICIAL OWNER OWNED SHARES BENEFICIALLY OWNED
- ------------------------------------------------------------------- ----------------- ---------------------------
<S> <C> <C>
Thermo Electron Corporation(1)..................................... 9,310,359 78.3 %
81 Wyman Street
Waltham, MA 02454-9046
</TABLE>

- ------------------------

(1) Thermo Electron has the power to elect all of the members of the Company's
Board of Directors. After the Merger, Thermo Electron will beneficially own
100% of the outstanding Common Stock.

MANAGEMENT

The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo Electron and ThermoLyte, a majority-owned
subsidiary of the Company, as of June 30, 1999, with respect to (i) each
director of the Company, (ii) the chief executive officer of the Company and the
other executive officers of the Company who, during the last completed fiscal
year of the Company, met the definition of "highly compensated" within the
meaning of the Commission's executive compensation disclosure rules
(collectively, the "named executive officers"), and (iii) all directors and
current executive officers as a group.

While certain directors and executive officers of the Company are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the shares
of Common Stock beneficially owned by Thermo Electron.

<TABLE>
<CAPTION>
THERMO POWER THERMO ELECTRON THERMOLYTE
NAME(1) CORPORATION(2) CORPORATION(3) CORPORATION
- ------------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Marshall J. Armstrong.............................................. 128,540 134,356 0
Frank Borman....................................................... 1,000 0 0
J. Timothy Corcoran................................................ 161,031 72,224 0
Peter O. Crisp..................................................... 36,965 103,082 0
John N. Hatsopoulos................................................ 46,753 849,418 0
Brian D. Holt...................................................... 0 286,943 0
Donald E. Noble.................................................... 23,932 60,117 0
John J. Setnicka................................................... 2,000 0 0
All directors and current executive officers as a group
(10) persons..................................................... 425,579 2,021,170 0
</TABLE>

- ------------------------

(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.

(2) Shares beneficially owned by Mr. Armstrong, Col. Borman, Mr. Corcoran, Mr.
Crisp, Mr. Hatsopoulos, Mr. Noble, Mr. Setnicka and all directors and
current executive officers as a group include 125,000, 1,000, 135,500,
5,800, 40,000, 6,400, 1,000 and 324,700 shares, respectively, that such
person or group had the right to acquire within 60 days of June 30, 1999,
through the exercise of stock

72
<PAGE>
options. Shares beneficially owned by Mr. Crisp, Mr. Noble and all directors
and current executive officers as a group include 12,072, 8,507 and 20,579
shares, respectively, that had been allocated through April 3, 1999, to
their respective accounts maintained under the Deferred Compensation Plan.
Shares beneficially owned by Mr. Armstrong include 1,120 shares held by Mr.
Armstrong's spouse. Shares beneficially owned by Mr. Hatsopoulos include
1,000 shares owned by Mr. Hatsopoulos' spouse. No director or named
executive officer beneficially owned more than 1% of the Common Stock
outstanding as of June 30, 1999, other than Mr. Armstrong, who beneficially
owned 1.07% and Mr. Corcoran, who beneficially owned 1.34% of the Common
Stock outstanding as of such date; all directors and current executive
officers as a group beneficially owned 3.55% of the Common Stock outstanding
as of such date.

(3) Shares beneficially owned by Mr. Armstrong, Mr. Corcoran, Mr. Crisp, Mr.
Hatsopoulos, Mr. Holt, Mr. Noble, and all directors and current executive
officers as a group include 72,300, 67,074, 8,625, 805,535, 283,950, 8,625
and 1,689,907 shares, respectively, that such person or group had the right
to acquire within 60 days of June 30, 1999, through the exercise of stock
options. Shares of the common stock of Thermo Electron beneficially owned by
Mr. Armstrong and all directors and current executive officers as a group
include 2,598, and 5,095 shares, respectively, allocated to their respective
accounts maintained pursuant to Thermo Electron's employee stock ownership
plan, of which the trustees, who have investment power over its assets,
were, as of June 30, 1999, executive officers of Thermo Electron. Shares of
the common stock of Thermo Electron beneficially owned by Mr. Crisp, Mr.
Noble and all directors and current executive officers as a group include
47,563, 45,827 and 93,390 shares, respectively, allocated through April 3,
1999 to their respective accounts maintained pursuant to Thermo Electron's
deferred compensation plan for directors. Shares beneficially owned by Mr.
Armstrong include 249 shares held by Mr. Armstrong's spouse. As of June 30,
1999, no director or named executive officer beneficially owned more than 1%
of Thermo Electron common stock outstanding as of such date; all directors
and current executive officers as a group beneficially owned approximately
1.27% of the Thermo Electron common stock outstanding as of June 30, 1999.

73
<PAGE>
CERTAIN TRANSACTIONS

Thermo Electron has, from time to time, caused certain subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. The Company has created ThermoLyte Corporation
("ThermoLyte") as a majority-owned, private subsidiary. The Company and such
other Thermo Electron subsidiaries are hereinafter referred to as the "Thermo
Subsidiaries."

Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Company, has adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.

To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range financial planning and providing other banking and credit services.
Pursuant to the Charter, Thermo Electron may also provide guarantees of debt or
other obligations of the Thermo Subsidiaries or may obtain external financing at
the parent level for the benefit of the Thermo Subsidiaries. In certain
instances, the Thermo Subsidiaries may provide credit support to, or on behalf
of, the consolidated entity or may obtain financing directly from external
financing sources. Under the Charter, Thermo Electron is responsible for
determining that the Thermo Group remains in compliance with all covenants
imposed by external financing sources, including covenants related to borrowings
of Thermo Electron or other members of the Thermo Group, and for apportioning
such constraints within the Thermo Group. In addition, Thermo Electron
establishes certain internal policies and procedures applicable to members of
the Thermo Group. The cost of the services provided by Thermo Electron to the
Thermo Subsidiaries is covered under existing corporate services agreements
between Thermo Electron and the Thermo Subsidiaries.

The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Company, can withdraw from participation in the Charter upon 30
days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.

As provided in the Charter, the Company and Thermo Electron have entered
into a corporate services agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain

74
<PAGE>
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 1.0% and 0.8% of the
Company's revenues for these services in calendar 1997 and 1998, respectively.
Prior to January 1996, the Company paid an amount equal to 1.2% of the Company's
revenues. The annual fee has remained 0.8% of the Company's revenues in calendar
1999. The fee is reviewed annually and may be changed by mutual agreement of the
Company and Thermo Electron. During fiscal 1997 and 1998 and the nine months
ended July 3, 1999, Thermo Electron assessed the Company $1,210,000, $2,277,000
and $1,646,000, respectively, in fees under the Services Agreement, including
amounts charged relating to discontinued operations. 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 1997 and 1998 and the
nine months ended July 3, 1999, the Company was billed an additional $36,000,
$115,000 and $35,000, respectively, 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 member of the Thermo Group or ceases to be a participant
in the Charter. In the event of a termination of the Services Agreement, the
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.

From time to time, the Company may transact business with other companies in
the Thermo Group. During fiscal 1997, 1998 and the nine months ended July 3,
1999, these transactions included the following:

In November 1997, the Company borrowed $160,000,000 from Thermo Electron
pursuant to a promissory note due in November 1999 in order to finance a portion
of its acquisition of Peek for $166,700,000, including related expenses. Such
note bears interest at a rate equal to the 90-day Commercial Paper Composite
Rate as reported by Merrill Lynch Capital Markets, plus 25 basis points and is
adjusted quarterly. The weighted average interest rates paid by the Company
during fiscal 1998 and the nine months ended July 3, 1999 were 5.72% and 5.15%,
respectively. During fiscal 1998 and the nine months ended July 3, 1999, the
Company recorded $8,146,000 and $6,162,000, respectively, of interest expense
relating to this obligation. Subsequent to the Company's acquisition of Peek,
the Company sold Peek's Measurement business to ONIX Systems Inc. ("ONIX"), a
majority-owned subsidiary of Thermo Instrument Systems Inc. ("Thermo
Instrument"), effective November 6, 1997, for $19,117,000. Thermo Instrument is
a majority-owned subsidiary of Thermo Electron. The components of the sales
price for the Measurement business consisted of the net tangible book value of
the Measurement business, cost in excess of net assets of acquired company and
the estimated tax liability relating to the sale. The cost in excess of net
assets of acquired company was determined based upon a percentage of the
Company's total cost in excess of net assets of acquired company associated with
its acquisition of Peek, based on the 1997 revenues of the Measurement business
relative to Peek's total 1997 consolidated revenues. During the second quarter
of fiscal 1998, ONIX paid the Company $19,117,000 for the Measurement business.
In addition, the Company received $257,000 in interest from ONIX in connection
with this receivable. In February 1999, Thermo Electron issued a commitment
letter to the Company pursuant to which Thermo Electron has agreed to refinance
the $160,000,000 promissory note at the option of the Company, on its maturity
date, with the net proceeds from Thermo Electron's October 1998 offering of
7.625% Notes due 2008, and other available cash. In accordance with the
commitment letter, the new promissory note from the Company to Thermo Electron
would be due in 2008 and bear interest at a rate of 7.625%.

75
<PAGE>
In March 1995, the Company's ThermoLyte subsidiary sold 1,845,000 units,
each unit consisting of one share of ThermoLyte common stock and one redemption
right, at $10.00 per unit. Holders of the common stock issued in the offering
had the option to require ThermoLyte to redeem any or all of their shares at
$10.00 per share in December 1998. Such holders also have the right to require
ThermoLyte to redeem their common stock at $10.00 per share in December 1999.
During December 1998, the first redemption period, 1,070,000 shares of
ThermoLyte common stock were redeemed for a total redemption value of
$17,070,000. In connection therewith, ThermoLyte redeemed 25,000 shares held by
Crescent International Holdings Ltd. at a redemption price of $10.00 per share,
the same redemption price received by unaffiliated holders. Crescent
International Holdings Ltd, a member of the Olayan Group, is indirectly
controlled by Suliman S. Olayan, Hutham S. Olayan's father. Ms. Olayan is a
director of Thermo Electron. Ms. Olayan has disclaimed beneficial ownership of
the ThermoLyte shares owned by Crescent International Holdings Ltd. that were
redeemed.

In December 1998, the Company, along with certain other Thermo Subsidiaries,
entered into an arrangement with ABN AMRO. Only European-based Thermo
Subsidiaries participate in this arrangement. The arrangement with ABN AMRO
consists of a zero balance arrangement, which includes a total Thermo Electron
credit facility of $22,534,000. 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. Thermo Electron guarantees all of the obligations of
each participant in this arrangement. As of July 3, 1999, the Company had a
positive cash balance of approximately $4,013,000, based on an exchange rate of
$0.4680/NLG 1.0. For the six months ended July 3, 1999, the average interest
rate earned on NLG deposits by participants in this credit arrangement was
approximately 3.29% and the average interest rate paid on overdrafts was
approximately 3.83%.

In February 1999, the Company began participating, along with certain other
Thermo Subsidiaries, in a notional pool arrangement with Barclays Bank, which as
of July 3, 1999, included a total Thermo Electron credit facility of
$72,360,000. As of July 3, 1999, the Company had access to $4,729,000 under this
credit facility. Only U.K.-based Thermo Subsidiaries participate in this
arrangement. Under this arrangement the Bank notionally combines the positive
and negative cash balances held by the participants to calculate the net
interest yield/expense for the group. The benefit derived from this arrangement
is then allocated based on balances attributable to the respective participants.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. As of July 3, 1999, the Company had a negative cash balance of
approximately $2,404,000, based on an exchange rate of $1.5763/GBP 1.00. For the
five months ended July 3, 1999, the average interest rate earned on GBP deposits
by participants in this credit arrangement was approximately 5.61% and the
average interest rate paid on overdrafts was approximately 6.00%.

As of July 3, 1999, $657,000 of the Company's cash equivalents were invested
in a cash management arrangement with Thermo Electron, that was effective June
1, 1999. Under the cash management arrangement, the Company lends its excess
cash to Thermo Electron and has the contractual right to withdraw its invested
funds upon 30 days' prior notice. 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 the arrangement by all
Thermo Electron subsidiaries other than wholly owned subsidiaries. The Company's
funds invested in the new arrangement earn a rate equal to the 30-day Dealer
Commercial Paper Rate as reported in THE WALL STREET JOURNAL plus 50 basis
points, set at the beginning of each month. ThermoLyte had borrowed cash from
Thermo Electron and such borrowings are now subject to the new cash management
arrangement. As of July 3, 1999, ThermoLyte owed Thermo Electron $1,458,000 for
borrowings under this facility. ThermoLyte pays interest on its borrowings at a
rate equal to the 30-day Dealer Commercial Paper Rate as reported in THE WALL
STREET JOURNAL plus 150 basis points, set at the beginning of each month.

76
<PAGE>
In addition to the borrowings relating to the Peek acquisition and the
borrowings of ThermoLyte and certain of the Company's U.K.-based subsidiaries
discussed above, at July 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $1,280,000 for amounts due under the Corporate
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 miscellaneous items. These
amounts do not bear interest and are expected to be paid in the normal course of
business. The largest amount of net indebtedness owed by the Company to Thermo
Electron and its other subsidiaries, including amounts discussed above, since
September 27, 1997, was $165,142,000.

In 1996, the Company adopted a stock holding policy which requires its
executive officers to acquire and hold a minimum number of shares of Common
Stock. In order to assist the executive officers in complying with the policy,
the Company also adopted a Stock Holding Assistance Plan under which it may make
interest-free loans to certain key employees, including its executive officers,
to enable such employees to purchase the Common Stock in the open market. During
1997, Mr. Corcoran received loans in the aggregate principal amount of $119,000
under this plan to purchase 18,000 shares of Common Stock. The loans to Mr.
Corcoran are to be repaid upon the earlier of demand or the fifth anniversary of
the date of the loan, unless otherwise authorized by the human resources
committee of the Board of Directors. As of the date hereof, the entire loan
amount remains outstanding. The policy and Plan were amended in 1998 to apply
only to the chief executive officer of the Company.

CERTAIN INFORMATION CONCERNING THE MERGER SUB
AND THERMO ELECTRON

THE MERGER SUB

The Merger Sub is a newly-formed Massachusetts corporation organized at the
direction of Thermo Electron for the sole purpose of facilitating the Merger. It
has not conducted any prior business.

The principal executive offices of the Merger Sub are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.

THERMO ELECTRON

Thermo Electron develops, manufactures and markets monitoring, analytical
and biomedical instrumentation; biomedical products including heart-assist
devices, respiratory-care equipment and mammography systems; paper recycling and
papermaking equipment; alternative-energy systems and clean fuels; industrial
process equipment; and other specialized products. Thermo Electron also provides
a range of services that include industrial outsourcing, particularly in
environmental-liability management, laboratory analysis and metallurgical
processing; and conducts advanced-technology research and development.

The principal executive offices of Thermo Electron are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.

INDEPENDENT PUBLIC ACCOUNTANTS

The Company's Consolidated Balance Sheets as of October 3, 1998 and
September 27, 1997, and the related Consolidated Statements of Operations, Cash
Flows and Comprehensive Income and Shareholders' Investment of the Company for
each of the three years in the period ended October 3, 1998, included in this
Proxy Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report. Representatives of Arthur Andersen LLP
are not expected to be at the Special Meeting.

The Consolidated Statements of Income, Movements in Shareholders' Equity,
Cash Flows, and Total Recognised Gains and Losses of Peek plc for each of the
two years in the period ended December 31,

77
<PAGE>
1996, included in this Proxy Statement, have been audited by Ernst & Young,
independent auditors, as stated in their report.

STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be included in the proxy statement and
form of proxy relating to the 2000 Annual Meeting of the Stockholders of the
Company and to be presented at such meeting must be received by the Company for
inclusion in the proxy statement and form of proxy no later than October 8,
1999. Notices of stockholder proposals submitted outside the processes of Rule
14a-8 under the Exchange Act (relating to proposals to be presented at the
meeting but not included in the Company's proxy statement and form of proxy),
will be considered untimely, and thus the Company's proxy may confer
discretionary voting authority on the persons named in the proxy with regard to
such proposals, if received after December 18, 1999.

ADDITIONAL INFORMATION

Pursuant to the requirements of Section 13(e) of the Exchange Act, and Rule
13e-3 promulgated thereunder, the Company, as issuer of the class of equity
securities that is the subject of the Rule 13e-3 transaction, together with the
Merger Sub and Thermo Electron, have filed a Schedule 13E-3 with the Commission
with respect to the transactions contemplated by the Merger Agreement. As
permitted by the rules and regulations of the Commission, this Proxy Statement
omits certain information, exhibits and undertakings contained in the Schedule
13E-3. Such additional information can be inspected at and obtained from the
Commission in the manner set forth below under "AVAILABLE INFORMATION."

Statements contained in this Proxy Statement or in any document incorporated
herein by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each instance
reference is made to such contract or other document filed as an exhibit to the
Schedule 13E-3 or such other document, and each such statement shall be deemed
qualified in its entirety by such reference.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. The reports, proxy statements, and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington D.C. 20549 and at the following Regional Offices of
the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. The same information is also available on the
Internet at http://www.FreeEDGAR.com. The Common Stock is listed on the American
Stock Exchange, and such material that relates to the Company may also be
inspected at the offices of the American Stock Exchange, Inc., 86 Trinity Place,
New York, New York 10006-1881. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT, IN CONNECTION
WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THERMO ELECTRON OR
THE MERGER SUB. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, THE MERGER SUB, AND THERMO
ELECTRON SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.

78
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by the Company with the Commission
(File No. 1-10573) are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
October 3, 1998, as amended by Amendment No. 1 on Form 10-K/A filed with the
Commission on February 1, 1999, Amendment No. 2 on Form 10-K/A filed with
the Commission on February 10, 1999 and Amendment No. 3 on Form 10-K/A filed
with the Commission on September 22, 1999;

2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 2, 1999;

3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 3, 1999;

4. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 3, 1999, as amended by Amendment No. 1 on Form 10-Q/A filed with
the Commission on September 22, 1999;

5. The Company's Current Report on Form 8-K dated December 10, 1998,
regarding updated information related to the proposed reorganization at
Thermo Electron and certain of its subsidiaries, including the Company; and

6. The Company's Current Report on Form 8-K dated May 24, 1999,
regarding the recording of certain pretax charges totaling $10 million.

Copies of the documents listed above (other than exhibits thereto which are
not specifically incorporated by reference herein) are available, without
charge, to any person, including any beneficial owner of Common Stock, to whom
this Proxy Statement is delivered, upon oral or written request to Sandra L.
Lambert, Clerk, Thermo Power Corporation, c/o Thermo Electron Corporation, 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046 (telephone (781)
622-1000).

Any statements contained in a document incorporated or deemed to be
incorporated herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded. All information
appearing in this Proxy Statement is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference.

79
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

THERMO POWER CORPORATION

Report of Independent Public Accountants................................................................. F-2

Consolidated Statement of Operations for the nine months ended July 3, 1999, and July 4, 1998, and the
fiscal years ended October 3, 1998, September 27, 1997, and September 28, 1996......................... F-3

Consolidated Balance Sheet as of July 3, 1999, October 3, 1998, and September 27, 1997................... F-4

Consolidated Statement of Cash Flows for the nine months ended July 3, 1999, and July 4, 1998, and the
fiscal years ended October 3, 1998, September 27, 1997, and September 28, 1996......................... F-6

Consolidated Statement of Comprehensive Income and Shareholders' Investment for the nine months ended
July 3, 1999, and the fiscal years ended October 3, 1998, September 27, 1997, and September 28, 1996... F-8

Notes to Consolidated Financial Statements............................................................... F-9

PEEK PLC

Report of Independent Auditors........................................................................... F-34

Consolidated Profit and Loss Account for the years ended December 31, 1996 and 1995...................... F-35

Consolidated Cash Flow Statement for the years ended December 31, 1996 and 1995.......................... F-36

Consolidated Statement of Total Recognised Gains and Losses for the years ended December 31, 1996 and
1995................................................................................................... F-37

Notes to the Accounts.................................................................................... F-38

Unaudited Interim Accounts............................................................................... F-55

Unaudited Consolidated Profit and Loss Account for the nine months ended September 30, 1997 and 1996..... F-56

Unaudited Consolidated Cash Flow Statement for the nine months ended September 30, 1997 and 1996......... F-57

Unaudited Notes to the Accounts.......................................................................... F-58

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME OF THERMO POWER CORPORATION AND PEEK PLC (UNAUDITED)

Pro Forma Combined Condensed Statement of Income for the fiscal year ended October 3, 1998............... F-61

Notes to Pro Forma Combined Condensed Statement of Income................................................ F-62
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Thermo Power Corporation:

We have audited the accompanying consolidated balance sheet of Thermo Power
Corporation (a Massachusetts corporation and 79%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of October 3, 1998, and September 27,
1997, and the related consolidated statements of operations, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended October 3, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo Power
Corporation and subsidiaries as of October 3, 1998, and September 27, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 3, 1998, in conformity with generally accepted
accounting principles.

Arthur Andersen LLP

Boston, Massachusetts
November 9, 1998 (except with
respect to certain matters discussed
in Notes 4 and 15, as to which the
date is July 3, 1999)

F-2
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
-------------------- -------------------------------
JULY 3, JULY 4, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Notes 7 and 12).......................... $ 205,734 $ 179,046 $ 245,692 $ 91,881 $ 93,058
--------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues (Note 15)....................... 153,234 125,882 172,055 72,725 74,289
Selling, general, and administrative expenses
(Notes 7 and 15)............................... 42,649 37,853 50,801 14,265 13,874
Research and development expenses................ 5,622 6,031 7,921 1,929 2,633
Restructuring costs (Note 15).................... 9,614 -- -- -- --
--------- --------- --------- --------- ---------
211,119 169,766 230,777 88,919 90,796
--------- --------- --------- --------- ---------
Operating Income (Loss)............................ (5,385) 9,280 14,915 2,962 2,262
Interest Income (includes $257 for the fiscal 1998
periods from related parties; Note 3)............ 504 1,673 1,930 1,829 1,714
Interest Expense (includes $6,162 and $5,824 for
the nine-month periods ended July 3, 1999, and
July 4, 1998, and $8,146 for fiscal 1998 to
related parties; Note 10)........................ (6,492) (6,544) (8,998) (18) (26)
Gain on Sale of Investments, Net (includes $53 and
$469 on sale of related-party investments in
fiscal 1997 and 1996; Notes 2 and 7)............. -- -- 11 53 208
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations Before
Income Taxes and Minority Interest............... (11,373) 4,409 7,858 4,826 4,158
Provision (Benefit) for Income Taxes (Note 6)...... (1,075) 2,568 4,082 2,223 1,772
Minority Interest Expense.......................... 78 345 423 312 312
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations........... (10,376) 1,496 3,353 2,291 2,074
Loss from Discontinued Operations (net of benefit
for income taxes of $190, $215, $105, and $669;
Note 4).......................................... -- (338) (381) (187) (1,189)
Provision for Loss on Disposal of Discontinued
Operations (net of benefit for income taxes of
$357 in fiscal 1998; Note 4)..................... -- -- (636) -- --
--------- --------- --------- --------- ---------
Net Income (Loss).................................. $ (10,376) $ 1,158 $ 2,336 $ 2,104 $ 885
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (Loss) per Share from Continuing
Operations (Note 13):
Basic.......................................... $ (.88) $ .13 $ .28 $ .19 $ .17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................ $ (.88) $ .13 $ .28 $ .19 $ .16
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and Diluted Earnings (Loss) per Share (Note
13):............................................. $ (.88) $ .10 $ .20 $ .17 $ .07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Shares (Note 13):
Basic.......................................... 11,853 11,841 11,838 12,212 12,466
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................ 11,853 11,931 11,908 12,218 12,707
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JULY 3, OCT. 3, SEPT. 27,
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>

ASSETS
Current Assets:
Cash and cash equivalents (includes $11,459 and $17,994
under repurchase agreement with parent company in fiscal
1998 and 1997)........................................... $ 10,265 $ 22,240 $ 19,347
Advance to affiliate (Note 15)............................. 657 -- --
Available-for-sale investments, at quoted market value
(amortized cost of $4,017 and $9,129; Notes 2 and 7)..... -- 4,018 9,171
Accounts receivable, less allowances of $9,664, $10,299,
and $757................................................. 58,117 52,098 21,012
Unbilled contract costs and fees........................... 6,526 10,718 4,856
Inventories................................................ 36,135 43,984 19,884
Prepaid income taxes (Note 6).............................. 11,008 11,205 3,118
Net assets of discontinued operations (Note 4)............. -- 8,525 --
Other current assets....................................... 3,869 2,421 219
Due from parent company and affiliated companies........... -- 732 --
----------- --------- ---------
126,577 155,941 77,607
----------- --------- ---------
Rental Assets, at Cost, Net.................................. 12,043 10,118 10,276
----------- --------- ---------
Property, Plant, and Equipment, at Cost, Net................. 21,567 24,871 10,591
----------- --------- ---------
Long-term Available-for-sale Investments, at Quoted Market
Value
(amortized cost of $2,301 in fiscal 1997; Notes 2 and 3)... -- -- 2,200
----------- --------- ---------
Other Assets................................................. 4,648 4,976 236
----------- --------- ---------
Cost in Excess of Net Assets of Acquired Companies (Notes 3
and 15).................................................... 147,370 155,729 7,082
----------- --------- ---------
$ 312,205 $ 351,635 $ 107,992
----------- --------- ---------
----------- --------- ---------
</TABLE>

F-4
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
JULY 3, OCT. 3, SEPT. 27,
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>

LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term
obligations
(includes $1,458 advanced from affiliate in fiscal 1999;
Notes 10 and 15)....................................... $ 4,696 $ 396 $ --
Accounts payable........................................... 27,186 30,899 9,622
Accrued payroll and employee benefits...................... 7,340 7,885 3,133
Billings in excess of contract costs and fees.............. 6,301 8,517 1,353
Accrued income taxes....................................... 7,226 10,048 1,620
Accrued warranty costs..................................... 6,491 6,293 3,435
Common stock of subsidiary subject to redemption ($1,380
and $18,450 redemption value)............................ 1,380 18,372 --
Accrued costs for acquired contracts (Note 3).............. 8,487 8,906 --
Accrued acquisition expenses (Note 3)...................... 1,283 2,086 33
Other accrued expenses (Notes 4 and 15).................... 25,096 26,777 3,207
Due to parent company and affiliated companies............. 1,280 -- 496
----------- --------- ---------
96,766 120,179 22,899
----------- --------- ---------
Deferred Income Taxes (Note 6)............................... 852 1,093 114
----------- --------- ---------
Long-term Obligations (includes $160,000 due to parent
company in fiscal 1999 and fiscal 1998; Notes 10 and 15)... 160,439 160,499 252
----------- --------- ---------
Commitments (Notes 7 and 8)

Common Stock of Subsidiary Subject to Redemption ($18,450
redemption value).......................................... -- -- 18,059
----------- --------- ---------
Shareholders' Investment (Notes 5 and 9):
Common stock, $.10 par value, 30,000,000 shares authorized;
12,493,371 shares issued................................. 1,249 1,249 1,249
Capital in excess of par value............................. 55,505 55,401 55,283
Retained earnings.......................................... 5,771 16,147 13,811
Treasury stock at cost, 601,619, 663,208 and 578,124
shares................................................... (4,178) (4,600) (3,636)
Accumulated other comprehensive items...................... (4,199) 1,667 (39)
----------- --------- ---------
54,148 69,864 66,668
----------- --------- ---------
$ 312,205 $ 351,635 $ 107,992
----------- --------- ---------
----------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

F-6
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------------ ---------------------------------
JULY 3, JULY 4, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1998 1997 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (Note 3).................... $ (1,587) $ (148,854) $ (156,815) $ -- $ (860)
Proceeds from sale of acquired business to related party (Note
3)........................................................... -- 19,117 19,117 -- --
Proceeds from sale of businesses (Notes 3 and 4)............... 6,393 -- 1,075 -- --
Purchases of available-for-sale investments.................... -- -- -- (11,301) (5,000)
Proceeds from sale and maturities of available-for-sale
investments.................................................. 4,018 5,011 5,011 6,000 8,982
Proceeds from sale of related-party investments (Notes 2 and
7)........................................................... -- -- -- 262 852
Purchases of property, plant, and equipment.................... (2,939) (5,662) (6,159) (1,778) (2,384)
Proceeds from sale of property, plant, and equipment........... 189 2,066 2,179 -- --
Advances to affiliate, net (Note 15)........................... (657) -- -- -- --
Increase in rental assets...................................... (3,706) (2,374) (2,872) (3,191) (4,849)
Proceeds from sale of rental assets............................ 740 1,230 1,239 1,522 2,268
Other.......................................................... 53 (783) -- (2) 140
----------- ----------- ----------- --------- ---------
Net cash provided by (used in) continuing
operations......................................... 2,504 (130,249) (137,225) (8,488) (851)
Net cash used in discontinued operations............. -- (173) (144) (630) (329)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in) investing
activities......................................... 2,504 (130,422) (137,369) (9,118) (1,180)
----------- ----------- ----------- --------- ---------
FINANCING ACTIVITIES
Redemption of subsidiary common stock (Note 15)................ (17,070) -- -- -- --
Issuance of long-term obligation to parent company (Note 10)... -- 160,000 160,000 -- --
Increase (decrease) in short-term obligations (Note 10)........ 4,389 (27,402) (28,274) -- --
Purchases of Company common stock.............................. -- (1,390) (1,380) (3,613) --
Net proceeds from issuance of Company common stock............. 526 537 534 71 377
Repayment of long-term obligations............................. (275) -- (162) (53) (59)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in) financing activities
of continuing operations........................... (12,430) 131,745 130,718 (3,595) 318
----------- ----------- ----------- --------- ---------
Exchange Rate Effect on Cash..................................... (1,014) 171 283 -- --
----------- ----------- ----------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents................. (11,975) 6,573 2,893 (10,505) 6,348
Cash and Cash Equivalents at Beginning of Period................. 22,240 19,347 19,347 29,852 23,504
----------- ----------- ----------- --------- ---------
Cash and Cash Equivalents at End of Period....................... $ 10,265 $ 25,920 $ 22,240 $ 19,347 $ 29,852
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
CASH PAID FOR
Interest....................................................... $ 6,556 $ 6,230 $ 8,370 $ 18 $ 26
Income taxes................................................... $ 1,443 $ 1,600 $ (1,368) $ 445 $ 894
NONCASH ACTIVITIES
Fair value of assets of acquired companies..................... $ 1,767 $ 271,109 $ 298,141 $ -- $ 860
Cash paid for acquired companies............................... (1,587) (164,435) (172,412) -- (860)
Cash paid in prior year for acquired company................... -- (2,301) (2,301) -- --
----------- ----------- ----------- --------- ---------
Liabilities assumed of acquired companies.................... $ 180 $ 104,373 $ 123,428 $ -- $ --
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>
THERMO POWER CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS' INVESTMENT

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
--------------- -------------------------------
JULY 3, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1997 1996
--------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
COMPREHENSIVE INCOME
Net Income (Loss)............................... $ (10,376) $ 2,336 $ 2,104 $ 885
--------------- --------- --------- ---------
Other Comprehensive Items:
Foreign currency translation adjustment....... (5,865) 1,666 -- --
Net unrealized gains (losses) on
available-for-sale investments.............. (1) 40 (26) (211)
--------------- --------- --------- ---------
(5,866) 1,706 (26) (211)
--------------- --------- --------- ---------
$ (16,242) $ 4,042 $ 2,078 $ 674
--------------- --------- --------- ---------
--------------- --------- --------- ---------
SHAREHOLDERS' INVESTMENT
Common Stock, $.10 Par Value:
Balance at beginning of period................ $ 1,249 $ 1,249 $ 1,249 $ 1,248
Issuance of stock under employees' and
directors' stock plans...................... -- -- -- 1
--------------- --------- --------- ---------
Balance at end of period...................... 1,249 1,249 1,249 1,249
--------------- --------- --------- ---------
Capital in Excess of Par Value:
Balance at beginning of period................ 55,401 55,283 54,448 53,898
Issuance of stock under employees' and
directors' stock plans...................... 104 118 71 58
Tax benefit related to employees' and
directors' stock plans (Note 6)............. -- -- 764 492
--------------- --------- --------- ---------
Balance at end of period...................... 55,505 55,401 55,283 54,448
--------------- --------- --------- ---------
Retained Earnings:
Balance at beginning of period................ 16,147 13,811 11,707 10,822
Net income (loss)............................. (10,376) 2,336 2,104 885
--------------- --------- --------- ---------
Balance at end of period...................... 5,771 16,147 13,811 11,707
--------------- --------- --------- ---------
Treasury Stock:
Balance at beginning of period................ (4,600) (3,636) (23) (341)
Purchases of Company common stock............. -- (1,380) (3,613) --
Issuance of stock under employees' and
directors' stock plans...................... 422 416 -- 318
--------------- --------- --------- ---------
Balance at end of period...................... (4,178) (4,600) (3,636) (23)
--------------- --------- --------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of period................ 1,667 (39) (13) 198
Other comprehensive items..................... (5,866) 1,706 (26) (211)
--------------- --------- --------- ---------
Balance at end of period...................... (4,199) 1,667 (39) (13)
--------------- --------- --------- ---------
$ 54,148 $ 69,864 $ 66,668 $ 67,368
--------------- --------- --------- ---------
--------------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Thermo Power Corporation (the "Company") manufactures, markets, and services
intelligent traffic-control systems and related products, industrial
refrigeration equipment, and commercial cooling and cogeneration systems. The
Company also conducts research and development on advanced power and
pollution-control technologies, and offers propane-powered lighting products as
well as lighting products for the automotive, sporting goods, and marine
markets.

RELATIONSHIP WITH THERMO ELECTRON CORPORATION

The Company was incorporated on June 6, 1985, as a wholly owned subsidiary
of Thermo Electron Corporation ("Thermo Electron"). As of October 3, 1998,
Thermo Electron owned 9,300,806 shares of the Company's common stock,
representing 79% of such stock outstanding. On August 12, 1998, Thermo Electron
announced a proposed reorganization involving certain of Thermo Electron's
subsidiaries, including the Company. As part of this reorganization, Thermo
Electron announced that the Company may be taken private and become a wholly
owned subsidiary of Thermo Electron (Note 15).

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of the Company,
its wholly owned subsidiaries, and its 78%-owned privately held subsidiary,
ThermoLyte Corporation ("ThermoLyte") (Note 15). All material intercompany
accounts and transactions have been eliminated.

FISCAL YEAR

The Company has adopted a fiscal year ending the Saturday nearest September
30. References to fiscal 1998, 1997, and 1996 are for the fiscal years ended
October 3, 1998, September 27, 1997, and September 28, 1996, respectively.
Fiscal 1998 included 53 weeks; 1997 and 1996 each included 52 weeks.

REVENUE RECOGNITION

The Company recognizes revenues upon shipment of its products or upon
completion of services it renders, and recognizes rental revenues on a
straight-line basis over the term of the rental contract. The Company provides a
reserve for its estimate of warranty costs at the time of shipment. In addition,
revenues and profits on all long-term contracts are recognized using the
percentage-of-completion method. Revenues recorded under the
percentage-of-completion method, including revenues from research and
development contracts, were $83,773,000, $60,590,000, and $57,842,000 in fiscal
1998, 1997, and 1996, respectively. The percentage of completion is determined
by relating the actual costs incurred to date to management's estimate of total
costs to be incurred on each contract. If a loss is indicated on any contract in
process, a provision is made currently for the entire loss. The Company's
contracts generally provide for billing of customers upon the attainment of
certain milestones specified in each contract. Revenues earned on contracts in
process in excess of billings are classified as unbilled contract costs and
fees, and amounts billed in excess of revenues are classified as billings in
excess of contract costs and fees in the accompanying balance sheet. There are
no significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values or
that are not expected to be collected within one year, including amounts that
are billed but not paid under retainage provisions.

F-9
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RESEARCH AND DEVELOPMENT ARRANGEMENTS

The Company has research and development arrangements with the natural gas
industry and various government agencies. Revenues in the accompanying statement
of operations include $4,220,000, $4,688,000, and $5,836,000 and cost of
revenues include $3,874,000, $3,776,000, and $4,475,000 related to these
arrangements in fiscal 1998, 1997, and 1996, respectively. The Company is
required to pay royalties for any technologies developed or products
commercialized under several of these arrangements. Selling, general, and
administrative expenses in the accompanying statement of income include royalty
expense related to these arrangements of $41,000, $65,000, and $71,000 in fiscal
1998, 1997, and 1996, respectively.

STOCK-BASED COMPENSATION PLANS

The Company applies Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.

INCOME TAXES

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities calculated
using enacted tax rates in effect for the year in which the differences are
expected to be reflected in the tax return.

EARNINGS PER SHARE

During the first quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 13). As a result, all previously reported earnings
per share have been restated; however, basic and diluted earnings per share
equal the Company's previously reported earnings per share for the fiscal 1997
and 1996 periods. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the period.
Diluted earnings per share have been computed assuming the exercise of stock
options and their related income tax effect.

CASH AND CASH EQUIVALENTS

At fiscal year-end 1998 and 1997, $11,459,000 and $17,994,000, respectively,
of the Company's cash equivalents were invested in a repurchase agreement with
Thermo Electron. Under this agreement, the Company in effect lends excess cash
to Thermo Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, 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 are readily convertible into cash by the Company. The
repurchase agreement earns a rate based on the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter (Note 15). Cash
equivalents are carried at cost, which approximates market value. The Company's
cash equivalents also include $8,270,000 of money market fund investments of the
Company's foreign subsidiaries at October 3, 1998.

F-10
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORIES

Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value and include materials, labor, and manufacturing overhead. The
components of inventories are as follows:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials and Supplies................................ $ 21,549 $ 17,570
Work in Process........................................... 14,422 1,077
Finished Goods............................................ 8,013 1,237
--------- ---------
$ 43,984 $ 19,884
--------- ---------
--------- ---------
</TABLE>

RENTAL ASSETS

The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation on rental assets over an estimated useful life of seven years.
Accumulated depreciation was $4,766,000 and $3,369,000 at fiscal year-end 1998
and 1997, respectively.

PROPERTY, PLANT, AND EQUIPMENT

The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings, 20 to 50 years; machinery
and equipment, 2 to 12 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset. Property, plant, and equipment
consists of the following:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 2,595 $ 252
Buildings................................................. 7,782 5,731
Machinery, Equipment, and Leasehold Improvements.......... 24,056 13,654
--------- ---------
34,433 19,637
Less: Accumulated Depreciation and Amortization........... 9,562 9,046
--------- ---------
$ 24,871 $ 10,591
--------- ---------
--------- ---------
</TABLE>

OTHER ASSETS

Other assets in the accompanying fiscal 1998 balance sheet consists
primarily of acquired technology and other intangibles, including the cost of
acquired patents, that are being amortized over their estimated useful lives,
primarily 15 years. Accumulated amortization was $314,000 at fiscal year-end
1998.

COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES

The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over periods of 25 to 40 years.
Accumulated amortization was $4,280,000 and $710,000 at fiscal year-end 1998 and
1997, respectively. The Company assesses the future useful life of this

F-11
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
asset whenever events or changes in circumstances indicate that the current
useful life has diminished. The Company considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of this asset.
If impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.

COMMON STOCK OF SUBSIDIARY SUBJECT TO REDEMPTION

In March 1995, ThermoLyte sold 1,845,000 units, each unit consisting of one
share of ThermoLyte common stock, $.001 par value, and one redemption right, at
$10.00 per unit, for net proceeds of $17,253,000. Holders of the common stock
purchased in the offering have the option to require ThermoLyte to redeem in
December 1998 or December 1999 any or all of their shares at $10.00 per share
(Note 15). The redemption rights are guaranteed on a subordinated basis by
Thermo Electron. The Company has agreed to reimburse Thermo Electron in the
event Thermo Electron is required to make a payment under the guarantee. The
difference between the redemption value and the original carrying amount of
common stock of subsidiary subject to redemption is accreted using the
straight-line method over the period ending December 1998, which corresponds to
the first redemption period. The accretion is charged to minority interest
expense in the accompanying statement of operations.

FOREIGN CURRENCY

All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year, in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses in fiscal 1998 are included in the
accompanying statement of operations and are not material. The Company had no
foreign subsidiaries in fiscal 1997 and 1996.

COMPREHENSIVE INCOME

The Company has adopted SFAS 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
represent certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustment and, in fiscal 1998, unrealized net of tax gains on
available-for-sale investments of $1,000 and, in fiscal 1997, unrealized net of
tax losses on available-for-sale investments of $39,000.

FORWARD CONTRACTS

The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge certain firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. These
contracts principally hedge transactions denominated in Dutch guilders. The
purpose of the Company's foreign currency hedging activities is to protect the
Company's local currency cash flows related to these commitments from
fluctuations in foreign exchange rates. Gains and losses arising from forward
foreign exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter into
speculative foreign currency agreements.

F-12
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRESENTATION

Certain amounts in fiscal 1997 and 1996 have been reclassified to conform to
the presentation in the fiscal 1998 financial statements. In addition, the
results of operations of the Company's Engine segment have been classified as
discontinued operations as a result of the Company's decision to divest this
business (Note 4).

INTERIM FINANCIAL STATEMENTS

The financial statements as of July 3, 1999, and for the nine-month periods
ended July 4, 1998, and July 3, 1999, are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of results for these interim periods. The Company's results of
operations for the nine-month periods ended July 3, 1999, and July 4, 1998,
include 39 weeks and 40 weeks, respectively. The results of operations for the
nine-month period ended July 3, 1999, are not necessarily indicative of the
results to be expected for the entire year. Certain reclassifications of prior
period amounts have been made to conform to the current presentation.

2. AVAILABLE-FOR-SALE INVESTMENTS

The Company's debt and marketable equity securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded in the "Accumulated other comprehensive items"
component of shareholders' investment.

The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major security
type are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
MARKET COST UNREALIZED UNREALIZED
VALUE BASIS GAINS LOSSES
--------- --------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
Corporate Bonds....................................... $ 4,002 $ 4,001 $ 1 $ --
Other................................................. 16 16 -- --
--------- --------- --- -----
$ 4,018 $ 4,017 $ 1 $ --
--------- --------- --- -----
--------- --------- --- -----

1997
Government-agency Securities.......................... $ 5,008 $ 4,982 $ 26 $ --
Corporate Bonds....................................... 4,068 4,052 16 --
Other................................................. 2,295 2,396 -- (101)
--------- --------- --- -----
$ 11,371 $ 11,430 $ 42 $ (101)
--------- --------- --- -----
--------- --------- --- -----
</TABLE>

F-13
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. AVAILABLE-FOR-SALE INVESTMENTS (CONTINUED)
Short-term available-for-sale investments in the accompanying fiscal 1998
balance sheet represent debt securities with contractual maturities of less than
one year.

The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. Gain on sale of investments, net, in the
accompanying fiscal 1998 and 1997 statement of operations resulted from gross
realized gains relating to the sale of available-for-sale investments. Gain on
sale of investments, net, in the accompanying fiscal 1996 statement of
operations resulted from gross realized gains of $469,000 and gross realized
losses of $18,000 relating to the sale of available-for-sale investments, and a
write-down of other investments of $243,000.

In fiscal 1998, Peek plc ("Peek") ordinary shares acquired in fiscal 1997,
purchased for $2,301,000, were reclassified from long-term available-for-sale
investments and were included in the purchase price for Peek (Note 3).

3. ACQUISITIONS AND DISPOSITIONS

On November 6, 1997, the Company declared unconditional in all respects its
cash tender offer for the outstanding ordinary shares of Peek. The aggregate
cost to acquire all outstanding Peek ordinary shares, including related
expenses, was $166,736,000. The purchase price includes $2,301,000 that was paid
for shares acquired in fiscal 1997, classified as long-term available-for-sale
investments in the accompanying fiscal 1997 balance sheet. To finance the Peek
acquisition, the Company borrowed $160,000,000 from Thermo Electron (Note 10).
The cost of this acquisition exceeded the estimated fair value of the acquired
net assets by $147,884,000, which is being amortized over 40 years. Peek
develops, manufactures, markets, installs, and services equipment to monitor and
regulate traffic flow in cities and towns around the world.

Subsequent to Peek's acquisition by the Company, the Company sold its
Measurement business to ONIX Systems Inc. ("ONIX"), a majority-owned subsidiary
of Thermo Instrument Systems Inc. ("Thermo Instrument"), effective November 6,
1997, for $19,117,000 in cash. Thermo Instrument is a majority-owned subsidiary
of Thermo Electron. The components of the sales price for the Measurement
business consisted of the net tangible book value of the Measurement business,
cost in excess of net assets of acquired company, and the estimated tax
liability relating to the sale. The cost in excess of net assets of acquired
company was determined based upon a percentage of the Company's total cost in
excess of net assets of acquired company associated with its acquisition of
Peek, based on the 1997 revenues of the Measurement business relative to Peek's
total 1997 consolidated revenues. The Measurement business developed and
marketed field measurement products. During fiscal 1998, the Company also sold
the stock of Peek Fleetlogic B.V. ("Fleetlogic") for $1,075,000 in cash. The
purchase price approximated the book value of the net assets of Fleetlogic and
the Company recorded no gain or loss on the sale. As a result of the Company's
planned divestiture of this business, its operating losses were recorded as a
reduction of previously established accrued acquisition expenses.

In addition, in March 1998, the Company acquired the assets, subject to
certain liabilities, of Traffic Control Technology, Inc. ("Traffic Control
Technology") for $1,299,000 in cash and, in July 1998, ThermoLyte acquired the
outstanding stock of Optronics, Inc. ("Optronics") for $6,662,000 in cash,
including the repayment of $1,184,000 of debt. The Optronics acquisition is
subject to a post-closing adjustment. The cost of Traffic Control Technology
exceeded the estimated fair value of the acquired net assets by $750,000 and the
cost of Optronics exceeded the estimated fair value of the acquired net assets
by

F-14
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
$3,132,000. These amounts are being amortized over 25 years. Traffic Control
Technology is a manufacturer of traffic control equipment and Optronics is a
manufacturer of lighting products for the automotive, sporting goods, and marine
markets.

These acquisitions have been accounted for using the purchase method of
accounting, and their results have been included in the accompanying financial
statements from their respective dates of acquisition. Allocation of the
purchase price for these acquisitions was based on estimates of the fair value
of the net assets acquired, and for Optronics, is subject to adjustment upon
finalization of the purchase price allocation. The Company has no information
that indicates the final purchase price allocation will differ materially from
the preliminary estimates.

In the first quarter of fiscal 1996, the Company acquired the thermoelectric
cooling module business of ThermoTrex Corporation, a majority-owned subsidiary
of Thermo Electron, for $860,000, which was the net book value of the business
acquired. Because the Company and the thermoelectric cooling module business
were deemed for accounting purposes to be under control of their common majority
owner, Thermo Electron, the transaction has been accounted for at historical
cost in a manner similar to a pooling of interests. The results of the
thermoelectric cooling module business have been included in the accompanying
financial statements for all periods presented.

Based on unaudited data, the following table presents selected financial
information for the Company and Peek on a pro forma basis, assuming the
companies had been combined since the beginning of fiscal 1997. The results of
Peek exclude the results of businesses sold by Peek prior to its acquisition by
the Company and Peek's Measurement business, which was sold to ONIX. The effect
of the acquisitions not included in the pro forma data was not material to the
Company's results of operations.

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues................................................ $ 263,778 $ 286,533
Income (Loss) from Continuing Operations................ 2,693 (20,441)
Net Income (Loss)....................................... 1,676 (20,628)
Basic and Diluted Earnings (Loss) per Share from
Continuing Operations................................. .23 (1.67)
Basic and Diluted Earnings (Loss) per Share............. .14 (1.69)
</TABLE>

The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition of Peek been
made at the beginning of fiscal 1997.

F-15
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)

During fiscal 1998, the Company expended $3.9 million for severance and $1.4
million of lease costs for abandoned facilities, principally in connection with
the actions described above. The lease costs paid in fiscal 1998 primarily
related to Peek's former London headquarters. At October 3, 1998, the Company
had accrued additional costs that will require future outlays of cash of $0.6
million for severance which will be paid in fiscal 1999. In addition, the
Company had accrued $1.4 million for abandoned facilities, principally for an
Oregon facility that requires payments through 2006, in the event that the
Company's efforts to sublease or buyout the arrangement prove unsuccessful. The
Company finalized its plan for restructuring Peek in fiscal 1998 and all
substantive actions were completed in early fiscal 1999. The accounting for this
restructuring was in accordance with Emerging Issues Task Force Pronouncement
("EITF") 95-3.

A summary of the changes in accrued acquisition expenses follows:

<TABLE>
<CAPTION>
ABANDONMENT
OF EXCESS
FACILITIES SEVERANCE OTHER TOTAL
------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995........................ $ 458 $ $ 222 $ 680
Usage............................................ -- -- (109) (109)
Decrease due to finalization of restructuring
plans, recorded as a decrease in cost in excess
of net assets of acquired companies............ (52) -- -- (52)
------ ----------- --------- ---------
BALANCE AT SEPTEMBER 28, 1996........................ 406 -- 113 519
Usage............................................ -- -- (7) (7)
Decrease due to finalization of restructuring
plans, recorded as a decrease in cost in excess
of net assets of acquired companies............ (406) -- (73) (479)
------ ----------- --------- ---------
BALANCE AT SEPTEMBER 27, 1997........................ -- -- 33 33
Reserves established............................. 2,791 4,573 -- 7,364
Usage............................................ (1,366) (3,934) (11) (5,311)
------ ----------- --------- ---------

BALANCE AT OCTOBER 3, 1998 1,425 639 22 2,086

(UNAUDITED)
<S> <C> <C> <C> <C>
Reserves established............................. -- 99 -- 99
Usage............................................ (283) (592) -- (875)
</TABLE>

F-16

<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)

<TABLE>
<CAPTION>
ABANDONMENT
OF EXCESS
FACILITIES SEVERANCE OTHER TOTAL
------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Decrease due to finalization of restructuring
plans, recorded as a decrease in cost in excess
of net assets of acquired companies -- -- (22) (22)
Currency translation............................. -- (5) -- (5)
------ ----------- --------- ---------
BALANCE AT JULY 3, 1999.............................. $ 1,142 $ 141 $ -- $ 1,283
------ ----------- --------- ---------
------ ----------- --------- ---------
</TABLE>

4. DISCONTINUED OPERATIONS

In September 1998, the Company adopted a plan to divest its Engines segment,
which consists of its Crusader Engines division. In accordance with the
provisions of APB No. 30 concerning reporting the effect of disposal of a
segment of a business, the Company classified the fiscal 1998 results of
operations of the Engines segment, and the results for all prior periods
presented, as discontinued in the accompanying statement of operations. Revenues
from the Engines segment were $24,723,000, $30,801,000, and $29,265,000 in
fiscal 1998, 1997, and 1996, respectively. In addition, the net assets of the
Engines segment were classified as net assets of discontinued operations in the
accompanying fiscal 1998 balance sheet, and primarily consisted of inventories,
accounts receivable, and machinery and equipment, net of certain current
liabilities, principally accounts payable. The net assets of the Engines segment
at fiscal year-end 1997 totaled $14,043,000.

In December 1998, the Company completed the sale of the industrial and
marine engine product lines of its Crusader Engines division to two unrelated
third parties. Such sale represented a complete divestiture of the Engines
segment. The aggregate sales price for the two product lines consisted of
$6,393,000 in cash, the assumption of certain liabilities of the Crusader
Engines division, and a receivable of $1,035,000. The receivable, which is
included in other current assets in the accompanying July 3, 1999, balance
sheet, is due in December 1999 and is secured by an irrevocable letter of
credit. The Company retained liability for certain warranty obligations of this
business. The Company does not expect that this obligation or other costs
associated with winding down this business will materially affect its results of
operations or cash flows.

In fiscal 1998, the Company provided $636,000, net of a tax benefit of
$357,000, for the estimated loss on disposal of discontinued operations. This
amount included $448,000, net of a tax benefit of $252,000, for estimated losses
from operations of the discontinued operations through the expected date of
disposition. During the first nine months of fiscal 1999, the unaudited activity
recorded to the reserve was as follows: the reserve was increased by a pretax
gain on the sale of the net assets of the industrial and marine engine product
lines of $508,000 and was reduced by pretax operating losses of discontinued
operations of $645,000. The unaudited remaining reserve on July 3, 1999, was
$896,000, primarily representing continuing warranty obligations and a reserve
for estimated losses from operations as the Company winds down this business,
following its divestiture. The tax effect on these items was recorded as an
adjustment to accrued income taxes. The reserve for estimated losses on disposal
of the Engines segment is included in other accrued expenses in the accompanying
July 3, 1999, and fiscal 1998 balance sheets.

The Engines segment had unaudited revenues through the date of disposition
and an unaudited net loss for the first nine months of fiscal 1999 of $2,695,000
and $413,000, respectively. The net loss of the Engines Segment for the first
nine months of 1999 was recorded as a reduction of previously established

F-17
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. DISCONTINUED OPERATIONS (CONTINUED)
reserves as discussed above. The unaudited revenues and net loss from the
Engines segment for the first nine months of fiscal 1998 were $17,993,000 and
$338,000, respectively.

5. EMPLOYEE BENEFIT PLANS

STOCK-BASED COMPENSATION PLANS

STOCK OPTION PLANS

The Company has stock-based compensation plans for its key employees,
directors, and others. The Company's equity incentive plan permits the grant of
a variety of stock and stock-based awards as determined by the human resources
committee of the Company's Board of Directors (the "Board Committee"), including
restricted stock, stock options, stock bonus shares, or performance-based
shares. To date, only nonqualified stock options have been awarded under these
plans. The option recipients and the terms of options granted under these plans
are determined by the Board Committee. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions and
the right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over periods ranging from one to ten
years after the first anniversary of the grant date, depending on the term of
the option, which may range from three to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market value
of the Company's stock on the date of grant. To date, all options have been
granted at fair market value. The Company also has a directors' stock option
plan that provides for the grant of stock options in the Company and its
majority-owned subsidiary to outside directors pursuant to a formula approved by
the Company's shareholders. Options in the Company awarded under this plan are
exercisable six months after the date of grant and expire three or seven years
after the date of grant. In addition to the Company's stock-based compensation
plans, certain officers and key employees may also participate in the
stock-based compensation plans of Thermo Electron.

F-18
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. EMPLOYEE BENEFIT PLANS (CONTINUED)

A summary of the Company's stock option information is as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
(SHARES IN THOUSANDS) SHARES PRICE SHARES PRICE SHARES PRICE
- ---------------------------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding, Beginning of
Year.................................. 1,283 $9.32 1,342 $9.35 1,406 $9.24
Granted............................... 550 11.30 68 8.07 12 13.07
Exercised............................. (56) 8.40 (1) 5.45 (40) 6.76
Forfeited............................. (223) 11.32 (126) 9.03 (36) 8.98
------ ------ ------
Options Outstanding, End of Year........ 1,554 $9.77 1,283 $9.32 1,342 $9.35
------ -------- ------ -------- ------ --------
------ -------- ------ -------- ------ --------
Options Exercisable..................... 1,554 $9.77 1,283 $9.32 1,342 $9.35
------ -------- ------ -------- ------ --------
------ -------- ------ -------- ------ --------
Options Available for Grant............. 226 49 75
------ ------ ------
------ ------ ------
</TABLE>

A summary of the status of the Company's stock options at October 3, 1998,
is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
----------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
OF CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE
- ---------------------------------------- ------------- ------------ -----------
(IN
THOUSANDS)
<S> <C> <C> <C>
$6.40--$8.34............................ 109 1.9 years $ 7.58
8.35--10.27............................. 930 5.9 years 9.13
10.28--12.21............................ 508 6.4 years 11.34
12.22--14.15............................ 7 3.2 years 13.77
-----

$6.40--$14.15........................... 1,554 5.8 years $ 9.77
-----
-----
</TABLE>

EMPLOYEE STOCK PURCHASE PROGRAM

Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Under this program, shares of the Company's and Thermo
Electron's common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period, and the shares
purchased are subject to a six-month resale restriction. Beginning in November
1998, shares of the Company's and Thermo Electron's common stock can be
purchased at 85% of the lower of the fair market value at the beginning or end
of the period, and the shares purchased will be subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10% of
each participating employee's gross wages. During fiscal 1998, 1997, and 1996,
the Company issued 7,835 shares, 4,622 shares, and 18,012 shares, respectively,
of its common stock under this program.

PRO FORMA STOCK-BASED COMPENSATION EXPENSE

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based

F-19
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. EMPLOYEE BENEFIT PLANS (CONTINUED)
compensation expense. As permitted by SFAS No. 123, the Company has elected to
continue to apply APB No. 25 to account for its stock-based compensation plans.
Had compensation cost for awards after fiscal 1995 under the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Company's net income and earnings per share would have been as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income from Continuing Operations:
As reported....................................................... $ 3,353 $ 2,291 $ 2,074
Pro forma......................................................... 2,900 2,085 1,904
Basic Earnings per Share from Continuing Operations:
As reported....................................................... .28 .19 .17
Pro forma......................................................... .24 .17 .15
Diluted Earnings per Share from Continuing Operations:
As reported....................................................... .28 .19 .16
Pro forma......................................................... .24 .17 .15
Net Income:
As reported....................................................... $ 2,336 $ 2,104 $ 885
Pro forma......................................................... 1,866 1,883 708
Basic and Diluted Earnings per Share:
As reported....................................................... .20 .17 .07
Pro forma......................................................... .16 .15 .06
</TABLE>

Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Compensation expense for options granted is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.

The weighted average fair value per share of options granted was $4.86,
$3.45, and $4.83 in fiscal 1998, 1997, and 1996, respectively.

The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Volatility............................................... 41% 43% 43%
Risk-free Interest Rate.................................. 5.5% 6.0% 5.7%
Expected Life of Options................................. 4.8 years 4.2 years 3.3 years
</TABLE>

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in

F-20
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. EMPLOYEE BENEFIT PLANS (CONTINUED)
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

401(k) SAVINGS PLAN

The majority of the Company's domestic subsidiaries participate in Thermo
Electron's 401(k) savings plan. Contributions to the 401(k) savings plan are
made by both the employee and the Company. Company contributions are based upon
the level of employee contributions. For this plan, the Company contributed and
charged to expense $979,000, $666,000, and $674,000 in fiscal 1998, 1997, and
1996, respectively.

OTHER RETIREMENT PLANS

In addition, the majority of the Company's foreign subsidiaries offer
defined contribution plans. Company contributions to these plans are based on
formulas determined by the Company. For these plans, the Company contributed and
charged to expense $1,094,000 in fiscal 1998. No such plans existed prior to
fiscal 1998.

6. INCOME TAXES

The components of income from continuing operations before income taxes and
minority interest are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic........................................... $ (2,695) $ 4,826 $ 4,158
Foreign............................................ 10,553 -- --
--------- --------- ---------
$ 7,858 $ 4,826 $ 4,158
--------- --------- ---------
--------- --------- ---------
</TABLE>

The components of the provision for income taxes for continuing operations
are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently Payable (Refundable):
Federal........................................... $ (404) $ 2,159 $ 1,268
Foreign........................................... 4,690 -- --
State............................................. 167 467 132
--------- --------- ---------
4,453 2,626 1,400
--------- --------- ---------
--------- --------- ---------
Deferred (Prepaid), Net:
Federal........................................... (312) (316) 305
Foreign........................................... -- -- --
State............................................. (59) (87) 67
--------- --------- ---------
(371) (403) 372
--------- --------- ---------
$ 4,082 $ 2,223 $ 1,772
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-21
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
The total provision (benefit) for income taxes included in the accompanying
statement of operations was as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing Operations............................... $ 4,082 $ 2,223 $ 1,772
Discontinued Operations............................. (572) (105) (669)
--------- --------- ---------
$ 3,510 $ 2,118 $ 1,103
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the Company's common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $764,000
and $492,000 of such benefits that have been allocated to capital in excess of
par value in fiscal 1997 and 1996, respectively.

The provision for income taxes from continuing operations in the
accompanying statement of operations differs from the provision calculated by
applying the statutory federal income tax rate of 34% to income from continuing
operations before income taxes and minority interest due to the following:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for Income Taxes at Statutory Rate........ $ 2,672 $ 1,641 $ 1,414
Increases (Decreases) Resulting from:
State income taxes, net of federal benefit........ 71 251 131
Amortization of cost in excess of net assets of
acquired companies.............................. 1,287 67 72
Foreign tax rate and tax law differential......... (21) -- --
Losses not benefited.............................. 194 258 214
Other............................................. (121) 6 (59)
--------- --------- ---------
$ 4,082 $ 2,223 $ 1,772
--------- --------- ---------
--------- --------- ---------
</TABLE>

Prepaid and deferred income taxes in the accompanying balance sheet consist
of the following:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Prepaid (Deferred) Income Taxes:
Tax loss carryforwards................................... $ 34,137 $ 444
Reserves and accruals.................................... 11,659 2,449
Inventory basis difference............................... 1,205 807
Other.................................................... 5,588 (114)
--------- ---------
52,589 3,586
Less: Valuation allowance................................ 42,477 582
--------- ---------
$ 10,112 $ 3,004
--------- ---------
--------- ---------
</TABLE>

F-22
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
The valuation allowance primarily relates to uncertainty surrounding the
realization of certain tax assets, including $85 million of foreign capital loss
carryforwards and $8 million of federal and state operating loss carryforwards
at October 3, 1998. The foreign capital loss carryforwards do not expire. The
realization of the federal and state operating loss carryforwards is limited to
the future income of certain subsidiaries, and expire from fiscal 1999 through
2013. Any future tax benefits realized on $41,473,000 of the valuation allowance
will be used to reduce cost in excess of net assets of acquired companies. The
increase in the valuation allowance in fiscal 1998 resulted primarily from
preacquisition losses of Peek, acquired November 1997.

A provision has not been made for U.S. or additional foreign taxes on $5.9
million of undistributed earnings of foreign subsidiaries that could be subject
to taxation if remitted to the U.S. because the Company currently plans to keep
these amounts permanently reinvested overseas.

7. RELATED-PARTY TRANSACTIONS

CORPORATE SERVICES AGREEMENT

The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues. In calendar 1997 and 1996, the Company paid an amount equal
to 1.0% of the Company's revenues. Prior to January 1996, the Company paid an
annual fee equal to 1.2% of the Company's revenues. The annual fee is reviewed
and adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $2,277,000, $1,210,000, and $1,262,000 in fiscal 1998,
1997, and 1996, respectively, including amounts charged relating to discontinued
operations. Management believes that the service fee charged by Thermo Electron
is reasonable and that such fees are representative of the expenses the Company
would have incurred on a stand-alone basis. The corporate services agreement is
renewed annually but can be terminated upon 30 days' prior notice by the Company
or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the
Thermo Electron Corporate Charter defines the relationships among Thermo
Electron and its majority-owned subsidiaries). For additional items such as
employee benefit plans, insurance coverage, and other identifiable costs, Thermo
Electron charges the Company based upon costs attributable to the Company.

LONG-TERM OBLIGATIONS

During fiscal 1998, the Company borrowed $160.0 million from Thermo Electron
to finance its acquisition of Peek (Note 10).

REVENUES

The Company sells products in the ordinary course of business to certain
subsidiaries of Thermo Electron. Sales of such products to related parties
totaled $66,000, $423,000, and $104,000 in fiscal 1998, 1997, and 1996,
respectively.

F-23
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. RELATED-PARTY TRANSACTIONS (CONTINUED)
OTHER SERVICES

The Company provides contract administration, data processing, and other
services to certain companies affiliated with Thermo Electron. The Company is
reimbursed for costs incurred based on actual usage. For these services, the
Company was reimbursed $127,000, $105,000, and $167,000 in fiscal 1998, 1997,
and 1996, respectively.

LEASES

The Company leases an office and laboratory facility from Thermo Electron
under an agreement expiring in 2002. The accompanying statement of operations
includes expenses from this operating lease of $326,000 in fiscal 1998, and
$170,000 in fiscal 1997 and 1996. The future minimum payments due under this
operating lease as of October 3, 1998, are $326,000 per year through fiscal
2002. Total future minimum lease payments are $1,304,000.

During fiscal 1998, the Company sublet office and manufacturing space in the
United Kingdom to ONIX pursuant to an arrangement whereby the Company charges
ONIX its allocated share of occupancy expenses. Pursuant to this arrangement,
the Company recorded $166,000 in fiscal 1998 as a reduction in selling, general,
and administrative expenses.

REPURCHASE AGREEMENT

The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.

OTHER TRANSACTIONS

In May 1997, the Company sold 420,000 shares of common stock of The Randers
Killam Group Inc. to Thermo TerraTech Inc. ("Thermo TerraTech"), a
majority-owned subsidiary of Thermo Electron, for proceeds of $262,000,
resulting in a gain of $53,000.

In February 1996, the Company sold $365,000 principal amount of 6.5%
subordinated convertible debentures to an unrelated party for net proceeds of
$490,000, resulting in a gain of $125,000. The debentures were issued by Thermo
TerraTech.

In December 1995, the Company sold 10,969 shares of Thermo Electron common
stock to an unrelated party for net proceeds of $362,000, resulting in a gain of
$344,000.

8. COMMITMENTS

In addition to the lease described in Note 7, the Company leases equipment
and manufacturing, service, and office facilities under various operating
leases. The accompanying statement of operations includes expenses from
operating leases of $4,107,000, $1,219,000, and $1,166,000 in fiscal 1998, 1997,
and 1996, respectively. Future minimum payments due under noncancellable
operating leases as of October 3, 1998, are $2,102,000 in fiscal 1999;
$1,777,000 in fiscal 2000; $1,257,000 in fiscal 2001; $1,027,000 in fiscal 2002;
$1,020,000 in fiscal 2003; and $2,568,000 in fiscal 2004 and thereafter. Total
future minimum lease payments are $9,751,000. Future minimum rental income to be
received under noncancellable operating leases as of October 3, 1998, is
$392,000 in fiscal 1999.

F-24
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMON STOCK

At October 3, 1998, the Company had reserved 1,928,775 unissued shares of
its common stock for possible issuance under stock-based compensation plans.

10. SHORT- AND LONG-TERM OBLIGATIONS

SHORT-TERM OBLIGATIONS

As of October 3, 1998, the Company's foreign subsidiaries had unused lines
of credit totaling approximately $12.0 million. Borrowings under the lines of
credit generally bear interest at variable rates and are payable on demand.

During fiscal 1998, the Company repaid $28,407,000 of short-term obligations
assumed in connection with the Peek acquisition.

LONG-TERM OBLIGATIONS

To finance the acquisition of Peek, the Company borrowed $160,000,000 from
Thermo Electron pursuant to a promissory note due November 1999, and bearing
interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set
at the beginning of each quarter, which was 5.73% at October 3, 1998 (Note 15).

The Company assumed a $250,000 mortgage loan in connection with its
acquisition of Optronics. The loan bears interest at a fixed rate of 6% and
matures in fiscal 2007. In addition, at October 3, 1998, long-term obligations
include a $222,000 mortgage loan which matures in fiscal 2001. The interest rate
on this loan is 75% of the prime rate, which was 6.38% at fiscal year-end 1998
and 1997. These obligations are secured by property with a net book value of
$4,969,000. The annual requirements for long-term obligations are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 70
2000.............................................................................. 160,073
2001.............................................................................. 154
2002.............................................................................. 25
2003.............................................................................. 25
Thereafter........................................................................ 125
----------
$ 160,472
----------
----------
</TABLE>

F-25
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SHORT- AND LONG-TERM OBLIGATIONS (CONTINUED)

In addition, in connection with its acquisition of Peek, the Company assumed
capital lease obligations. The carrying amount of the property leased is $0.5
million, which is included in property, plant, and equipment in the accompanying
balance sheet.

The future minimum lease payments under the lease obligation are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................. $ 332
2000.................................................................................. 65
2001.................................................................................. 42
2002.................................................................................. 30
---------
469
Less: Amount Representing Interest.................................................... 46
---------
Present Value of Minimum Lease Payments............................................... 423
Less: Current Portion................................................................. 326
---------
Long-term Capital Lease Obligation.................................................... $ 97
---------
---------
</TABLE>

See Note 11 for information pertaining to the fair value of the Company's
long-term obligations.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, available-for-sale investments, accounts receivable, current
maturities of long-term obligations, accounts payable, common stock of
subsidiary subject to redemption, due to/from parent company and affiliated
companies, long-term obligations, and forward foreign exchange contracts. The
carrying amounts of these financial instruments, with the exception of
available-for-sale investments, long-term obligations, and forward foreign
exchange contracts, approximate fair value due to their short-term nature.

Available-for-sale investments are carried at fair value in the accompanying
balance sheet. The fair values were determined based on quoted market prices.
See Note 2 for fair value information pertaining to these financial instruments.

The carrying amounts of the Company's long-term obligations, which
approximate fair value, were $160,499,000 and $252,000 at fiscal year-end 1998
and 1997, respectively. The fair value of the Company's long-term obligations
was determined based on borrowing rates available to the Company at the
respective year-ends.

The Company had forward foreign exchange contracts of $942,000 outstanding
at October 3, 1998. The fair value of such contracts was approximately $9,000,
which represents the amount the Company would pay upon termination of the
contract, taking into account the change in foreign exchange rates.

12. BUSINESS SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS
OF RISK

The Company's continuing operations are divided into three segments. Through
the Company's Peek subsidiary, acquired November 1997, the Traffic Control
segment develops, manufactures, markets, installs, and services equipment to
monitor and regulate traffic flow in cities and towns around the world.

F-26
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. BUSINESS SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS
OF RISK (CONTINUED)
The Industrial Refrigeration Systems segment develops, manufactures, markets,
services, and rents industrial refrigeration and commercial cooling equipment.
The Cooling and Cogeneration Systems segment develops, manufactures, markets,
and services gas cooling and cogeneration systems, conducts research and
development on advanced power and pollution-control technologies, is developing
and commercializing a family of propane-powered lighting products, and offers
automotive, sporting goods, and marine lighting products.

The results of operations of the Engines segment have been classified as
discontinued operations as a result of the Company's decision to divest this
business (Note 4).

Information for fiscal 1998, 1997, and 1996, with respect to the Company's
business segments, is shown in the following table.

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BUSINESS SEGMENT INFORMATION
Revenues:
Traffic Control............................................. $ 152,368 $ -- $ --
Industrial Refrigeration Systems............................ 76,160 74,843 73,312
Cooling and Cogeneration Systems............................ 17,678 17,819 20,477
Intersegment sales elimination (a).......................... (514) (781) (731)
--------- --------- ---------
$ 245,692 $ 91,881 $ 93,058
--------- --------- ---------
--------- --------- ---------

Income from Continuing Operations Before Income Taxes and
Minority Interest:
Traffic Control............................................. $ 11,635 $ -- $ --
Industrial Refrigeration Systems............................ 6,782 5,331 4,403
Cooling and Cogeneration Systems............................ (269) (647) 122
Corporate (b)............................................... (3,233) (1,722) (2,263)
--------- --------- ---------
Total operating income...................................... 14,915 2,962 2,262
Interest and other income (expense), net.................... (7,057) 1,864 1,896
--------- --------- ---------
$ 7,858 $ 4,826 $ 4,158
--------- --------- ---------
--------- --------- ---------

Identifiable Assets:
Traffic Control............................................. $ 261,671 $ -- $ --
Industrial Refrigeration Systems............................ 51,895 52,157 52,707
Cooling and Cogeneration Systems............................ 21,254 22,178 22,953
Corporate (c)............................................... 8,290 17,129 21,134
Discontinued operations (d)................................. 8,525 16,528 13,917
--------- --------- ---------
$ 351,635 $ 107,992 $ 110,711
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-27
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. BUSINESS SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS
OF RISK (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and Amortization:
Traffic Control............................................. $ 6,949 $ -- $ --
Industrial Refrigeration Systems............................ 3,111 2,606 2,501
Cooling and Cogeneration Systems............................ 341 198 214
Corporate................................................... 76 33 23
--------- --------- ---------
$ 10,477 $ 2,837 $ 2,738
--------- --------- ---------
--------- --------- ---------
Capital Expenditures:
Traffic Control............................................. $ 4,204 $ -- $ --
Industrial Refrigeration Systems............................ 3,974 4,558 6,959
Cooling and Cogeneration Systems............................ 559 382 240
Corporate................................................... 294 29 34
--------- --------- ---------
$ 9,031 $ 4,969 $ 7,233
--------- --------- ---------
--------- --------- ---------
GEOGRAPHICAL INFORMATION
Revenues:
United States............................................... $ 137,250 $ 91,881 $ 93,058
The Netherlands............................................. 42,468 -- --
United Kingdom.............................................. 40,024 -- --
Other Europe................................................ 31,364 -- --
Other....................................................... 1,677 -- --
Transfers among geographic areas (a)........................ (7,091) -- --
--------- --------- ---------
$ 245,692 $ 91,881 $ 93,058
--------- --------- ---------
--------- --------- ---------

Income from Continuing Operations Before Income Taxes and
Minority Interest:
United States............................................... $ 6,959 $ 4,684 $ 4,525
The Netherlands............................................. 9,292 -- --
United Kingdom.............................................. (1,201) -- --
Other Europe................................................ 3,172 -- --
Other....................................................... (74) -- --
Corporate (b)............................................... (3,233) (1,722) (2,263)
--------- --------- ---------
Total operating income...................................... 14,915 2,962 2,262
Interest and other income (expense), net.................... (7,057) 1,864 1,896
--------- --------- ---------
$ 7,858 $ 4,826 $ 4,158
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-28
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. BUSINESS SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS
OF RISK (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
United States............................................... $ 139,148 $ 74,335 $ 75,660
The Netherlands............................................. 68,623 -- --
United Kingdom.............................................. 75,102 -- --
Other Europe................................................ 47,995 -- --
Other....................................................... 3,952 -- --
Corporate (c)............................................... 8,290 17,129 21,134
Discontinued operations (d)................................. 8,525 16,528 13,917
--------- --------- ---------
$ 351,635 $ 107,992 $ 110,711
--------- --------- ---------
--------- --------- ---------

Export Revenues Included in United States Revenue Above (e):
Asia........................................................ $ 10,626 $ 16,430 $ 7,821
Other....................................................... 8,183 4,271 6,054
--------- --------- ---------
$ 18,809 $ 20,701 $ 13,875
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ------------------------

(a) Intersegment sales and transfers among geographic areas are accounted for at
prices that are representative of transactions with unaffiliated parties.

(b) Primarily corporate general and administrative expenses.

(d) Net of liabilities at October 3, 1998.

(e) In general, export revenues are denominated in U.S. dollars.

F-29
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. EARNINGS (LOSS) PER SHARE

Basic and diluted earnings per share were calculated as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
JULY 3, JULY 4,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 1998 1997 1996
- ---------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (Loss) from Continuing Operations...... $ (10,376) $ 1,496 $ 3,353 $ 2,291 $ 2,074
Loss from Discontinued Operations............. -- (338) (381) (187) (1,189)
Provision for Loss on Disposal of Discontinued
Operations.................................. -- -- (636) -- --
--------- --------- --------- --------- ---------
Net Income (Loss)............................. $ (10,376) $ 1,158 $ 2,336 $ 2,104 $ 885
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BASIC
Weighted Average Shares....................... 11,853 11,841 11,838 12,212 12,466
--------- --------- --------- --------- ---------
Basic Earnings (Loss) per Share:
Continuing operations....................... $ (.88) $ .13 $ .28 $ .19 $ .17
Discontinued operations..................... -- (.03) (.08) (.02) (.10)
--------- --------- --------- --------- ---------
$ (.88) $ .10 $ .20 $ .17 $ .07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
DILUTED
Weighted Average Shares....................... 11,853 11,841 11,838 12,212 12,466
Effect of Stock Options....................... -- 90 70 6 241
--------- --------- --------- --------- ---------
Weighted Average Shares, as Adjusted.......... 11,853 11,931 11,908 12,218 12,707
--------- --------- --------- --------- ---------
Diluted Earnings (Loss) per Share:
Continuing operations....................... $ (.88) $ .13 $ .28 $ .19 $ .16
Discontinued operations..................... -- (.03) (.08) (.02) (.09)
--------- --------- --------- --------- ---------
$ (.88) $ .10 $ .20 $ .17 $ .07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

The computation of diluted earnings (loss) per share excludes the effect of
assuming the exercise of certain stock options because the effect would be
antidilutive. As of October 3, 1998, there were 1,336,499 such options
outstanding, with exercise prices ranging from $8.92 to $14.15 per share.

F-30
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FOURTH
1998 FIRST (A) SECOND THIRD (B)
- ------------------------------------------------------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................................... $ 58,696 $ 62,005 $ 58,345 $ 66,646
Gross Profit........................................... 17,913 16,231 19,020 20,473
Income (Loss) from Continuing Operations............... 1,280 (1,134) 1,350 1,857
Net Income (Loss)...................................... 1,055 (1,288) 1,391 1,178
Basic and Diluted Earnings (Loss) per Share from
Continuing Operations................................ .11 (.10) .11 .16
Basic and Diluted Earnings (Loss) per Share............ .09 (.11) .12 .10

1997 FIRST SECOND THIRD FOURTH
- ------------------------------------------------------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................................... $ 23,547 $ 21,322 $ 24,919 $ 22,093
Gross Profit........................................... 4,092 4,673 4,976 5,415
Income from Continuing Operations...................... 325 388 633 945
Net Income............................................. 4 375 716 1,009
Basic and Diluted Earnings per Share from Continuing
Operations........................................... .03 .03 .05 .08
Basic and Diluted Earnings per Share................... -- .03 .06 .08
</TABLE>

- ------------------------

(a) Reflects the November 1997 acquisition of Peek plc and borrowings to finance
such acquisition.

(b) Reflects provision for loss on disposal of discontinued operations, net of
tax, of $636,000.

15. SUBSEQUENT EVENTS

PROPOSED MERGER

On May 5, 1999, the Company entered into a definitive agreement and plan of
merger with Thermo Electron, under which Thermo Electron would acquire all of
the outstanding shares of Company common stock held by minority shareholders.
The Board of Directors of the Company unanimously approved the merger agreement
based on a recommendation by a special committee of the Board of Directors,
consisting solely of outside directors of the Company. Under the terms of the
merger agreement, the Company would become a wholly owned subsidiary of Thermo
Electron. Each issued and outstanding share of Company common stock not already
owned by Thermo Electron would be converted into the right to receive $12.00 in
cash. Following the merger, the Company's common stock would cease to be
publicly traded. The completion of this merger is subject to, among other
things, shareholder approval of the merger agreement. Thermo Electron intends to
vote all of its shares of common stock of the Company in favor of approval of
the merger agreement and, therefore, approval of the merger agreement is
assured. This merger is expected to be completed by the beginning of the fourth
quarter of calendar 1999.

OPTION EXCHANGE

In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 179,085 shares at a weighted average exercise price of $11.08 elected to
participate in this exchange and, as a result, received options to purchase
89,543 shares of Company common stock at $8.09 per share. The other terms of the

F-31
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. SUBSEQUENT EVENTS (CONTINUED)
new options are the same as the exchanged options except that the holders may
not sell shares purchased pursuant to such new options for six months from the
exchange date.

REDEMPTION OF THERMOLYTE COMMON STOCK

In December 1998, holders of 1,707,000 shares of ThermoLyte common stock
redeemed their shares for $10.00 per share in cash or an aggregate of
$17,070,000. Subsequent to such redemption, 138,000 redeemable shares of
ThermoLyte common stock remained outstanding and are redeemable in December 1999
at $10.00 per share. The Company's ownership of ThermoLyte increased to 98% as a
result of such redemption.

PROMISSORY NOTE REFINANCING

The Company's $160.0 million promissory note to Thermo Electron is due in
November 1999. In February 1999, Thermo Electron issued a commitment letter to
the Company pursuant to which Thermo Electron has agreed to refinance the
promissory note at the option of the Company, on its maturity date, with the net
proceeds from its October 1998 offering of 7.625% Notes due 2008, and other
available cash. In accordance with the commitment letter, the new promissory
note from the Company to Thermo Electron would be due in 2008 and bear interest
at a rate of 7.625%. The promissory note has been classified as long-term in the
accompanying fiscal 1999 balance sheet as a result of the Company's ability and
intent to refinance the $160.0 million promissory note at maturity.

RESTRUCTURING ACTIONS

During the third quarter of fiscal 1999, the Company undertook certain
restructuring actions, which included a decision by the Cooling and Cogeneration
Systems segment to divest its ThermoLyte Corporation subsidiary, as well as a
decision by the Traffic Control segment to outsource certain manufacturing and
warranty functions and reduce staffing levels, and a decision by the Industrial
Refrigeration Systems segment to reduce staffing levels. In addition, the
Traffic Control segment wrote down certain assets at Peek's sales and service
subsidiaries located in Malaysia and Croatia that have become impaired due to
business conditions in those regions. In connection with these actions, the
Company recorded restructuring and related costs of $12,633,000, including
$8,913,000 of restructuring costs, inventory provisions of $2,988,000, costs for
outsourcing certain warranty repairs of $483,000, and a provision for
uncollectible accounts receivable of $249,000. Of the restructuring and related
costs of $12,633,000, $7,916,000, $4,662,000, and $55,000 were recorded by the
Traffic Control, Cooling and Cogeneration Systems, and Industrial Refrigeration
Systems segments, respectively. Restructuring costs include $4,079,000 for the
write-off of cost in excess of net assets of acquired companies, of which
$2,911,000 was to reduce the carrying value of ThermoLyte to the estimated
proceeds from its sale and $1,168,000 was to reduce the carrying value of Peek's
subsidiaries located in Malaysia and Croatia due to projected undiscounted cash
flows from their operations being insufficient to recover the Company's
investment. In addition, restructuring costs include $2,040,000 of severance
costs for approximately 63 employees across all functions; $1,550,000 for the
write-down of certain fixed assets, principally at operations being exited; and
$1,244,000 for lease costs at facilities being abandoned. Provisions for
severance and leases were accounted for in accordance with EITF 94-3. The
inventory and warranty provisions are included in cost of revenues and the
charge for uncollectible accounts receivable is included in selling, general,
and administrative expenses in the accompanying statement of operations.
Inventory provisions represent a write-down of inventories to estimated salvage
value and consist of $1,826,000 for raw materials for product lines being
outsourced, $1,042,000 for a discontinued product line, and $120,000 for
inventories at Malaysia and Croatia.

F-32
<PAGE>
THERMO POWER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. SUBSEQUENT EVENTS (CONTINUED)
Unaudited revenues and operating losses for ThermoLyte, excluding restructuring
and related costs, were $9,822,000 and $103,000, respectively, for the first
nine months of fiscal 1999, and $3,065,000 and $1,361,000, respectively, for
fiscal 1998. The Company is actively seeking a buyer for ThermoLyte's principal
operations and expects to complete a transaction in the next twelve months,
although there can be no assurance that this will occur.

During the second quarter of fiscal 1999, the Company recorded restructuring
costs of $701,000 related to actions taken at its Peek subsidiary. The
restructuring costs, which were accounted for in accordance with EITF 94-3,
consisted of $389,000 related to severance costs for approximately 70 employees
across all functions, $222,000 for lease costs at facilities being abandoned in
connection with the consolidation of facilities, and an asset write-down of
$90,000 related to the consolidation of such facilities.

The Company expects to incur additional restructuring costs totaling
approximately $2.5 million, principally at the Traffic Control segment, through
December 1999 for costs that will be recorded when incurred, such as additional
severance and fees associated with outsourcing certain product lines. Completion
of the Company's restructuring plans is expected to occur by December 1999. As
of July 3, 1999, the Company had terminated 49 employees of the 133 employees
for whom severance had been provided in the first nine months of fiscal 1999. A
summary of the changes in accrued restructuring costs, included in other accrued
expenses in the accompanying balance sheet, follows:

<TABLE>
<CAPTION>
(IN THOUSANDS) SEVERANCE TOTAL
- ------------------------------------------------------------------------------ ----------- ABANDONMENT ---------
OF EXCESS
FACILITIES
-------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE AT OCTOBER 3, 1998.................................................... $ -- $ -- $ --
Provision charged to expense................................................ 2,430 1,465 3,895
Usage....................................................................... (246) (28) (274)
Currency translation........................................................ (58) (38) (96)
----------- ------ ---------
BALANCE AT JULY 3, 1999....................................................... $ 2,126 $ 1,399 $ 3,525
----------- ------ ---------
----------- ------ ---------
</TABLE>

CASH MANAGEMENT ARRANGEMENT

Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement (Note 1). 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. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.

In addition, under the new domestic cash management arrangement, amounts
borrowed from Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 150 basis
points, set at the beginning of each month. Amounts borrowed under this
arrangement are included in "notes payable and current maturities of long-term
obligations" in the accompanying balance sheet.

F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To The Board of Directors
Peek plc

We have audited the accompanying consolidated statements of income,
movements in shareholders' equity, cashflows and total recognised gains and
losses of Peek plc for each of the two years in the period ended 31 December
1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and consolidated cash flows of Peek plc for each of the two years in the period
ended 31 December 1996, in conformity with accounting principles generally
accepted in the United Kingdom, which differ in certain respects from those
followed in the United States (see Note 16 of Notes to the Accounts).

ERNST & YOUNG

London, England

11 March 1997, except for
Note 16-US GAAP reconciliation,
as to which date is
19 January 1998.

F-34
<PAGE>
PEEK PLC

CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 DECEMBER

<TABLE>
<CAPTION>
NOTES 1996 1995
----- ---------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C> <C>
Turnover
Continuing operations.............................................................. 2
Ongoing............................................................................ 159,159 133,485
Acquisitions....................................................................... 2,916 10,301
---------- ---------
162,075 143,786
Discontinued operations............................................................ -- --
---------- ---------
162,075 143,786
Cost of sales...................................................................... (107,494) (91,813)
---------- ---------
Gross profit....................................................................... 54,581 51,973
Net operating expenses:
Selling and distribution......................................................... (18,452) (15,494)
Technology....................................................................... (8,752) (8,485)
Administration................................................................... (14,091) (15,524)
---------- ---------
(41,295) (39,503)
Operating profit................................................................... 3
Continuing operations
Ongoing............................................................................ 13,329 12,338
Acquisitions....................................................................... (43) 132
---------- ---------
13,286 12,470
Discontinued operations............................................................ -- --
---------- ---------
13,286 12,470
Exceptional items.................................................................. 7
Continuing activities............................................................ -- 3,915
Discontinued operations.......................................................... (6) --
---------- ---------
Profit on ordinary activities before interest...................................... 13,280 16,385
Net interest payable............................................................... 5 (729) (403)
---------- ---------
Profit on ordinary activities before taxation...................................... 12,551 15,982
Taxation........................................................................... 6 (4,258) (4,099)
---------- ---------
Profit on ordinary activities after taxation....................................... 8,293 11,883
Minority interest.................................................................. -- --
---------- ---------
Profit for the financial year(a)................................................... 8,293 11,883
Dividends.......................................................................... 8 (4,114) (4,088)
---------- ---------
Retained profit.................................................................... 10 4,179 7,795
---------- ---------
Earnings per ordinary share........................................................ 9 6.9p 9.9p
Adjusted earnings per ordinary share (excluding exceptional items)................. 9 6.9p 6.6p
Dividend per ordinary share........................................................ 3.4p 3.4p
</TABLE>

- ------------------------

(a) A summary of the significant adjustments to the profit for the financial
year that would be required had United States generally accepted accounting
principles been applied instead of those generally accepted in the United
Kingdom is set out in Note 16 of Notes to the Accounts.

F-35
<PAGE>
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Thermo Electron or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the submission of the Articles of Merger with the
Secretary of State of the Commonwealth of Massachusetts, (ii) the filing of the
Schedule 13E-3 (as defined in Section 5.1) with the SEC in accordance with the
Exchange Act, and (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws.

3.4. FINANCIAL RESOURCES. Thermo Electron has the financial resources to
consummate the transactions contemplated by this Agreement and to pay the
consideration in the Merger provided for in Section 1.6(a).

ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1. CONDUCT OF BUSINESS BY THERMO POWER. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Thermo Power shall,
except as otherwise contemplated by this Agreement or consented to by Thermo
Electron, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.

4.2. CERTAIN ACTIONS BY THERMO POWER. In addition, notwithstanding Section
4.1 above, without the prior consent of Thermo Electron, Thermo Power shall not
do any of the following:

(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize cash
payments in exchange for any options granted under any of such plans;

(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances;

(c) Grant any severance or termination pay to any officer or employee except
payments in amounts consistent with policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date hereof, or
adopt any new severance plan;

(d) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock;

(e) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than the issuance
of shares of Thermo Power Common Stock pursuant to the exercise of stock options
therefor;

(f) Cause, permit or propose any amendments to its Articles of Organization
or by-laws;

(g) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or by
any other manner, any business or any corporation,

A-11
<PAGE>
partnership interest, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets or enter into any
joint ventures, strategic partnerships or alliances;

(h) Sell, lease, license, encumber or otherwise dispose of any properties or
assets that are material, individually or in the aggregate, to the business of
Thermo Power;

(i) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary course
of business) or guarantee any such indebtedness or issue or sell any debt
securities or warrants or guarantee any debt securities of others;

(j) Adopt or amend any employee benefit or stock purchase or option plan, or
enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its officers or employees, except increases in amounts consistent with
policies and past practices;

(k) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business;

(l) Make any grant of exclusive rights to any third party; or

(m) Agree in writing or otherwise to take any of the actions described in
this Section 4.2.

ARTICLE V
ADDITIONAL AGREEMENTS

5.1. SCHEDULE 13E-3; PROXY STATEMENT; OTHER FILINGS.

(a) Thermo Power agrees that the information supplied by Thermo Power for
inclusion or incorporation by reference in the Rule 13e-3 Transaction Statement
on Schedule 13E-3 (such Schedule as amended or supplemented is referred to
herein as the "Schedule 13E-3") or the proxy statement to be sent to the
stockholders of Thermo Power in connection with the meeting of Thermo Power's
stockholders to consider approval of this Agreement (the "Thermo Power
Stockholders' Meeting") (such proxy statement as amended or supplemented is
referred to herein as the "Proxy Statement") shall not, on the date the Proxy
Statement is first mailed to Thermo Power's stockholders and at the time of the
Thermo Power Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not false or misleading; or omit to state any
material fact necessary to correct any statement in any earlier written
communication with respect to the solicitation of proxies for the Thermo Power
Stockholders' Meeting or the Schedule 13E-3 which has become false or
misleading.

(b) Thermo Electron agrees that the information supplied by Thermo Electron
and Merger Sub for inclusion or incorporation by reference in the Schedule 13E-3
and the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to Thermo Power's stockholders, and at the time of the Thermo Power
Stockholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier written communication with respect to
the solicitation of proxies for the Thermo Power Stockholders' Meeting or the
Schedule 13E-3 which has become false or misleading.

(c) As promptly as practicable after the execution of this Agreement, Thermo
Electron and Thermo Power jointly will prepare and file with the SEC the
Schedule 13E-3 and the Proxy Statement. Thermo Electron and Thermo Power will
cause the Schedule 13E-3 and the Proxy Statement to be mailed to

A-12
<PAGE>
stockholders of Thermo Power at the earliest practicable time. Each party will
notify the other promptly upon the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Schedule 13E-3 or the Proxy
Statement or any other filing or for additional information and will supply the
other party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement,
the Schedule 13E-3 or the Merger. Whenever any event occurs that is required to
be set forth in an amendment or supplement to the Schedule 13E-3 or the Proxy
Statement, the relevant party will promptly inform the other party of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Thermo Power, such
amendment or supplement.

(d) The Proxy Statement will include the recommendation of the Board of
Directors of Thermo Power in favor of approval of this Agreement (except that
the Board of Directors of Thermo Power may withdraw, modify or refrain from
making such recommendation to the extent that the Board determines in good faith
after consultation with outside legal counsel that the Board's fiduciary duties
under applicable law require it to do so).

5.2. MEETING OF THERMO POWER STOCKHOLDERS. Promptly after the date hereof,
Thermo Power will take all action necessary in accordance with the MBCL and its
Articles of Organization and by-laws to convene the Thermo Power Stockholders'
Meeting to be held as promptly as practicable for the purpose of voting upon
this Agreement. Unless otherwise required by the fiduciary duties of the Thermo
Power Board of Directors, Thermo Power will use its best efforts to solicit from
its stockholders proxies in favor of the approval of this Agreement, and will
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by the MBCL to obtain such approvals. Thermo Electron
shall vote, or cause to be voted, all of the Thermo Power Common Stock then
owned by it and any of its subsidiaries in favor of the approval of this
Agreement.

5.3. ACCESS TO INFORMATION. Thermo Power will afford Thermo Electron and
its accountants, counsel and other representatives reasonable access during
normal business hours to the properties, books, records and personnel of Thermo
Power during the period prior to the Effective Time to obtain all information
concerning the business, including the status of product development efforts,
properties, results of operations and personnel of Thermo Power, as Thermo
Electron may reasonably request. Thermo Electron agrees that it will, and will
cause its representatives and agents to, keep all such information confidential
and will not, and will cause its representatives or agents not to, use any
information obtained pursuant to this Section 5.3 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing, Thermo Electron shall not be required to keep
confidential any information (i) which is or becomes generally available to the
public, other than by wrongful disclosure by Thermo Electron or Merger Sub in
violation of this Agreement, (ii) which was available to Thermo Electron on a
nonconfidential basis prior to disclosure to Thermo Electron, or (iii) which
becomes available to Thermo Electron on a nonconfidential basis from a source
other than Thermo Power.

5.4. PUBLIC DISCLOSURE. Thermo Electron and Thermo Power will consult with
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and will not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange.

5.5. LEGAL REQUIREMENTS. Each of Thermo Electron, Merger Sub and Thermo
Power will take all reasonable actions necessary or desirable to comply promptly
with all legal requirements that may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement (including
furnishing all information required in connection with approvals of or filings
with any Governmental Entity, and including using its reasonable best efforts to
defend any litigation prompted hereby) and will promptly cooperate with and
furnish information to any party hereto necessary in connection with

A-13
<PAGE>
any such requirements imposed upon any of them or their respective subsidiaries
in connection with the consummation of the transactions contemplated by this
Agreement.

5.6. NOTIFICATION OF CERTAIN MATTERS. Thermo Electron and Merger Sub will
give prompt notice to Thermo Power, and Thermo Power will give prompt notice to
Thermo Electron, of the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be reasonably likely to cause (a) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Effective Time, or (b) any material failure of Thermo Electron and Merger
Sub or Thermo Power, as the case may be, or of any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement. Notwithstanding the
above, the delivery of any notice pursuant to this section will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice or the conditions to such party's obligation to consummate the Merger.

5.7. BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Thermo Electron and Thermo Power under this Agreement, each
of the parties to this Agreement will use its reasonable best efforts to
effectuate the Merger and the other transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement, it being understood that such efforts shall not include any
obligation to settle any litigation prompted hereby. Each party hereto, at the
reasonable request of another party hereto, will execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.

5.8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS.

(a) At the Effective Time, each outstanding option to purchase shares of
Thermo Power Common Stock (each a "Thermo Power Stock Option") under the Thermo
Power Stock Option Plans, whether or not exercisable, will be assumed by Thermo
Electron. Each Thermo Power Stock Option so assumed by Thermo Electron under
this Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable Thermo Power Stock Option Plan
immediately prior to the Effective Time (including, without limitation, any
repurchase rights), except that (i) each Thermo Power Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Thermo Electron Common Stock equal to the product of
the number of shares of Thermo Power Common Stock that were issuable upon
exercise of such Thermo Power Stock Option immediately prior to the Effective
Time multiplied by a fraction (the "Exchange Ratio"), the numerator of which is
the Exchange Price and the denominator of which is the closing price of the
Thermo Electron Common Stock on the day immediately preceding the Effective Date
as reported by the New York Stock Exchange, rounded down to the nearest whole
number of shares of Thermo Electron Common Stock, and (ii) the per share
exercise price for the shares of Thermo Electron Common Stock issuable upon
exercise of such assumed Thermo Power Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Thermo Power Common Stock
at which such Thermo Power Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
After the Effective Time, Thermo Electron will issue to each holder of an
outstanding Thermo Power Stock Option a notice describing the foregoing
assumption of such Thermo Power Stock Option by Thermo Electron.

(b) At the Effective Time, each outstanding option to purchase shares of
Thermo Power Common Stock (each a "Thermo Power ESPP Stock Option") under the
Thermo Power Employees' Stock Purchase Plan ("Thermo Power ESPP") will be
assumed by Thermo Electron. Each Thermo Power ESPP Stock Option so assumed by
Thermo Electron will continue to have, and be subject to, the same terms and
conditions as are set forth in the Thermo Power ESPP immediately prior to the
Effective Time except that (i) the assumed option shall be exercisable for
shares of Thermo Electron Common Stock; (ii) the purchase price per share of
Thermo Electron Common Stock shall be the lower of (A) eighty-five percent

A-14
<PAGE>
(85%) of (x) the per-share Market Value of Thermo Power Common Stock on the
Grant Date divided by (y) the Exchange Ratio, with the resulting price rounded
up to the nearest whole cent, and (B) eighty-five percent (85%) of the Market
Value of Thermo Electron Common Stock as of the Exercise Date; and (iii) the
$25,000 limit under Section 9.2(i) of the Thermo Power ESPP shall be applied by
taking into account Thermo Electron's assumption of the Thermo Power ESPP Stock
Options in accordance with Section 423(b)(8) of the Internal Revenue Code of
1986, as amended, and applicable regulations. For purposes of this subsection,
"Market Value," "Grant Date," and "Exercise Date" shall have the meaning given
them in the Thermo Power ESPP.

5.9. THERMO ELECTRON FORM S-8. Thermo Electron agrees to file a
registration statement on Form S-8 or, if required, an amendment to Thermo
Electron's then effective registration statement on Form S-8 (i) for the shares
of Thermo Electron Common Stock issuable with respect to the assumed Thermo
Power Stock Options no later than the Closing Date and (ii) for the shares of
Thermo Electron Common Stock issuable with respect to the assumed Thermo Power
ESPP Stock Options no later than October 31, 1999, and shall, in each case, keep
such registration statement effective for so long as any such options remain
outstanding.

5.10. INDEMNIFICATION; INSURANCE. Each of the current and former directors
and officers of Thermo Power is a third party beneficiary of this Section 5.10,
and shall be entitled to the benefit (and to enforce) all covenants set forth
herein.

(a) From and for a period of six years after the Effective Time, Thermo
Electron will and will cause the Surviving Corporation to fulfill and honor in
all respects the indemnification obligations of Thermo Power pursuant to the
provisions of the Articles of Organization and the by-laws of Thermo Power as in
effect immediately prior to the Effective Time. The Articles of Organization and
by-laws of the Surviving Corporation will contain the provisions with respect to
indemnification and elimination of liability for monetary damages set forth in
the Articles of Organization and by-laws of Thermo Power, which provisions will
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who, at the Effective Time, were directors or officers
of Thermo Power, unless such modification is required by law.

(b) For a period of six years after the Effective Time, Thermo Electron
shall cause the Surviving Corporation to, either directly or through
participation in Thermo Electron's umbrella policy, maintain in effect a
directors' and officers' liability insurance policy covering those Thermo Power
directors and officers currently covered by Thermo Electron's liability
insurance policy with coverage in amount and scope at least as favorable as
existing coverage for such Thermo Power directors and officers (which coverage
may be an endorsement extending the period in which claims may be made under
such existing policy); provided, however, that in no event shall the Surviving
Corporation be required to expend to maintain or procure insurance coverage
pursuant to this Section 5.10, directly or through participation in Thermo
Electron's policy, an amount per annum in excess of 175% of the current annual
premiums allocable and payable by Thermo Power (the "Maximum Premium") with
respect to such insurance, or, if the cost of such insurance exceeds the Maximum
Premium, the maximum amount of coverage that can be purchased or maintained for
the Maximum Premium.

5.11. DEFERRED COMPENSATION PLAN. At the Effective Time, the Thermo Power
directors' deferred compensation plan (the "Deferred Compensation Plan") will
terminate, and Thermo Power will distribute to each participant the sum in cash
equal to the balance of stock units credited to his or her deferred compensation
account under the Deferred Compensation Plan as of the Effective Time multiplied
by the Exchange Price.

A-15
<PAGE>
5.12. COMPETING OFFERS. In the event that Thermo Power receives an
unsolicited proposal relating to the possible acquisition of Thermo Power
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its capital stock or assets by any person
other than Thermo Electron, which proposal is or may be, in the reasonable good
faith judgment of the Special Committee, financially more favorable to the
Minority Stockholders of Thermo Power than the terms of the Merger (a "Superior
Proposal"), nothing contained in this Agreement shall prevent the Board of
Directors of Thermo Power from providing information to the party making the
Superior Proposal, communicating the Superior Proposal to the stockholders of
Thermo Power, making a recommendation in favor of the Superior Proposal, or
terminating this Agreement to accept the Superior Proposal, if the Thermo Power
Board of Directors, acting upon the recommendation of the Special Committee,
determines in good faith, after consultation with outside legal counsel that the
Board's fiduciary duties under applicable law requires it to do so.

ARTICLE VI
CONDITIONS TO THE MERGER

6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:

(a) STOCKHOLDER APPROVAL. This Agreement shall have been approved by the
requisite vote under the MBCL by the stockholders of Thermo Power.

(b) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.

6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THERMO POWER. The obligations
of Thermo Power to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Thermo Power:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Thermo Electron and Merger Sub contained in this Agreement shall be true and
correct on and as of the Effective Time, except for changes contemplated by this
Agreement and except for those representations and warranties that address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Effective Time, except, in all such cases, where the failure to be so true
and correct would not have a material adverse effect on Thermo Electron; and
Thermo Power shall have received a certificate to such effect signed on behalf
of Thermo Electron by the Chief Executive Officer, President or Chief Operating
Officer of Thermo Electron; and

(b) AGREEMENTS AND COVENANTS. Thermo Electron and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and Thermo Power shall have received a certificate to
such effect signed on behalf of Thermo Electron by the Chief Executive Officer,
President or Chief Operating Officer of Thermo Electron.

6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Thermo Electron:

A-16
<PAGE>
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Thermo Power contained in this Agreement shall be true and correct on and as of
the Effective Time, except for changes contemplated by this Agreement and except
for those representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, where the failure to be so true and correct
would not have a material adverse effect on Thermo Power; and Thermo Electron
and Merger Sub shall have received a certificate to such effect signed on behalf
of Thermo Power by the Chief Executive Officer, President or Vice President of
Thermo Power; and

(b) AGREEMENTS AND COVENANTS. Thermo Power shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Thermo Electron shall have received a certificate to such
effect signed on behalf of Thermo Power by the Chief Executive Officer,
President or Vice President of Thermo Power.

ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER

7.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of this
Agreement by the stockholders of Thermo Power:

(a) by mutual written consent duly authorized by the Boards of Directors of
Thermo Electron and Thermo Power (upon approval of the Special Committee);

(b) by either Thermo Power (upon approval of the Special Committee) or
Thermo Electron if the Merger shall not have been consummated by October 31,
1999; provided, however, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date if such action or failure to act constitutes a
breach of this Agreement;

(c) by either Thermo Power (upon approval of the Special Committee) or
Thermo Electron if a Government Agency shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; provided, however, that in the case of
an executive order, decree, ruling or other order, it is final and
nonappealable;

(d) by either Thermo Power (upon approval of the Special Committee) or
Thermo Electron if the required approval of the stockholders of Thermo Power
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a meeting of
stockholders duly convened therefor or at any adjournment thereof (provided that
the right to terminate this Agreement under this Section 7.1(d) shall not be
available to Thermo Power where the failure to obtain stockholder approval of
Thermo Power shall have been caused by the action or failure to act of Thermo
Power in breach of this Agreement and the right to terminate this Agreement
under this Section 7.1(d) shall not be available to Thermo Electron where the
failure to obtain the requisite vote by the stockholders of Thermo Power shall
have been caused by the failure of Thermo Electron to vote its shares of Thermo
Power Common Stock in favor of this Agreement);

(e) by Thermo Power if the Thermo Power Board of Directors (upon approval of
the Special Committee) determines in good faith after consultation with outside
legal counsel that the Board's fiduciary duties under applicable law requires it
to do so (including without limitation to accept a Superior Proposal);

A-17
<PAGE>
(f) by Thermo Power (upon approval of the Special Committee), upon a breach
of any representation, warranty, covenant or agreement on the part of Thermo
Electron set forth in this Agreement, if (i) as a result of such breach the
conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied
as of the time of such breach and (ii) such breach shall not have been cured by
Thermo Electron within ten business days following receipt by Thermo Electron of
written notice of such breach from Thermo Power; or

(g) by Thermo Electron, upon a breach of any representation, warranty,
covenant or agreement on the part of Thermo Power set forth in this Agreement,
if (i) as a result of such breach the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach and (ii)
such breach shall not have been cured by Thermo Power within ten business days
following receipt by Thermo Power of written notice of such breach from Thermo
Electron.

7.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except that nothing
herein shall relieve any party from liability for any willful breach of this
Agreement.

7.3 FEES AND EXPENSES. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, whether or not the Merger is consummated.

7.4. AMENDMENT. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that Thermo
Power may not amend (or agree to any Thermo Electron amendment of) this
Agreement without the approval of the Special Committee.

7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein; provided, however, that Thermo Power may not take
any such actions without the approval of the Special Committee. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.

ARTICLE VIII
GENERAL PROVISIONS

8.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Thermo Power, Thermo Electron and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.

8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt

A-18
<PAGE>
confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like
notice):

(a) if to Thermo Electron or Merger Sub, to:

Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: President
Telephone: (781) 622-1000
Facsimile: (781) 622-1207

with a copy to:

Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: General Counsel
Telephone: (781) 622-1000
Facsimile: (781) 622-1283

(b) if to Thermo Power, to:

Thermo Power Corporation
44 First Avenue
Waltham, MA 02454
Attention: President
Telephone: (781) 622-1000
Facsimile: (781) 622-1025

with a required copy to the Special Committee:

Patlex Corporation
250 Cotorro Court, Suite 4
Las Cruces, NM 88005
Attention: Col. Frank Borman, Chairman
Telephone: (505) 524-4050
Facsimile: (505) 523-8081

and the Special Committee's counsel:

Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Attention: Alan Singer
Telephone: (215) 963-5000
Facsimile: (215) 963-5299

A-19
<PAGE>
8.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

8.4. ENTIRE AGREEMENT. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein (a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; and (b) are not intended to confer upon any other person any rights or
remedies hereunder, except as set forth herein.

8.5. SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

8.6. OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

8.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, regardless of the
laws that might otherwise govern under applicable principles of conflicts of law
thereof.

8.8. ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties.

A-20
<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub, and Thermo Power have
caused this Agreement to be signed by themselves or their duly authorized
respective officers, all as of the date first written above.

<TABLE>
<S> <C> <C>
(Seal) THERMO ELECTRON CORPORATION

By: /s/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: Vice President

By: /s/ KENNETH J. APICERNO
-----------------------------------------
Name: Kenneth J. Apicerno
Title: Treasurer

(Seal)
THERMO POWER CORPORATION

By: /s/ J. TIMOTHY CORCORAN
-----------------------------------------
Name: J. Timothy Corcoran
Title: President

By: /s/ KENNETH J. APICERNO
-----------------------------------------
Name: Kenneth J. Apicerno
Title: Treasurer

(Seal)
TP ACQUISITION CORPORATION

By: /s/ BRIAN D. HOLT
-----------------------------------------
Name: Brian D. Holt
Title: President

By: /s/ KENNETH J. APICERNO
-----------------------------------------
Name: Kenneth J. Apicerno
Title: Treasurer
</TABLE>

A-21
<PAGE>
APPENDIX B

May 4, 1999

Special Committee of the Board of Directors
Board of Directors
Thermo Power Corporation
81 Wyman Street
Post Office Box 9046
Waltham, Massachusetts 02254-9046

Dear Sirs:

You have asked us to advise you with respect to the fairness to the
stockholders (the "Minority Stockholders") of Thermo Power Corporation, a
Massachusetts corporation (the "Company"), other than Thermo Electron
Corporation (the "Acquiror") and the officers and directors of the Company and
the Acquiror, from a financial point of view, of the consideration to be
received by the Minority Stockholders pursuant to the terms of the agreement and
plan of merger by and among the Company, the Acquiror and TP Acquisition
Corporation ("Sub") (in the form distributed to the Board of Directors for
review at the May 4, 1999 meeting of the Board of Directors, the "Draft Merger
Agreement"). The Draft Merger Agreement provides for the merger of Sub with and
into the Company (the "Merger") and the Company will become a wholly owned
subsidiary of the Aquiror. Pursuant to the terms of the Draft Merger Agreement,
each outstanding share of common stock, par value $0.10 per share, of the
Company (the "Common Stock"), other than the shares of Common Stock held by the
Acquiror (which as of the date hereof held approximately 78.6% of the
outstanding shares of Common Stock), will be converted into the right to receive
an amount, in cash, equal to $12.00 per share (the "Merger Price").

In arriving at our opinion, we have:

(1) Reviewed the terms and conditions of the Draft Merger Agreement;

(2) Analyzed certain publicly available business and financial
information relating to the Company and certain other information, including
financial forecasts, provided to us by the Company;

(3) Met with and participated in discussions with members of the senior
management and certain other personnel of the Company to discuss the
business and prospects of the Company;

(4) Reviewed and considered historical financial and stock market data
of the Company;

(5) Reviewed and compared historical financial, stock market and other
public information for other publicly held companies engaged in businesses
similar to the businesses engaged in by the Company;

(6) Reviewed and compared the financial terms, to the extent publicly
available, of certain other recent business combinations and other
transactions that we deemed to be comparable to the Merger; and

(7) Considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed
relevant.

In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we been furnished with any such evaluations or
appraisals. Our opinion is

B-1
<PAGE>
Special Committee of
the Board of Directors
May 4, 1999
Page 2

necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. We were not requested to, and we
did not, solicit third party indications of interest in acquiring all or any
part of the Company. In rendering our opinion, we have assumed, with your
consent and without independent investigation, that the terms and conditions of
the Merger as consummated will be consistent with those contemplated by the
Draft Merger Agreement.

We have acted as financial advisor to the Special Committee of the Board of
Directors of Thermo Power Corporation in connection with the Merger and will
receive a fee for rendering this opinion, the amount of which has been
determined on the basis of the Merger Price and is payable at the time of
delivery of the opinion. In the ordinary course of our business, we may actively
trade the equity securities of both the Company and the Acquiror for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.

It is understood that this letter is for the information of the Special
Committee of the Board of Directors and the Board of Directors of the Company in
connection with their consideration of the Merger and does not constitute a
recommendation to any holder of Common Stock as to how such holder should vote
on the proposed Merger. Moreover, this letter is not to be quoted or referred
to, in whole or in part, in any registration statement or prospectus or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes without our prior written
consent. However, this opinion may be referred to in any press release issued
announcing the execution of a definitive agreement regarding the proposed Merger
so long as such release has been reviewed and approved by us prior to its use.
In addition, this opinion may be attached to the proxy statement of the Company
in connection with the stockholders meeting at which approval of the Merger
Agreement will be considered by the Company's stockholders.

Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the Minority Stockholders in
the Merger is fair to the Minority Stockholders from a financial point of view.

<TABLE>
<S> <C> <C>
Very truly yours,
/S/ Invemed Associates LLC
INVEMED ASSOCIATES LLC
</TABLE>

B-2
<PAGE>
APPENDIX C

SECTIONS 85 TO 98 OF MASSACHUSETTS BUSINESS CORPORATION LAW

85. PAYMENT FOR STOCK OF DISSENTING STOCKHOLDER. A stockholder in any
corporation organized under the laws of Massachusetts which shall have duly
voted to consolidate or merge with another corporation or corporations under the
provisions of sections seventy-eight or seventy-nine who objects to such
consolidation or merger may demand payment for his stock from the resulting or
surviving corporation and an appraisal in accordance with the provisions of
sections eighty-six to ninety-eight, inclusive, and such stockholder and the
resulting or surviving corporation shall have the rights and duties and follow
the procedure set forth in those sections. This section shall not apply to the
holders of any shares of stock of a constituent corporation surviving a merger
if, as permitted by subsection (c) of section seventy-eight, the merger did not
require for its approval a vote of the stockholders of the surviving
corporation.

86. RIGHT OF APPRAISAL. If a corporation proposes to take a corporate action
as to which any section of this chapter provides that a stockholder who objects
to such action shall have the right to demand payment for his shares and an
appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply
except as otherwise specifically provided in any section of this chapter. Except
as provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if the
action is taken and (2) his shares are not voted in favor of the proposed
action.

87. NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL
RIGHTS. The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:

"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."

88. NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME
EFFECTIVE. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.

C-1
<PAGE>
89. DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER. If within twenty days after
the date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight any stockholder
to whom the corporation was required to give such notice shall demand in writing
from the corporation taking such action, or in the case of a consolidation or
merger from the resulting or surviving corporation, payment for his stock, the
corporation upon which such demand is made shall pay to him the fair value of
his stock within thirty days after the expiration of the period during which
such demand may be made.

90. DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT. If during the period of
thirty days provided for in section eighty-nine the corporation upon which such
demand is made and any such objecting stockholder fail to agree as to the value
of such stock, such corporation or any such stockholder may within four months
after the expiration of such thirty-day period demand a determination of the
value of the stock of all such objecting stockholders by a bill in equity filed
in the superior court in the county where the corporation in which such
objecting stockholder held stock had or has its principal office in the
commonwealth.

91. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF ETC; PARTIES TO BILL ETC; SERVICE OF BILL ON
CORPORATION; NOTICE TO STOCKHOLDER PARTIES, ETC. If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not reached
agreement as to the value thereof. If the bill is filed by a stockholder, he
shall bring the bill in his own behalf and in behalf of all other stockholders
who have demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof, and service of the bill shall be made
upon the corporation by subpoena with a copy of the bill annexed. The
corporation shall file with its answer a duly verified list of all such other
stockholders, and such stockholders shall thereupon be deemed to have been added
as parties to the bill. The corporation shall give notice in such form and
returnable on such date as the court shall order to each stockholder party to
the bill by registered or certified mail, addressed to the last known address of
such stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems advisable.
Each stockholder who makes demand as provided in section eighty-nine shall be
deemed to have consented to the provisions of this section relating to notice,
and the giving of notice by the corporation to any such stockholder in
compliance with the order of the court shall be a sufficient service of process
on him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.

92. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders who
have become entitled to the valuation of and payment for their shares, and shall
order the corporation to make payment of such value, together with interest, if
any, as hereinafter provided, to the stockholders entitled thereto upon the
transfer by them to the corporation of the certificates representing such stock
if certificated or if uncertificated, upon receipt of an instruction
transferring such stock to the corporation. For this purpose, the value of the
shares shall be determined as of the day preceding the date of the vote
approving the proposed corporate action and shall be exclusive of any element of
value arising from the expectation or accomplishment of the proposed corporate
action.

93. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; COURT MAY REFER BILL, ETC., TO SPECIAL
MASTER TO HEAR PARTIES, ETC. The court in its discretion may refer the bill or
any question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.

C-2
<PAGE>
94. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED TO
SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL,
ETC. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.

95. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON
AWARD, ETC. The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.

96. STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS. Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:

(1) A bill shall not be filed within the time provided in section ninety;

(2) A bill, if filed, shall be dismissed as to such stockholder; or

(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.

Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.

97. CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY STOCK,
ETC. The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.

98. ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES TO BE
EXCLUSIVE REMEDY; EXCEPTION. The enforcement by stockholder of his right to
receive payment for his shares in the manner provided in this chapter shall be
an exclusive remedy except that this chapter shall not exclude the right of such
stockholder to bring or maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
him.

C-3
<PAGE>
APPENDIX D

INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY, THE MERGER SUB AND THERMO ELECTRON

The following individuals are executive officers or directors of the
Company, the Merger Sub or Thermo Electron. Unless otherwise noted, all such
individuals are citizens of the United States. Unless otherwise noted, the
business address of the executive officers and directors of each of the Company,
the Merger Sub and Thermo Electron is 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02454-9046.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

MARSHALL J. ARMSTRONG: Director

FRANK BORMAN: Director

Frank Borman has been a director of the Company since January 1999. Col.
Borman has been the chairman of DBT Online, Inc. ("DBT"), a company engaged in
the provision of integrated database services and related reports, and in the
exploitation and enforcement of two laser patents, since August 1996. From
September 1995 until August 1996, he served as the chief executive officer and a
director of Patlex Corporation ("Patlex"), a company engaged in the exploitation
and enforcement of two laser patents, which became a subsidiary of DBT in August
1996. Col. Borman served as the chairman and chief executive officer of Patlex
from 1988 to December 1992, and as chairman of AutoFinance Group, Inc. ("AFG")
from December 1992 to September 1995, during the period that Patlex was a
subsidiary of AFG. Col. Borman is a member of the Board of Trustees of the
National Geographic Society. He serves as a director of American Superconductor
Corporation, The Home Depot, Inc. and Thermo Instrument Systems Inc., an
affiliate of Thermo Electron. His business address is P.O. Box 1139, Fairacres,
New Mexico 88033-1139.

J. TIMOTHY CORCORAN: President, Chief Executive Officer and Director

J. Timothy Corcoran has been the chief executive officer and a director of
the Company since October 1996. He also serves as the Company's president, a
position he has held since April 1995. From November 1992 to April 1995, Mr.
Corcoran was a vice president of the Company, and he served as the president of
the Company's FES division from June 1990 until June 1998.

PETER O. CRISP: Director

Peter O. Crisp has been a director of the Company since 1985. Mr. Crisp was
a general partner of Venrock Associates, a venture capital investment firm, for
more than five years until his retirement in September 1997. He has been vice
chairman of Rockefeller Financial Services, Inc. since December 1997. Mr. Crisp
is also a director of American Superconductor Corporation, Evans & Sutherland
Computer Corporation, NovaCare Inc., Thermo Electron and United States Trust
Corporation, as well as Thermedics Inc. and ThermoTrex Corporation, which are
affiliates of Thermo Electron. Mr. Crisp's business address is Venrock, Inc., 30
Rockefeller Plaza, New York, New York 10112. For further information, please see
description under "Directors and Executive Officers of Thermo Electron," below.

D-1
<PAGE>
JOHN N. HATSOPOULOS: Director

John N. Hatsopoulos has been a director of the Company since 1990. He served
as the chief financial officer and a senior vice president of the Company from
1989 and 1997, respectively, until his retirement at the end of 1998, and as a
vice president from 1989 until 1997. Mr. Hatsopoulos was the president of Thermo
Electron from January 1997 to September 1998, its chief financial officer from
1988 until his retirement in December 1998, and an executive vice president from
1986 until 1997. Mr. Hatsopoulos has been the vice chairman of the board of
directors of Thermo Electron since September 1998. Mr. Hatsopoulos is also a
director of LOIS/USA Inc., US Liquids Inc., Thermo Electron and the following
affiliates of Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation,
Thermo Fibertek Inc., Thermo Instrument Systems Inc. and Thermo TerraTech Inc.
Mr. Hatsopoulos is the brother of Dr. George N. Hatsopoulos, a director and the
chairman of the board of directors of Thermo Electron. For further information,
please see description under "Directors and Executive Officers of Thermo
Electron," below.

BRIAN D. HOLT: Chairman of the Board and Director

Brian D. Holt has been a director and the chairman of the Board of the
Company since September 1998. He has been the president and chief executive
officer of Thermo Ecotek Corporation since February 1994. He has been chief
operating officer, energy and environment, of Thermo Electron since September
1998. From March 1996 to September 1998, he was a vice president of Thermo
Electron. For more than five years prior to his appointment as an officer of
Thermo Ecotek Corporation, he was the president and chief executive officer of
Pacific Generation Company, a financier, builder, owner and operator of
independent power facilities. Mr. Holt is also a director of KFx, Inc., as well
as The Randers Killam Group Inc., Thermo Ecotek Corporation, ThermoRetec
Corporation and Thermo TerraTech Inc., which are affiliates of Thermo Electron.
He is also president and sole director of the Merger Sub. His business address
is 245 Winter Street, Waltham, Massachusetts 02451. For further information,
please see description under "Directors and Executive Officers of the Merger
Sub" and "Directors and Executive Officers of Thermo Electron," below.

PAUL F. KELLEHER: Chief Accounting Officer

Paul F. Kelleher has been the chief accounting officer of the Company since
1990. He has been senior vice president, finance and administration, of Thermo
Electron since June 1997, and served as its vice president, finance from 1987
until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982 until
January 1996. He is a director of ThermoLase Corporation, an affiliate of Thermo
Electron. For further information, please see description under "Directors and
Executive Officers of Thermo Electron," below.

THEO MELAS-KYRIAZI: Chief Financial Officer

Theo Melas-Kyriazi has been the chief financial officer of the Company since
January 1999. Since March 1998, he has also served as a vice president of Thermo
Electron and since January 1999 he has served as the chief financial officer of
Thermo Electron. Mr. Melas-Kyriazi was the treasurer of the Company from August
1988 to September 1994 and was the treasurer of Thermo Electron from May 1988 to
August 1994. From August 1994 through March 1998, he served as the president and
chief executive officer of ThermoSpectra Corporation, an affiliate of Thermo
Electron, which manufactures precision imaging, inspection, temperature control
and test and measurement instruments. Mr. Melas-Kyriazi is also a director of
ThermoRetec Corporation and the chairman of the board of directors of
ThermoSpectra Corporation, both affiliates of Thermo Electron. Mr. Melas-Kyriazi
is a citizen of Greece. For further information, please see description under
"Directors and Executive Officers of Thermo Electron," below.

DONALD E. NOBLE: Director

D-2
<PAGE>

president and then as the chairman of the board. Mr. Noble was a director of
Thermo Electron until his retirement from this board in September 1999, and is
also a director of Thermo Fibertek Inc., Thermo Sentron Inc. and Thermo
TerraTech Inc., which are affiliates of Thermo Electron. His business address is
345 North Market St., Suite G-05, Wooster, Ohio 44691. For further information,
please see description under "Directors and Executive Officers of Thermo
Electron," below.

JOHN J. SETNICKA: Director

DIRECTOR AND EXECUTIVE OFFICER OF THE MERGER SUB

BRIAN D. HOLT: President and Director

Brian D. Holt has been the Merger Sub's president and sole director since
the Merger Sub's formation in May 1999. Mr. Holt's business address is 245
Winter Street, Waltham, Massachusetts 02451. For further information, please see
descriptions under "Directors and Executive Officers of the Company," above, and
"Directors and Executive Officers of Thermo Electron," below.

DIRECTORS AND EXECUTIVE OFFICERS OF THERMO ELECTRON

JOHN M. ALBERTINE: Director

John M. Albertine has been a director of Thermo Electron since 1986. Dr.
Albertine serves as the chairman of the board and chief executive officer of
Albertine Enterprises, Inc., an economic and public policy consulting and
full-service mergers and acquisitions firm he founded in 1990. Dr. Albertine is
also a director of American Precision Industries, Inc., Intermagnetics General
Corp. and U.S. Cast Products Inc. His business address is Albertine Enterprises,
Inc., 1156 15(th) Street N.W., Suite 505, Washington, DC 20005.

SAMUEL W. BODMAN: Director

Samuel W. Bodman has been a director of Thermo Electron since May 1999.
Since 1988, Mr. Bodman has served as the chairman and chief executive officer of
Cabot Corporation, a manufacturer of specialty chemicals and materials. Mr.
Bodman is a director of Cabot Oil & Gas Corporation, John Hancock Mutual Life
Insurance Company, Security Capital Group Incorporated and Westvaco Corporation.
His business address is Cabot Corporation, 75 State Street, Boston,
Massachusetts 02109.

PETER O. CRISP: Director

Peter O. Crisp has been a director of Thermo Electron since 1974. Mr. Crisp
was a general partner of Venrock Associates, a venture capital investment firm,
for more than five years until his retirement in September 1997. He has been
vice chairman of Rockefeller Financial Services, Inc. since December 1997. Mr.
Crisp is also a director of American Superconductor Corporation, Evans &
Sutherland Computer Corporation, NovaCare Inc. and United States Trust
Corporation, as well as Thermo Power, Thermedics Inc. and ThermoTrex
Corporation, affiliates of Thermo Electron. Mr. Crisp's business address is
Venrock, Inc., 30 Rockefeller Plaza, New York, New York 10112. For further
information, please see description under "Directors and Executive Officers of
the Company," above.

ELIAS P. GYFTOPOULOS: Director

Elias P. Gyftopoulos has been a director of Thermo Electron since 1976. Dr.
Gyftopoulos is Professor Emeritus of the Massachusetts Institute of Technology,
where he was the Ford Professor of Mechanical

D-3
<PAGE>
Engineering and of Nuclear Engineering for more than 20 years until his
retirement in 1996. Dr. Gyftopoulos is also a director of Thermo BioAnalysis
Corporation, Thermo Cardiosystems Inc., ThermoLase Corporation, ThermoRetec
Corporation, ThermoSpectra Corporation, Thermo Vision Corporation and Trex
Medical Corporation, which are affiliates of Thermo Electron. His business
address is Massachusetts Institute of Technology, Room 24-109, 77 Massachusetts
Avenue, Cambridge, Massachusetts 02139.

GEORGE N. HATSOPOULOS: Chairman of the Board and Director

George N. Hatsopoulos has been a director and the chairman of the board of
directors of Thermo Electron since he founded Thermo Electron in 1956. He was
also the chief executive officer and president of Thermo Electron from 1956
until June 1999 and January 1997, respectively. Dr. Hatsopoulos is also a
director of Photoelectron Corporation and the following affiliates of Thermo
Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc.,
Thermo Instrument Systems Inc., Thermo Optek Corporation, ThermoQuest
Corporation and ThermoTrex Corporation. Dr. Hatsopoulos is the brother of Mr.
John N. Hatsopoulos, a director of Thermo Power, and a director and vice
chairman of the board of directors of Thermo Electron.

JOHN N. HATSOPOULOS: Vice Chairman of the Board and Director

John N. Hatsopoulos has been a director of Thermo Electron since September
1997 and the vice chairman of the board of directors since September 1998. He
was the president of Thermo Electron from January 1997 until September 1998, its
chief financial officer from 1988 until his retirement in December 1998, and an
executive vice president from 1986 until 1997. Mr. Hatsopoulos is also a
director of LOIS/ USA Inc., US Liquids Inc. and the following affiliates of
Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek
Inc., Thermo Instrument Systems Inc., Thermo Power and Thermo TerraTech Inc. Mr.
Hatsopoulos is the brother of Dr. George N. Hatsopoulos, a director and chairman
of the board of directors of Thermo Electron. For further information, please
see description under "Directors and Executive Officers of the Company," above.

BRIAN D. HOLT: Chief Operating Officer, Energy and Environment

Brian D. Holt became the chief operating officer, energy and environment, of
Thermo Electron in September 1998. Mr. Holt has been the president and chief
executive officer of Thermo Ecotek Corporation, a majority-owned subsidiary of
Thermo Electron, since February 1994, and has been a director of Thermo Ecotek
Corporation since January 1995. For more than five years prior to his
appointment as an officer of Thermo Ecotek Corporation, he was the president and
chief executive officer of Pacific Generation Company, a financier, builder,
owner and operator of independent power facilities. Mr. Holt is also a director
of KFx, Inc. and the following affiliates of Thermo Electron: Thermo Power,
ThermoRetec Corporation, The Randers Killam Group Inc. and Thermo TerraTech Inc.
He is also the president and sole director of the Merger Sub. Mr. Holt's
business address is 245 Winter Street, Waltham, Massachusetts 02451. For further
information, please see descriptions under "Directors and Executive Officers of
the Company," and "Directors and Executive Officers of the Merger Sub," above.

FRANK JUNGERS: Director

Frank Jungers has been a director of Thermo Electron since 1978. Mr. Jungers
has been a consultant on business and energy matters since 1977. Mr. Jungers was
employed by the Arabian American Oil Company from 1974 through 1977 as the
chairman and the chief executive officer. Mr. Jungers is also a director of The
AES Corporation, Donaldson, Lufkin & Jenrette, Inc., Georgia- Pacific
Corporation, Statia Terminals Group N.V., and ONIX Systems Inc., Thermo Ecotek
Corporation and ThermoQuest Corporation, which are affiliates of Thermo
Electron. His business address is 822 NW Murray, Suite 242, Portland, Oregon
97229.

D-4
<PAGE>
JOHN T. KEISER: Chief Operating Officer, Biomedical and Emerging Technologies

John T. Keiser became the chief operating officer, biomedical and emerging
technologies, of Thermo Electron in September 1998. Mr. Keiser has been
president of Thermedics Inc., a majority-owned subsidiary of Thermo Electron,
since March 1994, its chief executive officer since December 1998 and its senior
vice president from 1994 until March 1998. Mr. Keiser was the president of the
Eberline Instrument division of Thermo Instrument Systems Inc., a majority-owned
subsidiary of Thermo Electron, from 1985 to July 1994. Mr. Keiser is also a
director of the following affiliates of Thermo Electron: Metrika Systems
Corporation, Thermedics Detection Inc., ThermoTrex Corporation, ThermoLase
Corporation, Trex Medical Corporation, Thermo Sentron Inc. and Thermo
Cardiosystems Inc. He has also been the president of Thermo Biomedical Inc., a
wholly owned subsidiary of Thermo Electron, since 1994.

PAUL F. KELLEHER: Senior Vice President, Finance and Administration

Paul F. Kelleher has been the senior vice president, finance and
administration, of Thermo Electron since June 1997, and served as its vice
president, finance from 1987 until 1997. Mr. Kelleher served as Thermo
Electron's controller from 1982 until January 1996. Mr. Kelleher is also the
chief accounting officer of the Company. For further information, please see
description under "Directors and Executive Officers of the Company," above.

EARL R. LEWIS: Chief Operating Officer, Measurement and Detection

Earl R. Lewis became the chief operating officer, measurement and detection
of Thermo Electron in September 1998, and had been a vice president of Thermo
Electron since September 1996. Mr. Lewis has been a director and chief executive
officer of Thermo Instrument Systems Inc. ("Thermo Instrument") since January
1998, and has been president of Thermo Instrument since March 1997. He was the
chief operating officer of Thermo Instrument from January 1996 to January 1998.
Prior to that time, he was an executive vice president of Thermo Instrument from
January 1996 to March 1997, a senior vice president from January 1994 to January
1996, and a vice president from March 1992 to January 1994. Prior to his
appointment as Thermo Instrument's chief executive officer, Mr. Lewis was also
the chief executive officer of Thermo Optek Corporation, a majority-owned
subsidiary of Thermo Instrument, from its inception in August 1995 to January
1998 and was the president of its predecessor, Thermo Jarrell Ash Corporation
for more than five years prior to 1995. Mr. Lewis is also a director of SpectRx
Inc. and the following affiliates of Thermo Electron: FLIR Systems, Inc.,
Metrika Systems Corporation, ONIX Systems Inc., Spectra-Physics Lasers, Inc.,
Thermo BioAnalysis Corporation, Thermo Optek Corporation, ThermoQuest
Corporation, ThermoSpectra Corporation and Thermo Vision Corporation.

ROBERT A. MCCABE: Director

Robert A. McCabe has been a director of Thermo Electron since 1962. He has
been the chairman of Pilot Capital Corporation, which is engaged in private
investments, since 1998. Mr. McCabe was president of Pilot Capital Corporation
from 1987 to 1998. Prior to that time, Mr. McCabe was a managing director of
Lehman Brothers Inc., an investment banking firm. Mr. McCabe is also a director
of Atlantic Bank & Trust Company, Borg-Warner Security Corporation, Church &
Dwight Company and Thermo Optek Corporation, an affiliate of Thermo Electron.
His business address is Pilot Capital Corporation, 444 Madison Avenue, Suite
2103, New York, New York 10022.

THEO MELAS-KYRIAZI: Chief Financial Officer and Vice President

Theo Melas-Kyriazi has been the chief financial officer of Thermo Electron
since January 1999 and a vice president since March 1998. In addition, Mr.
Melas-Kyriazi was the treasurer of Thermo Electron from May 1988 to August 1994.
From August 1994 through March 1998, he served as the president and chief
executive officer of ThermoSpectra Corporation, an affiliate of Thermo Electron,
which manufactures precision imaging, inspection, temperature control, and test
and measurement instruments. Mr. Melas-Kyriazi is also the chief financial
officer of the Company. Mr. Melas-Kyriazi is also a director of ThermoRetec
Corporation and the chairman of the board of directors of ThermoSpectra
Corporation,

D-5
<PAGE>

both affiliates of Thermo Electron. Mr. Melas-Kyriazi is a citizen of Greece.
For further information, please see description under "Directors and Executive
Officers of the Company," above.

HUTHAM S. OLAYAN: Director

Hutham S. Olayan has been a director of Thermo Electron since 1987. She has
served since 1995 as the president and a director of Olayan America Corporation,
a member of the Olayan Group, and as the president and a director of Competrol
Real Estate Limited, another member of the Olayan Group, from 1986 until its
merger into Olayan America Corporation in 1997. The surviving company is engaged
in private investments, including real estate, and advisory services. In
addition, from 1985 to 1994, Ms. Olayan served as the president and a director
of Crescent Diversified Limited, another member of the Olayan Group engaged in
private investments. Ms. Olayan is also a director of Trex Medical Corporation,
an affiliate of Thermo Electron. Ms. Olayan is a citizen of Saudi Arabia. Her
business address is Suite 1100, 505 Park Avenue, New York, New York 10022.

ROBERT W. O'LEARY: Director

Robert W. O'Leary has been a director of Thermo Electron since June 1998. He
has been the president and the chairman of Premier, Inc., a strategic alliance
of not-for-profit health care and hospital systems, since 1995. From 1990 to
1995, Mr. O'Leary was the chairman of American Medical International, Inc., one
of the three predecessor entities of Premier, Inc. His business address is
Premier, Inc., 12225 El Camino Real, San Diego, California 92130.

WILLIAM A. RAINVILLE: Chief Operating Officer, Recycling and Resource Recovery

William A. Rainville became the chief operating officer, recycling and
resource recovery, of Thermo Electron in September 1998. Prior to that time, Mr.
Rainville had been a senior vice president of Thermo Electron since March 1993
and was a vice president of Thermo Electron from 1986 to 1993. Mr. Rainville has
been the president and chief executive officer of Thermo Fibertek Inc., a
majority-owned subsidiary of Thermo Electron, since its inception in 1991 and a
director since January 1992. From 1984 until January 1993, Mr. Rainville was the
president and chief executive officer of Thermo Web Systems Inc., a subsidiary
of Thermo Fibertek Inc. Mr. Rainville is also a director of the following
affiliates of Thermo Electron: Thermo Ecotek Corporation, Thermo Fibergen Inc.,
ThermoRetec Corporation, and Thermo TerraTech Inc. His business address is 245
Winter Street, Waltham, Massachusetts 02451.

RICHARD F. SYRON: President, Chief Executive Officer and Director

Richard F. Syron has been the president and chief executive officer of
Thermo Electron since June 1999 and a director of Thermo Electron since
September 1997. From April 1994 to May 1999, Dr. Syron was the chairman and the
chief executive officer of the American Stock Exchange Inc., which has offices
located at 86 Trinity Place, New York, New York 10006. From January 1989 through
April 1994, he was the president and chief executive officer of the Federal
Reserve Bank of Boston. Prior to that time, he held a variety of senior
positions with the Federal Home Loan Bank of Boston, the Federal Reserve Bank of
Boston, the Board of Governors of the Federal Reserve System, and the U.S.
Department of Treasury. Dr. Syron is also a director of Thermo Instrument,
Thermedics Inc., Thermo Fibertek Inc., Dreyfus Corporation and The John Hancock
Corporation.

ROGER D. WELLINGTON: Director

Roger D. Wellington has been a director of Thermo Electron since 1986. Mr.
Wellington serves as the president and chief executive officer of Wellington
Consultants, Inc. and of Wellington Associates Inc., international business
consulting firms he founded in 1994 and 1989, respectively. Prior to 1989, Mr.
Wellington served as the chairman of the board of Augat Inc., a manufacturer of
electromechanical components and systems, for more than five years. Prior to
1988, Mr. Wellington also served as the chief executive officer and president of
Augat Inc. for more than ten years. Mr. Wellington is also a director of
Photoelectron Corporation and Thermo Fibergen Inc., an affiliate of Thermo
Electron.

To the knowledge of the Company, all of the above-listed officers and
directors intend to vote their shares of Common Stock to approve the Merger
Agreement.

D-6
<PAGE>
APPENDIX E

INFORMATION CONCERNING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY

The following sets forth information with respect to purchases of Common
Stock by the Company and Thermo Electron since the commencement of the Company's
second full fiscal year preceding the date of this Proxy Statement.

<TABLE>
<CAPTION>
AVERAGE PURCHASE
NUMBER OF RANGE OF PRICES PRICE PER SHARE
SHARES PURCHASED PAID PER SHARE DURING
QUARTER/YEAR PURCHASER DURING QUARTER DURING QUARTER ($)(1) QUARTER($)(1)
- -------------------------------------- ------------------- ---------------- --------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1(st) Quarter 1997.................... Thermo Electron 111,300 8.0 - 8.875 8.7862
2(nd) Quarter 1997.................... Thermo Electron 100,000 7.875 - 11.75 8.125
2(nd) Quarter 1997.................... Thermo Power 311,300 6.375 - 6.5 6.4839
3(rd) Quarter 1997.................... Thermo Electron 1,800 5.6875 - 5.75 5.7292
3(rd) Quarter 1997.................... Thermo Power 256,300 5.625 - 6.25 5.9235
4(th) Quarter 1997.................... Thermo Power 7,800 5.625 5.625
1(st) Quarter 1998.................... Thermo Electron 2,300 10.0625 10.0625
1(st) Quarter 1998.................... Thermo Power 121,000 8.625 - 12.625 9.1001
2(nd) Quarter 1998.................... Thermo Electron 319,800 10.375 - 12 11.6314
2(nd) Quarter 1998.................... Thermo Power 27,300 8.5 - 10.625 9.9464
3(rd) Quarter 1998.................... Thermo Electron 173,600 10.5 - 11.5625 10.9549
4(th) Quarter 1998.................... Thermo Electron 678,700 7.625 - 8.0 7.9891
1(st) Quarter 1999.................... Thermo Electron 1,000 8.25 8.25
2(nd) Quarter 1999.................... Thermo Electron 16,000 7.625 - 7.75 7.7461
</TABLE>

- ------------------------

(1) Prices per share of Common Stock are net of commissions paid by the
respective purchasers.

The following chart sets forth information with respect to options granted
by the Company since the commencement of the Company's second full fiscal year
preceding the date of this Proxy Statement to directors and executive officers
of the Company, the Merger Sub and Thermo Electron.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
DATE OF COVERED EXERCISE
NAME RELATIONSHIP GRANT BY OPTIONS PRICE
- -------------------------------- ----------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Frank Borman.................... Director, Company 3/10/99 1,000 $ 10.33
Peter O. Crisp.................. Director, Company and Thermo Electron 3/21/97 1,000 $ 6.65
Peter O. Crisp.................. Director, Company and Thermo Electron 3/13/98 1,000 $ 11.63
Peter O. Crisp.................. Director, Company and Thermo Electron 3/10/99 1,000 $ 10.33
Earl R. Lewis................... Chief Operating Officer, Thermo Electron 5/27/98 10,000 $ 11.33
Donald E. Noble................. Director, Company 3/21/97 1,000 $ 6.65
Donald E. Noble................. Director, Company 3/13/98 1,000 $ 11.63
Donald E. Noble................. Director, Company 3/10/99 1,000 $ 10.33
John J. Setnicka................ Director, Company 3/10/99 1,000 $ 10.33
</TABLE>

The following chart sets forth information with respect to options to
purchase Common Stock that have been exercised by directors and executive
officers of the Company, the Merger Sub and Thermo

E-1
<PAGE>
Electron since the commencement of the Company's second full fiscal year
preceding the date of this Proxy Statement.

<TABLE>
<CAPTION>
NUMBER OF
SHARES AVERAGE
EXERCISE RECEIVED UPON EXERCISE
NAME RELATIONSHIP DATE EXERCISE PRICE
- ----------------------------------- ---------------------------------------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Peter O. Crisp..................... Director, Company and Thermo Electron 3/13/98 1,000 $ 9.43
Paul F. Kelleher................... Chief Accounting Officer, Company and Thermo 4/13/99 4,000 $ 7.58
Electron
Theo Melas-Kyriazi................. Chief Financial Officer, Company and Thermo 4/15/99 4,000 $ 7.58
Electron
Donald E. Noble.................... Director, Company 3/09/98 1,000 $ 9.43
Donald E. Noble.................... Director, Company 6/26/98 400 $ 10.15
Donald E. Noble.................... Director, Company 6/25/99 200 $ 7.63
</TABLE>

OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THE COMPANY

The following table sets forth the beneficial ownership of Common Stock, as
of June 30, 1999, with respect to (i) each director and executive officer of the
Company and (ii) all directors and current executive officers as a group.

- ------------------------

* Reflects ownership of less than 1.0% of the outstanding Common Stock.

(2) The shares of Common Stock beneficially owned by Mr. Armstrong, Col. Borman,
Mr. Corcoran, Mr. Crisp, Mr. Hatsopoulos, Mr. Kelleher, Mr. Melas-Kyriazi,
Mr. Noble, Mr. Setnicka and all directors and current executive officers as
a group include 125,000, 1,000, 135,500, 5,800, 40,000, 5,000, 5,000, 6,400,
1,000 and 324,700 shares, respectively, that such person or group had the
right to acquire within 60 days of June 30, 1999, through the exercise of
stock options. Shares beneficially

E-2
<PAGE>
owned by Mr. Crisp, Mr. Noble and all directors and current executive
officers as a group include 12,072, 8,507 and 20,579 shares, respectively,
allocated through April 3, 1999, to their respective accounts maintained
under the Deferred Compensation Plan. Shares beneficially owned by Mr.
Armstrong include 1,120 shares held by Mr. Armstrong's spouse. Shares
beneficially owned by Mr. Hatsopoulos include 1,000 shares owned by his
spouse. Except for Mr. Armstrong, who beneficially owned 1.07% of the Common
Stock outstanding as of June 30, 1999, and Mr. Corcoran, who beneficially
owned 1.34% of the Common Stock outstanding as of June 30, 1999, no director
or executive officer beneficially owned more than 1.0% of the Common Stock
outstanding as of June 30, 1999; all directors and current executive
officers as a group beneficially owned 3.55% of the Common Stock outstanding
as of such date.

OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THERMO ELECTRON

The following table sets forth the beneficial ownership of Common Stock, as
of June 30, 1999, with respect to (i) each director and executive officer of
Thermo Electron and (ii) all directors and current executive officers as a
group.

While certain directors and executive officers of Thermo Electron are also
directors and executive officers of majority-owned subsidiaries of Thermo
Electron, all such persons disclaim beneficial ownership of the shares of Common
Stock owned by Thermo Electron or by such majority-owned subsidiaries, as the
case may be.

<TABLE>
<CAPTION>
THERMO
POWER COMPANY(2)
--------------------------
NUMBER OF PERCENTAGE
NAME(1) SHARES OF CLASS
- ------------------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
John M. Albertine......................................................................... 3,000 *
Samuel W. Bodman.......................................................................... 0 *
Peter O. Crisp............................................................................ 36,965 *
Elias P. Gyftopoulos...................................................................... 6,925 *
George N. Hatsopoulos..................................................................... 54,282 *
John N. Hatsopoulos....................................................................... 46,753 *
Brian D. Holt............................................................................. 0 *
Frank Jungers............................................................................. 3,000 *
John T. Keiser............................................................................ 0 *
Paul F. Kelleher.......................................................................... 15,370 *
Earl R. Lewis............................................................................. 12,500 *
Robert A. McCabe.......................................................................... 11,629 *
Theo Melas-Kyriazi........................................................................ 9,988 *
Donald E. Noble (3)....................................................................... 23,932 *
Hutham S. Olayan.......................................................................... 3,000 *
Robert W. O'Leary......................................................................... 0 *
William A. Rainville...................................................................... 0 *
Richard F. Syron.......................................................................... 0 *
Roger D. Wellington....................................................................... 6,425 *
All directors and current executive officers as a group (19 persons)...................... 233,769 1.96%
</TABLE>

- ------------------------

* Reflects ownership of less than 1.0% of the outstanding Common Stock.

E-3
<PAGE>
(2) The shares of Common Stock beneficially owned by Dr. Albertine, Mr. Crisp,
Dr. Gyftopoulos, Dr. George Hatsopoulos, Mr. John Hatsopoulos, Mr. Jungers,
Mr. Kelleher, Mr. Lewis, Mr. McCabe, Mr. Melas-Kyriazi, Mr. Noble, Ms.
Olayan, Mr. Wellington and all directors and executive officers as a group
include 3,000, 5,800, 3,000, 40,000, 40,000, 3,000, 5,000, 10,000, 3,000,
5,000, 6,400, 3,000, 3,000 and 130,200 shares, respectively, that such
person or group had the right to acquire within 60 days of June 30, 1999,
through the exercise of stock options. Shares beneficially owned by Mr.
Crisp, Mr. Noble and all directors and current executive officers as a group
include 12,072, 8,507 and 20,579 shares, respectively, that had been
allocated through April 3, 1999 to their respective accounts maintained
under the Deferred Compensation Plan. Shares beneficially owned by Dr.
George Hatsopoulos include 114 shares owned by his spouse. Shares
beneficially owned by Mr. John Hatsopoulos include 1,000 shares owned by his
spouse. Shares beneficially owned by Mr. Lewis include 500 shares owned by
his minor child. No director or executive officer beneficially owned more
than 1.0% of the Common Stock outstanding as of June 30, 1999; all directors
and current executive officers as a group beneficially owned 1.96% of the
Common Stock outstanding as of such date.

(3) Mr. Noble retired from the board of directors of Thermo Electron in
September 1999.

OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THE MERGER SUB

Please see "Ownership of Common Stock by Executive Officers and Directors of
the Company", above, for information regarding the ownership of Common Stock by
Brian D. Holt, the sole director and executive officer of the Merger Sub.

TRANSACTIONS IN THE COMMON STOCK

There were no transactions in the Common Stock effected during the 60 days
preceding the date of this Proxy Statement by the Company, the Merger Sub,
Thermo Electron or, the best knowledge of the Company, the directors and
executive officers of any of the Company, the Merger Sub or Thermo Electron.

E-4

<PAGE>

[ATTACHMENT A TO PROXY STATEMENT]

FORM OF PROXY

THERMO POWER CORPORATION

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 28, 1999

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints J. Timothy Corcoran, Theo Melas-Kyriazi
and Kenneth J. Apicerno, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution,
for and in the name of the undersigned, to represent the undersigned at the
Special Meeting of the stockholders of Thermo Power Corporation, a
Massachusetts corporation (the "Company"), to be held on Thursday, October
28, 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81
Wyman Street, Waltham, Massachusetts 02454-9046, and at any adjournment or
adjournments thereof, and to vote all shares of common stock of the Company
standing in the name of the undersigned on September 27, 1999, with all of the
powers the undersigned would possess if personally present at such meeting.

(IMPORTANT--TO BE SIGNED AND DATED ON THE REVERSE SIDE.)

<PAGE>

SPECIAL MEETING OF STOCKHOLDERS
THERMO POWER CORPORATION
OCTOBER 28, 1999

1. To consider and vote on a proposal to approve an Agreement and Plan
of Merger dated as of May 5, 1999 (the "Merger Agreement") pursuant to which
TP Acquisition Corporation, a newly-formed company and wholly owned
subsidiary of Thermo Electron Corporation, will be merged (the "Merger") with
and into the Company and each stockholder of the Company (other than
stockholders who are entitled to and have perfected their dissenters' rights
and Thermo Electron Corporation) will become entitled to receive $12.00 in
cash, without interest, for each outstanding share of common stock, $.10 par
value, of the Company owned by such stockholder immediately prior to the
effective time of the Merger. A copy of the Merger Agreement is attached as
Appendix A to and is described in the accompanying Proxy Statement.

[ ] For [ ] Against [ ] Abstain

2. To consider and act in their discretion upon such other matters as
may properly come before the Special Meeting or any adjournment or
adjournments thereof.

[ ] For [ ] Against [ ] Abstain

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS
SET FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO
INSTRUCTION IS GIVEN.

Copies of the Notice of Special Meeting and of the Proxy Statement have
been received by the undersigned.

PLEASE DATE, SIGN AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.

Signature(s)_____________________________

Date_____________________________________

Note: This Proxy should be dated and signed by the
stockholder(s) exactly as his or her name appears
hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint
tenants or as community property, both should sign.

PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!