<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
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. /X/
Calculation of Filing Fee
<TABLE>
- -------------------------------------------------------
<CAPTION>
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.: Preliminary Proxy Statement on Schedule 14A
Filing party: Thermo Power Corporation
Date filed: June 16, 1999
</TABLE>
2
<PAGE>
This Rule 13e-3 Transaction Statement (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
June 16, 1999 of a 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
<TABLE>
<CAPTION>
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"
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 and the
Board's Recommendations;" "--Purpose and Reasons of Thermo
Electron for the Merger;" "Special Factors--Background of
the Merger;" "--The Special Committee's and the Board's
Recommendations;" "--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)......................................... "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;" "--Opinion of Financial
Advisor;" "--Purpose and Reasons of Thermo Electron for the
Merger;" "Special Factors--Background of the Merger;" "--The Special
Committee's and the Board's Recommendations;" "--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 and the Board's Recommendations;"
"--Position of Thermo Electron as to Fairness of the Merger;"
"Special Factors--The Special Committee's and the Board's
Recommendations;" "--Position of Thermo Electron as to Fairness
of the Merger"
Item 8(b)......................................... "Summary--The Special Committee's and the Board's Recommendations;"
"--Position of Thermo Electron as to Fairness of the Merger;"
"Special Factors--Background of the Merger;" "--The Special
Committee's and the Board's Recommendations;" "--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 Meeting--
Voting Procedures"
Item 8(d)......................................... "Summary--The Special Committee's and the Board's Recommendations;"
"--Opinion of Financial Advisor;" "Special Factors--
Background of the Merger;" "--The Special Committee's and the
Board's Recommendations;" "--Opinion of Financial Advisor;"
"Appendix B--Opinion of Invemed Associates LLC"
Item 8(e)......................................... "Summary--The Special Committee's and the Board's Recommendations;"
"Special Factors--The Special Committee's and the Board's
Recommendations"
6
<PAGE>
Item 8(f)......................................... "Special Factors--Background of the Merger;" "--The Special Committee's and
the Board's Recommendations;" "--Opinion of Financial Advisor"
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 and the Board's Recommendations;" "--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 and the Board's Recommendations;"
"--Position of Thermo Electron as to Fairness of the Merger;"
"Special Factors--The Special Committee's and the Board's
Recommendations;" "--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 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)..................................... Preliminary Copy of Letter to Stockholders
Item 17(d)(2)..................................... Preliminary Copy of Notice of Special Meeting of Stockholders
Item 17(d)(3)..................................... Preliminary 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) ...................................... Preliminary 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 section entitled "Summary--
Market Prices of Common Stock and Dividends" 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 and the Board's
Recommendations," "--Purpose and Reasons of Thermo Electron for the Merger,"
"Special Factors--Background of the Merger," "--The Special Committee's and the
Board's Recommendations," "--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 section entitled "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.
(c) Not applicable.
(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," "--Opinion of Financial Advisor,"
"--Purpose and Reasons of Thermo Electron for the Merger," "Special
Factors--Background of the Merger," "--The Special Committee's and the
Board's Recommendations," "--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
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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 and the Board's Recommendations," "--Position of Thermo
Electron as to Fairness of the Merger," "Special Factors--The Special
Committee's and the Board's Recommendations" 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 and the Board's Recommendations," "--Position of Thermo
Electron as to Fairness of the Merger," "Special Factors--Background of the
Merger," "--The Special Committee's and the Board's Recommendations,"
"--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" 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 and the Board's Recommendations," "--Opinion of Financial
Advisor," "Special Factors--Background of the Merger," "--The Special
Committee's and the Board's Recommendations" 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 and the Board's Recommendations" and "Special Factors--The
Special Committee's and the Board's Recommendations" 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 and the
Board's Recommendations" and "--Opinion of Financial Advisor" 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
and the Board's Recommendations," "--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 and the Board's Recommendations," "--Position of Thermo
Electron as to Fairness of the Merger," "Special Factors--The Special
Committee's and the Board's Recommendations" 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.
(c) Not applicable.
13
<PAGE>
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the sections entitled "Selected
Quarterly Financial Data," "Ratio of Earnings 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 preliminary 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 preliminary Proxy Statement, which is filed
herewith as Exhibit 17(d)(3)).
(d)(1) Preliminary Copy of Letter to Stockholders.
(d)(2) Preliminary Copy of Notice of Special Meeting of Stockholders.
(d)(3) Preliminary 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 preliminary Proxy
Statement, which is filed herewith as Exhibit 17(d)(3)).
(f) Preliminary 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>
<S> <C> <C>
THERMO POWER CORPORATION
Dated: June 16, 1999 By: /s/ J. TIMOTHY CORCORAN
--------------------------------------------
Name: J. Timothy Corcoran
Title: President and Chief Executive Officer
THERMO ELECTRON CORPORATION
Dated: June 16, 1999 By: /s/ THEO MELAS-KYRIAZI
--------------------------------------------
Name: Theo Melas-Kyriazi
Title: Vice President
TP ACQUISITION CORPORATION
Dated: June 16, 1999 By: /s/ BRIAN D. HOLT
--------------------------------------------
Name: Brian D. Holt
Title: President
</TABLE>
15
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
99.17 (b) Opinion of Invemed Associates LLC dated May 4, 1999 (included
as Appendix B to the preliminary 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
preliminary Proxy Statement, which is filed herewith as
Exhibit 99.17(d)(3)).
99.17 (d)(1) Preliminary Copy of Letter to Stockholders.
99.17 (d)(2) Preliminary Copy of Notice of Special Meeting of Stockholders.
99.17(d)(3) Preliminary 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 preliminary Proxy Statement, which is
filed herewith as Exhibit 99.17(d)(3)).
99.17(f) Preliminary Proxy Statement (see Exhibit 99.17(d)(3)).
</TABLE>
16
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<TABLE>
<S> <C>
[LOGO] 45 FIRST AVENUE, WALTHAM, MA 02454
</TABLE>
, 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 , 1999 at the executive offices of Thermo
Electron, 81 Wyman Street, Waltham, Massachusetts 02454.
Under the terms of the Merger Agreement, Thermo Power would merge with the
Merger Sub, 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 of Thermo Power, 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 , 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.
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Yours very truly,
/s/ J. TIMOTHY CORCORAN
------------------------------------------
J. Timothy Corcoran
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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[LOGO] 45 FIRST AVENUE, WALTHAM, MA 02454
</TABLE>
NOTICE OF SPECIAL MEETING
, 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 , 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 , 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 AND RETURN IT IN THE ENVELOPE
PROVIDED. YOU MAY REVOKE THE 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 , 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 , 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 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 12, 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 were $8 1/4 and $12 3/16, respectively. On ,
1999, the last trading day prior to the printing of this Proxy Statement, the
closing price per share of the Common Stock was $ .
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."
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."
Stockholders should read and consider carefully the information contained in
this Proxy Statement. The consummation of the Merger is subject to certain
conditions. Accordingly, there can be no assurance that the Merger will be
consummated. 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 , 1999.
<PAGE>
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
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QUESTIONS AND ANSWERS ABOUT THE MERGER................................................ 5
SUMMARY............................................................................... 7
Date, Time and Place of the Special Meeting......................................... 7
Purpose of the Special Meeting...................................................... 7
Record Date and Quorum.............................................................. 7
Vote Required and Revocation of Proxies............................................. 7
Parties to the Merger............................................................... 8
The Merger.......................................................................... 8
Effective Time of the Merger and Payment for Shares................................. 9
Assumption of Thermo Power Stock Options by Thermo Electron......................... 9
The Special Committee's and the Board's Recommendations............................. 10
Opinion of Financial Advisor........................................................ 10
Purpose and Reasons of Thermo Electron for the Merger............................... 11
Position of Thermo Electron as to Fairness of the Merger............................ 12
Conflicts of Interest............................................................... 12
Certain Effects of the Merger....................................................... 13
Competing Offers.................................................................... 14
Conditions to the Merger, Termination and Expenses.................................. 14
Federal Income Tax Consequences..................................................... 15
Rights of Dissenting Stockholders................................................... 15
Accounting Treatment................................................................ 15
Market Prices of Common Stock and Dividends......................................... 16
SPECIAL FACTORS....................................................................... 17
Background of the Merger............................................................ 17
The Special Committee's and the Board's Recommendations............................. 20
Opinion of Financial Advisor........................................................ 21
Purpose and Reasons of Thermo Electron for the Merger............................... 26
Position of Thermo Electron as to Fairness of the Merger............................ 27
Conflicts of Interest............................................................... 28
Certain Effects of the Merger....................................................... 29
Conduct of Thermo Power's Business After the Merger................................. 30
Conduct of the Business of the Company if the Merger is Not Consummated............. 30
THE SPECIAL MEETING................................................................... 31
Proxy Solicitation.................................................................. 31
Record Date and Quorum Requirement.................................................. 31
Voting Procedures................................................................... 31
Voting and Revocation of Proxies.................................................... 32
Effective Time...................................................................... 32
THE MERGER............................................................................ 33
Conversion of Securities............................................................ 33
Assumption of Thermo Power Stock Options by Thermo Electron......................... 33
Deferred Compensation Plan for Directors............................................ 34
Articles of Organization and By-laws................................................ 34
Transfer of Shares.................................................................. 34
Conditions.......................................................................... 35
Representations and Warranties...................................................... 35
Covenants........................................................................... 36
Indemnification and Insurance....................................................... 37
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3
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Competing Offers.................................................................... 37
Termination, Amendment and Waiver................................................... 37
Source of Funds..................................................................... 38
Expenses............................................................................ 39
Accounting Treatment................................................................ 39
Regulatory Approvals................................................................ 39
RIGHTS OF DISSENTING STOCKHOLDERS..................................................... 39
FEDERAL INCOME TAX CONSEQUENCES....................................................... 41
BUSINESS OF THE COMPANY............................................................... 42
Overview............................................................................ 42
Traffic Control Products and Systems................................................ 42
Industrial Refrigeration Systems.................................................... 43
Cooling and Cogeneration Systems.................................................... 44
Sales and Marketing................................................................. 45
Properties.......................................................................... 45
SELECTED QUARTERLY FINANCIAL DATA..................................................... 46
RATIO OF EARNINGS TO FIXED CHARGES.................................................... 46
SELECTED FINANCIAL INFORMATION........................................................ 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 49
Overview............................................................................ 49
Results of Operations............................................................... 50
Liquidity and Capital Resources..................................................... 54
Market Risk......................................................................... 55
Year 2000........................................................................... 56
CERTAIN PROJECTED FINANCIAL DATA...................................................... 59
February Projections................................................................ 60
FORWARD-LOOKING STATEMENTS............................................................ 61
MANAGEMENT............................................................................ 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 68
Principal Stockholder............................................................... 68
Management.......................................................................... 68
CERTAIN TRANSACTIONS.................................................................. 70
CERTAIN INFORMATION CONCERNING THE MERGER SUB AND THERMO ELECTRON..................... 74
The Merger Sub...................................................................... 74
Thermo Electron..................................................................... 74
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 74
STOCKHOLDER PROPOSALS................................................................. 74
ADDITIONAL INFORMATION................................................................ 74
AVAILABLE INFORMATION................................................................. 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 75
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................ F-1
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>
4
<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 , 1999, at 10:00
a.m., at the executive offices of Thermo Electron Corporation, 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 Thermo Power Common Stock. The amount of cash consideration to be paid
to Thermo Power stockholders will equal approximately $30.9 million in the
aggregate.
On August 12, 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 Thermo
Power Common Stock reported in the consolidated transaction reporting system
were $8 1/4 and $12 3/16, respectively. On , 1999 (the most recent
practicable date prior to the printing of this Proxy Statement), the closing
price of Thermo Power Common Stock reported in the consolidated transaction
reporting system was $ .
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 and the Public Stockholders.
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 39-40 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 approve the Merger Agreement. Thermo
Electron, which owns approximately 78% of
5
<PAGE>
the outstanding Common Stock, 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
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 Thermo Power Common Stock at the close of business on
, 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 , 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, complete and send a new Proxy Card with a later date or 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 Thermo Power Common
Stock. Assuming the Merger Agreement is approved, you will receive a package
containing instructions on how to exchange your shares of Thermo Power Common
Stock for cash.
14. WHAT WILL HAPPEN TO THERMO POWER STOCK OPTIONS?
Options to purchase Thermo Power 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 come before the Special Meeting.
6
<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
, 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 , 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 shares of Common Stock outstanding, of which
shares were held by stockholders of the Company other than Thermo Electron
and the directors and officers of each of the Company and Thermo Electron (the
"Public Stockholders"). 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 approve the Merger
Agreement. For the purposes of the vote required
7
<PAGE>
under Massachusetts law, a failure to vote, a vote to abstain and a broker
non-vote will 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 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
8
<PAGE>
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 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 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 $30.9 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.
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
9
<PAGE>
(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.
See "THE MERGER--Assumption of Thermo Power Stock Options by Thermo
Electron."
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATIONS
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 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."
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."
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 their respective decisions to recommend approval of the
Merger Agreement, the Special Committee and the Board also considered the
factors set forth elsewhere in this Proxy Statement. See "SPECIAL FACTORS--The
Special Committee's and the Board's Recommendations."
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 recommends that the Thermo Power stockholders vote "FOR" approval
of the Merger Agreement.
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
10
<PAGE>
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 agreed to pay Invemed a fee for
the preparation and delivery of a written fairness opinion equal to the greater
of $250,000 or 1.25% of the aggregate consideration to be paid to the
stockholders of the Company (other than Thermo Electron) in connection with the
Merger (which fee was payable regardless of the conclusions expressed therein).
In addition, the Company has 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 will
result from the termination of the Company's separate Securities and Exchange
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 leaving Thermo Power as a majority-owned, public subsidiary. Thermo
Electron considered the number of shares of Common Stock held by 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
11
<PAGE>
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 Special Committee's and the Board's Recommendations"). Thermo
Electron adopts 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."
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's 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."
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<PAGE>
THE THERMO POWER DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, other than the members of the Special
Committee, and executive officers of Thermo Power own in the aggregate 79,100
shares of Common Stock and will receive a payment for their shares of Common
Stock in the aggregate amount of $949,200 upon consummation of the Merger. In
addition, such Board members and executive officers hold options to acquire an
aggregate of 323,100 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 Electron's interest in the Company's net book value of
$65.6 million on April 3, 1999, net income of $2.3 million for the year ended
October 3, 1998 and net loss of $0.7 million for the six months ended April 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 Securities and Exchange Commission (the "Commission") and
will make most other provisions of the Exchange Act inapplicable. See "SPECIAL
FACTORS--Certain Effects of the Merger."
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<PAGE>
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 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
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<PAGE>
(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. Those
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.
15
<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 (through June
15, 1999)................... 12 3/8 8 1/4
</TABLE>
On August 12, 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
were $8 1/4, $8 and $8 1/4, respectively. 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 were $12 3/8, $9 1/2
and $12 3/16, respectively. On , 1999, the last trading day prior to the
printing of this Proxy Statement, the high, low and closing sales price per
share of Common Stock were $ , $ and $ , respectively.
At , there were holders of record of Common Stock and
approximately 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.
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<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
During the beginning of August 1998, Thermo Electron's senior management
initially considered acquiring 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 (i) the reduction in the amount of
public information available to competitors about Thermo Power's business that
will result from the termination of the Company's separate 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, by acquiring the minority
stockholder interest in Thermo Power, it would advance the goal of its proposed
corporate reorganization of Thermo Electron 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 acquiring the minority stockholder interest in
Thermo Power. In mid-August 1998, Thermo Electron's management decided to
propose to Thermo Electron's board of directors that it 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
acquire all of the shares of Thermo Power Common Stock that it did not already
own, as a part of a 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
will result from the termination of the Company's separate 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 leaving Thermo
Power as a majority-owned, public subsidiary. 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
17
<PAGE>
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. After discussing the advantages and disadvantages of
acquiring the minority stockholder interest in Thermo Power, 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 it 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. 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 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 at a
cash purchase price of $10.00 per share.
At the request of the Special Committee, Invemed requested and reviewed
information relating to Thermo Power's business in February through March.
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
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<PAGE>
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 outstanding 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 with Thermo Electron on the Special Committee's behalf regarding price
and Morgan, Lewis & Bockius LLP to negotiate 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 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 the proposal by Thermo Electron of $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
19
<PAGE>
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 will result from the termination of the
Company's separate 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
proposed transaction.
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 parties. Thermo
Power then issued a press release announcing that, based in part on the
recommendation of the Special Committee, the Board approved the Merger Agreement
with Thermo Electron.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATIONS
The Board believes that the Merger is fair to, and in the best interests of,
the Company and the Public Stockholders. Accordingly, the Board unanimously
approved the Merger Agreement and unanimously recommends that the stockholders
approve it.
The factors detailed below represent all of the material factors considered
by the Special Committee and the Board. With the exception of the Cash Merger
Consideration, which was the most important factor, the Special Committee and
the Board did not place more weight on any one factor than on any other. The
Special Committee and the Board considered the following factors:
- The Cash Merger Consideration of $12.00 per share;
- Invemed's fairness opinion and related presentation;
- Information concerning the business, financial performance, condition and
prospects of Thermo Power;
- The business purposes of the Merger;
- The fact that the chairman of the board of Thermo Electron told the
Special Committee that this was the best price Thermo Electron was willing
to pay;
- The fact that, in Thermo Electron's prior similar transaction involving
Thermo Voltek, Thermo Voltek was marketed to third parties and the merger
agreement was conditioned on obtaining a majority vote of Thermo Voltek's
minority stockholders;
20
<PAGE>
- The price Thermo Power paid to acquire Peek plc;
- The terms of the Merger Agreement including:
- the amount and form of consideration;
- the limited number of conditions to Thermo Electron's obligations,
including the absence of financial conditions;
- the right of the Board, upon the recommendation of the Special
Committee, to terminate the Merger Agreement if the Board determines
that its fiduciary duties to the stockholders require it to do so; and
- the absence of a termination fee in the event Thermo Power terminates
the Merger Agreement;
- Since the announcement of Thermo Electron's 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 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;
- Thermo Electron's advisement to the Special Committee that it is not
interested in selling Thermo Power at any reasonably obtainable price;
- The likely decline in Thermo Power's stock price if this transaction is
not completed;
- The depressed market price and relative lack of liquidity for the Common
Stock and the liquidity that would be realized by Thermo Power's
stockholders from the all cash offer;
- Stockholders' responses to Thermo Power's April 29, 1999 press release;
and
- Competition in the Company's markets.
After consideration of these factors, the Special Committee recommended to
the Board approval of the Merger Agreement.
BASED ON THE SPECIAL COMMITTEE'S RECOMMENDATION AND ITS CONSIDERATION OF THE
FACTORS SET FORTH ABOVE, THE BOARD UNANIMOUSLY (INCLUDING THE MEMBERS OF THE
SPECIAL COMMITTEE) 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 RECOMMENDS THAT YOU VOTE TO APPROVE THE
MERGER AGREEMENT.
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.
21
<PAGE>
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 and Peek), of certain 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.
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<PAGE>
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 12, 1998, the last
trading day before Thermo Electron first publicly announced a proposal to
acquire the minority stockholder interest in Thermo Power, was $8 1/4.
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.
23
<PAGE>
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 Transactions for refrigeration were: (i) the
Company's acquisition of FES, Inc.; (ii) the Company's acquisition of NuTemp;
(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 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>
24
<PAGE>
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 minority interest
acquisitions by majority interest holders since May 1990 and with transaction
values less than $50 million. Those transactions were: (i) Norfolk & Western
Railway Co./ Wabash Railroad Co.; (ii) Pennzoil Acquisition Corp./ Jiffy Lube
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.
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.................................... 21.5% $ 14.81
One Week prior to Announcement................................... 24.4% $ 11.12
One Month prior to Announcement.................................. 28.1% $ 13.13
</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 12, 1998, the last
trading day before Thermo Electron first
25
<PAGE>
publicly announced a proposal to acquire the minority stockholder interest
in Thermo Power, was $8 1/4.
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 has agreed to pay Invemed, upon delivery of Invemed's opinion, a
transaction fee equal to the greater of $250,000 or 1.25% of the aggregate
consideration to be paid to the stockholders of Thermo Power (other than Thermo
Electron) in connection with the transaction. In addition, Thermo Power has
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
26
<PAGE>
from Thermo Electron in connection with Thermo Power's acquisition of Peek plc
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 will result from the termination
of the Company's separate 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 leaving Thermo Power as a majority-owned, public subsidiary. Thermo
Electron considered the number of shares of Common Stock held by 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. 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 Special Committee's and the Board's Recommendations"). Thermo
Electron adopts 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.
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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 and the
Board's Recommendations."
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.
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
23,407 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 executive officers of Thermo Power own in the aggregate 79,100
shares of Common Stock and will receive a payment for their shares of Common
Stock in the aggregate amount of $949,200 upon consummation of the Merger. In
addition, such Board members and executive officers hold options to acquire an
aggregate of 323,100 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
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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. For a description of
such positions, 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 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
$65.6 million on April 3, 1999, net income of $2.3 million for the year ended
October 3, 1999 and net loss of $0.7 million for the six months ended April 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
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requirement of furnishing a proxy or information statement in connection with
stockholders' meetings, no longer applicable.
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
("ThermoLyte") 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, although 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 THE BUSINESS OF THE COMPANY 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.
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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 , 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
, 1999.
RECORD DATE AND QUORUM REQUIREMENT
The close of business on , 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 shares of Common Stock issued and outstanding held by
holders of record and by approximately persons or entities holding in
nominee name. Of such outstanding shares, shares were held by the Public
Stockholders.
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 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 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 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 do not vote in favor of
the Merger Agreement and who comply with certain notice requirements and other
procedures will have the right to
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dissent and to be paid cash for the "fair value" of their shares as finally
determined in accordance with the 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."
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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.
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
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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 Exchange Price.
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."
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.
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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 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
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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 policies and past practice
or pursuant to written agreements outstanding or policies existing 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;
(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;
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(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
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.
TERMINATION, AMENDMENT AND WAIVER
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
37
<PAGE>
consent of the board of directors of Thermo Electron and the Board of Directors
of Thermo Power (upon approval of the Special Committee.
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.
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, 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
$30.9 million. Thermo Electron intends to finance the Merger entirely from cash
on hand.
38
<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
39
<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 Considerations."
40
<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 INCLUDED FOR GENERAL INFORMATION ONLY AND 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, 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 federal
income tax 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. A holder of
Common Stock who does not provide Thermo Electron (or its agent) with his or her
correct TIN 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.
41
<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 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 May 31,
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
42
<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.
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<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, including four styles of a
decorative, tabletop accent light, as well as a camping light. These lighting
products are based on the Company's patented technology for a rigid mantle, the
"bulb" in gas lights. This durable mantle allows the Company to design products
that are portable, and use propane as a power source instead of batteries. Using
propane offers several advantages over batteries, including a very long shelf
life, substantially longer operating hours, constant brightness, and no battery
disposal.
44
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Optronics, Inc., ("Optronics") acquired by ThermoLyte in July 1998, also
offers over 400 lighting and associated products for the automotive, sporting
goods and marine markets. Examples include tail lights and turn-signal lights
for trailers, portable lights for fishing and hunting and docking lights.
For financial information about each of the Company's 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 April 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.
45
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL 1999
--------------------
FIRST SECOND
--------- ---------
<S> <C> <C>
Revenues............................................... $ 76,261 $ 61,181
Gross Profit........................................... 21,190 15,883
Net Income (Loss)...................................... 972 (1,704)
Basic and Diluted Earnings (Loss) per Share............ .08 (.14)
</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 plc 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 TO FIXED CHARGES
The following table sets forth the historical ratios of earnings 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.
"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. In the six months ended April 3, 1999, the Company's fixed
charges exceeded its earnings by $169,000.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
SIX MONTHS ENDED ---------------------------------------------------------
APRIL 3, 1999 1998 1997 1996 1995 1994
------------------ --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges..................... .97 1.72 10.38 9.17 18.13 15.66
</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.
46
<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
six months ended April 3, 1999, and April 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 six months ended April 3, 1999, are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------- FISCAL YEAR(1)
APRIL 3, APRIL 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................................... $ 137,442 $ 120,701 $ 245,692 $ 91,881 $ 93,058 $ 79,113 $ 69,833
---------- ---------- ---------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues......................... 100,369 86,557 172,055 72,725 74,289 58,539 53,187
Selling, general, and administrative
expenses............................... 28,956 25,543 50,801 14,265 13,874 12,963 11,712
Research and development expenses........ 3,411 4,184 7,921 1,929 2,633 2,725 1,528
Restructuring costs...................... 701 -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- ---------
133,437 116,284 230,777 88,919 90,796 74,227 66,427
---------- ---------- ---------- --------- --------- --------- ---------
Operating Income........................... 4,005 4,417 14,915 2,962 2,262 4,886 3,406
Interest Income............................ 367 1,257 1,930 1,829 1,714 1,919 1,278
Interest Expense........................... (4,463) (4,061) (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................................. (91) 1,613 7,858 4,826 4,158 7,512 5,205
Provision for Income Taxes................. 563 1,200 4,082 2,223 1,772 2,883 2,006
Minority Interest Expense.................. 78 267 423 312 312 182 --
---------- ---------- ---------- --------- --------- --------- ---------
Income (Loss) From Continuing Operations... (732) 146 3,353 2,291 2,074 4,447 3,199
Income (Loss) From Discontinued
Operations............................... -- (379) (381) (187) (1,189) (259) 49
Provision for Loss on Disposal of
Discontinued Operations.................. -- -- (636) -- -- -- --
---------- ---------- ---------- --------- --------- --------- ---------
Net Income (Loss).......................... $ (732) $ (233) $ 2,336 $ 2,104 $ 885 $ 4,188 $ 3,248
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
</TABLE>
47
<PAGE>
SELECTED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------- FISCAL YEAR(1)
APRIL 3, APRIL 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.................................... $ (.06) $ .01 $ .28 $ .19 $ .17 $ .36 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. $ (.06) $ .01 $ .28 $ .19 $ .16 $ .35 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Earnings (Loss) per Share:
Basic.................................... $ (.06) $ (.02) $ .20 $ .17 $ .07 $ .34 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. $ (.06) $ (.02) $ .20 $ .17 $ .07 $ .33 $ .26
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Weighted Average Shares
Basic.................................... 11,837 11,850 11,838 12,212 12,466 12,372 12,291
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
Diluted.................................. 11,837 11,850 11,908 12,218 12,707 12,562 12,323
---------- ---------- ---------- --------- --------- --------- ---------
---------- ---------- ---------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(4)....................... $ 34,939 $ 36,373 $ 35,762 $ 54,708 $ 57,719 $ 60,140 $ 43,143
Total assets............................. 324,369 339,001 351,635 107,922 110,711 108,417 82,621
Long-term obligations.................... 160,393 160,333 160,499 252 305 364 344
Long-term common stock of subsidiary
subject to redemption.................. -- -- -- 18,059 17,747 17,435 --
Shareholders' investment................. 65,597 65,249 69,864 66,668 67,368 65,825 60,475
OTHER DATA:
Book value per share..................... 5.53 5.52 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 plc and borrowing to finance
such acquisition.
(3) Reflects the net proceeds from the private placement of shares of ThermoLyte
Corporation in March 1995.
(4) Short-term common stock of subsidiary subject to redemption, redeemable in
December 1998 or December 1999, of $1,380, $18,215, and $18,372 at April 3,
1999, April 4, 1998, and October 3, 1998, respectively, is included as a
reduction of working capital in each period.
48
<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, the Company's results of operations
could be adversely affected by possible costs related to the conversion to the
Euro currency, which began on January 1, 1999.
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, Inc. 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 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.
49
<PAGE>
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.
RESULTS OF OPERATIONS
FIRST SIX MONTHS FISCAL 1999 COMPARED WITH FIRST SIX MONTHS FISCAL 1998
Total revenues increased to $137.4 million in the first six months of fiscal
1999 from $120.7 million in the first six months of fiscal 1998, primarily due
to the inclusion of $6.2 million in revenues from Optronics, acquired in July
1998, and an increase in revenues at the Traffic Control segment of $5.0
million. Revenues increased at the Traffic Control segment in fiscal 1999 due to
a $12.6 million increase in the first quarter of fiscal 1999, which was due to
the inclusion of revenues from the Company's Peek subsidiary, acquired in
November 1997, for the full three-month period. This increase was offset in part
by a decrease of $8.7 million, principally due to a decrease in orders from
governmental entities as a result of a reduction in funding allocated to traffic
control projects, primarily in the Netherlands, Sweden, and the United Kingdom,
and the diversiture and closure of certain Peek businesses in fiscal 1998. In
addition, the favorable effects of currency translation increased revenues at
the Traffic Control segment by $1.1 million. Industrial Refrigeration Systems
segment revenues increased to $37.7 million in fiscal 1999 from $35.4 million in
fiscal 1998 primarily due to increased demand for custom-designed industrial
refrigeration packages at FES. Cooling and Cogeneration Systems segment revenues
increased to $17.2 million in fiscal 1999 from $7.8 million in fiscal 1998,
principally due to the inclusion of revenues from Optronics and increased demand
for gas-fueled cooling systems.
The gross profit margin decreased to 27% in the first six months of fiscal
1999 from 28% in the first six 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 32% in fiscal 1998,
primarily due to a change in sales mix at its subsidiary located in the
Netherlands, offset in part by margin improvement at its U.S. operations. 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. The
effect of a decrease in the gross profit margin at the Traffic Control segment
on the Company's consolidated gross profit margin was mitigated in part by the
effect of an increase in revenues from the higher-margin Traffic Control
segment.
Selling, general, and administrative expenses as a percentage of revenues
were unchanged at 21% in the first six months of fiscal 1999 and 1998. Selling,
general, and administrative expenses increased to $29.0 million in fiscal 1999
from $25.5 million in fiscal 1998, principally due to an increase in expenses at
the Cooling and Cogeneration segment, due to the inclusion of expenses from
Optronics, and an 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 six-month
period, and was offset in part by the effect of efforts to reduce expenses at
that business.
Research and development expenses decreased to $3.4 million in the first six
months of fiscal 1999 from $4.2 million in the first six months of fiscal 1998,
primarily due to reduced spending at the Cooling
50
<PAGE>
and Cogeneration segment on natural gas-engine products and propane-powered
lighting products, due to the completion of a phase of development efforts for
these products. In addition, an increase in research and development expenses at
the Traffic Control segment due to the inclusion of expenses from Peek for the
full six-month period in fiscal 1999, was offset by a decrease in research and
development expenses at this segment primarily due to a decline in consulting
costs at its subsidiary located in the Netherlands.
The Company recorded restructuring costs of $0.7 million in the first six
months of fiscal 1999 at the Traffic Control segment, primarily for severance
and abandoned-facility payments relating to the consolidation of facilities at
Peek (See Note 15 to the Company's Consolidated Financial Statements included
elsewhere in this Proxy Statement).
In May 1999, the Company undertook additional restructuring actions. These
included a decision to hold for sale its ThermoLyte subsidiary and a write-down
of assets at Peek's sales and service subsidiaries located in Malaysia and
Croatia, that have become impaired due to economic conditions in those regions.
In addition, the Company will terminate employees and abandon excess facilities
at certain other Peek subsidiaries. The Company expects to incur pretax charges
of approximately $10 million associated with these actions, primarily in the
third quarter of fiscal 1999. Revenues and operating losses of ThermoLyte were
$3.1 million and $1.4 million, respectively for the twelve months ended October
3, 1998. Unaudited revenues and operating income were $6.6 million and $8,000,
respectively for the first six months of fiscal 1999.
Interest income decreased to $0.4 million in the first six months of fiscal
1999 from $1.3 million in the first six months of fiscal 1998, principally due
to lower average invested balances resulting from the use of cash to redeem
ThermoLyte common stock in fiscal 1999, fund acquisitions, and repay short-term
obligations assumed in connection with the Peek acquisition in fiscal 1998.
Interest expense increased to $4.5 million in the first six months of fiscal
1999 from $4.1 million in the first six months of fiscal 1998, principally due
to borrowings from Thermo Electron to finance the November 1997 acquisition of
Peek, offset in part by a reduction in interest expense, principally 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 provision of $0.6 million in the first six months
of fiscal 1999 on a pretax loss of $0.1 million, principally due to the effect
of $2.0 million of nondeductible amortization of cost in excess of net assets of
acquired companies. The Company recorded a tax provision of $1.2 million in the
first six months of fiscal 1998 on pretax income of $1.6 million, principally
due to the effect of $1.7 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.
Minority interest expense was $0.1 million in the first six months of 1999,
compared with $0.3 million in the first six 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 the first six
months of fiscal 1998, and have been recorded as a reduction of previously
established reserves in the first six months of 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 each of
the first six months of fiscal 1999 and 1998.
51
<PAGE>
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 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
52
<PAGE>
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 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.
53
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $34.9 million at April 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 $15.0 million at April
3, 1999, compared with $26.3 million at October 3, 1998. At April 3, 1999, $12.4
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 six months of fiscal 1999, $4.0 million of cash was
provided by operating activities, which consisted of $2.9 million provided by
continuing operations and $1.1 million provided by discontinued operations. Cash
provided by continuing operations was reduced by an increase in accounts
receivable of $5.9 million and a decrease in other current liabilities of $4.4
million, principally due to a decrease in billings in excess of contract costs
and fees. Accounts receivable increased primarily due to the timing of shipments
at FES and Tecogen and the timing of customer payments at Tecogen and Peek,
offset in part by the effect of lower revenues at Peek. Cash provided by
continuing operations was improved by a decrease in inventories of $2.7 million
and a decrease in unbilled costs and fees of $3.6 million. The reduction in
inventories was due to a decrease at the Traffic Control segment, primarily in
the United Kingdom and the Netherlands, as a result of implementing programs to
reduce inventory levels and in response to declines in revenues at these
locations. The decrease in inventories at the Traffic Control segment was offset
in part by an increase in inventories at the Industrial Refrigeration Systems
segment and the Cooling and Cogeneration Systems segment to meet expected future
demand. 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 six months of fiscal 1999, the Company's primary investing
activities, excluding available-for-sale investments activity, 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 acquisition of Linne Trafiksystem AB, acquired in
December 1998, for $1.6 million in cash. In addition, the Company expended $3.5
million for purchases of property, plant, and equipment and rental assets, and
received $0.9 million in proceeds from the sale of property, plant, and
equipment and rental assets. 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 $6 million.
The Company's financing activities used $16.9 million of cash during the
first six months of fiscal 1999, principally to purchase $17.1 million of
ThermoLyte's common stock subject to redemption, which was redeemed in December
1998. The remaining liability for redeemable common stock of ThermoLyte, which
is $1.4 million, is included in working capital at April 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 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 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
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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.
In connection with certain restructuring actions undertaken in May 1999,
discussed in the results of operations for the first six months of fiscal 1999,
the Company expects to incur cash expenditures of approximately $2 million
during the remainder of fiscal 1999.
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 16 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.
The Company's exposure at April 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
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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 facilities will be ready for the year 2000.
The first phase of the program, testing and evaluating the Company's critical
information technology systems and facilities 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 facilities. The Company's 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
facilities that were identified during phase one are prioritized and remediated.
Based on its evaluations, the Company does not believe it is required to make
any material upgrades to its critical facilities. The Company is currently
upgrading or replacing its material noncompliant information technology systems,
and this process was approximately 70% complete as of April 3, 1999. The Company
expects that all of its material information technology systems and critical
facilities 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
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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 is in the process of identifying and assessing 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 has
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 started to follow-up with
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has completed the majority of its assessment of
third-party risk, and expects to be substantially completed by August 1999.
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.
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 April 3, 1999,
and the total external costs of year 2000 remediation are expected to be
approximately $2.6 million. Of the external costs incurred as of April 3, 1999,
approximately $0.7 million had been spent on testing and upgrading information
technology systems. In fiscal year 1998, approximately 25% of the Company's
total information technology budget was spent on the year 2000 issue. In
addition, as of April 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 related to year 2000 remediation, other than capital
additions, 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 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.
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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.
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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.
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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>
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FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 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
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financial resources than those of the Company, offer products that compete with
those offered by the 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.
TRANSITION OF PRODUCT FOCUS; DEPENDENCE ON NEW PRODUCTS. From its inception
through November 1997, the Company derived a substantial majority of its
revenues from development and commercialization of power generation,
refrigeration and cooling, engine, and related products. While power generation
and refrigeration and cooling products are expected to continue to generate a
significant amount of the Company's revenues for the foreseeable future, a
substantial portion of the Company's revenues are now 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; and the Company may incur costs
related to the conversion to the Euro currency, which began on January 1, 1999.
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.
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
company in the United Kingdom, which had, as of April 3, 1999, more than 1,000
employees located principally in Europe and the
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United States, and had revenues in fiscal 1998, from the date of its
acquisition, and in the six months ended April 3, 1999, of $152.4 million and
$82.7 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 net 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.
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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 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.
NO ASSURANCE OF COMMERCIALIZATION OF THERMOLYTE PRODUCTS; UNCERTAIN MARKET
ACCEPTANCE; POTENTIAL PRODUCT LIABILITY. The Company's ThermoLyte subsidiary
has developed and is commercializing propane-fueled lighting products. There can
be no assurance that the Company will be able to build the sales and marketing
organization necessary for the successful commercialization of its products. In
addition, as with any new technology, there is substantial risk that the
marketplace may not accept or be receptive to the potential benefits of such
technology. Market acceptance of the Company's products will depend, in large
part, upon the ability of the Company to demonstrate the safety of such products
and their advantages over commercially available alternatives. There can be no
assurance that the ThermoLyte products will be accepted by the public. Finally,
because the ThermoLyte products will be powered by propane or a similar fuel
that is combustible, the Company may be subject to potential product liability
damages. No assurance can be given that damages from product liability will not
have a material adverse impact on the results of operations, financial
condition, or reputation of the Company.
POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE
INFORMATION. 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
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year 2000 compliant, which may expose the Company to claims. 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 impacted. 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.
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 secure 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.
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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................................... 39 Chief Financial Officer
Paul F. Kelleher..................................... 56 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 Director
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 has been the senior vice president, government affairs, of Thermo
Electron since March 1997 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.
Frank Borman has been a director of the Company since January 1999. Col.
Borman has been the chairman of DBT Online, Inc. ("DBT") since August 1996. From
September 1995 until August 1996, he
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served as the chief executive officer and a director of Patlex Corporation
("Patlex"), 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.
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 1997 to 1998 and its chief financial officer from 1988 to 1998.
Mr. Hatsopoulos has been the vice chairman of the board of directors of Thermo
Electron since September 1998. Mr. Hatsopoulos is 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.
Brian D. Holt has been a director and the chairman of the board of directors
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, environmental and energy, 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 is also a director of Thermo Electron, as well as 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.
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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 January 31, 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)..................................... 9,316,876 78.8 %
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 January 31, 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.............................................. 128,540 138,706 0
Frank Borman....................................................... 0 0 0
J. Timothy Corcoran................................................ 161,031 72,824 0
Peter O. Crisp..................................................... 37,566 103,078 0
John N. Hatsopoulos................................................ 46,753 871,818 0
Brian D. Holt...................................................... 0 287,093 0
Donald E. Noble.................................................... 24,333 59,752 0
John J. Setnicka................................................... 1,000 0 0
All directors and current executive officers as a group
(10) persons..................................................... 426,581 2,063,333 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, Mr. Corcoran, Mr. Crisp, Mr.
Hatsopoulos, Mr. Noble and all directors and current executive officers as a
group include 125,000, 135,500, 6,600, 40,000, 7,200 and 334,300 shares,
respectively, that such person or group had the right to acquire within 60
days of January 31, 1999, through the exercise of stock options. Shares
beneficially owned by
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Mr. Crisp, Mr. Noble and all directors and current executive officers as a
group include 11,873, 8,308 and 20,181 shares, respectively, that had been
allocated through January 2, 1999, to their respective accounts maintained
under the Company's Deferred Compensation Plan for Directors. 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 January 31, 1999, other than Mr. Armstrong, who
beneficially owned 1.08% and Mr. Corcoran, who beneficially owned 1.35% of
the Common Stock outstanding as of such date; all directors and current
executive officers as a group beneficially owned 3.58% 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 76,650, 67,674, 9,125, 812,735, 284,100, 9,125
and 1,720,494 shares, respectively, that such person or group had the right
to acquire within 60 days of January 31, 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 January 31, 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
47,059, 44,962 and 92,020 shares, respectively, allocated through January 2,
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 January
31, 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 1.30% of the Thermo Electron common stock outstanding as of
January 31, 1999.
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<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
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<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 six months
ended April 3, 1999, Thermo Electron assessed the Company $1,210,000, $2,277,000
and $1,100,000, 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
six months ended April 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 1998 and the six months ended April 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 six months ended April 3, 1999 were 5.72% and 5.20%,
respectively. During fiscal 1998 and the six months ended April 3, 1999, the
Company recorded $8,146,000 and $4,202,000, 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%.
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<PAGE>
During fiscal 1998 and the six months ended April 3, 1999, 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 and
$80,000, respectively, in fiscal 1998 and the six months ended April 3, 1999 as
a reduction in selling, general, and administrative expenses.
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 $22,780,000. 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. Such invested funds are collateralized with
investments principally consisting of corporate notes, U.S. government-agency
securities, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. Thermo Electron
guarantees all of the obligations of each participant in this arrangement. As of
April 3, 1999, the Company had a positive cash balance of approximately
$6,970,000, based on an exchange rate of $.4899/NLG 1.00. As of April 3, 1999,
the average annual interest rate earned on NLG deposits by participants in this
credit arrangement was approximately 3.6433% and the average annual interest
rate paid on overdrafts was approximately 4.1667%.
In February 1999, the Company began participating, along with certain other
Thermo Subsidiaries, in a notional pool arrangement with Barclays Bank, which as
of April 3, 1999, included a total Thermo Electron credit facility of
$67,970,000. As of April 3, 1999, the Company had access to $4,843,000 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 April 3, 1999, the Company had a positive cash balance of
approximately $24,000, based on an exchange rate of $1.6708/GBP 1.00. For the
three months ended April 3, 1999, the interest rate earned on GBP deposits by
participants in this credit arrangement was approximately 5.92% and the interest
rate paid on overdrafts was approximately 6.25%.
As of April 3, 1999, $563,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. This 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. The Company has adopted,
effective June 1, 1999, a new cash management arrangement with Thermo Electron
that replaces the repurchase agreement. Under the new 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
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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. 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.
Beginning in fiscal 1999, ThermoLyte has borrowed cash from Thermo Electron
from time to time pursuant to an intercompany credit facility. As of April 3,
1999, ThermoLyte owed Thermo Electron $1,465,000 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.
The Company leases an office and laboratory facility from Thermo Electron
under an agreement expiring in 2002. Rental expense for fiscal 1997 and 1998 and
the six months ended April 3, 1999 relating to this lease with Thermo Electron
were $170,000, $326,000 and $163,000, respectively.
The Company provides contract administration and other services and data
processing services to certain companies affiliated with Thermo Electron, which
are charged based on actual usage. For these services, the Company charged
$105,000, $127,000 and $41,000, respectively, in fiscal 1997 and 1998 and the
six months ended April 3, 1999 to such companies.
During fiscal 1998 and the six months ended April 3, 1999, the Company sold
products totaling $66,000 and $1,000, respectively, in the ordinary course of
business to certain companies affiliated with Thermo Electron.
During fiscal 1997, FES International Limited, a wholly owned subsidiary of
Thermo Electron, purchased a total of $423,000 of refrigeration systems from
FES, a division of the Company.
During fiscal 1997, the Company sold 420,000 shares of common stock of the
The Randers Killam Group Inc. to Thermo TerraTech Inc., a majority-owned
subsidiary of Thermo Electron, in connection with Thermo TerraTech Inc.'s
acquisition of a controlling interest in The Randers Killam Group Inc. for
proceeds of $262,000, resulting in a gain of $53,000.
At April 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $160,798,000 for borrowings relating to the Peek
acquisition, discussed above, 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. The aggregate
borrowings of $160,798,000 exclude the amount owed by ThermoLyte to Thermo
Electron discussed above. The largest amount of net indebtedness owed by the
Company to Thermo Electron and its other subsidiaries since September 27, 1997,
was $163,045,000. With the exception of the Peek borrowing described above,
these amounts do not bear interest and are expected to be paid in the normal
course of business.
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. 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.
73
<PAGE>
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 analytical and monitoring
instruments; biomedical products including heart-assist devices,
respiratory-care equipment and mammography systems; paper recycling and
papermaking equipment; alternative-energy systems; 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, 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
74
<PAGE>
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.
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 and Amendment No. 2 on Form 10-K/A filed with
the Commission on February 10, 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 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;
5. The Company's Current Report on Form 8-K dated May 24, 1999,
regarding the recording of pretax charges totaling $10 million; and
6. The description of the Common Stock which is contained in the
Company's Registration Statement on Form 8-A filed under the Exchange Act,
as such description may be amended from time to time.
75
<PAGE>
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.
76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THERMO POWER CORPORATION
Report of Independent Public Accountants................................................................. F-2
Consolidated Statement of Operations for the six months ended April 3, 1999, and April 4, 1998, and the
fiscal years ended October 3, 1998, September 27, 1997, and September 28, 1996......................... F-3
Consolidated Balance Sheet as of April 3, 1999, October 3, 1998, and September 27, 1997.................. F-4
Consolidated Statement of Cash Flows for the six months ended April 3, 1999, and April 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 six months ended
April 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 June 1, 1999)
F-2
<PAGE>
THERMO POWER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
-------------------- -------------------------------
APRIL 3, APRIL 4, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Notes 7 and 12).......................... $ 137,442 $ 120,701 $ 245,692 $ 91,881 $ 93,058
--------- --------- --------- --------- ---------
Costs and Operating Expenses:
Cost of revenues................................. 100,369 86,557 172,055 72,725 74,289
Selling, general, and administrative expenses
(Note 7)....................................... 28,956 25,543 50,801 14,265 13,874
Research and development expenses................ 3,411 4,184 7,921 1,929 2,633
Restructuring costs (Note 15).................... 701 -- -- -- --
--------- --------- --------- --------- ---------
133,437 116,284 230,777 88,919 90,796
--------- --------- --------- --------- ---------
Operating Income................................... 4,005 4,417 14,915 2,962 2,262
Interest Income (includes $180 for the six-month
period ended April 4, 1998, and $257 for fiscal
1998 from related parties; Note 3)............... 367 1,257 1,930 1,829 1,714
Interest Expense (includes $4,205 and $3,489 for
the six-month periods ended April 3, 1999, and
April 4, 1998, and $8,146 for fiscal 1998 to
related parties; Note 10)........................ (4,463) (4,061) (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............... (91) 1,613 7,858 4,826 4,158
Provision for Income Taxes (Note 6)................ 563 1,200 4,082 2,223 1,772
Minority Interest Expense.......................... 78 267 423 312 312
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations........... (732) 146 3,353 2,291 2,074
Loss from Discontinued Operations (net of benefit
for income taxes of $213, $215, $105, and $669;
Note 4).......................................... -- (379) (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).................................. $ (732) $ (233) $ 2,336 $ 2,104 $ 885
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (Loss) per Share from Continuing
Operations (Note 13):
Basic............................................ $ (.06) $ .01 $ .28 $ .19 $ .17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.......................................... $ (.06) $ .01 $ .28 $ .19 $ .16
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and Diluted Earnings (Loss) per Share (Note
13).............................................. $ (.06) $ (.02) $ .20 $ .17 $ .07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Shares (Note 13):
Basic............................................ 11,837 11,850 11,838 12,212 12,466
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.......................................... 11,837 11,850 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>
APRIL 3, OCT. 3, SEPT. 27,
1999 1998 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents
(includes $7,533, $11,459, and $17,994 under repurchase
agreement with parent company)........................... $ 15,040 $ 22,240 $ 19,347
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 $9,634, $10,299,
and $757................................................. 56,281 52,098 21,012
Unbilled contract costs and fees........................... 6,952 10,718 4,856
Inventories................................................ 39,366 43,984 19,884
Prepaid income taxes (Note 6).............................. 10,998 11,205 3,118
Net assets of discontinued operations (Note 4)............. -- 8,525 --
Other current assets....................................... 3,804 2,421 219
Due from parent company and affiliated companies........... -- 732 --
----------- --------- ---------
132,441 155,941 77,607
----------- --------- ---------
Rental Assets, at Cost, Net.................................. 10,143 10,118 10,276
----------- --------- ---------
Property, Plant, and Equipment, at Cost, Net................. 23,658 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................................................. 4,811 4,976 236
----------- --------- ---------
Cost in Excess of Net Assets of Acquired Companies (Note
3)......................................................... 153,316 155,729 7,082
----------- --------- ---------
$ 324,369 $ 351,635 $ 107,992
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-4
<PAGE>
THERMO POWER CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 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 (Note 10).................................... $ 2,030 $ 396 $ --
Accounts payable........................................... 28,918 30,899 9,622
Accrued payroll and employee benefits...................... 8,030 7,885 3,133
Billings in excess of contract costs and fees.............. 6,857 8,517 1,353
Accrued income taxes....................................... 9,415 10,048 1,620
Accrued warranty costs..................................... 5,767 6,293 3,435
Common stock of subsidiary subject to redemption ($1,380
and $18,450 redemption value)............................ 1,380 18,372 --
Accrued acquisition expenses (Note 3)...................... 10,185 10,992 33
Other accrued expenses (Note 4)............................ 24,122 26,777 3,207
Due to parent company and affiliated companies............. 798 -- 496
----------- --------- ---------
97,502 120,179 22,899
----------- --------- ---------
Deferred Income Taxes (Note 6)............................... 877 1,093 114
----------- --------- ---------
Long-term Obligations (Note 10).............................. 160,393 160,499 252
----------- --------- ---------
Commitments and Contingency (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............................. 55,491 55,401 55,283
Retained earnings.......................................... 15,415 16,147 13,811
Treasury stock at cost, 622,851, 663,208 and 578,124
shares................................................... (4,322) (4,600) (3,636)
Accumulated other comprehensive items...................... (2,236) 1,667 (39)
----------- --------- ---------
65,597 69,864 66,668
----------- --------- ---------
$ 324,369 $ 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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
------------------------ ----------------------------------
APRIL 3, APRIL 4, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1998 1997 1996
----------- ----------- ----------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................. $ (732) $ (233) $ 2,336 $ 2,104 $ 885
Adjustments to reconcile net income (loss) to income (loss)
from continuing operations:
Loss from discontinued operations (Note 4)................ -- 379 381 187 1,189
Provision for loss on disposal of discontinued operations
(Note 4)................................................ -- -- 636 -- --
----------- ----------- ----------- ---------- ---------
Income (loss) from continuing operations...................... (732) 146 3,353 2,291 2,074
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities of
continuing operations:
Depreciation and amortization............................. 5,219 5,036 10,477 2,837 2,738
Provision for losses on accounts receivable............... 384 158 200 207 185
Restructuring costs....................................... 701 -- -- -- --
Minority interest expense................................. 78 267 423 312 312
Deferred income tax expense (benefit)..................... -- (1,814) (371) (403) 372
Other noncash items....................................... -- 75 112 (184) (262)
Changes in current accounts, excluding the effects of
acquisitions, dispositions, and discontinued operations:
Accounts receivable................................... (5,943) (338) 5,018 (2,600) (498)
Inventories........................................... 2,666 8,364 1,008 695 (685)
Unbilled contract costs and fees...................... 3,619 1,191 (2,660) 2,254 (766)
Other current assets.................................. 384 (468) (1,466) 55 226
Accounts payable...................................... 974 (2,918) (3,717) (3,743) 2,512
Other current liabilities............................. (4,402) (6,171) (8,778) 2,728 82
----------- ----------- ----------- ---------- ---------
Net cash provided by continuing operations.......... 2,948 3,528 3,599 4,449 6,290
Net cash provided by (used in) discontinued
operations........................................ 1,077 2,977 5,662 (2,241) 920
----------- ----------- ----------- ---------- ---------
Net cash provided by operating activities........... $ 4,025 $ 6,505 $ 9,261 $ 2,208 $ 7,210
----------- ----------- ----------- ---------- ---------
</TABLE>
F-6
<PAGE>
THERMO POWER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
------------------------ ----------------------------------
APRIL 3, APRIL 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 acquired business (Note 3).............. 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................... (2,319) (2,876) (6,159) (1,778) (2,384)
Proceeds from sale of property, plant, and equipment.......... 292 1,305 2,179 -- --
Increase in rental assets..................................... (1,142) (1,035) (2,872) (3,191) (4,849)
Proceeds from sale of rental assets........................... 607 619 1,239 1,522 2,268
Other......................................................... 45 (777) -- (2) 140
----------- ----------- ----------- ---------- ---------
Net cash provided by (used in) continuing
operations........................................ 6,307 (127,490) (137,225) (8,488) (851)
Net cash used in discontinued operations............ -- (54) (144) (630) (329)
----------- ----------- ----------- ---------- ---------
Net cash provided by (used in) investing
activities........................................ 6,307 (127,544) (137,369) (9,118) (1,180)
----------- ----------- ----------- ---------- ---------
FINANCING ACTIVITIES
Redemption of subsidiary common stock......................... (17,070) -- -- -- --
Issuance of long-term obligation to parent company (Note
10)......................................................... -- 160,000 160,000 -- --
Decrease in short-term obligations (Note 10).................. (70) (27,823) (28,274) -- --
Purchases of Company common stock............................. -- (1,380) (1,380) (3,613) --
Net proceeds from issuance of Company common stock............ 368 475 534 71 377
Repayment of long-term obligations............................ (108) (103) (162) (53) (59)
----------- ----------- ----------- ---------- ---------
Net cash provided by (used in) financing activities
of continuing operations.......................... (16,880) 131,169 130,718 (3,595) 318
----------- ----------- ----------- ---------- ---------
Exchange Rate Effect on Cash.................................... (652) 320 283 -- --
----------- ----------- ----------- ---------- ---------
Increase (Decrease) in Cash and Cash Equivalents................ (7,200) 10,450 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...................... $ 15,040 $ 29,797 $ 22,240 $ 19,347 $ 29,852
----------- ----------- ----------- ---------- ---------
----------- ----------- ----------- ---------- ---------
CASH PAID FOR
Interest...................................................... $ 4,531 $ 1,597 $ 8,370 $ 18 $ 26
Income taxes.................................................. $ 1,325 $ 1,105 $ (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>
SIX MONTHS
ENDED YEAR ENDED
--------------- -------------------------------
APRIL 3, OCT. 3, SEPT. 27, SEPT. 28,
1999 1998 1997 1996
--------------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
COMPREHENSIVE INCOME
Net Income (Loss)................................. $ (732) $ 2,336 $ 2,104 $ 885
------- --------- --------- ---------
Other Comprehensive Items:
Foreign currency translation adjustment......... (3,902) 1,666 -- --
Net unrealized gains (losses) on
available-for-sale investments................ (1) 40 (26) (211)
------- --------- --------- ---------
(3,903) 1,706 (26) (211)
------- --------- --------- ---------
$ (4,635) $ 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........................ 90 118 71 58
Tax benefit related to employees' and directors'
stock plans (Note 6).......................... -- -- 764 492
------- --------- --------- ---------
Balance at end of period........................ 55,491 55,401 55,283 54,448
------- --------- --------- ---------
Retained Earnings:
Balance at beginning of period.................. 16,147 13,811 11,707 10,822
Net income (loss)............................... (732) 2,336 2,104 885
------- --------- --------- ---------
Balance at end of period........................ 15,415 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........................ 278 416 -- 318
------- --------- --------- ---------
Balance at end of period........................ (4,322) (4,600) (3,636) (23)
------- --------- --------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of period.................. 1,667 (39) (13) 198
Other comprehensive items....................... (3,903) 1,706 (26) (211)
------- --------- --------- ---------
Balance at end of period........................ (2,236) 1,667 (39) (13)
------- --------- --------- ---------
$ 65,597 $ 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 income 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 asset
whenever events or changes in circumstances indicate that the current useful
life has diminished. The
F-11
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 income.
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 income 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 April 3, 1999, and for the six-month periods
ended April 4, 1998, and April 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 six-month periods ended April 3, 1999, and April 4, 1998,
include 26 weeks and 27 weeks, respectively. The results of operations for the
six-month period ended April 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 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 plc ("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). 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. 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
F-14
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
acquisition. The aggregate cost of the acquisitions exceeded the estimated fair
value of the acquired net assets by $151,766,000, which is being amortized over
periods of 25 to 40 years. 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.
In connection with the acquisition of Peek, the Company has undertaken a
restructuring of the acquired business. In accordance with Emerging Issues Task
Force Pronouncement ("EITF") 95-3, the Company is in the process of completing a
plan that primarily includes reductions in staffing levels, abandonment of
excess facilities, and the sale or closure of certain businesses. All material
components of the plan had been determined by October 3, 1998. In connection
with these restructuring activities, as part of the cost of the acquisition, the
Company established reserves totaling $21,481,000, primarily for acquired loss
contracts at business locations being closed, severance, excess facilities, and
operating losses at Fleetlogic, which was sold in fiscal 1998. During fiscal
1998, the Company expended $10,511,000 of the established reserves, which
consisted principally of $4,690,000 of costs incurred to complete acquired loss
contracts at businesses being closed, $3,934,000 of severance costs, $1,366,000
for abandoned-facility payments, and $521,000 of operating losses from
Fleetlogic. At October 3, 1998, the remaining reserve for restructuring the Peek
businesses was $10,970,000 and is primarily for estimated costs for the
completion of acquired loss contracts at a business location which the Company
intends to close, estimated losses on an acquired contract at a business
location the Company has closed, and, to a lesser extent, ongoing payments for
abandoned facilities and severance.
F-15
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
A summary of the changes in accrued acquisition expenses follows:
<TABLE>
<CAPTION>
ACQUIRED ABANDONMENT
LOSS OF EXCESS
CONTRACTS FACILITIES SEVERANCE OTHER TOTAL
----------- ------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <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.................... 13,596 2,791 4,234 860 21,481
Usage................................... (4,690) (1,366) (3,934) (532) (10,522)
----------- ------ ----------- --------- ---------
BALANCE AT OCTOBER 3, 1998 8,906 1,425 300 361 10,992
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reserves established.................... -- -- 99 -- 99
Usage................................... (185) (108) (217) (339) (849)
Currency translation adjustment......... (56) -- (1) -- (57)
----------- ------ ----------- --------- ---------
BALANCE AT APRIL 3, 1999.................... $ 8,665 $ 1,317 $ 181 $ 22 $ 10,185
----------- ------ ----------- --------- ---------
----------- ------ ----------- --------- ---------
</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 income. 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 April 3, 1999, balance
sheet, is due in December 1999 and is secured by an irrevocable letter of
credit. In fiscal 1998, the
F-16
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCONTINUED OPERATIONS (CONTINUED)
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 six 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 $571,000. The
unaudited remaining reserve on April 3, 1999, was $973,000, 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 April
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 six months of fiscal 1999 of $2,695,000
and $365,000, respectively. The net loss of the Engines Segment for the first
six months of 1999 was recorded as a reduction of previously established
reserves as discussed above. The unaudited revenues and net loss from the
Engines segment for the first six months of fiscal 1998 were $11,415,000 and
$379,000, 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-17
<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-18
<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-19
<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-20
<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 income 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-21
<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-22
<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
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 AND CONTINGENCY
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-23
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCY (CONTINUED)
CONTINGENCY
In 1994, a former employee of a divested subsidiary of Peek brought a
wrongful discharge claim against Peek. The claim, which alleges $2.5 million
plus punitive damages, was dismissed on summary judgment in 1996. An appeal is
currently pending. The Company intends to vigorously defend this matter. In the
opinion of management, the ultimate liability for such matter will not be
material to the Company's financial position, but an unfavorable outcome could
materially affect the Company's results of operations or cash flows for a
particular quarter or annual period.
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.
F-24
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHORT- AND LONG-TERM OBLIGATIONS (CONTINUED)
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>
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
F-25
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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. 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).
F-26
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. BUSINESS SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS
OF RISK (CONTINUED)
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
--------- --------- ---------
--------- --------- ---------
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
--------- --------- ---------
--------- --------- ---------
</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>
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
--------- --------- ---------
--------- --------- ---------
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
--------- --------- ---------
--------- --------- ---------
</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>
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.
(c) Primarily cash, cash equivalents, and available-for-sale investments.
(d) Net of liabilities at October 3, 1998.
(e) In general, export revenues are denominated in U.S. dollars.
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. A decrease
in sales to governmental entities could have an adverse effect on the Company's
business and future results of operations.
13. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
APRIL 3, APRIL 4,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 1998 1997 1996
- ----------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (Loss) from Continuing Operations....... $ (732) $ 146 $ 3,353 $ 2,291 $ 2,074
Loss from Discontinued Operations.............. -- (379) (381) (187) (1,189)
Provision for Loss on Disposal of Discontinued
Operations................................... -- -- (636) -- --
--------- --------- --------- --------- ---------
Net Income (Loss).............................. $ (732) $ (233) $ 2,336 $ 2,104 $ 885
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BASIC
Weighted Average Shares........................ 11,837 11,850 11,838 12,212 12,466
--------- --------- --------- --------- ---------
Basic Earnings (Loss) per Share:
Continuing operations........................ $ (.06) $ .01 $ .28 $ .19 $ .17
Discontinued operations...................... -- (.03) (.08) (.02) (.10)
--------- --------- --------- --------- ---------
$ (.06) $ (.02) $ .20 $ .17 $ .07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-29
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
APRIL 3, APRIL 4,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 1998 1997 1996
- ----------------------------------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
DILUTED
Weighted Average Shares........................ 11,837 11,850 11,838 12,212 12,466
Effect of Stock Options........................ -- 72 70 6 241
--------- --------- --------- --------- ---------
Weighted Average Shares for Continuing
Operations, as Adjusted...................... 11,837 11,922 11,908 12,218 12,707
Less:
Effect of Stock Options........................ -- (72) -- -- --
--------- --------- --------- --------- ---------
Weighted Average Shares, as Adjusted........... 11,837 11,850 11,908 12,218 12,707
--------- --------- --------- --------- ---------
Diluted Earnings (Loss) per Share:
Continuing operations........................ $ (.06) $ .01 $ .28 $ .19 $ .16
Discontinued operations...................... -- (.03) (.08) (.02) (.09)
--------- --------- --------- --------- ---------
$ (.06) $ (.02) $ .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
<CAPTION>
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 shareholder
approval of the merger agreement and the completion of review by the Securities
and Exchange Commission of certain required filings. 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 in the fourth quarter of fiscal
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
F-31
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
options to purchase 89,543 shares of Company common stock at $8.09 per share.
The other terms of the 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 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 abandoned-facility payments related to the
consolidation of facilities, and an asset write-down of $90,000 related to the
consolidation of such facilities. The Company plans to complete its
restructuring plan by September 1999. As of April 3, 1999, the Company had
terminated 20 employees and had expended $71,000 of the reserve established for
severance. The remaining reserve of $532,000, as adjusted for the impact of
currency translation, is included in other accrued expenses in the accompanying
1999 balance sheet.
In May 1999, the Company undertook additional restructuring actions. These
actions primarily included a decision to hold for sale its ThermoLyte subsidiary
and a write-down of 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 addition, the Company will terminate employees and abandon
excess facilities at certain other Peek subsidiaries. The Company expects to
incur pretax charges of approximately $10 million associated with these actions,
primarily in the third quarter of fiscal 1999. Revenues and operating losses of
ThermoLyte were $3,065,000 and $1,362,000, respectively, for the twelve months
ended October 3, 1998. Unaudited revenues and operating income of ThermoLyte
were $6,613,000 and $8,000, respectively, for the first six months of fiscal
1999.
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
F-32
<PAGE>
THERMO POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
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. The Company will report amounts invested
in this arrangement as "advance to affiliate" in its balance sheet, beginning in
the third quarter of fiscal 1999.
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>
PEEK PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1996 1995
----- --------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C> <C>
Cash flow from operating activities................................... 12 11,545 4,061
Returns on investments and servicing of finance....................... 12 (550) (379)
Taxation.............................................................. (4,173) (4,954)
Capital expenditure and financial investment.......................... 12 (3,395) 489
Acquisitions and disposals............................................ 12 (4,722) (5,070)
Equity dividends paid................................................. (3,952) (3,824)
--------- ---------
Cash (outflow)/inflow before financing................................ (5,247) (9,677)
Financing............................................................. 12 4,431 655
--------- ---------
(Decrease)/increase in cash in the period............................. (816) (9,022)
--------- ---------
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period............................. (816) (9,022)
Cash (outflow)/inflow from increase in debt and lease financing....... (4,090) (248)
--------- ---------
Change in net debt resulting from cash flows.......................... (4,906) (9,270)
Translation differences............................................... 1,213 (302)
--------- ---------
Movement in net (debt)/cash in the period............................. (3,693) (9,572)
Net (debt)/cash at start of period.................................... (697) 8,875
--------- ---------
Net (debt)/cash at end of period (a).................................. 13 (4,390) (697)
--------- ---------
</TABLE>
- ------------------------
(a) The significant differences between the cash flow statement presented above
and that required under United States generally accepted accounting
principles are described in Note 16 of Notes to the Accounts.
F-36
<PAGE>
PEEK PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Profit for the financial year............................................... 8,293 11,883
Currency translation differences on foreign currency net investments........ (2,738) 453
Unrealised deficit on revaluation of property............................... (659) --
--------- ---------
Total recognised gains and losses relating to the year...................... 4,896 12,336
--------- ---------
</TABLE>
F-37
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS
1 ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounts are prepared under the historical cost convention, modified to
include the revaluation of certain freehold and long leasehold land and
buildings, in accordance with applicable accounting standards.
BASIS OF CONSOLIDATION
The consolidated accounts incorporate the accounts of Peek plc and all its
subsidiary undertakings to 31 December. The results of companies acquired during
the year are included from the date control passes, and the results of companies
disposed of during the year are included up to the date of disposal.
Goodwill, which is the difference between the fair value of net assets
acquired and the fair value of consideration paid, is written off to reserves in
the year in which it arises.
Undertakings, other than subsidiary undertakings, in which the group has an
investment representing not less than 20% of the voting rights and over which it
exerts significant influence, are treated as associated undertakings. The group
accounts include the appropriate share of these undertakings' results and
reserves based on audited accounts to 31 December.
DEPRECIATION
Freehold land is not depreciated.
Other assets are depreciated on a straight line basis to write off the cost
less residual value over their estimated useful lives as follows:
<TABLE>
<S> <C>
Freehold buildings 30-50 years
Plant and equipment 3-10 years
Leasehold property period of lease
Motor vehicles 3-5 years
</TABLE>
STOCKS
Stocks are included in the accounts at the lower of cost (including
manufacturing overheads, where appropriate) on a first in first out basis and
net realisable value.
LONG-TERM CONTRACTS
Profit on long-term contracts is taken as the work is carried out if the
final outcome can be assessed with reasonable certainty. The profit included is
calculated on a prudent basis to reflect the proportion of the work carried out
at the year end by recording turnover and related costs (as defined in Stocks
above) as contract activity progresses. Turnover is assessed individually for
each contract to ensure it adequately reflects the value of work done. Revenues
derived from variations on contracts are recognised only when they have been
accepted by the customer. Full provision is made for losses on all contracts in
the year in which they are first foreseen.
F-38
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
1 ACCOUNTING POLICIES (CONTINUED)
TECHNOLOGY
Expenditure on research and development is written off in the year in which
it is incurred.
DEFERRED TAXATION
Provision is made under the liability method for all timing differences to
the extent that they are expected to reverse in the foreseeable future without
being replaced, at the rate at which it is estimated that they will become
payable. No provision is made for the liability to corporation tax on capital
gains which might arise if the freehold land and buildings were to be realised
at their balance sheet values.
FOREIGN EXCHANGE
The accounts of overseas subsidiary undertakings are translated at the rate
of exchange ruling at the balance sheet date. The exchange difference arising on
the retranslation of opening net assets is taken directly to reserves. All other
translation differences are taken to the profit and loss account with the
exception of differences on foreign currency borrowings to the extent that they
are used to finance or provide a hedge against group equity investments in
foreign enterprises, which are taken directly to reserves together with the
exchange differences on the carrying amount of the related investments.
PENSION COSTS
Pension contributions for defined contribution schemes are charged to the
profit and loss account as they fall due.
LEASES
Assets held under finance leases and the related lease obligations are
recorded in the balance sheet at the fair value of the leased assets at the
inception of the lease. The rentals payable are apportioned between interest,
which is charged in the profit and loss account, and capital, which reduces the
outstanding lease obligation. Rental costs under operating leases are charged in
the profit and loss account on a straight line basis over the lease term.
TURNOVER
Turnover represents the invoiced amount of goods sold and services provided
during the year, net of value added tax, except in relation to material
contracts where profit is recognised on a stage of completion basis.
F-39
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
2 TURNOVER AND SEGMENTAL ANALYSIS
The group has two principal areas of activity, traffic and field data. It
also operates within four main geographical markets, the United States and
Canada, the United Kingdom, Continental Europe and Asia. Turnover, group profit
on ordinary activities before taxation and net assets are analysed as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Area of activity
Turnover
Traffic.............................................................. 126,938 111,530
Field data........................................................... 35,137 32,256
--------- ---------
162,075 143,786
--------- ---------
Profit
Segment profit:
Traffic.............................................................. 11,520 10,507
Field data........................................................... 1,766 1,963
--------- ---------
Operating profit....................................................... 13,286 12,470
Non-operating exceptional items........................................ (6) 3,915
Net interest payable................................................... (729) (403)
--------- ---------
Profit on ordinary activities before taxation.......................... 12,551 15,982
--------- ---------
Net assets
Segment net assets:
Traffic.............................................................. 25,854 25,282
Field data........................................................... 13,736 12,872
--------- ---------
39,590 38,154
Unallocated net liabilities............................................ (10,638) (6,296)
--------- ---------
Net assets............................................................. 28,952 31,858
--------- ---------
Geographical area
Turnover
External sales by destination:
United States and Canada............................................. 48,792 49,690
United Kingdom....................................................... 34,974 30,837
Continental Europe................................................... 58,700 48,346
Asia................................................................. 12,827 9,899
Other................................................................ 6,782 5,014
--------- ---------
162,075 143,786
--------- ---------
External sales by origin:
United States and Canada............................................. 49,410 47,161
United Kingdom....................................................... 45,143 42,024
Continental Europe................................................... 56,182 45,695
Asia................................................................. 11,340 8,906
--------- ---------
162,075 143,786
--------- ---------
</TABLE>
F-40
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
2 TURNOVER AND SEGMENTAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Geographical area
Segment profit:
United States and Canada............................................. (480) 2,269
United Kingdom....................................................... 3,468 1,793
Continental Europe................................................... 11,324 8,215
Asia................................................................. (1,026) 193
--------- ---------
Operating profit....................................................... 13,286 12,470
Non-operating exceptional items........................................ (6) 3,915
Net interest payable................................................... (729) (403)
--------- ---------
Profit on ordinary activities before taxation.......................... 12,551 15,982
--------- ---------
Net assets
Segment net assets:
United States and Canada............................................. 15,087 16,187
United Kingdom....................................................... 8,582 8,600
Continental Europe................................................... 18,317 14,967
Asia................................................................. (2,396) (1,600)
--------- ---------
39,590 38,154
Unallocated net liabilities............................................ (10,638) (6,296)
--------- ---------
Net assets............................................................. 28,952 31,858
--------- ---------
</TABLE>
Unallocated net liabilities comprise those of non-operating companies
together with all interest bearing assets and liabilities.
3 OPERATING PROFIT
The following charges are included:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Depreciation
Owned assets......................................................... 2,869 2,527
Assets held under finance leases..................................... 311 234
Staff costs (see Note 4(d))............................................ 42,856 40,549
Amounts charged by Ernst & Young:
Audit fees........................................................... 230 216
Other professional services.......................................... 40 36
Hire of plant.......................................................... 650 553
Other operating lease rentals.......................................... 3,321 2,883
</TABLE>
F-41
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS
A) DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
PERFORMANCE
BASIC RELATED LONG TERM TAXABLE PENSION
1996 SALARY BONUSES INCENTIVE BENEFITS FEES CONTS TOTAL
- ----------------------------------- ------- ----------- --------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF BRITISH POUNDS STERLING)
K E Maud........................... 184(a) 3 -- 15 -- -- 202
(Chairman)
The Viscount Slim.................. -- -- -- 6 21 -- 27
(Deputy Chairman)
G M Edge........................... -- -- -- -- 18 -- 18
A G Kellett........................ 85 2 -- 10 -- 9 106
J G Sanger......................... 132 2 24 13 -- 15 186
A F Standley....................... 188(a) 3 24 16 -- -- 231
D Walsh............................ -- -- -- -- 18 -- 18
------- -- -- -- ---- -- -----
589 10 48 60 57 24 788
------- -- -- -- ---- -- -----
</TABLE>
Of the amounts paid to Ken Maud, 136,000 British pounds sterling (1995
173,000 British pounds sterling) was paid by a subsidiary undertaking.
<TABLE>
<CAPTION>
PERFORMANCE
BASIC RELATED TAXABLE PENSION
1995 SALARY BONUSES BENEFITS FEES CONTS TOTAL
- ---------------------------------------- ------- ----------- -------- ---- ------- -----
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C> <C> <C>
K E Maud................................ 178(a) 63 18 -- -- 259
(Chairman)
The Viscount Slim....................... -- -- 4 20 -- 24
(Deputy Chairman)
G M Edge................................ -- -- -- 17 -- 17
A G Kellett............................. 72 28 10 -- 10 120
P I Risberg............................. -- -- -- 17 -- 17
J G Sanger.............................. 122 46 11 -- 16 195
A F Standley............................ 161(a) 65 11 -- -- 237
D Walsh................................. -- -- -- 17 -- 17
------- --- -- ---- ------- -----
533 202 54 71 26 886
------- --- -- ---- ------- -----
</TABLE>
Of the amounts paid to Ken Maud, 173,000 British pounds sterling (1994
187,000 British pounds sterling) was paid by a subsidiary undertaking.
- ------------------------
(a) K E Maud and A F Standley have private pension plans to which the company
makes no direct contribution having adjusted the base salaries of those
directors accordingly.
F-42
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS (CONTINUED)
B) DIRECTORS' EMOLUMENTS (BANDINGS)
The number of directors of the Company, including the Chairman, whose
emoluments, excluding pension contributions, fall within the following ranges
were:
<TABLE>
<CAPTION>
1996 1995
NUMBER NUMBER
------------- -----------
<S> <C> <C>
15,001-20,000 British pounds sterling......................................................... 2 3
20,001-25,000 British pounds sterling......................................................... -- 1
25,001-30,000 British pounds sterling......................................................... 1 --
95,001-100,000 British pounds sterling........................................................ 1 --
105,001-110,000 British pounds sterling....................................................... -- 1
170,001-175,000 British pounds sterling....................................................... 1 --
175,001-180,000 British pounds sterling....................................................... -- 1
185,001-190,000 British pounds sterling....................................................... -- --
200,001-205,000 British pounds sterling....................................................... 1 --
230,001-235,000 British pounds sterling....................................................... 1 --
235,001-240,000 British pounds sterling....................................................... -- 1
255,001-260,000 British pounds sterling....................................................... -- 1
295,001-300,000 British pounds sterling....................................................... -- --
</TABLE>
C) DIRECTORS' SHARE OPTIONS
Full details of directors' shareholdings and. options are recorded in the
Company's Register of Directors' Interest which is open to inspection.
Options granted under the Senior Executive Share Option plan are exercisable
between three and ten years after the date of grant. Options granted under the
Savings-related Share Option plan are exercisable five or seven years after the
date of grant.
F-43
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS (CONTINUED)
C) DIRECTORS' SHARE OPTIONS (CONTINUED)
The interests of directors in options to acquire shares in the Company are
as follows:
DIRECTORS' OPTIONS
<TABLE>
<CAPTION>
AT AT
1 JANUARY 31 DECEMBER EXERCISE DATE OF
1996 GRANTED EXERCISED 1996 PRICE GRANT
--------- ------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
A G Kellett............................. 50,000 -- -- 50,000(a) 77.33p 22.4.93
25,000 -- -- 25,000(a) 76.00p 11.10.93
10,000 -- -- 10,000(a) 90.50p 25.4.94
20,000 -- -- 20,000(a) 81.83p 1.5.95
1,498 -- -- 1,498(b) 82.90p 16.10.95
--------- ------- --- ------------ -------- --------
106,498 -- -- 106,498
--------- ------- --- ------------
J G Sanger.............................. 50,000 -- -- 50,000(a) 68.00p 14.5.90
200,000 -- -- 200,000(a) 57.00p 16.10.90
8,975 -- -- 8,975(b) 49.30p 1.10.91
100,000 -- -- 100,000(a) 59.00p 24.2.92
100,000 -- -- 100,000(a) 77.33p 22.4.93
18,088 -- -- 18,088(b) 60.80p 7.10.93
50,000 -- -- 50,000(a) 76.00p 11.10.93
100,000 -- -- 100,000(a) 88.50p 10.10.94
1,498 -- -- 1,498(b) 82.90p 16.10.95
--------- ------- --- ------------ -------- --------
628,561 -- -- 628,561
--------- ------- --- ------------
A F Standley............................ 250,000 -- -- 250,000(a) 57.00p 16.10.90
13,539 -- -- 13,539(b) 49.30p 1.10.91
100,000 -- -- 100,000(a) 59.00p 24.2.92
100,000 -- -- 100,000(a) 77.33p 22.4.93
20,654 -- -- 20,654(b) 60.80p 7.10.93
50,000 -- -- 50,000(a) 76.00p 11.10.93
100,000 -- -- 100,000(a) 88.50p 10.10.94
--------- ------- --- ------------ -------- --------
634,193 -- -- 634,193
--------- ------- --- ------------
</TABLE>
- ------------------------
(a) Senior Executive Share Option Plan
(b) Savings-related Share Option Plan
The middle market price of an ordinary share at the close of business on 31
December 1996 was 94p. In the year to 31 December 1996 the mid market price
fluctuated between 131p and 84.5p.
F-44
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS (CONTINUED)
C) DIRECTORS' SHARE OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
AT AT
1 JANUARY 31 DECEMBER EXERCISE DATE OF
1995 GRANTED EXERCISED 1995 PRICE GRANT
--------- ------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
A G Kellett............................. 50,000 -- -- 50,000(a) 77.33p 22.4.93
25,000 -- -- 25,000(a) 76.00p 11.10.93
10,000 -- -- 10,000(a) 90.50p 24.4.94
-- 20,000 -- 20,000(a) 81.30p 1.5.95
-- 1,498 -- 1,498(b) 82.90p 16.10.95
--------- ------- --------- ------------ -------- --------
85,000 21,498 -- 106,498
--------- ------- --------- ------------
J G Sanger.............................. 50,000 -- -- 50,000(a) 68.00p 14.5.90
7,347 -- (7,347)(b) -- 49.00p 28.6.90
200,000 -- -- 200,000(a) 57.00p 16.10.90
8,975 -- -- 8,975(b) 49.30p 1.10.91
100,000 -- -- 100,000(a) 59.00p 24.4.92
100,000 -- -- 100,000(a) 77.33p 22.4.93
18,088 -- -- 18,088(b) 60.80p 7.10.93
50,000 -- -- 50,000(a) 76.00p 11.10.93
100,000 -- -- 100,000(a) 88.50p 10.10.94
-- 1,498 -- 1,498(b) 82.90p 16.10.95
--------- ------- --------- ------------ -------- --------
634,410 1,498 (7,347) 628,561
--------- ------- --------- ------------
A F Standley............................ 250,000 -- -- 250,000(a) 57.00p 16.10.90
13,539 -- -- 13,539(b) 49.30p 1.10.91
100,000 -- -- 100,000(a) 59.00p 24.4.92
100,000 -- -- 100,000(a) 77.33p 22.4.93
20,654 -- -- 20,654(b) 60.80p 7.10.93
50,000 -- -- 50,000(a) 76.00p 11.10.93
100,000 -- -- 100,000(a) 88.50p 10.10.94
--------- ------- --------- ------------ -------- --------
634,193 -- -- 634,193
--------- ------- --------- ------------
</TABLE>
- ------------------------
(a) Senior Executive Share Option Plan
(b) Savings-related Share Option Plan
The mid market price on the date Mr Sanger exercised his options as above
was 108p.
The middle market price of an ordinary share at the close of business on 31
December 1995 was 99p. In the year to 31 December 1995 the mid market price
fluctuated between 112p and 73p.
F-45
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS (CONTINUED)
D) EMPLOYEES
The average number of people employed by the group was:
<TABLE>
<CAPTION>
1996 1995
NUMBER NUMBER
----------- -----------
<S> <C> <C>
Production................................................................................. 1,007 989
Engineering................................................................................ 201 175
Sales and administration................................................................... 529 458
----- -----
1,737 1,622
----- -----
</TABLE>
Their costs amounted to:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Wages and salaries....................................................... 37,646 35,537
Social security costs.................................................... 3,951 3,826
Other pension costs...................................................... 1,259 1,186
--------- ---------
42,856 40,549
--------- ---------
</TABLE>
5 NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Interest receivable....................................................... 400 712
Interest payable on:
Bank overdrafts and loans repayable wholly within five years.............. (1,046) (1,047)
Finance leases............................................................ (83) (68)
--------- ---------
Net interest payable...................................................... (729) (403)
--------- ---------
</TABLE>
6 TAXATION
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
United Kingdom taxation:
Corporation tax at 33%.................................................... 1,547 395
Adjustment in respect of prior years...................................... 324 (106)
Deferred taxation......................................................... (175) 332
--------- ---------
1,696 621
Overseas taxation:
Overseas taxes............................................................ 2,562 3,478
--------- ---------
4,258 4,099
--------- ---------
</TABLE>
F-46
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
7 NON-OPERATING EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
<S> <C> <C>
STERLING)
Loss on disposal of businesses:
Loss on the sale of Peek Verkehrssysteme GmbH in Germany..................... (560) --
Transfer from goodwill reserve............................................... 554 --
Loss on sale of Edac Inc in Canada........................................... -- --
Profit on disposal of shares of TrafficMaster plc............................ -- 3,915
--- ---------
(6) 3,915
--- ---------
</TABLE>
In April 1996 the group sold Peek Verkehrssysteme GmbH, a German subsidiary
company. Goodwill written off amounted to 384,000 British pounds sterling. Other
associated disposal costs of 176,000 British pounds sterling were also incurred.
The transfer from goodwill reserve is in respect of negative goodwill relating
to a former subsidiary undertaking now written back. The exceptional item in
1995 relates to the group's disposal of its interest in TrafficMaster plc.
8 DIVIDENDS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
<S> <C> <C>
STERLING)
Ordinary................................................................... 4,113 4,087
Preference................................................................. 1 1
--------- ---------
4,114 4,088
--------- ---------
</TABLE>
The preference dividend relates to a non-equity interest.
9 EARNINGS PER ORDINARY SHARE
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
The calculation of earnings per ordinary share is based upon the profit after
taxation, preference dividends and minority interests, and on 120,743,220
ordinary shares (1995 119,901,965) being the weighted average number of
ordinary shares in issue during the year.................................... 6.9p 9.9 p
In order to improve comparability of the earnings per ordinary share
calculation with earlier years, the earnings per ordinary share number is
reported both before and after exceptional items
Earnings per ordinary share (as above)........................................ 6.9p 9.9 p
Non operating exceptional items............................................... -- (3.3)p
--- ---------
Adjusted earnings per ordinary share (excluding exceptional items)............ 6.9p 6.6 p
--- ---------
</TABLE>
F-47
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
10 RESERVES
<TABLE>
<CAPTION>
CAPITAL
SHARE GOODWILL CAPITAL REDEMPTION REVALUATION PROFIT TOTAL
PREMIUM RESERVE RESERVE RESERVE RESERVE & LOSS RESERVES
------- -------- ------- ---------- ----------- ------ --------
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 1 January 1995............... 6,465 (18,998) -- 214 794 25,748 14,223
Exchange Adjustment..................... -- -- -- -- -- 453 453
Scrip dividend.......................... -- -- -- -- -- 215 215
Premium on shares issued................ 343 -- -- -- -- -- 343
Acquisition of GMTS..................... -- (2,037) -- -- -- -- (2,037)
Retained profit for the year............ -- -- -- -- -- 7,795 7,795
------- -------- ------- --- ----- ------ --------
Balance at 31 December 1995............. 6,808 (21,035) -- 214 794 34,211 20,992
Exchange Adjustment..................... -- -- -- -- -- (2,738) (2,738)
Scrip dividend.......................... -- -- -- -- -- 140 140
Premium on shares issued................ 294 -- -- -- -- -- 294
Goodwill arising on acquisitions........ -- (4,011) -- -- -- -- (4,011)
Transfer to profit and loss account..... -- (170) -- -- -- -- (170)
Freehold properties revaluation......... -- -- -- -- (659) -- (659)
Retained profit for the year............ -- -- -- -- -- 4,179 4,179
------- -------- ------- --- ----- ------ --------
Balance at 31 December 1996............. 7,102 (25,216) -- 214 135 35,792 18,027
------- -------- ------- --- ----- ------ --------
</TABLE>
The goodwill written off to reserves net of that relating to disposals since
1 January 1987 amounts to: 1996 41,367,000 British pounds sterling; 1995
37,185,000 British pounds sterling.
11 PENSION COMMITMENTS
The group operates a defined contribution scheme in the UK. Total
outstanding contributions at 31 December 1996 were 84,039 British pounds
sterling (1995 60,005 British pounds sterling). The pension costs charged for
the year ended 31 December 1996 were 503,000 British pounds sterling (1995
355,000 British pounds sterling).
Pension arrangements in other countries in which Peek operate are in
accordance with local requirements and practice. The total pension costs charged
for 1996 for countries other than the UK were 756,000 British pounds sterling
(1995 831,000 British pounds sterling) and the outstanding contributions at 31
December 1996 amounted to 161,663 British pounds sterling (1995 292,247 British
pounds sterling).
F-48
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
12 CASH FLOW STATEMENT
a) Reconciliation of operating profit to operating cash flows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Operating profit........................................................ 13,286 12,470
Profit on sale of fixed assets.......................................... (96) (141)
Utilisation in year of provisions made on acquisitions.................. (519) (526)
Release of unutilised provisions made on acquisitions................... (60) (327)
Write off of investment in associated undertaking....................... -- 141
Depreciation............................................................ 3,180 2,761
Increase in debtors..................................................... (4,780) (11,752)
(Decrease)/Increase in creditors........................................ (1,199) 3,223
Decrease/(Increase) in stock............................................ 1,733 (1,788)
--------- ---------
Net cash inflow from operating activities............................... 11,545 4,061
--------- ---------
</TABLE>
b) Analysis of cash flows for headings shown net in the cash flow statement
(I) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Interest received....................................................... 349 682
Interest paid........................................................... (801) (992)
Preference dividend paid................................................ (1) (1)
Interest element of finance lease rental payments....................... (97) (68)
--------- ---------
Net cash (outflow)/inflow from returns on investment and servicing of
finance............................................................... (550) (379)
--------- ---------
</TABLE>
(II) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Purchase of tangible fixed assets....................................... (3,586) (4,923)
Sale of fixed asset investments......................................... -- 4,845
Sale of plant and machinery............................................. 191 567
--------- ---------
Net cash (outflow)/inflow from capital expenditure and financial
investment............................................................ (3,395) 489
--------- ---------
</TABLE>
F-49
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
12 CASH FLOW STATEMENT (CONTINUED)
b) Analysis of cash flows for headings shown net in the cashflow statement
(continued)
(III) ACQUISITIONS AND DISPOSALS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Purchase of subsidiary undertakings....................................... (4,979) (5,528)
Deferred consideration paid............................................... (331) (320)
Deferred consideration received........................................... 588 790
Proceeds from sale of businesses.......................................... -- --
Purchase of investment--associated undertakings........................... -- (12)
--------- ---------
Net cash outflow from acquisitions and disposals.......................... (4,722) (5,070)
--------- ---------
</TABLE>
(IV) FINANCING
<TABLE>
<CAPTION>
1996 1995
------- -----
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Issue of ordinary share capital......... 341 406
Debt due in more than one year
New loan notes repayable in 2001...... 4,144 --
Net movement in finance lease
obligations........................... (54) 249
------- -----
Net cash inflow/(outflow) from
financing............................. 4,431 655
------- -----
</TABLE>
c) Purchase and sale of businesses:
1996
On 15 April 1996 the group acquired the trade and assets of Fleetlogic BV,
based in the Netherlands. On 10 July 1996 the group acquired the trade and
assets of Kemp & Lauritzen A/S, based in Denmark. The net assets of the
businesses acquired were as follows:
<TABLE>
<CAPTION>
FAIR VALUE
BOOK VALUE ADJUSTMENTS TO GROUP
----------- ------------- -----------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Net assets acquired:
Fixed assets.......................... 667 -- 667
Goodwill.............................. 4,011 -- 4,011
Stocks................................ 1,131 (150) 981
Creditors............................. (299) (381) (680)
----- --- -----
5,510 (531) 4,979
----- --- -----
Satisfied by:
Cash.................................. 4,979
</TABLE>
F-50
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
12 CASH FLOW STATEMENT (CONTINUED)
c) Purchase and sale of businesses (continued)
The businesses acquired during 1996 generated an operating cash outflow of
98,000 British pounds sterling. Adjustments have been made to the book values of
assets acquired in order to reflect Peek group accounting policies and to
reflect their estimated realisable values. On 15 April 1996 the group disposed
of Peek Verkehrssyteme GmbH, its traffic operation in Berlin. The company had
net liabilities of 25,000 British pounds sterling on disposal satisfied by a
payment made to the acquirers. On disposal the company had fixed assets of
20,000 British pounds sterling, inventory of 185,000 British pounds sterling and
receivables of 45,000 British pounds sterling, with creditors of 275,000 British
pounds sterling.
1995
On 17 February 1995 the group acquired the customer services division, the
Bus Tracker operation and the products and systems business of GEC-Marconi
Transport Systems Limited. On 2 February 1996 the group acquired the alarm
monitor business and assets of Fisher-Rosemount Limited.
The net assets of the business acquired were as follows:
<TABLE>
<CAPTION>
FAIR VALUE
BOOK VALUE ADJUSTMENTS TO GROUP
----------- ----------- -----------
(IN THOUSANDS OF
BRITISH POUNDS STERLING)
<S> <C> <C> <C>
Fixed assets................................................. 890 -- 890
Goodwill..................................................... 2,037 -- 2,037
Stocks....................................................... 2,302 (698) 1,604
Debtors...................................................... 3,122 (345) 2,777
Creditors.................................................... (1,700) (80) (1,780)
----------- ----------- -----------
Net assets................................................... 6,651 (1,123) 5,528
----------- ----------- -----------
Satisfied by:
Cash......................................................... 5,528
</TABLE>
The businesses acquired during 1995 contributed 191,000 British pounds
sterling to the group's net operating cashflows.
13 RECONCILIATION OF NET DEBT
<TABLE>
<CAPTION>
AT
START OF EXCHANGE AT
YEAR CASH FLOW MOVEMENT END OF YEAR
----------- ---------- ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C>
1995
Cash at bank..................................... 24,286 (8,655) (3) 15,628
Overdrafts....................................... (20) (364) -- (384)
Debt due after 1 year............................ (14,827) -- (302) (15,129)
Finance leases................................... (564) (248) -- (812)
----------- ---------- ----- -----------
8,875 (9,267) (305) (697)
----------- ---------- ----- -----------
1996
Cash at bank..................................... 15,628 (807) (797) 14,024
Overdrafts....................................... (384) (9) -- (393)
Debt due after 1 year............................ (15,129) (4,144) 1,983 (17,290)
Finance leases................................... (812) 54 27 (731)
----------- ---------- ----- -----------
(697) (4,906) 1,213 (4,390)
----------- ---------- ----- -----------
</TABLE>
F-51
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
14 LIST OF PRINCIPAL PARTICIPATING INTERESTS
<TABLE>
<CAPTION>
COUNTRY OF
HOLDING OF REGISTRATION
PARTICIPATING ORDINARY (OR INCORPORATION)
INTERESTS SHARE CAPITAL AND OPERATION
- ----------------------------------------------- ------------- ------------------------
<S> <C> <C>
Sichuan Modern Control System Peoples Republic of
Engineering Company Limited 41% China
</TABLE>
15 COMPANIES ACT 1985
These financial statements do not comprise the Company's statutory accounts
within the meaning of the Companies Act. Statutory accounts for the years ended
31 December 1996 and 1995 have been delivered to the Registrar of Companies for
England and Wales. The auditors' reports on such accounts were unqualified.
16 US GAAP RECONCILIATION
BASIS OF PREPARATION
The above accounts have been prepared in accordance with accounting
principles generally accepted in the United Kingdom (UK GAAP) which differ in
certain material respects from those generally accepted in the United States (US
GAAP). The significant differences are described below.
a) Goodwill
Under UK GAAP, goodwill arising on acquisitions is eliminated directly
against reserves. Amounts are transferred from reserves and charged through the
profit and loss account when the related investments are sold or written down as
a result of a permanent diminution in value. Under US GAAP, goodwill is
capitalised and amortised by charges against income over a period not exceeding
40 years. The group periodically assesses the recoverability of unamortised
goodwill based on anticipated future earnings.
b) Deferred taxation
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP deferred taxes are accounted for on all
temporary differences on a full provision basis, and a valuation allowance is
established in respect of those deferred tax assets where it is more likely than
not that some portion will remain unrealised.
c) Revaluation of land and buildings
UK GAAP allows the periodic revaluation of land and buildings. Professional
valuations of some of the group's properties were carried out at December 1996
and previously at December 1990. The group calculates depreciation on the
revalued basis from the date of the revaluation. Under US GAAP such revaluations
would not be reflected in the accounts and depreciation would be based on
historical cost.
d) Foreign currency
Under both UK GAAP and US GAAP, cumulative exchange differences arising on
the retranslation of foreign enterprises are taken to reserves. On disposal
these differences are not transferred to the profit and loss account under UK
GAAP. Under US GAA.P, when an investment in a foreign enterprise is sold,
F-52
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
16 US GAAP RECONCILIATION (CONTINUED)
the cumulative exchange differences previously taken to reserves are included in
the net profit for the period as part of the gain or loss on sale.
e) Dividends
Under UK GAAP, dividends and the related advance corporation tax (ACT) are
recorded in the accounts for the financial year to which they relate. Under US
GAAP, dividends are recorded in the period in which they are declared.
f) Non-operating exceptional items
Under US GAAP, the profit/(losses) arising on the disposal of businesses
would have been included in the determination of operating profit.
g) Earnings per share
Earnings per share computed under US GAAP methodology do not differ
significantly from those computed using UK GAAP methodology. However under US
GAAP it is not permitted to report earnings per share excluding exceptional
items.
The following is a summary of the adjustments to net income for the years
ended 31 December 1995 and 1996, which would have been required if the accounts
had been prepared in accordance with US GAAP:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Profit for the financial year as reported in the consolidated profit and
loss account............................................................ 8,293 11,883
ADJUSTMENTS
Amortisation of goodwill.................................................. (967) (921)
Deferred taxation methodology differences................................. (46) (269)
Depreciation on revalued assets........................................... 16 16
Foreign currency cumulative movements..................................... (265) --
--------- ---------
Net income in accordance with US GAAP..................................... 7,031 10,709
--------- ---------
Earnings per share........................................................ 5.8p 8.9p
</TABLE>
F-53
<PAGE>
PEEK PLC
NOTES TO THE ACCOUNTS (CONTINUED)
16 US GAAP RECONCILIATION (CONTINUED)
The cash flow statements prepared under UK GAAP present substantially the
same information as those prepared under US GAAP. There are differences,
however, with regard to classification of items within the statements and as
regards the definition of cash.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing activities. US GAAP, however,
requires only three categories of cash flow activity to be reported: operating,
investing and financing. Cash flows from taxation and returns on investments and
servicing of finance shown under UK GAAP would be included as operating
activities under US GAAP. Cash flows from capital expenditure and financial
investment, acquisitions and disposals shown separately under UK GAAP would be
included as part of the investing activities under US GAAP. The payment of
dividends would be included as a financing activity under US GAAP.
Under US GAAP, cash includes cash equivalents with initial maturities of
less than three months and excludes bank overdrafts.
The categories of cash flow activity under US GAAP can be summarised as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C> <C>
Cash inflow/(outflow) from operating activities......................... 6,822 (1,272)
Cash outflow from investing activities.................................. (8,117) (4,581)
Cash inflow/(outflow) from financing activities......................... (1,522) (2,503)
--------- ---------
Movement in cash and cash equivalents................................... (2,817) (8,356)
Effects of foreign exchange rate changes................................ 1,213 (302)
Cash and cash equivalents at 1 January.................................. 15,628 24,286
--------- ---------
Cash and cash equivalents at 31 December................................ 14,024 15,628
--------- ---------
</TABLE>
F-54
<PAGE>
PEEK PLC
UNAUDITED ACCOUNTS
FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1997
F-55
<PAGE>
PEEK PLC
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE NINE MONTHS ENDED 30 SEPTEMBER
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Turnover
Continuing operations
Ongoing...................................................................................... 79,572 101,673
Acquisitions................................................................................. -- 1,591
--------- ---------
79,572 103,264
Discontinued operations...................................................................... 7,987 --
--------- ---------
87,559 103,264
Cost of sales................................................................................ (66,950) (70,048)
--------- ---------
Gross profit................................................................................. 20,609 33,216
Net operating expenses:
Selling and distribution................................................................... (12,900) (13,920)
Technology................................................................................. (6,320) (6,705)
Administration............................................................................. (20,728) (11,275)
--------- ---------
(39,948) (31,900)
Operating (loss)/profit
Continuing operations
Ongoing...................................................................................... (18,845) 1,315
Acquisitions................................................................................. -- 1
--------- ---------
(18,845) 1,316
Discontinued operations...................................................................... (494) --
--------- ---------
(19,339) 1,316
Exceptional items
Continuing activities...................................................................... -- --
Discontinued operations.................................................................... 781 (560)
--------- ---------
(Loss)/profit on ordinary activities before interest......................................... (18,558) 756
Net interest payable......................................................................... (557) (489)
--------- ---------
(Loss)/profit on ordinary activities before taxation......................................... (19,115) 267
Taxation..................................................................................... (182) (281)
--------- ---------
Loss on ordinary activities after taxation................................................... (19,297) (14)
Minority interest............................................................................ -- --
Dividends.................................................................................... (402) (2,687)
--------- ---------
Retained loss................................................................................ (19,699) (2,701)
--------- ---------
Loss per ordinary share...................................................................... (15.9)p (0.0)p
</TABLE>
- ------------------------
A summary of the significant adjustments to the loss for the period 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 8 to these statements.
F-56
<PAGE>
PEEK PLC
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE NINE MONTHS ENDED 30 SEPTEMBER
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash outflow from operating activities........................................................ (6,999) (582)
Returns on investments and servicing of finance............................................... (638) (427)
Taxation...................................................................................... (2,788) (3,303)
Capital expenditure and financial investment.................................................. (2,033) (2,780)
Acquisitions and disposals.................................................................... 13,377 (4,450)
Equity dividends paid......................................................................... (3,668) (3,952)
--------- ---------
Cash outflow before financing................................................................. (2,749) (15,494)
Financing..................................................................................... (106) 163
--------- ---------
Decrease in cash in the period................................................................ (2,855) (15,331)
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the period................................................................ (2,855) (15,331)
Cash inflow from increase in debt and lease financing......................................... 399 270
--------- ---------
Change in net debt resulting from cash flows.................................................. (2,456) (15,061)
Translation differences....................................................................... (308) 280
--------- ---------
--------- ---------
Movement in net debt in the period............................................................ (2,764) (14,781)
Net debt at start of period................................................................... (4,390) (697)
--------- ---------
Net debt at end of period..................................................................... (7,154) (15,478)
--------- ---------
</TABLE>
DIVESTED BUSINESSES
In March 1997, the group disposed of Peek STM-Verkehrssysteme GmbH. In June
1997, Husky Computers Limited and Husky Computers Inc were sold. The results of
these operations are included in the above interim accounts for the period
within which they were a part of the group.
- ------------------------
The significant differences between the cashflow statement presented above and
that required under United States generally accepted accounting principles are
described in Note 8 to these statements.
F-57
<PAGE>
PEEK PLC
UNAUDITED NOTES TO THE ACCOUNTS
1 These interim accounts are unaudited, but in the opinion of management
all adjustments needed to give a fair presentation (consisting of normal
accruals) have been made.
2 Taxation for the nine months ended 30 September 1997 is based on the
effective rate it is estimated will apply in the year ended 31 December 1997. No
tax assets in respect of current year trading accounts have been recognised as
recoverability is uncertain in the foreseeable future.
3 Accounting policies are as stated in the last annual accounts.
4 The results of the Husky group of companies are included up to 20 June
1997, the date control passed.
5 Exceptional items in 1997 are analysed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
OF BRITISH
POUNDS
STERLING)
<S> <C>
Operating
Termination costs in relation to the group's former Chairman, K E Maud................... (400)
-----
Non-operating
Gain on sale of Husky group of companies of 6,120,000 British pounds sterling offset by
goodwill previously written off to reserves of 4,927,000 British pounds sterling....... 1,193
Loss on sale of Peek-STM Verkehrssysteme GmbH including 400,000 British pounds sterling
of goodwill previously written off..................................................... (412)
-----
781
-----
</TABLE>
6 The interim dividend will be payable on 3 January 1998 to ordinary
shareholders on the register on 12 November 1997.
7 Segmental analysis
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED AUDITED
9 MONTHS 9 MONTHS 12 MONTHS
TO 30.09.97 TO 30.09.96 TO 31.12.96
OPERATING OPERATING OPERATING
TURNOVER PROFIT TURNOVER PROFIT TURNOVER PROFIT
----------- ----------- --------- ----------- --------- -----------
(IN THOUSANDS OF BRITISH POUNDS STERLING)
<S> <C> <C> <C> <C> <C> <C>
By activity
Traffic............................ 70,081 (18,855) 78,018 1,054 126,938 11,520
Field data......................... 17,478 (84) 25,246 262 35,137 1,766
----------- ----- -----------
87,559 (18,939) 103,264 1,316 162,075 13,286
Operating exceptional items........ (400) -- --
----------- ----- -----------
(19,339) 1,316 13,286
Net interest payable............... (557) (489) (729)
Non-operating exceptional items.... 781 (560) (6)
----------- ----- -----------
(Loss)/profit before taxation...... (19,115) 267 12,551
----------- ----- -----------
</TABLE>
F-58
<PAGE>
PEEK PLC
UNAUDITED NOTES TO THE ACCOUNTS (CONTINUED)
8 US GAAP reconciliation (In thousands of British pounds sterling)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Loss for the nine months ended 30 September under UK GAAP................................ (19,297) (14)
Adjustments
Amortization of goodwill................................................................. (730) (717)
Deferred taxation methodology differences................................................ -- (202)
Depreciation on revalued assets.......................................................... 2 12
Foreign currency cumulative movement..................................................... 388 43
--------- ---------
Net loss in accordance with US GAAP...................................................... (19,637) (878)
--------- ---------
Loss per share........................................................................... (16.1)p (0.7)p
</TABLE>
Cashflow
The categories of cash flow activity under US GAAP can be summarised as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash outflow from operating activities................................................... (10,425) (4,312)
Cash inflow/(outflow) from investing activities.......................................... 11,344 (7,230)
Cash outflow from financing activities................................................... (3,869) (1,430)
--------- ---------
Movement in cash and cash equivalents.................................................... (2,950) (12,972)
Effects of foreign exchange rate changes................................................. (308) 280
Cash and cash equivalents at 1 January................................................... 14,024 15,628
--------- ---------
Cash and cash equivalents at 30 September................................................ 10,766 2,936
--------- ---------
</TABLE>
F-59
<PAGE>
THERMO POWER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED OCTOBER 3, 1998
(UNAUDITED)
The following unaudited pro forma combined condensed statement of income
sets forth the results of operations for the year ended October 3, 1998, as if
the acquisition of Peek plc ("Peek") by the Company had occurred at the
beginning of fiscal 1998. The historical results of operations of Peek have been
adjusted to exclude Peek's Measurement business, which was sold by the Company,
effective November 6, 1997, to ONIX Systems Inc. ("ONIX") for $19.1 million.
ONIX is a majority-owned subsidiary of Thermo Instrument Systems Inc., which is
a majority-owned subsidiary of Thermo Electron Corporation ("Thermo Electron").
In addition, the unaudited pro forma combined condensed statement of income sets
forth the results of operations as if the issuance of a $160.0 million
promissory note to Thermo Electron and the sale of the Measurement business to
ONIX had occurred at the beginning of fiscal 1998.
The acquisition has been accounted for using the purchase method of
accounting. The pro forma results of operations are not necessarily indicative
of future operations or the actual results that would have occurred had the
acquisition of Peek been consummated at the beginning of fiscal 1998. These
statements should be read in conjunction with the accompanying notes and the
respective historical financial statements and related notes of the Company and
Peek plc appearing elsewhere in this Proxy Statement.
F-60
<PAGE>
THERMO POWER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED OCTOBER 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------
PEEK(1)
----------------------------------------------------
ADJUSTMENTS U.S. GAAP PRO FORMA
-------------------------- EXCLUDING ----------------------
THERMO U.K. MEASUREMENT MEASUREMENT ADJUST-
POWER GAAP BUSINESS U.S. GAAP BUSINESS MENTS COMBINED
--------- --------- ------------- ----------- ------------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $ 245,692 $ 19,908 $ (1,822) $ -- $ 18,086 $ -- $ 263,778
--------- --------- ------------- --- ------------- --------- -----------
Costs and Operating Expenses:
Cost of revenues......................... 172,055 14,301 (996) -- 13,305 -- 185,360
Selling, general, and administrative
expenses............................... 50,801 5,140 (850) 97 4,387 479 55,667
Research and development expenses........ 7,921 795 (208) -- 587 -- 8,508
--------- --------- ------------- --- ------------- --------- -----------
230,777 20,236 (2,054) 97 18,279 479 249,535
--------- --------- ------------- --- ------------- --------- -----------
Operating Income (Loss).................... 14,915 (328) 232 (97) (193) (479) 14,243
Interest and Other Expense, Net............ (7,057) (69) -- -- (69) (1,122) (8,248)
--------- --------- ------------- --- ------------- --------- -----------
Income (Loss) From Continuing Operations
Before Income Taxes and Minority
Interest................................. 7,858 (397) 232 (97) (262) (1,601) 5,995
Provision (Benefit) for Income Taxes....... 4,082 -- -- -- -- (521) 3,561
Minority Interest Expense (Income)......... 423 -- -- -- -- (111) 312
--------- --------- ------------- --- ------------- --------- -----------
Income (Loss) From Continuing Operations... $ 3,353 $ (397) $ 232 $ (97) $ (262) $ (969) $ 2,122
--------- --------- ------------- --- ------------- --------- -----------
--------- --------- ------------- --- ------------- --------- -----------
Basic and Diluted Earnings Per Share From
Continuing Operations.................... $ .28 $ .18
--------- -----------
--------- -----------
Weighted Average Shares:
Basic.................................... 11,838 11,838
--------- -----------
--------- -----------
Diluted.................................. 11,908 11,908
--------- -----------
--------- -----------
</TABLE>
See notes to pro forma combined condensed statement of income.
- ------------------------
(1) Represents the results of operations of Peek for the period from September
28, 1997, to November 5, 1997.
F-61
<PAGE>
THERMO POWER CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The results of operations of Peek for the period from September 28, 1997, to
November 5, 1997, have been presented in the pro forma combined condensed
statement of income in accordance with U.K. generally accepted accounting
principles (GAAP), adjusted to exclude Peek's Measurement business, which was
sold by the Company, effective November 6, 1997, to ONIX for $19.1 million. The
historical financial statements of Peek were denominated in British pounds
sterling, and have been translated at the average exchange rate of 1.64 U.S.
dollars per British pound sterling for the pro forma combined condensed
statement of income. Subsequent to November 5, 1997, the results of Peek were
included in the consolidated financial statements of the Company. The Company's
results of operations for the year ended October 3, 1998, includes minority
interest expense on Peek's earnings relating to Peek shares tendered after
November 6, 1997, through January 16, 1998. As of January 16, 1998, the Company
had acquired all of the Peek outstanding ordinary shares.
NOTE 2--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME
(In thousands, except in text)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 3,
1998
-------------
DEBIT
(CREDIT)
<S> <C>
ADJUSTMENTS TO CONVERT U.K. GAAP TO U.S. GAAP
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Record amortization of cost in excess of net assets of acquired companies over 40 years, recorded
to shareholders' investment under U.K. GAAP...................................................... $ 97
------
PRO FORMA ADJUSTMENTS
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Service fee of 1.0% of the revenues of Peek for the period from September 28, 1997, to November 5,
1997, for services to be provided under a services agreement between the Company and Thermo
Electron......................................................................................... 181
Amortization of $150,353,000 of intangible assets arising from the acquisition of Peek, net of
amortization of intangible assets recorded in Peek's historical results of operations, as
adjusted to conform to U.S. GAAP and for the sale of Peek's Measurement business................. 298
------
479
------
</TABLE>
F-62
<PAGE>
THERMO POWER CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (CONTINUED)
(UNAUDITED)
NOTE 2--PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME
(In thousands, except in text) (Continued)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 3,
1998
-------------
DEBIT
(CREDIT)
<S> <C>
INTEREST AND OTHER EXPENSE, NET
Decrease in interest income as a result of the use of cash and short-term investments to partially
finance the acquisition of Peek, calculated using the 90-day Commercial Paper Composite Rate plus
25 basis points, or 5.85%........................................................................ $ 39
Record interest income on the $19.1 million receivable from ONIX relating to the sale of the
Measurment business, calculated using the 90-day Commercial Paper Composite Rate plus 25 basis
points, or 5.85%................................................................................. (111)
Increase in interest expense as a result of borrowing from Thermo Electron of $160.0 million to
partially finance the acquisition of Peek, calculated using the 90-day Commercial Paper Composite
Rate plus 25 basis points, or 5.85% 1,194
------
1,122
------
INCOME TAX PROVISION (BENEFIT)
Income tax benefit associated with the adjustments above (excluding the amortization of intangible
assets), calculated at the Company's statutory rate of 40%....................................... (521)
------
MINORITY INTEREST EXPENSE (INCOME)
Reversal of minority interest expense on Peek's earnings relating to Peek shares tendered after
November 6, 1997, through January 16, 1998....................................................... (111)
------
</TABLE>
F-63
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THERMO ELECTRON CORPORATION,
TP ACQUISITION CORPORATION
AND
THERMO POWER CORPORATION
DATED AS OF MAY 5, 1999
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER........................................................... A-1
1.1. The Merger........................................................... A-1
1.2. Effective Time; Closing.............................................. A-2
1.3. Effect of the Merger................................................. A-2
1.4. Articles of Organization; By-laws.................................... A-2
1.5. Directors and Officers............................................... A-3
1.6. Effect on Capital Stock.............................................. A-3
1.7. Surrender of Certificates............................................ A-3
1.8. No Further Ownership Rights in Thermo Power Common Stock............. A-4
1.9. Lost, Stolen or Destroyed Certificates............................... A-4
1.10. Dissenting Shares.................................................... A-5
1.11. Taking of Necessary Action; Further Action........................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THERMO POWER....................... A-5
2.1. Organization of Thermo Power......................................... A-5
2.2. Thermo Power Capital Structure....................................... A-5
2.3. Authority............................................................ A-6
2.4. Board Approval....................................................... A-6
2.5. Fairness Opinion..................................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB..... A-7
3.1. Organization......................................................... A-7
3.2. Merger Sub Capitalization............................................ A-7
3.3. Authority............................................................ A-7
3.4. Financial Resources.................................................. A-8
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................. A-8
4.1. Conduct of Business by Thermo Power.................................. A-8
4.2. Certain Actions by Thermo Power...................................... A-8
ARTICLE V ADDITIONAL AGREEMENTS................................................ A-9
5.1. Schedule 13E-3; Proxy Statement; Other Filings....................... A-9
5.2. Meeting of Thermo Power Stockholders................................. A-10
5.3. Access to Information................................................ A-10
5.4. Public Disclosure.................................................... A-10
5.5. Legal Requirements................................................... A-10
5.6. Notification of Certain Matters...................................... A-11
5.7. Best Efforts and Further Assurances.................................. A-11
5.8. Stock Option and Employee Stock Purchase Plans....................... A-11
5.9. Thermo Electron Form S-8............................................. A-12
5.10. Indemnification; Insurance........................................... A-12
5.11. Deferred Compensation Plan........................................... A-12
5.12. Competing Offers..................................................... A-13
ARTICLE VI CONDITIONS TO THE MERGER............................................. A-13
6.1. Conditions to Obligations of Each Party to Effect the Merger......... A-13
6.2. Additional Conditions to Obligations of Thermo Power................. A-13
6.3. Additional Conditions to the Obligations of Thermo Electron and
Merger Sub........................................................... A-13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................... A-14
7.1. Termination.......................................................... A-14
7.2. Notice of Termination; Effect of Termination......................... A-15
7.3 Fees and Expenses.................................................... A-15
7.4. Amendment............................................................ A-15
7.5. Extension; Waiver.................................................... A-15
ARTICLE VIII GENERAL PROVISIONS................................................... A-15
8.1. Non-Survival of Representations and Warranties....................... A-15
8.2. Notices.............................................................. A-15
8.3. Counterparts......................................................... A-17
8.4. Entire Agreement..................................................... A-17
8.5. Severability......................................................... A-17
8.6. Other Remedies; Specific Performance................................. A-17
8.7. Governing Law........................................................ A-17
8.8. Assignment........................................................... A-17
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of May 5, 1999
is by and among Thermo Electron Corporation ("Thermo Electron"), a Delaware
corporation, TP Acquisition Corporation ("Merger Sub"), a Massachusetts
corporation and a wholly-owned subsidiary of Thermo Electron, and Thermo Power
Corporation ("Thermo Power"), a Massachusetts corporation.
RECITALS
A. Thermo Electron owns approximately 78% of the outstanding shares of
common stock, par value $0.10 per share, of Thermo Power ("Thermo Power Common
Stock"), and Thermo Electron desires to acquire the remaining outstanding shares
of Thermo Power Common Stock.
B. On January 13, 1999, the Board of Directors of Thermo Power appointed a
Special Committee of the Board (the "Special Committee"), consisting of
independent directors, to act on behalf of, and in the interests of, the
stockholders of Thermo Power other than Thermo Electron, the officers and
directors of Thermo Power and the officers and directors of Thermo Electron (the
"Minority Stockholders"), for the purpose of evaluating the merits of, and
negotiating the terms of, any proposed transaction between Thermo Power and
Thermo Electron, considering such alternatives as the Special Committee deemed
appropriate and making a recommendation to the full Board of Directors of Thermo
Power on whether to approve any such transaction.
C. On May 4, 1999, the Special Committee recommended to the full Board of
Directors of Thermo Power approval of a business combination transaction
pursuant to which Merger Sub will merge with and into Thermo Power in accordance
with the Business Corporation Law of the Commonwealth of Massachusetts ("MBCL")
and upon the terms and subject to the conditions set forth in this Agreement
(the "Merger").
D. The respective Boards of Directors of Thermo Electron, Thermo Power and
Merger Sub have approved the Merger.
E. Thermo Electron, Thermo Power and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the MBCL, Merger Sub shall be merged with and into
Thermo Power, the separate corporate existence of Merger Sub shall cease and
Thermo Power shall continue as the surviving corporation. Thermo Power as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation." The Surviving Corporation will be authorized to
issue 1,000 shares of common stock, par value $.01 per share. The purposes of
the Surviving Corporation are:
(a) To manufacture, market, and service intelligent traffic-control systems
and related products, industrial refrigeration equipment, commercial cooling
systems, cogeneration units, propane-powered lighting products, and lighting
products for the automotive, sporting goods, and marine markets and to conduct
research and development in the areas of advanced power and pollution-control
technologies;
A-1
<PAGE>
(b) To carry on any business, operation or activity through a wholly-owned
or partly-owned subsidiary;
(c) To carry on any business, operation or activity referred to in the
foregoing paragraphs to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or as a partner,
trustee, participant, member or stockholder of or in any form of partnership,
joint venture, corporation, association, trust or other form of entity or with
any individual, and, without limiting the generality of the foregoing, to be a
limited and/or general partner of any partnership organized to carry on any
business or activity of the type described herein;
(d) To engage in research and development activities, construction,
manufacturing, mercantile, selling, management, service or any other lawful
business act, operation or activity for which corporations may be organized
under the MBCL (as amended and in effect from time to time), whether or not
related or similar to the activities described in the preceding paragraphs; and
(e) To have as additional purposes all powers granted and conferred by the
laws of The Commonwealth of Massachusetts upon business corporations organized
under Chapter 156B of the General Laws of Massachusetts (as amended and in
effect from time to time), including, without limitation, the power to make
contracts of guarantee and suretyship.
The enumeration of these specific purposes or powers shall not be construed to
limit other statements of purposes or powers which the Surviving Corporation may
otherwise have under applicable law, all of the same being separate and
cumulative, and all of the same may be carried on, promoted and pursued,
transacted or exercised in any place in the world whatsoever.
1.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by submitting the
Articles of Merger (the "Articles of Merger") with the Secretary of State of the
Commonwealth of Massachusetts in accordance with the relevant provisions of the
MBCL (the time of such filing, or such later time as may be agreed in writing by
the parties and specified in the Articles of Merger, being the "Effective Time"
and the date on which the Effective Time occurs being the "Effective Date") as
soon as practicable on the Closing Date (as herein defined). Unless the context
otherwise requires, the term "Agreement" as used herein refers collectively to
this Agreement and the Articles of Merger. The closing of the Merger (the
"Closing") shall take place at the executive offices of Thermo Electron at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date"). At the Closing, (i) Thermo Power shall
deliver to Thermo Electron the various certificates and instruments required
under Article VI, (ii) Thermo Electron and Merger Sub shall deliver to Thermo
Power the various certificates and instruments required under Article VI and
(iii) Thermo Power and Merger Sub shall execute and submit the Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts.
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
MBCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Thermo Power and Merger Sub shall be transferred to and vest in the Surviving
Corporation, and all liabilities and obligations of Thermo Power and Merger Sub
shall become the liabilities and obligations of the Surviving Corporation.
1.4. ARTICLES OF ORGANIZATION; BY-LAWS.
(a) The Articles of Merger shall provide that the Articles of Organization
of the Surviving Corporation shall be amended to be identical to the Articles of
Organization of Merger Sub as in effect immediately prior to the Effective Time
except that the name of the Surviving Corporation shall be "Thermo Power
Corporation."
A-2
<PAGE>
(b) The by-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the by-laws of the Surviving
Corporation until thereafter amended, except that the by-laws shall identify the
name of the Surviving Corporation as "Thermo Power Corporation."
1.5. DIRECTORS AND OFFICERS. The directors of Thermo Power immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, to serve until their respective successors are duly elected or
appointed and qualified. The officers of Thermo Power immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to serve
until their successors are duly elected or appointed or qualified.
1.6. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Thermo Power or the
holders of any of the following securities:
(a) CONVERSION OF THERMO POWER COMMON STOCK. Each share of Thermo Power
Common Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Thermo Power Common Stock held in the treasury of
Thermo Power, by Thermo Electron or Dissenting Shares, as defined in Section
1.10) will be automatically converted into the right to receive Twelve Dollars
($12.00) in cash (the "Exchange Price") upon surrender of the certificate
representing such share of Thermo Power Common Stock in the manner provided in
Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.9).
(b) STOCK OPTIONS. All options to purchase Thermo Power Common Stock then
outstanding under Thermo Power's Directors Stock Option Plan, Equity Incentive
Plan, Employee's Equity Incentive Plan, Incentive Stock Option Plan and
Nonqualified Stock Option Plan, each as amended, (together, the "Thermo Power
Stock Option Plans") shall be converted into options to purchase Thermo Electron
common stock, par value $1.00 per share ("Thermo Electron Common Stock"), in
accordance with Section 5.8 hereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $.01, of the Surviving
Corporation.
(d) AFFILIATE STOCK; TREASURY STOCK. Each share of Thermo Power Common
Stock issued and outstanding and owned by Thermo Electron and each share of
Thermo Power Common Stock held in treasury by Thermo Power immediately prior to
the Effective Time shall cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(e) ADJUSTMENTS TO EXCHANGE PRICE. The Exchange Price shall be adjusted to
reflect fully the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into Thermo
Power Common Stock), recapitalization or other like change without receipt of
consideration with respect to Thermo Power Common Stock occurring on or after
the date hereof and prior to the Effective Time.
1.7. SURRENDER OF CERTIFICATES.
(a) PAYMENT AGENT. Thermo Electron shall authorize one or more persons to
act as the payment agent (the "Payment Agent") in the Merger.
(b) THERMO ELECTRON TO PROVIDE EXCHANGE CONSIDERATION. Promptly after the
Effective Time, Thermo Electron shall deposit with the Payment Agent in trust
for the benefit of the holders of certificates (the "Certificates") representing
shares of Thermo Power Common Stock converted pursuant to Section 1.6(a) for
payment in accordance with this Article I cash in an amount equal to the product
of the Exchange Price multiplied by the number of shares of Thermo Power Common
Stock entitled to payment pursuant to Section 1.6(a).
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(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Thermo
Electron shall cause the Payment Agent to mail to each holder of record (as of
the Effective Time) of a Certificate (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Payment
Agent and shall be in such form and have such other provisions as Thermo
Electron may reasonably specify) and (ii) instructions for effecting the
exchange of the Certificates for the Exchange Price. Upon surrender of a
Certificate for cancellation to the Payment Agent or to such other agent or
agents as may be appointed by Thermo Electron, together with such letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor payment of the Exchange Price multiplied by the
number of shares of Thermo Power Common Stock represented by such Certificate,
without interest, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate will be deemed from
and after the Effective Time, for all corporate purposes, to evidence only the
right to receive payment of the Exchange Price for each share of Thermo Power
Common Stock represented on such Certificate.
(d) TRANSFERS OF OWNERSHIP. If payment of the Exchange Price is to be made
to any person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it will be a condition of such payment that the
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such payment will have paid to
Thermo Electron or any agent designated by it any transfer or other taxes
required by reason of payment to a person other than the registered holder of
the Certificate surrendered, or established to the satisfaction of Thermo
Electron or any agent designated by it that such tax has been paid or is not
payable.
(e) NO LIABILITY. Notwithstanding anything to the contrary in this Section
1.7, neither the Payment Agent, Thermo Electron, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of Thermo Power Common
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) RESPONSIBILITY; TERM. The Payment Agent shall make the payments
referred to in Section 1.6(a) out of the funds supplied by Thermo Electron.
Promptly following the date that is six months after the Effective Date, the
Payment Agent shall, upon request by Thermo Electron, deliver to Thermo Electron
all cash, Certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Payment Agent's duties shall
terminate. Thereafter, each holder of a Certificate formerly representing shares
of Thermo Power Common Stock may surrender such Certificate to Thermo Electron
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor the Exchange Price multiplied by the number of shares of
Thermo Power Common Stock represented by such Certificate, without any interest
thereon, but shall have no greater rights against Thermo Electron than as may be
accorded to general creditors of Thermo Electron under applicable law.
1.8. NO FURTHER OWNERSHIP RIGHTS IN THERMO POWER COMMON STOCK. All amounts
paid upon the surrender of shares of Thermo Power Common Stock in accordance
with the terms hereof shall be deemed to have been paid in full satisfaction of
all rights pertaining to such shares of Thermo Power Common Stock, and there
shall be no further registration of transfers on the records of the Surviving
Corporation of shares of Thermo Power Common Stock that were outstanding
immediately prior to the Effective Time. If after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Payment Agent shall pay the
aggregate Exchange Price in respect of such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof; provided, however, that, as a condition precedent to the payment
thereof, the owner of such lost, stolen or destroyed Certificates shall deliver
a bond in such sum as Thermo Electron or the Payment Agent may reasonably direct
as indemnity against any claim that may be made against Thermo Electron or the
Payment Agent
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with respect to the Certificates alleged to have been lost, stolen or destroyed,
unless Thermo Electron waives such requirement in writing.
1.10. DISSENTING SHARES. Notwithstanding any other provision of this
Agreement, pursuant to Sections 85 through 98, inclusive, of the MBCL, shares of
Thermo Power Common Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have demanded
properly in writing appraisal of such shares in accordance with the MBCL and who
shall not have withdrawn such demand or otherwise forfeited appraisal rights
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Exchange Price. Such stockholders shall, as of the
Effective Time, cease to retain any rights with respect to the Thermo Power
Common Stock, except as provided in Sections 85 through 98, inclusive, of the
MBCL including the right to receive payment of the appraised value of the shares
held by them, provided that all Dissenting Shares held by stockholders (i) who
shall have failed to perfect or lost their rights to appraisal of such shares,
or (ii) who have effectively withdrawn their demand for appraisal, shall
thereupon be, or be deemed to have been, converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Exchange Price, upon surrender, in the manner provided in
Section 1.7, of the Certificates that formerly evidenced such shares without the
prior consent of Thermo Electron.
1.11. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all property, rights, privileges, powers and
franchises of Thermo Power and Merger Sub, the officers and directors of Thermo
Power and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THERMO POWER
Thermo Power represents and warrants to Thermo Electron and Merger Sub as
follows:
2.1. ORGANIZATION OF THERMO POWER. Thermo Power and each of its
subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has the corporate or similar power to own, lease
and operate its property and to carry on its business as now being conducted and
as proposed by Thermo Power to be conducted, and is duly qualified to do
business and in good standing as a foreign corporation or other legal entity in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on Thermo Power.
2.2. THERMO POWER CAPITAL STRUCTURE.
The authorized capital stock of Thermo Power consists of 30,000,000 shares
of Common Stock, par value $0.10 per share, of which there were 11,870,520
shares issued and outstanding as of April 3, 1999 and 622,851 shares in treasury
as of April 3, 1999. All outstanding shares of Thermo Power Common Stock are
duly authorized, validly issued, fully paid and non-assessable and are not
subject to preemptive rights created by statute, the Articles of Organization or
by-laws of Thermo Power or any agreement or document to which Thermo Power is a
party or by which it is bound. As of April 27, 1999, an aggregate of 1,906,626
shares of Thermo Power Common Stock, net of exercises, were reserved for
issuance to employees, consultants and non-employee directors pursuant to the
Thermo Power Stock Option Plans, under which options are outstanding for an
aggregate of 1,246,637 shares. All shares of Thermo Power Common Stock subject
to issuance pursuant to the Thermo Power Stock Option Plans, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable.
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2.3. AUTHORITY.
(a) Thermo Power has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Thermo Power, subject only to the approval of
this Agreement by Thermo Power's stockholders and the submission of the Articles
of Merger pursuant to the MBCL. Under the MBCL, Thermo Power's stockholders may
approve this Agreement by vote of two-thirds of the holders of the outstanding
shares of Thermo Power Common Stock. This Agreement has been duly executed and
delivered by Thermo Power, and assuming the due authorization, execution and
delivery by Thermo Electron and Merger Sub, constitutes the valid and binding
obligation of Thermo Power, enforceable in accordance with its terms. The
execution and delivery of this Agreement by Thermo Power do not, and the
performance of this Agreement by Thermo Power will not, (i) conflict with or
violate the Articles of Organization or by-laws of Thermo Power, (ii) subject to
obtaining the approval by Thermo Power's stockholders of this Agreement as
contemplated in Section 5.2 and compliance with the requirements set forth in
Section 2.3(b), conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Thermo Power or any of its material
subsidiaries or by which its or their respective properties is bound, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the rights of
Thermo Power or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Thermo Power or any of its material subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Thermo
Power or any of its material subsidiaries is a party or by which Thermo Power or
any of its material subsidiaries or its or any of their properties are bound or
affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
material adverse effect on Thermo Power and its subsidiaries, taken as a whole.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to Thermo Power in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated, 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 Proxy Statement (as defined in Section 5.1) with the U.S.
Securities and Exchange Commission ("SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (iii) the filing of the
Schedule 13E-3 (as defined in Section 5.1) with the SEC in accordance with the
Exchange Act, and (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws.
2.4. BOARD APPROVAL. The Special Committee has, as of the date of this
Agreement, recommended approval of the Merger to the full Board of Directors of
Thermo Power. The Board of Directors of Thermo Power has, as of the date of this
Agreement, determined unanimously (i) that the Merger is fair to, and in the
best interests of, Thermo Power and its stockholders including the Minority
Stockholders, (ii) that the Merger is consistent with and in furtherance of the
business interests of Thermo Power and (iii) to recommend that the stockholders
of Thermo Power approve this Agreement.
2.5. FAIRNESS OPINION. The Special Committee has received an opinion from
Invemed Associates LLC, dated May 4, 1999, that, as of such date, the
consideration to be received by Thermo Power's Minority Stockholders in the
Merger is fair from a financial point of view to such Thermo Power stockholders
(the "Fairness Opinion").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND
MERGER SUB
Thermo Electron and Merger Sub represent and warrant to Thermo Power as
follows:
3.1. ORGANIZATION. Thermo Electron is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, each has the
corporate power to own, lease and operate its property and to carry on its
business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on Thermo Electron or Merger Sub.
3.2. MERGER SUB CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of Merger Sub consists of 1,000 shares of common stock,
par value $.01 per share, of which 100 shares are issued and outstanding. All of
the issued and outstanding shares of capital stock of Merger Sub are validly
issued, fully paid and nonassessable and are not subject to preemptive rights
created by statute, the Articles of Organization or by-laws of Merger Sub or any
agreement or document to which Merger Sub is a party or by which it is bound.
3.3. AUTHORITY.
(a) Each of Thermo Electron and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Thermo Electron and Merger Sub,
subject only to the submission of the Articles of Merger pursuant to the MBCL.
This Agreement has been duly executed and delivered by each of Thermo Electron
and Merger Sub and, assuming the due authorization, execution and delivery of
this Agreement by Thermo Power, this Agreement constitutes the valid and binding
obligation of each of Thermo Electron and Merger Sub, enforceable in accordance
with its terms. The execution and delivery of this Agreement by each of Thermo
Electron and Merger Sub do not, and the performance of this Agreement by each of
Thermo Electron and Merger Sub will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Thermo Electron or the Articles of
Organization or by-laws of Merger Sub, (ii) subject to compliance with the
requirements set forth in Section 3.2(b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Thermo Electron
or any of its material subsidiaries (including Merger Sub, but excluding Thermo
Power and its subsidiaries) or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair Thermo Electron's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Thermo
Electron or any of its material subsidiaries (including Merger Sub, but
excluding Thermo Power and its subsidiaries) pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Thermo Electron or any of its material
subsidiaries (including Merger Sub, but excluding Thermo Power and its
subsidiaries) is a party or by which Thermo Electron or any of its material
subsidiaries (including Merger Sub, but excluding Thermo Power and its
subsidiaries) or its or any of their respective properties are bound or
affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
material adverse effect on Thermo Electron or Merger Sub.
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(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,
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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
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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
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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
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(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.
(c) Thermo Electron will reserve sufficient shares of Thermo Electron Common
Stock for issuance under this Section 5.8.
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.
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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.
(c) FAIRNESS OPINION. Invemed Associates LLC shall not have withdrawn or
materially modified the Fairness Opinion.
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:
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(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);
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(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
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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
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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.
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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>
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<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
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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>
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<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.
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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.
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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.
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<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
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 has been the senior vice president, government affairs, of Thermo
Electron since March 1997 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.
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") since August 1996. From
September 1995 until August 1996, he served as the chief executive officer and a
director of Patlex Corporation ("Patlex"), 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. His business address
is 45 First Avenue, Waltham, Massachusetts 02454.
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 with
offices located at 30 Rockefeller Plaza, New York, New York 10112, 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 Thermedics Inc. and ThermoTrex Corporation, which are affiliates of
Thermo Electron. For further information, please see description under
"Directors and Executive Officers of Thermo Electron," below.
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
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the end of 1998, and as a vice president from 1989 until 1997. Mr. Hatsopoulos
was the president of Thermo Electron from 1997 to 1998 and its chief financial
officer from 1988 to 1998. 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. 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 directors
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, environmental and energy, 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
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 the
chairman of the board. Mr. Noble is also a director of Thermo Electron, as well
as 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.
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JOHN J. SETNICKA: Director
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. His business address is Excel
International Advisors, Inc., 113 King Eider Court, Daytona Beach, Florida
32119.
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. 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. 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 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.
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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 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 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, Environmental and Energy
Brian D. Holt became the chief operating officer, environmental and energy,
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 Group Incorporated and Thermo TerraTech
Inc. He is also the president and sole director of the Merger Sub. 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.
JOHN T. KEISER: Chief Operating Officer, Biomedical and Advanced Technology
John T. Keiser became the chief operating officer, biomedical and emerging
technology, 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.
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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, Instrumentation
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 the
following affiliates of Thermo Electron: Metrika Systems Corporation, ONIX
Systems 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, both affiliates of Thermo Electron. For further information, please
see description under "Directors and Executive Officers of the Company," above.
DONALD E. NOBLE: Director
Donald E. Noble has been a director of Thermo Electron since 1983. Mr. Noble
has announced his intention to retire from the board of directors in September
1999. 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 the chairman of the board. Mr. Noble is also a director of Thermo
Fibertek Inc., Thermo Power, Thermo Sentron Inc. and Thermo TerraTech Inc.,
which are affiliates of Thermo Electron. For further information, please see
description under "Directors and Executive Officers of the Company," above.
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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 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.
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APPENDIX E
INFORMATION CONCERNING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY
The following sets forth information with respect to purchases of Thermo
Power 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 Thermo Power 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.................... Executive Officer, Thermo Electron 5/27/98 10,000 $ 11.33
Donald E. Noble.................. Director, Company and Thermo Electron 3/21/97 1,000 $ 6.65
Donald E. Noble.................. Director, Company and Thermo Electron 3/13/98 1,000 $ 11.63
Donald E. Noble.................. Director, Company and Thermo Electron 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 Thermo Power Common Stock that have been exercised by directors and
executive officers of the Company, the Merger
E-1
<PAGE>
Sub and Thermo 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 and Thermo Electron 6/26/98 400 $ 10.15
Donald E. Noble.................... Director, Company and Thermo Electron 3/09/98 1,000 $ 9.43
</TABLE>
OWNERSHIP OF THERMO POWER COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THE COMPANY
The following table sets forth the beneficial ownership of Thermo Power
Common Stock, as of January 31, 1999, with respect to (i) each director and
executive officer of the Company and (ii) 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 Thermo Power Common Stock owned by Thermo Electron.
<TABLE>
<CAPTION>
THERMO
POWER COMPANY(2)
--------------------------
NUMBER OF PERCENTAGE
NAME(1) SHARES OF CLASS
- ------------------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Marshall J. Armstrong..................................................................... 128,540 1.08%
Frank Borman.............................................................................. 0 *
J. Timothy Corcoran....................................................................... 161,031 1.35%
Peter O. Crisp............................................................................ 37,566 *
John N. Hatsopoulos....................................................................... 46,753 *
Brian D. Holt............................................................................. 0 *
Paul F. Kelleher.......................................................................... 15,370 *
Theo Melas-Kyriazi........................................................................ 11,988 *
Donald E. Noble........................................................................... 24,333 *
John J. Setnicka.......................................................................... 1,000 *
All directors and current executive officers as a group (10 persons)...................... 426,581 3.58%
</TABLE>
- ------------------------
* Reflects ownership of less than 1.0% of the outstanding Common Stock.
(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) The shares of Thermo Power Common Stock beneficially owned by Mr. Armstrong,
Mr. Corcoran, Mr. Crisp, Mr. Hatsopoulos, Mr. Kelleher, Mr. Melas-Kyriazi,
Mr. Noble and all directors and current executive officers as a group
include 125,000, 135,500, 6,600, 40,000, 9,000, 11,000, 7,200 and 334,300
shares, respectively, that such person or group had the right to acquire
within 60 days of January 31, 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 11,873 and 8,308 shares,
respectively,
E-2
<PAGE>
allocated through January 2, 1999, to their respective accounts maintained
under the Company's Deferred Compensation Plan for Directors. 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 1.08% of Thermo Power Common Stock outstanding as of January 31, 1999,
and Mr. Corcoran, who beneficially owned 1.35% of Thermo Power Common Stock
outstanding as of January 31, 1999, no director or executive officer
beneficially owned more than 1.0% of Thermo Power Common Stock outstanding
as of January 31, 1999; all directors and current executive officers as a
group beneficially owned 3.58% of Thermo Power Common Stock outstanding as
of such date.
OWNERSHIP OF THERMO POWER COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THERMO ELECTRON
The following table sets forth the beneficial ownership of Thermo Power
Common Stock, as of January 31, 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 Thermo
Power 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............................................................................ 37,566 *
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.......................................................................... 11,209 *
Theo Melas-Kyriazi........................................................................ 11,988 *
Donald E. Noble........................................................................... 24,332 *
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)...................... 236,350 1.99
</TABLE>
- ------------------------
* Reflects ownership of less than 1.0% of the outstanding common stock.
(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.
E-3
<PAGE>
(2) The shares of Thermo Power 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, 6,600, 3,000, 40,000, 40,000, 3,000, 9,000,
10,000, 3,000, 11,000, 7,200, 3,000, 3,000 and 141,800 shares, respectively,
that such person or group had the right to acquire within 60 days of January
31, 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 11,873, 8,308 and 20,181 shares, respectively, that had been
allocated through January 2, 1999 to their respective accounts maintained
under Thermo Power's Deferred Compensation Plan for Directors. 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 Thermo Power Common Stock outstanding
as of January 31, 1999; all directors and current executive officers as a
group beneficially owned 1.99% of Thermo Power Common Stock outstanding as
of such date.
OWNERSHIP OF THERMO POWER COMMON STOCK BY EXECUTIVE OFFICERS
AND DIRECTORS OF THE MERGER SUB
Please see "Ownership of Thermo Power 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 THERMO POWER COMMON STOCK
No transactions in the Thermo Power Common Stock were effected during the 60
days preceding the date of this Proxy Statement by the Company, the Merger Sub,
Thermo Electron or the directors and executive officers of any of the Company,
the Merger Sub or Thermo Electron.
E-4
<PAGE>
[ATTACHMENT TO A PROXY STATEMENT]
FORM OF PROXY
THERMO POWER CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD _______________, 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 __________, 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 ___________, 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
______________, 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!
