SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-10573
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2891371
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common Stock, $.10 par value 11,878,520
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
April 3, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 15,040 $22,240
Available-for-sale investments, at quoted market value (amortized cost - 4,018
of $4,017)
Accounts receivable, less allowances of $9,634 and $10,299 56,281 52,098
Unbilled contract costs and fees 6,952 10,718
Inventories:
Raw materials 20,382 21,549
Work in process 11,133 14,422
Finished goods 7,851 8,013
Prepaid income taxes 10,998 11,205
Net assets of discontinued operations (Note 4) - 8,525
Other current assets (Note 4) 3,804 2,421
Due from parent company and affiliated companies - 732
-------- --------
132,441 155,941
-------- --------
Rental Assets, at Cost 15,274 14,884
Less: Accumulated depreciation and amortization 5,131 4,766
-------- --------
10,143 10,118
-------- --------
Property, Plant, and Equipment, at Cost 34,627 34,433
Less: Accumulated depreciation and amortization 10,969 9,562
-------- --------
23,658 24,871
-------- --------
Other Assets 283 282
-------- --------
Cost in Excess of Net Assets of Acquired Companies 157,844 160,423
-------- --------
$324,369 $351,635
======== ========
2
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 3, October 3,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Notes payable and current maturities of long-term obligations $ 2,030 $ 396
Accounts payable 28,918 30,899
Accrued payroll and employee benefits 8,030 7,885
Billings in excess of contract costs and fees 6,857 8,517
Accrued income taxes 9,415 10,048
Accrued warranty costs 5,767 6,293
Common stock of subsidiary subject to redemption ($1,380 and $18,450 1,380 18,372
redemption value)
Accrued acquisition expenses (Note 5) 10,185 11,083
Other accrued expenses (Notes 4 and 6) 24,122 26,686
Due to parent company and affiliated companies 798 -
-------- --------
97,502 120,179
-------- --------
Deferred Income Taxes 877 1,093
-------- --------
Long-term Obligations (includes $160,000 due to parent company; Note 7) 160,393 160,499
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000 shares authorized; 1,249 1,249
12,493,371 shares issued
Capital in excess of par value 55,491 55,401
Retained earnings 15,415 16,147
Treasury stock at cost, 622,851 and 663,208 shares (4,322) (4,600)
Accumulated other comprehensive items (Note 2) (2,236) 1,667
-------- --------
65,597 69,864
-------- --------
$324,369 $351,635
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ---------
Revenues $61,181 $62,005
------- -------
Costs and Operating Expenses:
Cost of revenues 45,298 45,774
Selling, general, and administrative expenses 13,550 12,760
Research and development expenses 1,630 2,554
Restructuring costs (Note 6) 701 -
------- -------
61,179 61,088
------- -------
Operating Income 2 917
Interest Income 38 668
Interest Expense (includes $2,037 and $2,314 to related party) (2,160) (2,636)
------- -------
Loss from Continuing Operations Before Income Taxes and Minority Interest (2,120) (1,051)
Provision (Benefit) for Income Taxes (416) 5
Minority Interest Expense - 78
------- -------
Loss from Continuing Operations (1,704) (1,134)
Loss from Discontinued Operations (Note 4) - (154)
------- -------
Net Loss $(1,704) $(1,288)
======= =======
Basic and Diluted Loss per Share from Continuing Operations (Note 3) $ (.14) $ (.10)
======= =======
Basic and Diluted Loss per Share (Note 3) $ (.14) $ (.11)
======= =======
Basic and Diluted Weighted Average Shares (Note 3) 11,843 11,802
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $137,442 $120,701
-------- --------
Costs and Operating Expenses:
Cost of revenues 100,369 86,557
Selling, general, and administrative expenses 28,956 25,543
Research and development expenses 3,411 4,184
Restructuring costs (Note 6) 701 -
-------- --------
133,437 116,284
-------- --------
Operating Income 4,005 4,417
Interest Income (includes $180 from related party in fiscal 1998) 367 1,257
Interest Expense (includes $4,205 and $3,489 to related party) (4,463) (4,061)
-------- --------
Income (Loss) from Continuing Operations Before Income Taxes and Minority (91) 1,613
Interest
Provision for Income Taxes 563 1,200
Minority Interest Expense 78 267
-------- --------
Income (Loss) from Continuing Operations (732) 146
Loss from Discontinued Operations (Note 4) - (379)
-------- --------
Net Loss $ (732) $ (233)
======== ========
Basic and Diluted Earnings (Loss) per Share from Continuing Operations $ (.06) $ .01
========= ========
(Note 3)
Basic and Diluted Loss per Share (Note 3) $ (.06) $ (.02)
======== ========
Basic and Diluted Weighted Average Shares (Note 3) 11,837 11,850
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ---------
Operating Activities:
Net loss $ (732) $ (233)
Adjustment to reconcile net loss to income (loss) from continuing operations:
Loss from discontinued operations (Note 4) - 379
---------- ---------
Income (loss) from continuing operations (732) 146
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
Provision for losses on accounts receivable 384 158
Restructuring costs (Note 6) 701 -
Minority interest expense 78 267
Change in deferred income taxes - (1,814)
Other noncash items - 75
Changes in current accounts, excluding the effects of acquisitions and
dispositions:
Accounts receivable (5,943) (338)
Inventories 2,666 8,364
Unbilled contract costs and fees 3,619 1,191
Other current assets 384 (468)
Accounts payable 974 (2,918)
Other current liabilities (4,402) (6,171)
---------- ---------
Net cash provided by continuing operations 2,948 3,528
Net cash provided by discontinued operations 1,077 2,977
---------- ---------
Net cash provided by operating activities 4,025 6,505
---------- ---------
Investing Activities:
Acquisitions, net of cash acquired (1,587) (148,854)
Proceeds from sale of a business (Note 4) 6,393 -
Proceeds from sale of a business to related party - 19,117
Proceeds from sale and maturities of available-for-sale investments 4,018 5,011
Purchases of property, plant, and equipment (2,319) (2,876)
Proceeds from sale of property, plant and equipment 292 1,305
Increase in rental assets (1,142) (1,035)
Proceeds from sale of rental assets 607 619
Other 45 (777)
---------- ---------
Net cash provided by (used in) continuing operations 6,307 (127,490)
Net cash used in discontinued operations - (54)
---------- ---------
Net cash provided by (used in) investing activities $ 6,307 $(127,544)
---------- ---------
6
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ---------
Financing Activities:
Redemption of subsidiary common stock $ (17,070) $ -
Issuance of long-term obligation to parent company - 160,000
Decrease in short-term obligations (70) (27,823)
Purchases of Company common stock - (1,380)
Net proceeds from issuance of Company common stock 368 475
Repayment of long-term obligations (108) (103)
---------- ----------
Net cash provided by (used in) financing activities of (16,880) 131,169
---------- ---------
continuing operations
Exchange Rate Effect on Cash (652) 320
---------- ---------
Increase (Decrease) in Cash and Cash Equivalents (7,200) 10,450
Cash and Cash Equivalents at Beginning of Period 22,240 19,347
---------- ---------
Cash and Cash Equivalents at End of Period $ 15,040 $ 29,797
========== =========
Noncash Activities:
Fair value of assets of acquired companies $ 1,767 $ 271,109
Cash paid for acquired companies (1,587) (164,435)
Cash paid in prior year for acquired company - (2,301)
---------- ---------
Liabilities assumed of acquired companies $ 180 $ 104,373
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
THERMO POWER CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Power Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at April 3, 1999, the results of
operations for the three- and six-month periods ended April 3, 1999, and April
4, 1998, and the cash flows for the six-month periods ended April 3, 1999, and
April 4, 1998. 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. In addition, prior period amounts have been reclassified to
conform to the presentation in the current financial statements and to classify
the results of the Company's Engines segment as discontinued operations (Note
4). Interim results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of October 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
October 3, 1998, filed with the Securities and Exchange Commission.
Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. During the second quarter of fiscal 1999 and
1998, the Company had a comprehensive loss of $4,582,000 and $1,683,000,
respectively. During the first six months of fiscal 1999 and 1998, the Company
had a comprehensive loss of $4,635,000 and $514,000, respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Income (Loss) from Continuing Operations $(1,704) $(1,134) $ (732) $ 146
Loss from Discontinued Operations - (154) - (379)
------- ------- ------ -------
Net Loss $(1,704) $(1,288) $ (732) $ (233)
======= ======= ====== =======
Basic
Weighted Average Shares 11,843 11,802 11,837 11,850
------- ------- ------ -------
Basic Earnings (Loss) per Share:
Continuing operations $ (.14) $ (.10) $ (.06) $ .01
Discontinued operations - (.01) - (.03)
------- ------- ------ -------
$ (.14) $ (.11) $ (.06) $ (.02)
======= ======= ====== =======
8
<PAGE>
3. Earnings (Loss) per Share (continued)
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Diluted
Weighted Average Shares 11,843 11,802 11,837 11,850
Effect of Stock Options - - - 72
------ ------- ------ -------
Weighted Average Shares, as Adjusted for Continuing 11,843 11,802 11,837 11,922
Operations
Less:
Effect of Stock Options - - - (72)
------ ------- ------ -------
Weighted Average Shares, as Adjusted 11,843 11,802 11,837 11,850
------ ------- ------ -------
Diluted Earnings (Loss) per Share:
Continuing operations $ (.14) $ (.10) $ (.06) $ .01
Discontinued operations - (.01) - (.03)
------ ------- ------ -------
$ (.14) $ (.11) $ (.06) $ (.02)
====== ======= ====== =======
The computation of diluted loss per share for all periods excludes the
effect of assuming the exercise of outstanding stock options because the effect
would be antidilutive because of the Company's net loss. As of April 3, 1999,
there were 1,255,000 of such options outstanding, with exercise prices ranging
from $6.40 to $11.90 per share. The computation of diluted earnings per share
from continuing operations for the six-months ended April 4, 1998, excluded the
effect of certain outstanding stock options because the effect was antidilutive.
4. Discontinued Operations
During fiscal 1998, the Company adopted a plan to divest its Engines
segment, that consisted of its Crusader Engines division. In accordance with the
provisions of Accounting Principles Board Opinion No. 30 concerning reporting
the effect of disposal of a segment of a business, the results of operations of
the Engines segment have been classified as discontinued in the accompanying
statement of operations for fiscal 1998, and have been recorded as a reduction
of previously established reserves in fiscal 1999. The Engines segment had
revenues through the date of disposition and a net loss for the first six months
of fiscal 1999 of $2,695,000 and $365,000, respectively. The revenues and net
loss from the Engines segment for the first six months of fiscal 1998 were
$11,415,000 and $379,000, respectively. The reserve for estimated losses on
disposal of discontinued operations at October 3, 1998, totaled $993,000,
including $700,000 for estimated losses from operations of the Engines segment
through the expected date of disposition. During the first six months of fiscal
1999, 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, discussed below,
and was reduced by pretax operating losses of discontinued operations of
$571,000. The remaining reserve at 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
discontinued operations is included in other accrued expenses in the
accompanying balance sheet.
9
<PAGE>
THERMO POWER CORPORATION
4. Discontinued Operations (continued)
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 represents 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 balance sheet, is due in
December 1999 and is secured by an irrevocable letter of credit. The sale of the
net assets of the two product lines resulted in a pretax gain of $508,000, which
was recorded as an increase in the reserve for estimated losses on disposal of
discontinued operations.
5. Accrued Acquisition Expenses
During fiscal 1998, in connection with its November 1997 acquisition of
Peek plc, the Company undertook a restructuring of the acquired business. The
restructuring activities were accounted for in accordance with Emerging Issues
Task Force Pronouncement (EITF) 95-3. At October 3, 1998, the Company had
finalized its plan for restructuring the acquired business and the remaining
reserve for these restructuring activities totaled $10,970,000. During the first
six months of fiscal 1999, the Company expended $885,000 for restructuring costs
relating to this acquisition, primarily for ongoing severance and
abandoned-facility payments. At April 3, 1999, the remaining reserve for
restructuring the Peek business was $10,029,000, including the impact of
currency translation, and is comprised of $6,830,000 for estimated costs for the
completion of acquired loss contracts at two business locations which the
Company intends to close, $1,835,000 for estimated losses on an acquired loss
contract at a business location the Company has closed, and $1,364,000 for
ongoing payments for abandoned facilities and severance.
6. Restructuring Costs
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.
7. Promissory Note
The Company's $160.0 million promissory note to Thermo Electron
Corporation 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.
8. 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
10
<PAGE>
8. Proposed Merger (continued)
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.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended October 3, 1998, filed with the Securities
and Exchange Commission.
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
demand from 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
11
<PAGE>
Overview (continued)
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.
The Cooling and Cogeneration Systems segment consists of the Company's
Tecogen division and the Company's ThermoLyte Corporation 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, Inc. 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.
The Company's revenues by industry segment are:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------- ----------- ----------- ---------- ----------
Traffic Control $ 30,620 $ 38,983 $82,725 $ 77,735
Industrial Refrigeration Systems 20,897 18,387 37,726 35,396
Cooling and Cogeneration Systems 9,824 4,797 17,174 7,755
Intersegment Sales Elimination (160) (162) (183) (185)
--------- --------- -------- --------
$ 61,181 $ 62,005 $137,442 $120,701
========= ========= ======== ========
</TABLE>
Results of Operations
Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998
Total revenues decreased to $61.2 million in the second quarter of fiscal
1999 from $62.0 million in the second quarter of fiscal 1998, primarily due to a
decrease in revenues at the Traffic Control segment of $8.4 million, which was
substantially offset by an increase in revenues at the Industrial Refrigeration
Systems segment and the Cooling and Cogeneration Systems segment. Revenues at
the Traffic Control segment decreased by $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 divestiture and closure of certain Peek
businesses in fiscal 1998. The favorable effects of currency translation, due to
a decline in the value of the U.S. dollar relative to currencies in foreign
countries in which the Company operates, increased revenues at the Traffic
12
<PAGE>
Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998 (continued)
Control segment by $0.3 million in fiscal 1999. Industrial Refrigeration Systems
segment revenues increased to $20.9 million in fiscal 1999 from $18.4 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 $9.8 million in fiscal 1999 from $4.8 million in fiscal 1998,
principally due to the inclusion of $3.7 million in revenues from Optronics,
acquired in July 1998, and increased demand for gas-fueled cooling systems.
The gross profit margin was unchanged at 26% in the second quarter of
fiscal 1999 and 1998. The gross profit margin at the Traffic Control segment
increased to 30% in fiscal 1999 from 29% in fiscal 1998, primarily due to
certain cost reduction programs implemented at its U.S. operations, including
improved outsourcing and purchasing techniques, offset in part by the effect of
a change in sales mix at its subsidiary located in the Netherlands. 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
impact of margin improvement at the Traffic Control segment on the Company's
consolidated gross profit margin was mitigated by the effect of proportionately
lower revenues from the higher-margin Traffic Control segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 22% in the second quarter of fiscal 1999 from 21% in the second
quarter of fiscal 1998, principally due to an increase at the Traffic Control
segment due to lower revenues.
Research and development expenses were $1.6 million in the second quarter
of fiscal 1999, compared with $2.6 million in the second quarter of fiscal 1998.
Research and development expenses decreased $0.6 million at the Traffic Control
segment primarily due to a decline in consulting costs at its subsidiary located
in the Netherlands. In addition, research and development expenses at the
Cooling and Cogeneration segment decreased due to a reduction in spending on
natural gas-engine products and propane-powered lighting products due to the
completion of a phase of development efforts for these products.
The Company recorded restructuring costs of $0.7 million in the second
quarter of fiscal 1999 at the Traffic Control segment, primarily for severance
and abandoned facility-payments relating to the consolidation of facilities at
Peek (Note 6).
Interest income decreased by $0.6 million in the second quarter of fiscal
1999 principally due to lower average invested balances resulting from the use
of cash to redeem ThermoLyte common stock in fiscal 1999 and to fund
acquisitions and repay short-term obligations assumed in connection with the
Peek acquisition in fiscal 1998. Interest expense decreased to $2.2 million in
the second quarter of fiscal 1999 from $2.6 million in the second quarter of
fiscal 1998, 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 benefit at an effective rate of 20% in the
second quarter of fiscal 1999. The effective tax rate was below the statutory
federal income tax rate principally due to the effect of $1.0 million of
nondeductible amortization of cost in excess of net assets of acquired
companies. The Company recorded a tax provision of $5,000 in the second quarter
of fiscal 1998 on a pretax loss of $1.1 million, principally due to the effect
of $1.0 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 of $0.1 million in the second quarter of fiscal
1998 represents the accretion of ThermoLyte common stock subject to redemption,
which was accreted to its full redemption value in December 1998.
In accordance with the provisions of Accounting Principles Board Opinion
No. 30 concerning reporting the effect of disposal of a segment of a business,
the results of operations of the Engines segment have been classified as
discontinued in the accompanying statement of operations for fiscal 1998, and
have been recorded as a reduction of previously established reserves in fiscal
1999 (Note 4). The loss from discontinued operations was $0.1 million in the
second quarter of fiscal 1999 and $0.2 million in the second quarter of fiscal
1998.
13
<PAGE>
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 Peek plc, acquired in November
1997, for the full three-month period. This increase was offset in part by a
decrease of $8.7 million in the second quarter of fiscal 1999 for the reasons
discussed in the results of operations for the second quarter. 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 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 for the reason discussed in the results of operations for the second
quarter.
The Company recorded restructuring costs of $0.7 million in the first six
months of fiscal 1999 for the reasons discussed in the results of operations for
the second quarter.
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 for the reasons discussed in the results of operations for the
second quarter. 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 for the
reasons discussed in the results of operations for the second quarter.
14
<PAGE>
First Six Months Fiscal 1999 Compared With First Six Months Fiscal 1998
(continued)
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 fiscal 1998, and
have been recorded as a reduction of previously established reserves in fiscal
1999 (Note 4). The loss from discontinued operations was $0.4 million in each of
the first six months of fiscal 1999 and 1998.
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 in inventories 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 business 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 (Note 4), 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.
15
<PAGE>
Liquidity and Capital Resources (continued)
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.
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 (Note
7). 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.
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 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
16
<PAGE>
Year 2000 (continued)
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 related external costs, other than capital additions related to year 2000
remediation, have been and will continue to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and would be unable to provide materials and services to the Company on time.
The Company's operations could be delayed or temporarily shut down, and it could
be unable to meet its obligations to customers in a timely fashion. The
Company's business, operations, and financial condition could be adversely
affected in amounts that cannot be reasonably estimated at this time. If the
Company believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate
17
<PAGE>
Year 2000 (continued)
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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure 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.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On March 10, 1999, at the Annual Meeting of Shareholders, the shareholders
elected eight incumbent directors to a one-year term expiring in 2000. The
directors reelected at the meeting were: Marshall J. Armstrong, Frank Borman, J.
Timothy Corcoran, Peter O. Crisp, John N. Hatsopoulos, Brian D. Holt, Donald E.
Noble, and John J. Setnicka. Mr. Armstrong, Mr. Holt, and Mr. Noble each
received 11,508,257 shares voted in favor of his election and 41,153 shares
voted against; Col. Borman and Mr. Hatsopoulos each received 11,508,357 shares
voted in favor of his election and 41,053 shares voted against; Mr. Corcoran
received 11,508,457 shares voted in favor of his election and 40,953 shares
voted against; and Mr. Crisp and Mr. Setnicka each received 11,508,557 shares
voted in favor of his election and 40,853 shares voted against. No abstentions
or broker nonvotes were recorded on the election of directors.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding the exhibits.
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 13th day of May 1999.
THERMO POWER CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Agreement and Plan of Merger dated May 5, 1999, by and among
Thermo Electron Corporation, TP Acquisition Corporation, and the
Company.
27 Financial Data Schedule.
Exhibit (i)
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>
ARTICLE I THE MERGER.......................................................1
1.1. The Merger.......................................................1
1.2. Effective Time; Closing..........................................2
1.3. Effect of the Merger.............................................3
1.4. Articles of Organization; By-laws................................3
1.5. Directors and Officers...........................................3
1.6. Effect on Capital Stock..........................................3
1.7. Surrender of Certificates........................................4
1.8. No Further Ownership Rights in Thermo Power Common Stock.........5
1.9. Lost, Stolen or Destroyed Certificates...........................5
1.10. Dissenting Shares................................................6
1.11. Taking of Necessary Action; Further Action.......................6
ARTICLE II ....................REPRESENTATIONS AND WARRANTIES OF THERMO POWER
6
2.1. Organization of Thermo Power.....................................6
2.2. Thermo Power Capital Structure...................................7
2.3. Authority........................................................7
2.4. Board Approval...................................................8
2.5. Fairness Opinion.................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB.8
3.1. Organization.....................................................8
3.2. Merger Sub Capitalization........................................9
3.3. Authority........................................................9
3.4. Financial Resources.............................................10
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................10
4.1. Conduct of Business by Thermo Power.............................10
4.2. Certain Actions by Thermo Power.................................10
ARTICLE V ADDITIONAL AGREEMENTS............................................11
5.1. Schedule 13E-3; Proxy Statement; Other Filings..................11
5.2. Meeting of Thermo Power Stockholders............................12
5.3. Access to Information...........................................13
5.4. Public Disclosure...............................................13
5.5. Legal Requirements..............................................13
5.6. Notification of Certain Matters.................................13
5.7. Best Efforts and Further Assurances.............................14
5.8. Stock Option and Employee Stock Purchase Plans..................14
5.9. Thermo Electron Form S-8........................................15
5.10. Indemnification; Insurance......................................15
5.11. Deferred Compensation Plan......................................16
5.12. Competing Offers................................................16
<PAGE>
ARTICLE VI CONDITIONS TO THE MERGER........................................16
6.1. Conditions to Obligations of Each Party to Effect the Merger....16
6.2. Additional Conditions to Obligations of Thermo Power............17
6.3. Additional Conditions to the Obligations of Thermo Electron and
Merger Sub......................................................17
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..............................18
7.1. Termination.....................................................18
7.2. Notice of Termination; Effect of Termination....................19
7.3 Fees and Expenses...............................................19
7.4. Amendment.......................................................19
7.5. Extension; Waiver...............................................19
ARTICLE VIII GENERAL PROVISIONS............................................19
8.1. Non-Survival of Representations and Warranties..................19
8.2. Notices.........................................................19
8.3. Counterparts....................................................21
8.4. Entire Agreement................................................21
8.5. Severability....................................................21
8.6. Other Remedies; Specific Performance............................21
8.7. Governing Law...................................................21
8.8. Assignment......................................................21
<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
<PAGE>
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;
(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
2
<PAGE>
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."
(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 CAPITALSTOCK. 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
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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 CERITIFICATES.
(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).
(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
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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.
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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 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
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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.
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
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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 5, 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").
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.
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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.
(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,
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authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws.
3.4 FINANCE 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
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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, 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
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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
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
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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 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
13
<PAGE>
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
14
<PAGE>
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 (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
15
<PAGE>
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.
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.
16
<PAGE>
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THERMO POWER. The obligations
of Thermo Power to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Thermo Power:
(a) Representations and Warranties. The representations and
warranties of Thermo Electron and Merger Sub contained in this Agreement shall
be true and correct on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties that address matters only as of a particular date (which shall remain
true and correct as of such particular date), with the same force and effect as
if made on and as of the Effective Time, except, in all such cases, where the
failure to be so true and correct would not have a material adverse effect on
Thermo Electron; and Thermo Power shall have received a certificate to such
effect signed on behalf of Thermo Electron by the Chief Executive Officer,
President or Chief Operating Officer of Thermo Electron; and
(b) Agreements and Covenants. Thermo Electron and Merger Sub shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them on
or prior to the Effective Time, and Thermo Power shall have received a
certificate to such effect signed on behalf of Thermo Electron by the Chief
Executive Officer, President or Chief Operating Officer of Thermo Electron.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Thermo Electron:
(a) 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.
17
<PAGE>
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);
(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
18
<PAGE>
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
19
<PAGE>
delivery service, or sent via telecopy (receipt 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:
20
<PAGE>
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Attention: Alan Singer
Telephone: (215) 963-5000
Facsimile: (215) 963-5299
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. 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.
21
<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub, and Thermo Power have
caused this Agreement to be signed by themselves or their duly authorized
respective officers, all as of the date first written above.
(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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> APR-03-1999
<CASH> 15,040
<SECURITIES> 0
<RECEIVABLES> 65,915
<ALLOWANCES> 9,634
<INVENTORY> 39,366
<CURRENT-ASSETS> 132,441
<PP&E> 34,627
<DEPRECIATION> 10,969
<TOTAL-ASSETS> 324,369
<CURRENT-LIABILITIES> 97,502
<BONDS> 393
0
0
<COMMON> 1,249
<OTHER-SE> 64,348
<TOTAL-LIABILITY-AND-EQUITY> 324,369
<SALES> 137,442
<TOTAL-REVENUES> 137,442
<CGS> 100,369
<TOTAL-COSTS> 100,369
<OTHER-EXPENSES> 4,112
<LOSS-PROVISION> 384
<INTEREST-EXPENSE> 4,463
<INCOME-PRETAX> (91)
<INCOME-TAX> 563
<INCOME-CONTINUING> (732)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (732)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
