SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-13572
THERMO ECOTEK CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3072335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Winter Street
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
---------------------------- ------------------------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to the filing
requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of November 22, 1996, was approximately $59,897,000.
As of November 22, 1996, the Registrant had 24,424,499 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 28, 1996, are incorporated by reference into Parts I and
II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on March 13, 1997, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Ecotek Corporation (the Company or the Registrant) is an
environmental company providing a range of environmentally responsible
technologies and products, including non-utility electric power
generation using clean combustion processes, engineered clean fuels - as
well as environmentally friendly pest control products through its
biopesticides subsidiary, Thermo Trilogy Corporation (Thermo Trilogy).
The Company operated as a division of Thermo Electron Corporation's
(Thermo Electron's) Energy Systems Division (the Division) from 1979
until its incorporation as Thermo Energy Systems Corporation in November
1989. On January 2, 1990, Thermo Electron transferred certain of the
assets and business of the Division to the Company in exchange for
10,500,000 shares of common stock and the assumption by the Company of
certain liabilities of the Division. In connection with this transfer,
Thermo Electron agreed to indemnify the Company against any losses,
costs, or damages incurred by the Company as a result of the conduct of
the business of the Division prior to the transfer date. On January 2,
1990, Thermo Electron and the Company signed an Agreement and Plan of
Reorganization to recapitalize $10 million of loans made to the Company
by Thermo Electron into 1,111,111 shares of redeemable convertible
preferred stock. These shares were issued in May 1990 and were converted
into 1,666,667 shares common stock during 1993 at a conversion price of
$6.00 per share. In December 1994, the Company changed its name to Thermo
Ecotek Corporation. The Company completed an initial public offering in
February 1995. In March 1996, the Company issued and sold at par $37
million principal amount of noninterest-bearing subordinated convertible
debentures due 2001. The debentures are convertible into shares of the
Company's common stock at a conversion price of $13.56 per share and are
guaranteed on a subordinated basis by Thermo Electron.
Initially, the Division designed, developed, and acted as general
contractor for the construction of cogeneration systems fueled by natural
gas and diesel. These turnkey facilities were generally sold to third
party operators upon completion and had a total generating capacity of
approximately 60 megawatts. In the mid-1980s, the Division began
developing biomass-fueled power plants to take advantage of a favorable
regulatory environment and attractive power sales agreements. Biomass
plants use environmentally responsible fuels including wood and
agricultural wastes.
The Company currently operates seven biomass facilities with a
total electric generating capacity of 140 megawatts. The Company develops
and operates its facilities through joint ventures or limited
partnerships in which the Company has a majority interest, or through
wholly owned subsidiaries (the Operating Companies).
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In September 1996, the Company, through a wholly owned subsidiary,
formed a joint venture with Marcegaglia Group of Mantova, Italy to
develop, own, and operate biomass-fueled electric power facilities in
that country.
In January 1996, the Company, through a wholly owned subsidiary,
signed a joint development agreement with a Czech/American power
development company, EMD Praha Spol s.r.o. The initial focus will be on
expansion and environmental retrofits of existing Czech energy centers.
The Company is expanding beyond biomass power generation into other
products and processes that protect the environment. In May 1996, two of
the Company's wholly owned subsidiaries, acquired the net assets of the
W.R. Grace & Co.'s biopesticide unit for approximately $8.1 million. In
addition, the Company will pay a royalty fee of seven percent on annual
sales of the acquired business in excess of $14 million through the year
2000. Renamed Thermo Trilogy, the subsidiary develops, manufactures, and
markets environmentally friendly products used for pest control. Derived
from seeds of the tropical "neem" tree and pesticidal microbials isolated
from nature, these biopesticides safely and effectively control insects,
diseases, and mites on numerous crops. The state of California recently
approved Trilogy(TM) 90EC, a neem oil-based miticide and fungicide, for
use by California growers of fruits and vegetables. Thermo Trilogy's neem
based products, Neemix(R) and Trilogy(TM) 90EC, are both approved for use
on certified organic products.
The Company has also entered into the field of engineered "clean"
fuels, through a partnership agreement with KFx Inc. (KFx). In August
1995, the Company, through two wholly owned subsidiaries, entered into a
Limited Partnership Agreement with KFx Wyoming, Inc., a subsidiary of
KFx. The Company is committed to provide approximately $48 million for
the design, construction, and operation of the first full-scale coal
production facility to use the patented K-Fuels "clean coal" technology.
The Company will have a 95% equity interest in the plant. Once completed,
the Gillette, Wyoming facility will transform high-moisture, low-energy
coal into 500,000 tons per year of low-moisture, high-energy, solid fuel,
using the Koppelman "C" process. KFx holds certain rights to this
process, which produces coal known as K-Fuels for utility and industrial
use. Construction began in August 1995, with commercial operation
expected to commence in the first half of fiscal 1997.
In August 1995, the Company purchased 1,500,000 shares of KFx
common stock representing an approximate 7% equity interest in KFx. The
cost of the purchase was $3,000,000. In fiscal 1996, the Company
purchased an additional 1,500,000 shares of KFx common stock for
$3,000,000, bringing its total equity interest in KFx to approximately
14%. The Company has the right, but not the obligation, to purchase an
additional 1,250,000 shares of common stock at $2.00 per share at certain
times in fiscal 1997, if such shares are made available by KFx, as well
as warrants, exercisable from January 1, 2000 through July 1, 2001, to
purchase up to a total 51% equity interest in KFx. These warrants will
terminate if the Company does not acquire all of the shares made
available by KFx in 1997.
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In July 1995, the Company entered into an agreement to invest $15
million in a 185-megawatt combined cycle, steam-turbine electric
generation facility located in Puerto Plata, Dominican Republic, owned by
Smith/Enron Cogeneration Limited Partnership (SECLP). Under the terms of
the agreement, the Company will acquire both a general and limited
partnership interest in Smith Cogeneration Dominicana L.P. (Smith
Cogeneration), which through its investment in SECLP, owns approximately
50% of the project. The Company will receive a minority interest in Smith
Cogeneration equivalent to a specified percentage of all project cash
flow and profits and losses. The Company's exact percentage interest in
Smith Cogeneration will not be finally determined until six months after
the funding of the Company's investment, which is expected to occur
during calendar 1997, assuming certain conditions are met.
In June 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
References to "fiscal 1996," "fiscal 1995," and "1994" herein are for the
year ended September 28, 1996, the nine months ended September 30, 1995,
and the year ended December 31, 1994, respectively.
At September 28, 1996, Thermo Electron owned approximately 83% of
the Company's outstanding common stock, giving Thermo Electron the power
to elect all Directors of the Company. Thermo Electron is a world leader
in environmental monitoring and analysis instruments, biomedical products
such as heart-assist devices and mammography systems, papermaking and
paper-recycling equipment, biomass electric power generation, and other
specialized products and technologies. Thermo Electron also provides a
range of services related to environmental quality. Thermo Electron
intends for the foreseeable future to maintain at least 80% ownership of
the Company, so that it may continue to file consolidated U.S. federal
income tax returns with the Company. This will require the purchase by
Thermo Electron of additional shares of the Company's common stock from
time to time as the number of outstanding shares issued by the Company
increases. These purchases may be made either on the open market or
directly from the Company. During fiscal 1996, Thermo Electron purchased
898,159 shares of the Company's common stock in the open market for a
total price of $12,717,000. The Company has sold $68.5 million of
subordinated convertible debentures to Thermo Electron that could be
converted to maintain at least 80% ownership by Thermo Electron.
Forward-looking Statements
Forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. These statements involve a number of risks and
uncertainties, including those detailed under the caption
"Forward-looking Statements" in the Registrant's Fiscal 1996 Annual
Report to Shareholders incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company currently operates in predominantly one business
segment: the design, development, and operation of independent
(non-utility) electric power generation facilities using a range of
environmentally responsible combustion technologies. In addition, the
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Company's newly formed Thermo Trilogy subsidiary is engaged in the
development, manufacture, and marketing of biopesticides, and the Company
has entered the field of engineered "clean" fuels through its partnership
with KFx. Neither of these new business segments were significant to the
Company's operations in fiscal 1996.
(c) Description of Business
(i) Principal Products and Services
Independent Power Production
Operating Projects
The following table summarizes certain information relating to the
Company's projects currently in operation. With the exception of the
Mendota plant, at the end of each leased facility's applicable lease
term, the Company has the option to renew the lease for a specified
period or purchase the facility at fair market value. The Mendota plant
may be purchased for a fixed amount at the end of its lease term.
Ownership
Plant of In-
Combustion Size Operating service Lease/
Project Location Technology (net mw) Company Date Own
-------------------------------------------------------------------------
New Stoker December
Hemphill Hampshire Fired 13.6 67% 1987 Lease
Stoker December
Gorbell Maine Fired 13.6 80% 1987 Lease
New Stoker July
Whitefield Hampshire Fired 13.6 100% 1988 Own
Circulating
Fluidized May
Mendota California Bed 25 60% 1990 Lease
Circulating
Fluidized May
Woodland California Bed 25 100% 1990 Lease
Bubbling
Fluidized January
Delano I California Bed 27 100% 1991 Own
Bubbling
Fluidized January
Delano II California Bed 22 100% 1994 Own
Hemphill. The Hemphill facility, a 13.6-megawatt, wood-waste plant,
was completed in late 1987. It is located on a 50-acre site in
Springfield, New Hampshire. The Operating Company is a joint venture in
which the Company has a 67% interest. The Hemphill facility is owned by
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BancBoston Leasing Services Inc., which leases the facility to the
Operating Company through March 2003. Public Service of New Hampshire
(PSNH) purchases power produced by the plant at a fixed rate under a rate
order issued by the New Hampshire Public Utility Commission (NHPUC)
expiring in 2006. The Operating Company purchases wood-waste pursuant to
two contracts with affiliates of the Company's joint venture partner,
each of which expires in 2003. The contracts provide for the supply of
wood-waste to the Operating Company at prescribed prices through 1997 and
at market prices thereafter. In 1990, a plan of reorganization (the Plan)
for PSNH was approved by the U.S. Bankruptcy Court for the District of
New Hampshire. Pursuant to the Plan, Northeast Utilities (NU) acquired
the assets of PSNH. An agreement between NU and the state of New
Hampshire contains language to the effect that PSNH will seek to
renegotiate some terms of certain rate orders directly with small power
producers, and that the state will support PSNH in such efforts. PSNH has
sought to renegotiate the rate orders applicable to the Company's
facilities, and the state, acting through NHPUC, has supported such
efforts. Based on negotiations between the two New Hampshire Operating
Companies and PSNH during fiscal 1995, the Company believes that this
matter may reach resolution in fiscal 1997, although final resolution is
subject to approval of the NHPUC. Should the matter not reach resolution,
the Company does not believe that PSNH has the right to take unilateral
action to reduce the price of power purchased under the rate order. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" incorporated by reference into Item 7 hereof.
Gorbell. The Gorbell facility, a 13.6-megawatt wood-waste plant,
was completed in late 1987. It is located on a 56-acre site in Athens,
Maine. The design of the facility is substantially similar to the
Hemphill plant. The Operating Company is a joint venture in which the
Company has an 80% interest, which declines to 60% in 1998. The Gorbell
facility is owned by BancBoston Leasing Services Inc., which leases the
facility to the Operating Company through March 2003. Power produced by
the plant is sold to Central Maine Power Company (CMP) through 2007 at a
fixed price per kilowatt hour that is indexed annually to the rate of
inflation. The Operating Company's fuel is purchased from an affiliate of
the Company's joint venture partner pursuant to an agreement expiring in
2002 under which the price escalates based upon a prescribed index.
Whitefield. The Whitefield facility is a 13.6-megawatt wood-waste
plant that has been in operation since 1988. It is located on a 46-acre
site in Whitefield, New Hampshire. The power produced by the plant is
sold to PSNH at established rates under a power sale agreement that
expires in 2005. This plant is also subject to PSNH's attempt to
renegotiate rate orders. See "Hemphill" above. Fuel is purchased pursuant
to an agreement expiring in 1998 under which the price escalates based
upon a prescribed index. The Whitefield facility was originally owned by
Chrysler Capital Corp., and leased to the Operating Company. The Company
purchased the Whitefield facility in August 1992.
Mendota. The Mendota facility is a 25-megawatt agricultural and
urban wood-waste plant that has been in operation since 1990. It is
located on an 80-acre site in Mendota, California. The Operating Company
is a limited partnership, 60% of which is owned by the Company. The
facility is owned by Chrysler Capital Corp., which leases the facility to
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the Operating Company through 1999 at which point the Company will have
an option to purchase the facility for $5 million. In June 1995, the
Operating Company amended the facility lease which resulted in the
agreement being treated as a capital lease. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
incorporated by reference into Item 7 hereof. The power generated by the
plant is sold to Pacific Gas & Electric (PG&E) under a standard offer #4
(SO#4) contract expiring in 2014. Under the contract, PG&E is required to
purchase the plant's electricity at predetermined prices until 2000, and
at a price equal to PG&E's avoided-cost for the remainder of the
contract. Payments for capacity are fixed. PG&E has asserted that the
fixed rates under this contract will terminate mid-1999, however, the
Company disputes this assertion. Approximately 45% of the fuel for the
plant is purchased pursuant to long-term contracts terminating between
1998 and 2002, under which prices increase in accordance with prescribed
schedules or market-based indexes. The remainder of the plant's fuel is
purchased by the Operating Company on the spot market.
The power sale agreements between the Mendota and Woodland
(discussed below) Operating Companies and PG&E allow PG&E to curtail the
quantity of power purchased under these agreements by up to 1,000 hours
of generating capacity annually at each plant. PG&E normally exercises
its curtailment rights during periods when cheaper hydroelectric power is
available, which generally occurs following periods of heavy rain or
snow. Curtailment reduces the power payment received by the Operating
Companies and, therefore, has an adverse effect on the financial results
of those Operating Companies. The Company experienced approximately 930
hours of utility imposed curtailments during fiscal 1996 at each plant.
During November 1995, the Woodland and Mendota plants reached the
contractual limit of 1,000 hours of curtailment for calendar 1995.
Woodland. The Woodland facility is a 25-megawatt agricultural and
urban wood-waste plant located on a 38-acre site in Woodland, California.
The design of the plant is essentially the same as the Mendota plant. The
Operating Company is a limited partnership in which the Company owns all
of the equity. The facility is owned by BancBoston Leasing Services Inc.,
which leases the facility to the Operating Company through March 2010.
The electricity generated by the plant is sold to PG&E under an SO#4
contract expiring in 2014, at predetermined prices until 2000. PG&E has
asserted that the fixed rates under this contract will terminate
mid-1999, however, the Company disputes this assertion. The price for the
remainder of the contract is PG&E's avoided-cost. Payments for capacity
are fixed. Approximately 20% of the fuel for the plant is purchased
pursuant to long-term contracts terminating in 2000, under which prices
increase in accordance with prescribed schedules or market based indexes.
The remaining fuel is purchased by the Operating Company on the spot
market.
Beginning in 1996, the Operating Company has conditions in its
nonrecourse lease agreement, that require the funding of a "power
reserve" in years prior to 2000, based on projections of operating cash
flow shortfalls in 2000 and thereafter. The power reserve represents
funds available to make lease payments in the event that revenues are not
sufficient after the plant converts to avoided-cost rates in March 2000.
This funding requirement will significantly limit future profit
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distributions the Operating Company may make to the Company. Accordingly,
beginning in the first quarter of fiscal 1997, the Company expects to
expense the funding of reserves required under Woodland's nonrecourse
lease agreement to cover projected shortfalls in lease payments beginning
in 2000. As a result, the Company expects that the results of the
Woodland plant will be reduced to approximately breakeven beginning in
fiscal 1997, and thereafter. During fiscal 1996, the Woodland plant
contributed $5.1 million of operating income.
Delano I. The Delano I facility is a 27-megawatt agricultural and
urban wood-waste plant located on a 124-acre site in Delano, California.
Southern California Edison (SCE) purchases power under an SO#4 contract
expiring in 2020, under which energy prices are predetermined until
September 2000, and then at avoided-cost for the remainder of the
contract. Approximately 60% of the fuel supply is purchased pursuant to
long-term contracts with terms expiring from 1997 to 2004 under which
prices increase in accordance with prescribed schedules or market based
indexes. The remaining fuel is purchased by the Operating Company on the
spot market. The Company has guaranteed to the Operating Company the
price and availability of fuel that is not purchased pursuant to the
long-term contracts. The Delano I facility was originally owned by
Westinghouse Credit Corporation and leased to the Company. In December
1993, the Company purchased Delano I for $21.5 million in cash and the
assumption of $66.9 million of nonrecourse, long-term, tax-exempt bonds
issued by the California Pollution Control Finance Authority (CPCFA).
These bonds bear interest at a rate of 8.3%, with principal and interest
payable semi-annually until maturity in 2000. The cash portion of the
purchase price was funded by borrowings from Thermo Electron.
Delano II. In January 1994, the Delano Operating Company commenced
operation of phase II of the Delano project, a 22-megawatt agricultural
and urban wood-waste plant located on the same site as Delano I. The
facility is wholly owned by the Delano Operating Company. Power generated
by the Delano II facility is also purchased by SCE under the Delano I
contract described above, under which prices are fixed until September
2000. Fuel is also purchased pursuant to the same contracts as Delano I.
The Delano II facility is owned by the Company and is subject to $66
million principal amount of nonrecourse, long-term tax-exempt bonds
issued by CPCFA. These bonds bear interest at a rate of 6%, with
principal and interest payable semi-annually until maturity in 2000.
Projects in Development
Czech Republic
In January 1996, the Company, through a wholly owned subsidiary,
signed a joint development agreement with a Czech/American power
development company, EMD Praha Spol s.r.o. The initial focus will be on
expansion and environmental retrofit of existing Czech energy centers. To
support this effort, the Company has opened an office in Prague. The
projects are subject to a number of conditions including negotiation of
definitive agreements for power sale, fuel supply, and other agreements
with third parties. No assurance can be given that conditions or
agreements will be satisfied on a timely basis. The Company does not
believe that any of the projects will be operational before 1999.
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Italy
In September 1996, the Company, through a wholly owned subsidiary,
formed a joint venture (the Joint Venture) with Marcegaglia Group of
Mantova, Italy, to develop, own, and operate biomass-fueled electric
power facilities in that country. The Joint Venture has begun preliminary
evaluation of approximately 10 facilities, seven of which have already
been approved by the Italian government's price subsidy program for
biomass-fueled plants. In addition, several of the projects may qualify
for European Union grants, covering a portion of the capital costs. The
Joint Venture is currently establishing an office near Milan to
coordinate the process of analyzing site locations as well as potential
fuel sources and the appropriate technology choices for these facilities.
The facilities are subject to a number of conditions including
negotiation of definitive agreements for power sale, fuel supply, and
other agreements with third parties. No assurance can be given that
conditions or agreements will be satisfied on a timely basis. The Company
does not expect that any of the projects will be operational before 1999.
India
Gouripore - The Company is in the initial stages of developing the
Gouripore Thermal Power Station project, a 150-megawatt coal-fueled
electricity generation plant using fluidized bed combustion to be located
in Gouripore, West Bengal, India. The Gouripore project is one of the 70
projects initially identified by the Indian government as part of a
program to develop 70,000 additional megawatts of generating capacity by
2002. The Company has entered into a memorandum of understanding with two
India-based companies relating to the development of the project. The
Company would be the majority owner of the project. To support this
project, the Company has opened an office in Calcutta, from which it will
evaluate other opportunities in India. The total financing requirement of
the project is expected to be approximately $240 million, which is
expected to involve significant equity investments and bank borrowings.
The Company is in the process of negotiating a power sale agreement
with the West Bengal State Electricity Board and is seeking a payment
guarantee of the State Electricity Board's obligations from the West
Bengal government, although there can be no assurance that such a
guarantee will be obtained or that such a guarantee will be sufficient to
obtain financing for the project. The project is subject to a number of
conditions, including negotiation of definitive agreements with the
Company's partners, as well as negotiation of power sale, fuel supply,
and other agreements with third parties. No assurance can be given that
these conditions will be satisfied on a timely basis, or at all.
Bangalore - The Company is also in the initial stages of developing
the IPS Power project, a 105-megawatt combined cycle, gas turbine
electricity generation plant to be located near Mysore in the state of
Karnataka, India. The Bangalore project is one of eight projects that
received a state order allowing development of 500 additional megawatts
of generating capacity. To support this project, the Company has opened
an office in Bangalore. The total financing of the project is expected to
be approximately $110 million, which is expected to involve significant
equity investments and bank borrowings.
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The Company is in the process of negotiating a power sale agreement
with the Karnataka State Electricity Board and will be seeking a payment
guarantee from the state government. The project is subject to a number
of conditions including negotiation of definitive agreements for power
sale, fuel supply, and other agreements with third parties. No assurance
can be given that these conditions or agreements will be satisfied on a
timely basis.
Engineered Clean Fuels
KFx, Fuel Partners, L.P. In August 1995, the Company, through two
wholly owned subsidiaries, entered into a Limited Partnership Agreement
with KFx Wyoming, Inc. (the Partnership) a subsidiary of KFx Inc., to
develop, construct, and operate a subbituminous coal beneficiation plant
to be constructed near Gillette, Wyoming. The Partnership has been
granted, in exchange for certain future contingent royalty payments, a
non-exclusive right and license to use certain patented clean coal
technology (K-Fuel) to create a low-moisture, high-energy fuel with
reduced sulfur that will help coal-burning utilities meet the SO2
emission restrictions contained in the Clean Air Act. See "Regulatory
Matters -- Domestic Energy Regulation." The Partnership has procured a
24-acre site for construction of the plant and began construction in
August 1995 under a third party, turnkey construction contract. The plant
is expected to begin commercial operations in the first half of fiscal
1997. In return for up to a 95% equity interest in the plant, the Company
is committed to provide approximately $48 million for the design,
construction, and operation of the plant. Costs to complete construction
increased approximately $6.0 million primarily due to changes in certain
portions of the construction project. During 1996, the U.S. government
enacted legislation granting an 18-month extension of the Oil Barrel
Equivalent tax credit for facilities producing alternative fuels, such as
K-fuel. To be eligible, companies must enter into binding, written
contracts for the construction of the facility, by December 31, 1996, and
facilities must be in operation no later than July 31, 1998. In light of
the new legislation, the Company has extended its construction schedule
and is currently engaged in a feasibility study for the expansion of the
production capacity of the facility under construction. The K-Fuel
technology has not been tested on a large scale, and no assurance can be
given that the plant, when constructed, will not experience technical
problems or that the plant's production capacity will be expanded
pursuant to the feasibility study.
In August 1995, the Company purchased 1,500,000 shares of KFx Inc.
common stock, representing an approximate 7% equity interest in the
Company. The cost of the purchase was $3,000,000. In fiscal 1996, the
Company purchased an additional 1,500,000 shares of KFx common stock for
$3,000,000, bringing its total equity interest in KFx to approximately
14%. The Company has the right, but not the obligation, to purchase an
additional 1,250,000 shares of common stock at $2.00 per share in fiscal
1997, if such shares are made available by KFx, as well as warrants,
exercisable from January 1, 2000 through July 1, 2001, to purchase up to
a total 51% equity interest in KFx. These warrants will terminate if the
Company does not acquire all of the shares made available by KFx in 1997.
See Note 3 of Notes to Consolidated Financial Statements in the
Registrant's 1996 Annual Report to Shareholders incorporated by reference
into Item 8 hereof.
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Biopesticides
In May 1996, the Company, through two of its wholly owned
subsidiaries, acquired the net assets of a W.R. Grace & Co. business unit
(renamed Thermo Trilogy) that develops, manufactures, and markets
environmentally friendly products used for pest control, for
approximately $8.1 million in cash. In addition, the Company will pay a
royalty fee of seven percent on annual sales of the acquired business in
excess of $14 million through the year 2000.
Most of the biopesticide products produced by Thermo Trilogy are
derived from the seed of tropical neem trees. Azadirachtin and neem oil,
both extracts from neem seeds, are effective at controlling more than 200
species of agricultural insects and diseases. The Company markets its
neem-derived products under the trademarked names, "Trilogy," "Triact,"
"Neemix," and "Neemazad."
Resembling the structure of insect hormones, azadirachtin disrupts
insects' molting process, significantly deterring feeding and egg laying.
Azadirachtin products must be ingested to be effective. Only insects that
feed on plant tissue succumb. Therefore, unlike most chemical pesticides,
these botanical extracts leave beneficial insects unharmed. Neem
oil-based products are also effective against fungi and various mites.
The Company also markets a microbial product trademarked
"SoilGard," a soil fungicide used to combat "damping off" disease in
greenhouse ornamentals and vegetable seedlings, as well as PFR, an
entomopathogentic fungus that paratizes and kills insects.
The Company expects that it will need to educate growers regarding
the effective use of biopesticides since using these naturally derived
products requires pest management practices different from conventional
chemical pesticides. Although response from growers to date has been
positive, there is no assurance that the Company will be able to convince
them to change their pest management practices. Additionally, until its
acquisition of Thermo Trilogy, the Company had no experience in product
marketing and merchandising. There is no assurance that the Company will
be successful selling its biopesticide products to the agricultural
market.
Regulatory Matters
The Company is subject to energy and environmental laws and
regulations at the federal, state, local, and international levels in
connection with the development, ownership, and operation of its plants.
Federal laws and regulations govern power purchase and sale transactions
with regulated utility companies, the types of fuel that may be used by a
plant, the ownership of a plant, the plant's efficiency, and the type and
use of combustion and pollution control technology at a plant. State
utility regulatory commissions must establish the rates and, in some
instances, other terms and conditions under which public utilities
purchase electric power from non-utility generators. Under certain
circumstances where specific exemptions are otherwise unavailable, state
utility regulatory commissions may have broad jurisdiction over
11PAGE
<PAGE>
non-utility electric power plants. Energy-producing projects also are
subject to federal, state, local, and international laws, as well as
administrative regulations governing the emissions and other substances
produced by a plant, and geographical location, zoning, and land use.
Domestic Energy Regulation
Public Utility Regulatory Policies Act of 1978, as amended (PURPA).
The U.S. market for non-utility generators developed after the passage of
PURPA. Prior to the passage of PURPA, regulated utilities were the
primary producers of electric power. PURPA was passed in the wake of the
energy crises of the 1970s as a means to increase energy efficiency and
foster the development of alternative power generation technologies. The
1978 enactment of PURPA and the adoption of regulations thereunder by the
Federal Energy Regulatory Commission (FERC) provided incentives for the
development of cogeneration and small power production facilities.
A domestic electricity generating project must be a Qualifying
Facility, or "QF", in order to take advantage of certain rate and
regulatory incentives provided by PURPA. To qualify as a QF, a plant must
be a cogeneration facility or small power producer (less than 80
megawatts) that burns waste or alternative fuels, and an electric utility
or its subsidiary must not own more than 50% of the economic interest in
the plant. PURPA exempts QFs from the Public Utility Holding Company Act
of 1935 (PUHCA), most provisions of the Federal Power Act (the FPA) and,
except under certain limited circumstances, state laws concerning rate or
financial regulation. Each of the plants that the Company currently owns
and operates meets the requirements under PURPA necessary for QF status.
PURPA provides two primary benefits to QFs. First, QFs are relieved
of compliance with extensive federal, state, and local regulations that
control the development, financial structure, and operation of any
energy-producing plant and the prices and terms on which energy may be
sold by the plant. Second, FERC's regulations promulgated under PURPA
require that electric utilities purchase electricity generated by QFs, at
a price based on the purchasing utility's full "avoided cost." This is
defined as the incremental cost to an electric utility of electric energy
or capacity that the utility would have to generate itself or purchase
from another source if it did not have power available from the QF. FERC
regulations also permit QFs and utilities to negotiate agreements for
utility purchases of power at rates lower than the utility's avoided
costs. While public utilities are not explicitly required by PURPA to
enter into long-term contracts, PURPA helped to create a regulatory
environment in which it has become common for long-term contracts to be
negotiated. While all of the Company's existing projects have long-term
power sale agreements at rates equal to or greater than the utilities'
current avoided-costs, the current practice is for most power sale
agreements to be awarded at a rate below avoided-cost, due to increasing
competition for utility contracts. Moreover, whereas in the 1980s power
sale agreements were often entered into as a result of negotiations
between a non-utility generator and a utility, increasingly, these
agreements are the subject of competitive bidding, which tends to lower
the price that a non-utility generator may receive for power. Currently,
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<PAGE>
the demand for the construction of cogeneration plants has significantly
diminished in the U.S. therefore, the Company does not anticipate
entering into any new construction projects of this type in the near
future.
The Company endeavors to design its projects, monitor its
compliance with applicable regulations, and choose its customers in a
manner that minimizes the risks of losing QF status for its projects.
However, if one of the Company's plants should lose its status as a QF,
the Operating Company would no longer be entitled to the exemptions from
PUHCA unless the Operating Company qualified as an Exempt Wholesale
Generator (EWG) under the National Energy Policy Act of 1992. See
"National Energy Policy Act" below. If the Operating Company was unable
to qualify as a QF, the facility could be subject to regulation as a
public utility under the FPA and could result in the Company
inadvertently becoming a public utility holding company by owning or
controlling more than 10% of a facility that would no longer be exempt
from PUHCA. A loss of QF status could result in defaults under the
Operating Company leases, power sale agreements, and other contracts,
which could have a material adverse effect on the Company.
PUHCA. Under the PUHCA, any corporation, partnership, or other
legal entity that owns or controls 10% or more of the outstanding voting
securities of a "public utility company," or a company that is a "holding
company" of a public utility company, is subject to registration with the
Securities and Exchange Commission and regulation under PUHCA, unless
eligible for an exemption. PURPA provides that companies that only own
QFs are not public utility holding companies under PUHCA. A holding
company of a public utility company that is subject to registration is
required by PUHCA to limit its utility operations to a single integrated
utility system and to divest any other operations not functionally
related to the operation of that utility system. Approval by the
Securities and Exchange Commission is required for nearly all important
financial and business dealings of the holding company.
FPA. The FPA grants FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce, including ongoing
as well as initial rate jurisdiction, which enables FERC to revoke or
modify previously approved rates. These rates may be based on a
cost-of-service approach or may be determined through competitive bidding
or negotiation, or, lastly, may be based on other criteria as long as the
rates are "just and reasonable" and in the public interest. While QFs
under PURPA are exempt from the rate-making and certain other provisions
of the FPA, projects not qualifying for QF status would be subject to the
FPA and to FERC rate-making jurisdiction which may limit their
flexibility in negotiations with power purchasers.
National Energy Policy Act. In 1992, Congress enacted comprehensive
new energy policy legislation in its passage of the National Energy
Policy Act. This law is primarily designed to foster competition in
energy production and provide non-utility generators with competitive
access to the transmission grid. To achieve these goals, the National
Energy Policy Act amended PUHCA to create Exempt Wholesale Generators
(EWGs), a new class of generating facility that is exempt from public
utility regulation under PUHCA. An EWG is an entity determined by FERC to
13PAGE
<PAGE>
be exclusively engaged, directly or indirectly, in the business of owning
and/or operating certain eligible facilities and selling energy
wholesale. EWGs may own facilities of any size, use any fuel source, and
may be owned by utilities or non-utilities. EWGs may not own transmission
facilities or otherwise exert market control. The National Energy Policy
Act also provides new authority to FERC to mandate that owners of
electric transmission lines provide wheeling access to non-utility
generators at just and reasonable rates. Previously limited, wheeling
rights enhance the ability of non-utility generators to negotiate
transmission access and encourage development of facilities whose most
feasible siting lies outside the purchasing utility's service area. The
Company believes that the National Energy Policy Act could benefit the
Company by expanding its ability to own and operate facilities that do
not qualify for QF status. However, this legislation may also result in
increased competition by allowing utilities and others to develop such
facilities without being subject to the constraints of PUHCA.
State Regulation. State public utility commissions (PUCs) have
broad authority to regulate the rates, expenses, financings, and power
sale transactions of regulated electric utilities. Since a power sale
agreement will become a part of a utility's expenses (and therefore will
be reflected in its rates), sale agreements with non-utility generators
typically fall under the regulatory purview of PUCs. Recognizing the
competitive nature of the acquisition process, most PUCs will permit
utilities to "pass through" expenses associated with an independent power
contract to the utility's retail customers.
Non-utility generators (including EWGs) that are not QFs under
PURPA are considered to be public utilities in many states, and are
subject to broad regulation by PUCs - ranging from the requirement of
certificates of public convenience and necessity - to regulation of
organizational, accounting, financial, and other corporate matters.
Although FERC generally has exclusive jurisdiction over the rates charged
by such a producer to its wholesale customers, PUCs have the ability, in
practice, to influence the establishment of such rates by asserting
jurisdiction over the purchasing utility's ability to pass through the
resulting cost of the purchased power to its retail customers. In
addition, states may assert jurisdiction over the siting and construction
of facilities, and over the issuance of securities and the sale or other
transfer of assets by these facilities.
Certain states, including California, Michigan, New York,
Massachusetts, New Hampshire, and Texas, are considering legislation that
will remove many of the restrictions that currently limit the ability of
non-utility generators to sell electrical power directly to industrial
and commercial customers. The Company believes that the removal of these
restrictions will result in a greater competition and greater
opportunities to negotiate power sale agreements with industrial and
commercial customers and may result in state PUC's attempting to reduce,
or forcing the renegotiation of, fixed rates or contracts. Although the
Company believes that the trend in the power market is toward
deregulation, to date, only a few states have passed any such
legislation, and there can be no assurance that any further similar
legislation will ultimately be passed.
14PAGE
<PAGE>
EPA and Related State Regulation. No pesticide may be manufactured,
used or sold without federal and state approvals. Such approvals, called
registrations, must be obtained for each individual product formulation
for use on specific pests for specific crops. Adding new uses, new pests,
new crops or new formulations requires submission of additional
applications or data for approval.
The U.S. Environmental Protection Agency (EPA) regulates pesticides
under the Federal Insecticide, Fungicide and Rodenticide Act and
implementing EPA regulations. To obtain a pesticide registration from the
EPA, the applicant must submit detailed and costly toxicological and
environmental test results evaluating a pesticide's toxic and other
impacts on plants, pests, mammals, humans and the environment. Initial
product registrations can take many years to obtain, and an applicant may
incur considerable additional delay and expense if the EPA requests
further testing and data. To promote the development and use of
biopesticides, the EPA has established special guidelines for their
registration which are set out in subdivision M of the EPA's Pesticide
Assessment Guidelines which generally require less time and expense than
that required for synthetic pesticides.
As a part of the pesticide registration process, the applicant must
submit labeling data describing the chemical composition of the
pesticide, concentrations, methods of application, pest and crop use and
cautionary and warning statements to be put on all packaging of the
pesticides. All pesticide packages must contain the approved label and no
changes can be made to the label without EPA approval.
Pesticide registrations must also be obtained from each state where
the pesticide will be sold. Some states such as California, which
represents an important market for the Company's products, have their own
extensive testing and pesticide registration procedures and may impose
additional restrictions on the use of the pesticide in such state beyond
those imposed by the EPA regulations. Other states simply follow the EPA
registration and labeling guidelines. The Company's products have
received pesticide registrations in 48 states.
Foreign countries may also require extensive testing and data
submission before pesticides can be manufactured or sold in such foreign
country. In many cases, foreign government regulations for submission of
registration applications may be more extensive than EPA's regulations
and foreign pesticide registration may be even more difficult to obtain
than EPA approvals. Some of the Company's products are registered for
sale in Sweden, Israel, Saudi Arabia, and Morocco.
The Company's activities may also be subject to regulation under
other state, federal and foreign government laws and regulations
governing employee and public health and safety, environmental pollution,
clean water, disposal of hazardous wastes, manufacture of chemicals,
product liability, food and agriculture applications, and public
disclosure of the use of chemicals.
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<PAGE>
(ii) New Products
Not applicable.
(iii) Raw Materials
Fuel and operating supplies purchased by the Company's independent
power projects are either available from a number of different suppliers
or from alternative sources that could be developed without a material
adverse effect on the Company. To date, the Company has experienced no
difficulties in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
Not applicable.
(v) Seasonal Influences
The Company earns a disproportionately high share of its income in
the months of May through October due to rate structures under the power
sale agreements relating to its California plants, which provide strong
incentives to operate during this period of high demand. Conversely, the
Company historically has operated at a loss or at a marginal profit
during its second fiscal quarter due to the rate structure under these
agreements.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the
Company's working capital.
(vii) Dependency on a Single Customer
The Company derived 10% or more of its revenues during the past
three years from its three most significant electric utility customers:
PSNH, SCE, and PG&E. Revenues from these three customers as a percentage
of total revenues were approximately 21%, 36%, and 36%, respectively, in
fiscal 1996.
(viii) Backlog
Not applicable.
(ix) Government Contracts
Not applicable.
(x) Competition
The worldwide independent power market now consists of numerous
companies, ranging from small startups to multinational industrial
companies. In addition, a number of regulated utilities have created
subsidiaries that compete as non-utility generators. Non-utility
generators often specialize in market "niches," such as a specific
16PAGE
<PAGE>
technology or fuel (for example, gas-fired cogeneration,
refuse-to-energy, hydropower, geothermal, wind, solar, wood, or coal) or
a specific region of the country where they believe they have a market
advantage. However, many non-utility generators, seek to develop projects
powered by the best fuel available. Many companies in this market have
substantially greater financial, technical, and operational resources
than the Company. The Company competes primarily on the basis of project
experience, technical expertise, capital resources, and power pricing.
The market in which the Company's biopesticide business competes is
highly competitive and subject to rapid technological change. Many of the
Company's competitors are large chemical companies with greater
financial, marketing, and technological resources than the Company. The
Company's biopesticide business competes primarily based on performance
and effectiveness, and also on price, ease of application, and
environmental impact of use.
(xi) Research and Development
Not applicable.
(xii) Environmental Protection Regulation
The construction and operation of power projects are subject to
extensive federal, state, and local laws and regulations adopted for the
protection of health, safety, and the environment, and to regulate land
use. The laws and regulations applicable to the Company primarily involve
the discharge of emissions into the water and air, and the use of water,
but can also include wetlands preservation, endangered species, waste
disposal, and noise regulation. These laws and regulations in many cases
require a lengthy and complex process of obtaining licenses, permits, and
approvals from federal, state, and local agencies. If such laws and
regulations are changed and the Company's facilities are not
grandfathered, extensive modifications to project technologies and
facilities could be required.
In November 1990, comprehensive amendments to the Clean Air Act
were enacted. The first major revisions to the Clean Air Act since 1977,
the 1990 Amendments expand the scope of federal regulations and
enforcement in several significant respects. In particular, provisions
relating to nonattainment, air toxins, permitting, enforcement, and acid
deposition may affect many power projects. Although the majority of these
new provisions were implemented by 1993, the full scope of the new
requirements remains uncertain pending implementation of new regulations
by the United States Environmental Protection Agency. The Clean Air Act
and the 1990 Amendments contain provisions that regulate the amount of
sulfur dioxide and nitrous oxide that may be emitted by both new and
existing projects. None of the Company's projects are expected to be
affected by the acid rain provisions of the 1990 Amendments. However,
many power generating facilities may have to take various repowering
steps to comply with the 1990 Amendments.
The Company does not believe that it will be required to make
material capital expenditures to comply with existing environmental
regulations.
17PAGE
<PAGE>
(xiii) Number of Employees
As of September 28, 1996, the Company employed, directly and
through its Operating Companies, a total of 252 employees. None of the
employees of the Company or the Operating Companies is represented by a
labor union, and the Company considers its relations with its employees
to be good.
(xiv) Marketing
Not applicable.
(d) Financial Information about Exports by Domestic Operations and
about Foreign Operations
Not applicable.
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
--------------------------------------------------------------
Brian D. Holt 47 President and Chief Executive
Officer (1994)
John N. Hatsopoulos* 62 Vice President and Chief Financial
Officer (1989)
Parimal S. Patel 53 Executive Vice President, Project
Finance (1989)
Brian P. Chatlosh 37 Vice President, Business Development
(1996)
Robert R. Fini 54 Vice President, Technical
Services (1994)
Floyd M. Gent 47 Vice President, Asset
Management (1994)
Randall W. Miselis 43 Vice President, Accounting and
Administration (1996)
Robert P. Nordstrom 54 Vice President, Business Development,
Asia (1996)
Paul F. Kelleher 54 Chief Accounting Officer (1989)
* John N. Hatsopoulos and George N. Hatsopoulos, a director of the
Company, are brothers.
All of the Company's executive officers are elected annually by the
Board of Directors and serve until their successors are elected and
qualified. All executive officers, except Messrs. Holt, Chatlosh, Gent,
Miselis, and Nordstrom have held comparable positions for at least five
years either with the Company or Thermo Electron. Mr. Holt has been
President and Chief Executive Officer of the Company since February 1994,
and a Director since January 1995. For more than five years prior to that
time, he was President and Chief Executive Officer of Pacific Generation
Company, a financier, builder, owner, and operator of independent power
facilities. Mr. Chatlosh has been Vice President, Business Development
since January 1996 and has worked for the Company in various managerial
capacities in business development since 1993. Prior to joining the
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<PAGE>
Company, Mr. Chatlosh worked for Oxbow Power Corporation in various
managerial capacities in project development from 1986 to 1992. Mr. Gent
has been Vice President, Asset Management of the Company since September
1994. For more than five years prior to that time, Mr. Gent held various
positions, most recently as Executive Vice President, at KTI
Environmental Group, a developer, owner, and operator of waste-to-energy
plants. Mr. Miselis has been Vice President of Accounting and
Administration since January 1996 and has worked for the Company in
various accounting capacities since November 1988. Mr. Nordstrom has been
Vice President of Business Development, Asia, since January 1996 and has
worked for the Company in various managerial capacities within marketing,
project development, and operations since 1984. Messrs. Hatsopoulos and
Kelleher are full-time employees of Thermo Electron, but devote such time
to the affairs of the Company as the Company's needs reasonably require.
Item 2. Properties
The Company's corporate headquarters are located in Waltham,
Massachusetts and consist of approximately 15,000 square feet that are
occupied pursuant to a lease expiring in 2003. The Company also leases
office space in Columbia, Maryland; Calcutta, India; Bangalore, India;
Prague, Czech Republic; and Roseville, California. The Company's other
properties consist of the power plants described under "Operating
Projects." The Company owns all of the land on which the plants are
built. In addition, the Company's Thermo Trilogy subsidiary leases
warehouse space in Fresno, California.
The Company's California plants are located in areas where there is
a risk of potentially significant earthquake activity. Projects that the
Company develops in the future may also be located in areas, including
India, where there is earthquake risk. The Company's earthquake insurance
is not sufficient to cover all potential losses and there can be no
assurance that such insurance will continue to be available on reasonable
terms.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
19PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.10 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's Fiscal 1996 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and
Supplementary Data are included in Registrant's Fiscal 1996 Annual Report
to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning Directors required under this item is
incorporated herein by reference from the material contained under
"Election of Directors" in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A, not later than 120 days after the close of the fiscal
year. The information concerning delinquent filers pursuant to Item 405
of Regulation S-K is incorporated herein by reference from the material
contained under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a), (d) Financial Statements and Schedule
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedule Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule I: Condensed Financial Information of the
Registrant
All other schedules are omitted because they are not
applicable or not required, or because the required
information is shown either in the financial statements or
in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed by the undersigned, thereunto duly authorized.
Date: December 5, 1996 THERMO ECOTEK CORPORATION
By: Brian D. Holt
---------------------------------
Brian D. Holt
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated, as of
December 5, 1996.
Signature Title
By: Brian D. Holt President, Chief Executive Officer,
------------------------- and Director
Brian D. Holt
By: John N. Hatsopoulos Vice President, Chief Financial
------------------------- Officer, and Director
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
-------------------------
Paul F. Kelleher
By: Jerry P. Davis Chairman of the Board and Director
-------------------------
Jerry P. Davis
By: Dr. George N. Hatsopoulos Director
-------------------------
Dr. George N. Hatsopoulos
By: Frank Jungers Director
-------------------------
Frank Jungers
By: William A. Rainville Director
-------------------------
William A. Rainville
By: Susan F. Tierney Director
------------------------
Susan F. Tierney
23PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Ecotek Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo
Ecotek Corporation's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
November 1, 1996. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14 on page 22 is the responsibility of the Company's management and is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
24PAGE
<PAGE>
SCHEDULE I
THERMO ECOTEK CORPORATION
Condensed Financial Information of Registrant
Unconsolidated Balance Sheet
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 52,728 $ 39,591
Accounts and notes receivable from
subsidiaries 2,883 3,165
Prepaid income taxes and prepaid expenses 2,082 2,611
Current portion of note receivable and other
current assets 965 1,887
-------- --------
58,658 47,254
-------- --------
Investment in Subsidiaries (on the equity
method) 196,135 144,071
-------- --------
Office Equipment, at Cost 340 369
Less: Accumulated Depreciation (251) (217)
-------- --------
89 152
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of
$6,004 in fiscal 1996) 20,254 -
-------- --------
Deferred Debt Expense 807 -
-------- --------
Note Receivable - 900
-------- --------
Due from Parent Company 12,116 18,794
-------- --------
Other Assets - 3,000
-------- --------
$288,059 $214,171
======== ========
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<PAGE>
SCHEDULE I
THERMO ECOTEK CORPORATION
Condensed Financial Information of Registrant
Unconsolidated Balance Sheet (continued)
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 114 $ 96
Accrued expenses 5,750 9,047
Due to parent company 1,448 451
-------- --------
7,312 9,594
-------- --------
Long-term Obligations:
Noninterest-bearing subordinated
convertible debentures 31,727 -
4% Subordinated convertible debentures, due
to parent company 68,500 68,500
-------- --------
100,227 68,500
-------- --------
Deferred Income Taxes 42,633 34,892
-------- --------
Other Deferred Items 8,200 8,200
-------- --------
Shareholders' Investment:
Common stock 1,617 1,551
Capital in excess of par value 74,740 64,188
Retained earnings 45,048 27,268
Treasury stock (481) (22)
Net unrealized gain on available-for-sale
investments 8,763 -
-------- --------
129,687 92,985
-------- --------
$288,059 $214,171
======== ========
26PAGE
<PAGE>
SCHEDULE I
THERMO ECOTEK CORPORATION
Condensed Financial Information of Registrant
Statement of Unconsolidated Income
Nine
Year Ended Months Ended Year Ended
September 28, September 30, December 31,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Revenues $ - $ - $ -
Equity in Earnings of Subsidiaries 34,148 23,329 23,954
------- ------- -------
34,148 23,329 23,954
------- ------- -------
Operating Costs and Expenses:
Cost of revenues - - -
General and administrative
expenses 9,404 6,686 7,371
------- ------- -------
9,404 6,686 7,371
------- ------- -------
Operating Income 24,744 16,643 16,583
Interest Income (Expense), Net 307 (352) (1,960)
------- ------- -------
Income Before Provision for
Income Taxes 25,051 16,291 14,623
Provision for Income Taxes 7,271 6,027 4,972
------- ------- -------
Net Income $17,780 $10,264 $ 9,651
======= ======= =======
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<PAGE>
SCHEDULE I
THERMO ECOTEK CORPORATION
Condensed Financial Information of Registrant
Statement of Unconsolidated Cash Flows
(In thousands)
Nine
Year Ended Months Ended Year Ended
September 28, September 30, December 31,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
Operating Activities:
Net income $ 17,780 $ 10,264 $ 9,651
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 182 54 70
Deferred income tax expense 3,086 3,987 7,396
Equity in earnings of
subsidiaries (34,148) (23,329) (23,954)
Changes in current accounts:
Accounts and notes
receivable from
subsidiaries 282 (1,823) 596
Other assets 1,520 5,526 3,228
Accounts payable 18 (470) 303
Accrued expenses (804) 3,633 (2,351)
Due (to) from parent
company 5,181 (91) (13,283)
-------- -------- --------
Net cash used in
operating activities (6,903) (2,249) (18,344)
-------- -------- --------
Investing Activities:
Acquisition (8,088) - -
Investment in KFx, Inc. (3,004) (2,030) -
Purchases of office equipment (8) (26) (32)
Distribution from (investment
in) subsidiaries (9,828) 7,843 16,716
-------- -------- --------
Net cash provided by
(used in) investing
activities (20,928) 5,787 16,684
-------- -------- --------
Financing Activities:
Net proceeds from issuance of
subordinated convertible
debentures 35,942 - -
Net proceeds from issuance of
Company common stock 5,026 27,575 -
-------- -------- --------
Net cash provided by
financing activities 40,968 27,484 -
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents 13,137 31,113 (1,660)
Cash and Cash Equivalents at
Beginning of Period 39,591 8,478 10,138
-------- -------- --------
Cash and Cash Equivalents at
End of Period $ 52,728 $ 39,591 $ 8,478
======== ======== ========
28PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2 Asset Purchase Agreement among Thermo Trilogy Corporation,
Thermo Ecotek International Holdings, Inc. and W.R. Grace
& Co. - Conn. dated March 5, 1996 (filed as Exhibit 2 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1996 [File No. 1-13572] and
incorporated herein by reference).
3.1 Certificate of Incorporation, as amended, of the
Registrant (filed as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
3.2 By-Laws of the Registrant.
4 Fiscal Agency Agreement dated as of March 14, 1996 among
the Registrant, Thermo Electron Corporation, and Chemical
Bank as fiscal agent, relating to $37 million principal
amount of noninterest-bearing subordinated convertible
debentures due 2001 (filed as Exhibit 4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1996 [File No. 1-13572] and incorporated
herein by reference).
10.1 Asset Transfer Agreement between Thermo Electron
Corporation and the Registrant dated January 2, 1990
(filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.2 Corporate Services Agreement dated January 3, 1993,
between Thermo Electron Corporation and the Registrant
(filed as Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.3 Thermo Electron Corporate Charter as amended and restated
effective January 3, 1993 (filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.4 Amended and Restated Tax Allocation Agreement dated as of
December 4, 1996 between Thermo Electron and the
Registrant.
10.5 Master Repurchase Agreement dated January 1, 1994 between
the Registrant and Thermo Electron Corporation (filed as
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
29PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.6 Master Reimbursement Agreement dated as of January 1, 1994
between Thermo Electron and the Registrant (filed as
Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.7 Lease Agreement dated as of December 2, 1991 between
Thermo Electron and the Registrant (filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.8 Purchase and sale of $38,500,000 principal amount 4%
subordinated convertible note due 2001 (filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.9 Purchase and sale of $30,000,000 principal amount 4%
subordinated convertible note due 2001 (filed as
Exhibit 10.9 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.10 Power Purchase Agreement between Mendota Biomass Power,
Ltd. and Pacific Gas and Electric Company dated May 7,
1984 (filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.11 Project Lease between Chrysler Capital Corporation and
Mendota Biomass Power, Ltd. dated October 30, 1989 (filed
as Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.12 First Amendment to Project Lease between Chrysler Capital
Corporation and Mendota Biomass Power, Ltd., dated June
30, 1995 (filed as Exhibit 1 to the Registrant's Current
Report on Form 8-K dated June 30, 1995 and incorporated
herein by reference).
10.13 Mendota Biomass Power, Ltd. Limited Partnership Agreement
dated December 10, 1986 (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
30PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.14 Rate Order and Interconnection Agreement between
Whitefield Power and Light Company and Public Service
Company of New Hampshire dated September 4, 1986 (filed as
Exhibit 10.13 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.15 Wood Supply Contract between North County Procurement,
Inc. and Whitefield Power and Light Company dated June 4,
1993 (filed as Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.16 Leasing Agreement between BancBoston Leasing Services Inc.
and Gorbell Thermo Electron Power Company dated December
24, 1987 (filed as Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference). 10.17
Amended and Restated Wood Supply Contract between
Linkletter and Sons and Gorbell Thermo Electron Power
Company dated January 15, 1993 (filed as Exhibit 10.16 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.18 Power Purchase Agreement between Gorbell Thermo Electron
Power Company and Central Maine Power Company dated
February 3, 1984, as amended (filed as Exhibit 10.17 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.19 Reduced Power Operation Agreement between Gorbell Thermo
Electron Power Company and Central Maine Power Company
dated January 14, 1994 (filed as Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.20 Joint Venture Agreement establishing Gorbell Thermo
Electron Power Company dated September 13, 1985 (filed as
Exhibit 10.19 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.21 Leasing Agreement between BancBoston Leasing Services,
Inc. and Hemphill Power and Light Company dated December
23, 1987 (filed as Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
31PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.22 Rate Order Support Agreement between Hemphill Power and
Light Company and Thermo Electron dated December 23, 1987
(filed as Exhibit 10.21 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.23 Wood Supply Contract between Durgin & Crowell Lumber
Company, Inc. and Hemphill Power and Light Company dated
June 4, 1985 (filed as Exhibit 10.22 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.24 Fuel Supply Contract between Springfield Management
Company and Hemphill Power and Light Company dated June 4,
1985, as amended (filed as Exhibit 10.23 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.25 Rate Order and Interconnection Agreement between Hemphill
Power and Light Company and Public Service Company of New
Hampshire dated June 26, 1986 (filed as Exhibit 10.24 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.26 Joint Venture Agreement establishing Hemphill Power and
Light Company dated June 4, 1985 (filed as Exhibit 10.25
to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.27 Letter Agreement dated July 15, 1988 among the partners of
Hemphill Power and Light Company amending various
agreements (filed as Exhibit 10.26 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.28 Letter Agreement dated January 1, 1990 between the
partners of Hemphill Power and Light Company (filed as
Exhibit 10.27 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.29 Assignment and Assumption Agreement of Delano II plant by
Delano Energy Company, Inc. dated December 1, 1993 (filed
as Exhibit 10.28 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
32PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.30 Loan Agreement between California Pollution Control
Financing Authority ("CPCFA") and Delano Energy Company,
Inc. dated August 1, 1989, as supplemented on May 1, 1990
(Delano I) (filed as Exhibit 10.29 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.31 Indenture of Trust between CPCFA and Bankers Trust Company
dated August 1, 1990, as supplemented on May 1, 1990
(Delano I) (filed as Exhibit 10.30 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.32 Indenture of Trust between CPCFA and Bankers Trust Company
dated October, 1991 (Delano II) (filed as Exhibit 10.31 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.33 Loan Agreement between CPCFA and Delano Energy Company,
Inc. dated October 1, 1991 (filed as Exhibit 10.32 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.34 Power Purchase Contract between Southern California Edison
Co. and Signal Delano Energy Company, Inc. dated July 31,
1987 (filed as Exhibit 10.33 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
10.35 Amended Restated Reimbursement Agreement among Chemical
Trust Company of California ("CTCC"), Delano Energy
Company, Inc. and ABN AMRO Bank N.V. and other banks dated
December 31, 1993 (filed as Exhibit 10.34 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.36 Amended and Restated Lease Agreement between CTCC and
Delano Energy Company, Inc. dated December 31, 1993 (filed
as Exhibit 10.35 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.37 Biomass Fuel Supply Contract between the Registrant and
Delano Energy Company, Inc. dated December 31, 1993 (filed
as Exhibit 10.36 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
33PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.38 Agreement between Consolidated Edison Company of New York,
Inc. and Staten Island Cogeneration Corporation (filed as
Exhibit 10.37 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference).
10.39 Power Purchase Agreement between Woodland Biomass Power,
Ltd. and Pacific Gas & Electric Company dated May 7, 1987
(filed as Exhibit 10.38 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.40 Stock Purchase Agreement dated as of August 18, 1995
between the Registrant and KFx, Inc. (filed as Exhibit
10.40 to the Registrant's Transition Report on Form 10-K
for the nine months ended September 30, 1995 [File No.
1-13572] and incorporated herein by reference). Pursuant
to Item 601(b)(2) of Regulation S-K, schedules to this
Agreement have been omitted. The Company hereby undertakes
to furnish supplementally a copy of such schedules to the
commission upon request.
10.41 Stock Purchase Warrant issued by KFx, Inc. to the Company
dated August 18, 1995 (filed as Exhibit 10.41 to the
Registrant's Transition Report on Form 10-K for the nine
months ended September 30, 1995 [File No. 1-13572] and
incorporated herein by reference).
10.42 Stock Purchase Warrant issued by KFx, Inc. to the Company
dated August 18, 1995 (filed as Exhibit 10.42 to the
Registrant's Transition Report on Form 10-K for the nine
months ended September 30, 1995 [File No. 1-13572] and
incorporated herein by reference).
10.43 Limited Partnership Agreement of KFx Fuel Partners, L.P.
dated as of August 18, 1995 (filed as Exhibit 10.43 to the
Registrant's Transition Report on Form 10-K for the nine
months ended September 30, 1995 [File No. 1-13572] and
incorporated herein by reference). (Certain portions of
this Exhibit have been omitted subject to an application
for confidential treatment filed with the Commission
pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934).
34PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.44 Turnkey Design and Construction Agreement dated as of
August 18, 1995 between KFx Fuel Partners, L.P. and Walsh
Construction Company, a Division of Guy F. Atkinson
Company (filed as Exhibit 10.44 to the Registrant's
Transition Report on Form 10-K for the nine months ended
September 30, 1995 [File No. 1-13572] and incorporated
herein by reference). (Certain portions of this Exhibit
have been omitted subject to an application for
confidential treatment filed with the Commission pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934).
10.45 Lease Agreement between Manufacturers Hanover Trust
Company of California and Woodland Biomass Power, Ltd.
dated December 29, 1989 (filed as Exhibit 10.39 to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
10.46 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10.44 to the Registrant's Registration Statement
on Form S-1 [Reg. No 33-86682] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's
Nonqualified Stock Option Plan is 1,350,000 shares, after
adjustment to reflect share increase approved in December
1993 and 3-for-2 stock split effected in October 1996).
10.47 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 10.45 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-86682] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Incentive
Stock Option Plan is 1,350,000 shares, after giving affect
to share increase approved in December 1993 and 3-for-2
stock split effected in October 1996).
10.48 Equity Incentive Plan of the Registrant (filed as Exhibit
10.40 to the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-86682) and incorporated herein by
reference).
10.49 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.41 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-86682] and incorporated
herein by reference).
10.50 Amended and Restated Directors Stock Option Plan of the
Registrant (filed as Exhibit 10.42 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-86682] and
incorporated herein by reference).
35PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.51 Thermo Ecotek Corporation - Thermo Trilogy Corporation
Nonqualified Stock Option Plan.
10.52 Thermo Trilogy Corporation Equity Incentive Plan.
10.53 Form of Indemnification Agreement between the Registrant
and its officers and directors (filed as Exhibit 10.43 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 33-86682] and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may
be granted awards under stock-based compensation plans of
Thermo Electron Corporation, for services rendered to the
Registrant or such affiliated corporations. Such plans
were filed as Exhibits 10.21 through 10.44 to the Annual
Report on Form 10-K of Thermo Electron Corporation for the
fiscal year ended December 30, 1995 [File No. 1-8002] and
as Exhibit 10.19 to Trex Medical Corporation's Annual
Report on Form 10-K for the fiscal year ended September
28, 1996 [File No. 1-11827] and are incorporated herein by
reference).
10.54 Stock Holding Assistance Plan and Form of Promissory Note.
11 Statement re: Computation of Earnings per Share.
13 Annual Report to Shareholders for the fiscal year ended
September 28, 1996 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 10.4
AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made as of December
4, 1996 between Thermo Electron Corporation, a Delaware
corporation ("Thermo Electron"), and Thermo Ecotek Corporation, a
Delaware corporation ("Ecotek").
Preliminary Statement
Thermo Electron is the parent of an affiliated group of
corporations (including Ecotek) within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
Thermo Electron owns over 80% of the issued and outstanding
shares of voting common stock of Ecotek, the only class of stock
that Ecotek is authorized to issue. Ecotek is required to
file consolidated federal income tax returns with Thermo
Electron.
Thermo Electron, as the common parent of an affiliated group
of corporations, and Ecotek recognize that any one of them that
sustains a net operating loss or otherwise generates beneficial
tax attributes for a taxable period may be deprived of such
benefits when offset in that or other periods against income or
tax liabilities of the others.
Agreements
IT IS MUTUALLY agreed by the parties hereto as follows:
1. Definitions and Construction.
1.1 The Term "Thermo Electron Group" means the group
of corporations of which Thermo Electron is common parent and
with which Thermo Electron files a consolidated federal income
tax return, excluding Ecotek and subsidiaries of Ecotek that may
exist now or in the future. For purposes of this Agreement, the
Thermo Electron Group shall be treated as a single corporate
entity. The Thermo Electron Group and Ecotek and its
subsidiaries, respectively, are sometimes herein referred to
collectively as the "Two Companies" or the "Companies." The term
"Deficit Company" means either one of the Companies that has an
ordinary loss, capital loss, special deduction or tax credit
arising in a consolidated return year, or in a prior separate
return year, that is utilized to a greater extent in the then
current consolidated federal income tax return than would have
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<PAGE>
been the case if the Company had filed a separate federal income
tax return for the year. This Agreement anticipates that Thermo
Electron will set aside and retain certain sums calculated as
provided herein. All reference to Thermo Electron paying sums to
itself pursuant to this Agreement shall be satisfied by Thermo
Electron setting aside sums in respect of the obligations
established under this Agreement.
1.2 The paragraph titles used herein are for
convenience of reference only and will not be considered in the
interpretation or construction of any of the provisions hereof.
Words may be construed in the singular or the plural as the
context requires.
2. Tax Returns.
2.1 Federal Tax Returns. Thermo Electron as the
common parent will prepare and file or cause to be prepared and
filed federal and state income tax returns on a consolidated
basis, for the Thermo Electron Group and Ecotek and its
subsidiaries for all fiscal periods as to which a consolidated
return is appropriate in accordance with the terms of this
Agreement.
2.2 State Tax Returns. Thermo Electron as the common
parent will prepare and file or cause to be filed state income
tax returns on a combined, consolidated, unitary, or other method
that Thermo Electron believes will result in a lower overall tax
liability to the Two Companies. Ecotek will reimburse Thermo
Electron for its portion of the tax. Such reimbursement will be
the tax Ecotek would have paid on a separate return basis, but
only if it was required to file a return in that state.
3. Time of Payment of Federal Obligations to Thermo
Electron. The obligations of the Companies for Federal income
tax payments will be determined and paid as follows:
(a) Not later than the 15th day after the end of the
fourth, sixth, ninth and twelfth months of each consolidated
taxable year of Thermo Electron, Thermo Electron will make a
reasonable determination (consistent with the provisions of
Section 6655 of the Code) of the separate federal income tax
liability that each Company would be required to pay as estimated
payments on a separate return basis (without regard to
alternative minimum tax) for that period. Each Company shall pay
to Thermo Electron the amount of such liability within ten days.
(b) After the end of Thermo Electron's fourth
accounting quarter and before the 15th day of the third month
thereafter, each Company will promptly pay to Thermo Electron the
entire amounts estimated to be due and payable under such
Company's federal income tax return as if filed on a separate
return basis, less all amounts previously paid with respect to
that year pursuant to subparagraph (a) of this Paragraph 3.
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<PAGE>
(c) If upon the filing of the consolidated income tax
return, a revised calculation is made in the manner set forth in
subparagraph (b) of this Paragraph 3, and it is determined that
either Company has paid to Thermo Electron with respect to the
consolidated taxable year an amount greater than that required by
Paragraph 3(b), then that excess will be promptly paid by Thermo
Electron to that Company.
4. Tax Obligations of Thermo Electron. Thermo Electron
will pay the consolidated tax liabilities of the Companies
arising from filing a consolidated federal tax return.
5. Payment of Funds by Thermo Electron. If in any year
Ecotek incurs a loss or generates tax credits or similar tax
benefits (a "tax benefit item"), Thermo Electron shall pay to
Ecotek a sum equal to the amount of benefit realized by Thermo
Electron that is attributable to the Ecotek tax benefit item;
payments due to Ecotek from Thermo Electron under this section
shall be made upon the earlier of (1) the year in which Ecotek
would have obtained a tax benefit from the tax benefit item if
Ecotek had in all years filed a separate federal income tax
return or (2) the year in which any applicable carry-forward
period with respect to the tax benefit item expires; provided
that payments under this section shall be made first by being
taken into account in determining amounts payable to Ecotek under
Section 3, and any remaining amount due to Ecotek shall be paid
by Thermo Electron to Ecotek at the times set forth for payments
by Ecotek under Section 3.
6. Changes in Prior Year's Tax Liabilities. In the event
that the consolidated tax liability or the separate tax liability
referred to in Paragraphs 3 and 5 hereof for any year for which a
consolidated tax return for the two Companies was filed is or
would be increased or decreased by reason of filing an amended
return or returns (including carry-back claims), or by reason of
the examination of the returns by the Internal Revenue Service,
the amounts due Thermo Electron for payment of taxes under
Paragraph 3 hereof, and the amount to be paid to Thermo Electron
for allocation to Ecotek under Paragraph 5 hereof for each year
will be recomputed by Thermo Electron to reflect the adjustments
to taxable income and tax credits for the taxable year and
interest or penalties, if any. In accordance with those
recomputations, additional sums will be paid by the Companies to
Thermo Electron or paid by Thermo Electron to the Companies
regardless of whether a member has become a Departing Member (as
defined in Paragraph 8 hereof) subsequent to the taxable year of
recomputation.
7. New Members. The Companies agree that if, subsequent
to the execution of this Agreement, Thermo Electron becomes the
Parent, as that term is used in Section 1504 of the Code, of one
or more subsidiary corporations, ion addition to Ecotek, then
each newly-acquired subsidiary corporation may become a separate
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<PAGE>
party to this Agreement by consenting in writing to be bound by
its provisions, effective immediately upon its delivery to Thermo
Electron, but the income, deductions and tax credits of the
newly-acquired subsidiary corporations will first be included in
the consolidated federal income tax return as required by the
Code.
8. Departing Members.
8.1 The term "Departing Members," as used herein, will
mean a Company that is no longer permitted under the Code to be
included in the consolidated federal income tax return.
8.2 In applying this Agreement to a Departing Member
for the final taxable year in which its income, deductions, and
tax credits are required to be included in the consolidated
federal income tax return: (i) the amount required to be paid by
a Departing Member under the provisions of Paragraph 3 hereof and
(ii) the amount that the Departing Member is entitled to receive
under the provisions of Paragraph 5 hereof, will be determined by
taking into account the income, deductions and tax credits of the
Departing Member only for the fractional part of such year as the
Departing Member was a member of the consolidated group and
included in the consolidated federal income tax return.
8.3 After the filing of the consolidated federal
income tax return for the last taxable year that the Departing
Member was included therein, the Departing Member will be
informed of the amount of consolidated carry-overs as of the end
of the taxable year or period which are attributable to the
Departing Member, as provided by Treasury Regulations Section
1.1502-79 or otherwise, including the agreement of the parties.
9. Determination of Sums Due from and Payable to Members.
Thermo Electron will determine the sums due from and payable to
the Companies under the provisions of this Agreement (including
the determination for purposes of Paragraph 6 hereof). The
Companies agree to provide Thermo Electron with such information
as may reasonably be necessary to make these determinations.
Issues arising in the course of the determinations that are not
expressly provided for in this agreement will be resolved in an
equitable manner.
10. Tax Controversies. If a consolidated federal income
tax return for any taxable year during which this Agreement is in
effect is examined by the Internal Revenue Service, the
examination, as well as any other matters relating to that tax
return, including any tax litigation, will be handled solely by
Thermo Electron. Ecotek will cooperate with Thermo Electron and
to this end will execute protests, petitions, and any other
documents as Thermo Electron determines to be necessary or
appropriate. The cost and expense of Thermo Electron's handling
of a tax controversy, including legal and accounting fees, will
be allocated to and paid by the Company to whom the tax
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<PAGE>
controversy relates. If the tax controversy relates to both
Companies, the cost and expense will be allocated between the
Companies in the proportion that each Company's potential
additional tax liability bears to the total potential additional
tax liability of both Companies (determined in accordance with
Paragraph 6 hereto and assuming that the tax controversy is
resolved in favor of the Internal Revenue Service) for the
taxable year on issue. If the tax controversy encompasses more
than one taxable year, Thermo Electron will first allocate the
cost and expense to each taxable year in the proportion that the
potential additional tax liability for each taxable year bears to
the total potential additional tax liability for the taxable
years in issue.
11. Effective Date. This Agreement shall be effective
beginning as of the date of this Agreement, and will continue on
a year-to-year basis thereafter with respect to Ecotek for so
long as Ecotek is permitted to file a consolidated federal income
tax return with Thermo Electron.
12. State Taxes. The two Companies will jointly file any
state tax return on a combined, consolidated, unitary, or other
method that Thermo Electron determines results in a lower overall
tax liability to the Two Companies. In the event that said state
tax returns shall be filed, the provisions of Sections 1-11
hereof shall apply, mutatis mutandis (the necessary changes being
made) to the allocation, preparation, filing and payment related
to such state taxes and tax returns provided, however, that any
benefit realized by the filing of the combined, consolidated or
unitary return will remain with Thermo Electron.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the date first above written.
THERMO ELECTRON CORPORATION
By:
________________________________
Title:
_______________________________
THERMO ECOTEK CORPORATION
By:
_________________________________
Title:
--------------------------------
Exhibit 10.51
THERMO ECOTEK CORPORATION
THERMO TRILOGY NONQUALIFIED STOCK OPTION PLAN
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended
to encourage ownership of Common Stock, $0.01 par value (the
"Common Stock"), of Thermo Trilogy Corporaton ("Subsidiary"), a
subsidiary of Thermo Ecotek Corporation (the "Company"), by
persons selected by the Board of Directors (or a committee
thereof) in its sole discretion, including directors, executive
officers, key employees and consultants of the Company and its
subsidiaries, and to provide additional incentive for them to
promote the success of the business of the Company and
Subsidiary. The Plan is intended to be a nonstatutory stock
option plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of
Directors of the Company.
3. Stock Subject to Plan
At no time shall the number of shares of the Common Stock
then outstanding which are attributable to the exercise of
options granted under the Plan plus the number of shares then
issuable upon the exercise of outstanding options granted under
the Plan exceed 1500,000 shares, subject however to the
provisions of paragraph 11 of the Plan. Shares to be issued upon
the exercise of options granted under the Plan shall be shares of
Subsidiary beneficially owned by the Company. If any option
expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
again be available for options thereafter to be granted.
4. Administration
The Plan shall be administered by a committee (the
"Committee") composed of the members of the Board of Directors of
the Company, no member of which shall act upon any matter
exclusively affecting any option granted or to be granted to
himself or herself under the Plan. Subject to the provisions of
the Plan, the Committee shall have complete authority, in its
discretion, to make the following determinations with respect to
each option to be granted by the Company: (a) the person to
receive the option (the "Optionee"); (b) the time of granting the
option; (c) the number of shares subject thereto; (d) the option
price; (e) the option period; and (f) the terms of the option and
form of option agreement (which need not be identical, but which
shall conform to the applicable terms and conditions of the Plan
and contain such other provisions as the Board of Directors deems
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advisable and not inconsistent with the Plan). In making such
determinations, the Committee may take into account the nature of
the services rendered by the Optionees, their present and
potential contributions to the success of the Company and/or one
or more of its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, to determine the terms and
provisions of the respective option agreements (which need not be
identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this paragraph 4
shall be conclusive.
5. Eligibility
An option may be granted to any person selected by the
Committee in its sole discretion.
6. Time of Granting Options
The granting of an option shall take place at the time
specified by the Committee. Only if expressly so provided by the
Committee shall the granting of an option be regarded as taking
place at the time when a written option agreement shall have been
duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement
shall provide, among other things, that it does not confer upon
an Optionee any right to continue in the employ of the Company
and/or one or more of its subsidiaries or to continue as a
director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such
subsidiary to terminate the employment of the Optionee at any
time if the Optionee is an employee, to remove the Optionee as a
director of the Company if the Optionee is a director, or to
terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such
installments, cumulative or noncumulative, as the Committee may
determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by
written notice of intent to exercise the option, specifying the
number of shares of stock with respect to which the option is
then being exercised. The notice shall be accompanied by payment
in the form of cash or shares of Subsidiary Common Stock (the
"Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however,
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that such Tendered Shares shall have been acquired by the
Optionee more than six months prior to the date of exercise,
unless such requirement is waived in writing by the Company.
Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares
then being purchased, registered in the name of the Optionee or
other person exercising the option. If any law or applicable
regulation of the Securities and Exchange Commission or other
body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in
connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or
certificates for such shares shall be postponed until completion
of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Options shall not be transferable, otherwise than by will or
the laws of descent and distribution, except as may be authorized
by the Committee, in its sole discretion. T he Committee may, in
its discretion, determine the extent to which options granted to
an Optionee shall be transferable, and such provisions permitting
transfer shall be set forth in the written option agreement
executed and delivered by or on behalf of the Company and the
Optionee.
10. Vesting, Restrictions and Termination of Options
The Committee, in its sole discretion, may determine the
manner in which options shall vest, the rights of the Company to
repurchase the shares issued upon the exercise of any option and
the manner in which such rights shall lapse, and the terms upon
which any option granted shall terminate. The Board of Directors
shall have the right to accelerate the date of exercise of any
installment or to accelerate the lapse of the Company's
repurchase rights. All of such terms shall be specified in a
written option agreement executed and delivered by or on behalf
of the Company and the Optionee to whom such option shall be
granted.
11. Adjustment of Number of Shares
Each stock option agreement shall provide that in the event
of any stock dividend payable in the Common Stock or any split-up
or contraction in the number of shares of the Common Stock
occurring after the date of the agreement and prior to the
exercise in full of the option, the number of shares for which
the option may thereafter be exercised shall be proportionately
adjusted and the price to be paid for each share subject to the
option shall be proportionately adjusted. Each such agreement
shall also provide that in case of any reclassification or change
of outstanding shares of the Common Stock or in case of any
consolidation or merger of Subsidiary with or into another
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company or in case of any sale or conveyance to another company
or entity of the property of Subsidiary as a whole or
substantially as a whole, the Optionee shall, upon exercise of
the option, be entitled to receive shares of stock or other
securities in its place equivalent in kind and value to those
shares which he would have received if he had exercised the
option in full immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and had
continued to hold the shares subject to the option (together with
all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the option;
provided , that if any recapitalization is to be effected through
an increase in the par value of the Common Stock without an
increase in the number of authorized shares and such new par
value will exceed the option price under such agreement, the
Company shall notify the Optionee of such proposed
recapitalization, and the Optionee shall then have the right,
exercisable at any time prior to such recapitalization becoming
effective, to purchase all of the shares subject to the option
which he has not theretofore purchased (anything in such
agreement to the contrary notwithstanding), but if the Optionee
fails to exercise such right before such recapitalization becomes
effective, the option price under such agreement shall be
appropriately adjusted. Each such agreement shall further
provide that upon dissolution or liquidation of Subsidiary, the
option shall terminate, but the Optionee (if at the time an
employee or director of the Company and/or any one or more of its
subsidiaries) shall have the right, immediately prior to such
dissolution or liquidation, to exercise the option to the full
extent not theretofore exercised; that no adjustment provided for
above shall apply to any share with respect to which the option
has been exercised prior to the effective date of such
adjustment; and that no fraction of a share or fractional shares
shall be purchasable or deliverable under such agreement, but in
the event any adjustment thereunder of the number of shares
covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the
nearest smaller whole number of shares. In the event of changes
in the outstanding Common Stock by reason of any stock dividend,
split-up, contraction, reclassification, or change of outstanding
shares of the Common Stock of the nature contemplated by this
paragraph 11, the number of shares of Common Stock available for
the purpose of the Plan as stated in paragraph 3 hereof shall be
correspondingly adjusted by the Committee.
12. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in
respect of shares as to which their options shall not have been
exercised, certificates issued and delivered and payment as
herein provided made in full, and shall have no rights with
respect to such shares not expressly conferred by this Plan.
13. Stock Reserved
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The Company shall at all times during the term of the
options reserve and keep available such number of shares of the
Common Stock as will be sufficient to satisfy the requirements of
this Plan and shall pay all other fees and expenses necessarily
incurred by the Company in connection therewith.
14. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the
Company, will be required to give a representation in form
satisfactory to counsel for the Company that he will not
transfer, sell or otherwise dispose of the shares received upon
exercise of the option at any time purchased by him, upon
exercise of any portion of the option, in a manner which would
violate the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission thereunder
and the Company may, if required or at its discretion, make a
notation on any certificates issued upon exercise of options to
the effect that such certificate may not be transferred except
after receipt by the Company of an opinion of counsel
satisfactory to it to the effect that such transfer will not
violate such Act and such regulations.
15. Tax Withholding
The Company shall have the right to deduct from payments of
any kind otherwise due to an Optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan (the
"withholding requirements"). The Committee will have the right
to require that the Optionee or other appropriate person remit to
the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery
of any Common Stock pursuant to exercise of an option. If and to
the extent that such withholding is required, the Committee may
permit the Optionee or such other person to elect at such time
and in such manner as the Committee provides to have the Company
hold back from the shares to be delivered, or to deliver to the
Company, Common Stock having a value calculated to satisfy the
withholding requirements.
16. Termination and Amendment of Plan
The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect.
Notwithstanding any other provisions hereof, the Plan shall
terminate on December 31, 2006 and no options shall be granted
hereunder thereafter.
Exhibit 10.52
THERMO TRILOGY CORPORATION
EQUITY INCENTIVE PLAN
1. Purpose
The purpose of this Equity Incentive Plan (the "Plan") is to
secure for Thermo Trilogy Corporation (the "Company") and its
Stockholders the benefits arising from capital stock ownership by
employees, officers and Directors of, and consultants to, the
Company and its subsidiaries or other persons who are expected to
make significant contributions to the future growth and success
of the Company and its subsidiaries. The Plan is intended to
accomplish these goals by enabling the Company to offer such
persons equity-based interests, equity-based incentives or
performance-based stock incentives in the Company, or any
combination thereof ("Awards").
2. Administration
The Plan will be administered by the Board of Directors of
the Company (the "Board"). The Board shall have full power to
interpret and administer the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan and Awards,
and full authority to select the persons to whom Awards will be
granted ("Participants"), determine the type and amount of Awards
to be granted to Participants (including any combination of
Awards), determine the terms and conditions of Awards granted
under the Plan (including terms and conditions relating to events
of merger, consolidation, dissolution and liquidation, change of
control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts), waive compliance by a
participant with any obligation to be performed by him or her
under an Award, waive any term or condition of an Award, cancel
an existing Award in whole or in part with the consent of a
Participant, grant replacement Awards, accelerate the vesting or
lapse of any restrictions of any Award and adopt the form of
instruments evidencing Awards under the Plan and change such
forms from time to time. Any interpretation by the Board of the
terms and provisions of the Plan or any Award thereunder and the
administration thereof, and all action taken by the Board, shall
be final, binding and conclusive on all parties and any person
claiming under or through any party. No Director shall be liable
for any action or determination made in good faith. The Board
may, to the full extent permitted by law, delegate any or all of
its responsibilities under the Plan to a committee (the
"Committee") appointed by the Board and consisting of two or more
members of the Board, each of whom shall be deemed a
"disinterested person" within the meaning of Rule 16b-3 (or any
successor rule) of the Securities Exchange Act of 1934 (the
"Exchange Act").
3. Effective Date
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2
The Plan shall be effective as of the date first approved by
the Board of Directors.
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 10.6, the total
number of shares of the common stock, $.01 par value per share,
of the Company (the "Common Stock"), reserved and available for
distribution under the Plan shall be 600,000 shares. Such
shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
If any Award of shares of Common Stock requiring exercise by
the Participant for delivery of such shares terminates without
having been exercised in full, is forfeited or is otherwise
terminated without a payment being made to the Participant in the
form of Common Stock, or if any shares of Common Stock subject to
restrictions are repurchased by the Company pursuant to the terms
of any Award or are otherwise reacquired by the Company to
satisfy obligations arising by virtue of any Award, such shares
shall be available for distribution in connection with future
Awards under the Plan.
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3
5. Eligibility
Employees, officers and Directors of, and consultants to,
the Company and its subsidiaries, or other persons who are
expected to make significant contributions to the future growth
and success of the Company and its subsidiaries shall be eligible
to receive Awards under the Plan. The Board, or other
appropriate committee or person to the extent permitted pursuant
to the last sentence of Section 2, shall from time to time select
from among such eligible persons those who will receive Awards
under the Plan.
6. Types of Awards
The Board may offer Awards under the Plan in any form of
equity-based interest, equity-based incentive or
performance-based stock incentive in Common Stock of the Company
or any combination thereof. The type, terms and conditions and
restrictions of an Award shall be determined by the Board at the
time such Award is made to a Participant; provided however that
the maximum number of shares permitted to be granted under any
Award or combination of Awards to any Participant during any one
calendar year may not exceed 5% of the shares of Common Stock
outstanding at the beginning of such calendar year.
An Award shall be made at the time specified by the Board
and shall be subject to such conditions or restrictions as may be
imposed by the Board and shall conform to the general rules
applicable under the Plan as well as any special rules then
applicable under federal tax laws or regulations or the federal
securities laws relating to the type of Award granted.
Without limiting the foregoing, Awards may take the
following forms and shall be subject to the following rules and
conditions:
6.1 Options
An option is an Award that entitles the holder on exercise
thereof to purchase Common Stock at a specified exercise price.
Options granted under the Plan may be either incentive stock
options ("incentive stock options") that meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options that are not intended to meet the
requirements of Section 422 ("non-statutory options").
6.1.1 Option Price. The price at which Common Stock may
be purchased upon exercise of an option shall be determined by
the Board, provided however, the exercise price shall not be less
than the par value per share of Common Stock.
6.1.2 Option Grants . The granting of an option shall
take place at the time specified by the Board. Options shall be
evidenced by option agreements. Such agreements shall conform to
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4
the requirements of the Plan, and may contain such other
provisions (including but not limited to vesting and forfeiture
provisions, acceleration, change of control, protection in the
event of merger, consolidations, dissolutions and liquidations)
as the Board shall deem advisable. Option agreements shall
expressly state whether an option grant is intended to qualify as
an incentive stock option or non-statutory option.
6.1.3 Option Period . An option will become exercisable
at such time or times (which may be immediately or in such
installments as the Board shall determine) and on such terms and
conditions as the Board shall specify. The option agreements
shall specify the terms and conditions applicable in the event of
an option holder's termination of employment during the option's
term.
Any exercise of an option must be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied
by (1) any additional documents required by the Board and (2)
payment in full in accordance with Section 6.1.4 for the number
of shares for which the option is exercised.
6.1.4 Payment of Exercise Price. Stock purchased on
exercise of an option shall be paid for as follows: (1) in cash
or by check (subject to such guidelines as the Company may
establish for this purpose), bank draft or money order payable to
the order of the Company or (2) if so permitted by the instrument
evidencing the option (or in the case of a non-statutory option,
by the Board at or after grant of the option), (i) through the
delivery of shares of Common Stock that have been outstanding for
at least six months (unless the Board expressly approves a
shorter period) and that have a fair market value (determined in
accordance with procedures prescribed by the Board) equal to the
exercise price, (ii) by delivery of a promissory note of the
option holder to the Company, payable on such terms as are
specified by the Board, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price, or (iv) by
any combination of the permissible forms of payment.
6.1.5 Buyout Provision. The Board may at any time offer
to buy out for a payment in cash, shares of Common Stock,
deferred stock or restricted stock, an option previously granted,
based on such terms and conditions as the Board shall establish
and communicate to the option holder at the time that such offer
is made.
6.1.6 Special Rules for Incentive Stock Options. Each
provision of the Plan and each option agreement evidencing an
incentive stock option shall be construed so that each incentive
stock option shall be an incentive stock option as defined in
Section 422 of the Code or any statutory provision that may
replace such Section, and any provisions thereof that cannot be
so construed shall be disregarded. Instruments evidencing
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5
incentive stock options must contain such provisions as are
required under applicable provisions of the Code. Incentive
stock options may be granted only to employees of the Company and
its subsidiaries. The exercise price of an incentive stock
option shall not be less than 100% (110% in the case of an
incentive stock option granted to a more than ten percent
Stockholder of the Company) of the fair market value of the
Common Stock on the date of grant, as determined by the Board.
An incentive stock option may not be granted after the tenth
anniversary of the date on which the Plan was adopted by the
Board and the latest date on which an incentive stock option may
be exercised shall be the tenth anniversary (fifth anniversary,
in the case of any incentive stock option granted to a more than
ten percent Stockholder of the Company) of the date of grant, as
determined by the Board.
6.2 Restricted and Unrestricted Stock
An Award of restricted stock entitles the recipient thereof
to acquire shares of Common Stock upon payment of the purchase
price subject to restrictions specified in the instrument
evidencing the Award.
6.2.1 Restricted Stock Awards . Awards of restricted
stock shall be evidenced by restricted stock agreements. Such
agreements shall conform to the requirements of the Plan, and may
contain such other provisions (including restriction and
forfeiture provisions, change of control, protection in the event
of mergers, consolidations, dissolutions and liquidations) as the
Board shall deem advisable.
6.2.2 Restrictions. Until the restrictions specified in
a restricted stock agreement shall lapse, restricted stock may
not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, and upon certain conditions specified
in the restricted stock agreement, must be resold to the Company
for the price, if any, specified in such agreement. The
restrictions shall lapse at such time or times, and on such
conditions, as the Board may specify. The Board may at any time
accelerate the time at which the restrictions on all or any part
of the shares shall lapse.
6.2.3 Rights as a Stockholder. A Participant who
acquires shares of restricted stock will have all of the rights
of a Stockholder with respect to such shares including the right
to receive dividends and to vote such shares. Unless the Board
otherwise determines, certificates evidencing shares of
restricted stock will remain in the possession of the Company
until such shares are free of all restrictions under the Plan.
6.2.4 Purchase Price . The purchase price of shares of
restricted stock shall be determined by the Board, in its sole
discretion, but such price may not be less than the par value of
such shares.
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6
6.2.5 Other Awards Settled With Restricted Stock . The
Board may provide that any or all the Common Stock delivered
pursuant to an Award will be restricted stock.
6.2.6 Unrestricted Stock. The Board may, in its sole
discretion, sell to any Participant shares of Common Stock free
of restrictions under the Plan for a price determined by the
Board, but which may not be less than the par value per share of
the Common Stock.
6.3 Deferred Stock
6.3.1 Deferred Stock Award . A deferred stock Award
entitles the recipient to receive shares of deferred stock which
is Common Stock to be delivered in the future. Delivery of the
Common Stock will take place at such time or times, and on such
conditions, as the Board may specify. The Board may at any time
accelerate the time at which delivery of all or any part of the
Common Stock will take place.
6.3.2 Other Awards Settled with Deferred Stock. The
Board may, at the time any Award described in this Section 6 is
granted, provide that, at the time Common Stock would otherwise
be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the right to future delivery of
deferred stock.
6.4 Performance Awards
6.4.1 Performance Awards . A performance Award entitles
the recipient to receive, without payment, an Amount, in cash or
Common Stock or a combination thereof (such form to be determined
by the Board), following the attainment of performance goals.
Performance goals may be related to personal performance,
corporate performance, departmental performance or any other
category of performance deemed by the Board to be important to
the success of the Company. The Board will determine the
performance goals, the period or periods during which performance
is to be measured and all other terms and conditions applicable
to the Award.
6.4.2 Other Awards Subject to Performance Conditions.
The Board may, at the time any Award described in this Section 6
is granted, impose the condition (in addition to any conditions
specified or authorized in this Section 6 of the Plan) that
performance goals be met prior to the Participant's realization
of any payment or benefit under the Award.
7. Purchase Price and Payment
Except as otherwise provided in the Plan, the purchase price
of Common Stock to be acquired pursuant to an Award shall be the
price determined by the Board, provided that such price shall not
be less than the par value of the Common Stock. Except as
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7
otherwise provided in the Plan, the Board may determine the
method of payment of the exercise price or purchase price of an
Award granted under the Plan and the form of payment. The Board
may determine that all or any part of the purchase price of
Common Stock pursuant to an Award has been satisfied by past
services rendered by the Participant. The Board may agree at any
time, upon request of the Participant, to defer the date on which
any payment under an Award will be made.
8. Loans and Supplemental Grants
The Company may make a loan to a Participant, either on or
after the grant to the Participant of any Award, in connection
with the purchase of Common Stock under the Award or with the
payment of any obligation incurred or recognized as a result of
the Award. The Board will have full authority to decide whether
the loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the loan is to
be repaid and the conditions, if any, under which it may be
forgiven.
In connection with any Award, the Board may at the time such
Award is made or at a later date, provide for and make a cash
payment to the participant not to exceed an amount equal to (a)
the amount of any federal, state and local income tax or ordinary
income for which the Participant will be liable with respect to
the Award, plus (b) an additional amount on a grossed-up basis
necessary to make him or her whole after tax, discharging all the
participant's income tax liabilities arising from all payments
under the Plan.
9. Change in Control
9.1 Impact of Event
In the event of a "Change in Control" as defined in Section
9.2, the following provisions shall apply, unless the agreement
evidencing the Award otherwise provides:
(a) Any stock options or other stock-based Awards awarded
under the Plan that were not previously exercisable and
vested shall become fully exercisable and vested.
(b) Awards of restricted stock and other stock-based Awards
subject to restrictions and to the extent not fully vested,
shall become fully vested and all such restrictions shall
lapse so that shares issued pursuant to such Awards shall be
free of restrictions.
(c) Deferral limitations and conditions that relate solely
to the passage of time, continued employment or affiliation,
will be waived and removed as to deferred stock Awards and
performance Awards. Performance of other conditions (other
than conditions relating solely to the passage of time,
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8
continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the
Awards or in any other agreement between the Participant and
the Company or unless otherwise agreed by the Board.
9.2 Definition of "Change in Control"
"Change in Control" means any one of the following events:
(i) when, any Person is or becomes the beneficial owner (as
defined in Section 13(d) of the Exchange Act and the Rules and
Regulations thereunder), together with all Affiliates and
Associates (as such terms are used in Rule 12b-2 of the General
Rules and Regulations of the Exchange Act) of such Person,
directly or indirectly, of 50% or more of the outstanding Common
Stock of the Company or its parent corporation, Thermo Ecotek
Corporation ("Thermo Ecotek"), or the beneficial owner of 25%
or more of the outstanding common stock of Thermo Electron
Corporation ("Thermo Electron"), without the prior approval of
the Prior Directors of the applicable issuer, (ii) the failure of
the Prior Directors to constitute a majority of the Board of
Directors of the Company, Thermo Ecotek or Thermo Electron, as
the case may be, at any time within two years following any
Electoral Event, or (iii) any other event that the Prior
Directors shall determine constitutes an effective change in the
control of the Company, Thermo Ecotek or Thermo Electron. As
used in the preceding sentence, the following capitalized terms
shall have the respective meanings set forth below:
(a) "Person" shall include any natural person, any entity,
any "affiliate" of any such natural person or entity as such
term is defined in Rule 405 under the Securities Act of 1933
and any "group" (within the meaning of such term in Rule
13d-5 under the Exchange Act);
(b) "Prior Directors" shall mean the persons sitting on the
Company's, Thermo Ecotek's or Thermo Electron's Board of
Directors, as the case may be, immediately prior to any
Electoral Event (or, if there has been no Electoral Event,
those persons sitting on the applicable Board of Directors
on the date of this Agreement) and any future director of
the Company, Thermo Ecotek or Thermo Electron who has been
nominated or elected by a majority of the Prior Directors
who are then members of the Board of Directors of the
Company, Thermo Ecotek or Thermo Electron, as the case may
be; and
(c) "Electoral Event" shall mean any contested election of
Directors, or any tender or exchange offer for the
Company's, Thermo Ecotek's or Thermo Electron's Common
Stock, not approved by the Prior Directors, by any Person
other than the Company, Thermo Ecotek, Thermo Electron or a
majority-owned subsidiary of Thermo Electron.
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9
10. General Provisions
10.1 Documentation of Awards
Awards will be evidenced by written instruments, which may
differ among Participants, prescribed by the Board from time to
time. Such instruments may be in the form of agreements to be
executed by both the Participant and the Company or certificates,
letters or similar instruments which need not be executed by the
participant but acceptance of which will evidence agreement to
the terms thereof. Such instruments shall conform to the
requirements of the Plan and may contain such other provisions
(including provisions relating to events of merger,
consolidation, dissolution and liquidations, change of control
and restrictions affecting either the agreement or the Common
Stock issued thereunder), as the Board deems advisable.
10.2 Rights as a Stockholder
Except as specifically provided by the Plan or the
instrument evidencing the Award, the receipt of an Award will not
give a Participant rights as a Stockholder with respect to any
shares covered by an Award until the date of issue of a stock
certificate to the participant for such shares.
10.3 Conditions on Delivery of Stock
The Company will not be obligated to deliver any shares of
Common Stock pursuant to the Plan or to remove any restriction
from shares previously delivered under the Plan (a) until all
conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with,
(c) if the outstanding Common Stock is at the time listed on any
stock exchange, until the shares have been listed or authorized
to be listed on such exchange upon official notice of issuance,
and (d) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the
Company's counsel. If the sale of Common Stock has not been
registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award,
such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such act and may
require that the certificates evidencing such Common Stock bear
an appropriate legend restricting transfer.
If an Award is exercised by the participant's legal
representative, the Company will be under no obligation to
deliver Common Stock pursuant to such exercise until the Company
is satisfied as to the authority of such representative.
10.4 Tax Withholding
PAGE
<PAGE>
10
The Company will withhold from any cash payment made
pursuant to an Award an amount sufficient to satisfy all federal,
state and local withholding tax requirements (the "withholding
requirements").
In the case of an Award pursuant to which Common Stock may
be delivered, the Board will have the right to require that the
participant or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding requirements, or
make other arrangements satisfactory to the Board with regard to
such requirements, prior to the delivery of any Common Stock. If
and to the extent that such withholding is required, the Board
may permit the participant or such other person to elect at such
time and in such manner as the Board provides to have the Company
hold back from the shares to be delivered, or to deliver to the
Company, Common Stock having a value calculated to satisfy the
withholding requirement.
10.5 Nontransferability of Awards
Options shall not be transferable, otherwise than by will or
the laws of descent and distribution, except as may be authorized
by the Committee, in its sole discretion. T he Committee may, in
its discretion, determine the extent to which options granted to
an Optionee shall be transferable, and such provisions permitting
transfer shall be set forth in the written option agreement
executed and delivered by or on behalf of the Company and the
Optionee.
10.6 Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the
Company's capitalization, or other distribution with respect to
common Stockholders other than normal cash dividends, the Board
will make (i) appropriate adjustments to the maximum number of
shares that may be delivered under the Plan under Section 4
above, and (ii) appropriate adjustments to the number and kind of
shares of stock or securities subject to Awards then outstanding
or subsequently granted, any exercise prices relating to Awards
and any other provisions of Awards affected by such change.
(b) The Board may also make appropriate adjustments to take
into account material changes in law or in accounting practices
or principles, mergers, consolidations, acquisitions,
dispositions, repurchases or similar corporate transactions, or
any other event, if it is determined by the Board that
adjustments are appropriate to avoid distortion in the operation
of the Plan, but no such adjustments other than those required by
law may adversely affect the rights of any Participant (without
the Participant's consent) under any Award previously granted.
10.7 Employment Rights
PAGE
<PAGE>
11
Neither the adoption of the Plan nor the grant of Awards
will confer upon any person any right to continued employment
with the Company or any subsidiary or interfere in any way with
the right of the Company or subsidiary to terminate any
employment relationship at any time or to increase or decrease
the compensation of such person. Except as specifically provided
by the Board in any particular case, the loss of existing or
potential profit in Awards granted under the Plan will not
constitute an element of damages in the event of termination of
an employment relationship even if the termination is in
violation of an obligation of the Company to the employee.
Whether an authorized leave of absence, or absence in
military or government service, shall constitute termination of
employment shall be determined by the Board at the time. For
purposes of this Plan, transfer of employment between the Company
and its subsidiaries shall not be deemed termination of
employment.
10.8 Other Employee Benefits
The value of an Award granted to a Participant who is an
employee, and the amount of any compensation deemed to be
received by an employee as a result of any exercise or purchase
of Common Stock pursuant to an Award or sale of shares received
under the Plan, will not constitute "earnings" or "compensation"
with respect to which any other employee benefits of such
employee are determined, including without limitation benefits
under any pension, stock ownership, stock purchase, life
insurance, medical, health, disability or salary continuation
plan.
10.9 Legal Holidays
If any day on or before which action under the Plan must be
taken falls on a Saturday, Sunday or legal holiday, such action
may be taken on the next succeeding day not a Saturday, Sunday or
legal holiday.
10.10 Foreign Nationals
Without amending the Plan, Awards may be granted to persons
who are foreign nationals or employed outside the United States
or both, on such terms and conditions different from those
specified in the Plan, as may, in the judgment of the Board, be
necessary or desirable to further the purpose of the Plan.
11. Termination and Amendment
The Plan shall remain in full force and effect until
terminated by the Board. Subject to the last sentence of this
Section 11, the Board may at any time or times amend the Plan or
any outstanding Award for any purpose that may at the time be
PAGE
<PAGE>
12
permitted by law, or may at any time terminate the Plan as to any
further grants of Awards.
Exhibit 10.54
THERMO ECOTEK CORPORATION
STOCK HOLDING ASSISTANCE PLAN
(As adopted on July 19, 1996)
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Ecotek
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the Stock
Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee : The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock : The common stock of the Company and any
successor thereto.
Company : Thermo Ecotek Corporation, a Delaware
corporation.
Stock Holding Policy : The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee : Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans : Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan : The Thermo Ecotek Corporation Stock Holdings
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
PAGE
<PAGE>
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
2PAGE
<PAGE>
become due and payable in five equal annual installments from the
payment of annual cash incentive compensation (referred to as
bonus) to the Key Employee by the Company, beginning with the
first such bonus payment to occur after the date of the Note
evidencing the Loan, and on each of the next four bonus payment
dates. Each Loan shall also become immediately due and payable
in full, without demand, upon the occurrence of any of the
events set forth in the Note; provided that the Committee may, in
its sole and absolute discretion, authorize an extension of the
time for repayment of a Loan upon such terms and conditions as
the Committee may determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
3PAGE
<PAGE>
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMO ECOTEK CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Ecotek Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company an
amount equal to 20% of the initial principal amount of the Note
from the payment of annual cash incentive compensation (referred
to as bonus) to the Employee by the Company, beginning with the
first such bonus payment to occur after the date of this Note,
and on each of the next four bonus payment dates. Any amount
remaining unpaid under this Note, if no demand has been made by
the Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
5PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMO ECOTEK CORPORATION
Computation Of Earnings Per Share
Nine Year
Year Ended Months Ended Ended
---------------------- ------------ --------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995 1994
--------------------------------------------------------------------------
Income:
Net Income (a) $17,780,000 $12,540,000 $10,264,000 $ 9,651,000
Add: Convertible
debenture
interest,
net of tax 1,644,000 1,727,000 1,295,000 1,808,000
----------- ----------- ----------- -----------
Income applicable
to common stock
assuming dilution (b)$19,424,000 $14,267,000 $11,559,000 $11,459,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 23,527,511 21,795,850 22,476,561 19,736,666
Add: Shares issuable
from assumed
exercise of
options granted
in last year (as
determined by
the application
of the treasury
stock method) - - - 86,899
Shares issuable
from assumed
conversion of
noninterest-
bearing
subordinated
convertible
debentures 1,445,948 - - -
Shares issuable
from assumed
exercise of
other options (as
determined by the
application of
the treasury
stock method) 502,649 - - 294,863
----------- ----------- ----------- -----------
PAGE
<PAGE>
Exhibit 11
THERMO ECOTEK CORPORATION
Computation Of Earnings Per Share (continued)
Nine Year
Year Ended Months Ended Ended
----------------------- ------------ --------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995 1994
--------------------------------------------------------------------------
Weighted average
shares - primary (c) 25,476,108 21,795,850 22,476,561 20,118,428
Incremental shares
issuable from
assumed exercise
of other options
(as determined by
the application of
the treasury stock
method) 22,984 502,002 502,002 259,008
Shares issuable
from assumed
conversion of
convertible
debentures 10,815,789 10,815,789 10,815,789 10,815,789
---------- ----------- ----------- -----------
Weighted average
shares - fully
diluted (d) 36,314,881 33,113,641 33,794,352 31,193,225
========== =========== =========== ===========
Primary Earnings
per Shares (a) / (c) $ .70 $ .58 $ .46 $ .48
========== =========== =========== ===========
Fully Diluted Earnings
per Share (b) / (d) $ .53 $ .43 $ .34 $ .37
========== =========== =========== ===========
Exhibit 13
THERMO ECOTEK CORPORATION
Consolidated Financial Statements
Fiscal Year 1996
PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Income
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Revenues (Note 14) $150,076 $139,319 $107,139 $134,261
-------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues
(includes $4,952,
$4,689, $3,223 and
$4,653 to related
parties) (Notes 9
and 10) 101,883 98,822 74,097 100,457
General and administra-
tive expenses
(includes $1,759,
$1,885, $1,429 and
$1,854 to related
parties) (Notes 9
and 10) 12,218 9,307 7,856 8,555
-------- -------- -------- --------
114,101 108,129 81,953 109,012
-------- -------- -------- --------
Operating Income 35,975 31,190 25,186 25,249
Interest Income 5,104 3,340 2,820 1,636
Interest Expense
(includes $2,740,
$2,740, $2,055 and
$2,715 to parent
company) (14,727) (13,333) (10,567) (11,143)
Equity in Loss of Joint
Venture (26) - - -
-------- -------- -------- --------
Income Before Provision
for Income Taxes and
Minority Interest 26,326 21,197 17,439 15,742
Provision for Income
Taxes (Note 8) 7,271 7,200 6,027 4,972
Minority Interest Expense 1,275 1,457 1,148 1,119
-------- -------- -------- --------
Net Income $ 17,780 $ 12,540 $ 10,264 $ 9,651
======== ======== ======== ========
2PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Income (continued)
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
(In thousands except Sept. 28, Sept. 30, Sept. 30, Dec. 31,
per share amounts) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Earnings per Share:
Primary $ .70 $ 0.58 $ 0.46 $ 0.48
======== ======== ======== ========
Fully diluted $ .53 $ 0.43 $ 0.34 $ 0.37
======== ======== ======== ========
Weighted Average Shares:
Primary 25,476 21,796 22,477 20,118
======== ======== ======== ========
Fully diluted 36,315 33,114 33,794 31,193
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Balance Sheet
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 63,238 $ 49,159
Restricted funds (Note 1) 18,936 11,992
Accounts receivable and unbilled revenues 28,061 25,275
Inventories 11,299 9,976
Prepaid income taxes (Note 8) 2,016 2,847
Other current assets (Note 12) 2,937 2,536
-------- --------
126,487 101,785
-------- --------
Property, Plant and Equipment, Net 262,766 244,750
-------- --------
Note Receivable (Note 12) - 900
-------- --------
Due from Parent Company (Note 8) 12,116 18,794
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost of
$6,004 in fiscal 1996) (Note 3) 20,254 -
-------- --------
Restricted Funds (Note 1) 14,112 12,040
-------- --------
Other Assets (Note 1) 13,410 12,207
-------- --------
$449,145 $390,476
======== ========
4PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Balance Sheet (continued)
September 28, September 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Current portion of long-term
obligations (Note 13) $ 24,806 $ 21,291
Accounts payable 1,517 1,274
Lease obligations payable 1,812 1,765
Accrued interest 3,159 3,496
Accrued income taxes 1,858 4,452
Other accrued expenses 15,532 10,695
Due to parent company 1,586 451
-------- --------
50,270 43,424
-------- --------
Long-term Obligations (Note 13):
Nonrecourse tax-exempt obligations 77,900 94,700
4% Subordinated convertible debentures,
due to parent company 68,500 68,500
Noninterest-bearing subordinated convertible
debentures 31,727 -
Capital lease obligations 31,154 39,160
-------- --------
209,281 202,360
-------- --------
Deferred Income Taxes (Note 8) 42,633 34,892
-------- --------
Other Deferred Items (Note 12) 13,958 13,958
-------- --------
Minority Interest 3,316 2,857
-------- --------
Commitments and Contingencies
(Notes 4, 9, 10 and 11)
Shareholders' Investment (Notes 5 and 6):
Common stock, $.10 par value, 50,000,000
shares authorized; 16,174,636 and
15,506,433 shares issued 1,617 1,551
Capital in excess of par value 74,740 64,188
Retained earnings 45,048 27,268
Treasury stock at cost, 21,413 and 1,521
shares (481) (22)
Net unrealized gain on available-for-sale
investments (Note 3) 8,763 -
-------- --------
129,687 92,985
-------- --------
$449,145 $390,476
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Cash Flows
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Operating Activities:
Net income $ 17,780 $ 12,540 $ 10,264 $ 9,651
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Minority interest
expense 1,275 1,457 1,148 1,119
Depreciation and
amortization 20,425 15,239 12,752 10,080
Deferred income tax
expense 3,086 6,088 3,987 7,396
Changes in current
accounts, excluding
the effect of
acquisition:
Restricted funds (6,944) 2,038 3,453 6,038
Accounts
receivable
and unbilled
revenues (2,130) (3,236) (11,050) 2,473
Inventories 1,584 (1,078) 582 809
Other current
assets 544 5,423 3,418 2,772
Accounts payable 148 (969) (931) 30
Lease obligations
payable 389 879 (1,668) (3,078)
Due (to) from
parent company 5,319 (874) (91) -
Other current
liabilities 3,599 2,787 3,572 (2,165)
Other 26 (77) 720 777
-------- -------- -------- --------
Net cash provided by
operating activities $ 45,101 $ 40,217 $ 26,156 $ 35,902
-------- -------- -------- --------
6PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Investing Activities:
Acquisition (Note 4) $ (8,088) $ - $ - $ -
Funding of long-term
restricted funds (2,073) (10,485) (7,907) (4,133)
(Increase) decrease in
other assets (3,004) (2,030) (2,030) 749
Purchases of property,
plant and equipment (36,587) (5,472) (5,350) (1,512)
-------- -------- -------- --------
Net cash used in
investing activities (49,752) (17,987) (15,287) (4,896)
-------- -------- -------- --------
Financing Activities:
Net proceeds from
issuance of
subordinated convert-
ible debentures
(Note 13) 35,942 - - -
Repayment of long-term
obligations (14,100) (11,200) (3,400) (16,300)
Payments under capital
lease obligations (7,191) (2,649) (2,649) -
Net proceeds from
issuance of Company
common stock (Note 5) 5,026 27,575 27,575 -
Distribution to minority
partner (947) (1,598) (1,060) (1,877)
Due to parent company - 542 - (13,283)
-------- -------- -------- --------
Net cash provided by
(used in) financing
activities 18,730 12,670 20,466 (31,460)
-------- -------- -------- --------
Increase (Decrease) in
Cash and Cash
Equivalents 14,079 34,900 31,335 (454)
Cash and Cash Equivalents
at Beginning of Period 49,159 14,259 17,824 18,278
-------- -------- -------- --------
Cash and Cash Equivalents
at End of Period $ 63,238 $ 49,159 $ 49,159 $ 17,824
======== ======== ======== ========
7PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Cash Paid For:
Interest $ 14,267 $ 12,310 $ 11,409 $ 6,804
Income taxes $ 101 $ 26 $ 25 $ 1
Noncash Activities:
Acquisition of asset
under capital lease $ - $ 47,020 $ 47,020 $ -
Reduction in lease
obligations payable - 1,980 1,980 -
-------- -------- -------- --------
Assumption of
obligations under
capital lease $ - $(49,000) $(49,000) $ -
======== ======== ======== ========
Fair value of assets of
acquired company $ 8,983 $ - $ - $ -
Cash paid for acquired
company (8,088) - - -
-------- -------- -------- --------
Liabilities assumed
of acquired
company $ 895 $ - $ - $ -
======== ======== ======== ========
Conversions of
subordinated
convertible
debentures $ 5,273 $ - $ - $ -
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
Thermo Ecotek Corporation
Consolidated Statement of Shareholders' Investment
Net
Unrealized
Common Gain on
Stock, Capital in Available-
$.10 Par Excess of Retained Treasury for-sale
(In thousands) Value Par Value Earnings Stock Investments
- -----------------------------------------------------------------------------
Balance January 1,
1994 $ 1,316 $36,826 $ 7,353 $ - $ -
Net income - - 9,651 - -
------- ------- ------- ------- -------
Balance December 31,
1994 1,316 36,826 17,004 - -
Net income - - 10,264 - -
Issuance of stock
under employees'
stock plans 2 89 - (22) -
Net proceeds from
initial public
offering of
common stock
(Note 5) 233 27,273 - - -
------- ------- ------- ------- -------
Balance September 30,
1995 1,551 64,188 27,268 (22) -
Net income - 17,780 - -
Net proceeds from
private placement
of common stock
(Note 5) 22 4,942 - - -
Issuance of stock
under employees'
and directors'
stock plans 18 503 - (459) -
Conversions of
noninterest-bearing
subordinated
convertible
debentures
(Note 13) 26 5,107 - - -
Change in net unrealized
gain on available-
for-sale investments
(Note 3) - - - - 8,763
------- ------- ------- ------- -------
Balance September 28,
1996 $ 1,617 $74,740 $45,048 $ (481) $ 8,763
======= ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
9PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Ecotek Corporation (the Company) is an environmental company
providing a range of environmentally responsible technologies and
products, including non-utility electric power generation using clean
combustion processes, engineered clean fuels, as well as environmentally
friendly pest control products through its biopesticides subsidiary,
Thermo Trilogy Corporation (Thermo Trilogy) (Note 4).
The Company is principally engaged in the development and operation
of alternative-energy electrical generation facilities. The Company
develops and operates facilities through joint ventures or limited
partnerships in which the Company has a majority interest, or through
wholly owned subsidiaries (the Operating Companies). The Company's
interests in the Operating Companies range from 60% to 100% and, in each
case, are held by wholly owned subsidiaries of the Company. Of the
facilities operated by the Company, three are owned by the Company and
the remainder are owned by unaffiliated parties who lease them to the
Operating Companies under long-term leases (Note 9).
Relationship with Thermo Electron Corporation
The Company was incorporated on November 30, 1989 as a wholly owned
subsidiary of Thermo Electron Corporation (Thermo Electron). At September
28, 1996, Thermo Electron owned 20,064,619 shares (adjusted to reflect
the three-for-two stock split distributed in October 1996 in the form of
a 50% stock dividend) of the common stock of the Company, representing
83% of the outstanding shares.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its majority-owned and wholly owned Operating Companies. All
significant intercompany accounts and transactions have been eliminated
in consolidation. The Company accounts for investments in businesses in
which it owns between 20% and 50% using the equity method.
Fiscal Year
In June 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's transition period, which ended on September
30, 1995, was the 39-week period from January 1, 1995 to September 30,
1995, referenced as "fiscal 1995." References to "fiscal 1996" and "1994"
are for the years ended September 28, 1996 and December 31, 1994,
respectively. Fiscal 1996 and 1994 each included 52 weeks. The unaudited
consolidated statements of income and cash flows for the 52-week period
ended September 30, 1995 are presented for comparative purposes only.
10PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash Equivalents and Restricted Funds
As of September 28, 1996, $53,250,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, U.S. government agency
securities, money market funds, commercial paper, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. Cash equivalents also
include investments in money market accounts. The use of cash and cash
equivalents totaling $7,603,000 and $6,402,000 at September 28, 1996 and
September 30, 1995, respectively, was restricted by the terms of certain
Operating Companies' lease and financing agreements.
Restricted funds in the accompanying balance sheet represent
amounts held in trust for lease and debt payments and working capital
requirements, as required by certain of the Operating Companies' lease
and financing agreements, and are invested in money market accounts.
Restricted funds that are not expected to be used within the next fiscal
year are classified as long-term in the accompanying balance sheet.
All cash equivalents and restricted funds are carried at cost,
which approximates market value.
Inventories
Inventories consist of raw materials, fuel, operating supplies,
spare parts, and include, where applicable, materials and overhead.
Inventories are stated at the lower of cost (on a first-in, first-out or
average basis) or market value. Work in process and finished goods were
not material at fiscal year-end 1996 and 1995.
Available-for-sale Investments
Pursuant to Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company's investments in long-term debt and marketable
equity securities are accounted for at market value (Note 3).
11PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant and Equipment
The costs of additions and improvements are capitalized. The
Company provides for depreciation and amortization using the
straight-line method over the estimated useful lives of the property as
follows: electric generating facilities - 25 years, property under
capital lease - the life of the asset, leasehold improvements - the
lesser of the term of the lease or the life of the asset, and machinery
and equipment - 3 to 7 years. Property, plant and equipment consist of
the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
Land $ 3,479 $ 3,479
Electric generating facilities (Notes 10 and 13) 200,425 200,324
Property under capital lease 47,020 47,020
Machinery and equipment 4,369 4,232
Leasehold improvements 15,032 14,445
Construction in process (Note 4) 39,059 3,297
-------- --------
309,384 272,797
Less: Accumulated depreciation and amortization 46,618 28,047
-------- --------
$262,766 $244,750
======== ========
Other Assets
Other assets in the accompanying balance sheet include certain
costs associated with the development, pre-operation, and startup of the
Company's alternative-energy facilities; prepaid rent relating to an
Operating Company's lease agreement; and goodwill that arose in
connection with the acquisition of an Operating Company. In fiscal 1996,
other assets also include deferred debt expense relating to the Company's
March 1996 issuance of subordinated convertible debentures (Note 13), and
patents, licenses, and other intangible assets arising from the Thermo
Trilogy acquisition (Note 4). These assets are being amortized using the
straight-line method over their estimated useful lives, which range from
5 to 30 years. These assets were $12.2 million and $9.2 million, net of
accumulated amortization of $4.5 million and $3.7 million, at fiscal
year-end 1996 and 1995, respectively.
In addition, other assets include an investment in a joint venture
in fiscal 1996 and an investment in KFx, Inc. (Note 3) in fiscal 1995.
12PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Other Deferred Items
Other deferred items in the accompanying balance sheet include rent
that has been recognized ratably for financial reporting purposes in
connection with an Operating Company's lease agreement (Note 9) and
deferred income in connection with the termination of a power-sale
agreement (Note 12).
Revenue Recognition
The Company earns revenues primarily from the operation of
alternative-energy facilities. Revenues from plant operations are
recorded as electricity is delivered. The Operating Companies have
long-term power supply arrangements with local utilities, expiring
between 2005 and 2020, to sell all the output of the plants currently in
operation at established or formula-based defined rates (Note 11). Under
certain of these arrangements, in the event of service termination by the
Operating Companies prior to the end of the obligation period, the
Operating Companies may be required to reimburse the utilities to the
extent that cumulative revenue calculated at established rates exceeds
the amounts calculated at the utilities' "avoided cost" rates. Management
does not expect to incur any obligation under these provisions in the
foreseeable future.
The Woodland plant has conditions in its nonrecourse lease
agreement that require the funding of a "power reserve" in years prior to
2000, based on projections of operating cash flow shortfalls in 2000 and
thereafter. The power reserve represents funds available to make lease
payments in the event that revenues are not sufficient after the plant
converts to avoided-cost rates in March 2000. This funding requirement
will significantly limit future profit distributions that Woodland may
make to the Company. Accordingly, beginning in the first quarter of
fiscal 1997, the Company will record as an expense, the funding of
reserves required under Woodland's nonrecourse lease agreement to cover
projected shortfalls in lease payments beginning in 2000. Consequently,
the Company expects that the results of the Woodland plant will be
reduced to approximately breakeven beginning in fiscal 1997 and
thereafter. During fiscal 1996, the Woodland plant contributed $5.1
million of operating income.
Repairs and Maintenance
The Company charges routine repairs and maintenance to expense in
the period the costs are incurred. The Company accrues for major
maintenance and overhauls in anticipation of scheduled outages. Other
accrued expenses in the accompanying balance sheet includes approximately
$4.7 million and $2.5 million at fiscal year-end 1996 and 1995,
respectively, in anticipation of major maintenance and overhauls.
13PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Income Taxes
The Company and Thermo Electron have a tax allocation agreement
under which the Company is included in the consolidated federal and
certain state income tax returns filed by Thermo Electron. The agreement
provides that Thermo Electron charges or pays the Company amounts based
on the Company's relative contribution to Thermo Electron's tax
liability. If Thermo Electron's equity ownership of the Company were to
drop below 80%, the Company would be required to file its own tax
returns.
In accordance with SFAS No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes based on the expected future tax
consequences of differences between the financial statement basis and the
tax basis of assets and liabilities calculated using enacted tax rates in
effect for the year in which the differences are expected to be reflected
in the tax return.
Earnings per Share
Primary earnings per share have been computed based on the weighted
average number of common shares outstanding and common stock equivalents
where dilutive, except for the effect of options granted during 1994
which, in accordance with Securities and Exchange Commission rules, was
reflected in earnings per share for 1994. Common stock equivalents in all
periods represent the effect of the assumed exercise of stock options,
where material. In addition, in fiscal 1996, common stock equivalents
include the assumed conversion of the noninterest-bearing subordinated
convertible debentures. Fully diluted earnings per share assumes the
exercise of stock options and the assumed conversion of the Company's
subordinated convertible debentures, and elimination of the related
interest expense.
Stock Split
In September 1996, the Company declared a three-for-two stock split
in the form of a 50% stock dividend, payable on October 16, 1996, to
shareholders of record as of October 2, 1996. All share and per share
information, except for share information in the accompanying balance
sheet, has been restated to reflect the stock split.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
14PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Presentation
Certain amounts in fiscal 1995 and 1994 have been reclassified to
conform to the fiscal 1996 financial statement presentation.
2. Unaudited Comparative Results
The following unaudited financial information for the nine months
ended October 1, 1994 is presented to provide comparative results for
fiscal 1995, included in the accompanying statement of income.
Nine
Months Ended
October 1,
(In thousands except per share amounts) 1994
------------
Revenues $102,081
--------
Costs and Operating Expenses:
Cost of revenues (includes $3,178 to related parties) 75,732
General and administrative expenses (includes $1,276 to
related parties) 7,104
--------
82,836
--------
Operating Income 19,245
Interest Income 1,116
Interest Expense (includes $2,101 to parent company) (8,377)
--------
Income Before Provision for Income Taxes and Minority
Interest 11,984
Provision for Income Taxes 3,799
Minority Interest Expense 810
--------
Net Income $ 7,375
========
Earnings per Share:
Primary $ .37
========
Fully diluted $ .28
========
Weighted Average Shares:
Primary 20,106
========
Fully diluted 30,921
========
15PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
3. Available-for-sale Investments
The Company accounts for certain investments in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." In accordance with SFAS No. 115, the Company's marketable
equity securities are considered available-for-sale investments in the
accompanying balance sheet and are carried at market value, with the
difference between cost and market value, net of related tax effects,
recorded currently as a component of shareholders' investment titled "Net
unrealized gain on available-for-sale investments." As of September 28,
1996, the Company held one long-term available-for-sale investment, an
investment in the common stock of KFx, Inc. (KFx), described below.
In August 1995, the Company purchased 1,500,000 shares of KFx
common stock representing an approximate 7% equity interest in KFx. The
cost of the purchase was $3,000,000. In fiscal 1996, the Company
purchased an additional 1,500,000 shares of KFx common stock for
$3,000,000, bringing its total equity interest in KFx to approximately
14%. This investment was not accounted for as an available-for-sale
investment in fiscal 1995 due to certain restrictions on the resale of
the stock, which expire on January 1, 1997. The fair market value of this
investment at September 28, 1996 was $20,254,000. Pursuant to the
purchase agreement, the Company has the right, but not the obligation, to
purchase an additional 1,250,000 shares of KFx common stock for $2.00 per
share at any time from December 1, 1996 through January 31, 1997, if such
shares are made available by KFx. Simultaneously with the execution of
the purchase agreement, KFx granted to the Company a warrant to purchase
an additional 7,750,000 shares at $3.65 per share, as well as a warrant
to purchase further shares of the common stock of KFx at market value,
defined so that the number, when added to all other shares of such common
stock owned by the Company, would result in the Company owning 51% of the
common stock of KFx on a fully-diluted basis. These warrants are
exercisable from January 1, 2000 through July 1, 2001, but would
terminate in the event that the Company did not purchase the shares made
available by KFx as described above.
4. Acquisition and Projects Under Development
Acquisition
In May 1996, the Company, through two wholly owned subsidiaries,
acquired the net assets of the biopesticides division of W.R. Grace & Co.
(renamed Thermo Trilogy) which develops, manufactures, and markets
environmentally friendly products used for pest control, for $8.1 million
in cash. In addition, the Company will pay a royalty fee of seven percent
on annual sales of the acquired business in excess of $14 million through
the year 2000.
This acquisition has been accounted for using the purchase method
of accounting and its results of operations have been included in the
accompanying financial statements from the date of acquisition. The
aggregate cost of this acquisition approximated the fair value of the net
16PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
4. Acquisition and Projects Under Development (continued)
assets acquired and is subject to adjustment upon finalization of the
purchase price allocation. Pro forma data is not presented since this
acquisition was not material to the Company's results of operations and
financial position.
Projects Under Development
In August 1995, the Company, through two wholly owned subsidiaries,
entered into a Limited Partnership Agreement with KFx Wyoming, Inc., a
subsidiary of KFx, to develop, construct, and operate a 500,000-ton-per-
year subbituminous coal-beneficiation plant near Gillette, Wyoming. The
Company is committed to provide approximately $48 million for the design,
construction, and operation of the plant and will have a 95% equity
interest in the project. Construction began in August 1995 with
commercial operations expected to begin in the first half of fiscal 1997.
As of September 28, 1996, the Company is committed to fund an additional
$9.3 million to complete construction of the facility. The Company has
also made an investment in KFx (Note 3).
In July 1995, the Company entered into an agreement to invest $15
million in a 185-megawatt combined cycle, steam-turbine electric
generation facility located in Puerto Plata, Dominican Republic, owned by
Smith/Enron Cogeneration Limited Partnership (SECLP). Under the terms of
the agreement, the Company will acquire both a general and limited
partnership interest in Smith Cogeneration Dominicana L.P. (Smith
Cogeneration), which through its investment in SECLP, owns approximately
50% of the project. The Company will receive a minority interest in Smith
Cogeneration equivalent to a specified percentage of all project cash
flow and profits and losses. The Company's exact percentage interest in
Smith Cogeneration will not be finally determined until six months after
the funding of the Company's investment, which is expected to occur
during calendar 1997, assuming certain conditions are met.
5. Shareholders' Investment
In June 1996, the Company sold 330,000 shares of its common stock
in a private placement at $16.08 per share, for net proceeds of $5.0
million.
In February 1995, the Company sold 3,500,334 shares of its common
stock in an initial public offering at $8.50 per share, for net proceeds
of approximately $27.5 million.
Substantially all of the net assets of the Company represent net
assets of the Operating Companies. The net assets of certain Operating
Companies are generally restricted as to the amounts that can be
transferred to the parent company in the form of dividends, loans or
advances, pursuant to certain lease or debt agreements. As of September
28, 1996, net assets of certain subsidiaries of approximately $73.3
million were not restricted from distribution.
17PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
5. Shareholders' Investment (continued)
At September 28, 1996, the Company had reserved 12,731,796 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and for issuance upon possible conversion of the
Company's convertible obligations.
6. Stock-based Compensation Plans
The Company has stock-based compensation plans for its key
employees, directors, and others. Two of these plans, adopted in 1990,
permit the grant of nonqualified and incentive stock options. A third
plan, adopted in 1994, permits the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted
stock, stock options, stock bonus shares, or performance-based shares. To
date, only nonqualified stock options have been awarded under the
Company's plans. The option recipients and terms of options granted under
these plans are determined by the Board Committee. Options granted under
these plans are exercisable immediately and expire seven to twelve years
after the date of grant. However, the shares acquired upon exercise are
subject to certain transfer restrictions and repurchase by the Company at
the exercise price, upon certain events. These restrictions and
repurchase rights generally lapse ratably over periods ranging from five
to ten years after the first anniversary of the grant date, depending on
the term of the option, which may range from seven to twelve years.
Nonqualified options may be granted at any price determined by the Board
Committee, although incentive stock options must be granted at not less
than the fair market value of the Company's stock on the date of grant.
To date, all options have been granted at fair market value. The Company
also has a directors' stock option plan, adopted in 1991, that provides
for the grant of stock options to outside directors pursuant to a formula
approved by the Company's shareholders. Options awarded under this plan
are exercisable six months after the date of grant and expire three to
seven years after the date of grant. In addition to the Company's stock
option plan, certain officers and key employees may also participate in
stock-based compensation plans of Thermo Electron or its majority-owned
subsidiaries.
18PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
6. Stock-based Compensation Plans (continued)
No accounting recognition is given to options granted at fair market
value until they are exercised. A summary of the Company's stock option
information for fiscal 1996, fiscal 1995, and 1994 is as follows:
1996 1995 1994
---------------- ---------------- ---------------
Range of Range of Range of
Option Option Option
Number Prices Number Prices Number Prices
(In thousands except of per of per of per
per share amounts) Shares Share Shares Share Shares Share
--------------------------------------------------------------------------
Options outstanding, $ 4.00- $4.00- $4.00-
beginning of period 1,491 $ 6.00 1,539 $6.00 1,289 $5.50
10.18- 5.83-
Granted 309 16.49 - - 292 6.00
4.00- 4.00-
Exercised (349) 6.00 (22) 5.83 - -
5.50- 4.00- 5.50-
Lapsed or cancelled (12) 10.18 (26) 5.83 (42) 6.00
----- ----- -----
Options outstanding, $ 4.00- $4.00- $4.00-
end of period 1,439 $16.49 1,491 $6.00 1,539 $6.00
===== ===== =====
$ 4.00- $4.00- $4.00-
Options exercisable 1,439 $16.49 1,491 $6.00 1,539 $6.00
===== ===== =====
Options available for
grant 365 662 636
===== ===== =====
7. Employee Benefit Plans
401(k) Savings Plan and Employee Stock Ownership Plan
Substantially all of the Company's corporate, full-time employees are
eligible to participate in Thermo Electron's 401(k) savings plan and employee
stock ownership plan (ESOP). Contributions to the Thermo Electron 401(k)
savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. The Company
contributed and charged to expense for these plans $114,000, $66,000, and
$138,000 in fiscal 1996, fiscal 1995, and 1994, respectively. Effective
December 31, 1994, the ESOP was split into two plans: ESOP I, covering
employees of Thermo Electron's corporate office and its wholly owned
subsidiaries, and ESOP II, covering employees of certain of Thermo Electron's
majority-owned subsidiaries, including the Company. Also, effective December
31, 1994, ESOP II plan was terminated and as a result, the Company's
employees are no longer eligible to participate in an ESOP.
19PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
7. Employee Benefit Plans (continued)
Employees of the Operating Companies who meet eligibility
requirements may participate in a separate defined contribution plan.
Contributions to the plan are made by both the employee and the Operating
Companies. The Operating Companies' contributions are based on the level
of employee contributions. The Company contributed and charged to expense
for these plans $165,000, $91,000, and $131,000 in fiscal 1996, fiscal
1995, and 1994, respectively.
Employee Stock Purchase Plan
Prior to November 1, 1996, the Company's eligible corporate
employees could participate in an employee stock purchase plan sponsored
by Thermo Electron, under which employees could purchase shares of Thermo
Electron common stock. Effective November 1, 1996, substantially all of
the Company's employees may participate in employee stock purchase plans
sponsored by the Company and Thermo Electron, under which employees can
purchase shares of the Company's and Thermo Electron's common stock.
Under these plans, shares of common stock may be purchased at the end of
a 12-month plan year at 95% of the fair market value at the beginning of
the plan year, and shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, shares of Thermo Electron's
common stock could be purchased at 85% of the fair market value at the
beginning of the plan year, and shares purchased were subject to a
one-year resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages.
8. Income Taxes
The components of the provision for income taxes for fiscal 1996,
fiscal 1995, and 1994 are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable (refundable):
Federal $ 2,899 $ 1,647 $(1,957)
State 1,286 393 (467)
------- ------- -------
4,185 2,040 (2,424)
------- ------- -------
Deferred:
Federal 2,485 3,257 5,766
State 601 730 1,630
------- ------- -------
3,086 3,987 7,396
------- ------- -------
$ 7,271 $ 6,027 $ 4,972
======= ======= =======
20PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
The provision for income taxes in the accompanying statement of
income for fiscal 1996, fiscal 1995, and 1994 differs from the amounts
computed by applying the statutory federal income tax rate of 34% to
income before provision for income taxes and minority interest, due to
the following:
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Provision for income taxes at
statutory rate $8,951 $5,929 $5,352
Increases (decreases) resulting from:
State income taxes, net of federal tax 1,245 741 1,078
Minority interest expense (434) (390) (380)
Tax losses and credits benefited (2,528) (270) (1,100)
Nondeductible expenses 37 17 22
------ ------ ------
$7,271 $6,027 $4,972
====== ====== ======
Tax losses and credits benefited during fiscal 1996 relate to the
resolution of certain tax contingencies.
Prepaid income taxes and deferred income taxes as of fiscal year-
end 1996 and 1995 consist of the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
(Deferred) prepaid income taxes:
Depreciation $(40,924) $(36,355)
Partnership allocations (577) (922)
Available-for-sale investments (5,487) -
State tax net operating loss carryforwards 1,789 1,535
Capitalized costs 5,253 3,887
Other reserves and accruals 2,994 2,847
-------- --------
(36,952) (29,008)
Less: Valuation allowance (3,665) (3,037)
-------- --------
$(40,617) $(32,045)
======== ========
The valuation allowance relates to uncertainty surrounding the
realization of certain state tax loss carryforwards and stock option
exercises not benefited. The increase in the valuation allowance in
fiscal 1996 relates to an increase in state tax losses not benefited and
other state tax assets. State tax loss carryforwards of approximately $20
million will begin to expire in 1997. Of the fiscal 1996 valuation
allowance, $898,000 will be used to increase capital in excess of par
value when previously unrealized stock option benefits are recognized.
The long-term due from parent company in the accompanying balance sheet
represents amounts due from Thermo Electron for tax benefits arising from
the Company's operations.
21PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
9. Commitments
Leases
The Company has leased its office facilities from Thermo Electron.
The agreement called for the Company to pay rent based on Thermo
Electron's occupancy costs per square foot. The accompanying statement of
income includes expenses of $177,000, $143,000, and $176,000 in fiscal
1996, fiscal 1995, and 1994, respectively. The Company plans to move its
office facilities in fiscal 1997 and has signed a seven-year fixed rate
lease agreement with a third party that expires in 2003. The Company's
commitment under this new lease agreement will be approximately $300,000
per fiscal year, net of sublease income of $178,000 per fiscal year.
Certain Operating Companies have operating lease agreements for
their facilities expiring in various years through 2010. The lease
agreements provide for renewal of each of the leases for additional
periods ranging from one to five years at the Operating Companies'
option. In general, renewal options are at the lower of a predetermined
percentage of the average annual lease rental during the lease terms or
the fair market rental as determined by an independent appraisal. In
general, at the end of the lease terms or renewal terms, the Operating
Companies have a right of first refusal or an option to purchase the
facilities, at their fair market value, as determined by an independent
appraisal. During fiscal 1995, the Company amended an existing facility
operating lease, which resulted in the agreement being treated as a
capital lease (Note 13).
Lease payments under the operating leases are made to the owner of
the facility only to the extent that power revenues exceed essential
operating expenses, as defined, up to certain specified maximum levels
(Note 10). Subject to the foregoing, as of September 28, 1996, the
contractual amounts payable pursuant to the lease agreements total
approximately $164,253,000 over the remaining initial lease terms,
averaging approximately $16,000,000 per year. The Company recognizes rent
expense ratably over the respective lease terms. The accompanying
statement of income includes expenses from operating leases (excluding
the operating lease with Thermo Electron) of $15,233,000, $13,402,000,
and $23,385,000 in fiscal 1996, fiscal 1995, and 1994, respectively.
Fuel Supply
The Operating Companies have entered into fuel supply agreements
with various suppliers guaranteeing the purchase of certain minimum
quantities of acceptable fuel at negotiated prices and terms. The
Operating Companies purchased $20,013,000, $13,804,000, and $22,615,000
of fuel under such contracts in fiscal 1996, fiscal 1995, and 1994,
respectively. The agreements call for price adjustments based on certain
published indices or stated rates over their terms expiring between 1997
and 2005. See Note 10 for fuel supply agreements with related parties.
22PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
10. Related Party Transactions
Corporate Service Agreement
The Company and Thermo Electron have a corporate services
agreement under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
an amount equal to 1.0% of the Company's revenues. The Company paid an
annual fee equal to 1.20% and 1.25% of the Company's revenues in calendar
year 1995 and 1994, respectively. The annual fee is reviewed and adjusted
by mutual agreement of the parties. For these services, the Company was
charged $1,570,000, $1,286,000, and $1,678,000 in fiscal 1996, fiscal
1995, and 1994, respectively. Management believes that the service fee
charged by Thermo Electron is reasonable and that such fees are
representative of the expenses the Company would have incurred on a
stand-alone basis. The corporate services agreement is renewed annually
but can be terminated upon 30 days' prior notice by the Company or upon
the Company's withdrawal from the Thermo Electron Corporate Charter (the
Thermo Electron Corporate Charter defines the relationships among Thermo
Electron and its majority-owned subsidiaries). For additional items such
as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable
to the Company.
Fuel Supply
A portion of the fuel used by the Operating Companies' facilities
is obtained under agreements with related parties of the Operating
Companies or their joint venture partners (Note 9). During fiscal 1996,
fiscal 1995, and 1994, the Company paid $4,563,000, $2,946,000, and
$4,331,000, respectively, under these agreements.
Management Fees
One of the Operating Companies has entered into management
agreements with a related party of its joint venture partner for the
day-to-day operation of its facility and the procurement and management
of fuel. During fiscal 1996, fiscal 1995, and 1994, the Company paid
$350,000, $253,000, and $322,000, respectively, under these agreements.
Thermo Electron Guarantees
Thermo Electron has issued an operating standards support
agreement for each of the facilities leased or financed by the Operating
Companies. These agreements provide that Thermo Electron will loan the
Operating Companies, on a subordinated basis, enough funds to meet their
lease or debt payments in the event the power plants are unable to
generate power at a designated level and such inability is related to the
design, construction, operation or maintenance of the plants and not
caused by certain uncontrollable circumstances.
23PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
10. Related Party Transactions (continued)
Thermo Electron has also guaranteed the lease payments of one of
the Operating Companies under certain events. Under the terms of this
guarantee, Thermo Electron will loan funds to the Operating Company to
cover any shortfall in its lease payment in the event and to the extent
the terms of the Operating Company's power purchase agreements are
changed by Public Service Company of New Hampshire (PSNH) (Note 11). No
such payments have been required under this guarantee.
The Company and Thermo Electron have entered into a Master
Reimbursement Agreement through which the Company will reimburse Thermo
Electron in the event that Thermo Electron is required to make any
payments pursuant to guarantees, including those guarantees described
above.
Operating Lease
See Note 9 for a description of the Company's operating lease with
Thermo Electron.
Long-term Obligations
See Note 13 for long-term obligations of the Company held by
Thermo Electron.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
11. Contingencies
Two of the Operating Companies have Rate Orders from the New
Hampshire Public Utilities Commission (NHPUC) to sell all of their power
to PSNH. An agreement between Northeast Utilities, parent to PSNH, and
the State of New Hampshire, arising from the settlement of PSNH
bankruptcy proceedings, contains language to the effect that PSNH will
seek to renegotiate some of the terms of certain rate orders with small
power producers and that the state will support PSNH in such efforts.
PSNH has commenced discussions with these two Operating Companies and
other small power producers through which it is seeking to renegotiate
the rate orders applicable to the Company's and other facilities. The
state, acting through NHPUC, has indicated that it supports such efforts.
Based on negotiations between the Operating Companies and PSNH, the
Company believes that this matter may reach resolution in fiscal 1997,
although final resolution is subject to approval of the NHPUC. Should the
matter not reach resolution, the Company does not believe that PSNH has
the right to take unilateral action to reduce the price of purchased
power under such arrangements. Rejection of the Company's rate orders
would result in a claim for damages by the Company and could be the
subject of lengthy litigation. Although unfavorable resolution of this
matter could materially affect the Company's results of operations and
24PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
11. Contingencies (continued)
cash flows, the Company believes that any resolution will not have a
material adverse impact on the Company's financial position.
The Company is contingently liable with respect to lawsuits and
matters that arose in the normal course of business. In the opinion of
management, these contingencies will not have a material adverse effect
on the financial position or results of operations of the Company.
12. Termination of Power-Sales Agreement
On August 2, 1993, in exchange for a cash settlement, the Company
agreed to terminate a power-sales agreement with a utility, which
required the utility to purchase the power that was to be generated by
the Company's 55-megawatt natural gas cogeneration facility under
development in Staten Island, New York.
Under the agreement, the Company has received $17.1 million through
fiscal 1996, with a future payment due of $900,000 on May 1, 1997, plus
interest at 5.8%. The payment due in May 1997 is included in other
current assets and note receivable in the accompanying balance sheet as
of September 28, 1996 and September 30, 1995, respectively.
The Company would be obligated to return $8.2 million of this
settlement if the Company elects to proceed with the Staten Island
facility and the plant commences commercial operation before January 1,
2000. Accordingly, the Company has deferred recognition of $8.2 million
of revenues, pending final determination of the project's status. The
deferred revenue is included in other deferred items in the accompanying
balance sheet.
25PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
13. Long-term Obligations
Long-term obligations as of fiscal year-end 1996 and 1995 consist
of the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
8.3% Nonrecourse tax-exempt revenue bonds,
Series 1989, payable in semi-annual
installments, with a final payment in
December 2000 $ 24,700 $ 28,900
8.3% Nonrecourse tax-exempt revenue bonds,
Series 1990, payable in semi-annual
installments, with a final payment in
December 2000 26,500 30,200
6.0% Nonrecourse tax-exempt revenue bonds,
Series 1991, payable in semi-annual
installments, with a final payment in
June 2000 43,500 49,700
4.0% Subordinated convertible debentures,
due January 2001, convertible at $6.33
per share, due to Thermo Electron 68,500 68,500
Noninterest-bearing subordinated convertible
debentures, due March 2001, convertible at
$13.56 per share 31,727 -
-------- --------
194,927 177,300
Less: current portion of long-term obligations 16,800 14,100
-------- --------
$178,127 $163,200
======== ========
The annual requirements for long-term obligations are as follows:
(In thousands)
----------------------------------------------
1997 $ 16,800
1998 26,100
1999 18,100
2000 19,200
2001 114,727
--------
$194,927
========
The Company's noninterest-bearing subordinated convertible
debentures are guaranteed on a subordinated basis by Thermo Electron. In
fiscal 1996, $5.3 million principal amount of the debentures was
converted into 388,862 shares of the Company's common stock.
26PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
13. Long-term Obligations (continued)
The tax-exempt revenue bonds were issued by the California
Pollution Control Financing Authority to finance the construction of the
Delano I and Delano II facilities. The obligations are credit-enhanced by
a letter of credit issued by a bank group. Repayment of the debt is an
obligation of Delano and the obligations are nonrecourse to the Company.
As of September 28, 1996, Delano I and Delano II plant and equipment
totaling approximately $173.0 million were collateral for this debt.
On June 30, 1995, the Mendota Operating Company entered into a
First Amendment to its Project Lease. The Amendment, effective April 1,
1995, modified, among other terms of the lease, the lease term, the base
rent, the application of cash flow from the facility, and the lessee's
option to purchase the facility. The terms of the lease, as amended, met
the requirements for treatment as a capital lease and accordingly, the
facility has been recorded as an asset of the Company in the amount of
$47.0 million and is included in property, plant and equipment, net in
the accompanying balance sheet.
The future minimum lease payments under the amended lease are as
follows:
(In thousands)
--------------------------------------------------
1997 $12,033
1998 12,033
1999 12,033
2000 12,868
-------
48,967
Less: amount representing interest 9,807
-------
Present value of minimum lease payments 39,160
Less: current portion 8,006
-------
Long-term capital lease obligations $31,154
=======
See Note 15 for information pertaining to the fair value of the
Company's long-term obligations.
27PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
14. Significant Customers and Concentrations of Credit Risk
Revenues from three electric utility customers as a percentage of
total revenues were approximately 21%, 36%, and 36% in fiscal 1996; 22%,
36%, and 36% in fiscal 1995; and 20%, 40%, and 33% in 1994.
At fiscal year-end 1996 and 1995, substantially all accounts
receivable due to the Company were from its four electric utility
customers. The Company does not normally require collateral or other
security to support its accounts receivable. Management does not believe
that this concentration of credit risk has or will have a significant
negative impact on the Company.
15. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and
cash equivalents, restricted funds, accounts and note receivable,
long-term available-for-sale investments, due from parent company,
current portion of long-term obligations, accounts payable, due to parent
company, long-term obligations, and interest rate swaps. The carrying
amounts of these financial instruments, with the exception of long-term
available-for sale investments, due from parent company, long-term
obligations, and interest rate swaps, approximate fair value due to their
short-term nature.
The Company's long-term available-for-sale investments are carried
at fair value in the accompanying balance sheet. The fair value was
determined based on a quoted market price. See Note 3 for the fair value
information pertaining to this financial instrument. The carrying amount
of due from parent company in the accompanying balance sheet approximates
fair value.
The fair value of long-term obligations was determined based on
quoted market prices and on borrowing rates available to the Company at
the respective year ends. The fair value of convertible obligations at
fiscal year-end 1996 and 1995 exceeds the carrying amount primarily due
to the market price of the Company's common stock exceeding the
conversion price of the convertible obligations. The carrying amount and
fair value of the Company's long-term obligations and off-balance sheet
financial instruments at fiscal year-end 1996 and 1995 are as follows:
1996 1995
------------------- -----------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------------------------------------------------------
Long-term obligations:
Convertible obligations $100,227 $199,696 $ 68,500 $114,600
Other long-term obligations 109,054 111,727 133,860 137,651
-------- -------- -------- --------
$209,281 $311,423 $202,360 $252,251
======== ======== ======== ========
Off-balance-sheet financial
instruments:
Interest rate swaps payable $ 2,673 $ 3,792
======== ========
28PAGE
<PAGE>
Thermo Ecotek Corporation
Notes to Consolidated Financial Statements
15. Fair Value of Financial Instruments (continued)
Interest rate swap agreements are in place on the borrowings
associated with the Delano I and Delano II facilities and are with a
different counterparty than the holders of the underlying debt. These
swaps have terms expiring in December 2000 commensurate with the final
maturity of the debt. The swaps have effectively converted floating rate
debt to fixed rate borrowings. Interest expense is adjusted with changes
in the interest rate and management believes any credit risk is remote.
The notional amount of the swap agreements was $95.7 million and $110.0
million at fiscal year-end 1996 and 1995, respectively. The fair value of
such agreements is the estimated amount that the Company would pay upon
termination of the contract, taking into account the change in market
interest rates and creditworthiness of the counterparties. During fiscal
1996 and fiscal 1995, the average variable rate received under the swap
agreement was 3.6% and 3.8%, respectively.
16. Unaudited Quarterly Information
(In thousands except per share amounts)
Three Months Ended
--------------------------------------------
Dec. 30, March 30, June 29, Sept. 28,
Fiscal 1996 1995 1996 1996 (a) 1996
Revenues $34,296 $33,505 $35,316 $46,959
Gross profit 10,107 6,945 10,852 20,289
Net income 3,052 609 3,024 11,095
Earnings per share:
Primary .13 .02 .11 .41
Fully diluted .10 .02 .09 .31
April 1, July 1, Sept. 30,
Fiscal 1995 1995 1995 1995
Revenues $31,015 $34,044 $42,080
Gross profit 5,347 9,576 18,119
Net income 411 2,076 7,777
Earnings per share:
Primary 0.02 0.09 0.33
Fully diluted 0.02 0.07 0.24
(a) Reflects the May 1996 acquisition of the biopesticides division of
W.R. Grace & Co.
29PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Ecotek Corporation:
We have audited the accompanying consolidated balance sheet of
Thermo Ecotek Corporation (a Delaware corporation and majority-owned
subsidiary of Thermo Electron Corporation) and subsidiaries as of
September 28, 1996 and September 30, 1995 and the related consolidated
statements of income, shareholders' investment, and cash flows for the
year ended September 28, 1996, the nine months ended September 30, 1995,
and the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Ecotek Corporation and subsidiaries as of September 28, 1996 and
September 30, 1995 and the results of their operations and their cash
flows for the year ended September 28, 1996, the nine months ended
September 30, 1995, and the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
30PAGE
<PAGE>
Thermo Ecotek Corporation
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. These statements involve a number of risks and
uncertainties, including those detailed immediately after this
Management's Discussion and Analysis of Financial Condition and Results
of Operations under the caption "Forward-looking Statements."
Overview
The Company earns revenues primarily from the operation of
independent electric power generation facilities through joint ventures,
limited partnerships, or wholly owned subsidiaries (the Operating
Companies). Each Operating Company sells power under a long-term power-
sale agreement. The profitability of operating the Company's facilities
depends on the price received for power under the power-sale agreements
with power purchasers, on plant performance or availability, on the
degree to which utilities exercise curtailment rights granted under
power-sale agreements, and on the fuel, operating, and maintenance costs
for the facilities. Curtailment rights allow a utility to require an
Operating Company to curtail power output up to pre-established annual
levels during periods of low system demand. A utility commonly
experiences low system demand during periods when hydroelectric power is
available, generally following periods of heavy rain or snow. The
contractually allowable maximum for such curtailment at both the Woodland
and Mendota plants is 1,000 hours per year. The Company experienced
approximately 930 and 950 hours of curtailment at each of the two plants
during fiscal 1996 and fiscal 1995, respectively. In 1994, the Company
experienced no curtailment at these two plants. The Company earns a
disproportionately high share of its income from May to October due to
the rate structures under the power-sale agreements for its California
plants, which provide strong incentives to operate during this period of
high demand. Conversely, the Company has historically operated at a loss
or marginal profitability during its second fiscal quarter due to the
rate structure under these agreements. The Company's profitability is
also dependent on the amount of development expenses that it incurs.
The Company is expanding beyond biomass power generation into other
environmentally responsible products and processes. Through two wholly
owned subsidiaries, the Company acquired the biopesticides division of
W.R. Grace & Co. (renamed Thermo Trilogy), which develops, manufactures,
and markets environmentally friendly products used for pest control.
Derived from seeds of the tropical "neem" tree and specially developed
microbials, these biopesticides safely and effectively control insects,
fungi, and mites on numerous crops. The Company has also entered the
field of engineered "clean" fuels through a partnership agreement with
KFx, Inc. (KFx). The Company is committed to provide approximately $48
million for the design, construction, and operation of the first
full-scale coal production facility to use a patented "clean coal"
technology (K-Fuel technology). Once completed, the Gillette, Wyoming,
facility will use the K-Fuel technology to transform high-moisture,
low-energy coal into a low-moisture, high-energy, solid fuel.
31PAGE
<PAGE>
Thermo Ecotek Corporation
Overview (continued)
The Company plans to expand its operations into international
markets and has begun business development efforts in India, Italy, and
the Czech Republic. The cost of business development efforts is expected
to increase as the Company expands into these markets due to increased
complexity inherent in foreign development. In addition, the amount of
cash required to fund equity investments is expected to increase, due to
the financing requirements of lenders in foreign markets.
Results of Operations
In June 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 of each year to the Saturday nearest
September 30 of each year. Accordingly, the results of operations for
1996 compares the year ended September 28, 1996 (fiscal 1996) with the
unaudited year ended September 30, 1995 (1995). The results of operations
for 1995 compares the nine months ended September 30, 1995 (fiscal 1995)
with the unaudited nine months ended October 1, 1994 (fiscal 1994).
Fiscal 1996 Compared With 1995
Revenues in fiscal 1996 were $150.1 million, compared with $139.3
million in 1995, an increase of $10.8 million. The increase was primarily
due to higher contractual energy rates in fiscal 1996 at all of the
Company's facilities, except the Hemphill plant, as well as fewer days of
scheduled and unscheduled outages at the Delano plants, and the inclusion
of $1.7 million in revenues from Thermo Trilogy, which was acquired in
May 1996. Pursuant to the Company's utility contracts for its four plants
in California, there will be no further contractual energy rate increases
beginning in calendar 1998.
The gross profit margin increased to 32% during fiscal 1996 from
29% in 1995. The improvement results largely from the effect of higher
energy rates in 1996 and, to a lesser extent, lower fuel costs.
The Company's plants have power-sales agreements under which
utilities presently purchase power at fixed rates. Certain of these
arrangements contain provisions under which the utilities will convert
from fixed rates to "avoided-cost" rates at specified dates. Avoided-cost
rates are currently substantially less than the Operating Companies'
fixed rates. The Woodland plant, which converts to avoided-cost rates in
March 2000, has conditions in its nonrecourse lease agreement that
require the funding of a "power reserve" in years prior to 2000, based on
projections of operating cash flow shortfalls in 2000 and thereafter. The
power reserve represents funds available to make lease payments in the
event that revenues are not sufficient after the plant converts to
avoided-cost rates.
32PAGE
<PAGE>
Thermo Ecotek Corporation
Fiscal 1996 Compared With 1995 (continued)
Although it is difficult to predict future levels of avoided costs,
based on current estimates, avoided costs are expected to be lower in
2000 than the rates currently being paid. If the Woodland plant were to
operate at projected avoided-cost levels, substantial losses would
result, primarily due to nonrecourse lease obligations that extend beyond
2000. Absent sufficient reductions in fuel prices and other operating
costs, under such circumstances the Company would either renegotiate its
nonrecourse lease for the Woodland plant or forfeit its interest in the
plant. Beginning in the first quarter of fiscal 1997, the Company will
record as an expense the funding of reserves required under Woodland's
nonrecourse lease agreement to cover projected shortfalls in lease
payments beginning in 2000. As a result, the Company expects that the
results of the Woodland plant will be reduced to approximately breakeven
beginning in fiscal 1997 and thereafter. During fiscal 1996, the Woodland
plant contributed $5.1 million of operating income.
Public Service Company of New Hampshire (PSNH) is seeking to
renegotiate the rate orders applicable to the Company's two New Hampshire
facilities. The Company is currently negotiating with PSNH and believes
that this matter may reach resolution in fiscal 1997, although final
resolution is subject to approval of the New Hampshire Public Utilities
Commission. Should resolution not occur, the Company does not believe
that PSNH has the right to take unilateral action to reduce the price of
purchased power under the rate orders. An unfavorable resolution of this
matter could materially affect the Company's results of operations and
cash flows, although the Company believes that any resolution will not
have a material adverse impact on the Company's financial position.
General and administrative expenses as a percentage of revenues
were 8% in fiscal 1996, compared with 7% in 1995. The change results
primarily from an ongoing increase in business development efforts and
the inclusion of higher general and administrative expenses as a
percentage of revenues at Thermo Trilogy.
Interest income increased to $5.1 million in fiscal 1996 from $3.3
million in 1995, primarily due to interest income earned on invested
proceeds from the issuance of subordinated convertible debentures in
March 1996 (Note 13) and the Company's initial public offering in
February 1995. Interest expense increased to $14.7 million during fiscal
1996 from $13.3 million in 1995, primarily due to the conversion of the
Mendota plant lease to a capital lease effective April 1995.
The effective tax rates were 28% and 34% in fiscal 1996 and 1995,
respectively. The rates in both years reflect the exclusion of income
taxed directly to minority partners, as well as the benefit of tax
credits and loss carryforwards, offset in part by state income taxes. The
decrease in the effective tax rate in fiscal 1996 is due to the
recognition of tax loss and credit carryforwards as a result of the
resolution of certain tax contingencies. The Company expects the
effective tax rate in fiscal 1997 to decline due to tax credits resulting
from production at the Company's coal-beneficiation facility.
33PAGE
<PAGE>
Thermo Ecotek Corporation
Fiscal 1996 Compared With 1995 (continued)
Minority interest expense in fiscal 1996 and 1995, represents the
allocation of income from plant operations to a minority partner in an
Operating Company.
Fiscal 1995 Compared With Fiscal 1994
Revenues in fiscal 1995 increased 5% to $107.1 million from $102.1
million in fiscal 1994. The increase was primarily due to the Whitefield,
New Hampshire plant operating for the full 1995 period. During fiscal
1994, this plant did not operate for most of the first six months due to
major damage to the turbine-generator. The plant returned to normal
operations late in the second quarter of fiscal 1994. In addition, higher
contractual energy rates in fiscal 1995 at all of the Company's
facilities, except the Hemphill plant, were largely offset by
approximately 950 hours of utility-imposed curtailment of power output at
the Mendota and Woodland plants in fiscal 1995, compared with no
curtailment at these plants in fiscal 1994.
The gross margin increased to 31% in fiscal 1995 from 26% in fiscal
1994. Fiscal 1995 operating expenses were lower than fiscal 1994 largely
due to reduced fuel prices at two plants in California. The effect on the
gross profit margin of higher contractual energy rates in fiscal 1995 was
largely offset by utility imposed curtailment of power output at the
Mendota and Woodland plants. Lower lease expense in fiscal 1995 due to
the conversion of the Mendota operating lease to a capital lease (Note
13) was more than offset by higher depreciation expense on the facility.
Despite a loss of revenues in fiscal 1994 resulting from the Whitefield
turbine-generator damage, the gross profit margin in fiscal 1994 was
largely unaffected due to the Company's business insurance coverage.
General and administrative expenses as a percentage of revenues
were 7% in fiscal 1995 and fiscal 1994.
Interest income increased to $2.8 million in fiscal 1995 from $1.1
million in fiscal 1994 due to interest income earned on invested proceeds
from the Company's initial public offering (Note 5) and higher prevailing
interest rates. Interest expense increased to $10.6 million in fiscal
1995 from $8.4 million in fiscal 1994 largely due to the conversion of
the Mendota lease to a capital lease, offset in part by lower outstanding
debt at the Delano facilities.
The effective tax rates were 35% and 32% in fiscal 1995 and fiscal
1994, respectively. The effective tax rates were affected by the benefit
of tax credits and loss carryforwards and the exclusion of certain income
taxed directly to minority partners, offset in part by the effect of
state income taxes.
Minority interest expense in fiscal 1995 and fiscal 1994,
represents the allocation of income from plant operations to a minority
partner in an Operating Company.
34PAGE
<PAGE>
Thermo Ecotek Corporation
Liquidity and Capital Resources
Working capital increased to $76.2 million at September 28, 1996
from $58.4 million at September 30, 1995. The Company had cash, cash
equivalents, and current restricted funds of $82.2 million at September
28, 1996, compared with $61.2 million at September 30, 1995. At September
28, 1996 and September 30, 1995, restricted funds held in trust pursuant
to certain lease and debt agreements totaled $18.9 million and $12.0
million, respectively. The use of cash and cash equivalents of $7.6
million and $6.4 million at September 28, 1996 and September 30, 1995,
respectively, was also restricted by the terms of certain lease and
financing agreements. These restrictions limit the ability of the
Operating Companies to transfer funds to the Company in the form of
dividends, loans, advances, or other distributions. In addition, until
such time, if ever, as projections of avoided costs change, all cash
flows from the Woodland Operating Company, other than cash distributed to
the Company for taxes on the income of the Operating Company, will be
restricted from distribution to the Company. During fiscal 1996, the
Company's operating activities provided cash and restricted funds of
$52.0 million.
The Company received $35.9 million of net proceeds from the
issuance of $37.0 million principal amount of noninterest-bearing
subordinated convertible debentures in March 1996 (Note 13) and $5.0
million of net proceeds from the issuance of its common stock in a
private placement in June 1996 (Note 5). The Company used cash of $21.3
million for the repayment of long-term obligations and payments under
capital lease obligations related to two of its California plants. During
fiscal 1996, the Company distributed $0.9 million to a minority partner
of one of its Operating Companies.
The Company's investing activities, other than fixed asset
additions, have historically related to equity investments and plant
acquisitions. Fixed asset additions and routine maintenance are generally
financed through plant operating funds. During fiscal 1996, the Company
used cash of $3.0 million to purchase an additional 1,500,000 shares of
KFx common stock, bringing its total equity interest in KFx to
approximately 14%. Pursuant to the purchase agreement, the Company has
the right, but not the obligation, to purchase an additional 1,250,000
shares of KFx common stock for $2.00 per share in fiscal 1997, if such
shares are made available by KFx, and to purchase up to a total 51%
equity interest in KFx in fiscal 2000. During fiscal 1996, the Company,
through its Limited Partnership Agreement with KFx Wyoming, Inc.,
expended $35.7 million for the construction of a coal-beneficiation
facility near Gillette, Wyoming. The Company is committed to fund an
additional $9.3 million to complete construction of the facility. Cash to
complete construction increased approximately $6.0 million primarily due
to changes in certain portions of the construction project. In addition,
the Company expended $8.1 million for the purchase of the net assets of
the biopesticides division of W.R. Grace & Co. (Note 4), and $0.9 million
on the purchase of other property, plant and equipment.
35PAGE
<PAGE>
Thermo Ecotek Corporation
Liquidity and Capital Resources (continued)
The Company is committed to contribute $15 million for a minority
interest in a 185-megawatt combined cycle, steam-turbine electric
generation facility located in Puerta Plata, Dominican Republic. Funding
is expected to occur during calendar 1997, assuming certain conditions
are met.
The Company has also entered into a memorandum of understanding
concerning a coal-fired plant under development in Gouripore, India, that
may require the Company to make up to $60 million in equity investments
between 1996 and 1998 should development efforts be successful. In
addition, the Company is developing a gas-fired plant near Mysore, India,
which if successful, would require an equity contribution from the
Company of between $35-$60 million. In September 1996, the Company,
through a wholly owned subsidiary, formed a joint venture with
Marcegaglia Group of Mantova, Italy to develop, own, and operate
biomass-fueled electric power facilities in that country, which may
require significant equity investments if development efforts are
successful. In January 1996, the Company, through a wholly owned
subsidiary, entered into a joint development agreement with EMD Praha
Spol s.r.o. in the Czech Republic, which may require significant equity
investments if development efforts are successful.
The Company's short-term financing requirements at September 28,
1996 consisted primarily of $35.3 million, due in fiscal 1997, of
principal and interest payments related to the long-term financing
provisions for the Mendota and Delano projects. The Company expects that
the cash flows of its Mendota, Delano I, and Delano II plants will be
sufficient to make future lease and debt payments. The Company believes
that its short-term liquidity needs will be met through cash flows from
operating activities. While the Company does not currently have any firm
available credit facilities, it does not expect to require funding for
currently existing operations in the foreseeable future. Should the need
for short-term funding arise, however, the Company expects that such
funds would be available from Thermo Electron, although there is no
agreement under which Thermo Electron is obligated to lend funds to the
Company. The Company is in the early stages of developing projects in
India, Italy, and the Czech Republic. Equity investments required by the
Company for these development efforts, if successful, are uncertain, but
may be significant. Although the Company's projects are designed to
produce cash flow over the long-term, the Company will have to obtain
significant additional funds from time to time to complete acquisitions
and to meet project development requirements, including the funding of
equity investments. As the Company acquires, invests in, or develops
future plants, the Company expects to finance them with nonrecourse debt,
internal funds, additional equity or through borrowings from third
parties or Thermo Electron. While Thermo Electron has expressed its
willingness to provide funds to the Company to help finance acquisitions
and equity investments in future projects, the Company has no agreements
with Thermo Electron or third parties that assure funds will be available
on acceptable terms or at all.
36PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in fiscal 1997 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Development Risks
Uncertainty of Project Development. The process of locating,
developing, permitting, financing, and constructing power plants is
complex, lengthy, and expensive. Only a small percentage of the projects
that the Company evaluates and pursues ultimately results in operating
projects. As a result, the Company may not recover any expenses that it
incurs in the evaluation and development of many projects.
Although all the plants currently operated by the Company utilize
biomass as fuel, the Company is not currently considering the development
of further biomass-fueled projects in the United States due to high fuel
costs and the relatively high costs of constructing and operating
biomass-fueled plants. The Company is considering the development of
biomass-fueled projects internationally in countries where market
conditions may support profitable biomass operations. The Company has
also expanded its development focus to include international clean
combustion opportunities, engineered clean fuels, and other
environmentally sound technologies. In this regard, the Company has
established offices in Calcutta and Bangalore, India and Prague, Czech
Republic and Italy. The completion or success of these projects and new
ventures is subject to a number of significant conditions, including
obtaining financing, negotiating key contracts with partners and other
third parties, and further due diligence. No assurance can be given that
these projects or new ventures will be completed on a timely basis, or at
all. Any failure by the Company to successfully develop new projects
would have a material adverse effect on the future growth of the Company.
Uncertainty Regarding K-Fuel Plant. The Company has entered into a
limited partnership agreement with KFx Wyoming Inc., a subsidiary of KFx
Inc. (the "Partnership"), to develop, construct, and operate a
subbituminous coal beneficiation plant near Gillette, Wyoming. The plant
will utilize certain patented clean coal technology (the "K-Fuel
technology") to produce low moisture, high energy fuel with reduced
sulfur. The total cost to construct the plant is expected to be
approximately $48 million which the Company is committed to provide. A
tax credit is available with respect to qualifying alternative fuels
produced and sold by a facility placed in service before July 31, 1998
pursuant to a binding written contract in effect before December 31,
1996. Although the Gillette, Wyoming facility is scheduled to begin
commercial operations in the first calendar quarter of 1997, no assurance
can be given that it will be placed in service before 1998. If the
Company is not eligible for this tax credit, the profitability of the
Partnership would be materially adversely affected. In addition, the
plant will be the first large-scale use of the K-Fuel technology, and no
37PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
assurance can be given that the plant will not experience technical or
operating problems or that the plant will be successful in producing fuel
with the desired physical characteristics. Further, the Company currently
has an agreement for the sale of only 33% of the plant's anticipated
output for the first three years of operation and, at the purchaser's
option, the plant's entire output from the fourth through the tenth year
of operation. No assurance can be given that the purchaser of the fuel
will exercise its option in years four through ten or that the Company
will be able to enter into additional contracts for the sale of fuel on
acceptable terms, or at all. Demand for the fuel produced by the plant is
expected to result in large part from the requirement that coal-burning
utilities comply with the future scheduled sulfur dioxide emissions
restrictions contained in the Clean Air Act. If the fuel produced by the
plant does not allow the achievement of desired emissions reductions, or
if regulations relating to emissions become less restrictive in the
future, demand for the plant's fuel output would be materially adversely
affected.
Uncertainty of Access to Capital. The Company has sought to finance
the debt portion of each of its clean combustion projects in a manner
that is substantially nonrecourse to the Company. To minimize its equity
commitment, the Company must borrow substantial amounts from third party
lenders. The borrowings are typically secured only by the applicable
project assets and the capital stock of the appropriate Operating
Company. The Company anticipates that it will require substantial
financing to fund both the equity and debt components of future projects.
No assurance can be given that financing for future projects will be
available on acceptable terms, or at all. Any failure by the Company to
obtain adequate amounts of financing on acceptable terms would have a
material adverse effect on the future growth of the Company.
Dependence on Terms of Power-Sales Agreement. The profitability of
any of the Company's clean combustion facilities is heavily dependent
upon the power-sales agreement that it has entered into with the electric
utility or other customer. Most of the Company's existing power-sales
agreements were obtained as a direct negotiation with the purchasing
utility. However, in recent years, in the United States such agreements
have increasingly been awarded as a result of competitive bidding.
Consequently, obtaining a power-sales agreement in the United States has
become progressively more competitive and expensive and, in many cases,
less profitable. In the future, foreign power-sales agreements also may
increasingly be subject to competitive bidding. In addition, the passage
of the National Energy Policy Act of 1992 has removed certain barriers to
entry into the independent power market by utilities and others, and is
expected to increase competition in that market. There can be no
assurance that power-sales agreements entered into by the Company in the
future will not be less profitable than the power-sales agreements to
which the Operating Companies are currently parties.
38PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
Risks Associated with Doing Business Outside the United States. The
Company believes that the most significant growth opportunities in the
power market exist outside of the United States. In that regard, the
Company is pursuing projects in India, Italy, the Czech Republic, the
Dominican Republic, and Italy, and intends to identify other countries in
which to develop power projects. Doing business in many foreign countries
exposes the Company to many risks that are not present in the United
States, including political, military, privatization, currency exchange
and repatriation risks, and higher credit risks related to the utility
purchaser. In addition, it is possible that legal obligations may be more
difficult for the Company to enforce in foreign countries and that the
Company may be at a disadvantage in any legal proceeding with the local
entity. Local laws may also limit the ability of the Company to hold a
majority interest in some of the projects that it develops or acquires.
Intense Competition for Projects. The Company believes that there
are almost 200 companies that are actively engaged in the worldwide
non-utility power market. Many of the companies in the power market have
substantially greater financial and technical resources than the Company.
Domestic competition in this market is expected to intensify as a result
of deregulation at the federal and state levels, and due to the trend
toward awarding contracts based upon competitive bidding.
Uncertainty of Community Support. Development, construction and
operation of a clean combustion project requires numerous environmental,
siting, and other permits. The process of obtaining these permits can be
lengthy and expensive. In addition, local opposition to a particular
project can substantially increase the cost and time associated with
developing a project, and can potentially render a project unfeasible or
uneconomic. The Company may incur substantial costs or delays or may be
unsuccessful in developing clean combustion projects as a result of such
opposition.
Operating Risks
Expected Price Reductions under California SO#4 Contracts. The
power-sales agreements for the Company's Woodland, Mendota, and Delano
plants in California are so-called standard offer #4 (SO#4) contracts,
which require Pacific Gas & Electric (PG&E), in the case of Woodland and
Mendota, and Southern California Edison (SCE), in the case of Delano I
and Delano II, to purchase the power output of the projects at fixed
rates until 2000. However, with respect to Woodland and Mendota, PG&E has
asserted that the fixed rates under its agreements will terminate
mid-1999, although the Company disputes this assertion. Thereafter, the
utility will pay a rate based upon its avoided costs (as determined from
time to time by the California Public Utility Commission). Avoided-cost
is determined pursuant to a formula that is intended to estimate the
price that the utility would, but for its contract with the power
producer, be paying for the same amount of energy. The rate fluctuates
with the price of fuels and certain other factors. At present, the
avoided-cost is substantially lower than the payments currently being
made by PG&E and SCE. Although it is difficult to predict future levels
of avoided-costs, based on current estimates, avoided-costs are expected
39PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
to be lower in 2000 than the rates currently being paid by PG&E and SCE.
If the Woodland plant were to operate at projected avoided-cost levels,
substantial losses would result primarily due to nonrecourse lease
obligations that extend beyond 2000. The nonrecourse debt for the Mendota
and Delano plants will be paid by 2000. Absent sufficient reductions in
fuel prices and other operating costs, under such circumstances the
Company would draw down power reserve funds to cover operating cash
shortfalls and then, should such funds be depleted, either renegotiate
its nonrecourse lease for the Woodland plant or forfeit its interest in
the plant. Beginning in the first quarter of fiscal 1997, if projected
avoided-costs rates remain at current levels, the Company expects to
expense the funding of reserves required under its nonrecourse lease
agreement at Woodland to cover projected shortfalls in lease payments
beginning in 2000. As a result, the Company expects that the results of
the Woodland Operating Company will be reduced to approximately
break-even beginning in fiscal 1997. During fiscal 1996, Woodland
contributed $5.1 million of operating income.
Potential Decreased Power-Sales due to Power Curtailments. The
power-sales agreements between the Woodland and Mendota Operating
Companies and PG&E allow PG&E to curtail the quantity of power purchased
under each of these agreements by up to approximately 1,000 hours of
generating capacity annually. PG&E generally exercises its curtailment
rights during periods when cheaper hydroelectric power is available,
which generally occurs following periods of heavy rain or snow.
Curtailment reduces the power payment received by the Operating Companies
and, therefore, has an adverse effect on the financial results of those
Operating Companies. During fiscal 1996, the Company experienced
approximately 930 hours of utility imposed curtailments at each of these
plants.
Potential Increased Fuel Prices and Reduced Availability of Fuel.
The profitability of the Company's plants is dependent in part upon the
difference between the price the Company receives from its utility
customers for power and the price the Company pays for the fuel. The
Company has typically entered into long-term fuel supply agreements for a
significant portion of its fuel requirements. These agreements generally
provide for prices based upon pre-determined formulas or indexes. If fuel
prices rise significantly, the Company will be required to pay higher
prices on the spot market. The Company's existing power-sales agreements
do not adjust to account for changes in the Company's fuel prices.
Therefore, the profitability of these agreements, and any future
power-sales agreement that do not provide for such an adjustment, could
be materially adversely affected by increases in the Company's fuel
prices. In addition, future fuel shortages could adversely affect the
Company's ability to deliver power, and therefore receive payments,
pursuant to its power-sales agreements.
40PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
Operating Difficulties. The financial performance of each of the
Company's plants depends to a significant extent upon the ability of each
plant to be capable of performing at or near capacity. If a plant is
unable to perform at these levels, payments under the power-sales
agreement will be reduced, possibly significantly. The Company has in the
past experienced mechanical problems with the boilers at its Mendota and
Woodland plants and suffered major equipment damage at its Whitefield
plant. Although the Company believes that these problems have been
corrected, no assurance can be given that these or other plants will not
experience operating problems in the future. No assurance can be given
that business interruption insurance will be adequate to cover all
potential losses, or that such insurance will continue to be available on
reasonable terms.
In July 1995, the Company entered into an agreement to invest $15
million in a 185 megawatt combined cycle, steam-turbine electric
generation facility located in Puerto Plata, Dominican Republic, owned by
Smith/Enron Cogeneration Limited Partnership. Under the terms of the
agreement, the Company may acquire a general and limited partnership
interest in a partnership that holds approximately a 50% interest in the
project. For this investment, the Company will receive a minority
interest equivalent to a specified percentage of all project cash flow
and profits and losses. The Company's exact percentage interest in
Smith/Enron Cogeneration will not be finally determined until six months
after the funding of the Company's investment, which is expected to occur
during calendar 1997, assuming certain conditions are met. There can be
no assurance either that the conditions to investment will be met in the
future or that the Company will make its cash investment in the facility.
Dependence on Utility Customers. Each of the Company's projects
relies upon one power-sales agreement with a single electric utility
customer for the majority, if not all, of its revenues over the life of
the power-sales agreement. During fiscal 1996, PG&E, PSNH, and SCE
accounted for 36%, 21%, and 36%, respectively, of the Company's revenues.
The failure of any one utility customer to fulfill its contractual
obligations could have a substantial negative impact on the Company. No
assurance can be given that a particular utility will not be unwilling or
unable, at some time, to make required payments under its power-sales
agreements.
Potential Earthquake Damage. The Company's California plants are
located in areas where there is a risk of potentially significant
earthquake activity. Projects that the Company develops in the future may
also be located in areas, including India, where there is earthquake
risk. The Company's earthquake insurance is not sufficient to cover all
potential losses and there can be no assurance that such insurance will
continue to be available on reasonable terms.
41PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
Regulatory Risks
Potential Rate Reduction by PSNH. PSNH is currently required to
purchase the electricity produced by two of the Company's Operating
Companies under long-term power purchase rate orders issued by the New
Hampshire Public Utility Commission (NHPUC). An agreement between
Northeast Utilities (NU), parent to PSNH, and the state of New Hampshire,
arising from the settlement of PSNH bankruptcy proceedings, contains
language to the effect that PSNH will seek to renegotiate some of the
terms of certain rate orders with small power producers and the state,
acting through NHPUC, has supported such efforts. The two affected
Operating Companies have reached an agreement in principle with PSNH to
settle the renegotiation of their rate orders. The settlement agreement
is subject to the approval of the NHPUC on terms acceptable to both PSNH
and the Operating Companies and the satisfaction of certain other
conditions. The principal terms of the agreement generally call for the
two affected Operating Companies to reduce the amount of power sold
annually to PSNH to 70% of the plants' capacities, and to reduce the
price per kilowatt paid by PSNH to $.06 per kilowatt hour, escalating
three percent per year for the remainder of the term of the original,
applicable rate order. In consideration of these reductions, the
Operating Companies would receive certain cash settlement payments, paid
over several years. The settlement, if approved and executed, is not
expected to have a material impact on the Company's consolidated results
of operations or financial condition. The Company expects this matter may
reach resolution in fiscal 1997. Should the settlement not be approved
and executed, the Company does not believe that PSNH has the right to
take unilateral action to reduce the price of purchased power under such
arrangements. Any such unilateral action, therefore, would result in a
claim for damages by the Company and could be the subject of lengthy
litigation. An adverse resolution of any such claim could materially
affect the Company's operations and cash flows.
Potential Effects of Loss of QF Status or Changes to PURPA. The
Company 's existing facilities are subject to the provisions of various
laws and regulations, including the Public Utility Regulatory Policies
Act of 1978, as amended (PURPA). PURPA provides to Qualifying Facilities
(QFs) certain exemptions from substantial federal and state legislation,
including regulation as public utilities. PURPA also requires electric
utilities to purchase electricity generated by QFs at prices not
exceeding the costs that would otherwise have been incurred by the
purchasing utilities in generating the own electricity or in purchasing
it from other sources (known as "avoided-cost"). Any future changes to
PURPA could have a material adverse effect on the Company.
The Public Utility Holding Company Act of 1935 (PUHCA) regulates
public utility holding companies and their subsidiaries. The Company is
not and will not be subject to regulation as a holding company under
PUHCA as long as the domestic power plants it operates are QFs under
PURPA. If a power plant were to lose its QF status, the Operating Company
owning or leasing that plant could become a public utility company, which
could result in the Company becoming a public utility holding company. In
addition, loss of QF status, regardless of the Company's ability to avoid
42PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
public utility holding company status, could be a default under many of
the Company's facility lease and power-sales agreements. In the event of
any such default, the other parties to such agreements could seek various
remedies against the Company or could seek to renegotiate such agreements
on terms more favorable to such parties.
Potential Increased Competition Due to Regulatory Changes. The
Company believes that certain regulatory changes are likely to have a
significant impact on the domestic power market over the next five years.
The National Energy Policy Act of 1992 exempts a new class of facilities
from certain federal utility regulation and liberalizes access for
non-utility generators to the utility power transmission grid. In
addition, many states are considering the elimination of many of the
regulations that currently limit the ability of power generators to
negotiate power-sales agreements directly with industrial and commercial
customers. The Company believes that the effect of these regulatory
changes will be to increase competition for the sale of power.
Limitations Imposed by Environmental Regulation. Federal, state,
and local environmental laws govern air emissions and discharges into
water and the generation, transportation, storage, and treatment and
disposal of solid and hazardous waste. These laws establish standards
governing most aspects of the construction and operation of the Company's
facilities, and often require multiple governmental permits before these
facilities can be constructed, modified, or operated. There can be no
assurance that all required permits will be issued for the Company's
projects under development or for future projects, or that the
requirements for continued environmental regulatory laws and policies
governing their enforcement may change, requiring new technology or
stricter standards for the control of discharges of air or water
pollutants, or for solid or hazardous waste or ash handling and disposal.
Such future developments could affect the manner in which the Company
operates its plants and could require significant additional expenditures
to achieve compliance with such requirements. It is possible that
compliance may not be technically or economically feasible.
Risks Associated with Biopesticides Business
Uncertainty of Market Penetration. The Company's sales growth is
dependent on the penetration of its products into new markets. The
primary competition to the Company's products are chemical pesticides,
and the Company must educate customers that the cost effectiveness and
efficacy of the Company's products are superior to chemical pesticides in
order to gain acceptance for application on new crop types in different
parts of the world. No assurance can be given that the Company's products
will gain increased acceptance in new market segments.
Need for Regulatory Approval. The Company's products cannot be sold
unless the Environmental Protection Agency grants the Company a
registration for each pesticide product it intends to manufacture or
sell. The Company must submit extensive toxicological studies and results
of field testing as well as other studies to the EPA to apply for a
product registration. The EPA may take many years to approve a
43PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
registration application. Pesticide registrations under state laws and
regulations must also be obtained. In addition, pesticide registrations
must be obtained from foreign governments before the Company's products
can be sold in the country, and these countries may also require costly
and extensive studies to support the registration application. There is
no assurance that the EPA, states, or foreign governments will grant any
pesticide registrations to the Company. Pesticide registrations may also
be revoked if the Company violates regulations regarding the
manufacturing, sale, or labeling of the Company's products.
Dependence on Proprietary Technology. The Company's products
incorporate patented, licensed and unlicensed proprietary technology.
There is no assurance that the Company's patents or licenses will provide
sufficient protection or commercial benefits, or that competitors will
not independently develop substantially equivalent or more economical and
effective technology. There is also no assurance that foreign governments
will protect the Company's patent rights to the same extent as in the
U.S. or that the Company's unpatented trade secrets will remain
confidential or will not be discovered by competitors. There is no
assurance that the Company will be able to develop new proprietary
technology to provide the Company with new products which cannot be
offered by the Company's competitors.
Highly Competitive Markets and Technological Change. The markets in
which the Company operates are highly competitive and subject to rapid
technological change. Many of the Company's products are in research and
development, testing, or early marketing stages. Many of the Company's
competitors are large chemical companies with greater financial,
marketing, and technological resources than the Company. There is no
assurance that competitors will not develop new products that will render
the Company's products noncompetitive.
Product Liability. Application of the Company's pesticide products
to crops and farm lands could expose the Company to product liability
claims. Product liability claims could result in Company exposure for
crop damage or personal injury. Run-off of excess concentrations of
pesticide products could also expose the Company to claims and
liabilities for water pollution, including governmental fines and
penalties.
Reliance on Third Party Manufacturers and Producers. The Company
relies on overseas producers of the raw materials for its products and on
third party toll manufacturers to manufacture and package the raw
material into a saleable product. There is no assurance that the Company
will have an uninterrupted supply of raw material or that producers and
toll manufacturers will produce the products at competitive prices.
44PAGE
<PAGE>
Thermo Ecotek Corporation
Forward-looking Statements (continued)
Other Risks
Significant Quarterly Fluctuations in Operating Results. The
Company's operating results fluctuate significantly from quarter to
quarter based on a number of factors, primarily seasonal energy demand in
California, which results in higher payments under the Company's
California power-sales agreements in the months of May through October,
and lower payments during the remainder of the year, and seasonal demand
for its biopesticide products. The Company historically has operated at a
loss or marginal profitability during its second fiscal quarter due to
the rate structure under these agreements. In addition, the Company's
operating results can be affected by utility imposed curtailments or by
any operating problems that cause a plant to operate at less than normal
capacity, and with respect to its biopesticide business, by agricultural
conditions such as pest pressure and infestation, amount of rain, the
occurrence of natural resistance factors, and the increase or decrease in
agricultural plantings and produce prices.
Limitation on Access to Operating Company Assets and Cash Flow. The
Company's operations are conducted through the Operating Companies, and
the Company's cash flow is contingent on the ability of the Operating
Companies to make dividends or other distributions to the Company. The
terms of certain leases and financial agreements to which the Operating
Companies are parties require that certain funds be held in trust and
that certain funds be restricted from distribution to the Company. As of
September 28, 1996, approximately $7.6 million of the Company's cash and
cash equivalents was restricted from distribution by the terms of certain
operating companies lease and financing agreements. In addition, until
such time, if ever, as projections of avoided-cost change, all cash flows
from the Woodland operation, other than cash required for tax
distribution, will be restricted from distribution to the Company. The
inability of the Company to receive distributions from the Operating
Companies could have a material adverse effect on the future growth of
the Company.
45PAGE
<PAGE>
Thermo Ecotek Corporation
Selected Financial Information
Nine
Months
Year Ended Ended Year Ended
-------------------- --------- ---------------------------
(In thousands
except per Sept. 28, Sept. 30, Sept. 30, Dec. 31, Jan. 1, Jan. 2,
share amounts) 1996(a) 1995 1995(b) 1994 1994(c) 1993
- -------------------------------------------------------------------------------
(Unaudited)
Statement of Income Data:
Revenues $150,076 $139,319 $107,139 $134,261 $117,691 $104,785
Net income 17,780 12,540 10,264 9,651 3,890 2,332
Earnings per share:
Primary .70 .58 .46 .48 .19 .12
Fully diluted .53 .43 .34 .37 .19 .12
Weighted average
shares:
Primary 25,476 21,796 22,477 20,118 19,999 20,016
Fully diluted 36,315 33,114 33,794 31,193 19,999 20,016
Balance Sheet Data:
Working capital $ 76,217 $ 58,361 $ 28,418 $ 17,295 $ 5,014
Total assets 449,145 390,476 285,970 302,345 101,455
Long-term
obligations 209,281 202,360 163,800 177,300 20,188
Redeemable
convertible
stock - - - - 10,000
Shareholders'
investment 129,687 92,985 55,146 45,495 31,605
(a) Reflects the March 1996 issuance of $37 million principal amount of
noninterest-bearing subordinated convertible debentures and the May 1996
acquisition of the biopesticides division of W.R. Grace & Co.
(b) In June 1995, the Company changed its fiscal year end from the Saturday
nearest December 31 to the Saturday nearest September 30. Accordingly, the
Company's 39-week transition period ended September 30, 1995 is presented.
(c) Reflects the issuance of $68.5 million aggregate principal amount of 4%
subordinated convertible debentures to Thermo Electron and the assumption
of $128.5 million of nonrecourse tax-exempt obligations.
46PAGE
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Thermo Ecotek Corporation
Common Stock Market Information
The following table shows the market range for the Company's common
stock on reported sales prices on the American Stock Exchange (symbol
TCK) since January 20, 1995, the date the Company's common stock began
trading on the exchange. Prices have been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
which was distributed in October 1996.
Fiscal 1996 Fiscal 1995
---------------------- ----------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $11 1/6 $ 8 11/12 $ 8 2/3 $ 7 1/3
Second 14 10 3/4 9 1/2 8 1/4
Third 16 5/6 13 1/6 11 7/12 8 5/6
Fourth 16 5/12 13 1/3
As of November 22, 1996, the Registrant had 778 holders of record
of its common stock. This does not include holdings in street or nominee
names. The closing market price on the American Stock Exchange for the
Registrant's common stock on November 22, 1996, was $14 3/4 per share.
Dividend Policy
The Registrant has never paid cash dividends because its policy has
been to use earnings to finance expansion and growth. Payment of
dividends will rest within the discretion of the Board of Directors and
will depend upon, among other factors, the Registrant's earnings, capital
requirements, and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a
discussion of certain restrictions applicable to the use of certain
funds.
Shareholder Services
Shareholders of Thermo Ecotek Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, Vice
President and Chief Financial Officer, Thermo Ecotek Corporation, 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617)
622-1111. A mailing list is maintained to enable shareholders whose stock
is held in street name, and other interested individuals, to receive
quarterly reports, annual reports, and press releases as quickly as
possible. Beginning with the 1997 fiscal year, quarterly distribution
will be limited to the second quarter report only. All quarterly reports
and press releases are also available through the Internet at the
Company's home page on the World Wide Web (http://www.thermo.com/subsid
/tck.html).
Form 10-K Report
A copy of the Annual Report on Form 10-K for the year ended
September 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained without charge by writing to John N. Hatsopoulos, Vice
President and Chief Financial Officer, Thermo Ecotek Corporation, 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.
47PAGE
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Thermo Ecotek Corporation
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuances of stock certificates, changes of ownership, lost
stock certificates, and changes of address. For these and similar
matters, please direct inquires to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Annual Meeting
The annual meeting of shareholders will be held on Thursday, March
13, 1997, at 10:00 a.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
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<PAGE>
Exhibit 21
THERMO ECOTEK CORPORATION
Significant Subsidiaries of the Registrant
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
-------------------------------- ---------------- ------------
Caribbean Cogeneration Company, Inc. Massachusetts 100%
Delano Energy Company Inc. Delaware 100%
Delano Operations Company, Inc. California 100%
Eco Fuels Inc. Wyoming 100%
EuroEnergy Group, B.V. Italy 50%
Gatepeak Corporation Delaware 100%
KFP Operating Company, Inc. Delaware 100%
Independent Power Services Corporation Nevada 100%
SFS Corporation New Hampshire 100%
TCK Fuels Inc. Delaware 100%
KFX Fuel Partners, L.P. (a Wyoming Delaware 95%
limited partnership, of which TCK
Fuels Inc. is a limited partner
and has a 93% economic interest
and of which Eco Fuels, Inc. is
the general partner and has a 2%
economic interest)
Tenpeak Corporation Nevada 100%
TES Securities Corporation Delaware 100%
Thermendota, Inc. California 100%
Mendota Biomass Power, Ltd. California 60%
(a California limited partnership
of which Thermendota, Inc. is the
general partner and has a 60%
economic interest)
MBPL Agriwaste Corporation California 100%
Thermo Ecotek International
Holdings Inc. Cayman Islands 100%
Thermo Ecotek International Inc. Cayman Islands 100%
PAGE
<PAGE>
Exhibit 21
THERMO ECOTEK CORPORATION
Significant Subsidiaries of the Registrant (continued)
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
----------------------------------- ---------------- ------------
TCK Cogeneration Dominicana Inc. Cayman Islands 100%
(1% of which shares are owned
directly by Thermo Ecotek
International Holdings Inc.)
TCK Dominicana Holdings Inc. Cayman Islands 100%
(1% of which shares are owned
directly by Thermo Ecotek
International Holdings Inc.)
Thermo Electron of Maine, Inc. Maine 100%
Gorbell/Thermo Electron Power Company Maine 80%
(a general partnership, of which
Thermo Electron of Maine, Inc. is a
general partner and has an 80%
economic interest)
Thermo Electron of New Hampshire, Inc. New Hampshire 100%
Hemphill Power and Light Company New Hampshire 66%
(a general partnership, of which
Thermo Electron of New Hampshire,
Inc. is a general partner and has
a 67% economic interest)
Thermo Electron of Whitefield, Inc. New Hampshire 100%
Whitefield Power and Light Company New Hampshire 100%
(a general partnership, of which
Thermo Electron of Whitefield, Inc.
is a general partner and has a 61%
economic interest and of which SFS
Corporation is the other general
partner and has a 39% economic
interest)
Thermo Fuels Company, Inc. California 100%
Thermo Trilogy Corporation Delaware 100%
Woodland Biomass Power, Inc. California 100%
Woodland Biomass Power, Ltd. California 100%
(a California limited partnership,
of which Woodland Biomass Power,
Inc. is the general partner and
has a 99% interest)
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated November 1, 1996,
included in or incorporated by reference into Thermo Ecotek Corporation's
Form 10-K for the fiscal year ended September 28, 1996, into the
Company's previously filed Registration Statement on Form S-8 (No.
33-91538), Registration Statement on Form S-8 (No. 33-91542),
Registration Statement on Form S-8 (No. 33-91546), Registration Statement
on Form S-8 (No. 33-91544), Registration Statement on Form S-8 (No.
33-91548), and Registration Statement on Form S-8 (No. 33-80753).
Arthur Andersen LLP
Boston, Massachusetts
December 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION ETRACTED FROM THERMO ECOTEK
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 63,238
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<INVENTORY> 11,299
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<TOTAL-ASSETS> 449,145
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<BONDS> 140,781
0
0
<COMMON> 1,617
<OTHER-SE> 128,070
<TOTAL-LIABILITY-AND-EQUITY> 449,145
<SALES> 150,076
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<CGS> 101,883
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