SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------------------
AMENDMENT NO. 1 ON FORM 10-K/A
TO FORM 10-K
(mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- --------- Exchange Act of 1934
- --------- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-12636
THERMORETEC CORPORATION
(Exact name of Registrant as specified in its character)
Delaware 59-3203761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Damonhill Square
9 Pond Lane, Suite 5A
Concord, Massachusetts 01743-2851
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 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. 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 April 30, 1999, was approximately $8,465,000.
As of April 30, 1999, the Registrant had 13,554,498 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended April 3, 1999, are incorporated by reference into Parts I and II.
<PAGE>
Items 10, 11, 12 & 13 of Part III of the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 3, 1999 are hereby amended and restated in their
entirety as follows:
Part III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the directors, their ages, their offices
in ThermoRetec Corporation. ("ThermoRetec" or the Company"), if any, their
principal occupation or employment for the past five years, the length of their
tenure as directors and the names of other public companies in which such
persons hold directorships. Information regarding their beneficial ownership of
the Company's Common Stock and of the common stock of its parent company, Thermo
TerraTech Inc. ("Thermo TerraTech"), a provider of industrial outsourcing
services and manufacturing support encompassing a broad range of specialization
including environmental-liability management, engineering and design, laboratory
testing and metal treating, and Thermo TerraTech's parent company, Thermo
Electron Corporation ("Thermo Electron"), a provider of products and services in
measurement instrumentation, biomedical devices, energy, resource recovery, and
emerging technologies, is reported in Item 12 - Security Ownership of Certain
Beneficial Owners and Management.
- -------------------------------------------------------------------------------
John P. Appleton Dr. Appleton, 64, has been the chairman of the board
and a director of the Company since 1993. He also
served as the Company's chief executive officer from
September 1993 until May 1997. Dr. Appleton has been
the president and chief executive officer of Thermo
TerraTech since September 1993. He has served as a
vice president of Thermo Electron since 1975 in
various managerial capacities. Dr. Appleton also
serves as a director of The Randers Killam Group Inc.
and Thermo TerraTech.
- -------------------------------------------------------------------------------
Robert W. Dunlap Dr. Dunlap, 62, has been the president, chief
executive officer and a director of the Company since
April 1998. Prior to that time, he served as a vice
president of the Company from May 1996 through April
1998 and as president and chief executive officer of
Remediation Technologies, Inc., which was acquired by
the Company in December 1995, from 1985 through April
1998.
- -------------------------------------------------------------------------------
Elias P. Gyftopoulos Dr. Gyftopoulos, 72, has been a director of the
Company since 1994. Dr. Gyftopoulos is Professor
Emeritus of the Massachusetts Institute of Technology,
where he was the Ford Professor of Mechanical
Engineering and of Nuclear Engineering for more than
twenty years prior to his retirement in 1996. Dr.
Gyftopoulos is also a director of Thermo Electron,
Thermo BioAnalysis Corporation, Thermo Cardiosystems
Inc., ThermoLase Corporation, ThermoSpectra
Corporation, Thermo Vision Corporation and Trex
Medical Corporation.
- -------------------------------------------------------------------------------
Brian D. Holt Mr. Holt, 50, has been a director of the Company since
November 1998. Mr. Holt has been the president and
chief executive officer of Thermo Ecotek Corporation,
a majority-owned subsidiary of Thermo Electron that is
involved in clean-power resources, clean fuels, and
naturally derived products for protecting crops since
February 1994. He has been the chief operating
officer, environmental and energy, of Thermo Electron
since September 1998. From March 1996 to September
1998, he was a vice president of Thermo Electron. For
more than five years prior to his appointment as an
officer of Thermo Ecotek Corporation, he was president
and chief executive officer of Pacific Generation
Company, a financier, builder, owner, and operator of
independent power facilities. Mr. Holt is also a
director of KFx, Inc., The Randers Killam Group Inc.,
Thermo Ecotek Corporation, Thermo Power Corporation
and Thermo TerraTech.
- -------------------------------------------------------------------------------
Fred Holubow Mr. Holubow, 60, has been a director of the Company
since 1992. Mr. Holubow has been vice president of
Pegasus Associates, an investment management firm, for
more than five years.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Theo Melas-Kyriazi Mr. Melas-Kyriazi, 40, has been a director of the
Company since 1992 and its chief financial officer
since January 1999. Mr. Melas-Kyriazi has also been a
vice president, of Thermo Electron since March 1998
and its chief financial officer since January 1999.
Prior to his appointment as a vice president at Thermo
Electron, Mr. Melas-Kyriazi served as president and
chief executive officer of ThermoSpectra Corporation,
a majority-owned subsidiary of Thermo Electron that
develops, manufactures, and markets precision imaging,
inspection, measurement, and temperature-control
instrumentation for customers in an array of
industries from its inception until March 1998. Mr.
Melas-Kyriazi was treasurer of Thermo Electron from
1988 to August 1994. He is a director of ThermoSpectra
Corporation.
- -------------------------------------------------------------------------------
Frank E. Morris Dr. Morris, 75, has been a director of the Company
since 1993. Dr. Morris served as president of the
Federal Reserve Bank of Boston from 1968 until he
retired in 1988. Dr. Morris also served as the Peter
Drucker Professor of Management at Boston College from
1989 to 1994.
- -------------------------------------------------------------------------------
William A. Rainville Mr. Rainville, 57, has been a director of the Company
since June 1993. He has been president and chief
executive officer of Thermo Fibertek Inc., a majority-
owned subsidiary of Thermo Electron that develops and
manufactures equipment and products for the
papermaking and paper-recycling industries, since its
inception in 1991, and has been the chief operating
officer, recycling and recovery, of Thermo Electron
since September 1998. Prior to that time, Mr.
Rainville was a senior vice president of Thermo
Electron from March 1993 to September 1998; and a vice
president of Thermo Electron from 1986 to 1993. Mr.
Rainville is also a director of Thermo Ecotek
Corporation, Thermo Fibergen Inc., Thermo Fibertek
Inc. and Thermo TerraTech.
- -------------------------------------------------------------------------------
Committees of the Board of Directors and Meetings
The board of directors has established an audit committee and a human
resources committee, each consisting solely of directors who are not employees
of the Company, of Thermo Electron or of any other companies affiliated with
Thermo Electron (also referred to as "outside directors"). The present members
of the audit committee are Mr. Holubow (Chairman) and Dr. Morris. The audit
committee reviews the scope of the audit with the Company's independent public
accountants and meets with them for the purpose of reviewing the results of the
audit subsequent to its completion. The present members of the human resources
committee are Dr. Morris (Chairman), Dr. Gyftopoulos and Mr. Holubow. The human
resources committee reviews the performance of senior members of management,
recommends executive compensation and administers the Company's stock option and
other stock-based compensation plans. The Company does not have a nominating
committee of the board of directors. The board of directors met five times, the
audit committee met twice and the human resources committee met six times during
fiscal 1999. Each director attended at least 75% of all meetings of the board of
directors and committees on which he served held during fiscal 1999, except Mr.
Rainville, who attended 40% of such meetings. Mr. Rainville is also the
president and chief executive officer of Thermo Fibertek Inc., another
majority-owned subsidiary of Thermo Electron, and is required to travel
extensively in his position. Mr. Rainville missed three meetings due to travel
on company business.
The board of directors has also established a special committee (the
"Special Committee") consisting solely of one outside director for the purpose
of evaluating the merits and negotiating the terms of the proposed transaction
with Thermo Electron pursuant to which the Company would be taken private,
considering such alternatives as the Special Committee deems appropriate and
making a recommendation to the full board of directors on whether or not to
approve any such proposed transaction. See Item 13 - Certain Relationships and
Related Transactions. The sole member of the Special Committee is Mr. Holubow.
Compensation of Directors
Cash Compensation
Outside directors receive an annual retainer of $2,000 and a fee of $1,000
per day for attending regular meetings of the board of directors and $500 per
day for participating in meetings of the board of directors held by
<PAGE>
means of conference telephone and for participating in certain meetings of
committees of the board of directors. Payment of directors' fees is made
quarterly. Dr. Appleton, Dr. Dunlap, Mr. Melas-Kyriazi and Mr. Rainville are all
employees of Thermo Electron or its subsidiaries and do not receive any cash
compensation from the Company for their services as directors. Directors are
also reimbursed for out-of-pocket expenses incurred in attending such meetings.
In addition, the member of the Special Committee receives a one-time
retainer of $20,000 and a fee of $1,000 per day for attending regular meetings
of the Special Committee and $500 per day for participating in meetings of the
Special Committee held by means of conference telephone.
Deferred Compensation Plan for Directors
Under the Company's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change in control or proposed change in
control of the Company that is not approved by the board of directors, deferred
amounts become payable immediately. Either of the following is deemed to be a
change of control: (a) the acquisition, without the prior approval of the board
of directors, directly or indirectly, by any person of 50% or more of the
outstanding Common Stock or the outstanding common stock of Thermo TerraTech or
25% or more of the outstanding common stock of Thermo Electron; or (b) the
failure of the persons serving on the board of directors immediately prior to
any contested election of directors or any exchange offer or tender offer for
the Common Stock or the common stock of Thermo TerraTech or Thermo Electron to
constitute a majority of the board of directors at any time within two years
following any such event. Amounts deferred pursuant to the Deferred Compensation
Plan are valued at the end of each quarter as units of the Company's Common
Stock. When payable, amounts deferred may be disbursed solely in shares of
Common Stock accumulated under the Deferred Compensation Plan. A total of 37,500
shares of Common Stock have been reserved for issuance under the Deferred
Compensation Plan. As of April 3, 1999, deferred units equal to approximately
14,468 shares of Common Stock were accumulated under the Deferred Compensation
Plan.
Directors Stock Option Plan
The Company's directors stock option plan, (the "Directors Plan"),
provides for the grant of stock options to purchase shares of Common Stock of
the Company to outside directors as additional compensation for their service as
directors.
The Directors Plan originally provided for the grant of stock options upon
a director's initial appointment. Outside directors appointed before the
amendment of the plan received an option to purchase 22,500 shares of Common
Stock upon their appointment or election. The plan, as amended in 1995, now
provides that the size of the award to new directors is reduced by 4,500 shares
each year until 1999, when the initial grant for new directors will be
eliminated entirely. Accordingly, directors first appointed or elected in 1997
will receive options to purchase 9,000 shares, directors first appointed or
elected in 1998 will receive options to purchase 4,500 shares and directors
first appointed or elected in 1999 and thereafter will not receive an initial
option grant. Options granted upon a director's election or appointment may be
exercised at any time from and after the six-month anniversary of the grant date
of the option and prior to the expiration of the option on the fifth anniversary
of the grant date. Such options are subject to restrictions on resale and to the
repurchase by the Company of the shares subject to option at the exercise price
if the director ceases to serve as a director of the Company, Thermo Electron or
any subsidiary of Thermo Electron, for any reason other than death. The
restriction and repurchase rights lapse in equal installments of 4,500 shares
starting with the first anniversary of the grant date, provided the director has
continuously served as a director of the Company or any other Thermo Electron
company prior to that date.
Commencing with the 1998 Annual Meeting of Stockholders, outside directors
receive an annual grant of options to purchase 1,000 shares of Common Stock
pursuant to the Directors Plan at the close of business on the date of each
Annual Meeting of the Stockholders of the Company. Options evidencing annual
grants may be exercised at any time from and after the six month anniversary of
the grant date of the option and prior to the expiration of the option on the
third anniversary of the grant date. Shares acquired upon exercise of the
options
<PAGE>
are subject to repurchase by the Company at the exercise price if the recipient
ceases to serve as a director of the Company or any other Thermo Electron
company prior to the first anniversary of the grant date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of May 31, 1999, options to purchase 78,000 shares of Common Stock had been
granted and were outstanding under the Directors Plan, no options had lapsed or
been exercised, and options to purchase 72,000 shares of Common Stock were
reserved and available for grant under the Directors Plan.
Stock Ownership Policies for Directors
The human resources committee of the board of directors (the "Committee")
has established a stock holding policy for directors. The stock holding policy
requires each director to hold a minimum of 1,000 shares of Common Stock.
Directors are requested to achieve this ownership within a three year period.
The chief executive officers of the Company is required to comply with a
separate stock holding policy established by the Committee, which is described
in Item 11 - Executive Compensation - Stock Ownership Policies.
In addition, the Committee has adopted a policy requiring directors to
hold shares of the Company's Common Stock equal to one-half of their net option
exercises over a period of five years. The net option exercise is determined by
calculating the number of shares acquired upon exercise of a stock option, after
deducting the number of shares that could have been traded to exercise the
option and the number of shares that could have been surrendered to satisfy tax
withholding obligations attributable to the exercise of the option. This policy
is also applicable to executive officers and is described in Item 11 - Executive
Compensation - Stock Ownership Policies.
Executive Officers
Reference is made to Item 1(e) of this Report for information regarding
the Executive Officers of the Registrant.
Item 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
NOTE: All share data for the common stock of The Randers Killam Group Inc., a
majority-owned subsidiary of Thermo TerraTech, has been adjusted to reflect a
one-for-five reverse stock split effected in February 1999.
The following table summarizes compensation during the last three fiscal
years for services to the Company in all capacities awarded to, earned by or
paid to the Company's chief executive officer and its four other most highly
compensated executive officers. These executive officers are together referred
to as the "named executive officers." No other executive officer of the Company
met the definition of "highly compensated" within the meaning of the Securities
and Exchange Commission's executive compensation disclosure rules.
The Company is required to appoint certain executive officers and
full-time employees of Thermo Electron as executive officers of the Company, in
accordance with the Thermo Electron Corporate Charter. The compensation for
these executive officers is determined and paid entirely by Thermo Electron. The
time and effort devoted by these individuals to the Company's affairs is
provided to the Company under the Corporate Services Agreement between the
Company and Thermo Electron. See Item 13 - Certain Relationships and Related
Transactions. Accordingly, the compensation for these individuals is not
reported in the following table.
<PAGE>
Summary Compensation Table
- --------------------------------------------------------------------------------
Annual Long Term
Compensation Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name and Fiscal Salary Bonus Restricted Securities All Other
Principal Position Year Stock Underlying Compensation (3)
Award (1) Options (2)
Robert W. Dunlap (4) 1999 $190,000 $65,000 $124,875 8,000 (THN) $9,600
President & Chief 2,900 (TMO)
Executive Officer 8,000 (TTT)
1998 $165,000 $0 (5) -- 24,000 (RGI) $9,500
1997 $165,000 $35,000 -- 10,000 (TMO) $5,088
10,000 (TTT)
- ----------------------------------------------------------------------------------------------------------
Jeffrey L. Powell (6) 1999 $145,000 $44,000 $49,500 1,000 (TMO) $8,237(7)
Senior Vice 5,000 (TTT)
President
and former Chief 1998 $145,000 $0 (5) -- 700 (TMO) $60,304(7)
Executive 2,000 (MKA)
Officer
2,000 (ONX)
24,000 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $122,000 $40,000 -- 600 (TMO) $7,023
2,000 (TFG)
6,000 (TOC)
- -----------------------------------------------------------------------------------------------------
Nels R. Johnson 1999 $105,000 $29,000 -- 3,000 (TMO) $5,665
Vice President 5,000 (TTT)
1998 $101,000 $26,000 -- 7,000 (THN) $9,344
800 (TMO)
2,400 (RGI)
1997 $97,300 $28,000 -- 8,000 (THN) $5,275
900 (TMO)
- -------------------------------------------------------------------------------------------------------
Norman A. Pedersen(8) 1999 $102,000 $28,000 -- 1,000 (THN) $6,821(9)
Former Vice 900 (TMO)
President,
Business 2,500 (TTT)
Development
1998 $98,000 $19,000 -- 20,000 (THN) $9,991 (9)
800 (TMO)
6,000 (RGI)
- --------------------------------------------------------------------------------------------------------
James Lousararian(10) 1999 $71,875 $17,500 -- -- -- $51,561 (11)
Former Vice 1998 $110,000 $0 (5) -- 20,000 (THN) $5,576 (11)
President 9,600 (RGI)
1997 $106,000 $25,000 -- 10,000 (THN) $ 6,567
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) In fiscal 1999, Dr. Dunlap and Mr. Powell were awarded 22,200 and 8,800
shares, respectively, of restricted stock of Thermo TerraTech with a value
of $124,875 and $49,500, respectively, on the grant date. The restricted
stock awards vest in their entirety on January 2, 2002. Dividends are
payable on restricted stock. At the end of fiscal 1999, Dr. Dunlap and Mr.
Powell held 22,200 and 8,800 shares, respectively, of restricted stock of
Thermo TerraTech with an aggregate value of $111,000 and $44,000,
respectively.
<PAGE>
(2) Options to purchase Common Stock granted by the Company are designated in
the table as "THN". In addition, the named executive officers have also
been granted options to purchase the common stock of the following Thermo
Electron companies during the last three fiscal years as part of Thermo
Electron's stock option program: Thermo Electron (designated in the table
as TMO), Thermo TerraTech (designated in the table as TTT), The Randers
Killam Group Inc. (designated in the table as RGI), Metrika Systems
Corporation (designated in the table as MKA), ONIX Systems Inc.
(designated in the table as ONX), Thermedics Detection Inc. (designated in
the table as TDX), Thermo Fibergen Inc. (designated in the table as TFG),
Thermo Information Solutions Inc. (designated in the Table as TISI),
Thermo Optek Corporation (designated in the table as TOC), Thermo Trilogy
Corporation (designated in the table as TRIL), Thermo Vision Corporation
(designated in the table as VIZ) and Trex Communications Corporation
(designated in the table as TRCC).
(3) Represents the amount of matching contributions made by the individual's
employer on behalf of named executive officers participating in the Thermo
Electron 401(k) plan or, in the case of Dr. Dunlap, the RETEC Employees'
Savings and Profit Sharing Plan.
(4) Dr. Dunlap was appointed president and chief executive officer of the
Company on April 30, 1998. He served as vice president of the Company from
May 8, 1996 through April 30, 1998.
(5) Dr. Dunlap, Mr. Powell and Mr. Lousararian each elected to forego their
bonuses for fiscal 1998 in light of the Company's operating and stock
price performance in fiscal 1998.
(6) Mr. Powell served as president and chief executive officer of the Company
from May 14, 1997 through April 30, 1998, when he was named senior vice
president of the Company. He served as president and chief operating
officer of the Company prior to his promotion to chief executive officer.
(7) In addition to the matching contribution referred to in footnote (3), such
amount includes the reimbursement by the Company of $50,000 in expenses
associated with Mr. Powell's relocation to Concord, Massachusetts in
fiscal 1998 and $3,218 and $932, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest-free loans provided to Mr. Powell pursuant to the stock holding
assistance plan of the Company. See Item 13 - Certain Relationships and
Related Transactions Stock Holding Assistance Plans.
(8) Mr. Pedersen was appointed an executive officer of the Company on May 14,
1997, and resigned on May 17, 1999.
(9) In addition to the matching contribution referred to in footnote (3), such
amount includes $2,460 and $645, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest-free loans provided to Mr. Pedersen pursuant to the stock holding
assistance plan of the Company. See Item 13 - Certain Relationships and
Related Transactions - Stock Holding Assistance Plans.
(10) Mr. Lousararian resigned as a vice president of the Company effective
November 18, 1998.
(11) In addition to the matching contribution referred to in footnote (3), such
amount includes $2,554 and $671, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest free loans provided to Mr. Lousararian pursuant to the stock
holding assistance plan of the Company. See Item 13 - Certain
Relationships and Related Transactions - Stock Holding Assistance Plans.
Such amount also includes approximately $43,125 paid to Mr. Lousararian in
connection with his resignation as a Vice President of the Company, which
represents the remainder of Mr. Lousararian's salary from his resignation
through the end of fiscal 1999 ("Severance Payment"). The Severance
Payment was added to Mr. Lousararian's salary and annual bonus in
determining whether his annual compensation exceeded $100,000.
<PAGE>
Stock Options Granted During Fiscal 1999
The following table sets forth information concerning individual grants
of stock options made during fiscal 1999 to the Company's named executive
officers. It has not been the Company's policy in the past to grant stock
appreciation rights, and no such rights were granted during fiscal 1999.
Option Grants in Fiscal 1999
- --------------------------------------------------------------------------------
Potential
Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of
Underlying Options Exercise Stock Price
Options Granted to Price Appreciation for
Granted and Employees in Per Expiration Option Term (2)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Company (1) Fiscal Year Share Date 5% 10%
- -------------- ----------- ------------ ------ --------- ----------------
Robert W. Dunlap 8,000 (THN) 1.08% $2.45 2/23/04 $5,440 $12,000
2,900 (TMO) 0.07% (3) $16.20 9/23/03 $12,992 $28,681
8,000 (TTT) 0.67% (3) $5.03 2/24/04 $11,120 $24,560
- ----------------------------------------------------------------------------------
Jeffrey L. 1,000 (TMO) 0.02% (3) $34.50 6/2/03 $9,530 $21,060
Powell
5,000 (TTT) 0.42% (3) $5.03 2/24/04 $6,950 $15,350
- ----------------------------------------------------------------------------------
Nels R. Johnson 800 (TMO) 0.02% (3) $34.50 6/2/03 $7,624 $16,848
2,200 (TMO) 0.05% (3) $16.20 9/23/03 $9,856 $21,758
5,000 (TTT) 0.42% (3) $5.03 2/24/04 $6,950 $15,350
- ----------------------------------------------------------------------------------
Norman A. 1,000 (THN) 0.13% $2.45 2/23/04 $680 $1,500
Pedersen
900 (TMO) 0.02% (3) $34.50 6/2/03 $8,577 $18,954
2,500 (TTT) 0.21% (3) $5.03 2/24/04 $3,475 $7,675
- ----------------------------------------------------------------------------------
James -- -- -- -- -- --
Lousararian
- ----------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during the fiscal year are immediately
exercisable at the date of grant. In all cases, the shares acquired upon
exercise are subject to repurchase by the granting company at the exercise
price if the optionee ceases to be employed by such company or any other
Thermo Electron company. The granting company may exercise its repurchase
rights within six months after the termination of the optionee's
employment. The repurchase rights generally lapse ratably over a one- to
five-year period, depending on the option term, which may vary from five
to ten years, provided the optionee continues to be employed by the
granting company or any other Thermo Electron company. The granting
corporation may permit the holders of options to exercise options and to
satisfy tax withholding obligations by surrendering shares equal in fair
market value to the exercise price or withholding obligation. Please see
footnote (2) under Summary Compensation Table above for the company
abbreviations used in this table.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock of the
applicable corporation, the optionee's continued employment through the
option period and the date on which the options are exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron or its subsidiaries other than the Company as part of Thermo
Electron's compensation program and accordingly are reported as a
percentage of total options granted to employees of Thermo Electron and
its subsidiaries.
<PAGE>
Stock Options Exercised During Fiscal 1999 and Fiscal Year-End Option Values
The following table reports certain information regarding stock option
exercises during fiscal 1999 and outstanding stock options held at the end of
fiscal 1999 by the Company's named executive officers. No stock appreciation
rights were exercised or were outstanding during fiscal 1999.
Aggregated Option Exercises In Fiscal 1999 And Fiscal 1999 Year-End Option
Values
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number of Value of
Unexercised Unexercised
Shares Options at In-the-Money
Acquired Value Fiscal Options at
on Realized Year-End Fiscal
Name Company (1) Exercise (2) (Exercisable/ Year-End
---- ----------- -------- --- Unexercisable)(1) (Exercisable/
--------------- Unexercisable)
-------------
Robert W. Dunlap THN -- -- 8,000 /0 $400 /--
TMO -- -- 12,900 /0 $0 /--
RGI -- -- 24,000 /0 $0 /--
TTT -- -- 18,000 /0 $0 /--
- -----------------------------------------------------------------------------------
Jeffrey L. Powell THN -- -- 111,000 /0 $0 /--
TMO 300 $3,101 35,112 /0 $4,680 /--
(3)
MKA -- -- 2,000 /0 $0 /--
ONX -- -- 2,000 /0 $0 /--
RGI -- -- 24,000 /0 $0 /--
TDX -- -- 2,000 /0 $0 /--
TBA -- -- 2,000 /0 $17,500 /--
TFG -- -- 2,000 /0 $0 /--
TFT 4,500 $34,875 0 /0 $0 /--
TISI -- -- 0 /1,000 -- /$0
(4)
TLZ -- -- 5,000 /0 $0 /--
TLT -- -- 0 /2,000 -- /$0
(4)
TOC -- -- 6,000 /0 $0 /--
TMQ -- -- 6,000 /0 $0 /--
TSR -- -- 2,000 /0 $0 /--
TTT -- -- 28,000 /0 $0 /--
TRIL -- -- 0 /2,000 -- /$0
(4)
VIZ -- -- 1,500 /0 $0 /--
TRCC -- -- 0 /2,000 -- /$0
(4)
TXM -- -- 4,000 /0 $0 /--
- -----------------------------------------------------------------------------------
Nels R. Johnson THN -- -- 37,250 /0 $0 /--
TMO -- -- 17,295 /0 $7,489 /--
RGI -- -- 2,400 /0 $0 /--
THI -- -- 11,718 /0 $11,402 /--
THS -- -- 600 /0- $0 /--
TTT -- -- 17,000 /0 $0 /--
- -----------------------------------------------------------------------------------
Norman A. THN -- -- 54,000 /0 $50 /--
Pedersen (5)
TMO -- -- 6,700 /0 $0 /--
RGI -- -- 6,000 /0 $0 /--
THP 10,000 $11,075 0 /0 $0 /--
TTT -- -- 18,500 /0 $0 /--
- -----------------------------------------------------------------------------------
James Lousararian TMO -- -- 2,025 /0 $1,945 /--
TFT 4,500 $20,250 0 /0 $0 /--
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) All of the options reported outstanding at the end of the fiscal year are
immediately exercisable as of fiscal year-end, except options to purchase
the common stock of Thermo Information Solutions Inc., ThermoLyte
Corporation, Thermo Trilogy Corporation and Trex Communications
Corporation which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common
stock under Section 12 of the Exchange Act or (ii) nine years from the
grant date. In all cases, the shares acquired upon exercise of the options
reported in the table are subject to repurchase by the granting company at
the exercise price if the optionee ceases to be employed by such company
or any other Thermo Electron company. The granting company may exercise
its repurchase rights within six months after the termination of the
optionee's employment. For publicly-traded companies, the repurchase
rights generally lapse ratably over a one- to ten-year period, depending
on the option term, which may vary from five to twelve years, provided
that the optionee continues to be employed by the granting company or any
other Thermo Electron company. For companies whose shares are not publicly
traded, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date. The granting company may permit the holder
of options to exercise options and to satisfy tax withholding obligations
by surrendering shares equal in fair market value to the exercise price or
withholding obligation. Certain options have three-year terms and the
repurchase rights lapse in their entirety on the second anniversary of the
grant date. Please see footnote (2) under Summary Compensation Table above
for the company abbreviations used in this table. In addition, company
abbreviations used in this table and not defined in footnote (2) are
defined as follows: Thermo BioAnalysis Corporation (designated in the
table as TBA), Thermo Fibertek Inc. (designated in the table as TFT),
ThermoLase Corporation (designated in the table as TLZ), ThermoLyte
Corporation (designated in the table as TLT), ThermoQuest Corporation
(designated in the table as TMQ), Thermo Sentron Inc. (designated in the
table as TSR) and Trex Medical Corporation (designated in the table as
TXM)
(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(3) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Powell are subject to the same terms as described in
footnote (1), except that the repurchase rights of the granting
corporation generally do not lapse until the tenth anniversary of the
grant date. In the event of the employee's death or involuntary
termination prior to the tenth anniversary of the grant date, the
repurchase rights of the granting corporation shall be deemed to lapse
ratably over a five-year period commencing with the fifth anniversary of
the grant date.
(4) No public market existed for the shares underlying these options as of
April 3, 1999. Accordingly, no value in excess of exercise price has been
attributed to these options.
(5) Mr. Pedersen was employed by Thermo Electron prior to joining the Company
and has been granted options to purchase shares of the common stock of
Thermo Electron and certain of its subsidiaries other than the Company
from time to time by Thermo Electron or such other subsidiaries. These
options are not reported here as they were granted as compensation for
service to Thermo Electron companies in capacities other than in his
capacity as a vice president of the Company.
Executive Retention Agreements
Thermo Electron has entered into agreements with certain executive
officers and key employees of Thermo Electron and its subsidiaries that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by Thermo Electron "without cause" or by the individual
for "good reason", as those terms are defined therein, within 18 months
thereafter. For purposes of these agreements, a change in control exists upon
(i) the acquisition by any person of 40% or more of the outstanding common stock
or voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the
<PAGE>
agreement were nominated or elected by a majority of directors who were
"continuing directors" at the time of such nomination or election; (iii) the
consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
Dr. Dunlap. This agreement provides that in the event Dr. Dunlap's employment is
terminated under the circumstances described above, he would be entitled to a
lump sum payment equal to the sum of (a) one times his highest annual base
salary in any 12 month period during the prior five-year period, plus (b) one
times his highest annual bonus in any 12 month period during the prior five-year
period. In addition, he would be provided benefits for a period of one year
after such termination substantially equivalent to the benefits package he would
have been otherwise entitled to receive if he was not terminated. Further, all
repurchase rights of Thermo Electron and its subsidiaries shall lapse in their
entirety with respect to all options that he holds in Thermo Electron and its
subsidiaries, including the Company, as of the date of the change in control.
Finally, Dr. Dunlap would be entitled to a cash payment equal to $15,000, to be
used toward outplacement services.
Assuming that the severance benefits would have been payable as of April
5, 1999, the lump sum salary and bonus payment under such agreement to Dr.
Dunlap would have been approximately $289,000. In the event that payments under
these agreements are deemed to be so called "excess parachute payments" under
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), Dr. Dunlap would be entitled to receive a gross-up
payment equal to the amount of any excise tax payable by him with respect to
such payment, plus the amount of all other additional taxes imposed on him
attributable to the receipt of such gross-up payment.
Stock Ownership Policies
The human resources committee of the board of directors (the "Committee")
established a stock holding policy for executive officers of the Company that
required executive officers to own a multiple of their compensation in shares of
Common Stock. For the chief executive officer, the multiple is one times his
base salary and reference incentive compensation for the fiscal year. For all
other officers, the multiple was one times the officer's base salary. The
Committee deemed it appropriate to permit officers to achieve these ownership
levels over a three-year period. The policy has been amended to apply only to
the chief executive officer.
In order to assist executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the Company
is authorized to make interest-free loans to executive officers to enable them
to purchase shares of Common Stock in the open market. This plan was also
amended to apply only to the chief executive officer. The loans are required to
be repaid upon the earlier of demand or the tenth anniversary of the date of the
loan, unless otherwise determined by the Committee.
The Committee also has a policy requiring its executive officers to hold
shares of Common Stock equal to one-half of their net option exercises over a
period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the option.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock,
as well as the common stock of Thermo TerraTech, the Company's parent company,
and of Thermo Electron, Thermo TerraTech's parent company, as of May 31, 1999,
with respect to (i) each director, (ii) each executive officer named in the
summary compensation table set forth in Item 11 - Executive Compensation (the
"named executive officers") and (iii) all
<PAGE>
directors and current executive officers as a group. In addition, the following
table sets forth the beneficial ownership of Common Stock, as of May 31, 1999,
with respect to each person who was known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock.
While certain directors or executive officers of the Company are also
directors or executive officers of Thermo Electron or Thermo TerraTech, all such
persons disclaim beneficial ownership of the shares of Common Stock owned by
Thermo TerraTech or Thermo Electron.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ThermoRetec Thermo TerraTech Thermo Electron
Name (1) Corporation (2) Inc. (3) Corporation (4)
-------- --------------- -------- ---------------
Thermo Electron 10,258,990 N/A N/A
Corporation (5)
William Harris 1,081,882 N/A N/A
Investors, Inc. (6)
John P. Appleton 73,000 305,939 154,363
Robert W. Dunlap 103,842 40,200 13,755
Elias P. Gyftopoulos 31,133 3,040 70,698
Brian D. Holt 0 250,000 286,943
Fred Holubow 59,892 16,500 6,000
Nels R. Johnson 37,688 17,958 20,352
James Lousararian 10,041 226 3,362
Theo Melas-Kyriazi 22,500 53,618 312,043
Frank E. Morris 33,325 1,500 25,214
Norman A. Pedersen 63,144 18,500 13,907
Jeffrey L. Powell 121,000 56,635 36,831
William A. Rainville 24,000 60,000 352,959
All directors and
current executive
officers as a 602,564 835,313 1,497,332
group (11 persons)
</TABLE>
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person
for the benefit of minor children and all share ownership includes sole
voting and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Appleton, Dr. Dunlap, Dr.
Gyftopoulos, Mr. Holubow, Mr. Johnson, Mr. Melas-Kyriazi, Dr. Morris, Mr.
Pedersen, Mr. Powell, Mr. Rainville and all directors and current
executive officers as a group include 63,000, 8,000, 29,600, 26,450,
37,250, 22,500, 26,450, 54,000, 111,000, 22,500 and 415,750 shares,
respectively, that such person or group has the right to acquire within 60
days of May 31, 1999, through the exercise of stock options. Shares
beneficially owned by Dr. Gyftopoulos, Mr. Holubow, Dr. Morris and all
directors and current executive officers as a group include 533, 7,060,
6,875 and 14,468 shares, respectively, that had been allocated through
April 3, 1999, to their respective accounts maintained under the Deferred
Compensation Plan. Shares of Common Stock beneficially owned by Dr. Dunlap
and all directors and current executive officers as a group include
warrants to purchase 23,962 shares issued in connection with the
acquisition of Remediation Technologies Inc. by the Company. No director
or named executive officer beneficially owned more than 1% of the Common
Stock outstanding as of May 31, 1999; all directors and current executive
officers as a group beneficially owned 4.43% of the Common Stock
outstanding as of such date.
(3) Shares of the common stock of Thermo TerraTech beneficially owned by Dr.
Appleton, Dr. Dunlap, Dr. Gyftopoulos, Mr. Holt, Mr. Johnson, Mr.
Melas-Kyriazi, Dr. Morris, Mr. Pedersen, Mr. Powell, Mr. Rainville and all
directors and current executive officers as a group include 275,000,
18,000, 1,500, 250,000, 17,000, 53,000, 1,500, 18,500, 28,000, 60,000 and
727,500 shares, respectively, that such person or group has the right to
acquire within 60 days of May 31, 1999, through the exercise of stock
options. Shares beneficially owned by Mr. Holubow and all directors and
current executive officers as a group each include 16,500 shares that Mr.
Holubow has the right to acquire within 60 days of May 31, 1999, through
the exercise of stock purchase warrants acquired in connection with
private placements of
<PAGE>
the securities of Thermo TerraTech on terms identical to terms granted to
unaffiliated investors. Shares beneficially owned by Dr. Appleton, Mr.
Melas-Kyriazi, and all directors and current executive officers as a group
include 305, 299 and 907 shares, respectively, allocated through May 31,
1999, to accounts maintained pursuant to the ESOP. Except for Dr.
Appleton, who beneficially owned 1.58% and Mr. Holt who beneficially owned
1.3% of the common stock outstanding as of May 31, 1999, no director or
named executive officer beneficially owned more than 1% of the common
stock of Thermo TerraTech outstanding as of such date; all directors and
current executive officers as a group beneficially owned 4.34% of the
common stock of Thermo TerraTech outstanding as of May 31, 1999.
(4) Shares of the common stock of Thermo Electron beneficially owned by Dr.
Appleton, Dr. Dunlap, Dr. Gyftopoulos, Mr. Holt, Mr. Johnson, Mr.
Melas-Kyriazi, Dr. Morris, Mr. Pedersen, Mr. Powell, Mr. Rainville and all
directors and current executive officers as a group include 116,902
12,900, 7,625, 283,950, 14,765, 275,811, 7,625, 6,700, 30,050, 286,837,
and 1,211,152 shares, respectively, that such person or group has the
right to acquire within 60 days of May 31, 1999, through the exercise of
stock options. Shares beneficially owned by Dr. Appleton, Mr.
Melas-Kyriazi and all directors and current executive officers as a group
include 1,615, 1,071, and 4,112 shares, respectively, allocated through
May 31, 1999, to their respective accounts maintained pursuant to Thermo
Electron's employee stock ownership plan ("ESOP"), of which the trustees,
who have investment power over its assets are officers of Thermo Electron.
Shares beneficially owned by Dr. Gyftopoulos, Dr. Morris and all directors
and current executive officers as a group include 494, 11,924 and 12,418
shares, respectively, that had been allocated through April 3, 1999, to
their respective accounts maintained pursuant to Thermo Electron's
deferred compensation plan for directors. Shares beneficially owned by Dr.
Morris include 3,415 shares owned by his spouse. No director or named
executive officer beneficially owned more than 1% of the common stock of
Thermo Electron outstanding as of May 31, 1999; all directors and current
executive officers as a group did not beneficially own more than 1% of the
common stock of Thermo Electron outstanding as of such date.
(5) Shares beneficially owned by Thermo Electron includes 239,955 shares of
Common Stock issuable upon the conversion of the Company's 4 7/8%
convertible debentures due 2000 owned by Thermo Electron and also
includes. Also includes 269,492 shares of Common Stock issuable upon
conversion of the Company's 3 7/8% convertible debentures due 2000 owned
by Thermo TerraTech. As of May 31, 1999, Thermo Electron, primarily
through its majority-owned subsidiary, Thermo TerraTech, beneficially
owned approximately 74.22% of the outstanding Common Stock. Thermo
Electron's address is 81 Wyman Street, Waltham, Massachusetts 02454-9046.
As of May 31, 1999, Thermo Electron had the power to elect all of the
members of the Company's board of directors.
(6) Information regarding the number of shares of Common Stock beneficially
owned by William Harris Investors, Inc. ("Harris") is based upon the most
recent Schedule 13G of Harris received by the Company which reported such
ownership as of December 31, 1998. These shares of Common Stock have been
acquired by Harris on behalf of discretionary clients of Harris. Harris
has shared voting power and sole dispositive power with respect to these
shares of Common Stock. Harris is an investment adviser registered under
Section 203 of the Investment Adviser Act of 1940, as amended. Its address
is 2 North LaSalle Street, Suite 400, Chicago, Illinois 60602. As of
December 31, 1998, Harris beneficially owned approximately 8.2% of the
outstanding Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, such as Thermo Electron
and Thermo TerraTech, to file with the Securities and Exchange Commission
initial reports of ownership and periodic reports of changes in ownership of the
Company's securities. Based upon a review of such filings, all Section 16(a)
filing requirements applicable to such persons were complied with during fiscal
1999, except in the following instances. Mr. Holt, a director of the Company,
filed his Form 3 late. Thermo Electron filed two Form 4s late, reporting the
acquisition of shares of Common Stock associated with the Company's dividend
reinvestment plan and three transactions associated with the grant and lapse of
options to purchase Common Stock granted to employees under its stock option
program.
<PAGE>
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thermo Electron has, from time to time, caused its subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. Thermo TerraTech has created the Company as a
majority-owned, publicly-held subsidiary. The Company and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Company, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others, and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Company, can withdraw from participation in the Charter upon 30
days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Company and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and financial and other services to the Company. The Company was
assessed an annual fee equal to 0.8% of the Company's revenues for these
services in fiscal 1999. The annual fee will remain at 0.8% of the Company's
revenues for fiscal 2000. The fee is reviewed annually and may be changed by
mutual agreement of the Company and Thermo Electron. During fiscal 1999, Thermo
Electron assessed the Company $1,136,000 in fees under the Services Agreement.
<PAGE>
Management believes that the charges under the Services Agreement are reasonable
and that the terms of the Services Agreement are fair to the Company. In fiscal
1999, the Company was billed an additional $57,000 by Thermo Electron for
certain administrative services required by the Company that were not covered by
the Services Agreement. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services Agreement terminates automatically in the
event the Company ceases to be a member of the Thermo Group or ceases to be a
participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis by
the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company, and its sister subsidiary, The Randers Killam Group Inc., as well as
their parent company, Thermo TerraTech Inc., would be merged into Thermo
Electron. As a result, all three companies would become wholly owned
subsidiaries of Thermo Electron. The public shareholders of all three companies
would receive common stock in Thermo Electron in exchange for their shares. The
completion of these transactions is subject to numerous conditions, including
the establishment of prices and exchange ratios; confirmation of anticipated tax
consequences; the approval of the Board of Directors of Thermo TerraTech and
Randers Killam; the negotiation and execution of definitive merger agreements;
the receipt of fairness opinions from investment banking firms that the
transactions are fair to the Company's and subsidiaries' shareholders (other
than Thermo TerraTech and Thermo Electron) from a financial point of view; the
approval of the Company's Board of Directors, including its independent
directors; and completion of review by the Securities and Exchange Commission of
any necessary documents regarding the proposed transactions.
From time to time the Company may transact business with other companies
in the Thermo Group.
The Company purchases and sells services in the ordinary course of
business to other companies affiliated with Thermo TerraTech. In fiscal 1999,
the Company sold a total of $730,000 of products to other companies affiliated
with Thermo TerraTech and purchased a total of $432,000 of services from such
companies. The Company derived revenues of $347,000 in fiscal 1999 from a joint
venture with Thermo EuroTech N.V., a majority-owned subsidiary of Thermo
TerraTech, which was established in fiscal 1998 to provide soil-remediation
services in Europe.
In March 1999, as settlement of a note receivable, the Company received
118,707 shares of Thermo TerraTech common stock. The Company immediately sold
the shares to Thermo TerraTech at fair market value and received proceeds of
$668,000.
At April 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $2,109,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items, net of amounts owed to the Company by Thermo
Electron and its other subsidiaries for products, services and other
miscellaneous items. The largest amount of such net indebtedness owed by the
Company to Thermo Electron and its other subsidiaries since April 4, 1998 was
$2,109,000. These amounts do not bear interest and are expected to be paid in
the normal course of business.
As of April 3, 1999, approximately $20,607,000 of the Company's cash
equivalents was 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. This
<PAGE>
agreement was terminated effective June 1, 1999 in connection with the adoption
of a new domestic cash management agreement.
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
Stock Holding Assistance Plan
The human resources committee of the board of directors (the "Committee"),
established a stock holding policy that requires the chief executive officer to
acquire and hold a minimum number of shares of Common Stock. In order to assist
the chief executive officer in complying with the policy, the Committee also
adopted a stock holding assistance plan under which the Company may make
interest-free loans to the chief executive officer, to enable him to purchase
the Common Stock in the open market. The stock holding policy and the stock
holding assistance plan were both subsequently amended to apply only to the
chief executive officer. During fiscal 1998, Mr. Powell, a vice president of the
Company, received loans in the principal amount of $59,940.50 under this plan to
purchase 10,000 shares, the entire amount of which was outstanding as of May 31,
1999. In fiscal 1998, Mr. Pedersen, then a vice president of the Company,
received loans in the principal amount of $45,828.50 under this plan to purchase
7,401 shares, the entire amount of which was outstanding as of May 31, 1999. In
fiscal 1998, Mr. Lousararian, then a vice president of the Company, received
loans in the principal amount of $47,572.50 under the plan to purchase 7,700
shares, the entire amount of which was outstanding as of May 31, 1999. These
loans are repayable upon the earlier of demand or the tenth anniversary of the
date of the loan, unless otherwise determined by the Committee.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 on form 10-K/A
to be signed by the undersigned, duly authorized.
THERMORETEC CORPORATION
By: / s / Sandra L. Lambert
----------------------------
Sandra L. Lambert
Secretary
