<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
<TABLE>
<S> <C>
THERMORETEC CORPORATION
- --------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $.01 per share
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
3,853,259
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
The filing fee of $5,395 represents 1/50th of 1% of the
product of (a) 3,853,259 shares of Common Stock of the
Registrant times (b) $7.00 per share, which is the cash
amount per share to be received by the stockholders in the
merger proposal to which this Proxy Statement relates.
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$26,972,813
----------------------------------------------------------
(5) Total fee paid:
$5,395
----------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
THERMORETEC CORPORATION [GRAPHIC TO COME]
, 2000
9 POND LANE, SUITE 5A
CONCORD, MASSACHUSETTS 01742-2851
Dear Stockholder:
I am pleased to invite you to a Special Meeting of the stockholders of
ThermoRetec Corporation ("ThermoRetec") at which you will be asked to adopt an
Agreement and Plan of Merger dated as of October 19, 1999 (the "Merger
Agreement") by and among ThermoRetec, Thermo Electron Corporation, the ultimate
parent company of ThermoRetec ("Thermo Electron"), and Retec Acquisition
Corporation, a newly formed subsidiary of Thermo Electron (the "Merger Sub").
The Special Meeting will take place at 10:00 a.m., local time, on ,
, 2000 at the offices of Thermo Electron Corporation, 81 Wyman
Street, Waltham, Massachusetts 02454.
Under the terms of the Merger Agreement, the Merger Sub would merge with and
into ThermoRetec, with ThermoRetec being the surviving corporation (the
"Merger"). Each issued and outstanding share of ThermoRetec common stock (other
than shares held by Thermo TerraTech Inc. ("Thermo TerraTech"), Thermo Electron
and stockholders who are entitled to and who have perfected their dissenters'
rights under Delaware law) would be converted into the right to receive $7.00 in
cash, without interest. ThermoRetec would become a private company. The Merger
is more fully described in the Merger Agreement, which is attached as
Appendix A to the enclosed Proxy Statement.
A special committee of the ThermoRetec Board of Directors (the "Special
Committee"), acting in the interests of the stockholders of ThermoRetec other
than Thermo TerraTech, Thermo Electron and the directors and officers of
ThermoRetec, Thermo TerraTech and Thermo Electron (the "Public Stockholders"),
evaluated the merits of, and negotiated the terms of, the Merger. The Special
Committee received an opinion from Adams, Harkness & Hill, Inc. as to the
fairness of the Merger, from a financial point of view, as of the date of such
opinion, to the Public Stockholders. Please read carefully the written opinion
of Adams, Harkness & Hill, dated October 18, 1999, which is attached as
Appendix B to the enclosed Proxy Statement. The Special Committee recommended
that ThermoRetec's Board of Directors approve the Merger Agreement.
ThermoRetec's Board of Directors and the Special Committee of the Board of
Directors believe that the proposed Merger is both substantively and
procedurally fair to the Public Stockholders of ThermoRetec, and recommend that
stockholders vote "FOR" adoption of the Merger Agreement. In considering the
recommendation of the Board of Directors with respect to the Merger Agreement,
stockholders should be aware that seven of the eight members of the ThermoRetec
Board of Directors are either directors or former directors of Thermo TerraTech
or Thermo Electron, or employees of Thermo Electron or its affiliates, and thus
have interests that are in addition to, or different from, your interests as
stockholders of ThermoRetec.
Delaware law requires that a majority of the outstanding shares of
ThermoRetec common stock entitled to vote at the Special Meeting vote in favor
of the Merger Agreement for the Merger Agreement to be adopted. Thermo
TerraTech, which owns approximately 70% of ThermoRetec's outstanding common
stock, and Thermo Electron, which owns approximately 2% of ThermoRetec's
outstanding common stock, have agreed to vote their shares in favor of the
Merger Agreement, thus assuring that the Merger Agreement will be adopted. Only
stockholders of record at the close of business on , 2000 will
receive notice of and be able to vote at the Special Meeting or any adjournment
or adjournments thereof.
The accompanying Proxy Statement provides you with a summary of the proposed
Merger and additional information about the parties involved and their
interests. Please give all this information your
<PAGE>
careful attention. You can also obtain other information about ThermoRetec,
Thermo TerraTech and Thermo Electron from documents filed with the Securities
and Exchange Commission.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE TIME
TO VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD TO US TODAY. IF YOU
DATE, SIGN AND MAIL YOUR PROXY CARD WITHOUT INDICATING HOW YOU WISH TO VOTE,
YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF ADOPTION OF THE MERGER
AGREEMENT. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT
YOU OWN.
Your Board of Directors believes that the transaction with Thermo Electron
is in the best interests of ThermoRetec and its stockholders, including its
Public Stockholders. Your Board of Directors recommends that stockholders vote
for the adoption of the Merger Agreement. On behalf of the Board of Directors, I
urge you to sign, date and return the enclosed Proxy Card today.
Please do not send any stock certificates to us now. Assuming the Merger
Agreement is adopted, we will send you instructions concerning the surrender of
your shares.
Thank you for your interest and participation.
Yours very truly,
/S/ ROBERT W. DUNLAP
Robert W. Dunlap
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[Graphic to come]
NOTICE OF SPECIAL MEETING
, 2000
TO THE HOLDERS OF THE COMMON STOCK OF
THERMORETEC CORPORATION
I am pleased to give you notice of and cordially invite you to attend in
person or by proxy the Special Meeting of the stockholders of ThermoRetec
Corporation, a Delaware corporation (the "Company" or "ThermoRetec"), which will
be held on , , 2000, at 10:00 a.m., local time, at the offices of
Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454, and
at any adjournment or adjournments thereof (the "Special Meeting"). At the
Special Meeting, stockholders will:
1. Consider and vote on a proposal to adopt an Agreement and Plan of Merger
dated as of October 19, 1999 (the "Merger Agreement") pursuant to which
Retec Acquisition Corporation, a newly-formed company (the "Merger Sub"),
will be merged with and into ThermoRetec (the "Merger"). Upon the Merger,
each stockholder of the Company (other than stockholders who perfect
their dissenters' rights, Thermo TerraTech Inc. and Thermo Electron
Corporation) will become entitled to receive $7.00 in cash, without
interest, for each outstanding share of common stock, $.01 par value, of
the Company (the "Common Stock") owned by such stockholder immediately
prior to the effective time of the Merger. A copy of the Merger Agreement
is attached as Appendix A to and is described in the accompanying Proxy
Statement.
2. Transact such other business as may properly come before the Special
Meeting.
Only stockholders of record at the close of business on , 2000
will receive notice of and be able to vote at the Special Meeting.
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. The
Company's Bylaws require that the holders of a majority of the outstanding
shares of Common Stock entitled to vote be present or represented by proxy at
the Special Meeting in order to constitute a quorum for the transaction of
business. It is important that your shares be represented at the Special Meeting
regardless of the number of shares you hold. Whether or not you are able to be
present in person, please sign and return promptly the enclosed Proxy Card in
the accompanying envelope, which requires no postage if mailed in the United
States. You may revoke your proxy in the manner described in the accompanying
Proxy Statement at any time before it is voted at the Special Meeting.
Stockholders who properly demand appraisal prior to the stockholder vote at
the Special Meeting, who do not vote in favor of adoption of the Merger
Agreement and who otherwise comply with the provisions of Section 262 of the
General Corporation Law of the State of Delaware (the "DGCL") will be entitled,
if the Merger is completed, to statutory appraisal of the fair value of their
shares of Common Stock. See "RIGHTS OF DISSENTING STOCKHOLDERS" in the
accompanying Proxy Statement and the full text of Section 262 of the DGCL, which
is attached as Appendix C to and is described in the accompanying Proxy
Statement, for a description of the procedures that you must follow in order to
exercise your appraisal rights.
This Notice, the Proxy Card and Proxy Statement enclosed herewith are sent
to you by order of the Board of Directors.
Sandra L. Lambert
SECRETARY
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. TO ADOPT THE MERGER AGREEMENT, THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK
ENTITLED TO VOTE THEREON IS REQUIRED. YOU ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE
SPECIAL MEETING MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE MERGER
AGREEMENT AT THE SPECIAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATION OF THE BOARD OF
DIRECTORS WITH RESPECT TO THE MERGER, STOCKHOLDERS OTHER THAN THERMO
TERRATECH INC., THERMO ELECTRON CORPORATION AND THE DIRECTORS AND OFFICERS OF
THE COMPANY, THERMO TERRATECH INC. AND THERMO ELECTRON CORPORATION (THE "PUBLIC
STOCKHOLDERS") SHOULD BE AWARE THAT CERTAIN OFFICERS AND DIRECTORS OF THE
COMPANY HAVE CERTAIN INTERESTS THAT ARE IN ADDITION TO, OR DIFFERENT FROM, THE
INTERESTS OF THE PUBLIC STOCKHOLDERS. SEE "SPECIAL FACTORS--CONFLICTS OF
INTEREST."
IF A PROPERLY EXECUTED PROXY CARD IS SUBMITTED AND NO INSTRUCTIONS ARE
GIVEN, THE SHARES OF COMMON STOCK REPRESENTED BY THAT PROXY WILL BE VOTED "FOR"
ADOPTION OF THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO THE COMPANY AT THIS TIME.
<PAGE>
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of ThermoRetec
Corporation, a Delaware corporation (the "Company" or "ThermoRetec"), in
connection with the solicitation by its Board of Directors (the "Board" or the
"Board of Directors") of proxies to be used at a Special Meeting of stockholders
to be held on , , 2000, at 10:00 a.m., local time, at the offices of
Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454, and
at any adjournment or adjournments thereof (the "Special Meeting"). The Board of
Directors has fixed the close of business on , 1999 as the record date
(the "Record Date") for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting.
The Special Meeting has been called to consider and vote on a proposal to
adopt an Agreement and Plan of Merger dated as of October 19, 1999 (the "Merger
Agreement"), which is attached to this Proxy Statement as Appendix A. Pursuant
to the Merger Agreement, Retec Acquisition Corporation (the "Merger Sub"), a
newly-formed Delaware corporation, will be merged with and into ThermoRetec (the
"Merger"), with ThermoRetec being the surviving corporation (the "Surviving
Corporation"). ThermoRetec is an indirect majority-owned subsidiary and the
Merger Sub is a wholly owned subsidiary of Thermo Electron Corporation, a
Delaware corporation ("Thermo Electron"). The Merger Sub was organized by Thermo
Electron solely to facilitate the Merger.
In the Merger, each outstanding share of common stock, $.01 par value, of
ThermoRetec (the "Common Stock") (other than shares held by stockholders who are
entitled to and who have perfected their Dissenters' Rights (as defined below),
shares held by ThermoRetec in treasury and shares held by Thermo TerraTech Inc.
("Thermo TerraTech") and Thermo Electron) will be canceled and converted
automatically into the right to receive $7.00 in cash, payable to the holder
thereof, without interest. See "THE MERGER." On August 10, 1998, the last day on
which the Common Stock traded prior to the date Thermo Electron first publicly
announced a proposal to take ThermoRetec private (with no price having been
determined and, accordingly, no financial terms announced as of that date), the
closing price per share of Common Stock reported in the consolidated transaction
reporting system was $4.0625. On October 19, 1999, the last trading day prior to
the public announcement of the terms of the proposed Merger, the closing price
per share of Common Stock reported in the consolidated transaction reporting
system was $5.50. On , 2000, the last trading day prior to the printing of
this Proxy Statement, the closing price per share of Common Stock was $ .
The directors and officers of ThermoRetec immediately prior to the Merger
shall be the initial directors and officers of the Surviving Corporation;
however, Thermo Electron intends to appoint a board of directors comprised
solely of members of the Surviving Corporation's and Thermo Electron's
management after the Merger. All options and warrants to purchase Common Stock
immediately prior to the Merger shall be assumed by Thermo Electron and
converted into options to purchase the common stock, $1.00 par value, of Thermo
Electron. See "THE MERGER--Assumption of ThermoRetec Stock Options and Warrants
by Thermo Electron."
Under Delaware law, adoption of the Merger Agreement at the Special Meeting
will require the affirmative vote of holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Special Meeting. Thermo
TerraTech, which owns approximately 70% of the outstanding Common Stock, and
Thermo Electron, which owns approximately 2% of the outstanding Common Stock,
have agreed to vote their shares in favor of the Merger Agreement, thus assuring
that the Merger will be adopted. In addition, the Company's executive officers
and directors have expressed their intention to vote to adopt the Merger
Agreement.
The Board of Directors recommends that stockholders vote "FOR" adoption of
the Merger Agreement. In considering the recommendation of the Board of
Directors with respect to the Merger, stockholders other than Thermo TerraTech,
Thermo Electron and the directors and officers of the Company, Thermo TerraTech
and Thermo Electron (the "Public Stockholders"), should be aware that
<PAGE>
certain officers and directors of the Company have certain interests that are in
addition to, or different from, the interests of the Public Stockholders. See
"SPECIAL FACTORS--Conflicts of Interest."
Stockholders should read and consider carefully the information contained in
this Proxy Statement. The consummation of the Merger is subject to certain
conditions. Accordingly, even if the stockholders adopt the Merger, there can be
no assurance that the Merger will be consummated. This Proxy Statement, the
Notice of Special Meeting and the enclosed Proxy Card are first being mailed to
stockholders of the Company on or about , 2000.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 5
SUMMARY..................................................... 8
Date, Time and Place of the Special Meeting............... 8
Purpose of the Special Meeting............................ 8
Record Date and Quorum.................................... 8
Vote Required and Revocation of Proxies................... 8
Parties to the Merger..................................... 9
The Merger................................................ 10
Effective Time of the Merger and Payment for Shares....... 10
Assumption of ThermoRetec Stock Options and Warrants by
Thermo Electron......................................... 10
The Special Committee's and the Board's Recommendation.... 11
Opinion of Adams, Harkness & Hill......................... 12
Purpose and Reasons of Thermo Electron for the Merger..... 13
Position of Thermo Electron as to Fairness of the
Merger.................................................. 13
Conflicts of Interest..................................... 14
Certain Effects of the Merger............................. 16
Conditions to the Merger, Termination and Expenses........ 16
Federal Income Tax Consequences........................... 17
Rights of Dissenting Stockholders......................... 17
Accounting Treatment...................................... 18
Market Prices of Common Stock and Dividends............... 18
SPECIAL FACTORS............................................. 19
Background of the Merger.................................. 19
The Special Committee's and the Board's Recommendation.... 24
Opinion of Adams, Harkness & Hill......................... 28
Purpose and Reasons of Thermo Electron for the Merger..... 34
Position of Thermo Electron as to Fairness of the
Merger.................................................. 36
Conflicts of Interest..................................... 36
Certain Effects of the Merger............................. 39
Conduct of ThermoRetec's Business After the Merger........ 39
Conduct of the Business of the Company if the Merger is
Not Consummated......................................... 40
THE SPECIAL MEETING......................................... 41
Proxy Solicitation........................................ 41
Record Date and Quorum Requirement........................ 41
Voting Procedures......................................... 41
Voting and Revocation of Proxies.......................... 42
Effective Time............................................ 42
THE MERGER.................................................. 43
Conversion of Securities.................................. 43
</TABLE>
2
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<TABLE>
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Assumption of ThermoRetec Stock Options and Warrants by
Thermo Electron......................................... 44
Deferred Compensation Plan for Directors.................. 44
Transfer of Shares........................................ 44
Conditions................................................ 44
Representations and Warranties............................ 45
Covenants................................................. 46
Indemnification and Insurance............................. 46
Termination, Amendment and Waiver......................... 48
Source of Funds........................................... 49
Expenses.................................................. 49
Accounting Treatment...................................... 49
Regulatory Approvals...................................... 49
RIGHTS OF DISSENTING STOCKHOLDERS........................... 50
FEDERAL INCOME TAX CONSEQUENCES............................. 52
BUSINESS OF THE COMPANY..................................... 53
Overview.................................................. 53
Consulting and Engineering................................ 53
Nuclear Remediation....................................... 54
Soil Remediation.......................................... 54
Fluids Recycling.......................................... 55
Properties................................................ 55
SELECTED FINANCIAL INFORMATION AND RATIO OF EARNINGS (LOSS)
TO FIXED CHARGES.......................................... 57
CERTAIN PROJECTED FINANCIAL DATA............................ 59
Projections............................................... 60
MANAGEMENT.................................................. 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 63
Principal Stockholder..................................... 63
Management................................................ 63
CERTAIN TRANSACTIONS........................................ 64
CERTAIN INFORMATION CONCERNING THE MERGER SUB, THERMO
TERRATECH AND THERMO ELECTRON............................. 67
Thermo TerraTech.......................................... 67
Thermo Electron........................................... 70
The Merger Sub............................................ 75
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 77
STOCKHOLDER PROPOSALS....................................... 77
ADDITIONAL INFORMATION...................................... 77
AVAILABLE INFORMATION....................................... 77
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 78
</TABLE>
3
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APPENDICES
APPENDIX A--Agreement and Plan of Merger.................. A-1
APPENDIX B--Opinion of Adams, Harkness & Hill, Inc........ B-1
APPENDIX C--Text of Section 262 of the General Corporation
Law of the State of Delaware............................ C-1
APPENDIX D--Information Concerning Transactions in the
Common Stock of the Company............................. D-1
APPENDIX E--Annual Report on Form 10-K of ThermoRetec for
the Fiscal Year Ended April 3, 1999..................... E-1
APPENDIX F--Amendment No. 1 on Form 10-K/A to Annual
Report on Form 10-K of ThermoRetec for the Fiscal Year
Ended April 3, 1999..................................... F-1
APPENDIX G--Quarterly Report on Form 10-Q of ThermoRetec
for the Quarter Ended July 3, 1999...................... G-1
APPENDIX H--Quarterly Report on Form 10-Q of ThermoRetec
for the Quarter Ended October 2, 1999................... H-1
</TABLE>
4
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
1. WHEN AND WHERE IS THE THERMORETEC SPECIAL MEETING?
The ThermoRetec Special Meeting will take place on , ,
2000, at 10:00 a.m., local time, at the offices of Thermo Electron Corporation,
81 Wyman Street, Waltham, Massachusetts 02454.
2. WHAT PROPOSALS ARE THERMORETEC STOCKHOLDERS VOTING ON?
ThermoRetec stockholders are being asked to adopt the Merger Agreement. The
Merger Agreement provides that a wholly owned subsidiary of Thermo Electron will
merge with and into ThermoRetec and, as a result, Thermo Electron will own all
of the outstanding Common Stock of ThermoRetec.
3. WHAT WILL THERMORETEC STOCKHOLDERS RECEIVE IN THE MERGER?
In the Merger, ThermoRetec stockholders will receive $7.00 in cash per share
of Common Stock. The amount of cash consideration to be paid to ThermoRetec
stockholders will equal approximately $27 million in the aggregate.
On August 11, 1998, the last trading day prior to the date Thermo Electron
first publicly announced the proposal to take ThermoRetec private, the closing
price per share of Common Stock reported in the consolidated transaction
reporting system was $4.0625. On October 19, 1999, the last trading day prior to
the public announcement of the terms of the proposed Merger, the closing price
per share of Common Stock reported in the consolidated transaction reporting
system was $5.50. On , 2000, the last trading day prior to the
printing of this Proxy Statement, the closing price per share of Common Stock
reported in the consolidated transaction reporting system was $ .
4. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
For federal income tax purposes, each stockholder's receipt of $7.00 per
share in the Merger will be treated as a taxable sale of the holder's Common
Stock. Each stockholder's gain or loss per share will equal the difference
between $7.00 and the stockholder's basis in the share of Common Stock.
ThermoRetec stockholders should consult their tax advisors for a full
understanding of the tax consequences of the Merger. No gain or loss for federal
income tax purposes will be recognized by ThermoRetec, Thermo TerraTech, Thermo
Electron or the Merger Sub by reason of the Merger.
5. WHY IS THERMORETEC'S BOARD OF DIRECTORS RECOMMENDING ADOPTION OF THE MERGER
AGREEMENT?
ThermoRetec's Board of Directors believes, based on the recommendation of
its Special Committee, that the proposed transaction is fair to and in the best
interests of ThermoRetec and its stockholders other than Thermo TerraTech,
Thermo Electron and the directors and officers of the Company, Thermo TerraTech
and Thermo Electron.
6. WHAT RIGHTS DO STOCKHOLDERS HAVE IF THEY OPPOSE THE MERGER?
Stockholders who wish to dissent from the Merger may seek appraisal of the
fair value of their shares, but only if they strictly comply with all of the
procedures under Delaware law that are summarized on pages [ ] of this Proxy
Statement.
5
<PAGE>
7. WHAT STOCKHOLDER VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT?
Under Delaware law, a majority of the outstanding shares of Common Stock
entitled to vote must adopt the Merger Agreement. Thermo TerraTech and Thermo
Electron, which collectively own approximately 73% of the outstanding Common
Stock, have agreed to vote in favor of adoption of the Merger Agreement.
Accordingly, the stockholder vote adopting the Merger Agreement is assured.
8. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HOLDING MY SHARES AS TO HOW TO
VOTE THEM OR I ABSTAIN FROM VOTING?
If your shares are held by a broker as nominee, your broker will not be able
to vote your shares without instructions from you. If your broker is unable to
vote your shares or if you abstain, it will have the effect of voting against
adoption of the Merger Agreement under Delaware law; however, Thermo TerraTech
and Thermo Electron own sufficient shares to satisfy the Delaware law voting
requirement.
9. WHO IS ENTITLED TO VOTE?
Holders of record of Common Stock at the close of business on ,
2000, the record date for the Special Meeting, are entitled to vote at the
Special Meeting.
10. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
We are working to complete all aspects of the Merger as quickly as possible.
If adopted by the stockholders, we currently expect the Merger to be completed
by , 2000.
11. WHAT DO I NEED TO DO NOW?
After you have carefully read this Proxy Statement, please complete, sign
and mail your Proxy Card in the enclosed return envelope as soon as possible.
That way, your shares can be represented at the Special Meeting. If your shares
are held by a broker as nominee, you should receive a Proxy Card from your
broker.
ThermoRetec stockholders must return their Proxy Cards before the Special
Meeting in order for their votes to be counted at the Special Meeting.
12. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
You may change your vote at any time before the vote takes place at the
Special Meeting. To do so, you can attend the Special Meeting and vote in
person, complete and send a new Proxy Card with a later date or send a written
notice stating you would like to revoke your proxy. The notice should be sent
to: ThermoRetec Corporation, c/o Thermo Electron Corporation, 81 Wyman Street,
P.O. Box 9046, Waltham, Massachusetts 02454-9046, Attention: Corporate
Secretary.
13. SHOULD I SEND IN MY THERMORETEC STOCK CERTIFICATES NOW?
No. You should continue to hold your certificates for Common Stock. If the
Merger is completed, you will receive a package containing instructions on how
to exchange your shares of Common Stock for cash.
14. WILL THERMORETEC'S 4 7/8% CONVERTIBLE SUBORDINATED DEBENTURES BE EXCHANGED
IN THE MERGER?
No. However, the Merger will give holders of the debentures the right to
cause ThermoRetec to redeem the debentures at 100% of the principal amount to be
received, plus accrued interest. If a holder of debentures chooses not to redeem
its debentures, that holder's right to receive shares of the Common Stock of
ThermoRetec upon conversion of the debentures will be converted into the right
to receive $7.00
6
<PAGE>
in cash per share of ThermoRetec Common Stock that the debentures would have
been convertible into before the Merger.
15. WHAT WILL HAPPEN TO THE THERMORETEC STOCK OPTIONS AND WARRANTS?
Options and warrants to purchase Common Stock outstanding on the effective
date of the Merger, whether or not the options are then exercisable, will be
assumed by Thermo Electron and converted into options or warrants, as the case
may be, to purchase the common stock of Thermo Electron.
16. WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?
You should call ThermoRetec Investor Relations at (781) 622-1111.
17. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
We are not aware of any other matters to be voted on at the Special Meeting.
If you are voting by proxy, however, we ask that you give the proxies listed in
the Proxy Card the power to act in their discretion upon any other matters that
may come before the Special Meeting.
7
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained elsewhere or incorporated
by reference in this Proxy Statement. Stockholders should read this Proxy
Statement and its appendices in their entirety before voting.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting of stockholders of ThermoRetec Corporation, a Delaware
corporation (the "Company" or "ThermoRetec"), will be held on , ,
2000, at 10:00 a.m., local time, at the offices of Thermo Electron Corporation,
81 Wyman Street, Waltham, Massachusetts 02454.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote on a proposal to adopt an Agreement and Plan of Merger dated as of
October 19, 1999 (the "Merger Agreement"), which is attached to this Proxy
Statement as Appendix A. The Merger Agreement provides that Retec Acquisition
Corporation (the "Merger Sub"), a newly-formed Delaware corporation that is a
wholly owned subsidiary of Thermo Electron Corporation, a Delaware corporation
("Thermo Electron"), would merge with and into ThermoRetec (the "Merger").
ThermoRetec would be the surviving corporation (the "Surviving Corporation") in
the Merger, and each outstanding share of common stock, $.01 par value, of
ThermoRetec (the "Common Stock"), other than shares held by stockholders who are
entitled to and who have perfected their Dissenters' Rights (as defined below),
shares held by ThermoRetec in treasury and shares held by Thermo
TerraTech Inc., a Delaware corporation ("Thermo TerraTech") and Thermo Electron,
will be converted automatically into the right to receive $7.00 in cash, payable
to the holders thereof, without interest (the "Cash Merger Consideration"). See
"THE MERGER."
RECORD DATE AND QUORUM
The close of business on , 2000 is the record date (the "Record Date")
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting. Each holder of record of Common Stock at the close of business
on the Record Date is entitled to one vote for each share then held on each
matter submitted to a vote of stockholders. At the close of business on the
Record Date, there were shares of Common Stock outstanding. The holders of
a majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions will be counted as shares
present and entitled to vote for purposes of determining whether a quorum
exists. If you hold your shares of Common Stock through a broker, bank or other
nominee, generally the nominee may only vote the Common Stock that it holds for
you in accordance with your instructions. However, if it has not timely received
your instructions, the nominee may vote on certain matters for which it has
discretionary voting authority. Brokers generally will not have discretionary
voting authority with respect to the proposal to adopt the Merger Agreement. If
a nominee cannot vote on a particular matter because it does not have
discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are also counted as present or represented at the Special
Meeting for purposes of determining whether a quorum exists. See "THE SPECIAL
MEETING--Record Date and Quorum Requirement."
VOTE REQUIRED AND REVOCATION OF PROXIES
Under Delaware law, holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting must adopt the Merger. For
the purposes of this vote, a failure to vote, a vote to abstain and a broker
non-vote will have the same legal effect as a vote cast against adoption of the
Merger Agreement. Thermo TerraTech, which owns approximately 70% of the
outstanding Common
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Stock, and Thermo Electron, which owns approximately 2% of the outstanding
Common Stock, own enough shares of Common Stock to adopt the Merger under
Delaware law without the vote of any other holders of Common Stock and have
agreed to vote their shares in favor of the Merger Agreement. See "THE SPECIAL
MEETING--Voting Procedures."
A stockholder who returns a proxy may revoke it at any time before the
stockholder's shares are voted at the Special Meeting. The proxy may be revoked
by written notice to the Secretary of the Company received prior to the Special
Meeting, by executing and returning a later-dated proxy or by voting by ballot
at the Special Meeting. See "THE SPECIAL MEETING--Voting and Revocation of
Proxies."
If a properly executed Proxy Card is submitted and no instructions are
given, the shares of Common Stock represented by that proxy will be voted "FOR"
the adoption of the proposed Merger Agreement.
The Board of Directors of the Company (the "Board" or the "Board of
Directors") is not aware of any other matters to be voted on at the Special
Meeting. If any other matters properly come before the Special Meeting,
including a motion to adjourn the Special Meeting for the purpose of soliciting
additional proxies, the persons named on the accompanying Proxy Card will vote
the shares represented by all properly executed proxies on such matters in their
discretion, except that shares represented by proxies that have been voted
"AGAINST" adoption of the Merger Agreement will not be used to vote "FOR"
adjournment of the Special Meeting for the purpose of allowing additional time
for soliciting additional votes "FOR" the Merger Agreement. See "THE SPECIAL
MEETING--Voting Procedures."
PARTIES TO THE MERGER
THE COMPANY
ThermoRetec is a national provider of environmental-liability and
resource-management services. The Company offers these and related consulting
services in four segments: Consulting and Engineering, Nuclear Remediation, Soil
Remediation, and Fluids Recycling. The Company's Consulting and Engineering
segment provides consultation, engineering, and on-site services to help clients
manage problems associated with environmental compliance, resource management,
and the remediation of industrial sites contaminated with organic and inorganic
wastes and residues. The Company's Nuclear Remediation segment provides services
to remove radioactive contaminants from sand, gravel, and soil, as well as
health physics services, radiochemistry laboratory services, radiation dosimetry
services, radiation-instrument calibration and repair services, and
radiation-source production. Through the Company's Soil Remediation segment, the
Company designs and operates facilities for the remediation of nonhazardous
soil. The Company also designs and operates mobile equipment for the on-site
remediation of such wastes. The Company's Fluids Recycling segment collects,
tests, processes, and recycles used motor oil and other industrial fluids.
The principal executive offices of the Company are located at 9 Pond Lane,
Suite 5A, Concord, Massachusetts 01742-2851, and its telephone number is
(978) 371-3200. See "BUSINESS OF THE COMPANY."
THE MERGER SUB
The Merger Sub is a newly-formed Delaware corporation organized at the
direction of Thermo Electron for the sole purpose of effecting the Merger and
has not conducted any prior business.
The principal executive offices of the Merger Sub are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000. See "CERTAIN INFORMATION CONCERNING THE MERGER SUB,
THERMO TERRATECH AND THERMO ELECTRON."
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THERMO ELECTRON
Thermo Electron and its subsidiaries develop, manufacture and market
monitoring, analytical, and biomedical instrumentation; biomedical products
including heart-assist devices, respiratory-care equipment, and mammography
systems; and paper recycling and papermaking equipment. Thermo Electron also
develops alternative-energy systems and clean fuels, industrial process
equipment; and other specialized products. Thermo Electron also provides a range
of services including industrial outsourcing, particularly in
environmental-liability management, laboratory analysis and metallurgical
processing, and conducts advanced-technology research and development. Thermo
Electron performs its business through wholly owned subsidiaries and divisions,
as well as majority-owned subsidiaries that are partially owned by the public or
private investors.
The principal executive offices of Thermo Electron are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000. See "CERTAIN INFORMATION CONCERNING THE MERGER SUB, THERMO
TERRATECH AND THERMO ELECTRON."
THE MERGER
The Merger Agreement provides that subject to satisfaction of certain
conditions, the Merger Sub will be merged with and into ThermoRetec, and that
following the Merger, the separate existence of the Merger Sub will cease and
ThermoRetec will continue as the Surviving Corporation. At the effective time of
the Merger, which shall be the date and time of filing of the Certificate of
Merger with the Secretary of State of the State of Delaware (the "Effective
Time") (and the date on which the Effective Time occurs being the "Effective
Date"), and subject to the terms and conditions set forth in the Merger
Agreement, each share of issued and outstanding Common Stock (other than shares
as to which Dissenters' Rights (as defined below) are properly perfected and not
withdrawn, shares held by ThermoRetec in treasury and shares held by Thermo
TerraTech and Thermo Electron) will, by virtue of the Merger, be canceled and
converted into the right to receive the Cash Merger Consideration. As a result
of the Merger, ThermoRetec's Common Stock will no longer be publicly traded and
will be 100% owned by Thermo Electron. The aggregate consideration payable in
the Merger, assuming no Dissenters' Rights (as defined below) are exercised, is
approximately $65.4 million (including $38.0 million for the redemption of the
4 7/8% Debentures (as defined below)). See "THE MERGER."
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The Effective Time is currently expected to occur as soon as practicable
after the Special Meeting, subject to adoption of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the terms and conditions of the
Merger Agreement. See "--Conditions to the Merger, Termination and Expenses" and
"THE MERGER--Conditions." Detailed instructions with regard to the surrender of
stock certificates, together with a letter of transmittal, will be forwarded to
stockholders by the Company's transfer agent, American Stock Transfer & Trust
Company (the "Payment Agent"), promptly following the Effective Time.
Stockholders should not submit their stock certificates to the Payment Agent
until they have received such materials. The Payment Agent will send payment of
the Cash Merger Consideration to stockholders as promptly as practicable
following receipt by the Payment Agent of their stock certificates and other
required documents. No interest will be paid or accrued on the cash payable upon
the surrender of stock certificates. See "THE MERGER--Conversion of Securities."
Stockholders should not send any stock certificates to the Company or the
Payment Agent at this time.
ASSUMPTION OF THERMORETEC STOCK OPTIONS AND WARRANTS BY THERMO ELECTRON
At the Effective Time, each outstanding option to purchase shares of Common
Stock (each, a "ThermoRetec Stock Option") under the ThermoRetec Stock Option
Plans (as defined below), whether or not exercisable, will be assumed by Thermo
Electron. Each ThermoRetec Stock Option so assumed by
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Thermo Electron will continue to have, and be subject to, the same terms and
conditions set forth in the applicable ThermoRetec Stock Option Plan immediately
prior to the Effective Time, except that (i) each ThermoRetec Stock Option will
be exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of common stock, $1.00 par value per share, of
Thermo Electron ("Thermo Electron Common Stock") equal to the product of the
number of shares of Common Stock that were issuable upon exercise of such
ThermoRetec Stock Option immediately prior to the Effective Time multiplied by a
fraction (the "Exchange Ratio"), the numerator of which is the Cash Merger
Consideration and the denominator of which is the closing price (the "Closing
Price") of the Thermo Electron Common Stock on the day immediately preceding the
Effective Date as reported in the consolidated transaction reporting system,
rounded down to the nearest whole number of shares of Thermo Electron Common
Stock, and (ii) the per share exercise price for the shares of Thermo Electron
Common Stock issuable upon exercise of each such assumed ThermoRetec Stock
Option will be equal to the quotient determined by dividing the exercise price
per share of Common Stock at which such ThermoRetec Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent.
All warrants to purchase ThermoRetec Common Stock outstanding immediately
prior to the Effective Time shall be converted at the Effective Time into
warrants to purchase Thermo Electron Common Stock. The number of whole shares of
Thermo Electron Common Stock for which each warrant will be exercisable (or will
become exercisable in accordance with its terms) and the per share exercise
price for the shares of Thermo Electron Common Stock issuable upon exercise of
such ThermoRetec warrant will be determined in accordance with the terms of such
warrants.
See "THE MERGER--Assumption of ThermoRetec Stock Options and Warrants by
Thermo Electron."
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
In November 1998, the Board appointed a committee (the "Special Committee")
of one director, Mr. Fred Holubow (who is not an officer or employee of the
Company, Thermo TerraTech, the Merger Sub or Thermo Electron and who is not a
director of Thermo Electron, Thermo TerraTech or the Merger Sub), to act on
behalf of, and in the interests of, the stockholders of the Company other than
Thermo TerraTech, Thermo Electron and the directors and officers of the Company,
Thermo TerraTech and Thermo Electron (the "Public Stockholders") in his review
of and evaluation of the proposed Merger. Mr. Holubow, the member of the Special
Committee, owns 26,382 shares of Common Stock and will receive a payment for his
shares of Common Stock in the aggregate amount of $184,674 upon consummation of
the Merger. In addition, Mr. Holubow holds options to acquire an aggregate of
26,450 shares of Common Stock at exercise prices ranging from $2.93 per share to
$10.85 per share, which will be assumed by Thermo Electron and converted into
options to acquire shares of Thermo Electron Common Stock on the same terms as
all the other holders of ThermoRetec Stock Options. See "THE MERGER--Assumption
of ThermoRetec Stock Options and Warrants by Thermo Electron." Further, deferred
units equal to 8,067 shares of Common Stock have accumulated under the Company's
deferred compensation plan for directors for the benefit of Mr. Holubow, which
units will be converted into the right to receive the Cash Merger Consideration
per unit for an aggregate cash payment of $56,469. See "THE MERGER--Deferred
Compensation Plan for Directors." In addition, Mr. Holubow owns shares of Thermo
Electron Common Stock, as set forth in more detail under "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Management."
At the conclusion of its review and evaluation of the proposed Merger, on
October 18, 1999, the Special Committee recommended to the Company's Board that
the Merger Agreement be approved and that it be recommended to the stockholders
of the Company for adoption. In connection with its recommendation, the Special
Committee considered the opinion of Adams, Harkness & Hill, Inc. ("Adams,
Harkness & Hill"), that the consideration of $7.00 per share in cash payable
under the Merger
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Agreement was fair, from a financial point of view, as of the date of such
opinion, to the Public Stockholders. See "SPECIAL FACTORS--Opinion of Adams,
Harkness & Hill." As part of its deliberations, the Special Committee determined
that the Merger is substantively and procedurally fair to the Public
Stockholders.
Following the recommendation of the Special Committee, the Board of
Directors approved the Merger Agreement, declared its advisability and
recommended that the stockholders of the Company adopt the Merger Agreement. In
connection with its recommendation, the Board of Directors also adopted the
findings and recommendation of the Special Committee with regard to both the
substantive and procedural fairness of the Merger. In reaching their respective
decisions to recommend approval of the Merger Agreement, the Special Committee
and the Board of Directors also considered the factors set forth elsewhere in
this Proxy Statement. See "SPECIAL FACTORS--The Special Committee's and the
Board's Recommendation."
In considering the recommendation of the Board of Directors with respect to
the Merger, the Public Stockholders should be aware that certain officers and
directors of the Company have certain interests that are in addition to, or
different from, the interests of the Public Stockholders. See "SPECIAL FACTORS--
Conflicts of Interest."
The Special Committee and the Board recommend that the ThermoRetec
stockholders vote "FOR" adoption of the Merger Agreement.
OPINION OF ADAMS, HARKNESS & HILL
Adams, Harkness & Hill provided its opinion to the Special Committee on
October 18, 1999, that, as of the date of such opinion, the consideration of
$7.00 per share in cash payable under the Merger Agreement was fair, from a
financial point of view, to the Public Stockholders of the Company. The full
text of the opinion of Adams, Harkness & Hill dated October 18, 1999, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Appendix B and
is incorporated herein by reference. The opinion of Adams, Harkness & Hill
referred to herein does not constitute a recommendation as to how any
stockholder should vote with respect to the Merger. Holders of shares of Common
Stock are urged to, and should, read the opinion in its entirety. See "SPECIAL
FACTORS--Opinion of Adams, Harkness & Hill."
The Special Committee retained Adams, Harkness & Hill to assist it in its
evaluation of the proposed Merger. Pursuant to the terms of Adams, Harkness &
Hill's engagement letter with the Special Committee, the Company paid Adams,
Harkness & Hill a retainer fee of $50,000 and a fee of $87,500 upon the delivery
of its written fairness opinion dated October 18, 1999 (which fee was payable
regardless of the conclusions expressed therein). In addition, the Company has
agreed to pay Adams, Harkness & Hill an additional $50,000 if the Special
Committee requests an additional fairness opinion in connection with a new or
materially revised transaction. The Company has also agreed to reimburse Adams,
Harkness & Hill for all reasonable fees and disbursements of its counsel and all
of its reasonable travel and other out-of-pocket expenses arising in connection
with its engagement, and to indemnify Adams, Harkness & Hill and its affiliates
to the full extent permitted by law against liabilities relating to or arising
out of its engagement, except for liabilities found to have resulted from the
bad faith, willful misconduct or gross negligence of Adams, Harkness & Hill.
The Merger Agreement provides that it is a condition to the obligations of
ThermoRetec to effect the Merger that Adams, Harkness & Hill shall reaffirm
orally its written opinion as of the date of mailing of this Proxy Statement and
at the Effective Time.
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PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of Common Stock, other than the shares already held by Thermo Electron
and Thermo TerraTech. In determining to acquire such shares of Common Stock at
this time, Thermo Electron considered the following factors: (i) recent public
capital market trends affecting micro-cap companies, (ii) the latest market
trends in the markets in which the Company competes, primarily the
environmental-liability and resource-management services industry, (iii) the
reduction in the amount of public information available to competitors about
ThermoRetec's business that would result from the termination of the Company's
separate Securities and Exchange Commission (the "Commission") reporting
requirements, (iv) the elimination of additional burdens on management
associated with public reporting and other tasks resulting from the Company's
public company status, including, for example, the dedication of time and
resources of management and of the Board to stockholder and analyst inquiries,
and investor and public relations, (v) the decrease in costs, particularly those
associated with being a public company (for example, as a privately-held entity,
the Company would no longer be required to file quarterly, annual or other
periodic reports with the Commission or publish and distribute to its
stockholders annual reports and proxy statements), that Thermo Electron
anticipates could result in savings of approximately $450,000 per year,
including the approximate cost of associated legal and accounting fees; and
(vi) the Company's management would have greater flexibility to focus on
long-term business goals, as opposed to quarterly earnings, as a non-reporting
company.
Thermo Electron also considered the advantages and disadvantages of certain
alternatives to taking ThermoRetec private, including leaving ThermoRetec as a
public majority-owned subsidiary of Thermo TerraTech. Thermo Electron considered
the number of ThermoRetec shares held by Public Stockholders, recent trends in
the price of the Common Stock and the relative lack of liquidity for the Common
Stock. Thermo Electron reviewed the net overall cost of the transaction and its
benefits, including its contribution to Thermo TerraTech's earnings. Thermo
Electron also explored alternative uses for the cash proposed to be used for
this transaction. In addition, Thermo Electron considered that by acquiring the
minority stockholder interest in ThermoRetec, it would advance the goal of its
proposed corporate reorganization, announced in August 1998, to reduce the
number of Thermo Electron's majority-owned, public subsidiaries. After
consideration of these various factors and extensive negotiations with the
Special Committee, Thermo Electron decided to make a proposal to ThermoRetec to
acquire for cash, through a merger, all of the outstanding shares of Common
Stock that it and Thermo TerraTech did not own at a price of $7.00 per share,
which represented a premium of (i) approximately 72% over the closing price of
the Common Stock reported in the consolidated transaction reporting system on
August 10, 1998, the last day on which the Common Stock traded prior to Thermo
Electron's first public announcement of the proposal to take ThermoRetec private
(with no price having been announced) and (ii) approximately 27% over the
closing price of the Common Stock reported in the consolidated transaction
reporting system on October 19, 1999, the day immediately prior to the public
announcement of the terms of Thermo Electron's proposal. Thermo Electron
proposed to structure the transaction as a cash merger as a result of the
decline in the price of Thermo Electron Common Stock in September and October
1999 and to avoid dilution of Thermo Electron's existing stockholders. See
"SPECIAL FACTORS--Purpose and Reasons of Thermo Electron for the Merger."
Thermo Electron beneficially owns, in the aggregate, directly and indirectly
through Thermo TerraTech, approximately 73% of the outstanding Common Stock. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Principal
Stockholder."
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings and recommendation of the Special
Committee and the Board with respect to the fairness of the Merger to the Public
Stockholders (see "SPECIAL FACTORS--
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The Special Committee's and the Board's Recommendation"). As of the date of the
Merger Agreement, Thermo Electron adopted the findings and recommendation of the
Special Committee and the Board with respect to the fairness of the Merger.
Based solely on the findings and recommendation of the Special Committee, and
its own internal review of the terms of the Merger, Thermo Electron believes
that the Merger is both procedurally and substantively fair to the Public
Stockholders and that the Cash Merger Consideration is fair to the Public
Stockholders from a financial point of view. Thermo Electron did not attach
specific weights to any factors in reaching its belief as to fairness. Thermo
Electron is not making any recommendation as to how the Public Stockholders
should vote on the Merger Agreement. See "SPECIAL FACTORS--Position of Thermo
Electron as to Fairness of the Merger."
The Public Stockholders should be aware that certain officers and directors
of Thermo Electron are also officers and directors of the Company and have
certain interests that are in addition to, or different from, the interests of
the Public Stockholders. See "SPECIAL FACTORS--Conflicts of Interest." Thermo
Electron considered these potential conflicts of interest and based in part
thereon, Thermo Electron's proposed offer was conditioned on, among other
things, the approval of the Merger by the Special Committee and the receipt by
the Special Committee of a fairness opinion from an investment banking firm.
CONFLICTS OF INTEREST
In considering the recommendation of the Special Committee and the Board
with respect to the Merger, the Public Stockholders should be aware that certain
officers and directors of ThermoRetec have interests in connection with the
Merger that present them with actual or potential conflicts of interest, which
are described in more detail under "SPECIAL FACTORS--Conflicts of Interest."
THE SPECIAL COMMITTEE
Mr. Holubow, the member of the Special Committee, owns 26,382 shares of
Common Stock and will receive a payment for his shares of Common Stock in the
aggregate amount of $184,674 upon consummation of the Merger. In addition,
Mr. Holubow holds options to acquire an aggregate of 26,450 shares of Common
Stock, at exercise prices ranging from $2.93 to $10.85, which will be assumed by
Thermo Electron and converted into options to acquire shares of Thermo Electron
Common Stock on the same terms as all the other holders of ThermoRetec Stock
Options. See "THE MERGER--Assumption of ThermoRetec Stock Options and Warrants
by Thermo Electron." Further, deferred units equal to 8,067 shares of Common
Stock have accumulated under the Company's deferred compensation plan for
directors for the benefit of Mr. Holubow, which units will be converted into the
right to receive the Cash Merger Consideration per unit for an aggregate cash
payment of $56,469. See "THE MERGER--Deferred Compensation Plan for Directors."
The Special Committee formally met [ ] times, with one or more of its advisors,
from November 1998 through the date of this Proxy Statement and, in addition,
had numerous informal discussions and consultations in person and
telephonically. As compensation for serving on the Special Committee, the Board
has authorized that the member of the Special Committee receive a special
retainer fee of $20,000 and additional fees of $1,000 for each meeting attended
in person and $500 for each meeting attended telephonically. See "SPECIAL
FACTORS--Conflicts of Interest" and "MANAGEMENT." Mr. Holubow is also a member
of the board of directors of Thermo Trilogy Corporation, a majority-owned,
privately held subsidiary of Thermo Ecotek Corporation, which in turn is a
majority-owned, publicly traded subsidiary of Thermo Electron. See "SPECIAL
FACTORS--Conflicts of Interest." In addition, Mr. Holubow owns shares of Thermo
Electron Common Stock, as set forth in more detail under "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Management."
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THE THERMORETEC DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, other than the member of the Special
Committee, and executive officers of ThermoRetec own in the aggregate 102,818
shares of Common Stock and will receive a payment for their shares of Common
Stock in the aggregate amount of $719,726 upon consummation of the Merger. In
addition, such Board members and executive officers hold options to acquire an
aggregate of 312,800 shares of Common Stock, with exercise prices ranging from
$2.45 to $14.93, which will be assumed by Thermo Electron and converted into
options to acquire shares of Thermo Electron Common Stock on the same terms as
all the other holders of ThermoRetec Stock Options. See "THE MERGER--Assumption
of ThermoRetec Stock Options and Warrants by Thermo Electron." Further, deferred
units equal to 977 and 7,665 shares of Common Stock have accumulated under the
Company's deferred compensation plan for directors for the benefit of
Dr. Gyftopoulos and Dr. Morris, respectively, which units will be converted into
the right to receive the Cash Merger Consideration per unit for aggregate cash
payments of $6,839 and $53,655, respectively. See "THE MERGER--Deferred
Compensation Plan for Directors." Such Board members and executive officers also
beneficially own shares of common stock of Thermo TerraTech and Thermo Electron
as set forth in more detail under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT--Management." Further, certain members of the Board and
certain executive officers hold directorship or officer positions with Thermo
TerraTech and/or Thermo Electron. See "MANAGEMENT."
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the Surviving Corporation shall, and
Thermo Electron will cause the Surviving Corporation to, fulfill and honor in
all respects the indemnification obligations of ThermoRetec, pursuant to
ThermoRetec's Certificate of Incorporation and Bylaws, as in effect on the date
of the Merger Agreement. In addition, the directors and officers of the Company
will be provided with continuing directors' and officers' liability insurance
coverage for a period of six years following the Effective Time, subject to
certain limitations. See "SPECIAL FACTORS--Conflicts of Interest" and "THE
MERGER--Indemnification and Insurance."
The Merger Agreement also provides that ThermoRetec will, regardless of
whether the Merger becomes effective, indemnify Fred Holubow against any costs
and expenses paid in connection with any claim or action arising out of or
pertaining to any action or omission in Mr. Holubow's capacity as a director or
fiduciary of ThermoRetec (including as a member of the Special Committee or in
connection with the transactions contemplated by the Merger Agreement) that
occurs on, before or after the Effective Time, until the expiration of the
statute of limitations relating to any such action or omission. ThermoRetec
shall pay Mr. Holubow's expenses in advance of the final disposition of the
action upon receipt of an undertaking by Mr. Holubow to repay those expenses if
it is later decided that he is not entitled to such payment. If the Merger
becomes effective, Thermo Electron will be jointly and severally responsible for
the indemnification and expense advancement obligations as described above. If
the Merger does not become effective, Thermo Electron shall only be responsible
for indemnifying or advancing expenses for matters that arise out of or pertain
to the work of the Special Committee, the Merger Agreement or the transactions
contemplated by the Merger Agreement. See "THE MERGER--Indemnification and
Insurance."
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in certain
circumstances. See "THE MERGER--Indemnification and Insurance."
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CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in the Company will be
beneficially owned by Thermo Electron. Thermo Electron will have complete
control over the conduct of the Company's business and will have 100% interest
in the net book value and net earnings of the Company and any future increases
in the value of the Company. Thermo TerraTech's and Thermo Electron's combined
ownership of the Company prior to the transaction contemplated herein aggregated
approximately 73%. Upon completion of this transaction, Thermo Electron's
interest in the Company's net book value of $65.3 million on October 2, 1999 and
net loss of $3,861,000 and $3,665,000 for the year ended April 3, 1999 and the
six months ended October 2, 1999, respectively, would increase from
approximately 73% of such amounts to 100% of such amounts. The Public
Stockholders will no longer have any interest in, and will not be stockholders
of, ThermoRetec and therefore will not participate in ThermoRetec's future
earnings and potential growth and will no longer bear the risk of any decreases
in the value of the Company. Instead, the stockholders of the Company other than
Thermo TerraTech, Thermo Electron and holders who perfect their Dissenters'
Rights (as defined below) will have the right to receive the Cash Merger
Consideration for each share held.
In addition, the Common Stock will no longer be traded on the American Stock
Exchange (the "AMEX") and price quotations with respect to sales of shares in
the public market will no longer be available. The registration of the Common
Stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated, and this termination will eliminate the Company's
obligation to file periodic financial and other information with the Commission
and will make most other provisions of the Exchange Act inapplicable. See
"SPECIAL FACTORS--Certain Effects of the Merger."
The consummation of the Merger will also give the holders of ThermoRetec's
4 7/8% Convertible Subordinated Debentures due 2000 (the "4 7/8% Debentures")
the right to have ThermoRetec redeem such 4 7/8% Debentures for a cash amount
equal to 100% of the principal amount to be redeemed, plus accrued interest. The
cost to ThermoRetec of such redemption will be approximately $38.0 million.
CONDITIONS TO THE MERGER, TERMINATION AND EXPENSES
Each party's obligation to effect the Merger is subject to satisfaction of a
number of conditions, including with respect to one or both parties: (i) the
Merger Agreement shall have been adopted by the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock entitled to vote thereon
in accordance with the provisions of Section 251 of the General Corporation Law
of the State of Delaware (the "DGCL"); (ii) no court, administrative agency or
commission or other governmental or regulatory body or authority or
instrumentality shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
that is in effect and that has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; (iii) the representations and
warranties of the parties shall be true and correct in all material respects on
and as of the Effective Time, except as permitted by the Merger Agreement; and
(iv) each of the parties shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed by them on or prior to the Effective Time. It is also a condition
to Thermo Electron's obligation to effect the Merger that the Special Committee
not have withdrawn its recommendation to the Board of Directors of ThermoRetec
that the Merger Agreement, including the Cash Merger Consideration, is fair to,
and in the best interests of, the stockholders of ThermoRetec (other than Thermo
TerraTech and Thermo Electron). In addition, it is a condition to ThermoRetec's
obligation to effect the Merger that, at the time of mailing this Proxy
Statement to the stockholders of ThermoRetec and at the Effective Time, Adams,
Harkness & Hill shall have reaffirmed orally its fairness opinion and shall not
have withdrawn such opinion. Certain conditions that have not been satisfied by
one party may be waived by the other party; however, prior approval of the
Special Committee is required for ThermoRetec to waive or amend any provision of
the Merger Agreement. See "THE MERGER--Conditions." Even if
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the stockholders adopt the Merger Agreement, there can be no assurance that the
Merger will be consummated.
At any time prior to the Effective Time, whether before or after adoption of
the Merger Agreement by the stockholders of ThermoRetec, the Merger Agreement
may be terminated by the mutual written consent of the board of directors of the
Merger Sub and the Board of Directors of ThermoRetec (upon approval of the
Special Committee). In addition, either the Merger Sub or ThermoRetec (upon
approval of the Special Committee), in accordance with the provisions of the
Merger Agreement, may terminate the Merger Agreement prior to the Effective
Time, whether before or after adoption of the Merger Agreement by the
stockholders of ThermoRetec, if (i) the Merger has not been consummated by
March 31, 2000 (in which case the right of ThermoRetec to terminate shall be
exercised as directed by the Special Committee), subject to certain exceptions,
(ii) a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission issues an order, decree or ruling or takes
any other action enjoining, restraining or otherwise prohibiting the Merger and
such order, decree or ruling is final and nonappealable or (iii) the approval of
the stockholders of ThermoRetec necessary to consummate the Merger has not been
obtained, subject to certain exceptions. Thermo Electron has agreed to vote, or
cause to be voted, all of the Common Stock owned by it and any of its
subsidiaries in favor of the Merger. See "THE MERGER--Termination, Amendment and
Waiver."
In addition, the Merger Sub may terminate the Merger Agreement prior to the
Effective Time, whether before or after adoption of the Merger Agreement by the
stockholders of ThermoRetec, if ThermoRetec breaches any representation,
warranty, covenant or agreement in any material respect and fails to cure such
breach within 10 business days after written notice of such breach from the
Merger Sub. ThermoRetec may terminate the Merger Agreement prior to the
Effective Time, whether before or after adoption of the Merger Agreement by the
stockholders of ThermoRetec, if (i) the Special Committee determines after
consultation with outside legal counsel that failure to do so would be
inconsistent with the Board's or the Special Committee's fiduciary duties under
applicable law or (ii) Thermo Electron or Merger Sub breaches any
representation, warranty, covenant or agreement in any material respect and
fails to cure such breach within 10 business days after written notice of such
breach from ThermoRetec. There is no termination fee payable by either party in
the event that the Merger Agreement is terminated. See "THE MERGER--Termination,
Amendment and Waiver."
Each of the parties has agreed to pay its own costs and expenses in
connection with the Merger Agreement, whether or not the Merger is consummated.
See "THE MERGER--Expenses."
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the receipt of the Cash Merger
Consideration by holders of Common Stock pursuant to the Merger will be a
taxable sale of the holder's Common Stock. All holders of Common Stock should
consult their tax advisors to determine the effect of the Merger under federal,
state, local and foreign tax laws. See "FEDERAL INCOME TAX CONSEQUENCES."
RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder of ThermoRetec who does not vote in favor of the proposal to
adopt the Merger Agreement and who complies strictly with the applicable
provisions of Section 262 of the DGCL has the right to dissent and be paid cash
for the fair value of such holder's shares of Common Stock ("Dissenters'
Rights"). The applicable provisions of Section 262 of the DGCL are attached to
this Proxy Statement as Appendix C. To perfect Dissenters' Rights with respect
to the Merger, a ThermoRetec stockholder must follow the procedures set forth
therein precisely. Those procedures are summarized in this Proxy Statement under
"RIGHTS OF DISSENTING STOCKHOLDERS."
Shares of Common Stock held by persons properly exercising Dissenters'
Rights will not be converted into the Cash Merger Consideration in the Merger
and after the Effective Time will represent only the
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right to receive such consideration as is determined to be due such dissenting
stockholder pursuant to Section 262 of the DGCL. If after the Effective Time any
dissenting stockholder (i) fails to perfect or loses such right to payment or
appraisal pursuant to Section 262 of the DGCL or (ii) withdraws such demand for
appraisal within 60 days after the Effective Date pursuant to Section 262 of the
DGCL, each share of Common Stock of such stockholder shall be treated as a share
that had been converted as of the Effective Time into the right to receive the
Cash Merger Consideration.
ACCOUNTING TREATMENT
The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the AMEX (symbol: THN). The following table
sets forth, for the periods indicated, the high and low sales prices of the
Company's Common Stock as reported in the consolidated transaction reporting
system.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998
First Quarter............................................... $7.5625 $6.50
Second Quarter.............................................. 8.125 6.875
Third Quarter............................................... 7.6875 5.50
Fourth Quarter.............................................. 7.375 5.625
FISCAL 1999
First Quarter............................................... 6.75 4.375
Second Quarter.............................................. 5.125 2.375
Third Quarter............................................... 3.125 1.75
Fourth Quarter.............................................. 3.625 1.875
FISCAL 2000
First Quarter............................................... 4.375 2.1875
Second Quarter.............................................. 5.25 4.125
Third Quarter............................................... 6.75 5.0625
Fourth Quarter (through January , 2000)................... 6.875 6.625
</TABLE>
On August 10, 1998, the last day on which the Common Stock traded prior to
the date Thermo Electron first publicly announced the proposal to take
ThermoRetec private (with no price having been determined), the high, low and
closing sales prices per share of Common Stock reported in the consolidated
transaction reporting system were $4.0625, $4.0625 and $4.0625, respectively. On
October 19, 1999, the last trading day prior to the public announcement of the
terms of the proposed Merger, the high, low and closing sales prices per share
of Common Stock reported in the consolidated transaction reporting system were
$5.50, $5.50 and $5.25, respectively. On , 2000, the last trading day
prior to the printing of this Proxy Statement, the high, low and closing sales
prices per share of Common Stock reported in the consolidated transaction
reporting system were $ , $ and $ , respectively. During the
third quarter of fiscal 2000, the highest closing sales price per share prior to
the public announcement of the terms of the Merger was $5.50.
As of , 2000, there were holders of record of Common Stock and
approximately persons or entities holding in nominee name.
During the Company's two most recent fiscal years, the Company has paid
semiannual cash dividends on its Common Stock in the amount of $.10 per share of
Common Stock held on the record date of the payment of the dividend.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
In August 1998, Thermo TerraTech and Thermo Electron's senior management
initially considered the possibility of an acquisition by Thermo TerraTech of
the minority stockholder interest in ThermoRetec and its sister subsidiary, The
Randers Killam Group Inc. ("Randers/Killam") in connection with a proposed
corporate reorganization of Thermo Electron and certain of its subsidiaries.
Each of the acquisitions of Randers/Killam and ThermoRetec would be accomplished
by means of a stock-for-stock merger. The goals of Thermo Electron's proposed
corporate reorganization include (i) reducing the complexity of Thermo
Electron's corporate structure, (ii) consolidating and strategically realigning
certain businesses to enhance their competitive market positions and improve
management coordination, and (iii) increasing liquidity in the public markets by
providing larger market floats for Thermo Electron's publicly traded
subsidiaries. If Thermo Electron's reorganization plan is completed as proposed,
the number of Thermo Electron's majority-owned subsidiaries will be reduced from
20 to 12.
In the context of the review of Thermo Electron's entire corporate structure
which was taking place at the time, Thermo Electron's management examined
several factors, including the financial performance and profitability of
ThermoRetec, the lack of adequate liquidity for the Public Stockholders, the
absence of significant analyst coverage of the Common Stock, the potential
benefits to ThermoRetec's business if it were to become part of a larger
business unit, and to a lesser degree, uncertainty regarding ThermoRetec's
future growth prospects as an independent public company. The uncertainty of
Thermo Electron's management regarding ThermoRetec's future growth prospects
stemmed in large part from its observations of the unpredictability of
consistent revenues from service-based companies that are subject to seasonal
influences, such as ThermoRetec and its sister subsidiary, Randers/Killam.
Thermo Electron believed that it was better able overall to absorb any
fluctuations in ThermoRetec's business, and that any uncertainties could be more
closely managed by Thermo Electron if ThermoRetec were no longer a public
company. Thermo Electron also considered the following factors: (i) recent
public capital market trends affecting micro-cap companies; (ii) the latest
market trends in the markets in which the Company competes; (iii) the reduction
in the amount of public information available to competitors about ThermoRetec's
business that would result from the termination of the Company's obligations
under the Commission's reporting requirements; (iv) the elimination of
additional burdens on management associated with public reporting and other
tasks resulting from the Company's public company status, including, for
example, the dedication of time and resources of management and of the Board to
stockholder and analyst inquiries, and investor and public relations; (v) the
decrease in costs, particularly those associated with being a public company
(for example, as a privately-held entity, the Company would no longer be
required to file quarterly, annual or other periodic reports with the Commission
or publish and distribute to its stockholders annual reports and proxy
statements), that Thermo Electron anticipates could result in savings of
approximately $450,000 per year, including fees for an audit by an independent
accounting firm and legal fees; and (vi) the greater flexibility that the
Company's management would have to focus on long-term business goals, as opposed
to quarterly earnings, as a non-reporting company.
Thermo Electron also considered the relatively low volume of trading in the
Common Stock and considered that the Merger would result in the Public
Stockholders receiving a somewhat more liquid, more readily tradeable security
(at the time the Merger was initially being considered, the Thermo TerraTech
common stock). Management of Thermo Electron also considered that acquiring the
minority stockholder interest in ThermoRetec would advance the goal of Thermo
Electron's proposed corporate reorganization to reduce the number of
majority-owned, public subsidiaries of Thermo Electron. Management of Thermo
Electron also considered recent trends in the price of the Common Stock,
although ThermoRetec's current stock price was not a significant factor in the
timing of Thermo Electron's decision to propose acquiring the minority
stockholder interest in ThermoRetec.
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<PAGE>
In addition, Thermo Electron considered the advantages and disadvantages of
certain alternatives to acquiring the Public Stockholder interest in
ThermoRetec, including (i) selling its and Thermo TerraTech's equity interest in
the Company and (ii) leaving ThermoRetec as a majority-owned, public subsidiary
of Thermo TerraTech.
The first alternative, that of selling its and Thermo TerraTech's equity
interest in the Company, was briefly considered by Thermo Electron management,
but it was not an alternative that was pursued at length, given that Thermo
Electron did not want to sell its equity interest, and did not want Thermo
TerraTech to sell its equity interest, in the Company. Instead, Thermo Electron
wanted to retain ThermoRetec as part of the larger Thermo Electron operating
unit. Thermo Electron believed that it was better able to absorb the
fluctuations in ThermoRetec's value than were the individual Public
Stockholders. Thermo Electron acknowledged that, while there were certain
characteristics of the Common Stock that made ThermoRetec less attractive as a
public company (such as the overall downward trend of the price of the Common
Stock since early 1996; the small public float which resulted in limited
liquidity for the Public Stockholders; the absence of significant analyst
coverage), Thermo Electron still desired to maintain ThermoRetec's operating
businesses as part of its offerings to potential and existing customers.
Accordingly, Thermo Electron determined that, while it did not want to sell
ThermoRetec and wanted instead to maintain ThermoRetec's business substantially
as it was being operated (with the exception of certain soil-recycling
facilities to be sold), it also did not want to keep ThermoRetec as a public
subsidiary. Thermo Electron did not consider any other strategic alternatives
with respect to ThermoRetec because it was satisfied, based on its review of the
Company and its fit within the Thermo Electron organization, that the option of
retaining its ownership of the Company was preferable to any other option.
With respect to the advantages to leaving ThermoRetec as a majority-owned,
public subsidiary, the factors that Thermo Electron considered at the time
included (i) the avoidance of dilution to the Thermo TerraTech stockholders by
the issuance of more of its shares of common stock as consideration for shares
of Common Stock (as stated above, at that time the proposed form of
consideration in the Merger was still the common stock of Thermo TerraTech) and
(ii) maintaining the potential access ThermoRetec has to capital in the public
markets as a public company. The disadvantages to leaving ThermoRetec as a
majority-owned, public subsidiary that Thermo Electron considered included (i)
the costs associated with being a public company, (ii) the public information
available to competitors about ThermoRetec's business as result of its filing
obligations with the Commission, and (iii) the inability to fully integrate the
operations of ThermoRetec with those of other Thermo Electron subsidiaries given
the disclosure obligations of being a public company.
On August 10 and 11, 1998, the board of directors of Thermo Electron held a
special meeting at which Thermo Electron's management presented the proposal for
Thermo TerraTech to acquire all of the shares of Common Stock that Thermo
TerraTech and Thermo Electron did not already own, as a part of the proposed
corporate reorganization of Thermo Electron and certain of its subsidiaries. The
Thermo Electron board of directors discussed several factors presented by
management regarding this proposal, including each of the factors discussed in
the second paragraph of this section.
The Thermo Electron board of directors also considered the relatively low
volume of trading in the Common Stock and that the Merger would result in the
Public Stockholders receiving a somewhat more liquid, more readily tradeable
security (as noted above, at this point in time, the proposed form of
consideration in the Merger was still the common stock of Thermo TerraTech). The
Thermo Electron board of directors also acknowledged that as a result of the
Merger, the entire equity interest in ThermoRetec would be beneficially owned by
Thermo Electron, directly and indirectly through Thermo TerraTech. The Public
Stockholders would no longer have any interest in, and would not be stockholders
of, ThermoRetec, and therefore would not participate in ThermoRetec's future
earnings and potential growth. Additionally, upon consummation of the Merger,
the Common Stock would no longer be traded on the AMEX, price quotations with
respect to sales of shares in the public market would no longer be available and
the registration of the Common Stock under the Exchange Act would be terminated.
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<PAGE>
The Thermo Electron board of directors also discussed that, by acquiring the
Public Stockholder interest in ThermoRetec, it would advance the goal of Thermo
Electron's proposed corporate reorganization to reduce the number of Thermo
Electron's majority-owned, public subsidiaries. After consideration of these
various factors, Thermo Electron's board authorized a proposed corporate
reorganization, which included Thermo TerraTech acquiring all of the shares of
Common Stock that Thermo TerraTech and Thermo Electron did not already own for
Thermo TerraTech common stock.
On August 12, 1998, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company.
Under this plan, the Company and Randers/ Killam would be merged into Thermo
TerraTech. Thermo Electron's announcement stated that this consolidation would
strengthen the group's ability to compete in the industrial and environmental
outsourcing markets, as well as enhance its ability to withstand adverse market
conditions. In addition, Thermo Electron's stated goals with respect to the
reorganization generally were a reduction of the complexity of Thermo Electron's
corporate structure, a consolidation and strategic realignment of certain
businesses to enhance their competitive market positions and improve management
coordination, and an increase in liquidity in the public markets for stock of
the remaining publicly-traded subsidiaries of Thermo Electron by providing
larger market floats. Under this proposal, shareholders of the Company, as well
as shareholders of Randers/Killam, would receive common stock of Thermo
TerraTech in the proposed transaction in exchange for their shares in the
subsidiaries.
On November 18, 1998, the Board of Directors of the Company appointed a
special committee of independent directors to consider any proposed transaction
with Thermo TerraTech, to consider such alternatives to any such transaction as
the Special Committee may deem appropriate and to make a recommendation to the
Board of Directors on whether to approve any such transaction. The Board of
Directors appointed Fred Holubow to serve as the sole member of the Special
Committee.
In late December 1998, the Special Committee retained Altheimer & Gray as
its legal adviser, and in January and February 1999, the Special Committee made
inquiries with, and interviewed, a number of investment banking firms. As no
formal proposal had yet been received by the Company from Thermo Electron or
Thermo TerraTech, the Special Committee did not at that time select an
investment banker. In addition to the foregoing, at a meeting on January 20,
1999, the Special Committee reviewed with Altheimer & Gray the duties of special
committees in situations such as this one.
On May 5, 1999, Thermo Electron publicly announced a revised proposal, under
which the public stockholders of the Company, Randers/Killam and Thermo
TerraTech would all receive common stock of Thermo Electron in exchange for
their shares in these three subsidiaries. The decision to take Thermo TerraTech
private along with the Company and Randers/Killam was made as part of the
ongoing corporate reorganization of Thermo Electron and its subsidiaries.
On May 17, 1999, the Special Committee and Altheimer & Gray met with Adams,
Harkness & Hill regarding Adams, Harkness & Hill's retention and the work Adams,
Harkness & Hill would perform in connection therewith. The Special Committee, on
behalf of the Company, entered into an engagement letter agreement with Adams,
Harkness & Hill as of May 20, 1999. Adams, Harkness & Hill had previously been
retained by the special committees of independent directors of Thermo TerraTech
and Randers/ Killam to provide opinions as to the fairness of the consideration
to be received by the respective stockholders of each company, other than Thermo
Electron and its affiliates, in contemplated separate transactions involving
Thermo Electron. The Special Committee determined that in light of the revisions
to the proposed transaction (in that the Company would not be engaging in a
transaction directly with Thermo TerraTech), retention of Adams, Harkness & Hill
by the Special Committee was appropriate.
During May, June and July 1999, the Special Committee and Adams, Harkness &
Hill began extensive due diligence with respect to the Company and Thermo
Electron, including the financial condition of both companies, both through
on-site visits to the Company's and Thermo Electron's respective headquarters
and by telephone calls and receipt of documents. On June 25, 1999, the Special
Committee met with
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Adams, Harkness & Hill to discuss their ongoing due diligence efforts and the
status of the transaction. After consultation with the Special Committee and
with its consent, Adams, Harkness & Hill engaged Environmental Business
International, Inc., a leading independent strategic consulting firm serving the
environmental services industry, to support its assessments of environmental
industry conditions.
On August 2, 1999, the Special Committee received the preliminary report and
presentation from Adams, Harkness & Hill. At this August 2, 1999 meeting, the
Special Committee and its advisors reviewed the presentation in detail and held
lengthy and significant discussions with Adams, Harkness & Hill as to its
analysis and assumptions and suggested modifications with respect thereto. Also
at the August 2, 1999 meeting, Altheimer & Gray discussed further the duties of
the Special Committee.
On August 4, 1999, Thermo Electron delivered to Adams, Harkness & Hill its
proposal for the financial terms of the proposed transaction. Thermo Electron
proposed an exchange ratio of 0.22 shares of Thermo Electron common stock for
each share of Common Stock of the Company. Based on the $16.875 closing price of
Thermo Electron common stock on August 3, 1999, the day immediately prior to
their delivery of its proposed exchange ratio, under this proposal, each share
of Common Stock of the Company would be converted into $3.7125 in Thermo
Electron common stock. By contrast, the closing price of the Company's Common
Stock on that day was $4.3125. In Thermo Electron's analysis accompanying the
proposal, Thermo Electron justified this exchange ratio by applying a 29.5%
premium to the value of its own stock, which Thermo Electron representatives
believed to be significantly undervalued. A package containing Thermo Electron's
analysis underlying this proposal was delivered to the Special Committee on
August 16, 1999.
Based on this proposal, Mr. Holubow began negotiating the terms of the
proposed transaction with Mr. Theo Melas-Kyriazi, Chief Financial Officer of
each of Thermo Electron and the Company and a director of the Company, and Mr.
Brian D. Holt, Chief Operating Officer, Environment and Energy of Thermo
Electron and a director of the Company. On August 25, 1999, Mr. Holubow called
Messrs. Melas-Kyriazi and Holt and formally rejected Thermo Electron's
August 4, 1999 proposal.
On August 31, 1999, Mr. Melas-Kyriazi proposed to Mr. Holubow an exchange
ratio of 0.34 shares of Thermo Electron common stock for each share of Common
Stock of the Company, with a "collar" mechanism, such that the minimum and
maximum market value of Thermo Electron common stock to be received for each
share of Common Stock of the Company would be $5.95 and $7.25, respectively. The
0.34 proposed exchange ratio was the equivalent of $5.29 per share of Common
Stock of the Company, based on the $15.5625 per share closing price of Thermo
Electron common stock on August 30, 1999. The Thermo Electron representatives
explained the anomaly of the exchange ratio value being initially below the
$5.95 "floor" value by reference to their belief that the Thermo Electron common
stock remained significantly undervalued at the time.
On August 29, 1999, Thermo Electron delivered to Altheimer & Gray an initial
draft merger agreement. Altheimer & Gray delivered its initial comments on this
draft to Thermo Electron on September 1, 1999. During the month of
September 1999, the parties and their representatives commenced negotiation of
the terms of the Merger Agreement.
During the first week of September 1999, the Special Committee had several
discussions with Messrs. Melas-Kyriazi and Holt, Dr. Robert W. Dunlap, the
Company's Chief Executive Officer and representatives of Adams, Harkness & Hill
to discuss the terms of the proposed transaction. Because of the difficulty in
achieving a transaction in which the Public Stockholders receive shares of
Thermo Electron common stock in a tax-free transaction, and because of Thermo
Electron's continued insistence on applying a premium to the valuation of shares
of Thermo Electron common stock in the transaction, Mr. Holubow decided to
request that the form of the transaction be changed to a transaction in which
the Public Stockholders would receive cash for their shares. Thermo Electron and
the Special Committee had each been advised by their respective tax consultants
that obtaining tax-free treatment under the Internal Revenue Code of 1986, as
amended, for the proposed stock-for-stock transaction between ThermoRetec
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<PAGE>
and Thermo Electron would be difficult due to changes in Thermo Electron's
beneficial ownership of the Company. On September 3, 1999, Mr. Melas-Kyriazi
indicated that Thermo Electron would be prepared to pay $6.25 per share in cash
for the Company's common stock.
At this time, Mr. Holubow asked Mr. Melas-Kyriazi whether there were
(i) any plans of Thermo Electron or Thermo TerraTech for material changes with
respect to the Company or its business operations and (ii) any plans of Thermo
Electron or Thermo TerraTech that would materially impact the value of the
Company as a strategic asset to Thermo Electron or Thermo TerraTech.
Mr. Melas-Kyriazi assured Mr. Holubow that neither Thermo Electron nor Thermo
TerraTech intended to materially change the Company's business and that neither
Thermo Electron nor Thermo TerraTech had any specific plans that would be
material to the Special Committee in understanding the value of the Company as a
strategic asset to Thermo Electron or Thermo TerraTech (other than those asset
dispositions announced by the Company in May 1999). Mr. Melas-Kyriazi assured
Mr. Holubow that, in the event of any material developments in either such
regard, he would provide updates to the Special Committee. No such updates were
provided at any time prior to execution of the Merger Agreement.
On September 8, 1999, the Special Committee was informed that the Company
might shortly be awarded a material contract which could increase the value of
the Company. Over the next several days, the Special Committee, Adams, Harkness
& Hill and representatives of Thermo Electron and the Company discussed and
considered the possible terms that the contract, if awarded, might contain and
the probabilities of the award of the contract to the Company. All of the
parties acknowledged that there was a possibility that the contract might not be
awarded to the Company and accordingly Adams, Harkness & Hill did not consider
the award of the contract in issuing its fairness opinion. The Company is
currently continuing its negotiations with the other party to this potential
contract. As of the date of the Proxy Statement, the contract has not been
awarded to the Company.
On September 16 and 17, 1999, the Special Committee, Adams, Harkness & Hill
and Messrs. Melas-Kyriazi and Holt conducted further discussions regarding the
proposed amount of the Cash Merger Consideration. No resolution was reached in
these meetings, with Thermo Electron indicating a range of cash merger
consideration of $6.73 to $6.94 per share, and the Special Committee indicating
that the low end of its range was $7.12 per share. In the morning of
September 17, 1999, Mr. Holt formally proposed a transaction with a cash merger
price of $6.75 per share of Common Stock of the Company. The Special Committee
promptly rejected this proposal.
Later on September 17, 1999, Mr. Holt called Mr. James A. Simms of Adams,
Harkness & Hill to indicate that Thermo Electron would be willing to consummate
a cash transaction at $7.00 per share of Common Stock of the Company. Mr. Simms
relayed this message to Mr. Holubow. Mr. Simms indicated on a preliminary basis
that he believed that, subject to required internal processes, Adams,
Harkness & Hill would be prepared to deliver a fairness opinion with respect to
a $7.00 per share proposal. Mr. Holubow called Mr. Holt on September 21, 1999 to
confirm his willingness to recommend a $7.00 per share transaction, subject to
final negotiation of the merger agreement and delivery by Adams, Harkness & Hill
of a fairness opinion.
During this time, Thermo Electron was also concluding negotiations with the
special committees of independent directors of Thermo TerraTech and
Randers/Killam with respect to the financial and other terms of those respective
transactions and the applicable merger agreements. Thermo Electron informed the
three special committees that it proposed to reach agreement on all three
transactions simultaneously. Accordingly, meetings of the boards of directors of
all four corporations were called for October 18 and 19, 1999, with the meetings
of the Randers/Killam board and the Company's Board of Directors scheduled for
October 18 and the meetings of the Thermo TerraTech and Thermo Electron boards
scheduled for October 19.
On October 18, 1999, the Special Committee met with Dr. Dunlap, Adams,
Harkness & Hill and Altheimer & Gray to review the process undertaken to date,
review the Merger Agreement as finally
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<PAGE>
negotiated, receive reports from Dr. Dunlap, on behalf of management of the
Company, from Altheimer & Gray, as to the Special Committee's duties under
applicable law, and from Adams, Harkness & Hill as to its report with respect to
the fairness of the Thermo Electron proposal from a financial point of view. At
this meeting, Adams, Harkness & Hill delivered its opinion to the Special
Committee to the effect that, subject to the various assumptions and limitations
set forth therein, the $7.00 cash price to be received by the Public
Stockholders pursuant to the Merger Agreement was fair to such stockholders,
from a financial point of view, as of such date. A copy of the full text of the
opinion of Adams, Harkness & Hill which sets forth, among other things, the
opinion expressed, assumptions made, procedures followed, matters considered and
limitations of review undertaken in connection with such opinion, is attached
hereto as Appendix B and should be read in its entirety. At this meeting, the
Special Committee determined that the Merger Agreement, the Merger and the other
transactions contemplated by the Merger Agreement are advisable and fair and in
the best interests of the Company and the Public Stockholders, authorized and
approved the acquisition of shares by the Merger Sub in the Merger, approved and
adopted in all respects the Merger Agreement and the performance by the Company
of its obligations thereunder, and recommended that the Board of Directors
approve and adopt the Merger Agreement and the acquisition of shares pursuant
thereto and that the Board of Directors recommend that the Public Stockholders
approve and adopt the Merger Agreement and the transactions contemplated
thereby.
Later on October 18, 1999, at a meeting of the Board of Directors, the
Special Committee presented its report to the Board, including its
recommendations set forth above. The Board of Directors unanimously determined
that the Merger Agreement, the Merger and the other transactions contemplated by
the Merger Agreement are advisable and fair and in the best interests of the
Company and the Public Stockholders, declared the Merger Agreement, the Merger
and the other transactions contemplated by the Merger Agreement to be advisable,
authorized and approved the acquisition of shares in the Merger, approved and
adopted in all respects the Merger Agreement and the performance by the Company
of its obligations thereunder, recommended that the Public Stockholders approve
and adopt the Merger Agreement and the transactions contemplated thereby, and
approved the treatment of the options, warrants and convertible debentures as
described in the Merger Agreement.
On October 19, 1999, the board of directors of Thermo Electron met and
determined that the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement are advisable, fair, in the best interests
of the Company and the Public Stockholders, and in furtherance of the long-term
business strategy of the Company, and approved and adopted in all respects the
Merger Agreement and the performance by Thermo Electron and Merger Sub of their
respective obligations thereunder.
The Merger Agreement was executed on October 19, 1999, and the Company
issued a press release announcing such execution and delivery on October 20,
1999.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
The Special Committee and the Board of Directors believe that the terms of
the Merger are fair to, and in the best interests of, the Public Stockholders.
In reaching this conclusion, the Special Committee has determined that the
Merger is both substantively and procedurally fair to the Public Stockholders.
The Board of Directors has adopted the findings and recommendation of the
Special Committee with regard to both the substantive and procedural fairness of
the Merger. Accordingly, the Board of Directors has unanimously approved the
Merger Agreement and unanimously recommends its approval by the stockholders.
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<PAGE>
In reaching their decisions to approve the Merger Agreement and recommend
its approval to the stockholders, the Special Committee and the Board of
Directors considered the following factors, which constitute all of the material
factors considered by the Special Committee and the Board of Directors:
-- The current and historical market prices of the Common Stock. The
Special Committee and the Board of Directors considered the declining per
share price of the Common Stock prior to the time of Thermo Electron's
August 1998 proposal, the possibility that the price would remain
depressed and the 72.3% premium that the $7.00 per share offered over
such price. In addition, the Special Committee and the Board of Directors
considered the fact that the $7.00 per share price represented a 27.3%
premium over the closing price per share of the Common Stock on
October 19, 1999, the day prior to the public announcement of the
execution of the Merger Agreement.
-- The Special Committee's consideration of, among other things, the
business plan provided by management of the Company and information with
respect to the financial condition, results of operations, business and
prospects of the Company, and changes occurring in the environmental
services industry, their impact on the Company and the potential
implication of these changes on the Company's relationship with Thermo
Electron.
-- The opinion of Adams, Harkness & Hill that the consideration of $7.00
per share in cash was fair, from a financial point of view as of
October 18, 1999, to the Public Stockholders. The Special Committee
reviewed the independent financial analyses performed by Adams,
Harkness & Hill, and found them to be reasonable and believed that Adams,
Harkness & Hill's conclusion that the price offered by Thermo Electron
was fair, from a financial point of view, to the Public Stockholders was
a reasonable conclusion based on the analyses performed. The full text of
Adams, Harkness & Hill's opinion, which sets forth, among other things,
assumptions made, matters considered and limitations on the review
undertaken, is attached hereto as Appendix B and is incorporated herein
by reference. STOCKHOLDERS ARE URGED TO READ THE ADAMS, HARKNESS & HILL
OPINION AND THE "OPINION OF ADAMS, HARKNESS & HILL" SECTION SET FORTH
BELOW CAREFULLY IN THEIR ENTIRETY.
-- The terms of the Merger Agreement, including (i) the amount and form of
the consideration, (ii) that the recommendation of the Special Committee
may be withdrawn, modified or amended, and that the Merger Agreement may
be terminated, to the extent the Special Committee determines that
failure to do so would be inconsistent with the Special Committee's or
the Board's fiduciary duties; (iii) the absence of any termination fee in
the event the Merger Agreement is terminated because of an uncured
material breach by the Company, a withdrawal or change in the Special
Committee's recommendation or the stockholders' failure to approve the
Merger Agreement; (iv) that the Merger is not subject to any financing
condition; and (v) the limited nature of other conditions to the Merger.
-- The likelihood that the Merger would be consummated, based in part on
the financial condition of Thermo Electron and the limited scope of
conditions to be satisfied prior to the consummation of the Merger as
provided in the Merger Agreement.
-- The history of the negotiations between the Special Committee and its
representatives and Thermo Electron representatives, including the fact
that (a) the negotiations resulted in an increase in the price at which
Thermo Electron was prepared to acquire the Shares from $3.7125 per Share
(as described above with respect to Thermo Electron's August 1999
proposal) to $7.00 per Share, an increase of 88.6%, and (b) the Special
Committee believed that Thermo Electron would not further increase the
price payable in the Merger and that $7.00 per Share was the highest
price that could be obtained from Thermo Electron;
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<PAGE>
-- The Special Committee's review of presentations by, and discussion of
the terms of the Merger Agreement (including the Merger) with, the
Company's management and representatives of the Special Committee's legal
counsel and its financial advisors;
-- The market price and relative lack of liquidity for the Common Stock and
the liquidity that would be realized by stockholders from the all cash
offer. The Special Committee and the Board of Directors believed that the
liquidity to be realized by the Public Stockholders would be beneficial
to such stockholders as it would give them liquidity that ownership of
the Common Stock did not otherwise provide as each of them believed that
Thermo TerraTech's significant ownership of the Common Stock
(i) resulted in a relatively small public float that necessarily limited
the amount of trading in the Common Stock and (ii) decreased the
likelihood that a proposal to acquire the Common Stock would be made by
an independent entity without the consent of Thermo Electron.
-- The fact that Thermo Electron (through Thermo TerraTech) owns a majority
of the shares of Common Stock, control of the Board and the right to
maintain such ownership level and control, and the stated unwillingness
of Thermo Electron and Thermo TerraTech to sell such shares to a third
party buyer for the Company and the improbability of such a third party
making such a bid; and in connection therewith, Thermo Electron had
indicated that it was not interested in selling the Company to a third
party and the Special Committee and Adams, Harkness & Hill were not
authorized to, and did not, solicit third party indications of interest
for the acquisition of the Company or its businesses; accordingly, there
would be no opportunity to otherwise provide liquidity to the Public
Stockholders.
-- The ability of the Public Stockholders to exercise dissenters' rights
under the Delaware Law in connection with the Merger.
In reaching its determinations referred to above, the Board of Directors
considered the recommendation of the Special Committee and a report of the
Special Committee, which, in the view of the Board of Directors, supported such
determinations.
The members of the Board of Directors, including the member of the Special
Committee, evaluated the various factors considered in light of their knowledge
of the business, financial condition and prospects of the Company, and sought
and considered the advice of financial and legal advisors. In light of the
number and variety of factors that the Board of Directors and the Special
Committee considered in connection with their evaluation of the Merger, neither
the Board of Directors nor the Special Committee found it practicable to
quantify or otherwise assign relative weights to any of the foregoing factors,
and, accordingly, neither the Board of Directors nor the Special Committee did
so. In addition to the factors listed above, the Special Committee considered
the fact that consummation of the Merger would eliminate the opportunity of the
Public Stockholders to participate in any potential future growth in the value
of the Company, but believed that this loss of opportunity was appropriately
reflected by the price of $7.00 per share to be paid in the Merger.
The Board of Directors, including the Special Committee, believes that the
Merger is procedurally fair because, among other things: (i) the Special
Committee consisted of an independent director (who is not employed by or
otherwise affiliated with Thermo Electron, Thermo TerraTech, Merger Sub or their
affiliates or the Company's management) appointed to represent the interests of
the Public Stockholders; (ii) the Special Committee retained and was advised by
independent legal counsel; (iii) the Special Committee retained and was advised
by an independent investment bank, who assisted the Special Committee in
evaluating the Merger and rendered a fairness opinion, as described herein;
(iv) the detailed review by the Special Committee and its advisors of the
business and financial condition of the Company; (iv) the deliberations pursuant
to which the Special Committee evaluated the Merger and alternatives thereto;
(v) the Merger was approved by a majority of the directors of the Company who
are not employees of the Company; and (vi) the $7.00 per share price and the
other terms and conditions of the
26
<PAGE>
Merger Agreement resulted from active arms'-length bargaining between the
Special Committee, on the one hand, and Thermo Electron, on the other. The Board
believed that it was not necessary, given the ample procedural safeguards in
place in the form of the independent Special Committee and its independent legal
and financial advisors, to condition the Merger on its approval by the holders
of a majority of the shares of Common Stock held by the Company's Public
Stockholders. The Board determined that, in its view, the Merger was
procedurally fair without this condition because the interests of the Public
Stockholders had been adequately represented by the Special Committee, together
with its advisors, who were charged with ensuring that the transaction was fair
to the Public Stockholders.
The Special Committee and the Board did not consider the net book value of
the Company as a relevant factor in assessing the Company's value, and
accordingly did not evaluate the fairness of the Cash Merger Consideration in
relation to the Company's net book value. The Company's net book value at
October 2, 1999 was approximately $65.3 million, which would have yielded a per
share valuation for the Company of $4.58. In addition, Adams, Harkness & Hill
advised the Special Committee that an analysis of the Company based on multiples
of net book value would not be a reliable indicator of the value of the Company,
but rather Adams, Harkness & Hill recommended using multiples of revenues and
price/ earnings ratios (see "--Opinion of Adams, Harkness & Hill"). Adams,
Harkness & Hill emphasized these multiples rather than multiples of net book
value for several reasons, including the fact that in industries characterized
by growth through acquisitions, companies are not primarily valued on the basis
of their net book value, which is a valuation methodology typically used in the
banking, utility and financial services industries.
The Special Committee and the Board also did not consider evaluating the
Company on a going concern basis, as to do so would have required "shopping" the
Company to prospective purchasers. Such a process would not only entail
substantial additional time delays and allocation of management's time and
energy, but also would disrupt and be discouraging to the Company's employees
and create uncertainty among the Company's customers and suppliers. Furthermore,
Thermo Electron indicated to the Special Committee and the Board that it had no
desire or intention to sell the Company, but rather wanted to continue to
operate the Company substantially as it was being operated. Accordingly, the
Special Committee and the Board did not evaluate the fairness of the Cash Merger
Consideration in relation to a going concern value for the Company.
The Special Committee and the Board noted that, while the median values of
two of the four methods of financial analysis performed by Adams, Harkness &
Hill (see "--Opinion of Adams, Harkness & Hill") were above $7.00 per share (the
median of the values derived from the discounted cash flow analysis, which was
$9.23 per share, and the median of the values derived from the transactions
premiums paid analysis, which was $7.28 per share), the variance was small
enough that the analysis as a whole justified the Cash Merger Consideration, in
light of all of the factors described below. In examining the difference between
these median values and the proposed Cash Merger Consideration, the Special
Committee and the Board acknowledged that in any analysis of a range of data
such as that involved in the valuation of a company, there was likely to be some
anomalous data at both the high and low ends of the range. For example, at the
low end of the range of potential implied prices for the Common Stock based on
the peer group enterprise value/last twelve months' revenue multiple, Adams,
Harkness & Hill's analysis had yielded in one instance an implied equity value
per share of $0.68 for the Company. The median results of each of the valuation
methods used in Adams, Harkness & Hill's analysis were $3.34 per share to $9.23
per share, and the Special Committee and the Board viewed the median results as
a more reliable source of valuation for the Company. The Special Committee also
decided that a proper assessment of the fairness of the transaction should not
involve relying on isolated components of any part of the financial analysis.
Rather, the Special Committee and the Board were called upon to evaluate the
overall fairness of the proposed price, looking at each component of the
analysis in the aggregate. Adams, Harkness & Hill also had cautioned the Special
Committee and the Board not to place undue reliance on any one part of its
financial analysis, but rather encouraged the Special Committee and the Board to
view the analysis as a whole. Furthermore, the
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<PAGE>
Cash Merger Consideration as ultimately agreed to by the Special Committee was
arrived at as a result of the lengthy negotiation process with Thermo Electron
(see "--Background of the Merger"). In negotiating with the Special Committee,
Thermo Electron had taken into account its own assessment of how much it was
willing to pay for the Company in light of considerations that were important to
Thermo Electron (see "--Purpose and Reasons of Thermo Electron for the Merger.")
The results of these negotiations, together with the financial analysis of
Adams, Harkness & Hill, factored into the determination by the Special Committee
and the Board of the overall fairness of the transaction.
The Special Committee and the Board considered the factors listed above and
adopted the financial analysis of Adams, Harkness & Hill in determining that the
Merger is both substantively and procedurally fair to the Public Stockholders.
The Special Committee and the Board of Directors did not consider the Cash
Merger Consideration as compared to any implied liquidation value because it was
not and is not contemplated that the Company will be liquidated, whether or not
the Merger is completed. Furthermore, Adams, Harkness & Hill advised the Special
Committee that it did not believe an analysis of the Company's liquidation value
was relevant because Adams, Harkness & Hill, after analysis of the respective
operating units of ThermoRetec, concluded the costs that would be incurred by
ThermoRetec or Thermo Electron in disposing of certain businesses (e.g.,
soil/fluids recycling) would exceed any possible financial benefit of a
liquidation.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS, BY A UNANIMOUS VOTE, HAVE
APPROVED THE MERGER AGREEMENT, BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR TO
THE STOCKHOLDERS OTHER THAN THERMO ELECTRON AND THERMO TERRATECH AND UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT.
In considering the recommendation of the Special Committee and the Board of
Directors with respect to the Merger Agreement, stockholders should be aware
that certain members of the Board of Directors have certain interests in the
Merger that are different from, or in addition to, the interests of stockholders
generally and that represent actual or potential conflicts of interest. The
Special Committee and the Board of Directors were aware of these interests and
considered them, among other matters, in approving the Merger Agreement. See
"--Conflicts of Interest."
In order to aid the evaluation of the Company by the Special Committee and
Adams, Harkness & Hill's assessment of the fairness, from a financial point of
view, of the consideration of $7.00 per share in cash payable pursuant to the
Merger Agreement, the Company furnished the Special Committee and Adams,
Harkness & Hill with certain projected financial data prepared by the Company's
management. See "CERTAIN PROJECTED FINANCIAL DATA."
OPINION OF ADAMS, HARKNESS & HILL
Pursuant to a letter agreement dated as of May 20, 1999 (the "Adams,
Harkness & Hill Engagement Letter"), Adams, Harkness & Hill was retained by the
Special Committee to render an opinion (the "Opinion") as to the fairness, from
a financial point of view, to the Public Stockholders, of the consideration to
be received by such Public Stockholders in connection with the Merger. The
Special Committee selected Adams, Harkness & Hill for a number of reasons,
including its qualifications, expertise and reputation in the area of valuation
and financial advisory work. Adams, Harkness & Hill is a nationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. Adams, Harkness & Hill also was engaged by the special committees of
the Board of Directors of each of Randers/Killam and Thermo TerraTech,
respectively, to render opinions as to the fairness to the holders of common
stock of Randers/Killam and Thermo TerraTech other than Thermo Electron and its
affiliates, of the consideration to be received by such holders in separate
transactions involving Thermo Electron, and received customary fees therefor. At
the
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<PAGE>
meeting of the ThermoRetec Board on October 18, 1999, Adams, Harkness & Hill
rendered its oral Opinion, subsequently confirmed in writing, that, as of
October 18, 1999, based upon and subject to the various considerations set forth
in the Opinion, the consideration pursuant to the Merger Agreement was fair from
a financial point of view to the holders of shares of Common Stock other than
Thermo Electron and its affiliates. It is a condition to the obligation of
ThermoRetec to effect the Merger that Adams, Harkness & Hill shall reaffirm
orally its written opinion as of the date of the mailing of this Proxy Statement
and at the Effective Time.
THE FULL TEXT OF THE WRITTEN OPINION OF ADAMS, HARKNESS & HILL DATED OCTOBER
18, 1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY ADAMS, HARKNESS & HILL IN RENDERING ITS OPINION, IS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
THERMORETEC SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY
AND IN ITS ENTIRETY. ADAMS, HARKNESS & HILL'S OPINION IS DIRECTED TO THE SPECIAL
COMMITTEE AND ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY
THE PUBLIC STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT, FROM A FINANCIAL POINT
OF VIEW AS OF OCTOBER 18, 1999, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF THERMORETEC COMMON STOCK
AS TO HOW TO VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF ADAMS,
HARKNESS & HILL SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The following is a summary of the various sources of information and
valuation methodologies used by Adams, Harkness & Hill in arriving at its
Opinion regarding the proposed transaction with Thermo Electron. To determine
the fairness of the transaction, Adams, Harkness & Hill employed analyses based
on the following:
- Public company peers' financial performance and relative valuations;
- Transaction premiums paid in selected precedent acquisitions;
- Stock price performance; and
- Discounted cash flow analysis.
In conducting its investigation and analysis and in arriving at its Opinion,
Adams, Harkness & Hill reviewed the information and took into account the
financial and economic factors it deemed relevant and material under the
circumstances. The material actions undertaken by Adams, Harkness & Hill in its
analysis were as follows:
- Reviewed internal financial information concerning the business and
operations of ThermoRetec that was furnished to Adams, Harkness & Hill by
ThermoRetec's management for purposes of its analysis, as well as publicly
available information, including but not limited to ThermoRetec's recent
filings with the Commission;
- Reviewed the Merger Agreement in the form presented to the Special
Committee;
- Compared the historical market prices and trading activity of the Common
Stock with those of other publicly traded companies that Adams,
Harkness & Hill deemed relevant;
- Compared the financial position and operating results of ThermoRetec with
those of other publicly traded companies that Adams, Harkness & Hill
deemed relevant;
- Compared the proposed financial terms of the Merger with the terms of
other merger and acquisition transactions that Adams, Harkness & Hill
deemed relevant; and
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<PAGE>
- Held discussions with members of ThermoRetec's senior management
concerning ThermoRetec's historical and current financial condition and
operating results, as well as its future prospects.
Adams, Harkness & Hill also reviewed relevant industry market research
studies, company research reports and key economic and market indicators,
including interest rates, and general stock market performance. Other than as
set forth above, Adams, Harkness & Hill did not review any additional
information in preparing its opinion that, independently, was material to its
analysis. As a part of its engagement, Adams, Harkness & Hill was not requested
to, and did not, solicit any third party indications of interest in acquiring
ThermoRetec. The Special Committee did not place any limitation upon Adams,
Harkness & Hill with respect to the procedures followed or factors considered by
Adams, Harkness & Hill in rendering its Opinion.
In rendering its Opinion, Adams, Harkness & Hill assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to Adams, Harkness & Hill by, or on behalf of,
ThermoRetec, and did not independently verify such information. Adams,
Harkness & Hill assumed, with the Special Committee's consent, that:
- All material assets and liabilities (contingent or otherwise, known or
unknown) of ThermoRetec are as set forth in its financial statements;
- Obtaining any regulatory and other approvals and third party consents
required for consummation of the Merger would not have a material effect
on the anticipated benefits of the Merger; and
- The Merger would be consummated in accordance with the terms set forth in
the Merger Agreement, without any amendment thereto and without waiver by
ThermoRetec or Thermo Electron of any of the conditions to their
respective obligations thereunder.
Adams, Harkness & Hill assumed that the projections examined by it were
reasonably prepared based upon the best available estimates and good faith
judgments of the Company's senior management as to the future performance of
ThermoRetec. In conducting its review, Adams, Harkness & Hill did not obtain an
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of ThermoRetec. After consultation with the Special
Committee and with its consent, however, Adams, Harkness & Hill engaged
Environmental Business International, Inc., a leading independent strategic
consulting firm serving the environmental services industry, to support its
assessments of environmental industry conditions. Adams, Harkness & Hill's
Opinion did not predict or take into account any possible economic, monetary or
other changes which may occur, or information which may come available, after
the date of its written Opinion.
PUBLIC COMPANY PEER ANALYSIS--THERMORETEC
ThermoRetec is a national provider of environmental-liability and
resource-management services. The Company offers these and related consulting
services in four segments: Consulting and Engineering, Nuclear Remediation, Soil
Remediation, and Fluids Recycling. The Company's Consulting and Engineering
segment provides consultation, engineering, and on-site services to help clients
manage problems associated with environmental compliance, resource management,
and the remediation of industrial sites contaminated with organic and inorganic
wastes and residues. The Company's Nuclear Remediation segment provides services
to remove radioactive contaminants from sand, gravel, and soil, as well as
health physics services, radiochemistry laboratory services, radiation dosimetry
services, radiation-instrument calibration and repair services, and
radiation-source production. Through the Company's Soil Remediation segment, the
Company designs and operates facilities for the remediation of nonhazardous
soil. The Company also designs and operates mobile equipment for the on-site
remediation of such wastes. The Company's Fluids Recycling segment collects,
tests, processes, and recycles used motor oil and other industrial fluids.
30
<PAGE>
Accordingly, Adams, Harkness & Hill established three groups of publicly
traded companies (comprising companies conducting business in three general
areas: (i) civil engineering and remediation services, (ii) environmental
consulting and engineering services, and (iii) diversified engineering/
construction/ remediation/consulting companies) that it deemed comparable to
ThermoRetec based on markets served, product offerings, business model and/or
financial performance ("Peer Group Companies"). The three groups consist of:
- Diversified Civil Engineering/Construction/Environmental/Consulting
Companies
1) Baker (Michael) Corp.;
2) Jacobs Engineering Group, Inc.; and
3) URS Corp.
- Environmental Services and Consulting Companies
1) EA Engineering Science & Technology;
2) Ecology and Environment;
3) GZA GeoEnvironmental Technologies;
4) Harding Lawson Associates Group; and
5) Tetra Tech Inc.
- Environmental Engineering and Remediation Services
1) IT Group Inc.;
2) National Environmental Services Co.;
3) Sevenson Environmental Services Inc.;
4) TRC Companies Inc.;
5) Versar, Inc.; and
6) Weston (Roy F.) Inc.
Adams, Harkness & Hill compared certain financial measures and metrics of
ThermoRetec with those of the Peer Group Companies. Such information included:
Market Capitalization ("MC"); Enterprise Value ("EV"); Price/Projected Calendar
1999 & 2000 Earnings Ratios ("Forward 1999 & 2000 P/Es"); Enterprise Value/LTM
Revenue; LTM Revenue; LTM Operating Margin; Market Capitalization/Book Value;
and Year/Year Quarterly Revenue Growth.
Enterprise Value/LTM Revenue ("EV/LTM Revenue") and Price/Earnings ("P/E")
multiples imply the range of value public markets place on companies in a
particular market segment. Adams, Harkness & Hill employed an EV valuation in
this analysis because this methodology implies value based on a company's
operations, regardless of how the company finances those operations. To
determine EV, MC is calculated as the product of a company's common stock price
per share (Adams, Harkness & Hill used the closing price on October 8, 1999, for
all public company comparable analyses) multiplied by the number of diluted
shares outstanding. The MC is then adjusted for a company's debt and cash
positions by adding the debt balance and subtracting the cash balance to arrive
at an EV. Unlike EV-based valuation methodologies, P/E-based valuation
methodologies imply a value based on net after-tax earnings inclusive of the
earnings impact of how the company finances its operations. The following
equation illustrates the manner in which EV has been calculated:
((market value of equity) + (debt))-(cash, cash equivalents and short-term
investments)
In order of descending EV/LTM Revenue, the Peer Group Companies (for which
sufficient data was available) ranked as follows:
1) Tetra Tech Inc.;
2) National Environmental Services Co.;
3) URS Corp.;
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4) IT Group Inc.;
5) TRC Companies Inc.;
6) Versar, Inc.;
7) Sevenson Environmental Services Inc.;
8) Jacobs Engineering Group, Inc.;
9) Ecology and Environment;
10) Weston (Roy F.) Inc.;
11) GZA GeoEnvironmental Technologies;
12) Baker (Michael) Corp.;
13) EA Engineering Science & Technology; and
14) Harding Lawson Associates Group
In order of descending Price/Projected Calendar 1999 Earnings (where
earnings per share estimates were available), the Peer Group Companies ranked as
follows:
1) Tetra Tech Inc.;
2) EA Engineering Science & Technology;
3) Jacobs Engineering Group, Inc.;
4) TRC Companies Inc.;
5) Harding Lawson Associates Group;
6) URS Corp.; and
7) IT Group Inc.
In order of descending Price/Projected Calendar 2000 Earnings (where
earnings per share estimates were available), the Peer Group Companies ranked as
follows:
1) Tetra Tech Inc.;
2) Jacobs Engineering Group, Inc.;
3) URS Corp.;
4) IT Group Inc.; and
5) EA Engineering Science & Technology
The low, high and average financial ratios for the Peer Group Companies are
listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- -------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/LTM Revenue............................. 0.1 1.2 0.6
Calendar Year 1999 Price/Earnings........................ 8.5 21.2 14.1
Calendar Year 2000 Price/Earnings........................ 4.2 17.6 9.5
</TABLE>
To arrive at ThermoRetec's P/E multiples for Calendar Year 1999 and Calendar
Year 2000, Adams, Harkness & Hill used ThermoRetec's internal management
projections, as external research analysts' projections have not been published.
Adams, Harkness & Hill compared these ranges of multiples to the multiple
implied by the proposed consideration of approximately:
- Enterprise Value/LTM Revenue: 0.8
- Calendar Year 1999 Price/Earnings: not meaningful
- Calendar Year 2000 Price/Earnings: 22.0
TRANSACTION PREMIUMS PAID ANALYSIS
Premiums paid in precedent public company change of control transactions
typically imply the range of consideration acquirers are willing to pay above a
seller's stock price prior to the announcement of the relevant transaction.
Adams, Harkness & Hill reviewed 44 precedent transactions involving selected
engineering and environmental services companies from January 1, 1998 to
October 19, 1999, of which
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<PAGE>
seven transactions involved the acquisition of the equity shares of
publicly-traded companies for which share price data was available.
In order of descending premium paid based on the seller's stock price one
trading day prior to announcement, the selected environmental transactions used
were as follows:
1) Carmeuse Lime's acquisition of Dravo Corp.;
2) IT Group Inc.'s acquisition of Fluor Daniel GTI;
3) URS Corp.'s acquisition of Dames & Moore Group;
4) IT Group Inc.'s acquisition of OHM Corp.;
5) IT Group Inc.'s acquisition of Emcon;
6) USA Waste Services's acquisition of Trans American Waste Industries; and
7) Special purposes acquisition vehicle of Weiss, Peck & Greer's
acquisition of ATC Group Services.
Based upon Adams, Harkness & Hill's analysis of premia paid in selected
precedent environmental services industry transactions, the low, high and
average premia (discounts) paid to sellers' share prices (using the buyer's
share price on the day prior to the announcement date of the transaction to
calculate consideration in stock transactions) for the month, week, and day
prior are listed below:
<TABLE>
<CAPTION>
LOW HIGH AVERAGE
-------- -------- --------
<S> <C> <C> <C>
Premium Paid--1 Month prior.............................. 3% 74% 42%
Premium Paid--1 Week prior............................... (8%) 84% 33%
Premium Paid--1 Day prior................................ 0% 87% 31%
</TABLE>
Adams, Harkness & Hill compared these ranges of historic premia to the
implied premium offered by the Cash Merger Consideration to the Company's share
price for the month, week and day prior to the announcement of the finalization
of the Merger Agreement:
- Premium Paid--1 Month prior:..............................................
35%
- Premium Paid--1 Week prior:...............................................
33%
- Premium Paid--1 Day prior:................................................
27%
Adams, Harkness & Hill also compared these ranges of precedent premia to the
implied premium offered by the Cash Merger Consideration to the Company's share
price for the month, week and day prior to the date on which the original
restructuring proposal was announced and the date on which the revisions to that
proposal were announced:
Prior to original TMO reorganization announcement (8/12/98):
- Premium Paid--1 Month prior:..............................................
72%
- Premium Paid--1 Week prior:...............................................
75%
- Premium Paid--1 Day prior:................................................
60%
Prior to TMO restructuring announcement (5/24/99):
- Premium Paid--1 Month prior:..............................................
195%
- Premium Paid--1 Week prior:...............................................
133%
- Premium Paid--1 Day prior:................................................
87%
STOCK PRICE PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following for ThermoRetec:
1) Stock price performance from the Company's initial public offering
through October 8, 1999.
2) Stock price performance from January 1, 1998, through October 8, 1999,
compared to NASDAQ Composite, S&P 500 and Russell 2000 stock indices.
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3) Stock price performance from January 1, 1998, through October 8, 1999,
compared to an index of the Peer Group Companies.
Based on the above analyses, Adams, Harkness & Hill observed that, from
ThermoRetec's initial public offering on December 8, 1993, through May 21, 1999,
the day preceding Thermo Electron's announcement regarding changes to its
reorganization plan, ThermoRetec's stock value had decreased 64%. Additionally,
although ThermoRetec's stock value had increased 67% from May 21, 1999, through
October 8, 1999, ThermoRetec's stock value from the IPO through October 8, 1999,
had decreased 40%. Further, Adams, Harkness & Hill observed that ThermoRetec's
stock value had decreased 16% from January 1, 1998, through October 8, 1999,
compared to an increase of 83% and 37% in the NASDAQ composite and S&P 500
index, respectively, and a 2% decrease in the Russell 2000 index over the same
time period. Adams, Harkness & Hill also observed that the value of
ThermoRetec's Peer Group Companies, as an index, increased by 27% during the
same time period.
DISCOUNTED CASH FLOW ANALYSIS
Adams, Harkness & Hill performed a discounted cash flow analysis to estimate
the present value of the stand-alone unlevered (i.e., before interest expense)
after-tax cash flows of ThermoRetec. To perform the discounted cash flow
analysis, Adams, Harkness & Hill used the following data sources and
assumptions:
- ThermoRetec's management projections for the year ended December 31, 1999
through the year ended December 31, 2003. ThermoRetec's unlevered
after-tax cash flows were calculated as the after-tax (40% effective rate)
operating earnings of ThermoRetec adjusted for the addition of non-cash
expenses and the deduction of uses of cash not reflected in the income
statement.
- Weighted average cost of capital that ranged from 9.0% to 16.5%.
- Terminal value based on ThermoRetec's earnings before interest and taxes
("EBIT") for the year ended December 31, 2003 multiplied by EBIT multiples
ranging from 7.0 to 12.0.
Adams, Harkness & Hill calculated the weighted average cost of capital for
each of the Peer Group Companies, using a risk free rate of return of 6.0% and a
market risk premium of 7.4%, and arrived at a range of 7.1% to 11.1%, with an
average of 9.3%. In order to calculate an appropriate range of terminal values,
Adams, Harkness & Hill also calculated an EV/EBIT multiple for each of the Peer
Group Companies and arrived at a range of less than 0.0x to 25.9x with an
average of 10.6x.
Adams, Harkness & Hill combined (i) the calculated preset value of
ThermoRetec's cash flows for the years ended December 31, 1999 through
December 31, 2003, with (ii) ThermoRetec's EBIT terminal value, to arrive at a
range of EVs based on the above assumptions. These EVs were then adjusted by
adding ThermoRetec's cash balance and subtracting its debt balance to arrive at
implied MCs (i.e., equity values). Adams, Harkness & Hill divided the computed
equity values by the number of shares of ThermoRetec Common Stock outstanding
and arrived at a range of implied per share values of $6.34 to $12.95, with a
median implied value of $9.23.
SUMMARY OF VALUATION ANALYSES
The foregoing summary does not purport to be a complete description of the
analyses performed by Adams, Harkness & Hill. The preparation of a fairness
opinion is a complex process. Adams, Harkness & Hill believes that its analyses
must be considered as a whole, and that selecting portions of such analysis
without considering all analyses and factors would create an incomplete view of
the processes underlying its Opinion. Adams, Harkness & Hill did not attempt to
assign specific weights to particular analyses. However, there were no specific
factors reviewed by Adams, Harkness & Hill that did not support its Opinion. Any
estimates contained in Adams, Harkness & Hill's analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimates of
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values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, Adams, Harkness & Hill does not assume
responsibility for their accuracy.
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall Opinion that the consideration to
be received in the merger is fair, from a financial point of view, to the
Minority Stockholders.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of Common Stock, other than the shares already owned by Thermo TerraTech
and Thermo Electron. In determining to acquire such shares of Common Stock at
this time, Thermo Electron considered the following factors: (i) recent public
capital market trends affecting micro-cap companies, (ii) the latest market
trends in the markets in which the Company competes, primarily the
environmental-liability and resource-management services industry, (iii) the
reduction in the amount of public information available to competitors about
ThermoRetec's business that would result from the termination of the Company's
separate Commission reporting requirements, (iv) the elimination of additional
burdens on management associated with public reporting and other tasks resulting
from the Company's public company status, including, for example, the dedication
of time and resources of management and of the Board to stockholder and analyst
inquiries, and investor and public relations, (v) the decrease in costs,
particularly those associated with being a public company (for example, as a
privately-held entity, the Company would no longer be required to file
quarterly, annual or other periodic reports with the Commission or publish and
distribute to its stockholders annual reports and proxy statements), that Thermo
Electron anticipates could result in savings of approximately $450,000 per year,
including the approximate cost of associated legal and accounting fees; and
(vi) the Company's management would have greater flexibility to focus on
long-term business goals, as opposed to quarterly earnings, as a private
company.
In addition, the Thermo Electron board of directors considered the
advantages and disadvantages of certain alternatives to acquiring the Public
Stockholder interest in ThermoRetec, including (i) selling its and Thermo
TerraTech's equity interest in the Company and (ii) leaving ThermoRetec as a
majority-owned, public subsidiary of Thermo TerraTech. The first alternative,
that of selling its and Thermo TerraTech's equity interest in the Company, was
briefly considered by Thermo Electron management, but it was not an alternative
that was pursued at length, given that Thermo Electron did not want to sell its
equity interest, and did not want Thermo TerraTech to sell its equity interest,
in the Company for the reasons set forth under "--Background of the Merger". The
advantages to leaving ThermoRetec as a majority-owned, public subsidiary that
Thermo Electron considered included (i) (while the proposed form of
consideration in the Merger was still the common stock of Thermo TerraTech) the
avoidance of dilution to the Thermo TerraTech stockholders by the issuance of
more of its shares of common stock as consideration for shares of Common Stock
and (ii) maintaining the potential access ThermoRetec has to capital in the
public markets as a public company. The disadvantages to leaving ThermoRetec as
a majority-owned, public subsidiary that Thermo Electron considered included (i)
the costs associated with being a public company, (ii) the public information
available to competitors about ThermoRetec's business as result of its filing
obligations with the Commission, and (iii) the inability to fully integrate the
operations of ThermoRetec with those of other Thermo Electron subsidiaries given
the disclosure obligations of being a public company.
Thermo Electron also considered the number of ThermoRetec shares held by the
Public Stockholders, recent trends in the price of the Common Stock and the
relative lack of liquidity for the Common Stock. Thermo Electron reviewed the
net overall cost of the transaction and its benefits, including the
transaction's contribution to Thermo Electron's earnings. Thermo Electron also
explored alternative uses for the cash proposed to be used for this transaction.
In addition, Thermo Electron considered that by acquiring
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the minority stockholder interest in ThermoRetec, it would advance the goal of
its proposed corporate reorganization, first announced in August 1998, to reduce
the number of Thermo Electron's majority-owned, public subsidiaries. After
consideration of these various factors and extensive negotiations with the
Special Committee, Thermo Electron decided to make a proposal to ThermoRetec to
acquire for cash, through a merger, all of the outstanding shares of Common
Stock that it and Thermo TerraTech did not own at a price of $7.00 per share,
which represented a premium of (i) approximately 72% over the closing price of
the Common Stock reported in the consolidated transaction reporting system on
August 10, 1998, the last day on which the Common Stock traded prior to Thermo
Electron's first public announcement of the proposal to take ThermoRetec private
(with no price having been announced) and (ii) approximately 27% over the
closing price of the Common Stock reported in the consolidated transaction
reporting system on October 19, 1999, the day immediately prior to the public
announcement of the terms of Thermo Electron's proposal. Thermo Electron
proposed to structure the transaction as a cash merger in order to transfer
ownership of the equity interest in the Company in a single transaction and
provide the stockholders other than Thermo TerraTech and Thermo Electron with
prompt payment in cash in exchange for their shares.
Thermo Electron beneficially owns, in the aggregate, directly and indirectly
through Thermo TerraTech, approximately 73% of the outstanding Common Stock. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Principal
Stockholder."
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings and recommendation of the Special
Committee and the Board with respect to the fairness of the Merger to the Public
Stockholders (see "--The Special Committee's and the Board's Recommendation").
As of the date of the Merger Agreement, Thermo Electron considered each of the
factors set forth in "--The Special Committee's and the Board's Recommendation"
and adopted the findings and recommendation of the Special Committee and the
Board with respect to the fairness of the Merger. Thermo Electron believed that
the findings and recommendation of the Special Committee and the Board could be
relied upon for a determination of fairness of the Merger to the Public
Stockholders because the Special Committee, who was being advised by Adams,
Harkness & Hill and who was charged with representing the interests of the
Public Stockholders with respect to the Merger, had found the Merger to be fair.
Thermo Electron reviewed the procedures followed by the Special Committee and
the Board in their evaluations of the terms of the proposed Merger, and
determined them to be reasonable grounds on which to decide that the Merger was
fair to the Public Stockholders. Based solely on the findings and recommendation
of the Special Committee and its own internal review of the terms of the Merger,
Thermo Electron believes that the Merger is both procedurally and substantively
fair to the Public Stockholders and that the Cash Merger Consideration is fair
to the Public Stockholders from a financial point of view. Thermo Electron did
not attach specific weights to any factors in reaching its belief as to
fairness. Thermo Electron is not making any recommendation as to how the Public
Stockholders should vote on the Merger Agreement.
Certain officers and directors of Thermo Electron are also officers and
directors of the Company and have certain interests that are in addition to, or
different from, the interests of the Public Stockholders. See "--Conflicts of
Interest." Thermo Electron considered these potential conflicts of interest and
based in part thereon, Thermo Electron's proposed offer was conditioned on,
among other things, the approval of the Merger by the Special Committee and the
receipt by the Special Committee of a fairness opinion from an investment
banking firm.
CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the Merger,
the Public Stockholders should be aware that certain officers and directors of
ThermoRetec have interests in connection with the Merger that present them with
actual or potential conflicts of interest, as summarized below. The Special
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Committee and the Board were aware of these interests and did not view them
either positively or negatively, but considered them among the other matters
described above under "--The Special Committee's and the Board's
Recommendation."
Following consummation of the Merger, the current officers and directors of
the Company will continue as the initial officers and directors of the Surviving
Corporation; however, Thermo Electron intends to appoint a board of directors
comprised solely of members of the Surviving Corporation's and Thermo Electron's
management after the Merger. Officers and directors of the Company who own
Common Stock will receive the Cash Merger Consideration on the same terms as all
the other stockholders.
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SPECIAL COMMITTEE
As compensation for serving on the Special Committee, which formally met
with one or more of its advisors on [ ] occasions, either in person or
telephonically, from November 1998 through the date of this Proxy Statement, the
Board has authorized that the member of the Special Committee receive a special
retainer fee of $20,000 and additional fees of $1,000 for each meeting attended
in person and $500 for each meeting attended telephonically.
Mr. Holubow, the member of the Special Committee, owns 26,382 shares of
Common Stock and will receive a payment for his shares of Common Stock in the
aggregate amount of $184,674 upon consummation of the Merger. In addition,
Mr. Holubow holds options to acquire an aggregate of 26,450 shares of Common
Stock, at exercise prices ranging from $2.93 to $10.85, which will be assumed by
Thermo Electron and converted into options to acquire shares of Thermo Electron
Common Stock on the same terms as all the other holders of ThermoRetec Stock
Options. See "THE MERGER--Assumption of ThermoRetec Stock Options and Warrants
by Thermo Electron." Further, deferred units equal to 8,067 shares of Common
Stock have accumulated under the Company's deferred compensation plan for
directors for the benefit of Mr. Holubow, which units will be converted into the
right to receive the Cash Merger Consideration per unit for an aggregate cash
payment of $56,469. See "THE MERGER--Deferred Compensation Plan for Directors."
In addition, Mr. Holubow owns shares of Thermo Electron Common Stock, as set
forth in more detail under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--Management."
Mr. Holubow is also a member of the board of directors of Thermo Trilogy
Corporation, a majority-owned, privately held subsidiary of Thermo Ecotek
Corporation, which in turn is a majority-owned, publicly traded subsidiary of
Thermo Electron. Mr. Holubow, as compensation for serving on the board of
directors of Thermo Trilogy Corporation, receives an annual retainer fee of
$2,000 and additional fees of $1,000 for each regular board meeting attended in
person and $500 for each board meeting attended telephonically and for
participating in certain meetings of committees of the board of directors.
THE THERMORETEC DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, other than the member of the Special
Committee, and executive officers of ThermoRetec own in the aggregate 102,818
shares of Common Stock and will receive a payment for their shares of Common
Stock in the aggregate amount of $719,726 upon consummation of the Merger. In
addition, such Board members and executive officers hold options to acquire an
aggregate of 312,800 shares of Common Stock, with exercise prices ranging from
$2.45 to $14.93, which will be assumed by Thermo Electron and converted into
options to acquire shares of Thermo Electron Common Stock on the same terms as
all the other holders of ThermoRetec Stock Options. See "THE MERGER--Assumption
of ThermoRetec Stock Options and Warrants by Thermo Electron." Further, deferred
units equal to 977 and 7,665 shares of Common Stock have accumulated under the
Company's deferred compensation plan for directors for the benefit of
Dr. Gyftopoulos and Dr. Morris, respectively, which units will be converted into
the right to receive the Cash Merger Consideration per unit for aggregate cash
payments of $6,839 and $53,655, respectively. See "THE MERGER--Deferred
Compensation Plan for Directors." See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT--Management," for information regarding beneficial
ownership by the Board and executive officers of Common Stock and common stock
of Thermo TerraTech and Thermo Electron.
Further, certain members of the Board and certain executive officers hold
directorship or officer positions with Thermo TerraTech and/or Thermo Electron.
Mr. Melas-Kyriazi, the chief financial officer of the Company, is also a vice
president and the chief financial officer of Thermo Electron, and is the chief
financial officer of Thermo TerraTech. Mr. Kelleher, the chief accounting
officer of the Company, is also senior vice president, finance and
administration, and the chief accounting officer of Thermo Electron, and is the
chief accounting officer of Thermo TerraTech. Dr. Appleton, the chairman of the
Company's board
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of directors, is also the president, chief executive officer and a director of
Thermo TerraTech, and is a vice president of Thermo Electron. Dr. Gyftopoulos, a
director of the Company, is also a director of Thermo Electron. Mr. Holt, a
director of the Company, is also the chief operating officer, energy and
environment, of Thermo Electron, and is a director of Thermo TerraTech.
Mr. Rainville, a director of the Company, is also the chief operating officer,
recycling and resource recovery, of Thermo Electron, and is a director of Thermo
TerraTech.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the Surviving Corporation shall, and
Thermo Electron will cause the Surviving Corporation to, fulfill and honor in
all respects the indemnification obligations of ThermoRetec, pursuant to
ThermoRetec's Certificate of Incorporation and Bylaws, as in effect on the date
of the Merger Agreement. The Surviving Corporation's Certificate of
Incorporation and Bylaws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in ThermoRetec's Certificate of Incorporation and Bylaws, and such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights of those individuals who, as of the date of the Merger Agreement and at
any time from the date of the Merger Agreement until the Effective Time, were
directors or officers of ThermoRetec, unless such modification is required by
law. See "THE MERGER--Indemnification and Insurance."
In addition, Thermo Electron will cause the Surviving Corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for a period of six years after the Effective Time, a
directors' and officers' liability insurance policy covering the ThermoRetec
directors and officers who, on the date of the Merger Agreement, were then
covered by Thermo Electron's liability insurance policy, with coverage no less
favorable in amount and scope than such director's and officer's existing
coverage. However, in no event will the Surviving Corporation be required to pay
premiums for such insurance in excess of 175% of the current annual premiums, as
adjusted for inflation each year, allocable to and paid by ThermoRetec. See "THE
MERGER--Indemnification and Insurance."
The Merger Agreement also provides that ThermoRetec will, regardless of
whether the Merger becomes effective, indemnify Fred Holubow against any costs
and expenses paid in connection with any claim or action arising out of or
pertaining to any action or omission in Mr. Holubow's capacity as a director or
fiduciary of ThermoRetec (including as a member of the Special Committee or in
connection with the transactions contemplated by the Merger Agreement) that
occurs on, before or after the Effective Time, until the expiration of the
statute of limitations relating to such action or omission. ThermoRetec shall
pay Mr. Holubow's expenses in advance of the final disposition of the action
upon receipt of an undertaking by Mr. Holubow to repay those expenses if it is
later decided that he is not entitled to such payment. If the Merger becomes
effective, Thermo Electron will be jointly and severally responsible for the
indemnification and expenses advancement obligations as described above. If the
Merger does not become effective, Thermo Electron shall only be responsible for
indemnifying or advancing expenses for matters that arise out of or pertain to
the work of the Special Committee, the Merger Agreement or the transactions
contemplated by the Merger Agreement. See "THE MERGER--Indemnification and
Insurance."
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in the
event that a director, by reason of his or her status as a director or officer
of ThermoRetec (or service as a director, officer or fiduciary of another
enterprise at the request of Thermo Electron), is made or threatened to be made
a party to any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative or investigative, if the
director acted in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of Thermo Electron, and with
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respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In the case of any threatened, pending or
completed action, suit or proceeding by or in the right of Thermo Electron,
indemnification shall be made to the maximum extent permitted under Delaware
law. See "THE MERGER--Indemnification and Insurance."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in the Company will be
beneficially owned by Thermo Electron. Thermo Electron will have complete
control over the conduct of the Company's business and will have 100% interest
in the net book value and net earnings of the Company and any future increases
in the value of the Company. Thermo TerraTech's and Thermo Electron's combined
ownership of the Company prior to the transaction contemplated herein aggregated
approximately 73%. Upon completion of this transaction, Thermo Electron's
interest in the Company's net book value of $65.3 million on October 2, 1999 and
net loss of $3,861,000 and $3,665,000 for the year ended April 3, 1999 and the
six months ended October 2, 1999, respectively, would increase from
approximately 73% of such amounts to 100% of such amounts. The Public
Stockholders will no longer have any interest in, and will not be stockholders
of, ThermoRetec and therefore will not participate in ThermoRetec's future
earnings and potential growth and will no longer bear the risk of any decreases
in the value of the Company. Instead, the stockholders of the Company other than
Thermo TerraTech, Thermo Electron and holders who perfect their Dissenters'
Rights will have the right to receive the Cash Merger Consideration for each
share held.
In addition, upon consummation of the Merger, the Common Stock will no
longer be traded on the AMEX, price quotations with respect to sales of shares
in the public market will no longer be available and the registration of the
Common Stock under the Exchange Act will be terminated. The termination of
registration of the Common Stock under the Exchange Act will eliminate the
Company's obligation to file periodic financial and other information with the
Commission and will make most of the provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy or information statement in connection with stockholders'
meetings, no longer applicable.
The consummation of the Merger will also give the holders of ThermoRetec's
4 7/8% Debentures the right to have ThermoRetec redeem such 4 7/8% Debentures
for a cash amount equal to 100% of the principal amount to be redeemed, plus
accrued interest. The cost to ThermoRetec of such redemption will be
approximately $38.7 million. If a holder elects not to redeem its 4 7/8%
Debentures, its right to receive shares of Common Stock upon conversion of such
4 7/8% Debentures will be converted into the right to receive $7.00 in cash per
share of Common Stock that such 4 7/8% Debentures would have been convertible
into prior to the Merger. The conversion price of the 4 7/8% Debentures is
$17.92 per share; therefore, the Company does not expect any holder to elect to
convert its 4 7/8% Debentures. The 4 7/8% Debentures are listed for trading on
the Luxembourg Stock Exchange. The Company does not intend to take any action to
provide that the right to receive cash upon conversion of the 4 7/8% Debentures
will be eligible for trading on any securities exchange or an automated
inter-dealer quotation system.
For federal income tax purposes, the receipt of the Cash Merger
Consideration by holders of Common Stock pursuant to the Merger will be a
taxable sale of the holder's Common Stock. See "FEDERAL INCOME TAX
CONSEQUENCES."
CONDUCT OF THERMORETEC'S BUSINESS AFTER THE MERGER
Thermo Electron is continuing to evaluate ThermoRetec's business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel and discuss what changes, if any, will be desirable.
Subject to the foregoing, for the foreseeable future, Thermo Electron expects
that the day-to-day business and operations of ThermoRetec will be conducted
substantially as they are
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currently being conducted by ThermoRetec. On May 24, 1999, ThermoRetec announced
its decision to sell certain soil-recycling facilities and to record pre-tax
charges totaling approximately $10 million in connection with the sales of those
facilities. The Company has had preliminary discussions with potential buyers
for these facilities, but the Company currently has no commitment or agreement
for any such sale. Thermo Electron intends to carry out ThermoRetec's intention
with respect to these matters to the extent that they are not completed prior to
the consummation of the Merger. Thermo Electron does not currently intend to
cause the disposition of any other material assets of ThermoRetec, but it may,
in the future, reconsider its position as it continues to evaluate the Company.
Additionally, Thermo Electron does not currently contemplate any material change
in the composition of ThermoRetec's current management except that Thermo
Electron intends to appoint a board of directors comprised solely of members of
the Surviving Corporation's and Thermo Electron's management after the Merger.
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, the Board of Directors expects that the
Company's current management will continue to operate the Company's business
substantially as currently operated, except with respect to the units that may
be sold. See "--Conduct of ThermoRetec's Business After the Merger." No other
alternatives are currently being considered.
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THE SPECIAL MEETING
PROXY SOLICITATION
This Proxy Statement is being delivered to ThermoRetec's stockholders in
connection with the solicitation by the Board of proxies to be voted at the
Special Meeting to be held on , , 2000 at 10:00 a.m., local time, at
the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham,
Massachusetts 02454. All expenses incurred in connection with solicitation of
the enclosed proxy will be paid by the Company. Officers, directors and regular
employees of the Company, who will receive no additional compensation for their
services, may solicit proxies by telephone or personal call. The Company has
requested brokers and nominees who hold stock in their names to furnish this
proxy material to their customers and the Company will reimburse such brokers
and nominees for their related out-of-pocket expenses. This Proxy Statement and
the accompanying Proxy Card are first being mailed to stockholders of the
Company on or about , 2000.
RECORD DATE AND QUORUM REQUIREMENT
The close of business on , 2000 the Record Date for the determination
of stockholders entitled to notice of, and to vote at, the Special Meeting. Each
holder of record of Common Stock at the close of business on the Record Date is
entitled to one vote for each share then held on each matter submitted to a vote
of stockholders. At the close of business on the Record Date, there
were shares of Common Stock issued and outstanding held by holders of
record and by approximately persons or entities holding in nominee name.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining whether a quorum exists for the transaction of business. If you
hold your shares of Common Stock through a broker, bank or other nominee,
generally the nominee may only vote the Common Stock that it holds for you in
accordance with your instructions. However, if it has not timely received your
instructions, the nominee may vote on certain matters for which it has
discretionary voting authority. Brokers generally will not have discretionary
voting authority with respect to the proposal to adopt the Merger Agreement. If
a nominee cannot vote on a particular matter because it does not have
discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are also counted as shares present or represented at the
Special Meeting for purposes of determining whether a quorum exists.
VOTING PROCEDURES
Under Delaware law, holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting must adopt the Merger
Agreement. The Merger Agreement is attached to this Proxy Statement as
Appendix A. For the purposes of the vote required under Delaware law, a failure
to vote, a vote to abstain and a broker non-vote will have the same legal effect
as a vote cast against adoption of the Merger Agreement. Thermo TerraTech, which
owns approximately 70% of the outstanding Common Stock, and Thermo Electron,
which owns approximately 2% of the outstanding Common Stock, own enough shares
of Common Stock to adopt the Merger under Delaware law without the vote of the
Public Stockholders and have agreed to vote their shares in favor of the Merger
Agreement. In addition, the Company's directors and executive officers have
expressed their intention to vote to adopt the Merger Agreement.
If a properly executed Proxy Card is submitted and no instructions are
given, the shares of Common Stock represented by that proxy will be voted "FOR"
adoption of the proposed Merger Agreement.
The Board is not aware of any other matters to be voted on at the Special
Meeting. If any other matters properly come before the Special Meeting,
including a motion to adjourn the Special Meeting for
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the purpose of soliciting additional proxies, the persons named on the
accompanying Proxy Card will vote the shares represented by all properly
executed proxies on such matters in their discretion, except that shares
represented by proxies that have been voted "AGAINST" adoption of the Merger
Agreement will not be used to vote "FOR" adjournment of the Special Meeting for
the purpose of allowing additional time for soliciting additional votes "FOR"
the Merger Agreement.
Under Delaware law, holders of Common Stock who do not vote in favor of the
Merger Agreement and who comply with certain notice requirements and other
procedures will have the right to dissent and to be paid cash for the fair value
of their shares as finally determined in accordance with the procedures under
Delaware law. The fair value, as finally determined, may be more or less than
the consideration to be received by other stockholders of ThermoRetec under the
terms of the Merger Agreement. Failure to follow such procedures under Delaware
law precisely will result in the loss of Dissenters' Rights. See "RIGHTS OF
DISSENTING STOCKHOLDERS."
VOTING AND REVOCATION OF PROXIES
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Secretary of ThermoRetec an instrument
revoking it, (ii) submitting a duly executed proxy bearing a later date or
(iii) voting in person at the Special Meeting. Subject to such revocation, all
shares represented by each properly executed proxy received by the Secretary of
ThermoRetec will be voted in accordance with the instructions indicated thereon,
and if no instructions are indicated, will be voted to adopt the Merger
Agreement. The shares represented by the accompanying Proxy Card and entitled to
vote will be voted if the Proxy Card is properly signed and received by the
Secretary of the Company prior to the Special Meeting.
EFFECTIVE TIME
The Merger will be effective as soon as practicable following stockholder
adoption of the Merger Agreement at the Special Meeting and satisfaction or
waiver of the terms and conditions set forth in the Merger Agreement, and upon
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware. See "THE MERGER--Conditions."
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THE MERGER
The Merger Agreement provides that the Merger Sub, a newly-formed Delaware
corporation that is a wholly owned subsidiary of Thermo Electron, will be merged
with and into ThermoRetec, and that following the Merger, the separate existence
of the Merger Sub will cease and ThermoRetec will continue as the Surviving
Corporation.
The terms of and conditions to the Merger are contained in the Merger
Agreement, which is included in full as Appendix A to this Proxy Statement and
is incorporated herein by reference. The discussion in this Proxy Statement of
the Merger, and the summary description of all material terms of the Merger
Agreement that is contained in this section, are subject to and qualified in
their entirety by reference to the more complete information set forth in the
Merger Agreement.
CONVERSION OF SECURITIES
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held by stockholders
exercising Dissenters' Rights, shares held in treasury by ThermoRetec and shares
held by Thermo TerraTech and Thermo Electron) will, by virtue of the Merger, be
converted into the right to receive the Cash Merger Consideration. Except for
the right to receive the Cash Merger Consideration, from and after the Effective
Time, all shares (other than shares held by stockholders exercising Dissenters'
Rights), by virtue of the Merger and without any action on the part of the
holders, will no longer be outstanding and will be canceled and retired and will
cease to exist. Each holder of a stock certificate formerly representing any
shares (other than shares held by stockholders exercising Dissenters' Rights)
will after the Effective Time cease to have any rights with respect to such
shares other than the right to receive the Cash Merger Consideration for such
shares upon surrender of the stock certificate.
No interest will be paid or accrued on the amount payable upon the surrender
of any stock certificate. Payment to be made to a person other than the
registered holder of the stock certificate surrendered is conditioned upon the
stock certificate so surrendered being properly endorsed and otherwise in proper
form for transfer, as determined by the Payment Agent. Further, the person
requesting such payment will be required to pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the stock certificate surrendered or establish to the satisfaction of the
Payment Agent that such tax has been paid or is not payable. Six months
following the Effective Date, Thermo Electron may require the Payment Agent to
deliver to it any funds made available to the Payment Agent that have not been
disbursed to holders of stock certificates formerly representing shares
outstanding prior to the Effective Time. Neither the Payment Agent nor any party
to the Merger Agreement will be liable to any holder of stock certificates
formerly representing shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of the Merger Sub's common stock that
is issued and outstanding immediately prior to the Effective Time will, by
virtue of the Merger, be converted at the Effective Time into one share of
common stock of the Surviving Corporation. All shares held in treasury by
ThermoRetec immediately prior to the Effective Time will, at the Effective Time,
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist. Shares of Common Stock held by
persons properly exercising Dissenters' Rights will not be converted into the
Cash Merger Consideration in the Merger and after the Effective Time will
represent only the right to receive such consideration as is determined to be
due such dissenting stockholder pursuant to Section 262 of the DGCL. See "RIGHTS
OF DISSENTING STOCKHOLDERS."
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<PAGE>
ASSUMPTION OF THERMORETEC STOCK OPTIONS AND WARRANTS BY THERMO ELECTRON
ThermoRetec has, from time to time, issued options to acquire Common Stock
pursuant to the Remediation Technologies, Inc. Amended and Restated 1986 Stock
Option Plan, the Thermo Remediation Inc. Equity Incentive Plan, the ThermoRetec
Corporation Employees Equity Incentive Plan and the Thermo Remediation Inc.
Directors Stock Option Plan, each as amended (together, the "ThermoRetec Stock
Option Plans"). At the Effective Time, each outstanding ThermoRetec Stock Option
under the ThermoRetec Stock Option Plans, whether or not exercisable, will be
assumed by Thermo Electron. Each ThermoRetec Stock Option so assumed by Thermo
Electron will continue to have, and be subject to, the same terms and conditions
set forth in the applicable ThermoRetec Stock Option Plan immediately prior to
the Effective Time, except that (i) each ThermoRetec Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Thermo Electron Common Stock equal to the product of
the number of shares of Common Stock that were issuable upon exercise of such
ThermoRetec Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio (as defined below), rounded down to the nearest whole number
of shares of Thermo Electron Common Stock, and (ii) the per share exercise price
for the shares of Thermo Electron Common Stock issuable upon exercise of such
assumed ThermoRetec Stock Option will be equal to the quotient determined by
dividing the exercise price per share of Common Stock at which such ThermoRetec
Stock Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. The Exchange Ratio is a
fraction, the numerator of which is the Cash Merger Consideration and the
denominator of which is the closing price of the Thermo Electron Common Stock on
the day immediately preceding the Effective Date as reported in the consolidated
transaction reporting system.
All warrants to purchase ThermoRetec Common Stock outstanding immediately
prior to the Effective Time shall be converted at the Effective Time into
warrants to purchase Thermo Electron Common Stock. The number of whole shares of
Thermo Electron Common Stock for which each warrant will be exercisable (or will
become exercisable in accordance with its terms) and the per share exercise
price for the shares of Thermo Electron Common Stock issuable upon exercise of
such ThermoRetec warrant will be determined in accordance with the terms of such
warrants.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
At the Effective Time, subject to obtaining the consents of the affected
participants, the ThermoRetec deferred compensation plan for directors (the
"Deferred Compensation Plan") will terminate, and ThermoRetec will distribute to
each participant the sum in cash equal to the balance of stock units credited to
his deferred compensation account under the Deferred Compensation Plan as of the
Effective Time multiplied by the Exchange Price.
TRANSFER OF SHARES
Shares of Common Stock will not be transferred on the stock transfer books
at or after the Effective Time. If certificates representing such shares are
presented to ThermoRetec after the Effective Time, together with an executed
letter of transmittal, such shares will be canceled and exchanged for the Cash
Merger Consideration.
CONDITIONS
Each party's obligation to effect the Merger is subject to the satisfaction
of each of the following conditions at or prior to the Effective Time:
(i) the Merger Agreement and the transactions contemplated therein shall
have been approved and adopted by the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock entitled to vote
thereon in accordance with the DGCL;
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<PAGE>
(ii) no court, administrative agency or commission or other governmental or
regulatory body or authority or instrumentality shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order that is in effect
and that has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; and
(iii) the Thermo Electron Common Stock subject to issuance pursuant to the
ThermoRetec Stock Option Plans and the warrants issued by ThermoRetec,
each as assumed by Thermo Electron pursuant to the Merger Agreement,
shall have been authorized for listing on the New York Stock Exchange.
The obligations of ThermoRetec to effect the Merger are subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time, unless waived in writing by ThermoRetec (upon the written consent of the
Special Committee):
(i) the representations and warranties of the Merger Sub and Thermo Electron
in the Merger Agreement shall be true and correct in all material
respects on and as of the Effective Time, except as otherwise permitted
by the Merger Agreement;
(ii) the Merger Sub and Thermo Electron shall have performed or complied in
all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by them at or prior
to the Effective Time;
(iii) ThermoRetec shall have received a certificate of the President, Chief
Executive Officer or Vice President of Thermo Electron certifying to
the effect of above clauses (i) and (ii); and
(iv) at the time of mailing of this Proxy Statement to the stockholders of
ThermoRetec and at the Effective Time, Adams, Harkness & Hill shall
have reaffirmed orally its fairness opinion and shall not have
withdrawn such opinion.
The obligations of the Merger Sub and Thermo Electron to effect the Merger
are subject to the satisfaction of each of the following conditions at or prior
to the Effective Time, unless waived in writing by Thermo Electron:
(i) the representations and warranties of ThermoRetec in the Merger
Agreement shall be true and correct in all material respects on and as
of the Effective Time, except as otherwise permitted by the Merger
Agreement;
(ii) ThermoRetec shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Effective Time;
(iii) Thermo Electron shall have received a certificate of the President,
Chief Executive Officer or Vice President of ThermoRetec certifying to
the effect of above clauses (i) and (ii); and
(iv) the Special Committee shall not have withdrawn its recommendation to
the Board of Directors that the Merger Agreement, including the Cash
Merger Consideration, is fair to, and in the best interests of, the
stockholders of ThermoRetec (other than Thermo Electron and TerraTech).
REPRESENTATIONS AND WARRANTIES
ThermoRetec has made representations and warranties in the Merger Agreement
regarding, among other things, its organization and good standing, authority to
enter into the Merger Agreement and consummate the transactions contemplated
thereby, its capitalization, requisite governmental and other consents and
approvals, the content and submission of forms and reports required to be filed
by ThermoRetec with the Commission, and its receipt of a fairness opinion from
Adams, Harkness & Hill.
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<PAGE>
Thermo Electron and the Merger Sub have made representations and warranties
in the Merger Agreement regarding, among other things, their organization and
good standing, authority to enter the Merger Agreement and consummate the
transactions contemplated thereby, adequacy of Thermo Electron's financial
resources to pay the Cash Merger Consideration, accuracy of information supplied
by Thermo Electron for submission on forms and reports required to be filed by
ThermoRetec with the Commission, and requisite governmental and other consents
and approvals.
The representations and warranties of the parties in the Merger Agreement
will expire upon consummation of the Merger. After such expiration, none of the
parties to the Merger Agreement or their respective officers, directors or
principals will have any liability for any such representations or warranties.
COVENANTS
In the Merger Agreement, ThermoRetec has agreed that during the period from
the date of the Merger Agreement and continuing until the earlier of termination
of the Merger Agreement or the Effective Time, ThermoRetec will carry on its
business in the usual, regular and ordinary course, substantially consistent
with past practice, will pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In the Merger Agreement, Thermo Electron has agreed that during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement or the Effective Time, Thermo Electron will,
except for such actions which are contemplated by the Merger Agreement or
certain other actions, carry on its business materially in the usual, regular
and ordinary course, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In addition, Thermo Electron
agreed that it will not, and will not permit any of its material subsidiaries
to, take any action which would make any of the representations and warranties
of Thermo Electron contained in the Merger Agreement untrue or cause Thermo
Electron not to be in compliance with any covenant in the Merger Agreement.
Thermo Electron has also agreed to give prompt notice to ThermoRetec of any
written offers or indications of interest that it receives from a prospective
purchaser of any material properties or assets of ThermoRetec or its
subsidiaries, which set forth a proposed purchase price greater than $3 million,
or in which the book value of the assets being sold is greater than $3 million,
other than sales of assets in the ordinary course of business.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the Surviving Corporation's Certificate
of Incorporation and Bylaws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in ThermoRetec's Certificate of Incorporation and Bylaws, and such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights of those individuals who, as of the date of the Merger Agreement and at
any time from the date of the Merger Agreement until the Effective Time, were
directors or officers of ThermoRetec, unless such modification is required by
law. The Surviving Corporation shall, and Thermo Electron will cause the
Surviving Corporation to, fulfill and honor in all respects
47
<PAGE>
the indemnification obligations of ThermoRetec, pursuant to ThermoRetec's
Certificate of Incorporation and Bylaws as in effect on the date of the Merger
Agreement.
In addition, Thermo Electron will cause the Surviving Corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for a period of six years after the Effective Time, a
directors' and officers' liability insurance policy covering the ThermoRetec
directors and officers who, on the date of the Merger Agreement, were then
covered by Thermo Electron's liability insurance policy, with coverage no less
favorable in amount and scope than such director's and officer's existing
coverage. However, in no event will the Surviving Corporation be required to pay
premiums for such insurance in excess of 175% of the current annual premiums, as
adjusted for inflation each year, allocable to and paid by ThermoRetec.
The Merger Agreement also provides that ThermoRetec will, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless Fred Holubow, the member of the
Special Committee, against all costs and expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to any action or omission in Mr. Holubow's capacity as a director
(including, without limitation, as a member of the Special Committee) or
fiduciary of ThermoRetec (including, without limitation, in connection with the
transactions contemplated by the Merger Agreement) occurring on, before or after
the Effective Time (or, if the Merger Agreement is terminated without the Merger
becoming effective, occurring on, before or after the date of such termination),
until the expiration of the statute of limitations relating thereto (and will
pay any expenses in advance of the final disposition of such action or
proceeding to Mr. Holubow to the fullest extent permitted under applicable law,
upon receipt from Mr. Holubow of an undertaking to repay such advances if it
shall ultimately be determined that Mr. Holubow is not entitled to be
indemnified against such expenses). If the Merger becomes effective, Thermo
Electron shall be jointly and severally responsible, to the fullest extent
permitted under applicable law (it being understood that applicable law may
permit Thermo Electron to indemnify or advance expenses to Mr. Holubow under
circumstances in which ThermoRetec could not do so), for the indemnification and
advancement of expenses obligations provided for in the immediately preceding
sentence. If the Merger does not become effective, Thermo Electron shall have
the same responsibilities set forth in the immediately preceding sentence,
except that Thermo Electron shall have no responsibility for indemnifying or
advancing expenses to Mr. Holubow with respect to matters that do not arise out
of or pertain to the work of the Special Committee, the Merger Agreement or the
transactions contemplated by the Merger Agreement. In the event of any such
claim, action, suit, proceeding or investigation covered by this paragraph,
(i) the Company, Thermo Electron and the Surviving Corporation, as the case may
be, will pay the reasonable fees and expenses of counsel selected by
Mr. Holubow, promptly after statements therefor are received and
(ii) ThermoRetec, Thermo Electron and the Surviving Corporation will cooperate
in the defense of any such matter; provided, however, that neither ThermoRetec
nor Thermo Electron nor the Surviving Corporation will be liable for any
settlement effected without Thermo Electron's prior written consent (such
consent not to be unreasonably withheld or delayed); and provided further that,
in the event any claim for indemnification is asserted or made within the period
prior to the expiration of the applicable statute of limitations, all rights to
indemnification in respect of such claim will continue until the disposition of
such claim. In connection with Thermo Electron or the Surviving Corporation
making any payment or advancing any funds as described in this paragraph, Thermo
Electron or the Surviving Corporation, as the case may be, will be entitled to
require Mr. Holubow to use commercially reasonable efforts at the cost and
expense of Thermo Electron and the Surviving Corporation, to cause Thermo
Electron or the Surviving Corporation, as the case may be, to be subrogated to
the rights of Mr. Holubow under any insurance coverage maintained by the
Surviving Corporation, Thermo Electron or any of their respective affiliates
with respect to the underlying subject matter of, and to the extent of, such
payment or advance.
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Heirs, representatives and estates of the officers and directors of
ThermoRetec (including Mr. Holubow) will have the right to enforce the
indemnification obligations arising under the Merger Agreement.
The rights of the officers and directors of ThermoRetec (including, without
limitation, Mr. Holubow) under the Merger Agreement are in addition to any
rights of such persons under separate indemnification agreements any such
persons may have with ThermoRetec and/or Thermo Electron, under the Certificate
of Incorporation or Bylaws of ThermoRetec or Thermo Electron or otherwise.
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in the
event that a director, by reason of his or her status as a director or officer
of ThermoRetec (or service as a director, officer or fiduciary of another
enterprise at the request of Thermo Electron), is made or threatened to be made
a party to any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative or investigative, if the
director acted in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of Thermo Electron, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. In the case of any threatened, pending or completed
action, suit or proceeding by or in the right of Thermo Electron,
indemnification shall be made to the maximum extent permitted under Delaware
law.
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the Effective Time, whether before or after adoption of
the Merger Agreement by the stockholders of ThermoRetec, the Merger Agreement
may be terminated by the mutual written consent of the board of directors of the
Merger Sub and the Board of Directors of ThermoRetec (upon approval of the
Special Committee).
In addition, either the Merger Sub or ThermoRetec (upon approval of the
Special Committee), in accordance with the provisions of the Merger Agreement,
may terminate the Merger Agreement prior to the Effective Time, whether before
or after adoption of the Merger Agreement by the stockholders of ThermoRetec, if
(i) the Merger has not been consummated by March 31, 2000 (in which case the
right of ThermoRetec to terminate shall be exercised as directed by the Special
Committee), unless such party's action or inaction constitutes a breach of the
Merger Agreement and has been a principal cause of or resulted in the failure of
the Merger to be consummated, (ii) a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission issues an order,
decree or ruling or takes any other action enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or action is final and
nonappealable or (iii) the approval of the stockholders of ThermoRetec necessary
to consummate the Merger has not been obtained, unless such party's action or
inaction constitutes a breach of the Merger Agreement and has been the principal
cause of or resulted in the failure to obtain the requisite stockholder approval
to consummate the Merger.
In addition, the Merger Sub may terminate the Merger Agreement prior to the
Effective Time, whether before or after adoption of the Merger Agreement by the
stockholders of ThermoRetec, if ThermoRetec breaches any representation,
warranty, covenant or agreement in any material respect and fails to cure such
breach within 10 business days after written notice of such breach from the
Merger Sub.
ThermoRetec may terminate the Merger Agreement prior to the Effective Time,
whether before or after adoption of the Merger Agreement by the stockholders of
ThermoRetec, if (i) the Special Committee determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's or the Special Committee's fiduciary duties under applicable law or
(ii) Thermo Electron or Merger Sub breaches any representation, warranty,
covenant or agreement in any material respect and fails to cure such breach
within 10 business days after written notice of such breach from ThermoRetec.
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Subject to the provisions of applicable law, the Merger Agreement may be
amended by the parties thereto at any time by written agreement of the parties;
provided, however, that ThermoRetec may not amend the Merger Agreement or waive
any term thereunder without the approval of the Special Committee.
There is no termination fee payable by either party in the event that the
Merger Agreement is terminated.
SOURCE OF FUNDS
The aggregate consideration payable in the Merger is approximately
$65.4 million (including $38.7 million for the redemption of the 4 7/8%
Debentures). Thermo Electron intends to finance the Merger entirely from cash on
hand.
EXPENSES
The parties have agreed to pay their own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby. Assuming
the Merger is consummated, the estimated costs and fees in connection with the
Merger and the related transactions that will be paid by ThermoRetec are as
follows:
<TABLE>
<CAPTION>
COST OR FEE ESTIMATED AMOUNT
- ----------- ----------------
<S> <C>
Financial advisory fees..................................... $137,500
Legal fees.................................................. 100,000
Accounting fees............................................. 15,000
Special Committee fees...................................... 50,000
Printing and mailing fees................................... 100,000
Commission filing fees...................................... 5,395
Other regulatory filing fees................................ 5,000
Miscellaneous............................................... 37,105
--------
$450,000
</TABLE>
See "SPECIAL FACTORS--Opinion of Adams, Harkness & Hill" for a description
of the fees to be paid to Adams, Harkness & Hill in connection with its
engagement. For a description of certain fees payable to the member of the
Special Committee, see "SPECIAL FACTORS--Conflicts of Interest."
ACCOUNTING TREATMENT
The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained that
have not already been obtained, nor any regulatory requirements complied with,
in connection with the consummation of the Merger by any party to the Merger
Agreement, except for (i) the requirements of the DGCL in connection with
stockholder approvals and consummation of the Merger and (ii) the requirements
of the federal securities laws.
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RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Court of Chancery of the State of Delaware and to receive payment of the
fair value of such shares together with a fair rate of interest, if any, as
determined by such court. The fair value as determined by the Delaware court is
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. The following is a summary of certain of the provisions of
Section 262 of the DGCL and is qualified in its entirety by reference to the
full text of Section 262, a copy of which is attached hereto as Appendix C.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 calendar days prior to the meeting, the Company must
notify each of the holders of Common Stock at the close of business on the
Record Date that such appraisal rights are available and include in each such
notice a copy of Section 262. This Proxy Statement constitutes such notice. Any
stockholder wishing to exercise appraisal rights should review the following
discussion and Appendix C carefully because failure to timely and properly
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights must
deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. Such demand will be sufficient if it reasonably
informs the Company of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the Merger Agreement will not constitute such a demand. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must hold of record
such shares on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and wish to exercise appraisal rights should
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to Sandra L. Lambert,
Secretary, ThermoRetec Corporation, c/o Thermo Electron Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, so as to be received
before the vote on the approval and adoption of the Merger Agreement at the
Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker holding
Common Stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought and where no number of shares is
expressly mentioned the demand will be presumed to cover all Common Stock held
in the name of the record owner.
Within 10 calendar days after the Effective Time, the Company, as the
Surviving Corporation in the Merger, must send a notice as to the effectiveness
of the Merger to each person who has satisfied the appropriate provisions of
Section 262 and who has not voted in favor of the Merger Agreement. Within
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120 calendar days after the Effective Time, the Company, or any stockholder
entitled to appraisal rights under Section 262 and who has complied with the
foregoing procedures, may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of the shares of all such
stockholders. The Company is not under any obligation, and has no present
intention, to file a petition with respect to the appraisal of the fair value of
the shares of Common Stock. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262.
Within 120 calendar days after the Effective Time, any stockholder of record
who has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of shares of Common Stock with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. Such statement must be mailed within 10 calendar days after a
written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the fair value of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Common
Stock as determined under Section 262 could be more than, the same as or less
than the amount per share that they would otherwise receive if they did not seek
appraisal of their shares of Common Stock. The Delaware Supreme Court has stated
that "proof of value by any techniques or methods that are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy. The Court will also determine
the amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of Common Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts used in the appraisal proceeding, be charged pro
rata against the value of all the shares of Common Stock entitled to appraisal.
The Court may require stockholders who have demanded an appraisal and who
hold Common Stock represented by certificates to submit their certificates of
Common Stock to the Court for notation thereon of the pendency of the appraisal
proceedings. If any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares of Common Stock as of
a date prior to the Effective Time).
If any stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive the Cash Merger Consideration in accordance
with the Merger Agreement, without interest. A stockholder will fail to perfect,
or effectively lose, the right to appraisal if no petition for appraisal is
filed within 120 calendar days after the Effective Time. A stockholder may
withdraw a demand for appraisal by delivering to the Company a written
withdrawal of the demand for appraisal and acceptance of the Merger, except that
any such attempt to withdraw made more than 60 calendar days after the Effective
Time will require the written approval of the Company.
52
<PAGE>
Once a petition for appraisal has been filed, such appraisal proceeding may not
be dismissed as to any stockholder without the approval of the Court.
For federal income tax purposes, stockholders who receive cash for their
shares of Common Stock upon exercise of Dissenters' Rights will realize taxable
gain or loss. See "FEDERAL INCOME TAX CONSEQUENCES."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the holders of Common Stock as described herein. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States and
holders who acquired their stock through the exercise of an employee stock
option or otherwise as compensation. In addition, the following discussion does
not include any discussion of any state, local or foreign tax consequences that
may result from the Merger.
THIS TAX DISCUSSION IS BASED UPON PRESENT UNITED STATES FEDERAL INCOME TAX
LAW. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
For federal income tax purposes, the receipt of the Cash Merger
Consideration in the Merger by holders of Common Stock will be treated as a
taxable sale of the holder's Common Stock. Each holder's gain or loss per share
will equal the difference between $7.00 and the holder's basis in the share of
Common Stock. Such gain or loss generally will be a capital gain or loss
provided that the holder has held the Common Stock as a capital asset. Capital
gain or loss will be treated as long-term capital gain or loss if the holder has
held the Common Stock for more than one year, and will be treated as short-term
capital gain or loss if the holder has held the Common Stock for one year or
less.
A holder of Common Stock may be subject to backup withholding at the rate of
31% with respect to Cash Merger Consideration received pursuant to the Merger,
unless the holder (a) is a corporation or comes within certain other exempt
categories and, when required, adequately demonstrates this fact, or
(b) provides a correct taxpayer identification number ("TIN"), certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. To prevent the
possibility of backup withholding, each holder must provide the Payment Agent
with his or her correct TIN by completing a Form W-9 or Substitute Form W-9 or,
in the case of exempt foreign persons, with certain other information by
completing the appropriate Form W-8 or Substitute Form W-8. A holder of Common
Stock who does not provide the above information may be subject to penalties
imposed by the Internal Revenue Service (the "IRS"), as well as backup
withholding. Any amount withheld under these rules will be creditable against
the holder's federal income tax liability. Thermo Electron (or its agent) will
report to the holders of Common Stock and the IRS the amount of any "reportable
payments," as defined in Section 3406 of the Code, and the amount of tax, if
any, withheld with respect thereto.
Neither the Company, Merger Sub, Thermo TerraTech nor Thermo Electron will
recognize gain or loss for federal income tax purposes as a result of the
Merger.
53
<PAGE>
BUSINESS OF THE COMPANY
OVERVIEW
ThermoRetec is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues.
The Company also performs the cleanup of hazardous waste sites for government
and industry as a prime construction contractor and completes predesigned
remedial action contracts at sites containing hazardous, toxic, and radioactive
wastes. The Company develops and implements management and computer-based
systems that aid in the collection and application of environmental data,
helping to establish or improve a customer's environmental-compliance programs
while controlling related costs.
The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production.
Through the Company's Soil Remediation segment, the Company designs and
operates facilities for the remediation of nonhazardous soil. The Company also
designs and operates mobile equipment for the on-site remediation of such
wastes. During fiscal 1999, the Company announced plans to close two
soil-recycling facilities, one of which closed in March 1999. The Company is
actively seeking a buyer for the other soil-recycling facility. In May 1999, the
Company announced plans to sell three additional soil-recycling facilities. For
the fiscal year ended April 3, 1999, revenues and operating income from these
businesses totaled $8.0 million and $0.4 million, respectively.
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids.
The Company was incorporated in November 1991 as an indirect, wholly owned
subsidiary of Thermo TerraTech. On October 1, 1993, pursuant to a
reorganization, Thermo TerraTech contributed to the Company certain additional
assets and liabilities pertaining to its soil-remediation business.
CONSULTING AND ENGINEERING
The Company provides environmental consulting and remediation construction
management to clients in the transportation, refining, chemical, wood-treating,
gas, and electric utility industries across the nation. Through its consulting,
engineering, and on-site services, the Company offers a broad array of remedial
solutions, all of which are applied from a risk-management perspective, to help
clients manage problems associated with environmental compliance, resource
management, and the remediation of industrial sites contaminated with various
wastes and residues. The Company provides particular expertise in bioremediation
and in managing wastes from manufactured-gas plants, refineries, and railroad
properties.
The Company also performs cleanups of hazardous waste sites for government
and industry as a prime construction contractor and completes predesigned
remedial action contracts at sites containing hazardous, toxic, and radioactive
wastes. Under contracts with federal and state governments, and other public and
private sector clients, the Company also provides project management and
construction services for the remediation of hazardous and nonhazardous wastes.
Most of this contract work is obtained through a bid process, with the job being
awarded to the best qualified bidder.
54
<PAGE>
In addition, the Company helps public utilities, government institutions,
and Fortune 500 companies develop and implement management and computer-based
systems that aid in the collection and application of environmental and
resource-management data. By helping to establish or improve a customer's
environmental-compliance program, the Company's customized services promote and
support the integration of environmental-management functions with everyday
business activities. The Company's services help multinational companies
accurately estimate and control the cost of their environmental-compliance and
health and safety efforts. The Company also develops measurement systems that
track clients' progress toward their stated environmental performance goals.
Revenues from the Consulting and Engineering segment represented
approximately 52%, 60% and 57% of the Company's total revenues in fiscal 1999,
1998 and 1997, respectively. See Note 14 to the Company's Consolidated Financial
Statements included elsewhere within this Proxy Statement for financial
information relating to business segments and geographical information.
NUCLEAR REMEDIATION
The Company provides services to remove radioactive contaminants from sand,
gravel, and soil, as well as health physics services, radiochemistry laboratory
services, radiation dosimetry services, radiation-instrument calibration and
repair services, and radiation-source production. As part of its radiation and
nuclear/health physics services business, the Company provides site surveys for
radioactive materials and on-site samples, as well as analysis in support of
decontamination programs and dosimetry services to measure personnel exposure.
In addition, using its proprietary segmented-gate system technology, the Company
removes radioactive contaminants from sand, gravel, and soil. A substantial part
of the Company's health physics services has been performed under the U.S.
Department of Energy's remedial action programs.
Revenues from the Nuclear Remediation segment represented approximately 25%,
21% and 20% of the Company's total revenues in fiscal 1999, 1998 and 1997,
respectively. See Note 14 to the Company's Consolidated Financial Statements
included elsewhere within this Proxy Statement for financial information
relating to business segments and geographical information.
SOIL REMEDIATION
The Company designs and operates facilities for the remediation of
nonhazardous soil. The Company's soil-remediation centers are environmentally
secure facilities for receiving, storing, and processing petroleum-contaminated
soils. Each site consists principally of a soil-remediation unit and a
soil-storage area. The Company currently provides soil-remediation services at
facilities in California, Oregon, Washington, Maryland, and New York.
The market for remediation of petroleum-contaminated soils, as with many
other waste markets, was created by environmental regulations. The market for
soil-remediation services has been driven largely by state programs to enforce
the Environmental Protection Agency's underground storage tank ("UST")
regulations and to fund cleanups. UST compliance requirements and attendant
remediation costs are often beyond the financial capabilities of individuals and
smaller companies. To address this problem, some states established
tax-supported trust funds to assist in the financing of UST compliance and
remediation. Many states have realized that the number of sites requiring
remediation and the costs of compliance are substantially higher than were
originally estimated. As a result, several states have significantly reduced
compliance requirements and altered regulatory approaches and standards in order
to reduce the costs of cleanup. More lenient regulatory standards, reduced
enforcement, and uncertainty with respect to such changes have resulted in lower
levels of cleanup activity in most states where the Company conducts business,
which had a material adverse effect on the Company's business in recent years.
Although the Company expects this market to remain viable for some time after
April 3, 1999, there can be no assurance that this business will not decline in
future years. In May 1999, the Company announced plans to sell three
55
<PAGE>
additional soil-recycling facilities. In addition, underground and aboveground
tank regulations, clean water legislation, and real estate transfer and
financing transactions also influence demand for soil-remediation services.
Revenues from the Soil Remediation segment represented approximately 17%,
14% and 19% of the Company's total revenues in fiscal 1999, 1998 and 1997,
respectively. See Note 14 to the Company's Consolidated Financial Statements
included elsewhere within this Proxy Statement for financial information
relating to business segments and geographical information.
FLUIDS RECYCLING
The Company offers a full spectrum of environmental services related to
managing and recycling non-hazardous, liquid, and solid materials generated by
business and industry. The Company's client base is largely public retail and
industrial businesses, but also includes municipalities, public utilities,
railroads, the mining industry, and government agencies. The materials managed
by the Company for its customers primarily are used oils and oil-contaminated
waters, which are continuously generated as part of the customers' operations.
As such, the Company provides services for its customers on a recurring basis.
The Company processes the materials it collects into products for resale and/or
recycling, such as fuel, glycol, steel, and clean water. The Company has
expanded its services to include a variety of field technical services,
including on-site waste sampling and testing, emergency response, and tank
cleaning.
The Company currently operates from eight permitted facilities located in
Arizona, New Mexico, Nevada, Colorado, Utah, Idaho, and Oregon. Each facility
serves distinctive local markets, and utilizes its own fleet of mobile equipment
to facilitate liquid waste collection and the delivery of finished recycled
products.
Revenues from the Fluids Recycling segment represented approximately 7%, 5%
and 5% of the Company's total revenues in fiscal 1999, 1998 and 1997,
respectively. See Note 14 to the Company's Consolidated Financial Statements
included elsewhere within this Proxy Statement for financial information
relating to business segments and geographical information.
PROPERTIES
The location and general character of the Company's properties by segment as
of April 3, 1999, are as follows.
CONSULTING AND ENGINEERING
The Company occupies approximately 112,000 square feet pursuant to leases
expiring in fiscal 2000 through 2003, primarily in Colorado, Pennsylvania,
Massachusetts, Washington, Texas, Indiana, and North Carolina, from which it
provides environmental construction and remediation construction management
services.
NUCLEAR REMEDIATION
The Company leases approximately 26,000 square feet pursuant to leases
expiring in fiscal 2000 through 2001 in New Mexico and Tennessee, and owns
approximately 33,500 square feet in New Mexico and California, from which it
provides nuclear remediation services.
SOIL REMEDIATION
The Company owns approximately 72 acres in Maryland, California, and Oregon,
from which it provides soil-remediation services. The Company occupies
approximately 20 acres in New York, Washington, and South Carolina, pursuant to
leases expiring in fiscal 2000 through 2006, from which it provides
56
<PAGE>
soil-remediation services. The Company also occupies approximately 12,000 square
feet of office and engineering space in Florida, pursuant to a lease expiring in
fiscal 2000.
FLUIDS RECYCLING
The Company owns approximately 50,000 square feet in Idaho and Arizona and
occupies an aggregate of approximately six acres on a site in Arizona and on a
site in Nevada pursuant to leases expiring in fiscal 2003, upon which it has
constructed fluids storage and processing equipment.
The Company believes that these facilities are suitable and adequate for its
present operations. With respect to leases expiring in the near future, in the
event the Company does not renew such leases, the Company believes suitable
alternate space is available for lease on acceptable terms.
57
<PAGE>
SELECTED FINANCIAL INFORMATION AND
RATIO OF EARNINGS (LOSS)
TO FIXED CHARGES
The selected financial information presented below as of and for the fiscal
years ended April 3, 1999, and April 4, 1998, and for the fiscal year ended
March 29, 1997, has been derived from ThermoRetec's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into this
Proxy Statement. The selected financial information presented below as of
March 29, 1997, and as of and for the fiscal years ended March 30, 1996, and
April 1, 1995, has been derived from ThermoRetec's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, but have not been
included or incorporated by reference herein. This information should be read in
conjunction with ThermoRetec's Consolidated Financial Statements and related
notes incorporated by reference into this Proxy Statement. The selected
financial information for the six months ended October 2, 1999, and October 3,
1998, has not been audited but, in the opinion of ThermoRetec, includes all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly such information in accordance with generally accepted accounting
principles applied on a consistent basis. The results of operations for the six
months ended October 2, 1999, are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------- FISCAL YEAR (1)
OCTOBER 2, OCTOBER 3, ----------------------------------------------------
1999 (2) 1998 (3) 1999 (3) 1998 (4) 1997 (5) 1996 (6) 1995
---------- ---------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 74,409 $ 69,556 $141,946 $128,409 $114,849 $ 66,957 $51,504
Net Income (Loss)............... (3,665) (4,835) (3,861) 240 (2,681) 5,444 3,643
Earnings (Loss) per Share:
Basic......................... (.27) (.37) (.29) .02 (.21) .44 .36
Diluted....................... (.27) (.37) (.29) .02 (.21) .42 .35
BALANCE SHEET DATA (AT END OF
PERIOD):
Working Capital................. $ 3,112 $ 33,935 $ 36,974 $ 29,941 $ 38,960 $ 46,343 $ 3,384
Total Assets.................... 136,297 135,278 141,174 140,311 136,114 135,802 79,156
Long-term Subordinated
Convertible Obligations....... 2,650 40,600 40,600 40,600 40,600 40,600 2,650
Shareholders' Investment........ 65,282 69,197 70,281 74,467 74,830 83,352 60,320
OTHER DATA (UNAUDITED):
Book Value per Share............ $ 4.80 $ 5.26 $ 5.19 $ 5.76 $ 5.96 $ 6.51 $ 5.91
Cash Dividends Declared per
Share......................... -- -- .20 .20 .20 .20 .20
RATIO OF EARNINGS (LOSS) TO
FIXED CHARGES (UNAUDITED) (7):
Ratio........................... N/A N/A N/A 1.57x
Fixed Charges Coverage
Deficiency.................... $ 5,204 $ 6,853 $ 4,906 $ --
</TABLE>
- ------------------------
(1) ThermoRetec's 1999, 1998, 1997, 1996, and 1995 fiscal years ended April 3,
1999, April 4, 1998, March 29, 1997, March 30, 1996, and April 1, 1995,
respectively.
(2) Reflects a $9.6 million pretax charge for restructuring costs.
(3) Reflects a $9.2 million pretax charge for restructuring costs.
(FOOTNOTES CONTINUED ON NEXT PAGE)
58
<PAGE>
(4) Reflects the November 1997 acquisition of Benchmark Environmental
Corporation, the August 1997 acquisition of RPM Systems, Inc., and the
May 1997 acquisition of TriTechnics Corporation and includes a pretax gain
of $3.0 million from the sale of an investment in a joint venture.
(5) Reflects the September 1996 acquisition of IEM Sealand Corporation and
$7.8 million of pretax restructuring costs.
(6) Reflects the May 1995 issuance of $38 million principal amount of 4 7/8%
subordinated convertible debentures and a private placement of 500,000
shares of common stock for net proceeds of $6.6 million. Also reflects the
December 1995 acquisition of Remediation Technologies, Inc.
(7) For purposes of computing the ratios of earnings to fixed charges,
"earnings" represents income before income taxes, plus fixed charges, and
"loss" represents loss before income taxes, plus fixed charges. "Fixed
charges" consist of interest on indebtedness and one-third of rental
expense, which is deemed to be the interest component of such rental
expense.
59
<PAGE>
CERTAIN PROJECTED FINANCIAL DATA
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in order to
aid the evaluation of the Company by the Special Committee and Adams,
Harkness & Hill and Adams, Harkness & Hill's assessment of the fairness, from a
financial point of view as of the date of its opinion, of the consideration of
$7.00 per share in cash payable to the Public Stockholders pursuant to the
Merger Agreement, the Company, in July 1999, furnished the Special Committee and
Adams, Harkness & Hill with certain projections (the "Projections") prepared by
the Company's management. The following summary of the Projections is included
in this Proxy Statement solely because the Projections were made available to
such parties. The Projections do not reflect any of the effects of the Merger or
other changes that may in the future be deemed appropriate concerning the
Company and its assets, business, operations, properties, policies, corporate
structure, capitalization and management in light of the circumstances then
existing. The Company has not updated the Projections to reflect changes that
have occurred since their preparation.
The Projections were not prepared with a view toward public disclosure or
compliance with published guidelines of the Commission or the American Institute
of Certified Public Accountants regarding forward-looking information or
generally accepted accounting principles. Neither the Company's independent
auditors, nor any other independent accountants, have compiled, examined or
performed any procedures with respect to the prospective financial information
contained in the Projections, nor have they expressed any opinion or given any
form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, such prospective
financial information. Furthermore, the Projections necessarily make numerous
assumptions, some (but not all) of which are set forth below and many of which
are beyond the control of the Company and may prove not to have been, or may no
longer be, accurate. Additionally, this information, except as otherwise
indicated, does not reflect revised prospects for the Company's businesses,
changes in general business and economic conditions, or any other transaction or
event that has occurred or that may occur and that was not anticipated at the
time such information was prepared. Accordingly, such information is not
necessarily indicative of current values or future performance, which may be
significantly more favorable or less favorable than as set forth below, and
should not be regarded as a representation that they will be achieved.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF THE
COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF
THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND THE
COMPANY'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS WILL BE REALIZED OR THAT THE COMPANY'S FUTURE FINANCIAL RESULTS WILL
NOT MATERIALLY VARY FROM THE PROJECTIONS. THE COMPANY DOES NOT INTEND TO UPDATE
OR REVISE THE PROJECTIONS.
The Projections included herein have been prepared by the Company based upon
management's estimates of the total market for its services and the Company's
own performance through 2003, as well as the impact on the Company's financial
results of the completion of the announced sales of three soil recycling
facilities. The projected results for calendar 1999 set forth in the Projections
were based upon actual results through April 3, 1999 and management forecasts
for the remainder of the year. The Projections do not reflect any material
changes to the business of ThermoRetec that have not been disclosed elsewhere in
this Proxy Statement.
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PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR YEAR
----------------------------------------------------
1999 (P) 2000 (P) 2001 (P) 2002 (P) 2003 (P)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.................................. $144,725 $144,127 $153,830 $168,056 $183,752
Costs and Operating Expenses:
Cost of revenues........................ 119,531 118,698 127,043 139,200 151,954
Selling, general, and administrative
expenses.............................. 17,124 16,259 16,398 17,082 18,235
Restructuring costs..................... 9,650 -- -- -- --
-------- -------- -------- -------- --------
146,305 134,957 143,441 156,282 170,189
-------- -------- -------- -------- --------
Operating Income (Loss)................... (1,580) 9,170 10,389 11,774 13,563
Interest Income........................... 1,019 1,216 1,189 1,364 1,464
Interest Expense.......................... (2,168) (2,342) (2,307) (2,200) (2,200)
-------- -------- -------- -------- --------
Income (Loss) Before Income Taxes......... (2,729) 8,044 9,271 10,938 12,827
Income Tax Provision (Benefit)............ (305) 3,624 4,115 4,782 5,537
-------- -------- -------- -------- --------
Net Income (Loss)......................... $ (2,424) $ 4,420 $ 5,156 $ 6,156 $ 7,290
======== ======== ======== ======== ========
SELECTED BALANCE SHEET DATA:
Accounts Receivable, Net.................. $ 30,275 $ 30,079 $ 29,119 $ 30,085 $ 32,841
Unbilled Contract Costs and Fees.......... 7,705 7,794 7,380 7,881 8,467
Prepaid Income Taxes and Other Current
Assets.................................. 3,373 3,495 3,595 3,665 3,730
-------- -------- -------- -------- --------
Total Current Assets Excluding Cash and
Investments............................. 41,353 41,368 40,094 41,631 45,038
Property, Plant, and Equipment:
Balance, beginning of year.............. 29,923 20,487 17,187 16,642 16,263
Additions............................... 6,167 3,744 3,909 4,190 4,075
Depreciation expense.................... (5,193) (4,357) (4,454) (4,569) (4,264)
Sales and retirements................... (10,410) (2,687) -- -- --
-------- -------- -------- -------- --------
Balance, end of year.................... 20,487 17,187 16,642 16,263 16,074
Cost in Excess of Net Assets of Acquired
Companies............................... 34,871 33,793 32,715 31,637 30,559
</TABLE>
61
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MANAGEMENT
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Robert W. Dunlap.......................... 62 President, Chief Executive Officer and
Director
Theo Melas-Kyriazi........................ 40 Chief Financial Officer and Director
Paul F. Kelleher.......................... 57 Chief Accounting Officer
Nels R. Johnson........................... 48 Vice President
Jeffrey L. Powell......................... 40 Senior Vice President
John P. Appleton.......................... 64 Chairman of the Board and Director
Elias P. Gyftopoulos...................... 72 Director
Brian D. Holt............................. 50 Director
Fred Holubow.............................. 60 Director
Frank E. Morris........................... 75 Director
William A. Rainville...................... 57 Director
</TABLE>
All of the Company's directors are elected annually by the stockholders and
hold office until their respective successors are duly elected and qualified.
Executive officers are elected annually by the Board of Directors and serve at
its discretion. Unless otherwise noted, the business address of each executive
officer and director of the Company is 9 Pond Lane, Suite 5A, Concord,
Massachusetts 01742-2851, and each of such persons is a citizen of the United
States.
Robert W. Dunlap has been 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.
Theo Melas-Kyriazi has been a director of the Company since 1992 and was
appointed chief financial officer of the Company, Thermo TerraTech and Thermo
Electron on January 1, 1999. Mr. Melas-Kyriazi joined Thermo Electron in 1986 as
assistant treasurer, and became treasurer in May 1988. He was named president
and chief executive officer of ThermoSpectra Corporation, a subsidiary and
affiliate of Thermo Electron, in August 1994, a position he held until becoming
vice president of corporate strategy for Thermo Electron in March 1998.
Mr. Melas-Kyriazi remains a vice president of Thermo Electron.
Mr. Melas-Kyriazi is a citizen of Greece. Mr. Melas-Kyriazi's business address
is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
Paul F. Kelleher has been the chief accounting officer of the Company since
its inception in 1993. He has been senior vice president, finance and
administration, of Thermo Electron since June 1997, and served as its vice
president, finance from 1987 until 1997. Mr. Kelleher served as Thermo
Electron's controller from 1982 until January 1996. He is a director of
ThermoLase Corporation, an affiliate of Thermo Electron. Mr. Kelleher also
serves as the chief accounting officer of Thermo TerraTech. Mr. Kelleher's
business address is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046.
Nels R. Johnson has been vice president of the Company since 1995. He has
served as president of the Company's Thermo Nutech business since 1988.
Mr. Johnson's business address is 4501 Indian School Road, N.E., Albuquerque,
New Mexico 87110.
Jeffrey L. Powell served as president of the Company from its inception in
1993 until April 1998, and as its chief executive officer from May 1997 until
April 1998, when he was named senior vice president. He is also a vice president
of Thermo TerraTech.
John P. Appleton 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 to May 1997. Dr. Appleton has been president and chief executive
officer of Thermo TerraTech since September 1993, and has served as a
62
<PAGE>
vice president of Thermo Electron since 1975 in various managerial capacities.
He also serves as a director of Randers/Killam. and Thermo TerraTech and as
president and director of the Merger Sub. Dr. Appleton's business address is 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
Elias P. Gyftopoulos has been a director of the Company since 1994. He is
Professor Emeritus at The Massachusetts Institute of Technology, where he was
the Ford Professor of Mechanical Engineering and of Nuclear Engineering for more
than 20 years until his retirement in 1996. Dr. Gyftopoulos is also a director
of Thermo Electron and the following affiliates of Thermo Electron: Thermo
BioAnalysis Corporation, Thermo Cardiosystems Inc., ThermoLase Corporation and
Trex Medical Corporation. His business address is The Massachusetts Institute of
Technology, Room 24-109, 77 Massachusetts Avenue, Cambridge, Massachusetts
02139.
Brian D. Holt became a director of the Company in November 1998. Mr. Holt
has been chief operating officer, environment and energy, of Thermo Electron
since September 1998. He has also been the president and chief executive officer
of Thermo Ecotek Corporation, a majority-owned subsidiary and affiliate of
Thermo Electron, since February 1994, and has been a director of Thermo Ecotek
Corporation since January 1995. For more than five years prior to his
appointment as an officer of Thermo Ecotek Corporation, he was the president and
chief executive officer of Pacific Generation Company, a financier, builder,
owner and operator of independent power facilities. Mr. Holt is also a director
of the following affiliates of Thermo Electron: Randers/Killam and Thermo
TerraTech. His business address is 245 Winter Street, Suite 300, Waltham,
Massachusetts 02451.
Fred Holubow 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. Mr. Holubow's business address is Pegasus Associates, 2
North LaSalle Street, Suite 400, Chicago, Illinois 60602.
Frank E. Morris 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. Dr. Morris is a trustee of SEI
Mutual Funds, The Capitol Mutual Funds, FFB Lexicon Funds and The Arbor Fund.
Dr. Morris' business address is 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02454-9046.
William A. Rainville has been a director of the Company since June 1993.
Mr. Rainville has been president and chief executive officer of Thermo
Fibertek Inc., a majority-owned subsidiary and affiliate of Thermo Electron,
since its inception in 1991, a senior vice president of Thermo Electron since
March 1993 and a vice president of Thermo Electron from 1986 to 1993. From 1984
until January 1993, Mr. Rainville was the president and chief executive officer
of Thermo Electron Web Systems Inc., a subsidiary of Thermo Fibertek Inc.
Mr. Rainville is also a director of Thermo Ecotek Corporation, Thermo
Fibergen Inc., Thermo Fibertek Inc. and Thermo TerraTech, all affiliates of
Thermo Electron. Mr. Rainville's business address is 245 Winter Street, Waltham,
Massachusetts 02451.
63
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of October 2, 1999 with respect to the only person
that was known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS NUMBER OF SHARES SHARES BENEFICIALLY
OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ------------------- ------------------ -------------------------
<S> <C> <C>
Thermo Electron Corporation(1)......................... 10,255,548 72.7%
81 Wyman Street
Waltham, MA 02454-9046
</TABLE>
- ------------------------
(1) Thermo Electron beneficially owned 72.7% of the Common Stock outstanding as
of October 2, 1999, of which approximately 70.3% is owned through Thermo
TerraTech and approximately 3.7% is owned directly. Thermo Electron, through
Thermo TerraTech, has the power to elect all of the members of the Company's
Board of Directors. After the Merger, Thermo Electron will beneficially own
100% of the outstanding Common Stock.
MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo TerraTech and Thermo Electron, as of
October 2, 1999, with respect to (i) each director of the Company, (ii) the
chief executive officer of the Company and other executive officers of the
Company and (iii) all directors and current executive officers as a group.
While certain directors and executive officers of the Company are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the shares
of Common Stock owned by Thermo TerraTech or by Thermo Electron, as the case may
be.
<TABLE>
<CAPTION>
THERMORETEC THERMO TERRATECH THERMO ELECTRON
CORPORATION(2) INC.(3) CORPORATION(4)
----------------------- ----------------------- -----------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
NAME(1) SHARES OF CLASS SHARES OF CLASS SHARES OF CLASS
- ------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John P. Appleton................................. 73,000 * 305,939 1.6 154,433 *
Robert W. Dunlap................................. 103,842 * 40,200 * 13,855 *
Elias P. Gyftopoulos............................. 31,577 * 1,540 * 71,204 *
Brian D. Holt.................................... 0 * 250,000 1.3 287,243 *
Fred Holubow..................................... 60,899 * 16,500 * 6,000 *
Nels R. Johnson.................................. 37,688 * 17,958 * 19,238 *
Paul F. Kelleher................................. 23,000 * 11,197 * 203,505 *
Theo Melas-Kyriazi............................... 0 * 618 * 309,245 *
Frank E. Morris.................................. 34,115 * 1,500 * 13,290 *
Jeffrey L. Powell................................ 121,000 * 56,635 * 38,707 *
William A. Rainville............................. 24,000 * 60,000 * 357,259 *
All directors and current executive officers as a
group (11 persons)............................. 509,121 3.7 762,087 4.0 1,473,979 *
</TABLE>
- ------------------------------
* Reflects ownership of less than 1.0% of the outstanding common stock.
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
64
<PAGE>
(2) The shares of Common Stock beneficially owned by Dr. Appleton, Dr. Dunlap,
Dr. Gyftopoulos, Mr. Holubow, Mr. Johnson, Dr. Morris, 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, 26,450, 111,000, 22,500 and
339,250 shares, respectively, that such person or group had the right to
acquire within 60 days of October 2, 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 977, 8,067, 7,665, and 16,709 shares, respectively, allocated
through October 2, 1999, to their respective accounts maintained under the
Company's 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. No director or current
executive officer beneficially owned more than 1.0% of the Common Stock
outstanding as of October 2, 1999; all directors and current executive
officers as a group beneficially owned 4.3% 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, Mr. Holt, Mr. Johnson, Dr. Morris, Mr. Powell,
Mr. Rainville and all directors and current executive officers as a group
include 275,000, 18,000, 250,000, 17,000, 1,500, 28,000, 60,000 and 654,500
shares, respectively, that such person or group had the right to acquire
within 60 days of October 2, 1999, through the exercise of stock options.
Shares of the common stock of Thermo TerraTech beneficially owned by
Dr. Appleton, Mr. Melas-Kyriazi and all directors and executive officers as
a group include 305, 299 and 907 shares, respectively, allocated through
October 2, 1999, to their respective accounts maintained pursuant to Thermo
Electron's employee stock ownership plan (the "ESOP"), of which the
trustees, who have investment power over its assets, are executive officers
of Thermo Electron. Shares of Common Stock beneficially owned by
Mr. Holubow and all directors and current executive officers as a group
include warrants to purchase 16,500 shares. Other than Dr. Appleton and
Mr. Holt, who owned approximately 1.6% and 1.3%, respectively, of the common
stock of Thermo TerraTech outstanding as of October 2, 1999, no director or
current executive officer beneficially owned more than 1.0% of the common
stock of Thermo TerraTech outstanding as of October 2, 1999; all directors
and current executive officers as a group beneficially owned approximately
4.1% of the common stock of Thermo TerraTech outstanding as of such date.
(4) The shares of the common stock of Thermo Electron beneficially owned by
Dr. Appleton, Dr. Dunlap, Dr. Gyftopoulos, Mr. Holt, Mr. Johnson,
Mr. Kelleher, Mr. Melas-Kyriazi, Mr. Morris, Mr. Powell, Mr. Rainville and
all directors and current executive officers as a group include 116,902,
13,000, 8,625, 284,250, 13,135, 170,587, 270,074, 7,625, 31,050, 291,137 and
1,206,455 shares, respectively, that such person or group had the right to
acquire within 60 days of October 2, 1999, through the exercise of stock
options. Shares of the common stock of Thermo Electron beneficially owned by
Dr. Appleton and all directors and current executive officers as a group
include 1,615 and 4,112 shares, respectively, allocated through October 2,
1999, to accounts maintained pursuant to the ESOP. Shares beneficially owned
by Dr. Morris and all directors and current executive officers as a group
include 3,415 shares owned by Dr. Morris' spouse. No director or current
executive officer beneficially owned more than 1.0% of the common stock of
Thermo Electron outstanding as of October 2, 1999; all directors and current
executive officers as a group did not beneficially own more than 1.0% of the
common stock of Thermo Electron outstanding as of such date.
CERTAIN TRANSACTIONS
Thermo Electron has, from time to time, caused certain subsidiaries to sell
minority interests to investors, resulting in several majority-owned private and
publicly held subsidiaries. Thermo TerraTech 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
65
<PAGE>
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 general legal advice and services, risk management, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and certain 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 1998 and 1999. The annual fee will remain at 0.8% of the
Company's total revenues for fiscal 2000. The fee is reviewed annually and may
be changed by mutual agreement of the Company and Thermo Electron. During fiscal
1998, 1999 and the six months ended October 2, 1999, Thermo Electron assessed
the Company $1,220,000, $1,136,000 and $595,000, respectively, in fees under the
Services Agreement. 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 1998, 1999 and the six months ended October 2, 1999,
the Company was billed an additional $35,000, $122,000 and $21,000,
respectively, by Thermo Electron for certain administrative services required by
the Company that were not covered by the Services Agreement. The Services
Agreement automatically renews for successive one-year terms, unless canceled by
the Company upon 30 days' prior notice. In addition, the Services Agreement
terminates automatically in the event the Company ceases to be a member of the
Thermo Group or ceases to be a participant in the Charter. In the event of a
termination of the Services Agreement, the Company will be required to pay a
termination fee equal to the fee that was paid by the Company for services under
the Services Agreement for the nine-month period prior to termination. Following
termination, Thermo Electron may provide certain administrative services on an
as-requested basis by the Company or as required in order to meet the Company's
obligations under Thermo Electron's policies and procedures. Thermo Electron
will charge the Company a fee equal to the market rate for comparable services
if such services are provided to the Company following termination.
66
<PAGE>
The Company currently has outstanding $37,950,000 principal amount of 4 7/8%
Debentures, of which Thermo Electron owns $4,300,000 principal amount. The
4 7/8% Debentures are convertible into shares of Common Stock at a conversion
price of $17.92 per share and are guaranteed on a subordinated basis by Thermo
Electron. As described above under "SPECIAL FACTORS--Certain Effects of the
Merger", the consummation of the Merger will give the holders of the 4 7/8%
Debentures the right to have ThermoRetec redeem such 4 7/8% Debentures for a
cash amount equal to 100% of the principal amount to be redeemed, plus accrued
interest.
In fiscal 1994, the Company issued to Thermo TerraTech $2,650,000 principal
amount of a 3 7/8% subordinated convertible debenture due November 2000 (the
"3 7/8% Debenture"). The debenture is convertible into shares of Common Stock at
a conversion price of $9.83 per share. This debenture will not be redeemed as a
result of the Merger.
From time to time, the Company may transact business with other companies in
the Thermo Group, as follows.
The Company purchases and sells services in the ordinary course of business
to other companies affiliated with Thermo TerraTech. In fiscal 1999 and the six
months ended October 2, 1999, the Company sold a total of $730,000 and $68,000,
respectively, of products to other companies affiliated with Thermo TerraTech
and purchased a total of $432,000 and $304,000, respectively, 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 from a third party, 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.
As of October 2, 1999, $29,131,000 of the Company's short-term funds were
invested in a cash management arrangement with Thermo Electron. Under the cash
management arrangement, the Company lends excess cash to Thermo Electron and has
the contractual right to withdraw its invested funds upon 30 days' prior notice.
Thermo Electron is contractually required to maintain cash, cash equivalents
and/or immediately available bank lines of credit equal to at least 50% of all
funds invested under the arrangement by all Thermo Electron subsidiaries other
than wholly owned subsidiaries. The Company's funds invested in the cash
management arrangement earn a rate equal to the 30-day Dealer Commercial Paper
Rate as reported in THE WALL STREET JOURNAL plus 50 basis points, set at the
beginning of each month.
As of October 2, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $9,794,000, including $4,300,000 principal amount
of the 4 7/8% Debentures, which will be redeemed as a result of the Merger,
$2,650,000 principal amount of the 3 7/8% Debenture, which will not be redeemed
as a result of the Merger, amounts due under the Services Agreement and related
administrative charges, amounts due 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 for miscellaneous items. The
largest amount of such net indebtedness owed by the Company to Thermo Electron
and its other subsidiaries since April 5, 1998, was $9,794,000. These amounts do
not bear interest and are expected to be paid in the normal course of business.
The human resources committee of the Company's board of directors
established a stock holding policy that required executive officers of the
Company to acquire and hold a minimum number of shares of Common Stock. In order
to assist the executive officers in complying with this policy, the Company also
adopted a stock holding assistance plan under which the Company may make
interest-free loans to executive officers to enable them to purchase shares of
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 Company's
chief executive officer. During fiscal 1998, Mr. Powell, a vice president of the
Company,
67
<PAGE>
received loans in the principal amount of $59,941 under this plan to purchase
10,000 shares, of which the full amount was outstanding as of October 2, 1999.
In fiscal 1998, Dr. Appleton, a director and formerly the Company's chief
executive officer, received loans in the principal amount of $61,868 under the
plan to purchase 10,000 shares, of which the full amount was outstanding as of
October 2, 1999. These loans are expected to be repaid upon completion of the
Merger.
CERTAIN INFORMATION CONCERNING THE MERGER SUB,
THERMO TERRATECH AND THERMO ELECTRON
THERMO TERRATECH
Thermo TerraTech provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations. Thermo TerraTech provides
environmental-liability and resource-management services, as well as consulting
services for engineering, nuclear remediation, soil remediation, and fluids
recycling. In addition, Thermo TerraTech provides comprehensive engineering and
outsourcing services in water and wastewater treatment, process engineering and
construction, highway and bridge engineering, and infrastructure engineering;
consulting services that address natural resource management issues; and
metallurgical processing services. Thermo TerraTech also operates analytical
laboratories that provide environmental- and pharmaceutical-testing services,
primarily to commercial clients throughout the U.S.
The principal executive offices of Thermo TerraTech are located at 85 First
Avenue, Waltham, Massachusetts 02451, and its telephone number is
(781) 370-1640. Unless otherwise noted, the business address of each of the
following directors and executive officers of Thermo TerraTech is 85 First
Avenue, Waltham, Massachusetts 02451, and each of such persons is a citizen of
the United States.
DIRECTORS AND EXECUTIVE OFFICERS OF THERMO TERRATECH
JOHN P. APPLETON: President, Chief Executive Officer and Director
John P. Appleton has been president, chief executive officer and a director
of Thermo TerraTech since September 1993. Dr. Appleton has been chairman of the
board of the Company since September 1993 and was its chief executive officer
from September 1993 to May 1997. He has been chairman of the board of
Randers/Killam since November 1997. Dr. Appleton has served as a vice president
of Thermo Electron since 1975 in various managerial capacities. He is also a
director of Randers/Killam and the Company.
JOHN N. HATSOPOULOS: Director
John N. Hatsopoulos has been a director of Thermo TerraTech since 1986. He
served as a vice president of Thermo TerraTech and its chief financial officer
from 1988 until December 1997 and December 1998, respectively. Mr. Hatsopoulos
was the senior vice president of Thermo TerraTech from December 1997 until his
retirement in December 1998. He was the president of Thermo Electron from 1997
to 1998 and its chief financial officer from 1988 to 1998. Prior to his
appointment as president of Thermo Electron, he served as an executive vice
president from 1986 until 1998. Mr. Hatsopoulos has been the vice chairman of
the board of directors of Thermo Electron since 1998. He is also a director of
US Liquids Inc. and the following affiliates of Thermo Electron:
Thermedics Inc., Thermo Fibertek Inc. and Thermo Instrument Systems Inc. His
business address is 45 First Street, Waltham, Massachusetts 02454.
EMIL C. HERKERT: Vice President
Emil C. Herkert has been a vice president of Thermo TerraTech since 1996.
Mr. Herkert has also served as president of Killam Associates, a subsidiary of
Randers/Killam, since 1977 and was appointed president and chief executive
officer of Randers/Killam in May 1997. He is also a director of Randers/ Killam.
His business address is 27 Bleeker Street, Millburn, New Jersey 07041-1008.
68
<PAGE>
BRIAN D. HOLT: Director
Brian D. Holt became a director of Thermo TerraTech in February 1997.
Mr. Holt has been chief operating officer, environment and energy, of Thermo
Electron since September 1998. He has been the president and chief executive
officer of Thermo Ecotek Corporation, a majority-owned subsidiary of Thermo
Electron since February 1994 and a director of that company since January 1995.
For more than five years prior to his appointment as an officer of Thermo Ecotek
Corporation, he was the president and chief executive officer of Pacific
Generation Company, a financier, builder, owner and operator of independent
power facilities. Mr. Holt is also a director of the following affiliates of
Thermo Electron: the Company and Randers/Killam. His business address is 245
Winter Street, Suite 300, Waltham, Massachusetts 02451.
PAUL F. KELLEHER: Chief Accounting Officer
Paul F. Kelleher has been the chief accounting officer of Thermo TerraTech
since 1986. He has been senior vice president, finance and administration, of
Thermo Electron since June 1997, and served as its vice president, finance from
1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982
until January 1996. Mr. Kelleher also serves as the chief accounting officer of
the Company. He is a director of ThermoLase Corporation, an affiliate of Thermo
Electron. Mr. Kelleher's business address is 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02454-9046.
THEO MELAS-KYRIAZI: Chief Financial Officer
Theo Melas-Kyriazi has been chief financial officer of Thermo TerraTech, the
Company and Thermo Electron since January 1999. He has also been a director of
the Company since its inception in 1993. Mr. Melas-Kyriazi joined Thermo
Electron in 1986 as assistant treasurer, and became treasurer in 1988. He was
named president and chief executive officer of ThermoSpectra Corporation, then a
majority-owned subsidiary of Thermo Electron, in 1994, a position he held until
becoming vice president of corporate strategy for Thermo Electron in 1998.
Mr. Melas-Kyriazi remains a vice president of Thermo Electron.
Mr. Melas-Kyriazi is a citizen of Greece. Mr. Melas-Kyriazi's business address
is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
DONALD E. NOBLE: Director
Donald E. Noble has been a director of Thermo TerraTech since 1986 and
served as chairman of the board from 1992 to November 1994. For more than
20 years, from 1959 to 1980, Mr. Noble served as the chief executive officer of
Rubbermaid Incorporated, first with the title of president and then as chairman
of the board. Mr. Noble is also a director of Thermo Fibertek Inc. and Thermo
Sentron Inc., affiliates of Thermo Electron. Mr. Noble's business address is 345
North Market Street, Suite G-05, Wooster, Ohio 44691.
JEFFREY L. POWELL: Vice President
Jeffrey L. Powell has been a vice president of Thermo TerraTech since 1994.
Mr. Powell served as president of ThermoRetec since its inception in 1993, and
as its chief executive officer from May 1997 until April 1998, when he was named
senior vice president. Mr. Powell's business address is 9 Pond Lane, Suite 5A,
Concord, Massachusetts 01742-2851.
WILLIAM A. RAINVILLE: Director
William A. Rainville has been a director of Thermo TerraTech since
February 1993 and was chairman of the board from November 1994 through
February 1997. Mr. Rainville 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 paper making and paper
recycling industries, since its
69
<PAGE>
inception in 1991, a senior vice president of Thermo Electron since March 1993
and a vice president of Thermo Electron from 1986 to 1993. From 1984 until
January 1993, Mr. Rainville was the president and chief executive officer of
Thermo Electron Web Systems Inc., a subsidiary of Thermo Fibertek Inc. Mr.
Rainville is also chief operating officer, recycling and resource recovery, of
Thermo Electron. Mr. Rainville is also a director of Thermo Ecotek Corporation,
Thermo Fibergen Inc., and Thermo Fibertek Inc. Mr. Rainville's business address
is 245 Winter Street, Waltham, Massachusetts 02451.
POLYVIOS C. VINTIADIS: Chairman of the Board and Director
Polyvios C. Vintiadis has been a director of Thermo TerraTech since
September 1992 and chairman of the board since February 1997. Mr. Vintiadis has
been the chairman and chief executive officer of Towermarc Corporation, a real
estate development company, since 1984. Prior to joining Towermarc Corporation,
Mr. Vintiadis was a principal of Morgens, Waterfall & Vintiadis, Inc., a
financial services firm, with whom he remains associated. For more than
20 years prior to that time, Mr. Vintiadis was employed by Arthur D. Little &
Company, Inc. Mr. Vintiadis is also a director of Thermo Instrument
Systems Inc., and Spectra-Physics Lasers, Inc., affiliates of Thermo Electron.
Mr. Vintiadis' business address is Towermarc Corporation, Two Sound View Drive,
Greenwich, CT 06830.
OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THERMO
TERRATECH
The following table sets forth the beneficial ownership of Common Stock, as
of October 2, 1999, with respect to (i) each director and current executive
officer of Thermo TerraTech and (iii) all directors and current executive
officers of Thermo TerraTech as a group.
While certain directors and executive officers of Thermo TerraTech are also
directors and executive officers of Thermo Electron or its subsidiaries other
than Thermo TerraTech, all such persons disclaim beneficial ownership of the
shares of Common Stock owned by Thermo Electron or Thermo TerraTech, as the case
may be.
<TABLE>
<CAPTION>
THERMORETEC
CORPORATION(2)
------------------------
NUMBER OF PERCENTAGE
NAME (1) SHARES OF CLASS (%)
- -------- --------- ------------
<S> <C> <C>
John P. Appleton....................................... 73,000 *
John N. Hatsopoulos.................................... 61,282 *
Emil C. Herkert........................................ 0 *
Brian D. Holt.......................................... 0 *
Paul F. Kelleher....................................... 23,000 *
Theo Melas-Kyriazi..................................... 0 *
Donald E. Noble........................................ 10,500 *
Jeffrey L. Powell...................................... 121,000 *
William A. Rainville................................... 24,000 *
Polyvios C. Vintiadis.................................. 1,500 *
All directors and current executive officers as a group
(10 persons)......................................... 314,282 2.3
</TABLE>
- ------------------------
* Reflects ownership of less than 1.0% of the outstanding Common Stock.
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) The shares of Common Stock beneficially owned by Dr. Appleton,
Mr. Hatsopoulos, Mr. Kelleher, Mr. Noble, Mr. Powell, Mr. Rainville,
Mr. Vintiadis and all directors and current executive officers as
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<PAGE>
a group include 63,000, 22,500, 15,000, 6,000, 111,000, 22,500, 1,500 and
241,500 shares, respectively, that such person or group had the right to
acquire within 60 days of October 2, 1999, through the exercise of stock
options. No director or current executive officer beneficially owned more
than 1.0% of the Common Stock outstanding as of October 2, 1999; all
directors and current executive officers as a group beneficially owned 2.3%
of the Common Stock outstanding as of such date.
THERMO ELECTRON
Thermo Electron and its subsidiaries develop, manufacture and market
monitoring, analytical, and biomedical instrumentation; biomedical products
including heart-assist devices, respiratory-care equipment, and mammography
systems; and paper recycling and papermaking equipment. Thermo Electron also
develops alternative-energy systems and clean fuels, industrial process
equipment; and other specialized products. Thermo Electron also provides a range
of services including industrial outsourcing, particularly in
environmental-liability management, laboratory analysis and metallurgical
processing, and conducts advanced-technology research and development. Thermo
Electron performs its business through wholly owned subsidiaries and divisions,
as well as majority-owned subsidiaries that are partially owned by the public or
private investors.
The principal executive offices of Thermo Electron are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000. Unless otherwise noted, the business address of each
of the following directors and executive officers of Thermo TerraTech is 81
Wyman Street, Waltham, Massachusetts 02454-9046, and each of such persons is a
citizen of the United States.
DIRECTORS AND EXECUTIVE OFFICERS OF THERMO ELECTRON
SAMUEL W. BODMAN: Director
Samuel W. Bodman has been a director of Thermo Electron since May 1999.
Since 1988, Mr. Bodman has served as the chairman and chief executive officer of
Cabot Corporation, a manufacturer of specialty chemicals and materials.
Mr. Bodman is a director of Cabot Oil & Gas Corporation, John Hancock Mutual
Life Insurance Company, Security Capital Group Incorporated and Westvaco
Corporation. His business address is Cabot Corporation, 75 State Street, Boston,
Massachusetts 02109.
PETER O. CRISP: Director
Peter O. Crisp has been a director of Thermo Electron since 1974. Mr. Crisp
was a general partner of Venrock Associates, a venture capital investment firm,
for more than five years until his retirement in September 1997. He has been
vice chairman of Rockefeller Financial Services, Inc. since December 1997.
Mr. Crisp is also a director of American Superconductor Corporation, Evans &
Sutherland Computer Corporation and United States Trust Corporation, as well as
the following affiliates of Thermo Electron: Thermedics Inc. and ThermoTrex
Corporation.
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<PAGE>
ELIAS P. GYFTOPOULOS: Director
Elias P. Gyftopoulos has been a director of Thermo Electron since 1976.
Dr. Gyftopoulos is Professor Emeritus of the Massachusetts Institute of
Technology, where he was the Ford Professor of Mechanical Engineering and of
Nuclear Engineering for more than 20 years until his retirement in 1996.
Dr. Gyftopoulos is also a director of the following affiliates of Thermo
Electron: Thermo BioAnalysis Corporation, Thermo Cardiosystems Inc., ThermoLase
Corporation, the Company and Trex Medical Corporation. His business address is
Massachusetts Institute of Technology, Room 24-109, 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139.
GEORGE N. HATSOPOULOS: Chairman Emeritus and Director
George N. Hatsopoulos has been a director of Thermo Electron since he
founded Thermo Electron in 1956. He was chairman of the Thermo Electron board of
directors until January 1, 2000, when he became chairman emeritus.He was also
the chief executive officer and president of Thermo Electron from 1956 until
June 1999 and January 1997, respectively. Dr. Hatsopoulos is also a director of
Photoelectron Corporation and the following affiliates of Thermo Electron:
Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo
Instrument Systems Inc. and ThermoTrex Corporation. Dr. Hatsopoulos is the
brother of Mr. John N. Hatsopoulos, a director of Thermo TerraTech and a
director and vice chairman of the board of directors of Thermo Electron.
JOHN N. HATSOPOULOS: Vice Chairman of the Board and Director
John N. Hatsopoulos has been a director of Thermo Electron since
September 1997 and the vice chairman of the board of directors since
September 1998. He was the president of Thermo Electron from January 1997 until
September 1998, its chief financial officer from 1988 until his retirement in
December 1998, and an executive vice president from 1986 until 1997.
Mr. Hatsopoulos is also a director of US Liquids Inc. and the following
affiliates of Thermo Electron: Thermedics Inc., Thermo Fibertek Inc., Thermo
Instrument Systems Inc. and Thermo TerraTech. Mr. Hatsopoulos is the brother of
Dr. George N. Hatsopoulos, a director and chairman of the board of directors of
Thermo Electron. Mr. Hatsopoulos' business address is 45 First Street, Waltham,
Massachusetts 02454.
BRIAN D. HOLT: Chief Operating Officer, Environment and Energy
Brian D. Holt became the chief operating officer, environment and energy, of
Thermo Electron in September 1998. Mr. Holt has been the president and chief
executive officer of Thermo Ecotek Corporation, a majority-owned subsidiary of
Thermo Electron, since February 1994, and has been a director of Thermo Ecotek
Corporation since January 1995. For more than five years prior to his
appointment as an officer of Thermo Ecotek Corporation, he was the president and
chief executive officer of Pacific Generation Company, a financier, builder,
owner and operator of independent power facilities. Mr. Holt is also a director
of the following affiliates of Thermo Electron: the Company, Randers/Killam and
Thermo TerraTech. His business address is 245 Winter Street, Suite 300, Waltham,
Massachusetts 02451.
FRANK JUNGERS: Director
Frank Jungers has been a director of Thermo Electron since 1978.
Mr. Jungers has been a consultant on business and energy matters since 1977.
From 1974 through 1977, Mr. Jungers was employed by the Arabian American Oil
Company as the chairman and chief executive officer. Mr. Jungers is also a
director of The AES Corporation, Donaldson, Lufkin & Jenrette, Inc.,
Georgia-Pacific Corporation, Statia Terminals Group N.V. and the following
affiliates of Thermo Electron: ONIX Systems Inc., Thermo Ecotek Corporation and
ThermoQuest Corporation. His business address is 822 N.W. Murray, Suite 242,
Portland, Oregon 97229.
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<PAGE>
JOHN T. KEISER: Chief Operating Officer, Biomedical
John T. Keiser became the chief operating officer, biomedical, of Thermo
Electron in September 1998. Mr. Keiser has been president of Thermedics Inc., a
majority-owned subsidiary of Thermo Electron, since March 1994, its chief
executive officer since December 1998 and its senior vice president from 1994
until March 1998. Mr. Keiser was the president of the Eberline Instrument
division of Thermo Instrument from 1985 to July 1994. Mr. Keiser is also a
director of the following affiliates of Thermo Electron: Metrika Systems
Corporation, Thermedics Detection Inc., ThermoTrex Corporation, ThermoLase
Corporation, Trex Medical Corporation, Thermo Sentron Inc. and Thermo
Cardiosystems Inc. He has also been the president of Thermo Biomedical Inc., a
wholly owned subsidiary of Thermo Electron, since 1994.
PAUL F. KELLEHER: Senior Vice President, Finance and Administration
Paul F. Kelleher has been the senior vice president, finance and
administration, of Thermo Electron since June 1997, and served as its vice
president, finance from 1987 until 1997. Mr. Kelleher served as Thermo
Electron's controller from 1982 until January 1996. Mr. Kelleher is also the
chief accounting officer of the Company and Thermo TerraTech, and is a director
of ThermoLase Corporation, an affiliate of Thermo Electron.
EARL R. LEWIS: Chief Operating Officer, Measurement and Detection
Earl R. Lewis became the chief operating officer, measurement and detection
of Thermo Electron in September 1998, and had been a vice president of Thermo
Electron since September 1996. Mr. Lewis has been a director and chief executive
officer of Thermo Instrument Systems Inc. ("Thermo Instrument") since
January 1998, and has been president of Thermo Instrument since March 1997. He
was the chief operating officer of Thermo Instrument from January 1996 to
January 1998. Prior to that time, he was an executive vice president of Thermo
Instrument from January 1996 to March 1997, a senior vice president from
January 1994 to January 1996 and a vice president from March 1992 to
January 1994. Prior to his appointment as Thermo Instrument's chief executive
officer, Mr. Lewis was also the chief executive officer of Thermo Optek
Corporation, a majority-owned subsidiary of Thermo Instrument, from its
inception in August 1995 to January 1998 and was the president of its
predecessor, Thermo Jarrell Ash Corporation for more than five years prior to
1995. Mr. Lewis is also a director of SpectRx Inc. and of the following
affiliates of Thermo Electron: FLIR Systems Inc., Metrika Systems Corporation,
ONIX Systems Inc., Spectra-Physics Lasers, Inc., Thermo BioAnalysis Corporation
and Thermo Optek Corporation.
ROBERT A. MCCABE: Director
Robert A. McCabe has been a director of Thermo Electron since 1962. He has
been the chairman of Pilot Capital Corporation, which is engaged in private
investments, since 1998. Mr. McCabe was president of Pilot Capital Corporation
from 1987 to 1998. Prior to that time, Mr. McCabe was a managing director of
Lehman Brothers Inc., an investment banking firm. Mr. McCabe is also a director
of Atlantic Bank & Trust Company, Borg-Warner Security Corporation, Church &
Dwight Company and Thermo Optek Corporation, an affiliate of Thermo Electron.
His business address is Pilot Capital Corporation, 444 Madison Avenue, Suite
2103, New York, New York 10022.
THEO MELAS-KYRIAZI: Chief Financial Officer and Vice President
Theo Melas-Kyriazi has been the chief financial officer of Thermo Electron
since January 1999 and a vice president since March 1998. In addition,
Mr. Melas-Kyriazi was the treasurer of Thermo Electron from May 1988 to
August 1994. Mr. Melas-Kyriazi is the chief financial officer of the Company and
Thermo TerraTech. Mr. Melas-Kyriazi is also a director of the Company.
Mr. Melas-Kyriazi is a citizen of Greece.
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<PAGE>
HUTHAM S. OLAYAN: Director
Hutham S. Olayan has been a director of Thermo Electron since 1987. She has
served since 1995 as the president and a director of Olayan America Corporation,
a member of the Olayan Group, and as the president and a director of Competrol
Real Estate Limited, another member of the Olayan Group, from 1986 until its
merger into Olayan America Corporation in 1997. The surviving company is engaged
in private investments, including real estate, and advisory services. In
addition, from 1985 to 1994, Ms. Olayan served as the president and a director
of Crescent Diversified Limited, another member of the Olayan Group engaged in
private investments. Ms. Olayan is also a director of Trex Medical Corporation,
an affiliate of Thermo Electron. Ms. Olayan is a citizen of Saudi Arabia. Her
business address is Suite 1100, 505 Park Avenue, New York, New York 10022.
ROBERT W. O'LEARY: Director
Robert W. O'Leary has been a director of Thermo Electron since June 1998. He
has been the president and the chairman of Premier Inc., a strategic alliance of
not-for-profit health care and hospital systems, since 1995. From 1990 to 1995,
Mr. O'Leary was the chairman of American Medical International, Inc., one of the
three predecessor entities of Premier Inc. His business address is
Premier, Inc., 12225 El Camino Real, San Diego, California 92130.
WILLIAM A. RAINVILLE: Chief Operating Officer, Recycling and Resource Recovery
William A. Rainville became the chief operating officer, recycling and
resource recovery, of Thermo Electron in September 1998. Prior to that time,
Mr. Rainville had been a senior vice president of Thermo Electron since
March 1993 and was a vice president of Thermo Electron from 1986 to 1993.
Mr. Rainville has been the president and chief executive officer of Thermo
Fibertek Inc., a majority-owned subsidiary of Thermo Electron, since its
inception in 1991 and a director since January 1992. From 1984 until
January 1993, Mr. Rainville was the president and chief executive officer of
Thermo Web Systems Inc., a subsidiary of Thermo Fibertek Inc. Mr. Rainville is
also a director of the following affiliates of Thermo Electron: Thermo Ecotek
Corporation, Thermo Fibergen Inc., the Company, and Thermo TerraTech. His
business address is 245 Winter Street, Waltham, Massachusetts 02451.
RICHARD F. SYRON: President, Chief Executive Officer and Chairman of the Board
Richard F. Syron has been the president and chief executive officer of
Thermo Electron since June 1999 and a director of Thermo Electron since
September 1997. Dr. Syron became chairman of the board of directors of Thermo
Electron effective January 1, 2000. From April 1994 to May 1999, Dr. Syron was
the chairman and chief executive officer of the American Stock Exchange, Inc.,
which has offices located at 86 Trinity Place, New York, New York 10006. From
January 1989 through April 1994, he was the president and chief executive
officer of the Federal Reserve Bank of Boston. Prior to that time, he held a
variety of senior positions with the Federal Home Loan Bank of Boston, the
Federal Reserve Bank of Boston, the Board of Governors of the Federal Reserve
System and the U.S. Department of Treasury. Dr. Syron is also a director of
Dreyfus Corporation, The John Hancock Corporation, and the following affiliates
of Thermo Electron: Thermo Instrument Systems Inc., Thermedics Inc. and Thermo
Fibertek Inc.
ROGER D. WELLINGTON: Director
Roger D. Wellington has been a director of Thermo Electron since 1986.
Mr. Wellington serves as the president and chief executive officer of Wellington
Consultants, Inc. and of Wellington Associates Inc., international business
consulting firms he founded in 1994 and 1989, respectively. Prior to 1989,
Mr. Wellington served as the chairman of the board of Augat Inc., a manufacturer
of electromechanical components and systems, for more than five years. Prior to
1988, Mr. Wellington also served as the chief
74
<PAGE>
executive officer and president of Augat Inc. for more than ten years.
Mr. Wellington is also a director of Photoelectron Corporation and Thermo
Fibergen Inc., an affiliate of Thermo Electron.
OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THERMO ELECTRON
The following table sets forth the beneficial ownership of Common Stock, as
of October 2, 1999, with respect to (i) each director and current executive
officer of Thermo Electron and (ii) all directors and current executive officers
as a group.
While certain directors and executive officers of Thermo Electron are also
directors and executive officers of majority-owned subsidiaries of Thermo
Electron, all such persons disclaim beneficial ownership of the shares of Common
Stock owned by Thermo Electron or by such majority-owned subsidiaries, as the
case may be.
<TABLE>
<CAPTION>
THERMORETEC
CORPORATION(2)
------------------------
NUMBER OF PERCENTAGE
NAME(1) SHARES OF CLASS (%)
- ------- --------- ------------
<S> <C> <C>
Samuel W. Bodman....................................... 0 *
Peter O. Crisp......................................... 0 *
Elias P. Gyftopoulos................................... 31,431 *
George N. Hatsopoulos.................................. 9,000 *
John N. Hatsopoulos.................................... 61,282 *
Brian D. Holt.......................................... 0 *
Frank Jungers.......................................... 10,500 *
John T. Keiser......................................... 0 *
Paul F. Kelleher....................................... 23,000 *
Earl R. Lewis.......................................... 0 *
Robert A. McCabe....................................... 0 *
Theo Melas-Kyriazi..................................... 0 *
Hutham S. Olayan....................................... 0 *
Robert W. O'Leary...................................... 0 *
William A. Rainville................................... 24,000 *
Richard F. Syron....................................... 0 *
Roger D. Wellington.................................... 0 *
All directors and current executive officers as a group
(17 persons)......................................... 159,213 1.2
</TABLE>
- ------------------------
* Reflects ownership of less than 1.0% of the outstanding Common Stock.
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) The shares of Common Stock beneficially owned by Dr. Gyftopoulos, Dr. G.
Hatsopoulos, Mr. J. Hatsopoulos, Mr. Kelleher, Mr. Rainville and all
directors and current executive officers as a group include 29,600, 7,500,
22,500, 15,000, 22,500 and 97,100 shares, respectively, that such person or
members of the group had the right to acquire within 60 days of October 2,
1999, through the exercise of stock options. Shares beneficially owned by
Dr. Gyftopoulos and all directors and current executive officers as a group
include 831 shares allocated through October 2, 1999 to his account
maintained pursuant to the Company's Deferred Compensation Plan. No director
or current executive officer beneficially owned more than 1.0% of the Common
Stock outstanding as of October 2, 1999; all
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<PAGE>
directors and current executive officers as a group beneficially owned 1.2%
of the Common Stock outstanding as of such date.
THE MERGER SUB
The Merger Sub is a newly formed Delaware corporation organized at the
direction of Thermo Electron for the sole purpose of facilitating the Merger and
has not conducted any prior business.
The principal executive offices of the Merger Sub are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.
DIRECTOR AND EXECUTIVE OFFICER OF THE MERGER SUB
THEO MELAS-KYRIAZI: President and Director
Theo Melas-Kyriazi has been the Merger Sub's president and sole director
since the Merger Sub's formation in May 1999. For further information, please
see descriptions under "Directors and Executive Officers of Thermo TerraTech"
and "Directors and Executive Officers of Thermo Electron," above.
OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THE MERGER SUB
Please see "Ownership of Common Stock by Executive Officers and Directors of
Thermo TerraTech" and "Ownership of Common Stock by Executive Officers and
Directors of Thermo Electron," above, for information regarding the ownership of
Common Stock by Theo Melas-Kyriazi, the sole director and executive officer of
the Merger Sub.
To the knowledge of the Company, all of the above-listed officers and
directors of Thermo Electron, Thermo TerraTech and the Merger Sub, as well as
the officers and directors of the Company, intend to vote their shares of Common
Stock to adopt the Merger Agreement.
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INDEPENDENT PUBLIC ACCOUNTANTS
The Consolidated Balance Sheets as of April 3, 1999 and April 4, 1998, and
the related Consolidated Statements of Operations, Comprehensive Income and
Shareholders' Investment, and Cash Flows for each of the three years in the
period ended April 3, 1999, included in or incorporated by reference in this
Proxy Statement have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report. Representatives of Arthur Andersen LLP
are not expected to be at the Special Meeting.
STOCKHOLDER PROPOSALS
If the Merger is not completed, ThermoRetec will set a date for its 2000
Annual Meeting of Stockholders. Pursuant to Rule 14a-8 under the Exchange Act,
ThermoRetec stockholders may present proper proposals for inclusion in
ThermoRetec's proxy statement and for consideration at its 2000 Annual Meeting
of Stockholders, in the event the Merger is not completed, by submitting the
proposals to ThermoRetec in a timely manner. In order to be included for the
2000 Annual Meeting, stockholder proposals must be received by ThermoRetec
within a reasonable time before the meeting, and must otherwise comply with the
requirements of Rule 14a-8.
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Exchange Act, and
Rule 13e-3 promulgated thereunder, the Company, as issuer of the class of equity
securities that is the subject of the Rule 13e-3 transaction, together with the
Merger Sub, Thermo TerraTech and Thermo Electron, have filed a Schedule 13E-3
with the Commission with respect to the transactions contemplated by the Merger
Agreement. As permitted by the rules and regulations of the Commission, this
Proxy Statement omits certain information, exhibits and undertakings contained
in the Schedule 13E-3. Such additional information can be inspected at and
obtained from the Commission in the manner set forth below under "AVAILABLE
INFORMATION."
Statements contained in this Proxy Statement or in any document incorporated
herein by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each instance
reference is made to such contract or other document filed as an exhibit to the
Schedule 13E-3 or such other document, and each such statement shall be deemed
qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. The reports, proxy statements, and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington D.C. 20549 and at the following Regional Offices of
the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. The same information is also available on the
Internet at http://www.FreeEDGAR.com. The Common Stock is listed on the AMEX,
and such material that relates to the Company may also be inspected at the
offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New
York 10006-1881. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT,
IN CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH
77
<PAGE>
INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THERMO TERRATECH, THERMO ELECTRON OR THE MERGER SUB. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY, THE MERGER SUB, THERMO TERRATECH AND THERMO
ELECTRON SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT
OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
(File No. 1-12636) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended April 3,
1999, as amended;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 3, 1999;
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 2, 1999;
4. The Company's Current Report on Form 8-K, filed with the Commission on
May 12, 1999, regarding modifications to the previously announced
reorganization plan involving the Company;
5. The Company's Current Report on Form 8-K, filed with the Commission on
May 25, 1999, regarding certain pretax charges to be taken by the Company;
6. The Company's Current Report on Form 8-K, filed with the Commission on
October 21, 1999, regarding the execution of the Merger Agreement; and
7. The description of the Common Stock that is contained in the Company's
Registration Statement on Form 8-A filed under the Exchange Act, as amended.
Copies of the documents listed above (other than exhibits thereto that are
not specifically incorporated by reference herein) are available, without
charge, to any person, including any beneficial owner of Common Stock, to whom
this Proxy Statement is delivered, upon oral or written request to Sandra L.
Lambert, Secretary, ThermoRetec Corporation, c/o Thermo Electron Corporation, 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046 (telephone
(781) 622-1000).
In addition, the Company's Annual Report on Form 10-K for the fiscal year
ended April 3, 1999, the Amendment No. 1 on Form 10-K/A to its Annual Report on
Form 10-K for the fiscal year ended April 3, 1999, its Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999, and its Quarterly Report on Form
10-Q for the quarter ended October 2, 1999 are attached as Appendix E, F, G and
H, respectively, to this Proxy Statement.
Any statements contained in a document incorporated or deemed to be
incorporated herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded. All information
appearing in this Proxy Statement is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference.
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<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THERMO ELECTRON CORPORATION,
RETEC ACQUISITION CORPORATION
AND
THERMORETEC CORPORATION
DATED AS OF OCTOBER 19, 1999
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER............................................... 2
1.1. The Merger.................................................. 2
1.2. Effective Time; Closing..................................... 2
1.3. Effect of the Merger........................................ 2
1.4. Certificate of Incorporation; Bylaws........................ 3
1.5. Directors and Officers...................................... 3
1.6. Effect on Capital Stock..................................... 3
1.7. Surrender of Certificates................................... 4
1.8. No Further Ownership Rights in Retec Common Stock........... 6
1.9. Lost, Stolen or Destroyed Certificates...................... 6
1.10. Closing of Transfer Books................................... 6
1.11. Dissenting Shares........................................... 6
1.12. Taking of Necessary Action; Further Action.................. 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF RETEC................. 7
2.1. Organization of Retec....................................... 7
2.2. Retec Capital Structure..................................... 7
2.3. Authority................................................... 7
2.4. Board Approval.............................................. 8
2.5. Fairness Opinion............................................ 8
2.6. Schedule 13E-3; Proxy Statement............................. 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND
MERGER SUB....................................................... 9
3.1. Organization................................................ 9
3.2. Authority................................................... 9
3.3. Merger Sub.................................................. 10
3.4. Information Provided to Investment Bankers.................. 10
3.5. Compliance with Agreements.................................. 10
3.6. Schedule 13E-3; Proxy Statement............................. 11
3.7. Financial Resources......................................... 11
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................... 11
4.1. Conduct of Business by Retec................................ 11
4.2. Conduct of Business by Thermo Electron...................... 11
ARTICLE V ADDITIONAL AGREEMENTS.................................... 13
5.1. Schedule 13E-3; Proxy Statement; Other Filings.............. 13
5.2. Meeting of Retec Stockholders............................... 14
5.3. Access to Information....................................... 14
5.4. Public Disclosure........................................... 15
5.5. Legal Requirements.......................................... 15
5.6. Notification of Certain Matters............................. 15
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.7. Best Efforts and Further Assurances......................... 16
5.8. Stock Option and Employee Stock Purchase Plans; Reservation
of Shares................................................. 16
5.9. Thermo Electron Form S-8.................................... 17
5.10. Indemnification; Insurance.................................. 17
5.11. Deferred Compensation Plan.................................. 19
5.12. Compliance by Merger Sub.................................... 19
5.13. NYSE Listing................................................ 19
ARTICLE VI CONDITIONS TO THE MERGER................................ 19
6.1. Conditions to Obligations of Each Party to Effect the
Merger.................................................... 19
6.2. Additional Conditions to the Obligations of Retec........... 20
6.3. Additional Conditions to the Obligations of Thermo Electron
and Merger Sub............................................ 20
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................... 21
7.1. Termination................................................. 21
7.2. Notice of Termination; Effect of Termination................ 22
7.3. Fees and Expenses........................................... 22
7.4. Amendment................................................... 22
7.5. Extension; Waiver........................................... 23
ARTICLE VIII GENERAL PROVISIONS.................................... 23
8.1. Non-Survival of Representations and Warranties.............. 23
8.2. Notices..................................................... 23
8.3. Counterparts................................................ 24
8.4. Entire Agreement............................................ 24
8.5. Severability................................................ 24
8.6. Other Remedies; Specific Performance........................ 25
8.7. Governing Law............................................... 25
8.8. Assignment.................................................. 25
8.9. Headings.................................................... 25
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of October 19,
1999 is by and among Thermo Electron Corporation, a Delaware corporation
("Thermo Electron"), Retec Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of TT Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Thermo Electron ("Merger Sub"), and ThermoRetec
Corporation, a Delaware corporation ("Retec").
RECITALS
A. Thermo Electron and its majority-owned subsidiary, Thermo TerraTech Inc.
("TerraTech"), own approximately 2% and 70%, respectively, of the outstanding
shares of common stock, par value $.01 per share, of Retec (the "Retec Common
Stock"), and Thermo Electron desires to acquire all of the outstanding shares of
Retec Common Stock not owned by Thermo Electron or TerraTech.
B. Thermo Electron has formed the Merger Sub as a subsidiary with the intent
of causing it to merge with Retec, as described in this Agreement.
C. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Thermo
Electron and Retec will enter into a business combination transaction pursuant
to which Merger Sub will merge with and into Retec (the "Merger").
D. The Board of Directors of Thermo Electron (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Thermo Electron, and (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement.
E. The Board of Directors of Retec, on the recommendation of a special
committee of the Board of Directors (the "Special Committee"), consisting of a
director of Retec who is not an officer or director of Thermo Electron or
TerraTech or an officer of Retec, (i) has determined that this Agreement,
including the Cash Merger Consideration (as defined below), and the transactions
contemplated by this Agreement, are fair to, and in the best interests of, the
stockholders of Retec (other than Thermo Electron and TerraTech), (ii) has
approved and declared the advisability of this Agreement, the Merger and the
other transactions contemplated by this Agreement and (iii) has resolved to
recommend the approval and adoption of this Agreement by the stockholders of
Retec.
F. Adams, Harkness & Hill ("AH&H") has delivered to the Special Committee,
for its consideration, and for delivery to the stockholders of Retec, its
written opinion that, subject to the various assumptions and limitations set
forth therein, as of the date of such opinion the consideration to be received
by the stockholders of Retec (other than TerraTech and Thermo Electron) is fair
to such stockholders from a financial point of view.
G. Thermo Electron, Retec and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, Merger Sub shall be merged with and into
Retec, the separate corporate existence of Merger Sub shall cease and Retec
shall continue
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as the surviving corporation. Retec as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the Surviving Corporation shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the relevant provisions of the DGCL
(the time of such filing, or such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger, being the "Effective Time"
and the date on which the Effective Time occurs being the "Effective Date") as
soon as practicable on the Closing Date (as herein defined). Unless the context
otherwise requires, the term "Agreement" as used herein refers collectively to
this Agreement and the Certificate of Merger. The closing of the Merger (the
"Closing") shall take place at the executive offices of Thermo Electron at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date"). At the Closing, (i) Retec shall deliver
to Thermo Electron the various certificates and instruments required under
Article VI, (ii) Thermo Electron and Merger Sub shall deliver to Retec the
various certificates and instruments required under Article VI and (iii) Retec
shall execute and file the Certificate of Merger with the Secretary of State of
the State of Delaware, in accordance with the applicable provisions of the DGCL.
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Retec and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Retec and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Subject to the requirements of Section 5.10 hereof, at the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation.
(b) Subject to the requirements of Section 5.10 hereof, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be,
at the Effective Time, the Bylaws of the Surviving Corporation until
thereafter amended.
1.5. DIRECTORS AND OFFICERS. The directors of Retec immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, to
serve until their respective successors are duly elected or appointed and
qualified. The officers of Retec immediately prior to the Effective Time shall
be the officers of the Surviving Corporation, to serve until their successors
are duly elected or appointed or qualified.
1.6. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, Retec or the holders of any of
the following securities:
(a) CONVERSION OF RETEC COMMON STOCK. Subject to the balance of this
Section 1.6, each share of Retec Common Stock issued and outstanding
immediately prior to the Effective Time will be automatically converted into
the right to receive Seven Dollars in cash ($7.00) (subject to adjustment
pursuant to Section 1.6(g) hereof, the "Cash Merger Consideration") upon
surrender of the certificate representing such share of Retec Common Stock
in the manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required)
in the manner provided in Section 1.9). As of the Effective Time, all such
shares of Retec Common Stock shall no longer be outstanding and shall be
automatically canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Retec Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Cash Merger Consideration as described in this subsection 1.6(a).
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(b) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN. All options to
purchase Retec Common Stock outstanding immediately prior to the Effective
Time under the Remediation Technologies, Inc. Amended and Restated 1986
Stock Option Plan, the Thermo Remediation Inc. Equity Incentive Plan, the
ThermoRetec Corporation Employees Equity Incentive Plan and the Thermo
Remediation Inc. Directors Stock Option Plan, each as amended (together, the
"Retec Stock Option Plans"), shall be converted into options to purchase
shares of the common stock, $1.00 par value per share, of Thermo Electron
(the "Thermo Common Stock") in accordance with Section 5.8 hereof. All
options to purchase shares of Retec Common Stock under the Amended and
Restated ThermoRetec Corp. Employees' Stock Purchase Plan (the "Retec ESPP")
shall be converted into options to purchase Thermo Common Stock in
accordance with Section 5.8 hereof.
(c) WARRANTS. All warrants to purchase Retec Common Stock outstanding
immediately prior to the Effective Time shall be converted at the Effective
Time into warrants to purchase Thermo Common Stock. The number of whole
shares of Thermo Common Stock for which each warrant will be exercisable (or
will become exercisable in accordance with its terms) and the per share
exercise price for the shares of Thermo Common Stock issuable upon exercise
of such Retec warrant will be determined in accordance with the terms of
such warrants.
(d) CONVERTIBLE DEBENTURES. As a result of the Merger, a Redemption
Event (as defined in the Fiscal Agency Agreement dated as of May 5, 1995, by
and among Retec, Thermo Electron and Chase Manhattan Bank (formerly Chemical
Bank) as Fiscal Agent (the "Fiscal Agency Agreement")) shall be deemed to
have occurred with respect to the convertible debentures issued by Retec
under the Fiscal Agency Agreement (the "Convertible Debentures"). Holders of
the Convertible Debentures will therefore have the right to present their
Convertible Debentures to Retec for redemption, in accordance with the terms
of the Fiscal Agency Agreement. Retec's 3 7/8% Convertible Debentures issued
to TerraTech shall not be redeemed as a result of the Merger.
(e) CAPITAL STOCK OF MERGER SUB. Each share of common stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one validly issued,
fully paid and non-assessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
(f) TREASURY STOCK; AFFILIATE STOCK. Notwithstanding any other provision
of this Agreement, each share of Retec Common Stock issued and outstanding
and owned by Thermo Electron or any wholly owned subsidiary of Thermo
Electron, together with all treasury shares held by Retec immediately prior
to the Effective Time shall cease to be outstanding, and shall automatically
be cancelled and retired without payment of any consideration therefor, cash
or otherwise, and cease to exist.
(g) ADJUSTMENTS TO CASH MERGER CONSIDERATION. The Cash Merger
Consideration shall be adjusted to reflect fully the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into, or exercisable or exchangeable
for, Retec Common Stock), recapitalization or other like change without
receipt of consideration with respect to Retec Common Stock occurring on or
after the date hereof and prior to the Effective Time.
1.7. SURRENDER OF CERTIFICATES.
(a) PAYMENT AGENT. Prior to the Effective Time, Thermo Electron shall
authorize American Stock Transfer & Trust Company to act as the payment
agent (the "Payment Agent") in the Merger. Immediately following the
Effective Time, Thermo Electron shall deposit with the Payment Agent, in
trust for the benefit of the holders of certificates (the "Certificates")
representing shares of Retec Common Stock converted pursuant to
Section 1.6(a) for payment in accordance with the provisions of this
Article I, cash in an amount equal to the product of the Cash Merger
Consideration multiplied by the number of shares of Retec Common Stock
entitled to conversion for payment pursuant to Section 1.6(a).
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(b) EXCHANGE PROCEDURES. As soon as practicable after, and in no event
more than three business days after, the Effective Time, Thermo Electron
shall cause the Payment Agent to mail to each holder of record (as of the
Effective Time) of a Certificate (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Payment Agent and shall otherwise be in such form and have such other
provisions as Thermo Electron may reasonably specify and as are reasonably
acceptable to Retec, with the approval of the Special Committee) and
(ii) instructions for effecting the exchange of the Certificates for the
Cash Merger Consideration. Upon surrender of a Certificate for cancellation
to the Payment Agent, together with such letter of transmittal duly
completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange
therefor payment of the Cash Merger Consideration multiplied by the number
of shares of Retec Common Stock represented by such Certificate, without
interest, and the Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of shares of Retec Common Stock
which is not registered in the transfer records of Retec as of the Effective
Time, the Cash Merger Consideration may be paid in accordance with this
Article I to a transferee if the Certificate evidencing such shares is
presented to the Payment Agent, accompanied by all documents required by law
to evidence and effect such transfer pursuant to this Section. Until so
surrendered, each outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the right to
receive payment of the Cash Merger Consideration for each share of Retec
Common Stock represented on such Certificate.
(c) TRANSFERS OF OWNERSHIP. If payment of the Cash Merger Consideration
is to be made to any person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it will be a
condition of such payment that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such payment will have paid to Thermo Electron or any
agent designated by it any transfer or other taxes required by reason of
payment to a person other than the registered holder of the Certificate
surrendered, or established to the satisfaction of Thermo Electron or any
agent designated by it that such tax has been paid or is not payable.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Payment Agent, Thermo Electron, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares of
Retec Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) RESPONSIBILITY; TERM. During the term of its engagement, the Payment
Agent shall make the payments referred to in Section 1.6(a) out of the funds
supplied by Thermo Electron. Promptly following the date that is six months
after the Effective Date, the Payment Agent shall, upon request by Thermo
Electron, deliver to Thermo Electron all cash, Certificates and other
documents in its possession relating to the transactions described in this
Agreement, and the Payment Agent's duties shall terminate. Thereafter, each
holder of a Certificate formerly representing shares of Retec Common Stock
may surrender such Certificate to Thermo Electron and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor
the Cash Merger Consideration multiplied by the number of shares of Retec
Common Stock represented by such Certificate, without any interest thereon.
1.8. NO FURTHER OWNERSHIP RIGHTS IN RETEC COMMON STOCK. All amounts paid
upon the surrender of shares of Retec Common Stock in accordance with the terms
hereof shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of Retec Common Stock.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Payment Agent shall pay the
aggregate Cash Merger Consideration in respect of such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof;
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provided, however, that, as a condition precedent to the payment thereof, the
owner of such lost, stolen or destroyed Certificates shall deliver a bond in
such sum as Thermo Electron or the Payment Agent may reasonably direct as
indemnity against any claim that may be made against Thermo Electron or the
Payment Agent with respect to the Certificates alleged to have been lost, stolen
or destroyed, unless Thermo Electron waives such requirement in writing.
1.10. CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of Retec shall be closed and no transfer of Retec Common Stock shall
thereafter be made. If, after the Effective Time, Certificates are presented to
Thermo Electron, they shall be canceled and exchanged for rights to receive the
applicable Cash Merger Consideration as provided in this Article I.
1.11. DISSENTING SHARES. Notwithstanding any other provision of this
Agreement, shares of Retec Common Stock that are outstanding immediately prior
to the Effective Time and which are held by stockholders (i) who have not voted
in favor of or consented to the Merger, (ii) who shall have demanded properly in
writing appraisal of such shares in accordance with DGCL Section 262 and
(iii) who shall not have withdrawn such demand or otherwise forfeited appraisal
rights (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Cash Merger Consideration. Such stockholders
shall, as of the Effective Time, cease to retain any rights with respect to the
Retec Common Stock, except as provided in the DGCL, including the right to
receive payment of the appraised value of the shares held by them in accordance
with the provisions of Section 262, provided that all Dissenting Shares held by
stockholders (i) who shall have failed to perfect or lost their rights to
appraisal of such shares under Section 262, or (ii) who have withdrawn their
demand for appraisal within 60 days after the Effective Date and accept the
terms offered upon the Merger in accordance with Section 262(e), shall thereupon
be, or be deemed to have been, converted into and to have become exchangeable,
as of the Effective Time, for the right to receive, without any interest
thereon, the Cash Merger Consideration, upon surrender, in the manner provided
in Section 1.7, of the Certificates that formerly evidenced such shares without
the prior consent of Thermo Electron.
1.12. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Retec and Merger Sub, the officers and directors of the
Surviving Corporation are fully authorized in the name of Retec and Merger Sub
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF RETEC
Retec represents and warrants to Thermo Electron and Merger Sub as follows:
2.1. ORGANIZATION OF RETEC. Retec and each of its subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or similar power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed by
Retec to be conducted, and is duly qualified to do business and in good standing
as a foreign corporation or other legal entity in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on Retec. In
this Agreement, the term "Material Adverse Effect" used in reference to Retec
means any event, change or effect, that is or is reasonably likely to be,
individually or in the aggregate with other events, changes or effects,
materially adverse to the financial condition, assets, liabilities, results of
operations or business of Retec and its subsidiaries, taken as a whole.
2.2. RETEC CAPITAL STRUCTURE. The authorized capital stock of Retec consists
of 50,000,000 shares of Common Stock, par value $.01 per share, of which there
were 13,599,360 shares issued and outstanding as
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of October 2, 1999, and 648,212 shares in treasury as of October 2, 1999. All
outstanding shares of Retec Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are not subject to preemptive rights created
by statute, the Certificate of Incorporation or Bylaws of Retec or any agreement
or document to which Retec is a party or by which it is bound. As of October 2,
1999, an aggregate of 2,086,222 shares of Retec Common Stock, net of exercises,
were reserved for issuance to employees, consultants and non-employee directors
pursuant to the Retec Stock Option Plans, under which options were outstanding
for an aggregate of 1,337,865 shares as of such date. As of October 2, 1999, an
aggregate of 75,750 shares of Retec Common Stock were reserved for issuance upon
the exercise of warrants and an aggregate of 2,153,977 shares of Retec Common
Stock were reserved for issuance upon the conversion of the Convertible
Debentures. All shares of Retec Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully paid
and non-assessable.
2.3. AUTHORITY.
(a) Retec has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Retec, subject only to the adoption of this
Agreement by Retec's stockholders and the filing and recording of the
Certificate of Merger pursuant to the DGCL. Under the DGCL, Retec's
stockholders may adopt this Agreement by vote of the holders of a majority
of the outstanding shares of Retec Common Stock. This Agreement has been
duly executed and delivered by Retec, and assuming the due authorization,
execution and delivery by Thermo Electron and Merger Sub, constitutes the
valid and binding obligation of Retec, enforceable in accordance with its
terms. The execution and delivery of this Agreement by Retec do not, and the
performance of this Agreement by Retec will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of Retec or (ii) subject
to obtaining the adoption by Retec's stockholders of this Agreement as
contemplated in Section 5.2 and compliance with the requirements set forth
in Section 2.3(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Retec or any of its material
subsidiaries or by which its or their respective properties is bound,
except, with respect to clause (ii), for any such conflicts, violations,
defaults or other occurrences that would not have a Material Adverse Effect
on Retec or the Surviving Corporation.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to Retec in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger with the Secretary of State of Delaware,
(ii) the filing of the Proxy Statement and the Schedule 13E-3 (as defined in
Section 2.6) with the U.S. Securities and Exchange Commission ("SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws.
2.4. BOARD APPROVAL. The Board of Directors of Retec, upon recommendation of
the Special Committee that this Agreement, including the Cash Merger
Consideration, is fair to, and in the best interests of, the stockholders of
Retec (other than Thermo Electron and TerraTech), has, as of the date of this
Agreement, unanimously (i) adopted a resolution approving this Agreement and
declaring its advisability, (ii) determined that the Merger is fair to, and in
the best interests of, Retec and its stockholders, and (iii) determined to
recommend that the stockholders of Retec approve this Agreement.
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2.5. FAIRNESS OPINION. The Special Committee has received an opinion from
AH&H dated October 18, 1999 that, as of such date, the consideration to be
received by Retec's stockholders in the Merger is fair, from a financial point
of view, to Retec's stockholders other than Thermo Electron and TerraTech.
2.6 SCHEDULE 13E-3; PROXY STATEMENT. The information supplied by Retec for
inclusion in the Rule 13e-3 Transaction Statement on Schedule 13E-3 (such
Schedule, as amended or supplemented, is referred to herein as the
"Schedule 13E-3") (including any information incorporated by reference in the
Schedule 13E-3 from other filings made by Retec with the SEC) or (other than
with respect to the information supplied by Thermo Electron and/or Merger Sub)
the proxy statement to be sent to the stockholders of Retec in connection with
the meeting of Retec's stockholders to consider the adoption of this Agreement
and approval of the Merger (the "Retec Stockholders' Meeting") (such proxy
statement, as amended or supplemented, is referred to herein as the "Proxy
Statement") shall not, on the date the Proxy Statement is first mailed to
stockholders, at the time of the Retec Stockholders' Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading. The Proxy Statement will comply (other than with respect to
information relating to Thermo Electron and/or Merger Sub) as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB
Thermo Electron and Merger Sub, jointly and severally, represent and warrant
to Retec as follows:
3.1. ORGANIZATION. Thermo Electron is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, each has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted and
as proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Thermo Electron. In this
Agreement, the term "Material Adverse Effect" used in reference to Thermo
Electron means any event, change or effect, that is or is reasonably likely to
be, individually or in the aggregate with other events, changes or effects,
materially adverse to the financial condition, assets, liabilities, results of
operations or business of Thermo Electron and its subsidiaries, taken as a
whole.
3.2. AUTHORITY.
(a) Each of Thermo Electron and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Thermo Electron and Merger Sub,
subject only to the filing and recording of the Certificate of Merger pursuant
to the DGCL. This Agreement has been duly executed and delivered by each of
Thermo Electron and Merger Sub and, assuming the due authorization, execution
and delivery of this Agreement by Retec, this Agreement constitutes the valid
and binding obligation of each of Thermo Electron and Merger Sub, enforceable in
accordance with its terms. The execution and delivery of this Agreement by each
of Thermo Electron and Merger Sub do not, and the performance of this Agreement
by each of Thermo Electron and Merger Sub will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws of Thermo Electron or the Certificate
of Incorporation or Bylaws of Merger Sub or of any material subsidiary, direct
or indirect, of Thermo Electron (each, a "Material Thermo Subsidiary"),
(ii) subject to compliance with the requirements set forth in Section 3.2(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Thermo Electron or any Material Thermo Subsidiaries
(including Merger Sub, but excluding Retec and its wholly owned subsidiaries) or
by which its or any of their respective properties is bound or affected, or
(iii) result
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in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair Thermo Electron's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Thermo Electron or any Material Thermo Subsidiaries (including Merger
Sub, but excluding Retec and its wholly owned subsidiaries) pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Thermo Electron or any
Material Thermo Subsidiaries (including Merger Sub, but excluding Retec and its
wholly owned subsidiaries) is a party or by which Thermo Electron or any
Material Thermo Subsidiaries (including Merger Sub, but excluding Retec and its
wholly owned subsidiaries) or its or any of their respective properties are
bound or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on Thermo Electron.
(b) All shares of Thermo Common Stock which will be subject to issuance
pursuant to the Retec Stock Option Plans, the Retec ESPP and the warrants issued
by Retec, each as assumed by Thermo Electron pursuant to this Agreement will,
upon issuance, be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Thermo Electron or any other agreement or document to
which Thermo Electron is a party or by which it is bound.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Thermo Electron or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger with the
Secretary of State of Delaware, (ii) the filing of the Schedule 13E-3 with the
SEC in accordance with the Exchange Act, and (iii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws.
3.3 MERGER SUB. Since the date of its incorporation, Merger Sub has not
engaged in any activities other than in connection with or as contemplated by
this Agreement.
3.4 INFORMATION PROVIDED TO INVESTMENT BANKERS. To the knowledge of Thermo
Electron, the information provided by Thermo Electron and Retec to AH&H in
connection with the Merger does not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. For purposes of the foregoing sentence, any
projections or forward-looking statements shall not be deemed to be statements
of material facts; however, the projections were prepared in good faith and
based on assumptions that were reasonable at the time such projections were
prepared, given the information known by management at such time. Furthermore,
it is recognized that such projections and forward-looking statements do not
constitute any warranty as to the future performance of Thermo Electron or Retec
and that actual results may vary from projected results.
3.5 COMPLIANCE WITH AGREEMENTS. The treatment provided for herein with
respect to outstanding Convertible Debentures, options (both under the Retec
Stock Option Plans and the Retec ESPP) and warrants of Retec is in compliance
with the applicable agreements and instruments governing such securities. No
consent or approval of the holders of such instruments is required in connection
with the transactions contemplated by this Agreement.
3.6 SCHEDULE 13E-3; PROXY STATEMENT. The information supplied by Thermo
Electron for inclusion in the Schedule 13E-3 (including any information
incorporated by reference in the Schedule 13E-3 from other filings made by
Thermo Electron with the SEC) or (other than with respect to the information
supplied by Retec) the Proxy Statement shall not, on the date the Proxy
Statement is first mailed to stockholders, at the time of the Retec
Stockholders' Meeting or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in
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order to make the statements therein, in light of the circumstances under which
they are made, not false or misleading. The Proxy Statement will comply (with
respect to information relating to Thermo Electron) as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
3.7. FINANCIAL RESOURCES. Thermo Electron has the financial resources to
consummate the transactions contemplated by this Agreement and to pay the
consideration in the Merger provided for in Section 1.6(a).
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS BY RETEC. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Retec shall, except for such
actions which are contemplated by this Agreement or reasonably appropriate in
connection with the transactions contemplated by this Agreement, and except as
consented to by Thermo Electron, carry on its business in the usual, regular and
ordinary course, in substantially the same manner as heretofore conducted (it
being expressly understood that Retec may declare and pay cash dividends in
customary amounts at customary times), pay its debts and taxes when due subject
to good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
4.2 CONDUCT OF BUSINESS BY THERMO ELECTRON. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Thermo Electron
(i) shall, except for such actions which are contemplated by this Agreement or
reasonably appropriate in connection with the transactions contemplated by this
Agreement, or which are undertaken in connection with the Merger or with the
reorganization of Thermo Electron and its subsidiaries as publicly announced or
as disclosed to AH&H prior to the date of this Agreement, carry on its business
materially in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted, pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings; and
(ii) shall not, and shall not permit any Material Thermo Subsidiary to, take any
action which would make any of the representations and warranties of Thermo
Electron contained herein untrue or cause Thermo Electron not to be in
compliance with any covenant set forth herein.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1. SCHEDULE 13E-3; PROXY STATEMENT; OTHER FILINGS.
(a) As promptly as practicable after the execution of this Agreement, Thermo
Electron, TerraTech and Retec will jointly prepare and file with the SEC the
Schedule 13E-3 and the Proxy Statement. Thermo Electron, TerraTech and Retec
will cause the Proxy Statement to be mailed to stockholders of Retec at the
earliest practicable time. Each party will notify the other promptly upon the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff or any other government officials for amendments or supplements to
the Schedule 13E-3 or the Proxy Statement or any other filing or for additional
information and will supply the other party with copies of all correspondence
between such party or any of its representatives, on the one hand, and the SEC,
or its staff or any other government officials, on the other hand, with respect
to the Proxy Statement, the Schedule 13E-3 or the Merger. Whenever any event
occurs that is required to be set forth in an amendment or supplement to the
Schedule 13E-3 or the Proxy Statement, the relevant party will promptly inform
the other party of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials, and/or mailing to stockholders of
Retec, such amendment or supplement.
(b) The information supplied by Retec for inclusion in the Schedule 13E-3 or
the Proxy Statement (including any information incorporated by reference in the
Schedule 13E-3 or the Proxy Statement from other filings made by Retec with the
SEC) will not, on the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to Retec stockholders, at the time of the
Retec Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or shall omit to
state any material fact necessary in order to make the statements made therein
not false or misleading in light of the circumstances under which they were
made, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of proxies for the
Retec Stockholders' Meeting which has become false or misleading.
(c) The information supplied by Thermo Electron and Merger Sub for inclusion
in the Schedule 13E-3 or the Proxy Statement (including any information
incorporated by reference in the Schedule 13E-3 or the Proxy Statement from
other filings made by Thermo Electron with the SEC) will not, on the date the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to Retec stockholders, at the time of the Retec Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading in light of
the circumstances under which they were made, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Retec Stockholders' Meeting which has become
false or misleading.
(d) The Proxy Statement will include the recommendation of the Special
Committee in favor of approval of this Agreement (except that the Special
Committee may withdraw, modify or refrain from making such recommendation to the
extent that the Special Committee determines after consultation with outside
legal counsel that failure to do so would be inconsistent with the Special
Committee's fiduciary duties under applicable law).
(e) The Proxy Statement will include the recommendation of the Board of
Directors of Retec in favor of approval of this Agreement (except that the Board
of Directors of Retec may withdraw, modify or refrain from making such
recommendation to the extent that the Board determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's fiduciary duties under applicable law).
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(f) To the extent that the Special Committee or the Board withdraws,
modifies or refrains from making their respective recommendations pursuant to
Sections 5.1(d) or (e) hereof, the Proxy Statement will reflect such action.
5.2. MEETING OF RETEC STOCKHOLDERS. Promptly after the date hereof, Retec
will take all action necessary in accordance with the DGCL and its Certificate
of Incorporation and Bylaws to convene the Retec Stockholders' Meeting to be
held as promptly as practicable for the purpose of voting upon this Agreement.
Unless the Special Committee determines after consultation with outside legal
counsel that to do so would be inconsistent with the Board's or the Special
Committee's fiduciary duties under applicable law, Retec will use its reasonable
best efforts to solicit from its stockholders proxies in favor of the approval
of this Agreement and the Merger, and will take all other action necessary or
advisable to secure the vote or consent of its stockholders required by the DGCL
to obtain such approvals. Thermo Electron shall vote, or cause to be voted, all
of the Retec Common Stock then owned by it and any of its subsidiaries in favor
of the approval of this Agreement and the Merger.
5.3. ACCESS TO INFORMATION. Subject to applicable legal restrictions, each
of the parties hereto will afford the other (including, in the case of Retec,
the Special Committee) and each of their respective accountants, counsel and
other representatives reasonable access during normal business hours to the
properties, books, records and personnel of each of them during the period prior
to the Effective Time to obtain all information concerning their respective
businesses, including the status of their respective product development
efforts, properties, results of operations and personnel, as each of them may
reasonably request. Each of the parties hereto agrees that it will, and will
cause its representatives and agents to, keep all such information confidential
and will not, and will cause its representatives or agents not to, use any
information obtained pursuant to this Section 5.3 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing, none of the parties hereto shall be required to
keep confidential any information (i) which is or becomes generally available to
the public, other than by wrongful disclosure by the disclosing party in
violation of this Agreement, or (ii) which becomes available to the disclosing
party on a nonconfidential basis from a source other than the nondisclosing
party or any officer or director of such party.
5.4. PUBLIC DISCLOSURE. Thermo Electron and Retec will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and will not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange. Promptly upon the execution hereof, the parties shall jointly make a
press release with respect to the transactions contemplated by this Agreement,
in form reasonably satisfactory to the Special Committee, and Retec shall,
within five days after the execution hereof, file with the SEC a Current Report
on Form 8-K, which shall attach as an exhibit this Agreement.
5.5. LEGAL REQUIREMENTS. Subject to the terms of this Agreement, each of
Thermo Electron, Merger Sub and Retec will take all reasonable actions necessary
or desirable to comply promptly with all legal requirements that may be imposed
on them with respect to the consummation of the transactions contemplated by
this Agreement (including furnishing all information required in connection with
approvals of or filings with any Governmental Entity, and including using its
reasonable best efforts to defend any litigation prompted hereby) and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon any of them or their
respective subsidiaries in connection with the consummation of the transactions
contemplated by this Agreement.
5.6. NOTIFICATION OF CERTAIN MATTERS. Subject to the terms of this
Agreement, Thermo Electron and Merger Sub will give prompt notice to Retec, and
Retec will give prompt notice to Thermo Electron, of the occurrence, or failure
to occur, of any event, which occurrence or failure to occur would be reasonably
likely to cause (a) any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date of
this Agreement to the Effective Time, or (b) any
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material failure of Thermo Electron and Merger Sub or Retec, as the case may be,
or of any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement. From the date of this Agreement until the Effective
Time, Thermo Electron will give prompt notice to Retec (including, without
limitation, the Special Committee) of any written offers or indications of
interest it receives from a prospective purchaser of any material properties or
assets of Retec or its subsidiaries, which set forth a proposed purchase price
greater than $3 million or in which the book value of the assets being sold is
greater than $3 million, other than sales of assets and services in the ordinary
course of business. Notwithstanding the above, the delivery of any notice
pursuant to this section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice or the conditions to such
party's obligation to consummate the Merger.
5.7. BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Thermo Electron and Retec under this Agreement, each of the
parties to this Agreement will use its reasonable best efforts to effectuate the
Merger and the other transactions contemplated hereby and to fulfill and cause
to be fulfilled the conditions to closing under this Agreement, it being
understood that such efforts shall not include any obligation to settle any
litigation prompted hereby. Subject to the terms hereof, each party hereto, at
the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
the transactions contemplated hereby.
5.8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS; RESERVATION OF SHARES.
(a) At the Effective Time, each outstanding option to purchase shares of
Retec Common Stock (each a "Retec Stock Option") under the Retec Stock Option
Plans, whether or not exercisable, will be assumed by Thermo Electron. Each
Retec Stock Option so assumed by Thermo Electron under this Agreement will
continue to have, and be subject to, the same terms and conditions set forth in
the applicable Retec Stock Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i) each
Retec Stock Option will be exercisable (or will become exercisable in accordance
with its terms) for that number of whole shares of Thermo Common Stock equal to
the product of the number of shares of Retec Common Stock that were issuable
upon exercise of such Retec Stock Option immediately prior to the Effective Time
multiplied by a fraction (the "Exchange Ratio"), the numerator of which is the
Cash Merger Consideration and the denominator of which is the closing price of
the Thermo Common Stock on the day immediately preceding the Effective Date as
reported in the consolidated transaction reporting system, rounded down to the
nearest whole number of shares of Thermo Common Stock, and (ii) the per share
exercise price for the shares of Thermo Common Stock issuable upon exercise of
such assumed Retec Stock Option will be equal to the quotient determined by
dividing the exercise price per share of Retec Common Stock at which such Retec
Stock Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. After the Effective Time,
Thermo Electron will issue to each holder of an outstanding Retec Stock Option a
notice describing the foregoing assumption of such Retec Stock Option by Thermo
Electron.
(b) At the Effective Time, each outstanding option to purchase shares of
Retec Common Stock (each, a "Retec ESPP Stock Option") under the Retec ESPP will
be assumed by Thermo Electron. Each Retec ESPP Stock Option so assumed by Thermo
Electron will continue to have, and be subject to, the same terms and conditions
as are set forth in the Retec ESPP immediately prior to the Effective Time
except that (i) the assumed option shall be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Thermo Common Stock equal to the product of the number of shares of Retec Common
Stock that would have been issuable upon exercise of such Retec ESPP Stock
Option multiplied by the Exchange Ratio; (ii) the purchase price per share of
Thermo Common Stock shall be the lower of (A) eighty-five percent (85%) of
(x) the per-share Market Value of Retec Common Stock on the Grant Date divided
by (y) the Exchange Ratio, with the resulting price rounded up to the nearest
whole cent, and (B) eighty-five percent (85%) of the Market Value of Thermo
Common Stock as of the Exercise Date; and (iii) the $25,000 limit under
Section 9.2(i) of the Retec ESPP shall be applied by taking into
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account Thermo Electron's assumption of the Retec ESPP Stock Options in
accordance with the Internal Revenue Code of 1986, as amended, and applicable
regulations. For purposes of this subsection, "Market Value," "Grant Date," and
"Exercise Date" shall have the meaning given them in the Retec ESPP.
(c) Thermo Electron will reserve sufficient shares of Thermo Common Stock
for issuance under this Section 5.8 and pursuant to the exercise of warrants
issued by Retec.
5.9. THERMO ELECTRON FORM S-8. Thermo Electron agrees to file a
registration statement on Form S-8 or, if possible, an amendment to Thermo
Electron's then effective registration statement on Form S-8, for the shares of
Thermo Common Stock issuable with respect to the assumed Retec Stock Options and
the assumed Retec ESPP Stock Options within five (5) business days of the
Effective Time, and shall keep such registration statement effective for so long
as any such options remain outstanding.
5.10. INDEMNIFICATION; INSURANCE.
(a) The Certificate of Incorporation and Bylaws of the Surviving Corporation
will contain the provisions with respect to indemnification and elimination of
liability for monetary damages set forth in the Certificate of Incorporation and
Bylaws of Retec, which provisions will not be amended, repealed or otherwise
modified for a period of six (6) years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who, as of the
date hereof and at any time from the date hereof to the Effective Time, were
directors or officers of Retec, unless such modification is required by law. The
Surviving Corporation shall, and Thermo Electron will cause the Surviving
Corporation to, fulfill and honor in all respects the indemnification
obligations of Retec pursuant to the provisions of the Certificate of
Incorporation and the Bylaws of Retec as in effect on the date of this
Agreement.
(b) For a period of six (6) years after the Effective Time, Thermo Electron
shall cause the Surviving Corporation to, either directly or through
participation in Thermo Electron's umbrella policy, maintain in effect a
directors' and officers' liability insurance policy covering those Retec
directors and officers currently covered by Thermo Electron's liability
insurance policy with coverage no less favorable in amount and scope than
existing coverage for such Retec directors and officers (which coverage may be
an endorsement extending the period in which claims may be made under such
existing policy); provided, however, that in no event shall the Surviving
Corporation be required to expend to maintain or procure insurance coverage
pursuant to this Section 5.10, directly or through participation in Thermo
Electron's policy, an amount per annum in excess of 175% of the current annual
premiums, as adjusted for inflation each year, allocable and payable by Retec
(the "Maximum Premium") with respect to such insurance, or, if the cost of such
insurance exceeds the Maximum Premium, the maximum amount of coverage that can
be purchased or maintained for the Maximum Premium.
(c) Retec shall, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, indemnify and hold harmless
Fred Holubow ("Holubow") against all costs and expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to any action or omission in Holubow's capacity as a
director (including, without limitation, as a member of the Special Committee)
or fiduciary of Retec (including, without limitation, in connection with the
transactions contemplated by this Agreement) occurring on, before or after the
Effective Time (or, if this Agreement is terminated without the Merger becoming
effective, occurring on, before or after the date of such termination), until
the expiration of the statute of limitations relating thereto (and shall pay any
expenses in advance of the final disposition of such action or proceeding to
Holubow to the fullest extent permitted under applicable law, upon receipt from
Holubow of an undertaking (which need not be secured or subject to a bond or
other requirement) to repay any advanced expenses if it shall ultimately be
determined that Holubow is not entitled to be indemnified against such
expenses). If the Merger becomes effective, Thermo Electron shall be jointly and
severally responsible, to the fullest extent permitted by applicable law (it
being understood that applicable law may permit Thermo Electron to indemnify or
advance expenses to Holubow under circumstances in
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which Retec could not do so), for the indemnification and advancement of
expenses obligations provided for in the first sentence of this
Section 5.10(c). If the Merger does not become effective, Thermo Electron shall
have the same responsibilities set forth in the immediately preceding sentence,
except that Thermo Electron shall have no responsibility for indemnifying or
advancing expenses to Holubow with respect to matters that do not arise out of
or pertain to the work of the Special Committee, this Agreement or the
transactions contemplated hereby. In the event of any claim, action, suit,
proceeding or investigation covered by this Section 5.10(c), (i) Retec, Thermo
Electron and the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of counsel selected by Holubow, promptly after
statements therefor are received, and (ii) Retec, Thermo Electron and the
Surviving Corporation shall cooperate in the defense of any such matter;
provided, however, that neither Retec nor Thermo Electron nor the Surviving
Corporation shall be liable for any settlement effected without Thermo
Electron's prior written consent (such consent not to be unreasonably withheld
or delayed); and provided, further, that, in the event any claim for
indemnification is asserted or made within the period prior to the expiration of
the applicable statute of limitations, all rights to indemnification in respect
of such claim shall continue until the disposition of such claim. In connection
with Thermo Electron or the Surviving Corporation making any payment or
advancing any funds pursuant to this Section 5.10(c), Thermo Electron or the
Surviving Corporation, as the case may be, shall be entitled to require Holubow
to use commercially reasonable efforts, at the cost and expense of Thermo
Electron and the Surviving Corporation, to cause Thermo Electron or the
Surviving Corporation, as the case may be, to be subrogated to Holubow's rights
under any insurance coverage maintained by the Surviving Corporation, Thermo
Electron or any of their respective affiliates with respect to the underlying
subject matter of, and to the extent of, such payment or advance.
(d) In the event Retec, Thermo Electron or the Surviving Corporation or any
of their respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers all or substantially
all of its properties or assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of Retec,
Thermo Electron and the Surviving Corporation, as the case may be, shall assume
the obligations set forth in this Section 5.10.
(e) Heirs, representatives and estates of the officers and directors of
Retec (including, without limitation, Holubow) shall have the right to enforce
the obligations arising under this Section 5.10.
(f) The rights of the officers and directors of Retec (including, without
limitation, Holubow) under this Section 5.10 are in addition to any rights of
such persons under separate indemnification agreements any such persons may have
with Retec and/or Thermo Electron, under the Certificate of Incorporation or
Bylaws of Retec or Thermo Electron or otherwise.
5.11. DEFERRED COMPENSATION PLAN. Subject to obtaining the consents of the
affected participants, at the Effective Time, the Thermo Remediation Inc.
Deferred Compensation Plan for Directors (the "Deferred Compensation Plan") will
terminate, and Retec will distribute to each participant the sum in cash equal
to the balance of stock units credited to his or her deferred compensation
account under the Deferred Compensation Plan as of the Effective Time multiplied
by the Cash Merger Consideration.
5.12 COMPLIANCE BY MERGER SUB. Thermo Electron shall cause Merger Sub to
timely perform and comply with all of its obligations under or related to this
Agreement. Thermo Electron will ensure that Merger Sub has the financial
resources to consummate the transactions contemplated by this Agreement and to
pay the consideration in the Merger provided for in Section 1.6(a).
5.13 NYSE LISTING. Thermo Electron shall use its best efforts to cause all
shares of Thermo Common Stock which will be subject to issuance pursuant to the
Retec Stock Option Plans, the Retec ESPP and the warrants issued by Retec, each
as assumed by Thermo Electron pursuant to this Agreement, to be authorized for
listing on the New York Stock Exchange.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(b) NYSE LISTING. The Thermo Common Stock which will be subject to
issuance pursuant to the Retec Stock Option Plans, the Retec ESPP and the
warrants issued by Retec, each as assumed by Thermo Electron pursuant to this
Agreement, shall have been authorized for listing on the New York Stock
Exchange.
(c) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote under the DGCL by the stockholders of Retec.
6.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF RETEC. The obligations of
Retec to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by Retec (provided that the Special
Committee shall have consented in writing to any such waiver):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Thermo Electron and Merger Sub contained in this Agreement shall be true and
correct in all material respects (other than those already qualified by a
materiality standard, which shall be true and correct in all respects) on and as
of the Effective Time, except for changes expressly contemplated by this
Agreement and except for those representations and warranties that address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Effective Time; and Retec shall have received a certificate to such effect
signed on behalf of Thermo Electron by the President, Chief Executive Officer or
Vice President of Thermo Electron; and
(b) AGREEMENTS AND COVENANTS. Thermo Electron and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and Retec shall have received a certificate to such
effect signed on behalf of Thermo Electron by the President, Chief Executive
Officer or Vice President of Thermo Electron.
(c) FAIRNESS OPINION. At the time of mailing of the Proxy Statement to the
stockholders of Retec and at the Effective Time, AHH shall have reaffirmed
orally the fairness opinion previously prepared and delivered by it to the
Special Committee and AHH shall not have withdrawn such opinion.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Thermo Electron:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Retec contained in this Agreement shall be true and correct in all material
respects (other than those already qualified by a materiality standard, which
shall be true and correct in all respects) on and as of the Effective Time,
except for changes contemplated by this Agreement and except for those
representations and warranties that address matters only as of a particular date
(which shall remain true and correct as of such particular date), with the same
force and effect as if made on and as of the Effective Time, except, in all such
cases, where the failure to be so true and correct would not have a Material
Adverse Effect on Retec; and Thermo
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Electron and Merger Sub shall have received a certificate to such effect signed
on behalf of Retec by the President, Chief Executive Officer or Vice President
of Retec; and
(b) AGREEMENTS AND COVENANTS. Retec shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Thermo Electron shall have received a certificate to such effect
signed on behalf of Retec by the President, Chief Executive Officer or Vice
President of Retec.
(c) NO WITHDRAWAL OF SPECIAL COMMITTEE RECOMMENDATION. The Special
Committee shall not have withdrawn its recommendation to the Board of Directors
of Retec as set forth in Section 2.4 hereof.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of this
Agreement by the stockholders of Retec:
(a) by mutual written consent duly authorized by the Boards of Directors of
Merger Sub and Retec (upon approval of the Special Committee);
(b) by either Retec (at the direction of the Special Committee) or Merger
Sub if the Merger shall not have been consummated by March 31, 2000; provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date if such action or failure to act constitutes a breach of this
Agreement;
(c) by either Retec (upon approval of the Special Committee) or Merger Sub
if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action (an "Order"), in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree or ruling is final and nonappealable;
(d) by either Retec (upon approval of the Special Committee) or Merger Sub
if the required approval of the stockholders of Retec contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of stockholders duly convened
therefor or at any adjournment thereof (provided that the right to terminate
this Agreement under this Section 7.1(d) shall not be available to Retec where
the failure to obtain stockholder approval of Retec shall have been caused by
the action or failure to act of Retec in breach of this Agreement and the right
to terminate this Agreement under this Section 7.1(d) shall not be available to
Merger Sub where the failure to obtain the requisite vote by the stockholders of
Retec shall have been caused by the failure of Thermo Electron or any direct or
indirect subsidiary of Thermo Electron (whether or not wholly-owned) to vote its
shares of Retec Common Stock in favor of the Merger and this Agreement);
(e) by Retec if the Special Committee determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's or the Special Committee's fiduciary duties under applicable law;
(f) by Retec (upon approval of the Special Committee), upon a breach of any
representation, warranty, covenant or agreement on the part of Thermo Electron
or Merger Sub set forth in this Agreement, if (i) as a result of such breach the
conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied
as of the time of such breach and (ii) such breach shall not have been cured by
Thermo Electron or Merger Sub within ten (10) business days following receipt by
Thermo Electron of written notice of such breach from Retec; or
(g) by Merger Sub, upon a breach of any representation, warranty, covenant
or agreement on the part of Retec set forth in this Agreement, if (i) as a
result of such breach the conditions set forth in
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<PAGE>
Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such
breach and (ii) such breach shall not have been cured by Retec within ten
(10) business days following receipt by Retec of written notice of such breach
from Merger Sub.
7.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice by the terminating party to the other parties hereto
(or, in the case of a termination pursuant to Section 7.1(f) or 7.1(g), the
expiration of the ten business day period referred to therein). In the event of
the termination of this Agreement as provided in Section 7.1, this Agreement
shall be of no further force or effect, except that (i) the confidentiality
obligations of each party hereto contained in Section 5.3, the obligations
contained in Section 5.10, and the provisions of Sections 7.2, 7.3 and 8.1 shall
survive any such termination and (ii) nothing herein shall relieve any party
from liability for any willful and material breach of this Agreement.
7.3. FEES AND EXPENSES. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, whether or not the Merger is consummated.
7.4. AMENDMENT. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that Retec
may not amend this Agreement without the approval of the Special Committee.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein; provided, however, that Retec may not take any
such actions without the approval of the Special Committee. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Retec, Thermo Electron and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms, or as the context requires, survive the Effective Time shall
survive the Effective Time.
8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Thermo Electron or Merger Sub, to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: President
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
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<PAGE>
with a copy (which shall not constitute notice to Thermo Electron or Merger
Sub) to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: General Counsel
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
(b) if to Retec, to:
ThermoRetec Corporation
Damonmill Square
9 Pond Lane, Suite 5A
Concord, MA 01742
Attention: President
Telephone: (978) 371-3200
Facsimile: (978) 371-9124
with a copy (which shall not constitute notice to Retec) to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Peter H. Lieberman, Esq.
Telephone: (312) 715-4000
Facsimile: (312) 715-4800
8.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.4. ENTIRE AGREEMENT. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein (a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, with the exception of the agreements relating to the Convertible
Debentures, the Retec ESPP, the Retec Stock Option Plans, the warrants issued by
Retec, the Deferred Compensation Plan, and any agreements relating to
indemnification of members of the Board; and (b) are not intended to confer upon
any other person any rights or remedies hereunder, except as set forth or
otherwise contemplated herein. Notwithstanding the foregoing, Section 5.10
hereof is intended to be for the benefit of, and may be enforced by, those
individuals who, as of the date hereof and at any time from the date hereof to
the Effective Time, were directors or officers of Retec.
8.5. SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.6. OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other
A-18
<PAGE>
remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other remedy.
The parties hereto agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.8. ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties.
8.9 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
A-19
<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub and Retec have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
THERMO ELECTRON CORPORATION
By: /s/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: Vice President and Chief Financial
Officer
RETEC ACQUISITION CORPORATION
By: /s/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: President
THERMORETEC CORPORATION
By: /s/ ROBERT W. DUNLAP
-----------------------------------------
Name: Robert W. Dunlap
Title: President and Chief Executive
Officer
</TABLE>
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<PAGE>
APPENDIX B
ADAMS, HARKNESS & HILL LETTERHEAD
October 18, 1999
Special Committee of the Board of Directors
ThermoRetec Corporation
9 Damonmill Square, Suite 3A
Concord, MA 01742-2851
Dear Sirs:
The Special Committee of the Board of Directors (the "Special Committee") of
ThermoRetec Corporation ("Retec" or the "Company") has requested our opinion
(the "Opinion"), as investment bankers, as to the fairness, from a financial
point of view, to the shareholders of Retec other than Thermo Electron
Corporation ("Thermo Electron") or Thermo Terratech Inc. ("TTT"), of the cash
consideration to be received by such shareholders in connection with the
proposed acquisition (the "Transaction") of the Company by Thermo Electron,
pursuant to an Agreement and Plan of Merger to be dated as of October 19, 1999
(the "Merger Agreement"), by and among Thermo Electron, Retec Acquisition
Corporation, a wholly-owned subsidiary of TT Acquisition Corporation, a
wholly-owned subsidiary of Thermo Electron ("Merger Sub"), and the Company.
Adams, Harkness & Hill, Inc. ("AH&H"), as part of its investment banking
activities, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
In the Transaction, subject to Company shareholder approval, each share of
the Company's common stock, par value $.01 per share (the "Common Shares"),
issued and outstanding immediately prior to the effective date of the
Transaction, will be converted into the right to receive $7.00 in cash at or
subsequent to the effective date of the Transaction.
In developing our Fairness Opinion, we have, among other activities:
(i) reviewed the Company's Annual Reports, Reports on Form 10-K and related
financial information for the three fiscal years ended April 3, 1999, and the
Company's Report on Form 10-Q and the related unaudited financial information
for the three month period ending July 3, 1999 (the "Public Historical Financial
Information"); (ii) reviewed Thermo Electron's Annual Reports, Reports on
Form 10-K and related financial information for the three fiscal years ended
January 2, 1999, and Thermo Electron's Reports on Form 10-Q and the related
unaudited financial information for the three month periods ending April 3, 1999
and July 3, 1999; (iii) analyzed certain internal financial statements and other
internal financial and operating data and business plans prepared by the
management of the Company, including five-year financial budgets (the
"Budgets"); (iv) conducted due diligence discussions with members of senior
management of the Company and Thermo Electron, and discussed with members of
senior management of the Company and Thermo Electron their views regarding
future business and financial and operating benefits arising from the
Transaction; (v) reviewed the historical market prices and trading activity for
the Common Shares and compared them with that of certain publicly traded
companies we deemed to be relevant and comparable to the Company; (vi) compared
the results of operations of the Company and with that of certain companies we
deemed to be relevant and comparable to the Company; (vii) compared the
financial terms of the Transaction with the financial terms of certain other
mergers and acquisitions we deemed to be relevant and comparable to the
Transaction; (viii) reviewed the Merger Agreement; and (ix) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as we deemed necessary, including our assessment
of general economic, monetary, and industry conditions. In support of our
assessment of industry conditions, we engaged and consulted Environmental
Business International, Inc. ("EBI"), a leading strategic consulting firm
serving the
B-1
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environmental services industry. EBI reviewed the Public Historical Financial
Information, the Budgets, and certain financial and industry analyses prepared
by AH&H, and provided to us its professional opinion that the Budgets had been
prepared on a reasonable basis, the analysis, procedures and industry
assessments performed by AH&H were sufficiently comprehensive, and the major
industry-related factors affecting Retec had been duly considered.
Our Opinion as expressed herein is limited to the fairness, from a financial
point of view, of the proposed consideration and does not address the Company's
underlying business decision to engage in the Transaction. Our Opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote on the Transaction. We are expressing no opinion as to a
single specific value of Common Shares at the time of our analysis or at any
time prior to and including the effective date of the Transaction. In connection
with our review and in arriving at our Opinion, we have not independently
verified any information received from the Company, have relied on such
information, and have assumed that all such information is complete and accurate
in all material respects. With respect to any internal forecasts or budgets
reviewed relating to the prospects of the Company, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the Company's management as to the future financial
performance and cash requirements of the Company. Our Opinion is rendered on the
basis of securities market conditions prevailing as of the date hereof and on
the conditions and prospects, financial and otherwise, of the Company as known
to us on the date hereof. We have not conducted, nor have we received copies of,
any independent valuation or appraisal of any of the assets of the Company. In
addition, we have assumed, with your consent, that the terms set forth in the
executed Merger Agreement will not differ materially from the proposed terms
provided to us in the October 18, 1999, draft Merger Agreement.
AH&H also has been engaged by Special Committees of the Boards of Directors
of each of TTT and Randers Killam Group, Inc. ("RGI") to develop opinions as to
the fairness to the holders of common stock of TTT other than Thermo Electron
and to the holders of common stock of RGI other than Thermo Electron and TTT,
respectively, of the consideration to be received by such holders in separate
transactions involving Thermo Electron.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the transactions contemplated by the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration to be received in the Transaction by the holders
of Common Shares other than Thermo Electron and TTT is fair, from a financial
point of view, to such shareholders.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
<TABLE>
<S> <C> <C>
/s/ JAMES A. SIMMS
By: -----------------------------------------
</TABLE>
James A. Simms
Group Head, Mergers & Acquisitions
B-2
<PAGE>
APPENDIX C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to SectionSection 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if such second notice
is sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of
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determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX D
INFORMATION CONCERNING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY
The following sets forth information with respect to purchases of Common
Stock by ThermoRetec and Thermo Electron since the commencement of ThermoRetec's
second full fiscal year preceding the date of this Proxy Statement.
<TABLE>
<CAPTION>
AVERAGE PURCHASE
NUMBER OF RANGE OF PRICES PRICE PER SHARE
SHARES PURCHASED PAID PER SHARE DURING
QUARTER/FISCAL YEAR PURCHASER DURING QUARTER DURING QUARTER ($)(1) QUARTER ($)(1)
- ------------------- ---------------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C>
1(st) Quarter 1997........ ThermoRetec 239,500 6.500-7.625 7.1123
2nd Quarter 1997.......... Thermo Electron 8,500 6.875-8.125 7.375
2nd Quarter 1997.......... ThermoRetec 97,000 6.875-8.125 7.375
3(rd) Quarter 1997........ ThermoRetec 76,700 5.500-7.750 6.8305
2nd Quarter 1998.......... Thermo Electron 19,500 2.375-5.125 3.7414
3rd Quarter 1998.......... Thermo Electron 35,300 1.750-3.125 2.5382
4(th) Quarter 1998........ Thermo Electron 16,000 1.875-3.625 2.585
</TABLE>
- ------------------------
(1) Prices per share of Common Stock are net of commissions paid by the
respective purchasers.
The following chart sets forth information with respect to options granted
by ThermoRetec since the commencement of ThermoRetec's second full fiscal year
preceding the date of this Proxy Statement to directors and executive officers
of ThermoRetec, Thermo TerraTech, the Merger Sub and Thermo Electron.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
DATE OF COVERED EXERCISE
NAME RELATIONSHIP GRANT BY OPTIONS PRICE
- ---- ------------------------------------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Robert W. Dunlap..... President, Chief Executive Officer and 2/23/99 8,000 $2.45
Director, ThermoRetec
Elias P. Director, ThermoRetec; Director, Thermo 9/24/97 1,000 $7.65
Gyftopoulos........ Electron
Elias P. Director, ThermoRetec; Director, Thermo 9/15/98 1,000 $2.93
Gyftopoulos........ Electron
Fred Holubow......... Director, ThermoRetec 9/24/97 1,000 $7.65
Fred Holubow......... Director, ThermoRetec 9/15/98 1,000 $2.93
Nels R. Johnson...... Vice President, ThermoRetec 3/18/98 7,000 $6.51
Frank E. Morris...... Director, ThermoRetec 9/24/97 1,000 $7.65
Frank E. Morris...... Director, ThermoRetec 9/15/98 1,000 $2.93
</TABLE>
No options to purchase Common Stock have been exercised by directors and
executive officers of ThermoRetec, Thermo TerraTech, the Merger Sub and Thermo
Electron since the commencement of ThermoRetec's second full fiscal year
preceding the date of this Proxy Statement.
TRANSACTIONS IN THE COMMON STOCK
There were no transactions in the Common Stock effected during the 60 days
preceding the date of this Proxy Statement by ThermoRetec, Thermo TerraTech, the
Merger Sub, Thermo Electron or, to the best knowledge of the Company, the
directors and executive officers of any of ThermoRetec, Thermo TerraTech, the
Merger Sub or Thermo Electron.
D-1
<PAGE>
APPENDIX E
ANNUAL REPORT ON FORM 10-K OF THERMORETEC
FOR THE FISCAL YEAR ENDED APRIL 3, 1999
E-1
<PAGE>
APPENDIX E
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 April 3, 1999
[ ] 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 charter)
Delaware 59-3203761
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Damonmill Square
9 Pond Lane, Suite 5A
Concord, Massachusetts 01742-2851
(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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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. 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 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 Fiscal 1999 Annual Report to Shareholders for the
year ended April 3, 1999, 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 September 16, 1999, are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ThermoRetec Corporation (the Company or the Registrant, formerly Thermo
Remediation Inc.) is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues.
The Company also performs the cleanup of hazardous waste sites for government
and industry as a prime construction contractor and completes predesigned
remedial action contracts at sites containing hazardous, toxic, and radioactive
wastes. The Company develops and implements management and computer-based
systems that aid in the collection and application of environmental data,
helping to establish or improve a customer's environmental-compliance programs
while controlling the related costs.
The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production.
Through the Company's Soil Remediation segment, the Company designs and
operates facilities for the remediation of nonhazardous soil, and operates such
facilities on the East and West Coasts. The Company also designs and operates
mobile equipment for the on-site remediation of such wastes. During fiscal
1999*, the Company announced plans to close two soil-recycling facilities, one
of which closed in March 1999. The Company is actively seeking a buyer for the
other soil-recycling facility. In May 1999, the Company announced plans to sell
three additional soil-recycling facilities. In connection with these actions,
the Company expects to record approximately $10 million of charges, primarily in
the first quarter of fiscal 2000. For the fiscal year ended April 3, 1999,
revenues and operating income from these businesses totaled $8.0 million and
$0.4 million, respectively.
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids.
The Company was incorporated in November 1991 as an indirect, wholly
owned subsidiary of Thermo TerraTech Inc. On October 1, 1993, pursuant to a
reorganization, Thermo TerraTech contributed to the Company certain additional
assets and liabilities pertaining to its soil-remediation business. As of April
3, 1999, Thermo TerraTech owned 9,486,508 shares of the common stock of the
Company, representing 70% of such stock outstanding. An 87%-owned publicly
traded subsidiary of Thermo Electron Corporation, Thermo TerraTech provides
industrial outsourcing services and manufacturing support encompassing a broad
range of specializations, including environmental-liability management,
engineering and design, laboratory testing, and metal treating.
As of April 3, 1999, Thermo Electron owned 264,700 shares of the
Company's common stock, representing 2% of such stock outstanding. Thermo
Electron is a world leader in monitoring, analytical, and biomedical
instrumentation; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; and paper recycling and
papermaking equipment. Thermo Electron also develops alternative-energy systems
and clean fuels, provides a range of services including industrial outsourcing
and environmental-liability management, and conducts research and development in
advanced imaging, laser, and electronic information-management technologies.
Thermo Electron and Thermo TerraTech may purchase shares of the Company's common
stock from time to time in the open market or in negotiated transactions. During
fiscal 1999, Thermo Electron purchased 70,800 shares of the Company's common
stock in the open market for $0.2 million.
- -------------------
* References to fiscal 1999, 1998, and 1997 herein are for the fiscal years
ended April 3, 1999, April 4, 1998, and March 29, 1997, respectively.
2
<PAGE>
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, would be merged into Thermo Electron. As
a result, all three companies would become wholly owned subsidiaries of Thermo
Electron. The public shareholders of the Company, The Randers Killam Group, and
Thermo TerraTech would receive common stock in Thermo Electron in exchange for
their shares. The completion of these transactions is subject to numerous
conditions, as outlined in Note 16 to Consolidated Financial Statements in the
Registrant's Fiscal 1999 Annual Report to Shareholders, which information is
incorporated herein by reference.
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. For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
"seeks," "estimates," and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements, including those detailed under the heading
"Forward-looking Statements" in the Registrant's Fiscal 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Financial information concerning the company's segments is summarized in
Note 14 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders, which information is incorporated herein by
reference.
(c) DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
CONSULTING AND ENGINEERING
The Company provides environmental consulting and remediation
construction management to clients in the transportation, refining, chemical,
wood-treating, gas, and electric utility industries across the nation. Through
its consulting, engineering, and on-site services, the Company offers a broad
array of remedial solutions, all of which are applied from a risk-management
perspective, to help clients manage problems associated with environmental
compliance, resource management, and the remediation of industrial sites
contaminated with various wastes and residues. The Company provides particular
expertise in bioremediation and in managing wastes from manufactured-gas plants,
refineries, and railroad properties.
The Company also performs cleanups of hazardous waste sites for
government and industry as a prime construction contractor and completes
predesigned remedial action contracts at sites containing hazardous, toxic, and
radioactive wastes. Under contracts with federal and state governments, and
other public and private sector clients, the Company also provides project
management and construction services for the remediation of hazardous and
nonhazardous wastes. Most of this contract work is obtained through a bid
process, with the job being awarded to the best qualified bidder.
3
<PAGE>
In addition, the Company helps public utilities, government institutions,
and Fortune 500 companies develop and implement management and computer-based
systems that aid in the collection and application of environmental and
resource-management data. By helping to establish or improve a customer's
environmental-compliance program, the Company's customized services promote and
support the integration of environmental-management functions with everyday
business activities. The Company's services help multinational companies
accurately estimate and control the cost of their environmental-compliance and
health and safety efforts. The Company also develops measurement systems that
track clients' progress toward their stated environmental performance goals.
NUCLEAR REMEDIATION
The Company provides services to remove radioactive contaminants from
sand, gravel, and soil, as well as health physics services, radiochemistry
laboratory services, radiation dosimetry services, radiation-instrument
calibration and repair services, and radiation-source production. As part of its
radiation and nuclear/health physics services business, the Company provides
site surveys for radioactive materials and on-site samples, as well as analysis
in support of decontamination programs and dosimetry services to measure
personnel exposure. In addition, using its proprietary segmented-gate system
technology, the Company removes radioactive contaminants from sand, gravel, and
soil. A substantial part of the Company's health physics services has been
performed under the U.S. Department of Energy's remedial action programs.
SOIL REMEDIATION
The Company designs and operates facilities for the remediation of
nonhazardous soil. The Company's soil-remediation centers are environmentally
secure facilities for receiving, storing, and processing petroleum-contaminated
soils. Each site consists principally of a soil-remediation unit and a
soil-storage area. The Company currently provides soil-remediation services at
facilities in California, Oregon, Washington, Maryland, and New York.
The market for remediation of petroleum-contaminated soils, as with many
other waste markets, was created by environmental regulations. The market for
soil-remediation services has been driven largely by state programs to enforce
the Environmental Protection Agency's underground storage tank (UST) regulations
and to fund cleanups. UST compliance requirements and attendant remediation
costs are often beyond the financial capabilities of individuals and smaller
companies. To address this problem, some states established tax-supported trust
funds to assist in the financing of UST compliance and remediation. Many states
have realized that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a result,
several states have significantly reduced compliance requirements and altered
regulatory approaches and standards in order to reduce the costs of cleanup.
More lenient regulatory standards, reduced enforcement, and uncertainty with
respect to such changes have resulted in lower levels of cleanup activity in
most states where the Company conducts business, which had a material adverse
effect on the Company's business in recent years. Although the Company expects
this market to remain viable for some time after April 3, 1999, there can be no
assurance that this business will not decline in future years. In May 1999, the
Company announced plans to sell three additional soil-recycling facilities. In
addition, underground and aboveground tank regulations, clean water legislation,
and real estate transfer and financing transactions also influence demand for
soil-remediation services.
FLUIDS RECYCLING
The Company offers a full spectrum of environmental services related to
managing and recycling non-hazardous, liquid, and solid materials generated by
business and industry. The Company's client base is largely public retail and
industrial businesses, but also includes municipalities, public utilities,
railroads, the mining industry, and government agencies. The materials managed
by the Company for its customers primarily are used oils and oil-contaminated
waters, which are continuously generated as part of the customers' operations.
As such, the Company provides services for its customers on a recurring basis.
The Company processes the materials it collects into products for resale and/or
recycling, such as fuel, glycol, steel, and clean water. The Company has
expanded its services to include a variety of field technical services,
including on-site waste sampling and testing, emergency response, and tank
cleaning.
4
<PAGE>
The Company currently operates from eight permitted facilities located in
Arizona, New Mexico, Nevada, Colorado, Utah, Idaho, and Oregon. Each facility
serves distinctive local markets, and utilizes its own fleet of mobile equipment
to facilitate liquid waste collection and the delivery of finished recycled
products.
(ii) NEW PRODUCTS
The Company has made no commitments to new products that would require
the investment of a material amount of the Company's assets.
(iii) RAW MATERIALS
Supplies purchased by the Company are available either from a number of
different suppliers or from alternative sources that could be developed without
a material adverse effect on the Company's business. To date, the Company has
experienced no difficulties in obtaining these materials.
(iv) PATENTS, LICENSES, AND TRADEMARKS
The Company currently owns or has rights under licenses to a number of
U.S. patents. Although the Company believes that patent protection provides it
with competitive advantages with respect to certain portions of its business and
will continue to seek patent protection when appropriate, the Company also
believes that its business depends primarily upon trade secrets and the
technical and marketing expertise of its personnel.
The Company has a perpetual, exclusive, and royalty-free license from
Thermo TerraTech to develop, own, and operate soil-remediation centers and to
employ mobile remediation equipment incorporating Thermo TerraTech's technology
throughout North America (other than in Massachusetts and New Hampshire).
(v) SEASONAL INFLUENCES
A majority of the Company's businesses experience seasonal fluctuations.
A majority of the Company's soil-remediation sites, as well as the Company's
fluids-recycling sites, experience declines in revenues if severe weather
conditions occur. Site remediation work and certain environmental testing
services may decline in winter months as a result of severe weather conditions.
(vi) WORKING CAPITAL REQUIREMENTS
In general, there are no special credit terms extended to customers that
would have a material adverse effect on the Company's working capital.
(vii) DEPENDENCY ON A SINGLE CUSTOMER
A substantial portion of the Company's nuclear-remediation services have
been provided to the U.S. government. Total revenues to U.S. government agencies
accounted for 13%, 10%, and 30% of the Company's total revenues in fiscal 1999,
1998, and 1997, respectively. Revenues from BP Amoco Corporation accounted for
12% of the Company's total revenues in fiscal 1999.
5
<PAGE>
(viii) BACKLOG
The Company's backlog of firm orders at fiscal year-end 1999 and 1998
was:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Consulting and Engineering $ 26,750 $ 36,772
Nuclear Remediation 20,885 15,088
--------- ---------
$ 47,635 $ 51,860
========= =========
</TABLE>
The Company believes that substantially all of the backlog at April 3,
1999, will be completed during fiscal 2000. Certain of these orders are subject
to cancellation by the customer upon payment of a cancellation charge and all
federal government contracts are subject to termination at any time by the
government without penalty. The Company does not believe that the level of, or
changes in the level of, its backlog is necessarily indicative of intermediate
or long-term trends in its business. Soil-remediation and fluids-recycling
services are provided on a current basis pursuant to purchase orders.
Accordingly, there is no backlog for these services.
(ix) GOVERNMENT CONTRACTS
See Dependency on a Single Customer.
(x) COMPETITION
Many of the Company's businesses are engaged in highly competitive,
regional markets, with competition coming from numerous small firms offering
limited services, as well as much larger firms that offer an array of services.
In the Consulting and Engineering segment, the Company competes with
numerous regional and local companies as well as a number of national
remediation contractors. The Company competes primarily based on value, with the
vast majority of the contracts it seeks awarded on the basis of scope,
effectiveness, and cost. Other competitive factors in this segment include:
reputation; experience; breadth and quality of services offered; and technical,
managerial, and business proficiency.
The type of nuclear-remediation services offered by the Company's Nuclear
Remediation segment are also offered by many large national companies. The
Company competes primarily on the basis of its proprietary technology and price.
Competition in the Soil Remediation segment is intense. The Company's
principal competitors are landfills, including major landfill companies. The
Company also currently competes with companies offering a wide range of disposal
options, including other fixed-site, thermal-treatment facilities, operators of
mobile thermal-treatment facilities, bioremediation and vapor-extraction
facilities, and, in certain states, with asphalt plants and brick kilns that use
the contaminated soil in their production processes. Competition in the
soil-remediation market has always been highly localized, consisting mostly of
single-site or single-unit operators. Competitive conditions limit the prices
charged by the Company in each local market for soil-remediation services.
Pricing is therefore a major competitive factor for the Company. The Company
believes competition and price pressure will remain intense for the foreseeable
future.
6
<PAGE>
Competition in the Fluids Recycling segment is highly fragmented and
ranges in size from small, under-capitalized private enterprises to larger
national public companies. At both ends of this spectrum, the industry continues
to consolidate and restructure. The Company competes primarily on the basis of
quality and price.
(xi) ENVIRONMENTAL PROTECTION REGULATIONS
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xii) NUMBER OF EMPLOYEES
As of April 3, 1999, the Company employed approximately 1,000 people.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company's sales in foreign locations are currently insignificant.
(e) EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Present Title (Fiscal Year First Became Executive Officer)
------------------------------------- ------- -------------------------------------------------------------
<S> <C> <C>
Dr. Robert W. Dunlap 62 President and Chief Executive Officer (1996)
Jeffrey L. Powell 40 Senior Vice President (1993)
Nels R. Johnson 48 Vice President (1995)
Theo Melas-Kyriazi 39 Chief Financial Officer (1998)
Paul F. Kelleher 56 Chief Accounting Officer (1993)
</TABLE>
Each executive officer serves until his successor is chosen or appointed
by the Board of Directors and qualified or until his earlier resignation, death,
or removal. Mr. Kelleher has held comparable positions for at least five years,
with either the Company, Thermo TerraTech, or Thermo Electron. Dr. Dunlap has
been President and Chief Executive Officer of the Company since April 1998, was
a Vice President of the Company from 1996 through April 1998, and has served as
President of RETEC, a division of the Company, which he helped found, since
1985. Mr. Powell served as President of the Company since its inception in 1993,
and as its Chief Executive Officer from May 1997 until April 1998, when he was
named Senior Vice President. Mr. Johnson has been Vice President of the Company
since 1995. He has served as President of the Company's Thermo Nutech business
since 1988. Mr. Melas-Kyriazi was appointed Chief Financial Officer of the
Company and Thermo Electron on January 1, 1999. He joined Thermo Electron in
1986 as Assistant Treasurer, and became Treasurer in 1988. He was named
President and Chief Executive Office of Thermo Spectra Corporation, a public
subsidiary of Thermo Instrument Systems Inc. in 1994, a position he held until
becoming Vice President of Corporate Strategy for Thermo Electron in 1998. Mr.
Melas-Kyriazi remains a Vice President of Thermo Electron. Messrs. Dunlap,
Powell, and Johnson are full-time employees of the Company. Messrs.
Melas-Kyriazi 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.
7
<PAGE>
Item 2. PROPERTIES
The location and general character of the Company's properties by segment
as of April 3, 1999, are:
CONSULTING AND ENGINEERING
The Company occupies approximately 112,000 square feet, pursuant to
leases expiring in fiscal 2000 through 2003, primarily in Colorado,
Pennsylvania, Massachusetts, Washington, Texas, Indiana, and North Carolina,
from which it provides environmental construction and remediation construction
management services.
NUCLEAR REMEDIATION
The Company leases approximately 26,000 square feet, pursuant to leases
expiring in fiscal 2000 through 2001, in New Mexico and Tennessee, and owns
approximately 33,500 square feet in New Mexico and California, from which it
provides nuclear remediation services.
SOIL REMEDIATION
The Company owns approximately 72 acres in Maryland, California, and
Oregon, from which it provides soil-remediation services. The Company occupies
approximately 20 acres in New York, Washington, and South Carolina, pursuant to
leases expiring in fiscal 2000 through 2006, from which it provides
soil-remediation services. The Company also occupies approximately 12,000 square
feet of office and engineering space in Florida, pursuant to a lease expiring in
fiscal 2000.
FLUIDS RECYCLING
The Company owns approximately 50,000 square feet in Idaho and Arizona
and occupies an aggregate of approximately six acres on a site in Arizona and on
a site in Nevada pursuant to leases expiring in fiscal 2003, upon which it has
constructed fluids storage and processing equipment.
The Company believes that these facilities are adequate for its present
operations and that other suitable space is readily available if any of such
leases are not extended.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<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, $.01 par value, and dividend policy are included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 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 1999 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 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements as of April 3, 1999,
and supplementary data are included in the Registrant's Fiscal 1999 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.
9
<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 the caption
"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" 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 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.
10
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a,d) FINANCIAL STATEMENTS AND SCHEDULES
(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 SCHEDULES REFERENCED IN THIS ITEM 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and
Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedule filed herewith:
Schedule II: Valuation and Qualifying Accounts
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 the notes thereto.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
See Exhibit Index on the page immediately preceding exhibits.
11
<PAGE>
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.
<TABLE>
<S> <C>
Date: June 9, 1999 THERMORETEC CORPORATION
By: /s/ ROBERT W. DUNLAP
--------------------------------------
Robert W. Dunlap
President and Chief Executive Officer
</TABLE>
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 June 9, 1999.
<TABLE>
<CAPTION>
Signature Title
- ---------- ------
<S> <C> <C>
By: /s/ ROBERT W. DUNLAP President, Chief Executive Officer, and Director
-------------------------------
Robert W. Dunlap
By: /s/ THEO MELAS-KYRIAZI Chief Financial Officer and Director
-------------------------------
Theo Melas-Kyriazi
By: /s/ PAUL F. KELLEHER Chief Accounting Officer
-------------------------------
Paul F. Kelleher
By: /s/ JOHN P. APPLETON Chairman of the Board and Director
-------------------------------
John P. Appleton
By: /s/ ELIAS P. GYFTOPOULOS Director
-------------------------------
Elias P. Gyftopoulos
By: /s/ BRIAN D. HOLT Director
-------------------------------
Brian D. Holt
By: /s/ FRED HOLUBOW Director
-------------------------------
Fred Holubow
By: /s/ FRANK E. MORRIS Director
-------------------------------
Frank E. Morris
By: /s/ WILLIAM A. RAINVILLE Director
-------------------------------
William A. Rainville
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of ThermoRetec Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in ThermoRetec
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated May 11, 1999 (except with
respect to the matters discussed in Note 18, as to which the date is June 1,
1999). 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 11 is the
responsibility of the Company's management and is presented for 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
May 11, 1999
13
<PAGE>
SCHEDULE II
THERMORETEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
Beginning Charged to Accounts Written at End
of Year Expense Recovered Off Other (a) of Year
------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Fiscal Year Ended April 3, 1999 $ 1,690 $ 1,026 $ -- $ (360) $ (650) $ 1,706
Fiscal Year Ended April 4, 1998 $ 1,557 $ 193 $ -- $ (144) $ 84 $ 1,690
Fiscal Year Ended March 29, 1997 $ 786 $ 162 $ 5 $ (191) $ 795 $ 1,557
</TABLE>
<TABLE>
<CAPTION>
Balance at Provision Activity Balance
Beginning Charged to Charged to at End
Description of Year Expense (c) Reserve of Year
- ------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ACCRUED RESTRUCTURING COSTS (b)
Fiscal Year Ended April 3, 1999 $ -- $ 1,054 $ (252) $ 802
</TABLE>
(a) Includes allowances of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders. Fiscal 1999 amount includes an acquired
company's reserves that were not required and were therefore reversed to
cost in excess of net assets of acquired companies.
(b) The nature of activity in this account is described in Note 12 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(c) Excludes provisions of $8.1 million and $7.8 million in fiscal 1999 and
1997, respectively, for asset writedowns.
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- ----------------------
<S> <C>
2.1 Form of Agreement of Merger between Thermo Remediation Inc. (California) and Thermo Remediation Inc. (Delaware)
(filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
2.2 Securities Purchase Agreement dated as of September 27, 1993, between TPS Technologies Inc. and the Registrant
(filed as Exhibit 2.2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
2.3 Asset Transfer Agreement dated as of October 1, 1993, among Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.), TPS Technologies Inc., and the Registrant (filed as Exhibit 2.3 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
2.4 Exclusive License Agreement dated as of October 1, 1993, among Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.), TPS Technologies Inc., and the Registrant (filed as Exhibit 2.4 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
2.5 Non-Competition and Non-Disclosure Agreement dated as of October 1, 1993, among Thermo TerraTech Inc. (formerly
Thermo Process Systems Inc.), TPS Technologies Inc., and the Registrant (filed as Exhibit 2.5 to the
Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
3.1 Certificate of Incorporation, as amended, of the Registrant (filed as Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 3, 1998 [File No. 1-12636] and incorporated herein by
reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 [Reg. No.
33-70544] and incorporated herein by reference).
3.3 Fiscal Agency Agreement dated as of May 5, 1995, among the Registrant, Thermo Electron Corporation, and Chemical
Bank, as Fiscal Agent, with respect to the Registrant's 4 7/8% convertible subordinated debentures due 2000
(filed as Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 4, 1998
[File No. 1-12636] and incorporated herein by reference).
10.1 Corporate Services Agreement dated June 1, 1992, between Thermo Electron Corporation and the Registrant (filed
as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated
herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated, effective January 3, 1993 (filed as Exhibit 10.1 to
Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and
incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of June 1, 1992, between Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.) and the Registrant (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-70544] and incorporated herein by reference).
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.4 Securities Purchase Agreement dated as of September 27, 1993, between Fred Holubow and the Registrant (filed as
Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein
by reference).
10.5 Master Repurchase Agreement dated January 1, 1994, between the Registrant and Thermo Electron Corporation (filed
as Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-77818] and incorporated
herein by reference).
10.6 Equity Incentive Plan of the Registrant (filed as Exhibit 10.7 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
10.7 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
10.8 Amended and Restated Directors Stock Option Plan (filed as Exhibit 10.8 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended April 1, 1995 [File No. 1-12636] 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 and Thermo TerraTech for services
rendered to the Registrant or to such affiliated corporations. The terms of such plans are substantially the
same as those of the Registrant's Equity Incentive Plan.
10.9 Form of Indemnification Agreement for Officers and Directors (filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
10.10 Stock Purchase and Note Issuance Agreement dated as of November 22, 1993, between Thermo TerraTech Inc.
(formerly Thermo Process Systems Inc.) and the Registrant (filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
10.11 $2,650,000 principal amount Subordinated Convertible Note dated as of November 22, 1993, made by the Registrant,
issued to Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.) (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference).
10.12 Note dated December 24, 1994, from the Registrant to Thermo Electron Corporation (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 [File No. 1-12636] and
incorporated herein by reference).
10.13 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of February 26, 1998, between
the Registrant and Thermo TerraTech Inc. (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 4, 1998 [File No. 1-12636] and incorporated herein by reference).
10.14 Agreement and Plan of Merger dated as of December 1, 1995, by and among the Registrant, TRI Acquisition Inc. and
Remediation Technologies, Inc. (filed as Exhibit 2(a) to Thermo TerraTech's Current Report on Form 8-K relating
to the events occurring on December 8, 1995 [File No. 1-9549] and incorporated herein by reference).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.15 Agreement and Plan of Merger dated as of June 28, 1995, by and among Thermo TerraTech Inc., Eberline Acquisition
Inc., the Registrant, and Eberline Holdings Inc. (filed as Appendix B to the Registrant's Proxy Statement for
the Annual Meeting held on December 13, 1995 [File No. 1-12636] and incorporated herein by reference).
10.16 Restated Stock Holdings Assistance Plan and Form of Executive Loan (filed as Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended on April 4, 1998 [File No. 1-12636] and incorporated herein
by reference).
10.17 Master Cash Management, Guarantee Reimbursement, and Loan Agreement dated as of June 1, 1999, between the
Registrant and Thermo Electron Corporation.
13 Annual Report to Shareholders for the fiscal year ended April 3, 1999 (only those portions incorporated herein
by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
17
<PAGE>
EXHIBIT 13
ThermoRetec Corporation
Consolidated Financial Statements
Fiscal 1999
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
April 3, April 4, March 29,
(In thousands except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
REVENUES (Notes 11 and 14) $ 141,946 $ 128,409 $ 114,849
---------- --------- ---------
Costs and Operating Expenses:
Cost of revenues 119,483 114,011 96,901
Selling, general, and administrative expenses (Note 8) 16,820 14,778 13,098
Restructuring costs (Notes 12 and 18) 9,176 - 7,800
---------- --------- ---------
145,479 128,789 117,799
---------- --------- ---------
Operating Loss (3,533) (380) (2,950)
Interest Income 795 970 1,896
Interest Expense (includes $264, $259, and $259 to related party; Note 6) (2,168) (2,209) (2,251)
Gain on Sale of Unconsolidated Subsidiary (Note 13) - 3,012 -
Other Income, Net (Note 2) - 209 136
Equity in Earnings of Unconsolidated Subsidiary (Note 13) - 174 865
---------- --------- ---------
Income (Loss) Before Income Taxes (4,906) 1,776 (2,304)
Income Tax (Provision) Benefit (Note 5) 1,045 (1,536) (377)
---------- --------- ---------
NET INCOME (LOSS) $ (3,861) $ 240 $ (2,681)
========== ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Note 15) $ (.29) $ .02 $ (.21)
========= ========= =========
WEIGHTED AVERAGE SHARES (Note 15)
Basic 13,089 12,609 12,821
========== ========= =========
Diluted 13,089 12,758 12,821
========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes $20,607 and $8,000 under repurchase agreement with
affiliated company; Note 18) $ 20,669 $ 8,912
Available-for-sale investments, at quoted market value (amortized cost of $2,008 in
1998; Note 2) - 2,003
Accounts receivable, less allowances of $1,706 and $1,690 32,035 30,529
Unbilled contract costs and fees 8,675 8,154
Prepaid and refundable income taxes (Note 5) 3,923 2,256
Prepaid expenses 1,454 2,257
Due from parent company and affiliated companies - 667
---------- ----------
66,756 54,778
Property, Plant, and Equipment, at Cost, Net 31,742 37,011
---------- ----------
Other Assets 7,589 10,954
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 12) 35,087 37,568
---------- ----------
$ 141,174 $ 140,311
========== ==========
</TABLE>
3
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
April 3, April 4,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 10,048 $ 10,936
Accrued payroll and employee benefits 6,326 4,875
Deferred revenue 3,908 3,374
Billings in excess of revenues earned 3,323 1,277
Other accrued expenses 4,068 4,375
Due to parent company and affiliated companies 2,109 -
---------- ----------
29,782 24,837
Deferred Income Taxes (Note 5) 511 407
---------- ----------
Subordinated Convertible Obligations (includes $6,830 and $5,650 of
related-party debt; Note 6) 40,600 40,600
---------- ----------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.01 par value, 50,000,000 shares authorized; 14,247,572 and
14,019,918 shares issued 142 140
Capital in excess of par value 88,045 89,103
Accumulated deficit (12,063) (5,592)
Treasury stock at cost, 693,074 and 1,089,085 shares (5,843) (9,181)
Accumulated other comprehensive items (Note 2) - (3)
---------- ----------
70,281 74,467
$ 141,174 $ 140,311
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,861) $ 240 $ (2,681)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Noncash restructuring costs (Note 12) 8,122 - 7,800
Depreciation and amortization 7,889 7,066 6,603
Gain on sale of unconsolidated subsidiary (Note 13) - (3,012) -
Equity in earnings of unconsolidated subsidiary (Note 13) - (174) (865)
Deferred income tax expense (benefit) (1,857) (1,243) 602
Provision for losses on accounts receivable 1,026 193 162
Other noncash items 469 (51) 76
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable (1,541) (7,487) (6,008)
Unbilled contract costs and fees (521) (1,797) (3,420)
Other current assets 814 529 365
Accounts payable (488) 998 3,558
Billings in excess of revenues earned 2,046 398 249
Other current liabilities 2,338 (1,428) (1,934)
Due to (from) parent company and affiliated companies 1,830 (346) 243
---------- --------- ---------
Net cash provided by (used in) operating activities 16,266 (6,114) 4,750
---------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (Note 3) (576) (5,163) (1,681)
Proceeds from sale and maturities of available-for-sale investments 2,006 2,088 20,908
Purchases of available-for-sale investments - - (15,753)
Purchases of property, plant, and equipment (5,437) (6,318) (6,036)
Proceeds from sale of property, plant, and equipment 409 455 113
Proceeds from sale of unconsolidated subsidiary (Note 13) - 8,825 -
Increase in other assets (149) (1,119) (788)
Other 122 - -
---------- --------- ---------
Net cash used in investing activities (3,625) (1,232) (3,237)
---------- --------- ---------
FINANCING ACTIVITIES
Purchases of Company common stock - (3,055) (8,317)
Net proceeds from issuance of Company common stock 29 179 313
Dividends paid (Note 9) (806) (751) (847)
Other (107) 182 794
---------- --------- ---------
Net cash used in financing activities $ (884) $ (3,445) $ (8,057)
---------- --------- ---------
</TABLE>
5
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents $ 11,757 $ (10,791) $ (6,544)
Cash and Cash Equivalents at Beginning of Year 8,912 19,703 26,247
---------- --------- ---------
Cash and Cash Equivalents at End of Year $ 20,669 $ 8,912 $ 19,703
========== ========= =========
CASH PAID FOR
Interest $ 1,955 $ 1,996 $ 2,031
Income taxes $ 432 $ 2,113 $ 1,490
NONCASH ACTIVITIES
Fair value of assets of acquired companies $ 576 $ 13,772 $ 6,961
Cash paid for acquired companies (576) (5,665) (1,705)
Issuance of Company common stock for acquired companies -- (2,850) (2,006)
---------- --------- ---------
Liabilities assumed of acquired companies $ -- $ 5,257 $ 3,250
========== ========= =========
Dividends reinvested in Company common stock (Note 9) $ 1,804 $ 1,753 $ 1,710
========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
COMPREHENSIVE INCOME
Net Income (Loss) $ (3,861) $ 240 $ (2,681)
---------- ---------- ----------
Other Comprehensive Items:
Unrealized gain (loss) on available-for-sale investments 3 (7) 12
---------- ----------- ----------
$ (3,858) $ 233 $ (2,669)
========== ========== ==========
SHAREHOLDERS' INVESTMENT
Common Stock, $.01 Par Value:
Balance at beginning of year $ 140 $ 134 $ 128
Activity under dividend reinvestment plan (Note 9) 2 2 2
Issuance of stock under employees' and directors' stock plans - - 1
Issuance of Company common stock for acquired companies (Note 3) - 4 3
---------- ---------- ----------
Balance at end of year 142 140 134
---------- ---------- ----------
Capital in Excess of Par Value:
Balance at beginning of year 89,103 85,402 81,353
Activity under dividend reinvestment plan (Note 9) (1,457) 1,751 1,708
Activity under employees' and directors' stock plans (50) (359) (654)
Tax benefit related to employees' and directors' stock plans (Note 5) 449 181 198
Issuance of Company common stock for acquired companies (Note 3) - 2,128 2,003
Capital contribution from parent company - - 794
---------- ---------- ----------
Balance at end of year 88,045 89,103 85,402
---------- ---------- ----------
Accumulated Deficit:
Balance at beginning of year (5,592) (3,328) 1,910
Net income (loss) (3,861) 240 (2,681)
Activity under dividend reinvestment plan (Note 9) (2,610) (2,504) (2,557)
---------- ---------- ----------
Balance at end of year (12,063) (5,592) (3,328)
---------- ---------- ----------
Treasury Stock:
Balance at beginning of year (9,181) (7,382) (31)
Activity under dividend reinvestment plan (Note 9) 3,259 - -
Activity under employees' and directors' stock plans 79 538 966
Purchases of Company common stock - (3,055) (8,317)
Issuance of Company common stock for acquired companies (Note 3) - 718 -
---------- ---------- ----------
Balance at end of year (5,843) (9,181) (7,382)
---------- ---------- ----------
Accumulated Other Comprehensive Items:
Balance at beginning of year (3) 4 (8)
Other comprehensive items 3 (7) 12
---------- ---------- ----------
Balance at end of year - (3) 4
---------- ---------- ----------
$ 70,281 $ 74,467 $ 74,830
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ThermoRetec Corporation (the Company) is a national provider of
environmental-liability and resource-management services and related consulting
services. The Company operates in four segments: Consulting and Engineering,
Nuclear Remediation, Soil Remediation, and Fluids Recycling. In September 1998,
the Company's name was changed from Thermo Remediation Inc. to ThermoRetec
Corporation.
RELATIONSHIP WITH THERMO TERRATECH INC. AND THERMO ELECTRON CORPORATION
The Company was incorporated in November 1991 and commenced operation in
June 1992. As of April 3, 1999, Thermo TerraTech Inc. owned 9,486,508 shares of
the Company's common stock, representing 70% of such stock outstanding. Thermo
TerraTech is an 87%-owned subsidiary of Thermo Electron Corporation. As of April
3, 1999, Thermo Electron owned 264,700 shares of the Company's common stock,
representing 2% of such stock outstanding.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. As part of this
reorganization the Company would be merged into Thermo Electron (Note 16).
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated. The Company accounted for its investment in a business in which
it owned 50% through October 1997 using the equity method (Note 13).
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest March
31. References to fiscal 1999, 1998, and 1997 are for the fiscal years ended
April 3, 1999, April 4, 1998, and March 29, 1997, respectively. Fiscal years
1999 and 1997 each included 52 weeks; fiscal 1998 included 53 weeks.
REVENUE RECOGNITION
Revenues from certain environmental-liability management and consulting
services are recognized upon completion of services rendered. The Company's
Consulting and Engineering and Nuclear Remediation segments also perform
services pursuant to long-term contracts. Revenues and profits on substantially
all long-term contracts are recognized using the percentage-of-completion
method. Revenues recorded under the percentage-of-completion method were
$73,557,000, $77,052,000, and $65,217,000 in fiscal 1999, 1998, and 1997,
respectively. The percentage of completion is determined by relating either the
actual costs or actual labor incurred to date to management's estimate of total
costs or total labor, respectively, to be incurred on each contract. If a loss
is projected on any contract in process, a provision is made currently for the
entire loss. The Company's contracts generally provide for billing of customers
upon the attainment of certain milestones specified in each contract. Revenues
earned on contracts-in-process in excess of billings are classified as unbilled
contract costs and fees in the accompanying balance sheet. There are no
significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year. Amounts billed in excess
of revenues recognized are classified as billings in excess of revenues earned
in the accompanying balance sheet. Revenues from soil-remediation services are
recognized as soil is processed, and the Company bills customers upon receipt of
the contaminated soil at its remediation centers.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
8
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed by dividing net income
(loss) by the weighted average number of shares outstanding during the year.
Except when antidilutive, diluted earnings (loss) per share have been computed
assuming the exercise of stock options, as well as their related income tax
effects. The computation of diluted earnings (loss) per share excludes the
effect of assuming the conversion of convertible bonds because the effect would
be antidilutive.
CASH AND CASH EQUIVALENTS
At fiscal year-end 1999 and 1998, $20,607,000 and $8,000,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, U.S. government-agency
securities, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter (Note 18). Cash equivalents are carried at cost, which approximates
market value.
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company provides
for depreciation and amortization primarily using the straight-line method over
the estimated useful lives of the property, as follows: buildings, 5 to 40
years; machinery and equipment, 2 to 15 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Soil-remediation
units, which accounted for 26% and 36% of the Company's machinery and equipment,
net, at fiscal year-end 1999 and 1998, respectively, are depreciated based on an
hourly rate that is computed by estimating total hours of operation for each
unit. Property, plant, and equipment consists of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Land $ 4,552 $ 4,554
Buildings 15,147 18,106
Machinery, Equipment, and Leasehold Improvements 35,581 34,380
--------- ---------
55,280 57,040
Less: Accumulated Depreciation and Amortization 23,538 20,029
--------- ---------
$ 31,742 $ 37,011
========= =========
</TABLE>
OTHER ASSETS
Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets that
are being amortized using the straight-line method over their estimated useful
lives, which range from 5 to 10 years. These assets were $3,280,000 and
$5,200,000, net of accumulated amortization of $6,760,000 and $5,706,000, at
fiscal year-end 1999 and 1998, respectively. In fiscal 1999, the Company wrote
off $1,169,000 of other assets in connection with restructuring actions (Note
12).
9
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over periods ranging from
20 to 40 years. Accumulated amortization was $3,900,000 and $2,836,000 at fiscal
year-end 1999 and 1998, respectively. The Company assesses the future useful
life of this asset whenever events or changes in circumstances indicate that the
current useful life has diminished (Note 12). The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.
COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." This pronouncement sets forth
requirements for disclosure of the Company's comprehensive income and
accumulated other comprehensive items. In general, comprehensive income combines
net income and "other comprehensive items," which represents unrealized net of
tax gains and losses on available-for-sale investments, reported as a component
of shareholders' investment in the accompanying balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRESENTATION
Certain amounts in fiscal 1998 and 1997 have been restated to conform to
the presentation in the fiscal 1999 financial statements.
2. AVAILABLE-FOR-SALE INVESTMENTS
The Company's debt 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 as a component of shareholders' investment titled "Accumulated other
comprehensive items."
Available-for-sale investments in the accompanying fiscal 1998 balance
sheet represents corporate bonds with contractual maturities of one year or
less. The difference between the market value and the cost basis of
available-for-sale investments was $5,000 of gross unrealized losses at fiscal
year-end 1998.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. In fiscal 1997, the Company recorded gross
realized gains of $145,000 and gross unrealized losses of $9,000 related to the
sale of available-for-sale investments.
10
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
During fiscal 1999, the Company acquired a business for $576,000 in cash.
In November 1997, the Company acquired Benchmark Environmental
Corporation for 85,106 shares of the Company's common stock, valued at $450,000,
and $2,900,000 in cash. The shares of the Company's common stock issued in
connection with the acquisition are subject to certain restrictions on transfer.
The restrictions lapse with respect to one-third of the shares on each of the
second, third, and fourth anniversaries of the closing. Benchmark provides
nuclear-remediation and waste-management services to government agencies and
private industry.
In August 1997, the Company, through its Remediation Technologies, Inc.
(RETEC) subsidiary, acquired substantially all of the assets, subject to certain
liabilities, of RPM Systems, Inc. for 374,507 shares of the Company's common
stock, valued at $2,400,000, and $600,000 in cash. Certain shares of the
Company's common stock issued in connection with the acquisition are subject to
restrictions on transfer. Thirty percent of such shares have no transfer
restrictions; while the restrictions lapse with respect to one half of the
remaining shares on each of the second and third anniversaries of the closing.
RPM provides consulting services in the areas of environmental management,
planning, and information technology.
In May 1997, the Company, also through RETEC, acquired substantially all
of the assets, subject to certain liabilities, of TriTechnics Corporation for
$1,600,000 in cash. TriTechnics provides comprehensive consulting and remedial
services at refinery and chemical-plant sites.
During fiscal 1998, the Company also acquired an additional business for
$565,000 in cash.
In September 1996, the Company acquired IEM Sealand Corporation for
311,040 shares of the Company's common stock, valued at $2,006,000, and
$1,705,000 in cash. The shares of the Company's common stock issued in
connection with the acquisition are subject to certain restrictions on transfer.
The restrictions lapse with respect to one-third of the shares on each of the
third, fourth, and fifth anniversaries of the closing. IEM Sealand performs
cleanups of hazardous waste sites for government and industry as a prime
construction contractor and completes predesigned remedial action contracts at
sites containing hazardous, toxic, and radioactive wastes.
These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of the acquisitions exceeded the estimated fair value of the
acquired net assets by $15,026,000, which is being amortized over periods
ranging from 20 to 40 years. Allocation of the purchase price for these
acquisitions was based on estimates of the fair value of the net assets
acquired. Pro forma data is not included as the effect of these acquisitions was
not material to the Company's results of operations.
4. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
STOCK OPTION PLANS
The Company has a stock-based compensation plan for its key employees,
directors, and others. The Company also adopted an employee stock-based
compensation plan, similar to its stock-based compensation plan, except that
neither executive officers nor directors are eligible to participate in the
plan. Both plans permit 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. As of fiscal year-end 1999,
only nonqualified stock options have been awarded under these plans. The option
recipients and the terms of options granted under these plans are determined by
the Board Committee. Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five to ten year period, depending on the term of
the option, which may range from seven to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market value
of the stock on the date of grant. To date, all options have been granted at
fair market value.
11
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company also has a directors' stock option plan, which 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-based compensation plans,
certain officers and key employees may also be granted options under the
stock-based compensation plans of Thermo Electron or Thermo TerraTech.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 1,119,000 shares at a weighted average exercise price of $7.46 per share
elected to participate in this exchange and, as a result, received options to
purchase 560,000 shares of the Company common stock at $2.66 per share, which
are included in the fiscal 1999 grants in the table below. The other terms of
the new options are the same as the exchanged options except that the holders
may not sell shares purchased pursuant to such new options for six months from
the exchange date. The options exchanged were canceled by the Company.
A summary of the Company's stock option activity is:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- -------------------------------------------------------- ----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding, Beginning of Year 2,051 $ 7.32 1,897 $ 7.92 1,559 $ 6.95
Granted 779 2.63 438 6.52 556 8.65
Exercised (9) 3.06 (61) 2.58 (168) 1.47
Forfeited (162) 8.61 (223) 12.18 (50) 7.43
Canceled due to exchange (1,119) 7.46 - - - -
------- ------- -------
Options Outstanding, End of Year 1,540 $ 4.74 2,051 $ 7.32 1,897 $ 7.92
======= ======= ======= ======= ======= =======
Options Exercisable 1,510 $ 4.61 2,045 $ 7.31 1,826 $ 7.79
======= ======= ======= ======= ======= =======
Options Available for Grant 609 196 415
======= ======= =======
</TABLE>
A summary of the status of the Company's stock options at April 3, 1999,
is:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------------
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
- ----------------------------------------------------------- --------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ 1.98 - $ 5.22 936 5.5 years $ 2.75
5.23 - 8.46 469 2.2 years 6.81
8.47 - 11.69 114 5.6 years 10.51
11.70 - 14.93 21 4.6 years 14.82
------
$ 1.98 - $14.93 1,540 5.3 years $ 4.74
======
</TABLE>
The information disclosed above for options outstanding at April 3, 1999,
does not differ materially for options exercisable.
12
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Prior to November 1, 1998, the applicable shares of common
stock could be purchased at the end of a 12-month period at 95% of the fair
market value at the beginning of the period and the shares purchased were
subject to a six-month resale restriction. Effective November 1, 1998, the
applicable shares of common stock may be purchased at 85% of the lower of the
fair market value at the beginning or end of the plan year, and shares purchased
are subject to a one-year resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages. No
shares were issued under this program in fiscal 1999. During fiscal 1998 and
1997, the Company issued 3,367 shares and 5,792 shares, respectively, of its
common stock under this program. Employees of the Company's Thermo NUtech
subsidiary participated in an employee stock purchase program sponsored by
Thermo TerraTech through November 1996.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net income (loss) and
earnings (loss) per share would have been:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- -------------- -------------
<S> <C> <C> <C>
Net Income (Loss):
As reported $ (3,861) $ 240 $ (2,681)
Pro forma (4,721) (286) (2,946)
Basic and Diluted Earnings (Loss) per Share:
As reported (.29) .02 (.21)
Pro forma (.36) (.02) (.23)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $2.63,
$1.82, and $3.58 in fiscal 1999, 1998, and 1997, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------- ----------------- -------------- ------------
<S> <C> <C> <C>
Volatility 36% 27% 29%
Risk-free Interest Rate 4.7% 5.5% 6.3%
Expected Life of Options 3.6 years 3.4 years 5.9 years
</TABLE>
13
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(K) SAVINGS PLANS
The majority of the Company's full-time employees are eligible to
participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo
Electron. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions and for certain plans are based on subsidiary profits.
The Company contributed and charged to expense for these plans $2,764,000,
$2,016,000, and $1,572,000 in fiscal 1999, 1998, and 1997, respectively.
5. INCOME TAXES
The components of the income tax (provision) benefit are:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- -------------- -------------
<S> <C> <C> <C>
Currently Refundable (Payable):
Federal $ (139) $ (1,947) $ 510
State (673) (832) (285)
-------- -------- --------
(812) (2,779) 225
-------- -------- --------
Net (Deferred) Prepaid:
Federal 1,619 1,074 (491)
State 238 169 (111)
-------- -------- --------
1,857 1,243 (602)
-------- -------- --------
$ 1,045 $ (1,536) $ (377)
======== ======== ========
</TABLE>
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the Company's stock on the date of exercise. The income tax
provision that is currently payable does not reflect $449,000, $181,000, and
$198,000 of such benefits of the Company that have been allocated to capital in
excess of par value in fiscal 1999, 1998, and 1997, respectively.
14
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
The income tax (provision) benefit in the accompanying statement of
operations differs from the amounts calculated by applying the statutory federal
income tax rate of 34% to income (loss) before income taxes due to:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- --------------- -------------
<S> <C> <C> <C>
Income Tax (Provision) Benefit at Statutory Rate $ 1,668 $ (604) $ 783
Differences Resulting From:
State income taxes, net of federal tax (287) (438) (261)
Amortization and write-off of cost in excess of net assets of acquired
companies (341) (267) (979)
Nondeductible expenses (55) (27) (27)
Other 60 (200) 107
-------- --------- -------
$ 1,045 $ (1,536) $ (377)
======== ========= =======
</TABLE>
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Prepaid Income Taxes:
Reserves and accruals $ 2,137 $ 1,057
Accrued compensation 1,098 897
Net operating loss carryforwards 1,583 714
Allowance for doubtful accounts 77 9
Other 192 25
-------- --------
5,087 2,702
Less: Valuation allowance 1,164 739
-------- --------
$ 3,923 $ 1,963
======== ========
Deferred Income Taxes:
Depreciation 1,094 407
Intangible assets (760) -
Other 177 -
-------- --------
$ 511 $ 407
======== ========
</TABLE>
The valuation allowance relates to uncertainty surrounding the
realization of tax benefits attributable to federal and state operating losses
and credit carryforwards. The valuation allowance increased in fiscal 1999 as a
result of certain losses that arose during the year. Of the total fiscal 1999
valuation allowance, $117,000 will be used to reduce cost in excess of net
assets of acquired companies when any portion of the related deferred tax asset
is recognized.
15
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SUBORDINATED CONVERTIBLE OBLIGATIONS
In May 1995, the Company issued and sold $37,950,000 principal amount of
4 7/8% subordinated convertible debentures due May 2000, including $3,000,000
principal amount of such debentures sold to Thermo Electron. During fiscal 1999,
Thermo Electron purchased an additional $1,180,000 principal amount of such
debentures. The debentures are convertible into shares of the Company's common
stock at a conversion price of $17.92 per share and are guaranteed on a
subordinated basis by Thermo Electron. Thermo TerraTech has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantee.
In fiscal 1994, the Company issued to Thermo TerraTech $2,650,000
principal amount of a 3 7/8% subordinated convertible note due November 2000.
The note is convertible into shares of the Company's common stock at a
conversion price of $9.83 per share.
See Note 10 for fair value information pertaining to the Company's
subordinated convertible obligations.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases land, office facilities, and equipment under operating
leases expiring at various dates through fiscal 2006. The accompanying statement
of operations includes expenses from operating leases of $3,151,000, $2,707,000,
and $1,943,000 in fiscal 1999, 1998, and 1997, respectively. Future minimum
payments due under noncancelable operating leases at April 3, 1999, are
$2,579,000 in fiscal 2000, $2,218,000 in fiscal 2001; $1,511,000 in fiscal 2002;
$913,000 in fiscal 2003; $221,000 in fiscal 2004; and $155,000 in 2005 and
thereafter. Total future minimum lease payments are $7,597,000.
CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
8. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar 1997 and 1996 the Company paid an amount
equal to 1.0% of the Company's revenues. For these services, the Company was
charged $1,136,000, $1,220,000, and $1,148,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. 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 relationship among Thermo Electron and its
majority-owned subsidiaries). 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. 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. In fiscal 1999, Thermo Electron billed the Company an additional
$57,000 for certain administrative services required by the Company that were
not covered by the corporate services agreement.
16
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED-PARTY TRANSACTIONS (CONTINUED)
SUBORDINATED CONVERTIBLE OBLIGATIONS
See Note 6 for obligations of the Company held by Thermo Electron and
Thermo TerraTech.
REPURCHASE AGREEMENT
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Notes 1 and 18.
OTHER RELATED-PARTY TRANSACTIONS
The Company purchases and sells services in the ordinary course of
business to other companies affiliated with Thermo TerraTech. Purchases of
services from such affiliated companies totaled $432,000, $1,129,000, and
$979,000 in fiscal 1999, 1998, and 1997, respectively. Sales of services to such
affiliated companies totaled $730,000, $1,710,000, and $1,825,000 in fiscal
1999, 1998, and 1997, respectively.
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.
9. COMMON STOCK
Dividends to common shareholders of the Company of $2,610,000 were
declared in fiscal 1999, of which $1,804,000, including $1,798,000 paid to
Thermo TerraTech, was reinvested in 614,244 shares of the Company's common stock
pursuant to the Company's Dividend Reinvestment Plan. Dividends to common
shareholders of the Company of $2,504,000 were declared in fiscal 1998, of which
$1,753,000, including $1,736,000 paid to Thermo TerraTech, was reinvested in
257,338 shares of the Company's common stock. Dividends to common shareholders
of the Company of $2,557,000 were declared in fiscal 1997, of which $1,710,000,
including $1,694,000 paid to Thermo TerraTech, was reinvested in 196,806 shares
of the Company's common stock.
At April 3, 1999, the Company had reserved 4,709,734 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
possible issuance upon conversion of the Company's subordinated convertible
obligations.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, due from
parent company and affiliated companies, accounts payable, due to parent company
and affiliated companies, and subordinated convertible obligations. The carrying
amounts of these financial instruments, with the exception of available-for-sale
investments and subordinated convertible obligations, approximates fair value
due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying fiscal 1998 balance sheet. The fair value was determined based upon
quoted market prices. See Note 2 for fair value information pertaining to these
financial statements.
Based on quoted market prices and on borrowing rates available to the
Company, the fair value of the Company's subordinated convertible obligations
was $38,728,000 and $39,395,000 at fiscal year-end 1999 and 1998, respectively.
17
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK
A substantial portion of the Company's Nuclear Remediation segment's
services has been provided to the U.S. government. Total revenues to U.S.
government agencies accounted for 13%, 10%, and 30% of the Company's total
revenues in fiscal 1999, 1998, and 1997, respectively. In fiscal 1999, the
Company's Consulting and Engineering segment provided services to one customer
which accounted for 12% of the Company's total revenues. Management does not
believe that these concentrations of credit risk have or will have a significant
negative impact on the Company.
12. RESTRUCTURING COSTS
During fiscal 1999, the Company recorded $9,176,000 of restructuring
costs, which were accounted for in accordance with Emerging Issues Task Force
Pronouncement 94-3, in connection with the closure of two soil-recycling
facilities in response to a continued downturn in the Company's Soil Remediation
segment. The costs include a $6,238,000 write-down of fixed assets to their
estimated disposal value of $895,000 and a $1,884,000 write-off of intangible
assets, including $715,000 of cost in excess of net assets of acquired
companies, as well as $1,054,000 primarily for ongoing lease costs and severance
for 13 employees, 6 of whom were terminated in fiscal 1999. The Company closed
one of the soil-recycling facilities in March 1999 and is actively seeking a
buyer for the second soil-recycling facility. If no buyer is found, the Company
will close the facility.
A summary of the changes in accrued restructuring costs, which are
included in other accrued expenses in the accompanying balance sheet, is as
follows:
<TABLE>
<CAPTION>
Facility
(In thousands) Severance Costs Total
- ---------------------------------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT APRIL 4, 1998 $ - $ - $ -
Provision charged to expense 213 841 1,054
Usage (101) (151) (252)
--------- --------- ---------
BALANCE AT APRIL 3, 1999 $ 112 $ 690 $ 802
========= ========= =========
</TABLE>
During fiscal 1997, the Company recorded $7,800,000 of restructuring
costs to write down certain capital equipment and intangible assets, including
$2,206,000 of cost in excess of net assets of acquired companies, in response to
a severe downturn in the Company's Soil Remediation segment, which resulted in
the closure of two soil-recycling facilities. In addition, the Company's
analysis indicated that the future undiscounted cash flows from certain other
soil-recycling facilities that remained open would be insufficient to recover
the Company's investment in those business units, thus requiring a write-down of
certain assets, included in the $7,800,000 charge. Of the total charge,
$2,206,000 was nondeductible for tax purposes.
In May 1999, the Company announced certain other restructuring actions
(Note 18).
13. EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY
The Company's equity in earnings of unconsolidated subsidiary in the
accompanying statement of operations represented the Company's proportionate
share of income from a 50% investment in RETEC/TETRA L.C., acquired in December
1995 through an acquisition. In October 1997, the Company sold its 50%
limited-liability interest in RETEC/TETRA to TETRA Thermal, Inc., for $8,825,000
in cash. The Company realized a pretax gain of $3,012,000 on the sale.
For the year ended December 31, 1996, RETEC/TETRA reported revenues of
$12,066,000, cost of revenues of $9,040,000, gross profit of $3,026,000, and net
income of $981,000.
18
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BUSINESS SEGMENT INFORMATION
The Company organizes and manages its business by individual functional
operating entity. The Company operates in four segments: Consulting and
Engineering, Nuclear Remediation, Soil Remediation, and Fluids Recycling. In
classifying operational entities into a particular segment the Company
aggregates businesses with similar economic characteristics, services, and
customers.
The Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues.
The Nuclear Remediation segment provides services to remove radioactive
contaminants from sand, gravel, and soil, as well as health physics services,
radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production.
The Soil Remediation segment designs and operates facilities for the
on-site remediation of nonhazardous soil and mobile equipment.
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Consulting and Engineering $ 73,439 $ 76,892 $ 64,913
Nuclear Remediation 34,863 26,934 23,472
Soil Remediation 24,183 17,773 21,233
Fluids Recycling 9,461 6,810 5,231
----------- ---------- -----------
$ 141,946 $ 128,409 $ 114,849
=========== ========== ===========
Income (Loss) Before Income Taxes:
Consulting and Engineering $ 3,042 $ (1,854) $ 5,588
Nuclear Remediation 1,479 1,659 1,735
Soil Remediation (a) (7,259) 236 (9,404)
Fluids Recycling 1,103 939 912
Corporate (b) (1,898) (1,360) (1,781)
----------- ---------- -----------
Total operating loss (3,533) (380) (2,950)
Interest and other income (expense), net (1,373) 2,156 646
----------- ---------- -----------
$ (4,906) $ 1,776 $ (2,304)
=========== ========== ===========
Total Assets:
Consulting and Engineering $ 55,068 $ 59,773 $ 49,229
Nuclear Remediation 18,774 16,585 10,886
Soil Remediation 27,710 36,409 36,977
Fluids Recycling 12,851 13,225 10,573
Corporate (c) 26,771 14,319 28,449
----------- ---------- -----------
$ 141,174 $ 140,311 $ 136,114
=========== ========== ===========
</TABLE>
19
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Depreciation and Amortization:
Consulting and Engineering $ 1,618 $ 1,453 $ 1,118
Nuclear Remediation 1,841 1,274 856
Soil Remediation 3,305 3,239 3,668
Fluids Recycling 1,120 768 501
Corporate 5 332 460
----------- ---------- ----------
$ 7,889 $ 7,066 $ 6,603
=========== ========== ==========
Capital Expenditures:
Consulting and Engineering $ 1,131 $ 1,048 $ 588
Nuclear Remediation 2,222 2,336 288
Soil Remediation 1,581 1,183 1,663
Fluids Recycling 503 1,727 3,497
Corporate - 24 -
----------- ---------- ----------
$ 5,437 $ 6,318 $ 6,036
=========== ========== ==========
</TABLE>
(a) Includes restructuring costs of $9,176,000 and $7,800,000 in fiscal 1999
and 1997, respectively.
(b) Primarily general and administrative expenses.
(c) Primarily cash and cash equivalents.
15. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
BASIC
Net Income (Loss) $ (3,861) $ 240 $ (2,681)
--------- --------- ---------
Weighted Average Shares 13,089 12,609 12,821
--------- --------- ---------
Basic Earnings (Loss) per Share $ (.29) $ .02 $ (.21)
========= ========= =========
DILUTED
Net Income (Loss) $ (3,861) $ 240 $ (2,681)
--------- --------- ---------
Weighted Average Shares 13,089 12,609 12,821
Effect of Stock Options - 149 -
--------- --------- ---------
Weighted Average Shares, as Adjusted 13,089 12,758 12,821
--------- --------- ---------
Diluted Earnings (Loss) per Share $ (.29) $ .02 $ (.21)
========= ========== ========
</TABLE>
The computation of diluted earnings (loss) per share excludes the effect
of assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of April 3, 1999, there were 1,547,000 of such options
outstanding, with exercise prices ranging from $1.98 to $14.93 per share.
20
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. EARNINGS (LOSS) PER SHARE (CONTINUED)
In addition, the computation of diluted earnings (loss) per share
excludes the effect of assuming the conversion of convertible obligations
because the effect would be antidilutive. As of April 3, 1999, the Company had
$37,950,000 principal amount of 4 7/8% subordinated convertible debentures,
convertible at $17.92 per share, and $2,650,000 principal amount of a 3 7/8%
subordinated convertible note, convertible at $9.83 per share, that were
excluded from the calculation of diluted earnings (loss) per share.
16. PROPOSED REORGANIZATION
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, would be merged into Thermo Electron. As
a result, all three companies would become wholly owned subsidiaries of Thermo
Electron. The public shareholders of the Company, The Randers Killam Group, and
Thermo TerraTech would receive common stock in Thermo Electron in exchange for
their shares. The completion of this transaction 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 The Randers Killam Group; the negotiation and
execution of a definitive merger agreement; the receipt of a fairness opinion
from an investment banking firm that the transaction is fair to the Company's
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 transaction.
17. UNAUDITED QUARTERLY INFORMATION
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1999 First Second (a) Third Fourth
- ----------------------------------------------------------------------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 34,416 $ 35,140 $ 36,907 $ 35,483
Gross Profit 5,544 5,633 5,543 5,743
Net Income (Loss) 488 (5,323) 506 468
Basic and Diluted Earnings (Loss) per Share .04 (.41) .04 .04
<CAPTION>
1998 First Second (b) Third (c) Fourth
- ----------------------------------------------------------------------------- -------------------------- ------------ -----------
Revenues $ 28,204 $ 33,639 $ 34,620 $ 31,946
Gross Profit 4,371 5,274 3,947 806
Net Income (Loss) 576 696 1,701 (2,733)
Basic and Diluted Earnings (Loss) per Share .05 .06 .13 (.21)
</TABLE>
(a) Reflects a pretax charge of $9,176,000 for restructuring costs.
(b) Reflects the August 1997 acquisition of RPM.
(c) Reflects the November 1997 acquisition of Benchmark and includes a
pre-tax gain of $3,012,000 from the sale of an investment in a joint
venture.
21
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SUBSEQUENT EVENTS
RESTRUCTURING ACTIONS
On May 24, 1999, the Company announced that it plans to sell three
soil-recycling facilities in addition to those discussed in Note 12. As a
result, the Company expects to incur pretax charges totaling approximately $10
million, primarily in the first quarter of fiscal 2000. These charges primarily
represent the excess of the book value of the three facilities that will be sold
over the estimated proceeds from the sale. For the fiscal year ended April 3,
1999, revenues and operating income from these businesses totaled $8,001,000 and
$371,000, respectively.
CASH MANAGEMENT ARRANGEMENT
Effective June 1, 1999, the Company and Thermo Electron commenced use of
a new domestic cash management arrangement (Note 1). Under the new arrangement,
amounts advanced to Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. The
Company will report amounts invested in this arrangement as "advance to
affiliate" in its balance sheet, beginning in the first quarter of fiscal 2000.
22
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of ThermoRetec Corporation:
We have audited the accompanying consolidated balance sheet of
ThermoRetec Corporation (formerly Thermo Remediation, Inc.; a Delaware
corporation and 70%-owned subsidiary of Thermo TerraTech Inc.) and subsidiaries
as of April 3, 1999, and April 4, 1998, and the related consolidated statements
of operations, cash flows, and comprehensive income and shareholders' investment
for each of the three years in the period ended April 3, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 ThermoRetec
Corporation and subsidiaries as of April 3, 1999, and April 4, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended April 3, 1999, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 11, 1999 (except with respect
to the matters discussed in Note 18,
as to which the date is June 1, 1999)
23
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operation under
the heading "Forward-looking Statements."
OVERVIEW
The Company is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues. In
May 1997, the Company's RETEC subsidiary acquired TriTechnics Corporation, an
environmental engineering and consulting firm. The Company's eastern
construction operations, acquired in September 1996, perform the cleanup of
hazardous waste sites for government and industry as a prime construction
contractor and completes predesigned remedial action contracts at sites
containing hazardous, toxic, and radioactive wastes.
The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production. In November 1997, the Company acquired Benchmark Environmental
Corporation, a provider of nuclear-remediation and waste-management services to
government and private sector clients.
Through its Soil Remediation segment, the Company designs and operates
facilities for the on-site remediation of nonhazardous soil and mobile
equipment. The Company's soil-remediation centers are environmentally secure
facilities for receiving, storing, and processing petroleum-contaminated soils.
Although the Company expects this market to remain viable for some time after
April 3, 1999, there can be no assurance that this business will not decline in
future years. In May 1999, the Company announced plans to sell three additional
soil-recycling facilities (Note 18). In connection with this action, the Company
expects to incur pretax charges totaling approximately $10 million, primarily in
the first quarter of fiscal 2000. These charges primarily represent the excess
of the book value of the three facilities that will be sold over the estimated
proceeds from the sale. For the fiscal year ended April 3, 1999, revenues and
operating income from these businesses totaled $8,001,000 and $371,000,
respectively.
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids in certain western states
(Oregon, Idaho, Nevada, Utah, Colorado, New Mexico, and Arizona).
The Company's businesses are affected by several factors, particularly
regulation and enforcement of remediation activities, extreme weather
variations, economic cycles, the availability of federal and state funding for
environmental cleanup, and local competition.
The Company has acquired a number of businesses in the last three years.
The Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core businesses.
24
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
Revenues increased 11% to $141.9 million in fiscal 1999 from $128.4
million in fiscal 1998. Nuclear Remediation segment revenues increased $7.9
million to $34.9 million due to the inclusion of $5.2 million in revenues from
an acquired business, as well as internal growth. Soil Remediation segment
revenues increased $6.4 million to $24.2 million, resulting from higher volumes
of soil processed. The Company believes that the recent strength in the
soil-remediation market is due in part to compliance with a December 1998 U.S.
Environmental Protection Agency deadline for modifying underground storage
tanks. Although the Company expects this market to remain viable for some time
after April 3, 1999, there can be no assurance that this business will not
decline in future years. In May 1999, the Company announced plans to sell three
additional soil-recycling facilities (Note 18). For fiscal 1999, revenues and
operating income from these businesses totaled $8.0 million and $0.4 million,
respectively. Fluids Recycling segment revenues increased $2.7 million to $9.5
million, primarily due to increased capacity as a result of geographical
expansion. These increases in revenues were offset in part by a decrease in
revenues of $3.5 million to $73.4 million at the Consulting and Engineering
segment due to a decrease in revenues at the Company's eastern construction
operations resulting from a decline in the number of contracts in process,
offset in part by higher revenues from consulting and engineering services at
RETEC and the inclusion of $1.0 million in revenues from businesses acquired in
fiscal 1998.
The gross profit margin increased to 16% in fiscal 1999 from 11% in
fiscal 1998. The gross profit margin increased in fiscal 1999 primarily due to a
reduction of losses at the Company's eastern construction operations on certain
remedial-construction contracts and higher utilization of billable personnel at
RETEC at the Consulting and Engineering segment, as well as higher volumes of
soil processed at the Soil Remediation segment. These increases were offset in
part by a reduction in gross profit margin at the Nuclear Remediation segment
due to development costs associated with a contract for the U.S. Department of
Energy.
Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 12% in fiscal 1999 and 1998. Selling, general, and
administrative expenses increased primarily due to higher provisions for
uncollectible accounts, increased administrative costs associated with the
Company's name change, the inclusion of expenses for the full year from acquired
businesses, and higher insurance costs.
During fiscal 1999, the Company recorded $9.2 million of restructuring
costs in connection with the closure of two soil-recycling facilities. The costs
include a write-down of fixed assets to their estimated disposal value and a
write-off of intangible assets, including cost in excess of net assets of
acquired companies, as well as other closure costs (Note 12). The closure was in
response to changes in market conditions, which have resulted in lower-priced
disposal alternatives. These facilities reported aggregate revenues and
operating losses of $2.2 million and $0.8 million, respectively, in fiscal 1998
and aggregate revenues and operating losses prior to the decision to close the
facilities of $1.8 million and $0.1 million, respectively, in fiscal 1999. In
May 1999, the Company announced that it would record additional pretax
restructuring charges of approximately $10 million, primarily in the first
quarter of fiscal 2000, as a result of the Company's decision to sell three
additional soil-recycling facilities (Note 18).
Interest income decreased to $0.8 million in fiscal 1999 from $1.0
million in fiscal 1998 as a result of lower average invested cash balances.
Equity in earnings of unconsolidated subsidiary in fiscal 1998 represents
the Company's proportionate share of income from a joint venture that was sold
in fiscal 1998. "Gain on sale of unconsolidated subsidiary" resulted from the
Company's sale of its interest in this joint venture (Note 13).
The Company recorded a tax benefit in fiscal 1999 at an effective rate
below the statutory federal income tax rate, primarily due to the impact of the
write-off of nondeductible cost in excess of net assets of acquired companies.
The effective tax rate in fiscal 1998 exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
In July 1998, the Company filed suit against a customer, seeking payment
of $2.6 million that has been billed under a contract to provide remediation
services. The customer has disputed its obligation to pay the Company. While the
Company generally maintains reserves for these types of matters, failure to
collect this receivable would have a material adverse impact on the Company's
future results of operations.
25
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues in fiscal 1998 increased 12% to $128.4 million from $114.8
million in fiscal 1997. Consulting and Engineering segment revenues increased
$12.0 million to $76.9 million due to the inclusion of $16.7 million in revenues
from acquired businesses and, to a lesser extent, higher revenues from
consulting and engineering services at RETEC. This increase was offset in part
by an $11.1 million decrease in revenues resulting from a decline in the number
of contracts in process at the Company's eastern construction operations.
Revenues from the Nuclear Remediation segment increased $3.5 million to $26.9
million, primarily due to the inclusion of revenues from an acquired business.
Revenues at the Fluids Recycling segment increased $1.6 million in fiscal 1998,
primarily due to increased capacity as a result of geographic expansion.
Revenues from the Soil Remediation segment decreased $3.5 million, resulting
from the closure of two sites, as well as heavy rains, which unfavorably
affected operations at certain West Coast sites, and, to a lesser extent,
competitive pricing pressures.
The gross profit margin decreased to 11% in fiscal 1998 from 16% in
fiscal 1997, primarily due to losses on certain remedial-construction contracts
at the Company's eastern construction operations, resulting from poorly bid and
executed projects, and an increase in lower-margin revenues at RETEC at the
Consulting and Engineering segment. These decreases were offset in part by a
greater percentage of soil-remediation revenues earned at certain higher-margin
soil-remediation facilities at the Soil Remediation segment.
Selling, general, and administrative expenses as a percentage of revenues
remained relatively unchanged at 11.5% and 11.4% in fiscal 1998 and 1997,
respectively. Selling, general, and administrative expenses increased due to the
inclusion of expenses from acquired businesses.
During fiscal 1997, the Company recorded $7.8 million of restructuring
costs in connection with the write-down of certain capital equipment and
intangible assets, including cost in excess of net assets of acquired companies
(Note 12). The write-down was in response to a severe downturn in the Company's
soil-recycling business, which resulted in the closure of two soil-remediation
sites. In addition, the Company's analysis indicated that the future
undiscounted cash flows from certain other soil-remediation sites that remained
open would be insufficient to recover the Company's investment in these business
units, thus requiring a write-down of certain assets, included in the $7.8
million charge.
Interest income decreased to $1.0 million in fiscal 1998 from $1.9
million in fiscal 1997 as a result of lower average invested balances due to the
use of $11.4 million to repurchase Company common stock in fiscal 1998 and 1997
and the Company's funding of an increase in accounts receivable.
Equity in earnings of unconsolidated subsidiary represents the Company's
proportionate share of income from a joint venture. "Gain on sale of
unconsolidated subsidiary" resulted from the Company's sale of its interest in
this joint venture in October 1997 (Note 13).
The effective tax rate for fiscal 1998 exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies. The Company recorded an income tax provision on a pretax loss in
fiscal 1997, primarily due to the amortization and write-off of nondeductible
costs in excess of net assets of acquired companies and, to a lesser extent, the
impact of state income taxes.
26
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, was $37.0 million at April 3, 1999,
compared with $29.9 million at April 4, 1998. Cash, cash equivalents, and
available-for-sale investments were $20.7 million at April 3, 1999, compared
with $10.9 million at April 4, 1998. During fiscal 1999, $16.3 million of cash
was provided by operating activities. Cash of $3.7 million was provided by an
increase in accounts payable and other current liabilities, including due to
parent company and affiliated companies, primarily due to the timing of
payments. An increase in billings in excess of revenues earned provided cash of
$2.0 million, primarily as a result of the receipt of an advance payment related
to an environmental-liability management contract at the Consulting and
Engineering segment.
Excluding available-for-sale investment activity, the Company's primary
investing activity in fiscal 1999 consisted of capital expenditures. The Company
expended $5.4 million for purchases of property, plant, and equipment during
fiscal 1999. The Company plans to make capital expenditures of approximately
$4.5 million during fiscal 2000.
In fiscal 1999, the Company's financing activities used $0.9 million of
cash. The Company paid $0.8 million in cash dividends in fiscal 1999. The amount
of cash dividends ultimately paid by the Company is dependent on the number of
shareholders participating in the Company's Dividend Reinvestment Plan.
The Company generally expects to have positive cash flow from its
existing operations. Although the Company does not presently intend to actively
seek to acquire additional businesses in the near future, it may acquire one or
more complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. In addition, the Company's $38.0 million principal amount 4
7/8% convertible debentures mature on May 1, 2000. The maturity of this debt
could adversely affect the Company's liquidity in the first quarter of fiscal
2001. The Company expects that it will finance any such acquisitions and the
redemption of such debentures through a combination of internal funds and/or
short-term borrowings from Thermo TerraTech Inc. or Thermo Electron Corporation,
although it has no agreement with these companies to ensure that funds will be
available on acceptable terms, or at all.
MARKET RISK
The Company is exposed to market risk from changes in interest rates and
equity prices which could affect its future results of operations and financial
condition. The Company manages its exposure to these risks through its regular
operating and financing activities.
INTEREST RATES
The Company's subordinated convertible obligations are sensitive to
changes in interest rates. Interest rate changes would result in a change in the
fair value of these subordinated convertible obligations due to the difference
between the market interest rate and the rate at the date of issuance of the
subordinated convertible obligations. A 10% decrease in fiscal year-end 1999
market interest rates would result in a negative impact to the Company of $0.1
million on the fair value of its long-term obligations.
EQUITY PRICES
The Company's subordinated convertible obligations are sensitive to
fluctuations in the price of Company common stock into which the obligations are
convertible. Changes in the price of the underlying common stock would result in
changes in the fair value of the Company's subordinated convertible obligations
due to the difference between the current market price and the market price at
the date of issuance of the obligations. A 10% increase in the fiscal year-end
1999 market equity prices would result in a negative impact to the Company of
$0.3 million on the fair value of its price-sensitive equity financial
instruments.
27
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
The following constitutes a "Year 2000 Readiness Disclosure" under the
Year 2000 Informational and Readiness Disclosure Act. The Company continues to
assess the potential impact of the year 2000 date recognition issue on the
Company's internal business systems, services, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers and vendors; and (iii) developing a contingency plan.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company's efforts included testing the
year 2000 readiness of its utility and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any noncompliant systems or facilities that were identified during
phase one are prioritized and remediated. Based on its evaluations of its
critical facilities, the Company does not believe that any material upgrades or
modifications are required. The Company is currently upgrading or replacing its
material noncompliant information technology systems, and this process was
approximately 80% complete as of April 3, 1999. In many cases, such upgrades or
replacements are being made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company expects
that all of its material information technology systems and critical facilities
will be year 2000 compliant by October 1999.
The Company is in the process of identifying and assessing the year
2000 readiness of key suppliers and vendors that are believed to be significant
to the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that its business operations will be materially disrupted
by the year 2000 issue. The Company has started to follow-up with significant
suppliers and vendors that have not responded to the Company's questionnaires.
The Company has not completed the majority of its assessment of third-party
risk, but expects to be substantially completed by October 1999.
CONTINGENCY PLAN
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $0.2 million as of April 3, 1999, and the
total external costs of year 2000 remediation are expected to be approximately
$0.5 million. All of the external costs incurred as of April 3, 1999, were spent
on testing and upgrading information technology systems. In fiscal year 1999,
approximately 5% of the Company's total information technology budget was spent
on year 2000 issues. All internal costs and related external costs, other than
capital additions, related to year 2000 remediation have been and will continue
to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
28
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
issues in its material information technology systems that cause the Company to
be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
29
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
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 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
DEPENDENCE ON ENVIRONMENTAL REGULATION. Federal, state, and local
environmental laws govern each of the markets in which the Company conducts
business, as well as many of the Company's operations. The markets for each of
the Company's services, including industrial remediation services, nuclear
remediation services, hazardous waste remedial construction services,
soil-remediation services, and waste-fluids recycling services, and the
standards governing most aspects of the construction and operation of the
Company's facilities were directly or indirectly created by, and are dependent
on, the existence and enforcement of those laws. There can be no assurance that
these laws and regulations will not change in the future, requiring new
technologies or stricter standards with which the Company must comply. In
addition, there can be no assurance that these laws and regulations will not be
made more lenient in the future, thereby reducing the size of the markets
addressed by the Company. Any such change in such federal, state, and local
environmental laws and regulations may have a material adverse effect on the
Company's business.
Responsibility for establishing and enforcing certain federal policies,
such as the federal underground storage tank policy, has been delegated to the
states, which are not only required to establish regulatory programs, but also
are permitted to mandate more stringent requirements than are otherwise required
by federal law. Recently, certain states have adopted a "risk-based" approach to
prioritizing site cleanups and setting cleanup standards, which attempt to
balance the costs of remediation against the potential harm to human health and
the environment from leaving sites unremediated. There can be no assurance that
additional states will not adopt similar policies, or that these policies will
not reduce the size of the potential market addressed by the Company.
POTENTIAL ENVIRONMENTAL AND REGULATORY LIABILITY. The Company's
operations are subject to comprehensive laws and regulations related to the
protection of the environment. Among other things, these laws and regulations
impose requirements to control air, soil, and water pollution, and regulate
health, safety, zoning, land use, and the handling and transportation of
hazardous and nonhazardous materials. Such laws and regulations also impose
liability for remediation and cleanup of environmental contamination, both
on-site and off-site, resulting from past and present operations. These
requirements may also be imposed as conditions of operating permits or licenses
that are subject to renewal, modification, or revocation. Existing laws and
regulations, and new laws and regulations, may require the Company to modify,
supplement, replace, or curtail its operating methods, facilities, or equipment
at costs which may be substantial, without any corresponding increase in
revenue. The Company is also potentially subject to monetary fines, penalties,
remediation, cleanup, or stop orders, injunctions, or orders to cease or suspend
certain of its practices. The outcome of any proceedings and associated costs
and expenses could have a material adverse impact on the Company's business. In
addition, the Company's divisions are subject to numerous laws and regulations
related to the protection of human health and safety. Such laws and regulations
may impose liability on the Company for exposure of its employees to radiation
or other hazardous contamination or failure to isolate and remove radioactive or
other hazardous contaminants from soil.
The Company endeavors to operate its business to minimize its exposure to
environmental and other regulatory liabilities. Although no claims giving rise
to such liabilities have been asserted by the Company's customers or employees
to date, there can be no assurance that such claims cannot or will not be
asserted against the Company.
30
<PAGE>
FORWARD-LOOKING STATEMENTS
UNCERTAINTY OF FUNDING. Remediation compliance requirements and attendant
costs are often beyond the financial capabilities of many individuals and small
companies. To address this problem, some states have established tax-supported
trust funds to assist in the financing of compliance and site remediation. As a
consequence, in many of the states in which the Company markets its
soil-remediation services, the majority, and in some cases virtually all, of the
soil remediated by the Company is paid for by large companies and/or state trust
funds. Any substantial decrease in this funding could have a material adverse
effect on the Company's business and financial performance. Many states have
realized that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a result,
several states have relaxed enforcement activities and others have reduced
compliance requirements in order to reduce the costs of cleanup. These factors
have already resulted in lower levels of cleanup activity in some states and
have had a material adverse effect on the Company's business. Continued
de-emphasis on enforcement activities and/or further reductions in compliance
requirements will have an even more severe adverse effect on the Company's
business.
The Company depends on funding from the federal and state governments,
and their agencies and instrumentalities, for compensation for its services. For
example, Thermo NUtech provides a large portion of its services directly or
indirectly to the U.S. Department of Energy (DOE). Declines in spending by the
DOE and other governmental agencies could have a material adverse effect on the
Company's business.
COMPETITION. The markets for many of the Company's services are regional
and are characterized by intense competition from numerous local competitors.
Some of the Company's competitors have greater technical and financial resources
than those of the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their services than the
Company. Competition could increase if new companies enter the market or if
existing competitors expand their service lines. There can be no assurance that
the Company's current technology, technology under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively
with its competitors.
SEASONAL INFLUENCES. A majority of the Company's businesses experience
seasonal fluctuations. A majority of the Company's soil-remediation sites, as
well as the company's fluids-recycling sites, experience declines in severe
weather conditions. Site remediation work and certain environmental testing
services, such as the services provided by RETEC, IEM Sealand, and Thermo
NUtech, may decline in winter months as a result of severe weather conditions.
POSSIBLE OBSOLESCENCE DUE TO TECHNOLOGICAL CHANGE. Technological
developments are expected to continue at a rapid pace in the environmental
services industry. The Company's technologies could be rendered obsolete or
uneconomical by technological advances by one or more companies that address the
Company's markets or by future entrants into the industry. There can be no
assurance that the Company would have the resources to, or otherwise would be
successful in, developing responses to technological advances by others.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY. The Company's strategy has
included the acquisition of businesses that complement or augment the Company's
existing services. The Company does not presently intend to actively seek to
make additional acquisitions in the near future, and expects instead to
concentrate its resources on strengthening its core businesses. The Company may,
however, acquire one or more additional businesses if they are presented to the
Company on terms the Company believes to be attractive.
Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the need
for regulatory approvals. Any acquisitions completed by the Company may be made
at substantial premiums over the fair value of the net assets of the acquired
companies. There can be no assurance that the Company will be able to complete
future acquisitions or that the Company will be able to successfully integrate
any acquired businesses. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds through public or private
financings. Any equity or debt financing, if available at all, may be on terms
which are not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.
31
<PAGE>
FORWARD-LOOKING STATEMENTS
NO ASSURANCE OF DEVELOPMENT AND COMMERCIALIZATION OF TECHNOLOGY UNDER
DEVELOPMENT. The Company is currently engaged in the development of several
technologies which may ultimately be commercialized to provide services to
customers. There are a number of technological challenges that the Company must
successfully address to complete any of its development efforts. Technology
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such technology.
There can be no assurance that any of the technologies currently being developed
by the Company, or those to be developed in the future, will be technologically
feasible or accepted by the marketplace, or that any such development will be
completed in any particular timeframe.
RISKS ASSOCIATED WITH CASH MANAGEMENT ARRANGEMENT WITH THE PARENT
COMPANY. The Company participates in a cash management arrangement with its
parent company, Thermo Electron. Under this cash management arrangement, the
Company lends its excess cash to Thermo Electron on an unsecured basis. The
Company has the contractual right to withdraw its funds invested in the cash
management arrangement upon 30 days' prior notice. Thermo Electron is
contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
the cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The funds are held on an unsecured basis and
therefore are subject to the credit risk of Thermo Electron. The Company's
ability to receive its cash upon notice of withdrawal could be adversely
affected if participants in the cash management arrangement demand withdrawal of
their funds in an aggregate amount in excess of the 50% reserve required to be
maintained by Thermo Electron. In the event of a bankruptcy of Thermo Electron,
the Company would be treated as an unsecured creditor and its right to receive
funds from the bankruptcy estate would be subordinated to secure creditors and
would be treated on a pari passu basis with all other unsecured creditors.
Further, all cash withdrawn by the Company from the cash management arrangement
within one year before the bankruptcy would be subject to rescission. The
inability of Thermo Electron to return the Company's cash on a timely basis or
at all could have a material adverse effect on the Company's results of
operations and financial position.
POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE
INFORMATION. While the Company is attempting to minimize any negative
consequences arising from the year 2000 issue, there can be no assurance that
year 2000 problems will not have a material adverse impact on the Company's
business, operations, or financial condition. While the Company expects that
upgrades to its internal business systems will be completed in a timely fashion,
there can be no assurance that the Company will not encounter unexpected costs
or delays. Some services provided by the Company involve the delivery to clients
of third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
32
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995
- ------------------------------------------------------------- ------------ ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 141,946 $ 128,409 $ 114,849 $ 66,957 $ 51,504
Net Income (Loss) (3,861) 240 (2,681) 5,444 3,643
Earnings (Loss) per Share:
Basic (.29) .02 (.21) .44 .36
Diluted (.29) .02 (.21) .42 .35
BALANCE SHEET DATA
Working Capital $ 36,974 $ 29,941 $ 38,960 $ 46,343 $ 3,384
Total Assets 141,174 140,311 136,114 135,802 79,156
Subordinated Convertible Obligations 40,600 40,600 40,600 40,600 2,650
Shareholders' Investment 70,281 74,467 74,830 83,352 60,320
OTHER DATA
Cash Dividends Declared $ 2,610 $ 2,504 $ 2,557 $ 2,491 $ 2,012
</TABLE>
(a) Reflects a $9.2 million pretax charge for restructuring costs.
(b) Reflects the November 1997 acquisition of Benchmark, the August 1997
acquisition of RPM, and the May 1997 acquisition of TriTechnics and
includes a pretax gain of $3.0 million from the sale of an investment in
a joint venture.
(c) Reflects the September 1996 acquisition of IEM Sealand and $7.8 million
of pretax restructuring costs.
(d) Reflects the May 1995 issuance of $38 million principal amount of 4 7/8%
subordinated convertible debentures and a private placement of 500,000
shares of the Company's common stock for net proceeds of $6.6 million.
Also reflects the December 1995 acquisition of RETEC.
33
<PAGE>
THERMORETEC CORPORATION 1999 FINANCIAL STATEMENTS
COMMON STOCK MARKET INFORMATION
The Company's common stock is traded on the American Stock Exchange under
the symbol THN. The following table sets forth the high and low sale prices of
the Company's common stock for fiscal 1999 and 1998, as reported in the
consolidated transaction reporting system.
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998
-------------------------- -------------------------
Quarter High Low High Low
- ---------------------------------------------------------------------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
First $6 3/4 $4 3/8 $7 9/16 $6 1/2
Second 5 1/8 2 3/8 8 1/8 6 7/8
Third 3 1/8 1 3/4 7 11/16 5 1/2
Fourth 3 5/8 1 7/8 7 3/8 5 5/8
</TABLE>
As of April 30, 1999, the Company had 166 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 Company's common stock on
April 30, 1999, was $2 5/16 per share.
DIVIDEND POLICY
The Company intends to pay cash dividends from time to time to the
holders of the Company's common stock out of funds legally available therefor.
The Company currently expects that such dividends will be paid semiannually. No
assurance can be given, however, as to whether the Company will continue to pay
dividends in the future. On August 4, 1998, and February 23, 1999, the Board of
Directors declared semiannual dividends of $.10 per share, which were paid on
September 1, 1998, and March 25, 1999, to shareholders of record as of August
18, 1998, and March 11, 1999, respectively.
DIVIDEND REINVESTMENT PLAN
The ThermoRetec Corporation Dividend Reinvestment Plan permits
shareholders to have their dividends reinvested automatically in additional
shares of the Company's common stock without paying service charges or brokerage
fees. For more details about this service, please write to:
BankBoston N.A.
c/o Boston EquiServe Limited Partnership
Investor Relations Department
P.O. Box 8040
Boston, Massachusetts 02266-8040
34
<PAGE>
APPENDIX F
AMENDMENT NO. 1 ON FORM 10-K/A TO ANNUAL REPORT ON
FORM 10-K OF THERMORETEC FOR THE FISCAL YEAR ENDED APRIL 3, 1999
F-1
<PAGE>
APPENDIX F
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.
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
-----------------------
RESTRICTED SECURITIES
FISCAL ANNUAL COMPENSATION STOCK UNDERLYING ALL OTHER
NAME AND ------------------- AWARD (1) OPTIONS (2) COMPENSATION (3)
PRINCIPAL POSITION YEAR SALARY BONUS ----------- ------------ ----------------
------------------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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 President 5,000 (TTT)
and former Chief 1998 $145,000 $0 (5) -- 700 (TMO) $60,304 (7)
Executive Officer 2,000 (MKA)
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 President, 900 (TMO)
Business Development 2,500 (TTT)
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 President 1998 $110,000 $0 (5) -- 20,000 (THN) $ 5,576 (11)
9,600 (RGI)
1997 $106,000 $25,000 -- 10,000 (THN) $ 6,567
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(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.
(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
<PAGE>
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.
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.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1999
- -----------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value At Assumed
Percent Of ANNUAL RATES OF STOCK
NUMBER OF SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM (2)
GRANTED AND EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME COMPANY (1) FISCAL YEAR SHARE DATE 5% 10%
---- ----------- ----------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
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. Powell 1,000 (TMO) 0.02% (3) $34.50 6/2/03 $9,530 $21,060
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. Pedersen 1,000 (THN) 0.13% $2.45 2/23/04 $680 $1,500
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.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED YEAR-END YEAR-END
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY (1) EXERCISE REALIZED (2) UNEXERCISABLE) (1) UNEXERCISABLE)
---- ----------- -------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
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 (3) $4,680 /--
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. Pedersen (5) THN -- -- 54,000 /0 $50 /--
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.
<PAGE>
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 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.
<PAGE>
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 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>
THERMORETEC THERMO TERRATECH THERMO ELECTRON
NAME (1) CORPORATION (2) INC. (3) CORPORATION (4)
-------- --------------- -------- ---------------
<S> <C> <C> <C>
Thermo Electron Corporation (5) 10,258,990 N/A N/A
William Harris Investors, Inc. (6) 1,081,882 N/A N/A
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 group 602,564 835,313 1,497,332
(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
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
APPENDIX G
QUARTERLY REPORT ON FORM 10-Q OF THERMORETEC
FOR THE QUARTER ENDED JULY 3, 1999
G-1
<PAGE>
APPENDIX G
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------
FORM 10-Q
(mark one)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 3, 1999
/ / 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 charter)
Delaware 59-3203761
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Damonmill Square
9 Pond Lane, Suite 5A
Concord, Massachusetts 01742-2851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / X / No / /
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding At July 30, 1999
---------------------------- -----------------------------
Common Stock, $.01 par value 13,573,083
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THERMORETEC CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
July 3, April 3,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes $20,607 under repurchase agreement with affiliated
company in fiscal 1999) $ 62 $ 20,669
Advance to affiliate (Note 7) 23,380 -
Accounts receivable, less allowances of $1,681 and $1,706 29,199 32,035
Unbilled contract costs and fees 6,005 7,442
Prepaid and refundable income taxes 3,830 3,923
Prepaid expenses 1,338 1,454
---------- ----------
63,814 65,523
Property, Plant, and Equipment, at Cost (Note 5) 47,427 55,280
Less: Accumulated depreciation and amortization 24,468 23,538
---------- ----------
22,959 31,742
Other Assets 9,655 7,589
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 35,002 35,087
---------- ----------
$ 131,430 $ 139,941
---------- ----------
---------- ----------
</TABLE>
2
<PAGE>
THERMORETEC CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
July 3, April 3,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Liabilities:
Subordinated convertible debentures (includes $4,300 of related-party debt) $ 37,950 $ -
Accounts payable 8,472 10,048
Accrued payroll and employee benefits 5,131 6,326
Deferred revenue 2,854 2,675
Billings in excess of revenues earned 1,964 3,323
Other accrued expenses (Note 5) 4,721 4,068
Due to parent company and affiliated companies 2,353 2,109
---------- ----------
63,445 28,549
Deferred Income Taxes - 511
---------- ----------
Subordinated Convertible Obligations (includes $2,650 and $6,830 of related-party debt) 2,650 40,600
---------- ----------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 14,247,572 shares issued 142 142
Capital in excess of par value 87,935 88,045
Accumulated deficit (17,056) (12,063)
Treasury stock at cost, 674,489 and 693,074 shares (5,686) (5,843)
---------- ----------
65,335 70,281
$ 131,430 $ 139,941
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMORETEC CORPORATION
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Revenues $ 35,849 $ 34,416
--------- ---------
Costs and Operating Expenses:
Cost of revenues 29,904 28,872
Selling, general, and administrative expenses 3,823 4,192
Restructuring costs (Note 5) 9,569 -
--------- ---------
43,296 33,064
Operating Income (Loss) (7,447) 1,352
Interest Income 314 166
Interest Expense (includes $78 and $62 to related parties) (542) (541)
--------- ---------
Income (Loss) Before Income Taxes (7,675) 977
Income Tax (Provision) Benefit 2,682 (489)
--------- ---------
Net Income (Loss) $ (4,993) $ 488
--------- ---------
--------- ---------
Basic and Diluted Earnings (Loss) per Share (Note 3) $ (.37) $ .04
--------- ---------
--------- ---------
Weighted Average Shares (Note 3):
Basic 13,559 12,935
--------- ---------
--------- ---------
Diluted 13,559 12,996
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMORETEC CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (4,993) $ 488
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Noncash restructuring costs (Note 5) 9,044 -
Change in deferred income taxes (2,841) -
Depreciation and amortization 1,609 2,043
Provision for losses on accounts receivable 7 70
Other noncash items 62 (1)
Changes in current accounts:
Accounts receivable 2,648 (1,405)
Unbilled contract costs and fees 1,437 (1,819)
Other current assets 210 194
Accounts payable (1,576) (293)
Billings in excess of revenues earned (1,359) (148)
Other current liabilities (Note 5) (456) (1,011)
Due to parent company and affiliated companies 244 35
---------- ----------
Net cash provided by (used in) operating activities 4,036 (1,847)
---------- ----------
Investing Activities:
Advances to affiliate, net (Note 7) (23,380) -
Purchases of property, plant, and equipment (1,307) (1,232)
Proceeds from sale of property, plant, and equipment 9 188
Other (24) -
---------- ----------
Net cash used in investing activities (24,702) (1,044)
---------- ----------
Financing Activities:
Net proceeds from issuance of Company common stock 48 28
Other 11 43
---------- ----------
Net cash provided by financing activities 59 71
---------- ----------
Decrease in Cash and Cash Equivalents (20,607) (2,820)
Cash and Cash Equivalents at Beginning of Period 20,669 8,912
---------- ----------
Cash and Cash Equivalents at End of Period $ 62 $ 6,092
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMORETEC CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoRetec Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at July 3, 1999, and
the results of operations and cash flows for the three-month periods ended July
3, 1999, and July 4, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of April 3, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. Certain amounts in fiscal 1999 have
been reclassified to conform to the presentation in the fiscal 2000 financial
statements. The consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the fiscal year ended April 3, 1999, filed with the Securities and
Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents unrealized, net of tax gains and losses from available-for-sale
investments. During the first quarter of fiscal 2000 and 1999, the Company had a
comprehensive loss of $4,993,000 and comprehensive income of $485,000,
respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ------------------------------------------------- ------------- ------------
<S> <C> <C>
BASIC
Net Income (Loss) $ (4,993) $ 488
-------- --------
Weighted Average Shares 13,559 12,935
-------- --------
Basic Earnings (Loss) per Share $ (.37) $ .04
-------- --------
-------- --------
DILUTED
Net Income (Loss) $ (4,993) $ 488
-------- --------
Weighted Average Shares 13,559 12,935
Effect of Stock Options -- 61
Weighted Average Shares, as Adjusted 13,559 12,996
-------- --------
Diluted Earnings (Loss) per Share $ (.37) $ .04
-------- --------
-------- --------
</TABLE>
6
<PAGE>
THERMORETEC CORPORATION
3. Earnings (Loss) per Share (continued)
The computation of diluted earnings (loss) per share excludes the effect
of assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of July 3, 1999, there were 1,381,214 of such options
outstanding, with exercise prices ranging from $1.98 to $14.93 per share. In
addition, the computation of diluted earnings per share for all periods excludes
the effect of assuming the conversion of $37,950,000 principal amount of 4 7/8%
subordinated convertible debentures, convertible at $17.92 per share, and the
effect of assuming the conversion of $2,650,000 principal amount of a 3 7/8%
subordinated convertible note, convertible at $9.83 per share, because the
effects would be antidilutive.
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------- ----------------- --------------
<S> <C> <C>
Revenues:
Consulting and Engineering $ 19,247 $ 17,668
Nuclear Remediation 8,550 8,413
Soil Remediation 5,410 5,925
Fluids Recycling 2,642 2,410
-------- --------
$ 35,849 $ 34,416
-------- --------
-------- --------
Income (Loss) Before Income Taxes:
Consulting and Engineering $ 1,244 $ 732
Nuclear Remediation 534 565
Soil Remediation (a) (8,989) 141
Fluids Recycling 290 269
Corporate (b) (526) (355)
-------- --------
Total operating income (loss) (7,447) 1,352
Interest expense, net (228) (375)
-------- --------
$ (7,675) $ 977
-------- --------
-------- --------
</TABLE>
(a) Includes restructuring costs of $9,569,000 in fiscal 2000.
(b) Primarily general and administrative expenses.
5. Restructuring Costs
During fiscal 1999, the Company recorded restructuring costs for the
closure of two soil-recycling facilities, resulting in a write-down of fixed
assets to their estimated disposal value, a write-off of intangible assets, as
well as ongoing lease costs and severance for 13 employees. The Company closed
one soil-recycling facility in March 1999 and is actively seeking a buyer for
the second soil-recycling facility. If no buyer is found, the Company will close
the facility. As of April 3, 1999, the Company had terminated 6 employees. No
additional employees were terminated during the first quarter of fiscal 2000.
In May 1999, the Company announced the planned sale of three additional
soil-recycling facilities. In connection with these actions, the Company
recorded $9,569,000 of restructuring charges in the first quarter of fiscal
2000. These costs include an $8,925,000 write-down of fixed assets to their
estimated disposal value of $3,160,000; the write-off of $119,000 of prepaid
expenses associated with the facilities; $475,000 of severance costs for 33
employees, none of whom were terminated in the first quarter of fiscal 2000; as
well as $50,000 of ongoing lease costs.
7
<PAGE>
THERMORETEC CORPORATION
5. Restructuring Costs (continued)
Unaudited revenues and operating income before restructuring charges from
the soil-recycling facilities that have been or will be closed or sold
aggregated $2,610,000 and $465,000, respectively, in the first quarter of fiscal
2000, and $12,389,000 and $708,000, respectively, in fiscal 1999. As a result of
the restructuring actions, depreciation has been discontinued on the
soil-recycling facilities to be sold or closed. During the first quarter of
fiscal 2000, discontinuing depreciation at these facilities reduced the pretax
operating loss by $488,000. A summary of the changes in accrued restructuring
costs, which are included in other accrued expenses in the accompanying balance
sheet, is as follows:
<TABLE>
<CAPTION>
Facility-
closing
(In thousands) Severance Costs Total
- ----------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT APRIL 3, 1999 $ 112 $ 690 $ 802
Provision charged to expense 475 50 525
Usage (49) (13) (62)
------- ------- -------
BALANCE AT JULY 3, 1999 $ 538 $ 727 $ 1,265
------- ------- -------
------- ------- -------
</TABLE>
The Company expects to incur additional costs of $107,000, primarily for
expected future incremental costs related to the restructuring, during the
remainder of fiscal 2000.
6. Proposed Reorganization
Thermo Electron Corporation 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 the Company, The
Randers Killam Group, and Thermo TerraTech 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 The Randers Killam Group; the
negotiation and execution of a definitive merger agreement; the receipt of a
fairness opinion from an investment banking firm that the transaction is fair to
the Company's 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.
7. Cash Management Arrangement
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. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
8
<PAGE>
THERMORETEC CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 3, 1999, filed with the Securities and Exchange
Commission.
OVERVIEW
The Company is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues.
The Company's eastern construction operation performs the cleanup of hazardous
waste sites for government and industry as a prime construction contractor and
completes predesigned remedial action contracts at sites containing hazardous,
toxic, and radioactive wastes.
The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry-laboratory services, radiation-dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production. The Company also provides nuclear-remediation and waste-management
services to government and private sector clients.
Through its Soil Remediation segment, the Company designs and operates
fixed and mobile facilities for the remediation of contaminated soil. The
Company's soil-remediation centers are environmentally secure facilities for
receiving, storing, and processing petroleum-contaminated soils. Although the
Company expects this market to remain viable for some time after July 3, 1999,
there can be no assurance that this business will not decline in future years.
In May 1999, the Company announced plans to sell three additional soil-recycling
facilities (Note 5).
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids in certain western states
(Oregon, Idaho, Nevada, Utah, Colorado, New Mexico, Texas, and Arizona).
The Company's businesses are affected by several factors, particularly
regulation and enforcement of remediation activities, extreme weather
variations, economic cycles, the availability of federal and state funding for
environmental cleanup, and local competition.
The Company has acquired a number of businesses in the last three years.
The Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core businesses.
9
<PAGE>
THERMORETEC CORPORATION
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 2000 COMPARED WITH FIRST QUARTER FISCAL 1999
Revenues increased to $35.8 million in the first quarter of fiscal 2000
from $34.4 million in the first quarter of fiscal 1999. Revenues increased $1.6
million to $19.2 million at the Consulting and Engineering segment, primarily
due to higher revenues from a large remedial-construction contract. Fluids
Recycling segment revenues increased $0.3 million to $2.7 million, primarily due
to increased capacity as a result of geographic expansion. These increases were
offset in part by a decrease in Soil Remediation segment revenues of $0.5
million to $5.4 million, primarily as a result of the closing of a
soil-recycling facility in fiscal 1999 (Note 5) and lower average prices per ton
of soil processed.
The gross profit margin increased to 17% in the first quarter of fiscal
2000 from 16% in the first quarter of fiscal 1999. The gross profit margin
increased primarily due to discontinuing depreciation at the soil-recycling
facilities to be sold or closed as discussed below, as well as a reduction of
losses at the Consulting and Engineering segment's eastern construction
operation on certain remedial-construction contracts and higher utilization of
billable personnel. These increases were offset in part by lower average prices
per ton of soil processed at the Soil Remediation segment.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 11% in the first quarter of fiscal 2000 from 12% in the first
quarter of fiscal 1999. This decrease was primarily due to the effect of
increased revenues as a percentage of selling, general, and administrative
expenses at the Construction and Engineering segment and, to a lesser extent, a
reduction in staffing levels at the Soil Remediation segment as a result of the
restructuring actions taken in fiscal 1999.
In May 1999, the Company announced plans to sell three additional
soil-recycling facilities. In connection with this action, the Company recorded
pretax charges totaling $9.6 million in the first quarter of fiscal 2000 (Note
5). These charges primarily represent the excess of the book value of the three
facilities proposed to be sold over the estimated proceeds from the sale.
Aggregate revenues and operating income before restructuring charges from the
soil-recycling facilities that have been or will be sold or closed were $2.6
million and $0.5 million, respectively, in the first quarter of fiscal 2000, and
$12.4 million and $0.7 million, respectively, in fiscal 1999. As a result of the
restructuring actions, depreciation has been discontinued at the soil-recycling
facilities to be sold or closed. During the first quarter of fiscal 2000,
discontinuing depreciation at these facilities reduced the pretax operating loss
by $0.5 million.
Interest income increased to $0.3 million in the first quarter of fiscal
2000 from $0.2 million in the first quarter of fiscal 1999 as a result of higher
average invested balances.
The Company recorded a tax benefit at a rate of 35% in the first quarter
of fiscal 2000. The Company's effective tax rate in the first quarter of fiscal
1999 was 50%. This rate exceeded the statutory federal income tax rate primarily
due to the impact of state income taxes and nondeductible amortization of cost
in excess of net assets of acquired companies.
In July 1998, the Company filed suit against a customer, seeking payment
of $2.6 million that has been billed under a contract to provide remediation
services. The customer has disputed its obligation to pay the Company. While the
Company generally maintains reserves for these types of matters, failure to
collect this receivable would have a material adverse impact on the Company's
future results of operations.
10
<PAGE>
THERMORETEC CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital, including cash and cash equivalents was
$0.4 million at July 3, 1999, compared with $37.0 million at April 3, 1999. The
decline in working capital is primarily due to the reclassification of $38.0
million of subordinated convertible debentures due May 2000 to a current
liability. Cash and cash equivalents were $0.1 million at July 3, 1999, compared
with $20.7 million at April 3, 1999. In addition, as of July 3, 1999, the
Company had $23.4 million invested in an advance to affiliate. Prior to the use
of a new domestic cash management arrangement between the Company and Thermo
Electron Corporation (Note 7), which became effective June 1, 1999, amounts
invested with Thermo Electron were included in cash and cash equivalents. During
the first quarter of fiscal 2000, $4.0 million of cash was provided by operating
activities. Cash of $2.6 million was provided by a decrease in accounts
receivable, primarily due to improved collection efforts. This source of cash
was offset in part by $2.0 million of cash used to fund a decrease in accounts
payable and other current liabilities, which was primarily due to the timing of
payments.
Excluding advances to affiliate activity, the Company's primary investing
activity in the first quarter of fiscal 2000 consisted of capital expenditures.
The Company expended $1.3 million for purchases of property, plant, and
equipment during the first quarter of fiscal 2000. The Company plans to make
capital expenditures of approximately $3.2 million during the remainder of
fiscal 2000.
The Company generally expects to have positive cash flow from its
existing operations. Although the Company does not presently intend to actively
seek to acquire additional businesses in the near future, it may acquire one or
more complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. In addition, the Company's $38.0 million principal amount 4
7/8% convertible debentures mature on May 1, 2000. The maturity of this debt
could adversely affect the Company's liquidity in the first quarter of fiscal
2001. The Company expects that it will finance any such acquisitions and the
redemption of such debentures through a combination of internal funds and/or
short-term borrowings from Thermo TerraTech Inc. or Thermo Electron, although it
has no agreement with these companies to ensure that funds will be available on
acceptable terms, or at all.
YEAR 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Informational and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, services, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) assessing the year 2000
readiness of its key suppliers and vendors; and (iii) developing a contingency
plan.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and noninformation technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
noninformation technology systems for year 2000 compliance, has been largely
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical noninformation technology systems. The Company's efforts included
testing the year 2000 readiness of its utility and telecommunications systems at
its critical facilities. The Company is currently in phase two of its program,
during which any material noncompliant information technology systems or
noninformation technology systems that were identified during phase one are
prioritized and remediated. Based on its evaluations, the Company does not
believe that any material upgrades or modifications to its critical
noninformation technology systems are required. The Company is currently
upgrading or replacing its material
11
<PAGE>
THERMORETEC CORPORATION
YEAR 2000 (CONTINUED)
noncompliant information technology systems, and this process was approximately
85% complete as of July 3, 1999. In many cases, such upgrades or replacements
are being made in the ordinary course of business, without accelerating
previously scheduled upgrades or replacements. The Company expects that all of
its material information technology systems and critical noninformation
technology systems will be year 2000 compliant by the end of October 1999.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and distributed questionnaires relating to year 2000 compliance to its
significant suppliers and vendors. To date, no significant supplier or vendor
has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has started to follow-up with
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has not completed the majority of its assessment of
third-party risk, but expects to be substantially completed by the end of
October 1999.
CONTINGENCY PLAN
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required. The Company expects to complete its
contingency plan by the end of October 1999.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $0.2 million as of July 3, 1999, and the total
external costs of year 2000 remediation are expected to be approximately $0.3
million. All of the external costs incurred as of July 3, 1999, were spent on
testing and upgrading information technology systems. In fiscal 1999 and in the
first quarter of fiscal 2000, approximately 5% of the Company's total
information technology budget was spent on year 2000 issues. The Company does
not track the internal costs incurred for its year 2000 compliance project. Such
costs are principally the related payroll costs for its information systems
group. All internal costs and related external costs, other than capital
additions, related to year 2000 remediation have been and will continue to be
expensed as incurred.
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
problems in its material information technology systems that cause the Company
to be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations, and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or
12
<PAGE>
THERMORETEC CORPORATION
YEAR 2000 (CONTINUED)
delays. Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at year-end fiscal
1999.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On May 12, 1999, the Company filed a Current Report on Form 8-K, dated as
of May 5, 1999, with respect to modifications to the previously announced
reorganization plan of the Company's ultimate parent, Thermo Electron
Corporation, involving certain of Thermo Electron's subsidiaries, including the
Company.
On May 25, 1999, the Company filed a Current Report on Form 8-K, dated as
of May 24, 1999, with respect to certain pretax restructuring and other charges
that will be taken by the Company.
13
<PAGE>
THERMORETEC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 6th day of August 1999.
THERMORETEC CORPORATION
/s/ Paul F. Kelleher
--------------------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-kyriazi
--------------------------------------
Theo Melas-Kyriazi
Chief Financial Officer
14
<PAGE>
THERMORETEC CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule for the year ended April 3, 1999.
15
<PAGE>
APPENDIX H
QUARTERLY REPORT ON FORM 10-Q OF THERMORETEC
FOR THE QUARTER ENDED OCTOBER 2, 1999
H-1
<PAGE>
Appendix H
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 2, 1999
[ ] 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 charter)
<TABLE>
<S> <C>
Delaware 59-3203761
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Damonmill Square
9 Pond Lane, Suite 5A
Concord, Massachusetts 01742-2851
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding At October 29, 1999
------------------------------- ---------------------------------
<S> <C>
Common Stock, $.01 par value 13,607,715
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THERMORETEC CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
October 2, April 3,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents (includes $20,607 under repurchase agreement with
affiliated company in fiscal 1999) $ 63 $ 20,669
Advance to affiliate (Note 6) 29,131 -
Accounts receivable, less allowances of $1,775 and $1,706 23,986 32,035
Unbilled contract costs and fees 12,901 7,442
Prepaid and refundable income taxes 3,830 3,923
Prepaid expenses 1,566 1,454
---------- ----------
71,477 65,523
---------- ----------
Property, Plant, and Equipment, at Cost (Note 5) 48,253 55,280
Less: Accumulated depreciation and amortization 25,638 23,538
---------- ----------
22,615 31,742
---------- ----------
Other Assets 7,474 7,589
---------- ----------
Cost in Excess of Net Assets of Acquired Companies 34,731 35,087
---------- ----------
$ 136,297 $ 139,941
========== ==========
</TABLE>
2
<PAGE>
THERMORETEC CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
October 2, April 3,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Liabilities:
Subordinated convertible debentures (includes $4,300 of related-party debt) $ 37,950 $ -
Accounts payable 10,055 10,048
Accrued payroll and employee benefits 6,587 6,326
Deferred revenue 3,392 2,675
Billings in excess of revenues earned 1,766 3,323
Other accrued expenses (Note 5) 5,771 4,068
Due to parent company and affiliated companies 2,844 2,109
---------- ----------
68,365 28,549
---------- ----------
Deferred Income Taxes - 511
---------- ----------
Subordinated Convertible Obligations (includes $2,650 and $6,830 of
related-party debt) 2,650 40,600
---------- ----------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 14,247,572
shares issued 142 142
Capital in excess of par value 87,741 88,045
Accumulated deficit (17,145) (12,063)
Treasury stock at cost, 648,212 and 693,074 shares (5,456) (5,843)
---------- ----------
65,282 70,281
---------- ----------
$ 136,297 $ 139,941
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMORETEC CORPORATION
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Revenues $ 38,560 $ 35,140
--------- ---------
Costs and Operating Expenses:
Cost of revenues 31,991 29,507
Selling, general, and administrative expenses 3,899 3,930
Restructuring costs (Note 5) 63 9,176
--------- ---------
35,953 42,613
--------- ---------
Operating Income (Loss) 2,607 (7,473)
Interest Income 406 185
Interest Expense (includes $78 and $66 to related parties) (542) (542)
--------- ---------
Income (Loss) Before Income Taxes 2,471 (7,830)
Income Tax (Provision) Benefit (1,143) 2,507
--------- ---------
Net Income (Loss) $ 1,328 $ (5,323)
========= =========
Basic and Diluted Earnings (Loss) per Share (Note 3) $ .10 $ (.41)
========= ========
Weighted Average Shares (Note 3):
Basic 13,578 13,027
========= =========
Diluted 14,059 13,027
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMORETEC CORPORATION
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Revenues $ 74,409 $ 69,556
--------- ---------
Costs and Operating Expenses:
Cost of revenues 61,895 58,379
Selling, general, and administrative expenses 7,722 8,122
Restructuring costs (Note 5) 9,632 9,176
--------- ---------
79,249 75,677
--------- ---------
Operating Loss (4,840) (6,121)
Interest Income 720 351
Interest Expense (includes $156 and $128 to related parties) (1,084) (1,083)
--------- ---------
Loss Before Income Taxes (5,204) (6,853)
Income Tax Benefit 1,539 2,018
--------- ---------
Net Loss $ (3,665) $ (4,835)
========= =========
Basic and Diluted Loss per Share (Note 3) $ (.27) $ (.37)
========= =========
Basic and Diluted Weighted Average Shares (Note 3) 13,569 12,981
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMORETEC CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Operating Activities:
Net loss $ (3,665) $ (4,835)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Noncash restructuring costs (Note 5) 9,071 8,105
Change in deferred income taxes (2,841) -
Depreciation and amortization 3,223 4,027
Provision for losses on accounts receivable 118 135
Other noncash items 198 116
Changes in current accounts, excluding the effects of acquisition:
Accounts receivable 7,750 (5,663)
Unbilled contract costs and fees (5,459) (877)
Other current assets (135) (2,861)
Accounts payable 7 (1,587)
Billings in excess of revenues earned (1,557) (217)
Other current liabilities (Note 5) 2,710 2,169
Due to parent company and affiliated companies 735 900
---------- ----------
Net cash provided by (used in) operating activities 10,155 (588)
---------- ----------
Investing Activities:
Advances to affiliate, net (Note 6) (29,131) -
Acquisition, net of cash acquired - (576)
Purchases of property, plant, and equipment (2,210) (2,330)
Proceeds from sale of property, plant, and equipment 22 185
Other (46) (76)
---------- ----------
Net cash used in investing activities (31,365) (2,797)
---------- ----------
Financing Activities:
Dividends paid (1,417) (463)
Repayment of long-term notes receivable 1,892 65
Net proceeds from issuance of Company common stock 129 28
---------- ----------
Net cash provided by (used in) financing activities 604 (370)
---------- ----------
Decrease in Cash and Cash Equivalents (20,606) (3,755)
Cash and Cash Equivalents at Beginning of Period 20,669 8,912
---------- ----------
Cash and Cash Equivalents at End of Period $ 63 $ 5,157
========== ==========
Noncash Activities:
Fair value of assets of acquired company $ - $ 576
Cash paid for acquired company - (576)
---------- ----------
$ - $ -
========== ==========
Dividend reinvested in Company common stock $ - $ 892
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMORETEC CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoRetec Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at October 2, 1999, the
results of operations for the three- and six-month periods ended October 2,
1999, and October 3, 1998, and the cash flows for the six-month periods ended
October 2, 1999, and October 3, 1998. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of April 3, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. Certain amounts in fiscal 1999 have
been reclassified to conform to the presentation in the fiscal 2000 financial
statements. The consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the fiscal year ended April 3, 1999, filed with the Securities and
Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which in the fiscal 1999 periods represents unrealized net of tax gains and
losses from available-for-sale investments. There were no unrealized gains or
losses during the first six months of fiscal 2000, therefore, comprehensive
income equals net income (loss) reported for the three- and six-month periods
ended October 2, 1999. During the three- and six-month periods ended October 3,
1998, the Company had comprehensive losses of $5,318,000 and $4,833,000,
respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- -------------------------------------------------------------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
BASIC
Net Income (Loss) $ 1,328 $ (5,323) $ (3,665) $ (4,835)
--------- --------- --------- ---------
Weighted Average Shares 13,578 13,027 13,569 12,981
--------- --------- --------- ---------
Basic Earnings (Loss) per Share $ .10 $ (.41) $ (.27) $ (.37)
========= ========= ========= =========
DILUTED
Net Income (Loss) $ 1,328 $ (5,323) $ (3,665) $ (4,835)
Effect of Convertible Debentures 15 - - -
--------- --------- --------- ---------
Income Available to Common Shareholders, as Adjusted 1,343 (5,323) (3,665) (4,835)
--------- --------- --------- ---------
Weighted Average Shares 13,578 13,027 13,569 12,981
Effect of :
Stock options 211 - - -
Convertible debentures 270 - - -
--------- --------- --------- ---------
Weighted Average Shares, as Adjusted 14,059 13,027 13,569 12,981
--------- --------- --------- ---------
Diluted Earnings (Loss) per Share $ .10 $ (.41) $ (.27) $ (.37)
========= ======== ======== ========
</TABLE>
7
<PAGE>
THERMORETEC CORPORATION
3. Earnings (Loss) per Share (continued)
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of October 2, 1999, there
were 490,000 of such options outstanding, with exercise prices ranging from
$5.84 to $14.93 per share. In addition, the computation of diluted earnings per
share for the six-month period ended October 2, 1999, and the three- and
six-month periods ended October 3, 1998, excludes the effect of assuming the
conversion of $2,650,000 principal amount of a 3 7/8% subordinated convertible
note, convertible at $9.83 per share, and the computation of diluted earnings
per share for all periods excludes the effect of assuming the conversion of
$37,950,000 principal amount of 4 7/8% subordinated convertible debentures,
convertible at $17.92 per share, because the effects would be antidilutive.
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Consulting and Engineering $ 20,589 $ 18,185 $ 39,836 $ 35,853
Nuclear Remediation 8,871 8,608 17,421 17,021
Soil Remediation 6,216 5,774 11,626 11,699
Fluids Recycling 2,884 2,573 5,526 4,983
--------- --------- --------- ---------
$ 38,560 $ 35,140 $ 74,409 $ 69,556
========= ========= ========= =========
Income (Loss) Before Income Taxes:
Consulting and Engineering $ 1,158 $ 754 $ 2,350 $ 1,486
Nuclear Remediation 408 551 942 1,116
Soil Remediation (a) 1,161 (8,719) (7,828) (8,578)
Fluids Recycling 390 349 680 618
Corporate (b) (510) (408) (984) (763)
--------- --------- --------- ---------
Total operating income (loss) 2,607 (7,473) (4,840) (6,121)
Interest expense, net (136) (357) (364) (732)
--------- --------- --------- ---------
$ 2,471 $ (7,830) $ (5,204) $ (6,853)
========= ========= ========= =========
</TABLE>
(a) Includes restructuring costs of $9.6 million in the first six months of
fiscal 2000 and $9.2 million in the fiscal 1999 periods.
(b) Primarily general and administrative expenses.
5. Restructuring Costs
During fiscal 1999, the Company recorded restructuring costs for the
closure of two soil-recycling facilities, resulting in a write-down of fixed
assets to their estimated disposal value, a write-off of intangible assets, as
well as ongoing lease costs and severance for 13 employees. The Company closed
one soil-recycling facility in March 1999 and is actively seeking a buyer for
the second soil-recycling facility. If no buyer is found, the Company will close
the facility. As of April 3, 1999, the Company had terminated 6 employees. No
additional employees were terminated during the first six months of fiscal 2000.
8
<PAGE>
THERMORETEC CORPORATION
5. Restructuring Costs (continued)
During fiscal 2000, the Company announced the planned sale of three
additional soil-recycling facilities. In connection with these actions, the
Company recorded $9,632,000 of restructuring charges in the first six months of
fiscal 2000. These costs include an $8,952,000 write-down of fixed assets to
their estimated disposal value; a $119,000 write-off of prepaid expenses
associated with the facilities; $475,000 of severance costs for 33 employees,
none of whom were terminated in the first six months of fiscal 2000; $50,000 of
ongoing lease costs; and $36,000 of retention bonuses paid.
Unaudited revenues and operating income before restructuring charges from
the soil-recycling facilities that have been or will be closed or sold
aggregated $5,813,000 and $1,338,000, respectively, in the first six months of
fiscal 2000, and $12,389,000 and $708,000, respectively, in fiscal 1999. These
facilities are available for sale immediately. As a result of the restructuring
actions, the Company discontinued recording depreciation on the soil-recycling
facilities to be sold or closed. During the three- and six-month periods ended
October 2, 1999, discontinuing depreciation at these facilities increased the
Company's operating income by $440,000 and reduced the Company's pretax
operating loss by $928,000, respectively.
Substantially all of the restructuring costs to date have been noncash
charges except for amounts recorded as accrued restructuring costs. A summary of
the changes in accrued restructuring costs, which are included in other accrued
expenses in the accompanying balance sheet, is as follows:
<TABLE>
<CAPTION>
Facility-
closing
(In thousands) Severance Costs Other Total
- ------------------------------------------------------------ ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
FISCAL 1999 PLAN
BALANCE AT APRIL 3, 1999 $ 112 $ 690 $ - $ 802
Usage (71) (16) - (87)
----- ----- ----- -----
BALANCE AT OCTOBER 2, 1999 $ 41 $ 674 $ - $ 715
===== ===== ===== =====
FISCAL 2000 PLAN
BALANCE AT APRIL 3, 1999 $ - $ - $ - $ -
Provision charged to expense 475 50 36 561
Usage (50) (10) (36) (96)
----- ----- ----- -----
BALANCE AT OCTOBER 2, 1999 $ 425 $ 40 $ - $ 465
===== ===== ===== =====
</TABLE>
The Company expects to pay the balance of accrued restructuring costs
primarily during the remainder of fiscal 2000. The Company expects to incur
additional costs of approximately $100,000, primarily for expected future
incremental costs related to the restructuring, during the remainder of fiscal
2000.
6. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
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.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
9
<PAGE>
THERMORETEC CORPORATION
6. Cash Management Arrangement (continued)
In addition, under the new domestic cash management arrangement, amounts
borrowed from Thermo Electron for domestic cash management purposes bear
interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set
at the beginning of each month. The Company has no borrowings under this
arrangement at October 2, 1999.
7. Proposed Merger
On October 19, 1999, the Company entered into a definitive agreement and
plan of merger with Thermo Electron pursuant to which Thermo Electron would
acquire all of the outstanding shares of Company common stock held by
shareholders other than Thermo TerraTech and Thermo Electron in exchange for
$7.00 in cash per share, without interest. The merger had been originally
announced as a stock-for-stock transaction pursuant to which shareholders of the
Company would have received stock of Thermo Electron in exchange for their
shares of the Company. Following the merger, the Company's common stock would
cease to be publicly traded. The Board of Directors of the Company approved the
merger agreement based on a recommendation by a special committee of the Board
of Directors, consisting of an independent director of the Company. The
completion of this merger is subject to certain conditions, including
shareholder approval of the merger agreement and the completion of review by the
Securities and Exchange Commission of certain required filings. Thermo Electron
and Thermo TerraTech intend to vote all of their shares of common stock of the
Company in favor of approval of the merger agreement and, therefore, approval of
the merger agreement is assured. This merger is expected to be completed in the
fourth quarter of fiscal 2000.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 3, 1999, filed with the Securities and Exchange
Commission.
OVERVIEW
The Company is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues.
The Company's eastern construction operation performs the cleanup of hazardous
waste sites for government and industry as a prime construction contractor and
completes predesigned remedial action contracts at sites containing hazardous,
toxic, and radioactive wastes.
10
<PAGE>
THERMORETEC CORPORATION
OVERVIEW (CONTINUED)
The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry-laboratory services, radiation-dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production. The Company also provides nuclear-remediation and waste-management
services to government and private sector clients.
Through its Soil Remediation segment, the Company designs and operates
fixed and mobile facilities for the remediation of contaminated soil. The
Company's soil-remediation centers are environmentally secure facilities for
receiving, storing, and processing petroleum-contaminated soils. Although the
Company expects this market to remain viable for some time after October 2,
1999, there can be no assurance that this business will not decline in future
years. In the first quarter of fiscal 2000, the Company announced plans to sell
three additional soil-recycling facilities (Note 5).
The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids in certain western states
(Oregon, Idaho, Nevada, Utah, Colorado, New Mexico, Texas, and Arizona).
The Company's businesses are affected by several factors, particularly
regulation and enforcement of remediation activities, extreme weather
variations, economic cycles, the availability of federal and state funding for
environmental cleanup, and local competition.
The Company has acquired a number of businesses in the last three years.
The Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core businesses.
RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 2000 COMPARED WITH SECOND QUARTER FISCAL 1999
Revenues increased to $38.6 million in the second quarter of fiscal 2000
from $35.1 million in the second quarter of fiscal 1999. Revenues increased $2.4
million to $20.6 million at the Consulting and Engineering segment, primarily
due to higher revenues from a large remedial-construction contract that is
expected to continue through fiscal 2001. Soil Remediation segment revenues
increased $0.4 million to $6.2 million, primarily as a result of an increase in
the volume of soil processed, offset in part by the closing of a soil-recycling
facility in fiscal 1999 (Note 5). Fluids Recycling segment revenues increased
$0.3 million to $2.9 million, primarily due to increased capacity as a result of
geographic expansion.
The gross profit margin increased to 17% in the second quarter of fiscal
2000 from 16% in the second quarter of fiscal 1999. The gross profit margin
increased primarily due to the discontinuation of depreciation at the
soil-recycling facilities to be sold or closed as discussed below.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 10% in the second quarter of fiscal 2000 from 11% in the second
quarter of fiscal 1999. This decrease was primarily due to the effect of
increased revenues as a percentage of selling, general, and administrative
expenses at the Construction and Engineering segment and, to a lesser extent, a
reduction in staffing levels at the Soil Remediation segment as a result of the
restructuring actions taken in fiscal 1999.
In the first quarter of fiscal 2000, the Company announced plans to sell
three soil-recycling facilities, in addition to the two announced for closure in
fiscal 1999, discussed below (Note 5). In connection with these actions, the
Company recorded pretax charges totaling $0.1 million in the second quarter of
fiscal 2000 for retention bonuses paid and cash costs incurred in connection
with the proposed sale of a facility. The discontinuation of depreciation at the
soil-recycling facilities to be sold or closed increased operating income by
$0.4 million during the second quarter of fiscal 2000.
11
<PAGE>
THERMORETEC CORPORATION
SECOND QUARTER FISCAL 2000 COMPARED WITH SECOND QUARTER FISCAL 1999 (continued)
During the second quarter of fiscal 1999, the Company recorded $9.2
million of restructuring costs in connection with the decision to close two
soil-recycling facilities (Note 5). The costs included a write-down of fixed
assets to their estimated disposal value and a write-off of intangible assets,
including cost in excess of net assets of acquired companies, as well as other
closure costs. The decision was in response to changes in market conditions,
which have resulted in lower-priced soil-recycling alternatives.
All of the facilities that will be sold or closed reported aggregate
revenues and operating income, prior to restructuring costs, of $5.8 million and
$1.3 million, respectively, in the first six months of fiscal 2000 and $12.4
million and $0.7 million, respectively, in fiscal 1999.
Interest income increased to $0.4 million in the second quarter of fiscal
2000 from $0.2 million in the second quarter of fiscal 1999 as a result of
higher average invested balances.
The Company's effective tax rate in the second quarter of fiscal 2000 was
46%. This rate exceeded the statutory federal income tax rate primarily due to
the impact of state income taxes and nondeductible amortization of cost in
excess of net assets of acquired companies. The Company recorded a tax benefit
in the second quarter of fiscal 1999 at an effective rate below the statutory
federal income tax rate, primarily due to the impact of the write-off of
nondeductible cost in excess of net assets of acquired companies.
In July 1998, the Company filed suit against a customer, seeking payment
of $2.6 million that has been billed under a contract to provide remediation
services. The customer has disputed its obligation to pay the Company. While the
Company generally maintains reserves for these types of matters, failure to
collect this receivable would have a material adverse impact on the Company's
future results of operations.
FIRST SIX MONTHS FISCAL 2000 COMPARED WITH FIRST SIX MONTHS FISCAL 1999
Revenues increased to $74.4 million in the first six months of fiscal
2000 from $69.6 million in the first six months of fiscal 1999. Revenues
increased $4.0 million to $39.8 million at the Consulting and Engineering
segment, primarily due to higher revenues from a large remedial-construction
contract that is expected to continue through fiscal 2001. Fluids Recycling
segment revenues increased $0.5 million to $5.5 million, primarily due to
increased capacity as a result of geographic expansion.
The gross profit margin increased to 17% in the first six months of
fiscal 2000 from 16% in the first six months of fiscal 1999. The gross profit
margin increased primarily due to the discontinuation of depreciation at the
soil-recycling facilities to be sold or closed as discussed below.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 10% in the first six months of fiscal 2000 from 12% in the first
six months of fiscal 1999. This decrease was primarily due to the reasons
discussed in the results of operations for the second quarter.
In connection with the proposed sale of businesses discussed in the
results of operations for the second quarter, the Company recorded $9.6 million
of restructuring costs in the first six months of fiscal 2000. These charges
primarily represent the excess of book value of the businesses proposed to be
sold over the estimated proceeds from their sale (Note 5). The discontinuation
of depreciation at the soil-recycling facilities to be sold or closed reduced
the operating loss by $0.9 million in fiscal 2000.
Interest income increased to $0.7 million in the first six months of
fiscal 2000 from $0.4 million in the first six months of fiscal 1999 as a result
of higher average invested balances.
The Company recorded a tax benefit in the first six months of fiscal 2000
and 1999 at an effective rate below the statutory federal income tax rate
primarily due to the impact of the write-off of nondeductible cost in excess of
net assets of acquired companies.
12
<PAGE>
THERMORETEC CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $3.1 million at October 2, 1999,
compared with $37.0 million at April 3, 1999. The decline in working capital is
primarily due to the reclassification of $38.0 million of subordinated
convertible debentures due May 2000 to a current liability. Cash and cash
equivalents were $0.1 million at October 2, 1999, compared with $20.7 million at
April 3, 1999. In addition, as of October 2, 1999, the Company had $29.1 million
invested in an advance to affiliate. Prior to the use of a new domestic cash
management arrangement between the Company and Thermo Electron Corporation (Note
6), which became effective June 1, 1999, amounts invested with Thermo Electron
were included in cash and cash equivalents. During the first six months of
fiscal 2000, $10.2 million of cash was provided by operating activities. Cash of
$7.8 million was provided by a decrease in accounts receivable, primarily due to
the timing of billings and increased collection efforts. This source of cash was
offset in part by $5.5 million of cash used to fund an increase in unbilled
contract costs and fees, primarily due to the timing of billings. The Company
expects to pay the balance of the accrued restructuring costs of $1.2 million
primarily during the remainder of fiscal 2000.
Excluding advances to affiliate activity, the Company's primary investing
activity in the first six months of fiscal 2000 consisted of capital
expenditures. The Company expended $2.2 million for purchases of property,
plant, and equipment during the period and plans to make capital expenditures of
approximately $2.3 million during the remainder of fiscal 2000.
The Company's financing activities provided $0.6 million of cash. Cash of
$1.9 million was provided by the repayment of a long-term note receivable. This
source of cash was offset in part by $1.4 million of cash used to pay a
semiannual cash dividend of $0.10 per share of common stock on September 30,
1999, to shareholders of record as of September 20, 1999.
The Company generally expects to have positive cash flow from its
existing operations. Although the Company does not presently intend to actively
seek to acquire additional businesses in the near future, it may acquire one or
more complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds and/or short-term borrowings from Thermo
Electron, although it has no agreement to ensure that funds will be available on
acceptable terms, or at all. In addition, the Company's $38.0 million principal
amount 4 7/8% convertible debentures mature on May 1, 2000. The maturity of
these debentures will have a material adverse effect on the Company's liquidity.
These debentures may be repaid prior to the maturity date if the merger of the
Company with Thermo Electron (Note 7) is completed prior to that time. The
merger of the Company with Thermo Electron is considered a redemption event
causing the acceleration of the repayment of the debentures.
YEAR 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Informational and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, services, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) assessing the year 2000
readiness of its key suppliers and vendors; and (iii) developing a contingency
plan.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. In the first phase of the program, the Company
tested and evaluated its critical information technology systems and
non-information technology systems for year 2000 compliance, which efforts
included testing and evaluating its significant computer systems, software
applications, and related equipment for year 2000 compliance. The Company also
evaluated the potential year 2000
13
<PAGE>
THERMORETEC CORPORATION
YEAR 2000 (CONTINUED)
impact on its critical non-information technology systems, which efforts
included testing the year 2000 readiness of its utility and telecommunications
systems at its critical facilities. In phase two of its program, any material
noncompliant information technology systems or non-information technology
systems that were identified during phase one were prioritized and remediated.
Based on its evaluations, the Company concluded that no material upgrades or
modifications to its critical non-information technology systems are required.
The Company is currently upgrading or replacing its material noncompliant
information technology systems, and this process was approximately 90% complete
as of October 2, 1999. In many cases, such upgrades or replacements are being
made in the ordinary course of business, without accelerating previously
scheduled upgrades or replacements. The Company expects that all of its material
information technology systems and critical non-information technology systems
will be year 2000 compliant by the end of November 1999.
The Company has also identified and assessed the year 2000 readiness of
key suppliers and vendors that are believed to be significant to the Company's
business operations. As part of this effort, the Company developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. The Company also followed up with significant suppliers
and vendors that did not respond to the Company's questionnaires. To date, no
significant supplier or vendor has indicated that it believes its business
operations will be materially disrupted by the year 2000 issue. As of October 2,
1999, the Company has completed the majority of its assessment of third-party
risk.
CONTINGENCY PLAN
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. The Company
may in the future modify or adjust its contingency plan as may be required in
the event that there are changes in the year 2000 readiness of its business
systems and facilities, and significant suppliers and vendors.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $0.2 million as of October 2, 1999. All of the
external costs incurred as of October 2, 1999, were spent on testing and
upgrading information technology systems. In fiscal 1999 and in the first six
months of fiscal 2000, approximately 5% of the Company's total information
technology budget was spent on year 2000 issues. The Company does not track the
internal costs incurred for its year 2000 compliance project. Such costs are
principally the related payroll costs for its information systems group. All
internal costs and related external costs, other than capital additions, related
to year 2000 remediation have been and will continue to be expensed as incurred.
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
problems in its material information technology systems that cause the Company
to be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations, and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
14
<PAGE>
THERMORETEC CORPORATION
YEAR 2000 (CONTINUED)
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at year-end fiscal
1999.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
15
<PAGE>
THERMORETEC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 10th day of November 1999.
THERMORETEC CORPORATION
/s/ Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-------------------------
Theo Melas-Kyriazi
Chief Financial Officer
16
<PAGE>
THERMORETEC CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of October 19, 1999, by and among Thermo Electron
Corporation, Retec Acquisition Corporation, and ThermoRetec Corporation (filed as Exhibit 2.1
to the Registrant's Current Report on Form 8-K relating to events occurring on October 19,
1999 [File No. 1-12636] and incorporated herein by reference).
27 Financial Data Schedule.
</TABLE>
<PAGE>
[ATTACHMENT A TO PROXY STATEMENT]
FORM OF PROXY
THERMORETEC CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD , 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert W. Dunlap, Theo Melas-Kyriazi
and Kenneth J. Apicerno, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Special
Meeting of the stockholders of ThermoRetec Corporation, a Delaware corporation
(the "Company"), to be held on ________, _______, 2000, at 10:00 a.m., at the
offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts
02454-9046, and at any adjournment or adjournments thereof, and to vote all
shares of common stock of the Company standing in the name of the undersigned on
_________, 2000, with all of the powers the undersigned would possess if
personally present at such meeting.
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
THERMORETEC CORPORATION
______________, 2000
1. To consider and vote on a proposal to approve an Agreement and Plan
of Merger dated as of October 19, 1999 (the "Merger Agreement") pursuant to
which Retec Acquisition Corporation, a newly-formed subsidiary of Thermo
Electron Corporation, will be merged (the "Merger") with and into the Company
and each stockholder of the Company (other than shares held by the Company in
treasury, shares held by Thermo TerraTech Inc. and Thermo Electron Corporation,
and shares held by stockholders who are entitled to and have perfected their
dissenters' rights) will become entitled to receive $7.00 in cash for each
outstanding share of common stock, $.01 par value, of the Company owned by such
stockholder immediately prior to the effective time of the Merger. A copy of the
Merger Agreement is attached as Appendix A to and is described in the
accompanying Proxy Statement.
[ ] For [ ] Against [ ] Abstain
2. To consider and act in their discretion upon such other matters as
may properly come before the Special Meeting or any adjournment or adjournments
thereof.
[ ] For [ ] Against [ ] Abstain
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS
SET FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO
INSTRUCTION IS GIVEN.
Copies of the Notice of Special Meeting and of the Proxy Statement have
been received by the undersigned.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
Signature(s)
----------------------------
Date
------------------------------------
Note: This proxy should be dated, signed by the
stockholder(s) exactly as his or her name appears
hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint
tenants or as community property, both should sign.
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
