<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1996
FORM S-1 REGISTRATION NO. 333-07585
FORM S-3 REGISTRATION NO. 333-07585-01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
<TABLE>
<S> <C>
AS TO THE UNITS: AS TO THE GUARANTEES:
AMENDMENT NO. 2 TO AMENDMENT NO. 2 TO
FORM S-1 FORM S-3
REGISTRATION STATEMENT REGISTRATION STATEMENT
UNDER UNDER
THE SECURITIES ACT OF 1933 THE SECURITIES ACT OF 1933
------------------------ ------------------------
THERMO FIBERGEN INC. THERMO ELECTRON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER) CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) ORGANIZATION)
------------------------ ------------------------
3554
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE
NUMBER)
04-3311544 04-2209186
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
81 WYMAN STREET
8 ALFRED CIRCLE P.O. BOX 9046
BEDFORD, MASSACHUSETTS 01730 WALTHAM, MASSACHUSETTS 02254-9046
(617) 275-3600 (617) 622-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
------------------------
SANDRA L. LAMBERT, SECRETARY
THERMO FIBERGEN INC. AND
THERMO ELECTRON CORPORATION
81 WYMAN STREET
P.O. BOX 9046
WALTHAM, MA 02254-9046
(617) 622-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE FOR BOTH REGISTRANTS)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SETH H. HOOGASIAN, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE
GENERAL COUNSEL TESTA, HURWITZ & THIBEAULT, LLP
THERMO FIBERGEN INC. 125 HIGH STREET
VICE PRESIDENT AND GENERAL COUNSEL BOSTON, MASSACHUSETTS 02110
THERMO ELECTRON CORPORATION (617) 248-7000
81 WYMAN STREET
WALTHAM, MASSACHUSETTS 02254-9046
(617) 622-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement has become effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(1)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Units................................................. $72,139,500 $24,876(2)
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Common Stock, $.01 par value.......................... -- None(3)
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Redemption Rights..................................... -- None(3)
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Thermo Electron Corporation Guarantees................ -- None(3)
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</TABLE>
(1) Calculated pursuant to Rule 457(o).
(2) Of this amount, $18,809 was previously paid.
(3) The Units are comprised of the Common Stock and the Redemption Rights. No
separate consideration will be received for the Common Stock, the Redemption
Rights or the Guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED SEPTEMBER 9, 1996
PROSPECTUS
4,100,000 UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE REDEMPTION RIGHT)
OF
THERMO FIBERGEN INC.
------------------------
REDEMPTION PAYMENTS GUARANTEED ON A SUBORDINATED BASIS BY
THERMO ELECTRON CORPORATION
------------------------
All of the units offered hereby (the "Units") are being sold by Thermo
Fibergen Inc. ("Thermo Fibergen" or the "Company"), a
wholly owned subsidiary of Thermo Fibertek Inc. ("Thermo Fibertek"), which is an
81.5%-owned subsidiary of Thermo Electron Corporation ("Thermo Electron"). Each
Unit consists of one share of common stock, par value $.01 per share (the
"Common Stock"), of the Company and one Redemption Right (the "Redemption
Rights") (the Units, Common Stock, Redemption Rights and the Guarantees (as
defined below) are hereinafter collectively referred to as the "Securities").
Each Redemption Right entitles the holder to sell one share of the Company's
Common Stock to the Company during the month of September 2000 (the "First
Redemption Period") and during the month of September 2001 (the "Second
Redemption Period"), for an amount of cash equal to the initial public offering
price (the "Redemption Price"). The Company's obligations with regard to the
Redemption Rights are guaranteed on a subordinated basis by Thermo Electron. The
Common Stock and the Redemption Rights will trade together as Units until the
90th day after the date of this Prospectus, after which date the Common Stock
and the Redemption Rights will trade separately. The Redemption Rights will
expire if at any time after the 90th day after the date of this Prospectus and
(i) prior to the beginning of the First Redemption Period or (ii) after the end
of the First Redemption Period and prior to the beginning of the Second
Redemption Period, the closing price of the Common Stock as reported on the
principal trading market for the Common Stock has been at least 150% of the
Redemption Price, as adjusted, for 20 of any 30 consecutive trading days. See
"Description of Securities."
Following the offering, Thermo Fibertek will own approximately 70.9% of the
outstanding shares of Common Stock of the Company (assuming no exercise of the
Underwriters' over-allotment option).
Prior to this offering, there has been no public market for the Units, the
Common Stock or the Redemption Rights. It is currently estimated that the
initial public offering price will be $12.75 per Unit. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. Application has been made to list the Units, the Common
Stock and the Redemption Rights on the American Stock Exchange.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNTS
AND COMMISSIONS(1)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Per Unit.................................... $ $ $
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Total(3).................................... $ $ $
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</TABLE>
(1) The Company, Thermo Fibertek and Thermo Electron have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $375,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 615,000 Units solely to cover over-allotments, if any. If
this option is fully exercised, the total price to the public would be
$ , the total underwriting discounts and commissions would be
$ and the total proceeds to the Company before estimated expenses
would be $ . See "Underwriting."
------------------------
The Securities offered by this Prospectus are offered by the Underwriters
subject to prior sale, to withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of the Units will be made in
New York, New York on or about , 1996.
NATWEST SECURITIES LIMITED
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------
FOR UNITED KINGDOM PURCHASERS: THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO THE PUBLIC (AS DEFINED IN THE COMPANIES ACT 1985) AND NO PROSPECTUS HAS BEEN
OR WILL BE REGISTERED OR ISSUED IN THE UNITED KINGDOM IN RESPECT OF THE UNITS.
CONSEQUENTLY, THE UNITS MUST NOT BE OFFERED FOR SALE OR SOLD IN THE UNITED
KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING,
HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE
PURPOSES OF THEIR BUSINESSES OR TO PERSONS WHO IT IS REASONABLE TO EXPECT WILL
ACQUIRE, HOLD, MANAGE OR DISPOSE OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE
PURPOSES OF THEIR BUSINESS OR ARE OTHERWISE OFFERED TO PERSONS IN THE CONTEXT OF
THEIR TRADES, PROFESSIONS OR OCCUPATIONS.
THIS PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED
KINGDOM IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL
SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1995 OR WITHIN
ARTICLE 8(1) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS)
(EXEMPTIONS) (NO. 2) ORDER 1995.
BIODAC IS A REGISTERED TRADEMARK OF THE COMPANY. ALL OTHER TRADEMARKS OR
TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE
OWNERS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Thermo Electron with the
Securities and Exchange Commission (the "Commission") are incorporated in this
Prospectus by reference:
(a) Thermo Electron's Annual Report on Form 10-K for the year ended December 30,
1995, as amended (File No. 1-8002);
(b) Thermo Electron's Quarterly Report on Form 10-Q for the quarter ended March
30, 1996, as amended (File No. 1-8002);
(c) Thermo Electron's Quarterly Report on Form 10-Q for the quarter ended June
29, 1996, as amended (File No. 1-8002);
(d) Thermo Electron's Current Report on Form 8-K filed with the Commission on
January 9, 1996, with respect to the issuance of its 4 1/4% Convertible
Subordinated Debentures due 2003 (File No. 1-8002);
(e) Thermo Electron's Current Report on Form 8-K filed with the Commission on
January 26, 1996, with respect to the adoption of a Shareholder Rights Plan
on January 19, 1996 (File No. 1-8002);
(f) Thermo Electron's Current Report on Form 8-K filed with the Commission on
April 19, 1996, with respect to its guarantees of obligations under Thermo
TerraTech Inc.'s 4 5/8% Convertible Subordinated Debentures due 2003 (File
No. 1-8002); and
(g) The description of Thermo Electron's common stock which is contained in
Thermo Electron's Registration Statement on Form 8-A, filed under the
Exchange Act, as amended (File No. 1-8002).
All reports or proxy statements filed by Thermo Electron pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies, supersedes
or replaces that statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Thermo Electron undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, on the written or oral request of
such person, a copy of any or all of the documents that have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to: Sandra L. Lambert,
Secretary, Thermo Electron Corporation, 81 Wyman Street, P. O. Box 9046,
Waltham, Massachusetts 02254-9046 (telephone number: (617) 622-1000).
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as otherwise indicated, all information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. Investors should carefully consider the information set forth under
the heading "Risk Factors."
THE COMPANY
Thermo Fibergen Inc. (the "Company") was established as a subsidiary of
Thermo Fibertek Inc. ("Thermo Fibertek") to develop and commercialize equipment
and systems to recover valuable materials from increasing volumes of pulp
residue generated by plants that produce recycled pulp and paper. The Company
intends to finance, build and operate recovery plants on sites at, or
immediately adjacent to, recycled pulp mills, employing a proprietary process to
treat pulp residue. The Company's plants will recover and clean long cellulose
fibers for resale to pulp mills, and will process the remaining recoverable
components of pulp residue, such as fines (very short fibers not usable for
papermaking) and minerals, into saleable products. On July 3, 1996, the
Company's wholly owned GranTek Inc. subsidiary ("GranTek") acquired
substantially all of the assets, subject to certain liabilities, of Granulation
Technology, Inc. ("GT") and Biodac, a division of Edward Lowe Industries, Inc.
(collectively, "GT/ELI"), for approximately $12,000,000 in cash, subject to a
post-closing adjustment. GranTek employs patented technology to produce
absorbent granules from pulp residue. These granules, marketed under the trade
name BIODAC, are currently used as a carrier to deliver chemicals for
agricultural, lawn and garden, and other needs. GranTek's Green Bay, Wisconsin,
plant currently produces more than 30,000 tons of BIODAC per year.
Environmental concerns and other factors have led to an increase in the use
and production of recycled paper in recent years. However, paper companies that
increase the use of recycled paper as a source of their papermaking fiber
experience substantial increases in their pulp residue. These increases result
from the pulp de-inking, filtering and cleaning process, in which approximately
25% of the recycled fiber entering a pulp mill is lost to the waste stream, and
must be disposed of at a substantial cost. The Company believes the North
American pulp and paper industry spent an estimated $900 million to treat and
dispose of approximately 9 million tons of pulp residue in 1993. The Company
believes that worldwide expenditures to treat and dispose of pulp residue in
1993 were approximately $2.5 billion.
The Company's strategy is to generate revenues from several sources. First,
the Company will seek to enter into long-term contracts with pulp and paper
mills under which the Company will charge the customer a tipping fee to accept
the customer's pulp residue. Second, the Company intends to sell much of the
clean long fibers it recovers directly back to the customer for use in the
papermaking process. The Company has not yet begun to recover long fibers; as
described below, the Company expects to begin construction of its first
commercial recovery plant employing its long fiber-recovery technology in 1997.
Third, the Company will apply existing technologies, such as its granulation
technologies, and expects to develop new technologies, to maximize the value of
the other recoverable components of the pulp residue, such as fines and
minerals, for sale into other markets. For example, the Company intends to
further develop GranTek's technology to produce granules for oil and grease
absorbents as well as for specialty absorbents, such as for the cat box filler
market.
The Company anticipates that the tipping fees it receives will generally be
competitive with the pulp mills' current disposal costs. The Company believes
that pulp mills will prefer to dispose of their residue streams by paying the
Company a tipping fee for a number of reasons. Disposal of residue with the
Company will provide pulp mills with a long-term disposal solution and will
eliminate concerns over long-term capacity constraints at their landfills; will
relieve the pulp mills of the responsibility for complying with changing
treatment and disposal regulations; and will allow pulp mills to reduce their
capital investments in dewatering and treatment equipment, and to focus their
resources on the manufacture of paper.
The Company is actively developing a process to recover long fibers from
pulp residue, and has completed the construction of a mobile pilot recovery
system which the Company is using for initial mill demonstrations of its
fiber-recovery process. The Company expects that its first commercial plants
will feature only GranTek's technology to process pulp residue into absorbent
granules. The Company's strategy is to introduce this technology to pulp mill
customers, to enter into long-term contracts with such customers and to
construct its plants, and then, upon the completion of development, to retrofit
existing GranTek plants with the Company's long fiber-recovery technology. The
Company will also explore the construction of plants in certain niche markets
that may feature only the Company's long fiber-recovery technology. The Company
expects to begin construction of its first commercial recovery plant employing
its long fiber-recovery technology before the end of 1997.
3
<PAGE> 5
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<TABLE>
THE OFFERING
<S> <C>
Units Offered(1)..................... 4,100,000
Common Stock to be Outstanding after
the Offering(1)(2)................. 14,100,000
Proposed AMEX Symbol for the Units... TFGU
Proposed AMEX Symbol for the Common
Stock.............................. TFG
Proposed AMEX Symbol for the
Redemption Rights.................. TFGR
Scheduled Optional Redemptions....... The holder of a Redemption Right may require the Company
to redeem one share of Common Stock for an amount of cash
equal to the initial public offering price during the
month of September 2000 (the "First Redemption Period")
and the month of September 2001 (the "Second Redemption
Period"). The Redemption Rights will expire if at any time
after the 90th day after the date of this Prospectus and
(i) prior to the beginning of the First Redemption Period
or (ii) after the end of the First Redemption Period and
prior to the beginning of the Second Redemption Period,
the closing price of the Common Stock has been at least
150% of the Redemption Price, as adjusted, for 20 of any
30 consecutive trading days.
Thermo Electron Guarantees........... Redemption payments have been guaranteed by Thermo
Electron. The obligations represented by Thermo Electron's
guarantees (the "Guarantees") will be subordinated in
right of payment to the prior payment in full of all
Senior Indebtedness (as defined herein) of Thermo
Electron, including Senior Indebtedness which may be
incurred by Thermo Electron after the issuance of the
Guarantees.
Use of Proceeds...................... Funding the development and commercialization of the
Company's fiber-recovery system, and general corporate
purposes, including acquisitions.
Federal Tax Consequences............. Special tax considerations may apply to an investment in
the Units. Investors should read carefully "Certain
Federal Income Tax Consequences" and are advised to
consult with their own tax advisors regarding the
consequences of an investment in the Units.
</TABLE>
THERMO ELECTRON
Thermo Electron develops, manufactures and markets environmental monitoring
and analysis instruments, biomedical products including heart-assist systems,
mammography systems and respiratory care products, paper-recycling and
papermaking equipment, alternative-energy systems, industrial process equipment,
and other specialized products. Thermo Electron also provides environmental and
metallurgical services and conducts advanced technology research and
development. Thermo Electron performs its business through its divisions and
wholly owned subsidiaries, as well as majority-owned subsidiaries that are
partially owned by the public or by private investors.
- ---------------
(1) Each Unit consists of one share of Common Stock and one Redemption Right.
The Common Stock and the Redemption Rights will trade together as Units
until the 90th day after the date of this Prospectus, after which date the
Common Stock and the Redemption Rights will trade separately.
(2) Does not include 825,000 shares of Common Stock reserved for issuance under
the Company's stock-based compensation plans. As of August 31, 1996, options
to purchase 338,000 shares of Common Stock had been granted and were
outstanding under these plans. See "Capitalization," "Management --
Compensation of Directors" and "-- Compensation of Executive Officers" and
Note 5 of Notes to Financial Statements of the Company.
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4
<PAGE> 6
<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
PRO FORMA
COMBINED(1)(2)
-----------------------
SIX MONTHS TWELVE SIX
ENDED(1) MONTHS MONTHS
FISCAL YEAR ------------------ ENDED ENDED
------------------------------------- JULY 1, JUNE 29, DECEMBER 30, JUNE 29,
1992(1) 1993 1994 1995 1995 1996 1995 1996
------- ------- ------- ------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $ -- $ -- $ -- $ -- $ -- $ -- $ 4,233 $ 3,154
Gross Profit................. -- -- -- -- -- -- 992 1,071
Research and Development
Expenses................... 147 106 128 601 276 548 904 637
Patent Litigation Expenses... -- -- -- -- -- -- 1,654 290
Operating Loss............... (147) (106) (128) (601) (276) (548) (2,648) (842)
Interest and Other Income
(Expense).................. -- -- -- -- -- 267 (1,469) 704
Net Loss..................... (147) (106) (128) (601) (276) (281) (4,117) (138)
Loss per Share(3)............ (.01) (.01) (.01) (.06) (.03) (.03) (.41) (.01)
Weighted Average Shares(3)... 10,073 10,073 10,073 10,073 10,073 10,073 10,073 10,073
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1996
------------------------
PRO FORMA AS
COMBINED(4) ADJUSTED(5)
------------ ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital........................................................................ $ 359 $48,861
Total Assets........................................................................... 13,659 62,161
Common Stock Subject to Redemption..................................................... -- 48,502
Shareholder's Investment............................................................... 12,313 12,313
<FN>
- ---------------
(1) Derived from unaudited financial statements.
(2) The pro forma combined statement of operations data was derived from the pro
forma combined condensed statements of operations included elsewhere in this
Prospectus. The pro forma combined statement of operations data sets forth
the results of operations for the twelve months ended December 30, 1995 and
the six months ended June 29, 1996, as if the acquisition of substantially
all of the assets, subject to certain liabilities, of GT/ELI had occurred on
January 1, 1995.
(3) Pursuant to Securities and Exchange Commission requirements, loss per share
has been presented for all periods. Weighted average shares for all periods
include 10,000,000 shares issued to Thermo Fibertek in connection with the
initial capitalization of the Company and the effect of the assumed exercise
of stock options issued within one year prior to the Company's proposed
initial public offering.
(4) The pro forma combined balance sheet data as of June 29, 1996 is derived
from the pro forma combined condensed balance sheet included elsewhere in
this Prospectus, which was prepared as if the acquisition of substantially
all of the assets, subject to certain liabilities, of GT/ELI had occurred on
June 29, 1996.
(5) Adjusted to reflect the sale by the Company of 4,100,000 Units offered
hereby at an assumed initial public offering price of $12.75 per Unit, after
deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company.
</TABLE>
5
<PAGE> 7
RISK FACTORS
An investment in the Units offered hereby involves a high degree of risk.
Accordingly, the following factors should be carefully considered in evaluating
the Company and its business before purchasing any of such Units.
Operating Losses. The Company has not been profitable since its inception
as a division of Thermo Fibertek on December 29, 1991. As of June 29, 1996, the
cumulative operating losses of the Company were approximately $1,530,000. The
Company expects to continue to incur operating losses for at least the next
several years. The Company had no revenues through the six months ended June 29,
1996.
Uncertainty of Product Development; Dependence on Thermo Fibertek. The
Company's fiber-recovery system incorporates new technology currently under
development. Although the Company has completed the construction of its mobile
pilot fiber-recovery system, it has not yet begun the commercial production of
full-scale fiber-recovery systems. The Company's success will depend in part on
Thermo Fibertek, which is developing a proprietary "scalping" technology that is
a key component of the Company's fiber-recovery system. The principal
development risk associated with the technology comprising the Company's mobile
pilot system, including the "scalping" technology under development by Thermo
Fibertek, is that such technology may not be readily scalable. Accordingly,
further engineering will be required to adapt such technology to permit it to
process pulp residue at volumes necessary for successful commercial operation.
In addition, while pulp residues from all recycled pulp mills share certain
defining principal characteristics, such technology must be further engineered
to maximize its ability to scalp fibers from the residue streams of specific
mills. No assurance can be given that the development efforts of the Company or
of Thermo Fibertek will be successful. Failure to successfully develop the
Company's recovery equipment and system would have a material adverse effect on
the business of the Company. The Company's success will depend to some degree on
its ability to identify and develop technologies to maximize the value of the
components of pulp residue, such as minerals, for sale into other markets. There
can be no assurance that the Company will succeed in obtaining or developing any
such technologies. Failure of the Company to obtain or develop such
technologies, or to develop active markets for the components of the pulp
residue it processes, would both increase the Company's ultimate waste-disposal
costs and reduce the Company's anticipated revenue stream. Accordingly, such a
failure would have a material adverse effect on the business of the Company.
Risks of Uncertain Market Acceptance. The Company's proposed
fiber-recovery process and market approach are significantly different from
processing and disposal methods that are currently available commercially. There
is a substantial risk with any new technology that the marketplace may not
accept or be receptive to the potential benefits of such technology. Market
acceptance of the Company's proposed services and products will depend, in large
part, upon the ability of the Company to demonstrate the economic advantage of
its system over available alternatives. There can be no assurance that the
Company's services will be accepted by the pulp and paper industry, that any
products the Company may develop from the recoverable components of papermaking
residues will be accepted in their respective markets or that the Company will
be able to sell such products, if accepted, at commercially viable prices.
Failure of either the Company's technology to gain market acceptance by the pulp
and paper industry or of any such products to gain market acceptance generally
would have a material adverse effect on the business of the Company.
Lack of Operating History and Management. The Company has no operating
history other than research and development relating to its fiber-recovery
equipment and process and the business recently acquired by its GranTek
subsidiary. The Company expects to hire several additional employees within the
next year, all of whom are expected to be engaged in research and development
and/or sales and marketing. No assurance can be given that management
experienced in building a research and development or manufacturing
organization, or additional skilled personnel necessary to successfully
commercialize and expand the Company's business and operations, can be recruited
and retained. Failure of the Company to achieve these objectives would have a
material adverse effect on the business of the Company. See "Business --
Employees."
Risks Associated with Protection, Defense and Use of Proprietary Technology
and Intellectual Property. The Company holds several United States and foreign
patents relating to various aspects of the processing and use of cellulose-based
granular materials, including the processing and use of such materials as an
agricultural carrier, and Thermo Fibertek holds two United States patents and
several foreign patents, and expects to file additional United States patent
applications in the near future, relating to the "scalping" technology that is a
key component of the Company's fiber-recovery system. Although the Company has
licensed the technology covered by Thermo
6
<PAGE> 8
Fibertek's patents for use in pulp and paper industry applications, the Company
does not itself hold any patents or patent applications with respect to its
pilot fiber-recovery system. Proprietary rights relating to the Company's
technology are protected from unauthorized use by third parties only to the
extent that they are covered by valid and enforceable patents or are maintained
in confidence as trade secrets. Moreover, although the Company is developing
methods to separate the various components of the residue stream for which it
believes that it may be able to obtain patent protection, there can be no
assurance that patents will issue from any pending or future patent applications
owned by or licensed to the Company or that the claims allowed under any issued
patents will be sufficiently broad to protect the Company's technology and, in
the absence of patent protection, the Company may be vulnerable to competitors
who attempt to copy the Company's services or products or gain access to its
trade secrets and know-how. Proceedings initiated by the Company to protect its
proprietary rights could result in substantial costs to the Company. There can
be no assurance that competitors of the Company will not initiate litigation to
challenge the validity of the Company's patents, or that they will not use their
resources to design comparable products that do not infringe the Company's
patents. There may also be pending or issued patents held by parties not
affiliated with the Company that relate to the Company's products or
technologies. The Company may need to acquire licenses to, or contest the
validity of, any such patents. There can be no assurance that any license
required under any such patent would be made available on acceptable terms or
that the Company would prevail in any such contest. The Company could incur
substantial costs in defending itself in suits brought against it or in suits in
which the Company may assert its patent rights against others. If the outcome of
any such litigation is unfavorable to the Company, the Company's business and
results of operations could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks to
protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. See "Business -- Intellectual Property."
Commodity Price Risks. The Company expects to recover high quality long
fibers from the residue streams of pulp and paper mills and to sell them back to
mills under long-term contracts. The prices at which the Company may be able to
sell such fibers will generally not be fixed over the term of the contracts and
will depend on several factors, including the prevailing prices for both
finished paper products and wastepaper from time to time. These prices tend to
be cyclical and to vary according to paper type. The Company also anticipates
that it will seek to sell other recoverable components of the residue streams,
such as fines, wastewater and minerals. The Company will be exposed to commodity
price risk during the period that it has title to these products held in
inventory. Prices of these commodities can be volatile, and no assurance can be
given that the Company will be able to sell recovered components at a profit.
Future Capital Needs; Project Financing; Dependence on Capital
Markets. The Company anticipates that the net proceeds of this offering,
together with interest income earned on such net proceeds, will constitute a
large percentage of the Company's development and initial commercialization
budgets. To the extent that the interest income on the funds generated by this
offering, together with the Company's future operating income, if any, are
insufficient to fund the development and commercialization of the Company's
fiber-recovery system, the Company may be required to raise additional funds
through public or private financings. See "Use of Proceeds." The Company's
future capital requirements will depend on many factors, including continued
progress in its research and development program, the magnitude of such program,
competing technological and market developments, the cost of manufacturing
activities and the Company's ability to market its services and products
successfully. Any equity or debt financings, if available at all, may be on
terms that are not favorable to the Company and, in the case of equity
financings, could result in dilution to the Company's stockholders. If adequate
funds are not available, the Company may be required to curtail development and
commercialization of its fiber-recovery technology.
In addition, the Company expects to seek to finance each of its recovery
plants in a manner that is substantially nonrecourse to the Company. To minimize
its equity commitment, the Company will be required to borrow substantial
amounts from third party lenders. These borrowings typically would be secured
only by the recovery plant assets and/or by the capital stock of a subsidiary
operating such plant. If the Company were unable to repay the principal of, and
all interest on, such borrowings, the lender would have the right to foreclose
on, and obtain title to, such assets or capital stock. The Company anticipates
that it will require substantial financing to fund both the equity and debt
components of future plants. The ability to finance the Company's recovery
plants on a nonrecourse
7
<PAGE> 9
basis will depend on a number of factors, including interest coverage ratios,
the length and terms of the Company's contracts with pulp mill customers and the
perception of technology risks by lenders. The Company has had no discussions
with potential lenders, and no assurance can be given that financing for future
plants will be available on acceptable terms, or at all. Any failure by the
Company to obtain adequate amounts of project financing on acceptable terms
would have a material adverse effect on the future growth of the Company.
Competition. The Company expects to encounter intense competition in the
sale of its services and products. The Company expects that its principal
competitors will be landfills, which currently have a collective 70% market
share in North America and approximately 40% in Europe. In addition, many pulp
mills have already made substantial investments in dewatering and drying
equipment to reduce their landfill costs. Mills are familiar with such methods
and may be reluctant to switch to a new solution unless the Company demonstrates
significant cost savings to them. Several large waste-management companies have
increased their marketing activities to provide landfill disposal services to
the pulp and paper industry. Certain competitors are seeking to develop similar
technologies and services to treat and process pulp residues. No assurance can
be given that these technologies may not be superior to those of the Company or
that they may not make the Company's technology obsolete. Some of these
competitors may have substantially greater financial, marketing and other
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 and
products than the Company. There can be no assurance that the Company's current
technology, technology under development or ability to discover new technologies
will be sufficient to enable it to compete effectively with its competitors. See
"Business -- Competition."
Risk of Dependence on Pulp Mill Customers. Each of the Company's
fiber-recovery plants will rely upon long-term agreements with a single pulp
mill customer for its pulp residue and tipping fee revenue. The failure of any
one pulp mill customer to fulfill its contractual obligations could have a
substantial negative impact on the Company. No assurance can be given that a
particular pulp mill will not be unwilling or unable, at some time, to make
required payments under, or to otherwise honor, its agreements with the Company.
The Company expects that each of its commercial plants will generally occupy
approximately two acres of land to be acquired at, or immediately adjacent to, a
pulp mill. To date, the Company has not acquired any such sites, and no
assurance can be given that the Company will be able to acquire any such sites
on terms that are favorable to the Company or at all. GranTek's pulp residue is
obtained from a single paper mill located near its Wisconsin plant, under which
such mill has the exclusive right to supply such residue to GranTek's plant. The
contract terminates on December 26, 1997, subject to successive mutual two-year
extensions. Although the Company believes that GranTek's relationship with such
mill is good, no assurance can be given that such mill will agree to renew the
contract upon its termination in December 1997.
Environmental and Regulatory Risks. Federal, state and local environmental
laws govern air emissions and discharges into water, as well as the generation,
transportation, storage, treatment and disposal of solid and hazardous waste.
These laws establish standards governing most aspects of the construction and
operation of the Company's facilities, and often require multiple governmental
permits before these facilities can be constructed, modified or operated. There
can be no assurance that all required permits will be issued for the Company's
recovery plants, or that the requirements for continued permitting under
environmental regulatory laws and policies governing their enforcement may not
change, requiring new technology or stricter standards for the control of
discharges of air or water pollutants or for solid or hazardous waste handling
and disposal. Such future developments could affect the manner in which the
Company constructs and operates its plants and could require significant
additional expenditures to achieve compliance with such requirements. It is
possible that compliance may not be technically or economically feasible.
Changes in these regulations could also affect the characteristics of the waste
generated by pulp and paper mills. As a result, it is possible that disposal of
pulp residue could be accomplished in a manner that may not involve the
Company's facilities or that would require the Company to purchase pulp residue.
Federal, state and local laws also frequently impose liability on the
present and former owners or operators of facilities that release hazardous
substances into the environment. Furthermore, companies may be required by law
to provide financial assurances for operating facilities in order to ensure
their performance of obligations is in compliance with applicable laws and
regulations. Similar liability may be imposed upon the generators and
transporters of waste which contains hazardous substances. In the United States,
such liability stems primarily from
8
<PAGE> 10
the federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and similar state equivalents, the Federal Toxic Substances Control
Act ("TSCA") and the Resource Conservation and Recovery Act of 1976 ("RCRA") and
similar state equivalents. CERCLA imposes joint and several liability for the
costs of remediation and natural resource damages on the owner or operator of a
facility from which there is a release or a threat of a release of a hazardous
substance into the environment and on the generators and transporters of those
hazardous substances. Under RCRA and equivalent state laws, regulatory
authorities may require, pursuant to administrative order or as a condition of
an operating permit, that the owner or operator of a regulated facility take
corrective action with respect to contamination resulting from past or present
operations. TSCA imposes limitations on the presence in commercial products of
polychlorinated biphenyls ("PCBs"), and on the generation, handling, storage and
disposal of PCB-containing materials, byproducts and wastes. Such laws also
require that the owner or operator of regulated facilities provide assurance
that funds will be available for the closure and post-closure care of its
facilities.
GranTek emits into the atmosphere from its Green Bay, Wisconsin, facility
approximately 4.5 pounds per year of PCBs, as well as certain other hazardous
pollutants such as formaldehyde, benzene and volatile organic compounds
("VOCs"). Applicable Wisconsin regulations limit PCB emissions to 0.5 pounds per
year unless the generator can demonstrate that it is using the best available
control technology to limit emissions. GranTek has been issued an air operating
permit by the Wisconsin Department of Natural Resources (the "WDNR"). GranTek's
operating permit and its application for a new Title V operating permit both
require GranTek to reduce PCB and VOC emissions and to file bi-annual reports on
the amount of PCBs being emitted. In August 1995, GranTek submitted materials to
the WDNR asserting that no technologically or economically feasible methods to
reduce PCB or VOC emissions from its facility can be implemented at the present
time and, accordingly, requesting that GranTek be relieved of its obligation to
reduce emissions. As of the date of this Prospectus, GranTek has received no
response from the WDNR. Although the Company believes that the WDNR will accept
GranTek's findings, and although GranTek's facility is currently fully permitted
by Wisconsin regulatory authorities, no assurance can be given that the WDNR
will not require GranTek to reduce or eliminate its emissions, that such
compliance will not require the Company to make significant expenditures or that
such compliance will be technologically or economically feasible. Such
compliance may have material adverse effects on the Company's capital
expenditures, earnings and/or competitive position.
The pulp residue processed by GranTek contains trace amounts of PCBs,
dioxins, furans and other metals, residual amounts of which are also found in
GranTek's BIODAC product. Although these substances are present in residual
quantities below the maximum levels currently permitted under applicable federal
and state regulations, no assurance can be given that such regulations may not
be made more stringent in the future, that pulp residue containing such
substances may not be regulated as a hazardous waste under RCRA or that federal
or state regulations may not in the future prohibit the use of materials
containing these substances in agricultural applications. Any such regulatory
changes may have material adverse effects on the Company's capital expenditures,
earnings and/or competitive position.
The Company may be required as a practical matter to assume all
environmental liabilities associated with the treatment and final disposal of
all components of the pulp mills' residue stream that cannot be returned to
mills or sold elsewhere. The Company will endeavor to operate its business to
minimize its exposure to environmental liabilities. In entering into contracts
with customers, the Company will seek to maximize its insulation from
environmental liabilities associated with paper mill waste streams by
controlling the content of the waste streams it will accept and by preventing
customers from sending any waste streams containing hazardous components to the
Company's facilities. Any such disposal of hazardous waste could cause the
Company to be responsible for the clean-up or remediation of the disposal site
in the future under CERCLA, TSCA, RCRA and similar state laws. No assurance can
be given that claims for environmental liabilities may not be asserted against
the Company. See "Business -- Government Regulation."
Risk of Uncertain Tax Treatment. Due to the unique characteristics of the
Securities offered hereby, the tax treatment of the Securities is uncertain. If,
for example, the Common Stock is deemed to be indebtedness, rather than equity,
for federal income tax purposes, distributions by the Company in respect of the
Common Stock would be treated as interest and not as dividends. Investors are
urged to consult their own tax advisors with regard to an investment in the
Securities. See "Certain Federal Income Tax Consequences."
9
<PAGE> 11
Potential Conflicts of Interest. The Company may be subject to potential
conflicts of interest from time to time as a result of its relationship with
Thermo Fibertek and Thermo Electron. For example, conflicts may arise in the
development and licensing of technology by Thermo Fibertek to the Company and
the manufacture of components of the Company's fiber-recovery systems by Thermo
Fibertek for sale to the Company. Although it is the policy of Thermo Electron
that all transactions among Thermo Electron and its subsidiaries be made on
terms comparable to those that could be obtained in an arm's-length transaction,
these negotiations will be subject to the potential conflicts associated with
related party transactions. See "Relationship with Thermo Electron and Thermo
Fibertek." For financial reporting purposes, the Company's financial results are
included in Thermo Fibertek's and Thermo Electron's consolidated financial
statements. Certain officers of the Company are also officers of Thermo
Fibertek, Thermo Electron and/or other subsidiaries of Thermo Electron. Such
officers will devote only a portion of their working time to the affairs of the
Company. Further, it is an essential element of Thermo Electron's career
development program that successful executives and managers be considered for
positions of increased responsibility anywhere within the Thermo Electron family
of companies. While the Company may also benefit from this policy, there can be
no assurance that its current executives and managers will not assume other
positions within the Thermo Electron family of companies, causing them to be
unavailable to serve the Company, or to reduce the amount of time that they
devote to the affairs of the Company. The members of the Board of Directors and
officers of the Company who are also affiliated with Thermo Fibertek or Thermo
Electron will consider not only the short-term and the long-term impact of
operating decisions on the Company, but also the impact of such decisions on the
consolidated financial results of Thermo Fibertek and Thermo Electron. In some
cases the impact of such decisions could be disadvantageous to the Company while
advantageous to Thermo Fibertek or Thermo Electron, or vice versa.
Notwithstanding the foregoing, the Directors and officers of the Company have a
fiduciary duty to the Company's shareholders under the General Corporation Law
of the State of Delaware, under which the Company is organized. The Company is
also a party to various agreements with Thermo Electron that may limit the
Company's operating flexibility. The Company and Thermo Electron have entered
into a Corporate Services Agreement under which Thermo Electron's corporate
staff provides certain administrative services to the Company in consideration
of an annual fee paid by the Company. The amount of services performed from time
to time by Thermo Electron may not be necessarily related to the amount of such
fee although management of Thermo Electron believes that such fees are
representative of the expenses the Company would incur on a stand-alone basis.
See "Relationship with Thermo Electron and Thermo Fibertek."
Control by Thermo Fibertek. The Company's shareholders do not have the
right to cumulate votes for the election of directors. Thermo Fibertek, which
will own approximately 70.9% of the voting stock of the Company after this
offering (68.0% if the Underwriters' over-allotment option is exercised in full)
and which currently intends to maintain a majority interest in the Company in
the future, has the power to elect the entire Board of Directors of the Company
and to approve or disapprove any corporate actions submitted to a vote of the
Company's shareholders. See "Relationship with Thermo Electron and Thermo
Fibertek" and "Security Ownership of Certain Beneficial Owners and Management."
No Prior Public Market; No Assurance of Active Trading Markets. Prior to
this offering, there has been no public market for the Units, for the Common
Stock or for the Redemption Rights, and there can be no assurance that active
trading markets will develop or be sustained after this offering. The offering
price for the Units will be determined by negotiations between the Company and
the Representatives of the Underwriters and may not be indicative of future
market prices. See "Underwriting" for a discussion of the factors to be
considered in determining the offering price. Many factors, including the risk
factors contained in this Prospectus and the volatility of the overall stock
market, could have a significant impact on the future market prices of the
Units, the Common Stock and the Redemption Rights, and there can be no assurance
that the Units, the Common Stock and/or the Redemption Rights will trade at
levels above the offering price.
Shares Eligible for Future Sale and the Potential Adverse Impact on the
Market Price for the Common Stock. The 10,000,000 shares of Common Stock owned
by Thermo Fibertek will become eligible for sale under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act") commencing
in February 1998. In addition, as long as Thermo Fibertek is able to elect a
majority of the Company's Board of Directors, it will be able to cause the
Company at any time to register all or a portion of the Common Stock owned by
Thermo Fibertek under the Securities Act at any time. Thermo Fibertek and the
Company have agreed not to sell any shares of Common Stock within a 180-day
period after the date of this Prospectus without the consent of
10
<PAGE> 12
the Representatives of the Underwriters, other than (i) shares of Common Stock
to be sold to the Underwriters in this offering, (ii) the issuance of options
and sales of shares of Common Stock pursuant to existing stock-based
compensation plans, (iii) shares of Common Stock which may be sold to Thermo
Fibertek, and (iv) the issuance of shares of Common Stock as consideration for
the acquisition of one or more businesses (provided that such Common Stock may
not be resold prior to the expiration of the 180-day period referenced above).
The Company has reserved 825,000 shares of Common Stock for issuance under its
stock-based compensation plans. As of August 31, 1996, options to purchase
338,000 shares of Common Stock were outstanding. Additional shares of Common
Stock issuable upon exercise of options which may be granted under the Company's
stock-based compensation plans will become available for future sale in the
public market at prescribed times. Sales of a significant number of shares of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. See "Shares Eligible for Future Sale,"
"Relationship with Thermo Electron and Thermo Fibertek" and "Underwriting."
Immediate and Substantial Dilution. Purchasers of the Units offered hereby
will incur an immediate and substantial dilution of $8.87 in the net tangible
book value per share of the Common Stock from the offering price. See
"Dilution."
Lack of Dividends. The Company has never paid any cash dividends on its
Common Stock. The Board of Directors anticipates that for the foreseeable future
the Company's earnings, if any, will be retained for use in the business and
that no cash dividends will be paid on the Common Stock.
11
<PAGE> 13
THE COMPANY
The Company operated as a division of Thermo Fibertek beginning on December
29, 1991 until its incorporation as a Delaware corporation in February 1996. In
connection with the Company's incorporation, Thermo Fibertek transferred to the
Company a license to use certain technology and its business relating to the
development of the Company's fiber-recovery system for use in the pulp and paper
industries, together with $12,500,000 in cash, in exchange for 10,000,000 shares
of the Company's Common Stock. The Company's principal executive offices are
located at 8 Alfred Circle, Bedford, Massachusetts 01730, and its telephone
number is (617) 275-3600.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered by the
Company pursuant to this offering are estimated to be $48,502,000 ($55,834,000
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $12.75 per Unit and after deducting estimated
underwriting discounts and commissions and offering expenses.
The Company currently intends to limit the pace and amount of its research
and development on both its fiber-recovery system and on new products, if any,
which may be developed from recovered fibers and other components of pulp
residue so that its internally funded research and development expenditures will
be approximately equivalent to the interest or dividend income earned on its
cash balances, including the net proceeds of this offering, plus the Company's
operating earnings, if any. To generate such income, and pending the use of such
cash balances for other purposes described below, the Company expects to invest
such net proceeds primarily in investment grade interest or dividend bearing
instruments, either directly by the Company or pursuant to a repurchase
agreement with Thermo Electron. See "Relationship with Thermo Electron and
Thermo Fibertek." Based on current conditions, the Company estimates that it
will spend between $2,500,000 and $3,500,000 on such research and development
annually over the next four years.
The Company currently expects that, in the future, it will use
substantially all of the net proceeds of the offering to fund the
commercialization of its fiber-recovery system. Although the Company expects to
spend between $1,500,000 and $2,500,000 of such net proceeds to fund its equity
contribution toward the construction of its first commercial recovery plant
employing its fiber-recovery technology, which construction is expected to begin
in late 1997, the Company has no specific plan to construct a particular number
of such plants. The actual amount of such net proceeds which the Company will
use to construct such plants will depend on, among other factors, the number of
plants constructed, the rate at which such plants are constructed and the
Company's success, if any, at obtaining financing for all or a portion of such
plants from third party lenders. See "Risk Factors -- Future Capital Needs;
Project Financing; Dependence on Capital Markets." Accordingly, no assurance can
be given that the Company will not spend substantially more or less than it has
estimated to commercialize its fiber recovery technology. While the Company will
conduct research and development on several products that may in the future be
produced from the components of pulp residues, the Company expects to fund the
commercialization of such products from its cash flow, if any, or other sources,
and does not currently expect to use any of the net proceeds of this offering to
commericalize such products. See "Risk Factors -- Uncertainty of Product
Development." However, depending on the Company's experience with respect to its
research and development and in commercializing its fiber-recovery technology,
no assurance can be given that the Company may not decide to accelerate the
timing of such expenditures or that a portion of such expenditures may not be
made from the net proceeds of this offering.
The Company expects to use the balance of the net proceeds of this offering
for general corporate purposes, including the possible acquisition of one or
more technologies or businesses that complement the Company's strategy. The
Company currently has no commitments or agreements in principle, and is not
currently involved in any discussions, with respect to any such acquisition.
DIVIDEND POLICY
The Company anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business and that no cash
dividends will be paid on the Common Stock.
12
<PAGE> 14
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
29, 1996, (i) stated on a pro forma basis to reflect the July 3, 1996
acquisition of substantially all of the assets, subject to certain liabilities
of GT/ELI, and (ii) as adjusted to reflect the issuance and sale of the Units
offered hereby at an assumed initial public offering price of $12.75 per Unit,
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company.
<CAPTION>
JUNE 29, 1996
--------------------------
PRO FORMA
COMBINED AS ADJUSTED
---------- -----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Common Stock Subject to Redemption ($52,275 redemption value as
adjusted); 4,100,000 shares issued and outstanding as adjusted........ $ -- $48,502
------- -------
Shareholder's Investment:
Common stock, $.01 par value, 25,000,000 shares authorized;
10,000,000 shares issued and outstanding(1)....................... 100 100
Capital in excess of par value..................................... 12,400 12,400
Deficit accumulated during the development stage subsequent to
capitalization of the Company..................................... (187) (187)
------- -------
Total Shareholder's Investment................................ 12,313 12,313
------- -------
Total Capitalization (Common Stock Subject to Redemption
and Shareholder's Investment)........................... $12,313 $60,815
======= =======
<FN>
- ---------------
(1) Does not include 825,000 shares of Common Stock reserved for issuance under
the Company's stock-based compensation plans. As of August 31, 1996, options
to purchase 338,000 shares of Common Stock had been granted and were
outstanding under these plans. See "Management -- Compensation of Directors"
and "-- Compensation of Executive Officers" and Note 5 of Notes to Financial
Statements of the Company.
</TABLE>
13
<PAGE> 15
DILUTION
As of June 29, 1996, the Company had a net tangible book value of
$6,251,000, or $.63 per share, stated on a pro forma basis to reflect the July
3, 1996 acquisition of GT/ELI (see pro forma combined condensed balance sheet
included elsewhere in this Prospectus). Net tangible book value per share is
determined by dividing net tangible book value (total tangible assets less total
liabilities) of the Company by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of 4,100,000 Units offered hereby
at an assumed initial public offering price of $12.75 per Unit and the receipt
of the estimated net proceeds therefrom, the pro forma net tangible book value
of the Common Stock as of June 29, 1996 would have been $54,753,000, or $3.88
per share. This represents an immediate increase in net tangible book value of
$3.25 per share to the existing shareholder and an immediate dilution in net
tangible book value of $8.87 per share to investors purchasing Units in this
offering. See "Risk Factors -- Immediate and Substantial Dilution." The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed price to public............................................... $12.75
------
Pro forma net tangible book value per share as of June 29, 1996,
before offering................................................. $ .63
------
Increase in net tangible book value per share attributable to
payments by new investors....................................... 3.25
------
Pro forma net tangible book value per share as of June 29, 1996, after
offering(1)(2)(3)................................................... 3.88
------
Dilution per share to new investors(1)................................ $ 8.87
======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $4.22,
resulting in an immediate dilution of $8.53 per share to investors
purchasing Units in this offering.
(2) If all options outstanding at August 31, 1996 to purchase an aggregate of
338,000 shares of Common Stock at $10.00 per share were exercised in full,
in addition to the Underwriters' exercise of the overallotment option, the
pro forma net tangible book value per share after the offering would be
$4.35, resulting in an immediate dilution of $8.40 per share to investors
purchasing shares in this Offering.
(3) Pro forma net tangible book value per share after the offering is calculated
assuming the redemption rights have expired and, therefore, assuming the
Common Stock Subject to Redemption would be transferred to Shareholder's
Investment.
The following table sets forth on a pro forma basis as of June 29, 1996,
the differences between Thermo Fibertek, the present shareholder, and new
investors with respect to the number of shares of Common Stock acquired, the
total consideration paid and the average consideration paid per share (at an
assumed initial public offering price of $12.75 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Thermo Fibertek(1)......................... 10,000,000 70.9% $12,500,000 19.3% $ 1.25
New Investors.............................. 4,100,000 29.1 52,275,000 80.7 12.75
---------- ----- ---------- -----
Total................................. 14,100,000 100.0% $64,775,000 100.0%
========== ===== ========== =====
</TABLE>
- ---------------
(1) Represents the book value of net assets, together with $12,500,000 in cash,
transferred by Thermo Fibertek to the Company in exchange for 10,000,000
shares of the Company's Common Stock.
14
<PAGE> 16
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for the fiscal year
ended January 1, 1994 and as of and for the fiscal years ended December 31, 1994
and December 30, 1995 has been derived from the Company's Financial Statements,
which have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report included elsewhere in this Prospectus. This
information should be read in conjunction with the financial statements and
related notes included elsewhere in this Prospectus. The selected financial
information as of and for the fiscal year ended January 2, 1993, as of January
1, 1994, and as of and for the six-month periods ended July 1, 1995 and June 29,
1996, has not been audited but, in the opinion of the Company, 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. Results for the six-month period ended
June 29, 1996 are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED(1)(2)
--------------------
SIX MONTHS ENDED(1) TWELVE SIX
MONTHS MONTHS
FISCAL YEAR ------------------- ENDED ENDED
------------------------------------- JULY 1, JUNE 29, DEC. 30, JUNE 29,
1992(1) 1993 1994 1995 1995 1996 1995 1996
------- ------ ------ ------ ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ -- $ -- $ -- $ -- $ -- $ -- $ 4,233 $ 3,154
------ ------ ------ ------ ------ ------- ------ ------
Costs and Operating Expenses:
Cost of revenues......................... -- -- -- -- -- -- 3,241 2,083
Selling, general and administrative
expenses............................... -- -- -- -- -- -- 1,082 986
Research and development expenses........ 147 106 128 601 276 548 904 637
Patent litigation expenses............... -- -- -- -- -- -- 1,654 290
------ ------ ------ ------ ------ ------- ------ ------
147 106 128 601 276 548 6,881 3,996
------ ------ ------ ------ ------ ------- ------ ------
Operating Loss............................. (147 ) (106) (128) (601) (276 ) (548 ) (2,648 ) (842 )
Interest Income (Expense).................. -- -- -- -- -- 267 (1,469 ) 4
Other Income............................... -- -- -- -- -- -- -- 700
------ ------ ------ ------ ------ ------- ------ ------
Loss Before Income Taxes................... (147 ) (106) (128) (601) (276 ) (281 ) (4,117 ) (138 )
Income Taxes............................... -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------
Net Loss................................... $ (147 ) $ (106) $ (128) $ (601) $ (276 ) $ (281 ) $(4,117 ) $ (138 )
====== ====== ====== ====== ====== ======= ====== ======
Loss per Share(3).......................... $ (.01 ) $ (.01) $ (.01) $ (.06) $ (.03 ) $ (.03 ) $ (.41 ) $ (.01 )
====== ====== ====== ====== ====== ======= ====== ======
Weighted Average Shares(3)................. 10,073 10,073 10,073 10,073 10,073 10,073 10,073 10,073
====== ====== ====== ====== ====== ======= ====== ======
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital.......................... $ -- $ -- $ -- $ -- $ -- $12,083 $ 359
Total Assets............................. -- -- -- -- -- 12,760 13,659
Shareholder's Investment................. -- -- -- -- -- 12,313 12,313
</TABLE>
- ---------------
(1) Derived from unaudited financial statements.
(2) The pro forma combined statement of operations data was derived from the pro
forma combined condensed statements of operations included elsewhere in this
Prospectus. The pro forma combined statement of operations data sets forth
the results of operations for the twelve months ended December 30, 1995 and
the six months ended June 29, 1996, as if the acquisition of substantially
all of the assets, subject to certain liabilities, of GT/ELI had occurred on
January 1, 1995. The pro forma combined balance sheet data is derived from
the pro forma combined condensed balance sheet included elsewhere in this
Prospectus, which was prepared as if the acquisition of substantially all of
the assets, subject to certain liabilities, of GT/ELI had occurred on June
29, 1996.
(3) Pursuant to Securities and Exchange Commission requirements, loss per share
has been presented for all periods. Weighted average shares for all periods
include 10,000,000 shares issued to Thermo Fibertek in connection with the
capitalization of the Company and the effect of the assumed exercise of
stock options issued within one year prior to the Company's proposed initial
public offering.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THERMO FIBERGEN
OVERVIEW
The Company operated as a division of Thermo Fibertek beginning December
29, 1991 until its incorporation in February 1996. Prior to its acquisition of
GT/ELI, the Company was in the development stage and its principal business
consisted of conducting research and development for the development and
commercialization of equipment and systems to recover valuable materials from
pulp residue generated by plants that produce recycled pulp and paper.
RESULTS OF OPERATIONS
First Six Months Ended June 29, 1996 Compared With First Six Months Ended July
1, 1995
No revenues were recorded during either period as the Company was in the
development stage, and its principal business consisted of conducting research
and development associated with the development of the Company's fiber-recovery
system.
Research and development expenses increased to $548,000 in the first six
months of 1996 from $276,000 in the corresponding period in 1995 due to the
acceleration of the Company's research and development efforts associated with
the development of the Company's fiber-recovery system. The Company expects that
its spending on research and development will continue to increase.
Interest income in the first six months of 1996 represents interest earned
on cash received in connection with the initial capitalization of the Company in
February 1996.
1995 Compared With 1994
No revenues were recorded during either period as the Company was in the
development stage, and its principal business consisted of conducting research
and development associated with the development of the Company's fiber-recovery
system.
Research and development expenses increased to $601,000 in 1995 from
$128,000 in 1994 due to the acceleration of the Company's research and
development efforts associated with the development of the Company's
fiber-recovery system, increased personnel and higher engineering consulting
expenses.
1994 Compared With 1993
No revenues were recorded during either period as the Company was in the
development stage, and its principal business consisted of conducting research
and development associated with the development of the Company's fiber-recovery
system.
Research and development expenses increased to $128,000 in 1994 from
$106,000 in 1993 due to the acceleration of the Company's research and
development efforts associated with the development of the Company's
fiber-recovery system.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $12,083,000 at June 29, 1996, compared with no working
capital at December 30, 1995. During the six months ended June 29, 1996,
$260,000 was used in operating activities. In connection with the capitalization
of the Company on February 12, 1996, Thermo Fibertek transferred $12,500,000 in
cash to the Company. During the first six months of 1996, the Company expended
$219,000 for purchases of machinery and equipment. In the remainder of 1996, the
Company plans to make capital expenditures of approximately $900,000.
On July 3, 1996, the Company's GranTek subsidiary acquired substantially
all of the assets, subject to certain liabilities, of GT/ELI for approximately
$12,000,000 in cash, subject to a post-closing adjustment based upon the net
asset value of GT/ELI as of the closing date.
16
<PAGE> 18
Working capital at June 29, 1996, on a pro forma basis, assuming the
acquisition of the net assets of GT/ELI had occurred on that date, would have
been $359,000. (See the pro forma combined condensed balance sheet included
elsewhere in this Prospectus.)
The Company anticipates it will require significant amounts of cash to
complete the commercialization of its fiber-recovery system and to pursue the
acquisition of complementary businesses and technologies. The Company expects
that it will finance such acquired businesses through a combination of internal
funds, including the net proceeds from the sale of Units offered hereby,
additional debt or equity financing and/or short-term borrowings from Thermo
Fibertek and Thermo Electron, although there is no agreement with Thermo
Fibertek or Thermo Electron under which such parties would be obligated to lend
funds to the Company. The Company believes that its existing resources, together
with the proceeds from this offering, will be sufficient to meet the Company's
capital requirements for at least the next 24 months.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GT/ELI
OVERVIEW
GT/ELI was 100% owned by Henry Edward Lowe Amended and Restated Irrevocable
Trust through July 2, 1996. Substantially all of the assets, subject to certain
liabilities of GT and Biodac were acquired by Thermo Fibergen Inc. on July 3,
1996. GT produced, from paper mill residue, cellulosic based granules, sold
under the trade name BIODAC, for agricultural, lawn and garden markets. Biodac,
under an agreement with GT, was the sole distributor and marketer of GT
manufactured products.
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1996 Compared With Nine Months Ended June 30, 1995
Revenues increased 17% to $4,325,000 in the nine months ended June 30, 1996
from $3,711,000 in the nine months ended June 30, 1995. Revenues increased
primarily due to an increase in sales volume in 1996, offset in part by the
effect of a change in sales mix and a price decrease on sales to a significant
customer resulting from the negotiation of a long-term contract (see Note 5 to
Notes of GT/ELI Combined Financial Statements).
The gross profit margin was 30% in the nine months ended June 30, 1996
compared with 35% in the nine months ended June 30, 1995. The decrease in
margins was principally due to a change in sales mix and an unfavorable impact
from an increase in natural gas rates in 1996. These decreases were offset in
part by the effect of an increase in sales volume, as a substantial portion of
production costs are fixed.
Selling, general and administrative expenses as a percentage of revenues
increased to 23% in the nine months ended June 30, 1996 from 15% in the nine
months ended June 30, 1995. The increase resulted primarily from $313,000 in
legal and accounting costs associated with the sale of GT/ELI, offset in part by
the effect of an increase in revenues.
Patent litigation expenses increased to $1,130,000 in the nine months ended
June 30, 1996 from $654,000 in the nine months ended June 30, 1995. The patent
infringement lawsuit was settled in 1996, and a gain of $700,000 from the
settlement of the lawsuit was recorded as other income in the nine months ended
June 30, 1996. See Note 6 of Notes to GT/ELI Combined Financial Statements.
Research and development expenses decreased to $139,000 in the nine months
ended June 30, 1996 from $217,000 in the nine months ended June 30, 1995,
principally due to a decrease in design costs relating to equipment development
expenses.
Interest expense during the nine months ended June 30, 1995 related to
shareholder debt which was contributed to additional paid-in capital in
September 1995.
GT/ELI is taxed as an S Corporation under the Internal Revenue Code and
similar sections of state income tax laws (where applicable) and therefore, a
provision for income taxes was not recorded.
Twelve Months Ended September 30, 1995 Compared With Twelve Months Ended
September 30, 1994
Revenues increased 15% to $4,233,000 in the twelve months ended September
30, 1995 from $3,670,000 in the twelve months ended September 30, 1994. Revenues
increased due primarily to an increase in sales to a significant customer. In
1994, the customer had reduced its level of purchases as a result of the
relocation of its production facility.
The gross profit margin was 25% in the twelve months ended September 30,
1995 compared with 12% in the twelve months ended September 30, 1994. Increased
margins resulted principally from the effect of an increase in sales volume, as
a substantial portion of production costs are fixed, and a favorable impact from
a decrease in natural gas rates in 1995, offset in part by a write-off of
$150,000 of obsolete inventory in 1995.
Selling, general and administrative expenses as a percentage of revenues
decreased to 18% in the twelve months ended September 30, 1995 from 27% in the
twelve months ended September 30, 1994, primarily due to the effect of
18
<PAGE> 20
an increase in revenues. GT/ELI incurred patent infringement lawsuit expenses of
$1,654,000 in 1995. Research and development expenses remained relatively
unchanged at $303,000 in the twelve months ended September 30, 1995, compared
with $281,000 in the twelve months ended September 30, 1994.
Interest expense increased to $1,469,000 in the twelve months ended
September 30, 1995 from $1,140,000 in the twelve months ended September 30, 1994
due to an increase in the interest rate on GT/ELI's note payable to shareholder
from 1994 to 1995.
Twelve Months Ended September 30, 1994 Compared With Twelve Months Ended
September 30, 1993
Revenues decreased to $3,670,000 in the twelve months ended September 30,
1994 from $4,709,000 in the twelve months ended September 30, 1993. Revenues
decreased due primarily to a decrease in sales to a significant customer. In
1994, the customer had reduced its level of purchases as a result of the
relocation of its production facility.
The gross profit margin was 12% in the twelve months ended September 30,
1994 compared with 30% in the twelve months ended September 30, 1993. Margins
decreased primarily due to a decrease in sales volume, as a substantial portion
of production costs are fixed.
Selling, general and administrative expenses as a percentage of revenues
increased to 27% in the twelve months ended September 30, 1994 from 21% in the
twelve months ended September 30, 1993, due primarily to a decrease in revenues.
Research and development expenses decreased to $281,000 in the twelve months
ended September 30, 1994 from $367,000 in the twelve months ended September 30,
1993, due primarily to decreased expenditures for development of plant and
equipment.
Interest expense increased to $1,140,000 in the twelve months ended
September 30, 1994 from $1,042,000 in the twelve months ended September 30, 1993
primarily due to an increase in the interest rate on GT/ELI's note payable to
shareholder from 1993 to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Combined working capital was $469,000 at June 30, 1996, compared with
negative working capital of $197,000 at September 30, 1995. Included in working
capital is cash of $50,000 at June 30, 1996, compared with $43,000 at September
30, 1995. During the nine months ended June 30, 1996, the Company used $73,000
of cash for operating activities. Cash provided by operating activities for the
nine months ended June 30, 1996 was more than offset by a decrease in accrued
legal expenses as the result of settlement of GT/ELI's patent infringement
lawsuit and an increase in accounts receivable resulting primarily from a
significant amount of sales occurring in June 1996.
During the nine months ended June 30, 1996, the Company expended $77,000
for the purchase of property, plant and equipment.
In July 1996, substantially all of the assets, subject to certain
liabilities, of GT/ELI were acquired by Thermo Fibergen for approximately
$12,000,000 in cash, subject to a post-closing adjustment. See Note 7 of Notes
to GT/ELI Combined Financial Statements.
19
<PAGE> 21
BUSINESS
The Company was established as a subsidiary of Thermo Fibertek to develop
and commercialize equipment and systems to recover valuable materials from
increasing volumes of pulp residue generated by plants that produce recycled
pulp and paper. The Company intends to finance, build and operate recovery
plants on sites at, or immediately adjacent to, recycled pulp mills, employing a
proprietary process to treat pulp residue. The Company's plants will recover and
clean long cellulose fibers for resale to pulp mills and will process the
remaining recoverable components of pulp residue, such as fines (very short
fibers not usable for papermaking) and minerals, into saleable products. On July
3, 1996, the Company's wholly owned GranTek subsidiary acquired substantially
all of the assets, subject to certain liabilities, of GT/ELI for approximately
$12,000,000 in cash, subject to a post-closing adjustment. GranTek employs
patented technology to produce absorbent granules from pulp residue. These
granules, marketed under the trade name BIODAC, are currently used as a carrier
to deliver chemicals for agricultural, lawn and garden, and other needs.
GranTek's Green Bay, Wisconsin, plant currently produces more than 30,000 tons
of BIODAC per year.
The Company's strategy is to generate revenues from several sources. First,
the Company will seek to enter into long-term contracts with pulp and paper
mills under which the Company will charge the customer a tipping fee to accept
the customer's pulp residue. Second, the Company intends to sell much of the
clean long fibers it recovers directly back to the customer for use in the
papermaking process. The Company has not yet begun to recover long fibers; as
described below, the Company expects to begin construction of its first
commercial recovery plant employing its long fiber-recovery technology in 1997.
Third, the Company will apply existing technologies, such as its granulation
technologies, and expects to develop new technologies, to maximize the value of
the other recoverable components of the pulp residue, such as fines and
minerals, for sale into other markets. For example, the Company believes that
GranTek's technology can be used to produce granules for oil and grease
absorbents as well as for specialty absorbents, such as for the cat box filler
market.
The Company is actively developing a process to recover long fibers from
pulp residue, and has completed the construction of a mobile pilot recovery
system which the Company is using for initial mill demonstrations of its
fiber-recovery process. The Company expects that its first commercial plants
will feature only GranTek's technology to process pulp residue into absorbent
granules. The Company's strategy is to introduce this technology to pulp mill
customers, to enter into long-term contracts with such customers and to
construct its plants, and then, upon the completion of development, to retrofit
existing GranTek plants with the Company's long fiber-recovery technology. The
Company will also explore the construction of plants in certain niche markets
that may feature only the Company's long fiber-recovery technology.
The Company was established as a wholly owned subsidiary of Thermo Fibertek
in February 1996. Following this offering, Thermo Fibertek will own
approximately 70.9% of the outstanding Common Stock of the Company
(approximately 68.0% if the Underwriters' over-allotment option is exercised in
full).
INDUSTRY BACKGROUND
Paper is composed primarily of a mat of cellulose fibers. The fiber mat is
created from a pulp of either virgin cellulose materials such as wood, or from
recovered cellulose materials such as wastepaper. The principal goal of
converting wastepaper into a fiber slurry that can be used in conventional
papermaking machines is the removal of debris and impurities. This stock
preparation process involves multiple steps, including screening, de-inking and
washing. At the completion of the stock preparation process, the slurry is ready
for introduction into a standard papermaking machine. Fiber that would otherwise
be used to make recycled paper is lost at each step of the stock preparation
process. In total, approximately 25% of the recycled fiber entering a pulp mill
is lost in the process, contributing to approximately eight times more waste
when using recycled pulp than when using virgin pulp, all of which must be
disposed of at a substantial cost. Moreover, the substantial increase in the
waste stream is expected to correspondingly reduce the useful life of pulp and
paper mills' existing landfills. The Company believes, therefore, that the
increasing use of recycled pulp will generate corresponding pressures on these
mills to seek new solutions for their waste residue problems.
Environmental concerns and other factors in recent years have resulted in
the production of paper from recovered materials growing at a much faster rate
than production from virgin pulp. The use of wastepaper as a raw
20
<PAGE> 22
material has already surpassed the use of virgin cellulose in some parts of the
world. The Company believes that in 1994 close to 35% of the world's paper
contained recycled fibers, up from 25% in 1980.
Pulp residue has historically been disposed of in landfills, particularly
in North America. As it leaves the pulp machine, the residue is composed of
approximately 98% water and 2% solids. After adding polymer flocculants to
clarify the water content and forcing the residue through a belt press and other
equipment to reduce the water content to approximately 65%, most pulp mills in
the United States dispose of this residue in privately owned landfills at an
average fully burdened cost of approximately $100 per ton. This figure includes
the cost to operate the press and other equipment that removes water content;
the cost of the polymer flocculant; transportation costs; and actual landfill
costs. In certain parts of Europe and in Japan, landfill tipping fees and
transportation costs are several times those in the United States, due to
stricter regulations and limited landfill space. In addition, although some
residue is incinerated, the Company believes that compliance with increasingly
strict emissions standards under the United States Clean Air Act and similar
state and local laws is making this alternative less attractive. Moreover, the
ash resulting from incineration, which may weigh as much as one-half of the
pre-incinerated residue, remains to be disposed of at an additional cost.
The Company believes the North American pulp and paper industry spent an
estimated $900 million to treat and dispose of approximately 9 million tons of
pulp residue in 1993. This volume represented the equivalent of approximately
10% of all of the municipal solid waste generated in the United States in 1993.
The Company believes that worldwide expenditures to treat and dispose of pulp
residue in 1993 were approximately $2.5 billion.
The Company believes that several factors will cause the costs of disposing
of pulp residue in landfills, particularly in Europe and Asia, to increase in
the future. First, as the demand for recycled fiber increases, mills are tending
to use lower-quality wastepaper, while still attempting to produce the
high-grade pulp necessary to make high-quality recycled paper with the strength
and brightness of virgin paper. Lower-quality paper requires additional
processing, which results in still further increases in the volume of residue
generated to produce the same amount of recycled paper. Second, due to the
relatively larger waste streams generated from using recycled fiber compared to
those of virgin fiber, the Company believes that pulp and paper companies'
existing landfill space will be consumed more rapidly than originally expected.
Third, landfills are increasingly the subject of federal and state regulations,
such as Subtitle D of the Federal Resource Conservation and Recovery Act of 1976
("RCRA"), which imposes numerous requirements on new landfills, including the
requirement that they be lined. These regulatory burdens, coupled with the
difficulty in siting new landfills due to community opposition, will continue to
make landfilling an increasingly expensive option for pulp and paper mills. As a
result of these factors, pulp and paper mills are increasingly seeking
alternative methods to solve their disposal problems.
STRATEGY
The Fibergen Process
The Company's recovery and manufacturing process begins at the recycled
pulp mill, which is expected to pump its residue to a plant owned and operated
by the Company on a site at, or immediately adjacent to, the mill. To date, the
Company has not acquired any such sites, and no assurance can be given that the
Company will be able to acquire any such sites on terms that are favorable to
the Company or at all. The Company expects that its commercial plants will
generally consist of a single steel-shell building constructed on a concrete
pad, occupying approximately two acres of land. The Company intends first to
employ a proprietary process to recover and clean the long cellulose fibers, and
to sell much of the clean long fibers it recovers directly back to the customer
for use in the papermaking process. A key component of the Company's
fiber-recovery system is a product that will utilize a proprietary "scalping"
technology under development by Thermo Fibertek. Scalpers currently manufactured
by Thermo Fibertek are already being used to recover reusable paper fibers from
waste streams. At one mill, these scalpers recovered more than 15 tons per day
of reusable fiber from a waste stream of approximately 50 tons per day. The
principal component of the scalpers to be acquired from Thermo Fibertek is
steel. The Company believes such steel, as well as the other components of such
scalpers, to be widely available.
The Company will then process the remaining fibers and minerals into
saleable products, such as BIODAC, for use in the agricultural carrier, oil and
grease absorbent, cat box filler and other markets. Employing GranTek's
proprietary granulation technology, after the long fibers are removed, the
remaining residue is dried and processed into granules of optimum bulk density
for use in a variety of agricultural, lawn and garden, and industrial needs.
21
<PAGE> 23
GranTek's granulation technology can also process long fibers into BIODAC at
plants in which the Company elects not to deploy its long fiber-recovery
technology.
[GRAPHIC]
THE FIBERGEN PROCESS
Sources of Revenue
The Company's strategy is to generate revenues from several sources.
Tipping Fees. The Company will seek to enter into long-term contracts with
pulp and paper mills under which the Company will charge the customer a tipping
fee to accept the customer's pulp residue. The Company anticipates that the
tipping fees it receives will generally be competitive with the mills' current
disposal costs. The Company believes that pulp mills will prefer to dispose of
their residue streams by paying the Company a tipping fee for a number of
reasons. Disposal of residue with the Company will provide pulp mills with a
long-term disposal solution and will eliminate concerns over long-term capacity
constraints at their landfills; will relieve the pulp mills of the
responsibility of complying with changing treatment and disposal regulations;
and will allow pulp mills to reduce their capital investments in dewatering and
treatment equipment, and to focus their resources on the actual manufacture of
paper.
Sale of Recovered Long Fibers. The Company intends to sell much of the
clean long fibers it recovers directly back to the customer for use in the
papermaking process. Long fibers may also be sold to mills other than those from
which they originated, and may be sold for non-papermaking uses, such as for
chip board and other composite building materials. The Company believes that the
direct access to clean long fiber will benefit the customer by further reducing
the customer's operating costs, and will benefit the Company by providing a
second source of revenue and reducing the Company's final disposal costs. The
prices at which the Company may be able to sell the clean long fibers to mills
will depend on several factors, including the cleanliness of the recovered fiber
and the prevailing prices for recycled pulp and wastepaper. These prices tend to
be cyclical and to vary according to paper type.
Sale of Other Recoverable Components. The Company will apply existing
technologies, such as its granulation technologies, and expects to develop new
technologies, to maximize the value of the other recoverable components of the
pulp residue, such as fines and minerals, for sale into other markets. The
business recently acquired by the Company's GranTek subsidiary complements the
Company's approach of developing new markets for the components of pulp residue.
GranTek has developed and patented a technology to produce premium absorbent
granules from such residue. These granules, marketed under the trade name
BIODAC, are sold in bulk to chemical companies for use as a carrier to deliver
chemicals for agricultural, lawn and garden, and other needs. The Company
intends to further develop GranTek's technology to produce granules for oil and
grease absorbents as well as for specialty absorbents, such as for the cat box
filler market. The Company's strategy is to integrate GranTek's process into its
fiber-recovery plants, allowing the Company to recover long cellulose fibers and
to granulate fibers and minerals into products to meet a variety of
agricultural, lawn and garden, and industrial needs.
22
<PAGE> 24
Site Development
According to industry sources, there are approximately 100 recycled pulp
mills in the United States. The Company believes that there are at least as many
such mills in Europe and that the trend is for additional such mills to be built
in the future. The Company intends to select sites for its first plants based on
identified criteria, such as the volume, quality and composition of the
customer's residue stream; the cost and availability of alternative disposal
methods; regional disposal fees; access to markets for the recovered components;
and the local regulatory environment and community concerns. The Company will
tend to focus its efforts on niche areas in which disposal and/or transportation
costs are relatively high. Although the Company will evaluate opportunities
worldwide, it currently expects that its first plants will be located in
selected areas of Europe and the United States. The Company expects to focus its
development efforts in Germany, where landfill costs in certain areas can be as
high as $560 per ton. Moreover, the federal government of Germany has recently
enacted legislation that will prohibit, after 2005, the landfilling of any
substance with a liquid or organic content in excess of 5%. This legislation,
which is being replicated on an accelerated basis at the local level in several
regions of Germany, would in effect prohibit the disposal of papermaking residue
in landfills. The Company anticipates that it will construct subsequent plants
in other European locations, where landfill costs are also higher, and the
environmental laws more restrictive, than in the United States.
The Company expects to seek to finance each of its recovery plants on a
substantially nonrecourse basis through borrowings from third party lenders.
These borrowings typically would be secured only by the recovery plant assets
and/or by the capital stock of a subsidiary operating such plant. See "Risk
Factors -- Future Capital Needs; Project Financing; Dependence on Capital
Markets." The development of each site will require the Company to obtain
numerous approvals, licenses and permits. Adverse decisions by governmental
authorities with respect to permit applications submitted by the Company may
result in abandonment or delay of proposed projects. Because the Company will
generally be seeking permits to operate its facilities on or adjacent to
permitted pulp and paper mills, however, and because the Company will be
reducing or eliminating the pulp residue that would otherwise be landfilled or
incinerated, the Company believes that it will generally be able to obtain such
permits without undue difficulty. See " --Government Regulation," below, and
"Risk Factors -- Environmental and Regulatory Risks."
End-Use Markets
The Company currently produces BIODAC, an agricultural carrier that is
virtually dust-free and is uniform in particle size, absorptivity and bulk
density. BIODAC is chemically neutral to a range of pesticides and breaks down
into elements naturally occurring in the soil. BIODAC is sold in bulk to
chemical companies for use as a carrier to deliver chemicals for agricultural,
lawn and garden, and other needs. In 1995, one such chemical company, Monsanto
Solaris Group ("Solaris"), accounted for 47% of the Company's sales of BIODAC.
While the Company believes its relationship with Solaris to be good, the loss of
this customer could have a material adverse effect on the Company's business and
results of operations. The Company believes that the total United States market
for agricultural carriers is in excess of $50 million and 400,000 tons per year.
The Company intends to further develop GranTek's technology to produce granules
for oil and grease absorbents as well as for specialty absorbents, such as for
the cat box filler market. The Company believes that the total United States
market for oil and grease absorbents is in excess of $37 million and 575,000
tons per year, and that the total United States market for cat box filler is in
excess of $150 million and 1.5 million tons per year. The Company believes that
the virtually dust-free and uniform nature of its BIODAC granules will be a
competitive advantage as it enters these markets.
Recovered minerals can currently also be sold in several low-value
industrial markets, such as for cement kiln feedstock, landfill cover and
composting filler. However, the Company expects to develop new technologies to
maximize the value of inorganic mineral particles, such as calcium carbonate,
kaolin clay and titanium dioxide, recovered from the pulp residue for sale into
newly developed, higher-value markets. The Company believes that the market
value of some of these mineral particles may be as high as $200 per ton for use
as paper fillers, coatings and brighteners. However, since the process to
separate and brighten these particles for paper fillers has not yet been
developed, the cost to process these materials is not currently known. The
Company also expects to process pulp plant waste water and to return the treated
water to the plants for use in the papermaking process. See "Risk
Factors -- Uncertainty of Product Development."
23
<PAGE> 25
TECHNOLOGY; RESEARCH AND DEVELOPMENT
The Company is developing a proprietary process to recover long cellulose
fibers from pulp residue and has completed the construction of a mobile pilot
recovery system which the Company is using for initial mill demonstrations of
its fiber-recovery process. During this period, the Company will continue to
modify its technology and will also determine where to build its first permanent
facilities. However, until the Company obtains meaningful data from commercial
operations, it will not be in a position to determine exactly what modifications
may be necessary. The Company expects to begin construction of its first
commercial recovery plant employing its long fiber-recovery technology before
the end of 1997.
Prior to its recent acquisition of the GT/ELI business by GranTek,
substantially all of the Company's operations were related to research and
development of the Company's fiber-recovery technology. The Company spent
$106,000, $128,000, $601,000 and $548,000 on research and development of this
technology in fiscal 1993, 1994 and 1995, and the first six months of fiscal
1996, respectively.
The Company's research and development efforts are currently focused on
developing and improving its fiber-recovery process. Modifications to existing
equipment are also under consideration to improve washing and de-inking
capability. The Company is also exploring cost-effective processes to produce
higher value products from the separated fines and mineral residue.
GranTek's Facility
GranTek operates a fully permitted manufacturing plant in Green Bay,
Wisconsin, at which it processes residue provided by a nearby paper mill into
approximately 30,000 tons of BIODAC per year. The plant currently operates 24
hours per day, five days per week. A fully permitted pilot plant is located
within GranTek's main manufacturing plant. This pilot plant is permitted to
process 24 tons of material per day, and has been used to develop many of the
innovations implemented in GranTek's main plant. The Company believes that this
pilot plant will give the Company the ability to process waste streams from
other paper mills under operating conditions in quantities sufficient to
determine both final product and operating characteristics and costs, as well as
to develop new technologies.
Under GranTek's contract with the paper mill, and subject to certain de
minimis exceptions, such mill has the exclusive right to supply pulp residue to
GranTek's commercial plant. In exchange, such mill is required to use its best
efforts to provide GranTek with GranTek's pulp residue requirements (up to a
maximum of 250 tons per day). The contract permits such mill's pulp residue to
contain up to 25 parts per million of polychlorinated biphenyls ("PCBs"). This
amount is well below amounts of PCBs permitted by applicable regulations.
GranTek is required to indemnify such mill against any environmental liability
that may arise from GranTek's use of the residue in any consumer or agricultural
product. However, GranTek may terminate the contract in the event that the
residue is determined to contain hazardous waste in excess of amounts permitted
by applicable regulations. The contract terminates on December 26, 1997, subject
to successive mutual two-year extensions.
GranTek is presently engaged in research and development of an absorbent
product that, if successful, would provide an opportunity to enter the general
oil and grease absorbent market, specialty absorbent market and the cat box
filler market.
INTELLECTUAL PROPERTY
The Company's success will depend in part on the strength and protection of
its proprietary methodologies and designs and other proprietary intellectual
property rights. The Company relies on a combination of patent, trade secret,
nondisclosure and other contractual arrangements, and copyright and trademark
laws, to protect its proprietary rights. The Company seeks to limit access to
and distribution of its proprietary information. There can be no assurance that
the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information, that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights, or that competitors will not be able to develop
similar technologies independently.
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<PAGE> 26
The Company currently holds seven issued United States patents, expiring at
various dates ranging from 2004 to 2012, relating to various aspects of the
processing of cellulose-based granular materials and the use of such materials
in the agricultural, general absorbent, oil absorbent and cat box filler
markets. The Company also has 11 foreign counterparts to its U.S. patents in
Canada and in various European countries, and has five additional patents
pending in three European countries. In addition, Thermo Fibertek holds two
United States patents, expiring in 2011 and 2014, respectively, and expects to
file additional United States patent applications in the near future, relating
to the "scalping" technology that is a key component of the Company's
fiber-recovery system. Although the Company has licensed the technology covered
by Thermo Fibertek's patents for use in pulp and paper industry applications,
the Company does not itself hold any patents or patent applications with respect
to its pilot fiber-recovery system.
In 1994, GranTek's newly acquired business, GT/ELI, initiated litigation in
United States District Court against two companies after they announced their
intent to jointly market a cellulose-based absorbent granule. This litigation,
in which GT/ELI alleged that the defendants were infringing two of GT/ELI's
patents, was resolved in February 1996, when the defendants agreed to enter a
judgment holding that the two patents were valid and enforceable and enjoining
the defendants from the manufacture, use or sale of particles that contain
cellulosic fibrous materials of certain bulk density ranges for use as a carrier
for any agricultural, row crop, home lawn and garden, professional turf,
ornamental plant or horticultural purpose. GT/ELI has granted these companies
nonexclusive licenses under these patents to sell cellulose-based granules
produced at an existing site for sale in the oil and grease absorbent and cat
box filler markets.
The Company believes that its technology, services, products and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future. See "Risk Factors -- Risks Associated with
Protection, Defense and Use of Proprietary Technology and Intellectual
Property."
COMPETITION
The Company expects that its principal competitors for access to pulp
residues will be landfills, which currently have a collective 70% market share
in North America and approximately 40% in Europe. The Company believes, however,
that landfill costs will tend to increase over time and that regulations
governing landfills will become more strict, particularly in Europe and Japan.
The balance of the pulp residues produced in the United States and Europe are
currently incinerated or are used to manufacture composting materials, egg
cartons and other low-value, industrial products.
Several large waste-management companies have increased their marketing
activities to provide landfill disposal services to the pulp and paper industry.
Although the Company does not believe that these companies are able to provide a
residue processing capability, the Company can expect that, if its technology is
successful, others will seek to develop similar technologies and products that
may be superior to those of the Company. As other companies attempt to provide
landfill services and/or residue processing capability to the pulp and paper
industry, the Company expects to encounter increasing competition.
The Company believes that its approach to the management of environmental
problems associated with pulp residue from pulp and paper mills and its ability
to take advantage of Thermo Fibertek's name recognition, financial strength and
experience constitute significant competitive advantages.
The Company believes that GranTek is currently the only producer of
cellulose-based agricultural carriers. GranTek's principal competitors in the
United States are producers of clay-based agricultural carriers for row crops
and professional turf protection, including Oil-Dri Corporation of America,
Floridin/Engelhard, Aimcor and American Colloid, and producers of corn cob
granules traditionally used in the home, lawn and garden and professional turf
markets, including The Andersons, Mt. Pulaski, Green Products, Independence Cob
and Junior Weisner. GranTek's principal competitive advantages are that BIODAC
contains virtually no dust and is more uniform in particle size distribution and
bulk density than are clay-based and corn cob granular carriers.
As the Company attempts to develop new markets for the components of the
pulp residue it processes, the Company will encounter competition from
established companies within those markets. Some of these competitors may have
substantially greater financial, marketing and other resources than those of the
Company, and the
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<PAGE> 27
Company expects that such competition may be intense. The Company believes that
the absorbent products industry considers price to be a significant competitive
factor and therefore expects that the demand for the Company's products in such
markets will be significantly influenced by the Company's prices for such
products. See "Risk Factors -- Competition."
EMPLOYEES
As of July 3, 1996, the Company had 29 employees, of whom six were engaged
in research and development, 15 were engaged in residue processing and
manufacturing, two were engaged in sales and marketing, and six were engaged in
general management. Of these 29 employees, 21 were employed by GranTek. Several
of the Company's employees were previously involved in product development for
Thermo Fibertek. The Company expects to hire additional employees within the
next year, all of whom are expected to be engaged in research and development
and/or sales and marketing. No assurance can be given that management
experienced in building a research and development or manufacturing
organization, or additional skilled personnel necessary to successfully
commercialize and expand the Company's business and operations, can be recruited
and retained. See "Risk Factors -- Lack of Operating History and Management."
None of the Company's employees is represented by a labor union, and the Company
considers its relations with its employees to be good.
FACILITIES
The Company leases a 6,000-square foot, stand-alone building in Bedford,
Massachusetts, at which it is developing its mobile pilot recovery system. This
lease expires in April 2001, subject to the Company's option to extend the lease
for two three-year terms. The Company also has the right to terminate the lease
without penalty in April 1999.
GranTek owns approximately 3.3 acres of land in Green Bay, Wisconsin, on
which its processing plant is situated. GranTek's corporate office occupies 800
square feet in Cassopolis, Michigan, which is occupied under a lease expiring in
October 1996. The Company expects to relocate GranTek's corporate office prior
to or upon the expiration of such lease.
The Company believes that its facilities are adequate for its current
operations.
GOVERNMENT REGULATION
The Company's operations are subject to significant government regulation,
including stringent environmental laws and regulations. Among other things,
these laws and regulations impose requirements to control air, soil and water
pollution, and regulate health, safety, zoning and land use and the handling and
transportation of industrial by-products and waste materials. These requirements
may also be imposed as conditions of operating permits or licenses that are
subject to renewal, modification or revocation. This regulatory framework
imposes significant compliance burdens and costs on the Company. Notwithstanding
the burdens of this compliance, the Company believes that its business prospects
are enhanced by the enforcement of environmental laws and regulations by
government agencies.
Among the principal laws governing the Company's operations are the federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and its similar state equivalents, TSCA and RCRA. TSCA imposes limitations on
the presence in commercial products of PCBs, and on the generation, handling,
storage and disposal of PCB-containing materials and wastes. CERCLA imposes
joint and several liability for the costs of remediation and natural resource
damages on the owner or operator of a facility from which there is a release or
a threat of a release of a hazardous substance into the environment and on the
generators and transporters of those hazardous substances. RCRA provides a
comprehensive framework for the regulation of the generation, transportation,
treatment, storage and disposal of hazardous waste. Under TSCA, RCRA and
equivalent state laws, regulatory authorities may require, pursuant to
administrative order or as a condition of an operating permit, that the owner or
operator of a regulated facility take corrective action with respect to
contamination resulting from past or present operations. The intent of RCRA is
to control hazardous wastes from the time they are generated until they are
properly recycled or treated and disposed. Such laws also require that the owner
or operator of regulated facilities provide assurance that funds will be
available for the closure and post closure care of its facilities. Because
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<PAGE> 28
Subtitle D of RCRA imposes strict requirements on landfills, such as the
requirement that new landfills must be lined, RCRA creates an incentive for pulp
mills to use residue-management technologies such as those offered by the
Company.
GranTek emits into the atmosphere from its Green Bay, Wisconsin, facility
approximately 4.5 pounds per year of PCBs, as well as certain other hazardous
pollutants such as formaldehyde, benzene and volatile organic compounds
("VOCs"). Applicable Wisconsin regulations limit PCB emissions to 0.5 pounds per
year unless the generator can demonstrate that it is using the best available
control technology to limit emissions. GranTek has been issued an air operating
permit by the Wisconsin Department of Natural Resources (the "WDNR"). GranTek's
operating permit and its application for a new Title V operating permit both
require GranTek to reduce PCB and VOC emissions and to file bi-annual reports on
the amount of PCBs being emitted. In August 1995, GranTek submitted materials to
the WDNR asserting that no technologically or economically feasible methods to
reduce PCB or VOC emissions from its facility can be implemented at the present
time and, accordingly, requesting that GranTek be relieved of its obligation to
reduce emissions. As of the date of this Prospectus, GranTek has received no
response from the WDNR. Although the Company believes that the WDNR will accept
GranTek's findings, no assurance can be given that the WDNR will not require
GranTek to comply with applicable emissions limitations, that such compliance
will not require the Company to make significant expenditures or that such
compliance will be technologically or economically feasible. Such compliance may
have material adverse effects on the Company's capital expenditures, earnings
and/or competitive position.
The pulp residue processed by GranTek contains trace amounts of PCBs,
dioxins, furans and other metals, residual amounts of which are also found in
GranTek's BIODAC product. Although these substances are present in residual
quantities below the maximum levels currently permitted under TSCA, RCRA and
applicable federal and state regulations, no assurance can be given that such
regulations may not be made more stringent in the future, that pulp residue
containing such substances may not be regulated as hazardous under TSCA or RCRA
or that federal or state regulations may not in the future prohibit the use of
materials containing these substances in agricultural applications. Any such
regulatory changes may have material adverse effects on the Company's capital
expenditures, earnings and/or competitive position. Changes in these regulations
could also affect the characteristics of the waste generated by pulp and paper
mills. As a result, it is possible that disposal of pulp residue could be
accomplished in a manner that may not involve the Company's facilities or that
would require the Company to purchase pulp residue.
GranTek's BIODAC agricultural carrier is subject to regulation under the
Federal Insecticide, Fungicide and Rodenticide Act, which, among other things,
empowers the Environmental Protection Agency to establish and enforce acceptable
tolerance levels for agricultural chemicals. In 1989, however, at GranTek's
request, the Environmental Protection Agency granted an exemption from the
requirement that a tolerance level be established for de-inked paper fiber used
as a carrier in pesticide formulations applied to growing crops.
The governmental regulatory process requires the Company to obtain and
retain numerous approvals, licenses and permits to conduct its operations, any
of which may be subject to revocation, modification or denial. Operating permits
need to be renewed periodically and may be subject to revocation, modification,
denial or non-renewal for various reasons, including failure of the Company to
satisfy regulatory concerns. Adverse decisions by governmental authorities on
permit applications submitted by the Company may result in abandonment or delay
of projects, substantially increased operating costs or capital expenditures,
premature closure of facilities or restriction of operations, all of which could
have a material adverse effect on the Company's business and prospects. See
"Risk Factors -- Environmental and Regulatory Risks."
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<PAGE> 29
RELATIONSHIP WITH THERMO ELECTRON
AND THERMO FIBERTEK
The Company was organized in February 1996 as a wholly owned subsidiary of
Thermo Fibertek. Thermo Fibertek contributed $12,500,000 in cash to the Company
in exchange for 10,000,000 shares of the Company's Common Stock. As part of the
organization of the Company, it also entered into a license and supply agreement
with Thermo Fibertek whereby Thermo Fibertek granted to the Company a worldwide,
perpetual, royalty-free license to use Thermo Fibertek's proprietary "scalping"
technology in the pulp and paper industries only. The license agreement has an
initial term of eight years and is subject to annual renewals thereafter. The
Company's rights under the agreement are exclusive for a period of at least five
years and such exclusivity will continue thereafter if the Company has purchased
at least 35 scalping units from Thermo Fibertek within the first five years of
the license and at least five such units in each subsequent year. The license
agreement also provides that Thermo Fibertek will be the exclusive manufacturer
of products based on the licensed technology. The purchase price paid by the
Company to Thermo Fibertek for these products will be based on Thermo Fibertek's
manufacturing cost plus a gross margin of 55%. The Company will not have the
right to manufacture this component itself unless Thermo Fibertek ceases to
manufacture it. Thermo Fibertek has agreed not to sell this component or any
other technology or products proprietary to Thermo Fibertek for use in
competition with the Company in the pulp and paper industries. See "Risk Factors
- -- Potential Conflicts of Interest." The Company expects that other components
for its recovery system can be purchased or licensed from third parties on
commercially reasonable terms.
Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermo Electron and certain of its
subsidiaries have created publicly and/or privately held majority owned
subsidiaries. (The Company and the other Thermo Electron subsidiaries are
hereinafter referred to as the "Thermo Subsidiaries.")
Thermo Fibertek develops, manufactures and markets a range of equipment and
accessory products for the domestic and international paper and paper-recycling
industries. Thermo Fibertek's products include de-inking systems,
stock-preparation equipment, and water-management systems. For its fiscal years
ended December 31, 1994 and December 30, 1995 and for the six months ended June
29, 1996, Thermo Fibertek had consolidated revenues of $162,625,000,
$206,743,000 and $97,575,000, respectively, and consolidated net income of
$10,894,000, $20,249,000 and $10,082,000, respectively.
Thermo Electron and its subsidiaries develop, manufacture and market
environmental monitoring and analysis instruments and manufacture biomedical
products including heart-assist devices and mammography systems, paper-recycling
and papermaking equipment, alternative-energy systems, industrial process
equipment and other specialized products. Thermo Electron and its subsidiaries
also provide environmental and metallurgical services and conduct advanced
technology research and development. For its fiscal years ended December 31,
1994 and December 30, 1995 and for the six months ended June 29, 1996, Thermo
Electron had consolidated revenues of $1,729,191,000, $2,270,291,000 and
$1,398,144,000, respectively, and consolidated net income of $104,711,000,
$139,582,000 and $85,942,000, respectively.
THE THERMO ELECTRON CORPORATE CHARTER
Thermo Electron and the Thermo Subsidiaries, including the Company,
recognize that the benefits and support that derive from their affiliation are
essential elements of their individual performance. Accordingly, Thermo Electron
and each of the Thermo Subsidiaries, including the Company, has adopted the
Thermo Electron Corporate Charter (the "Charter") to define the relationships
and delineate the nature of such cooperation among themselves. The purpose of
the Charter is to ensure that (1) all of the companies and their stockholders
are treated consistently and fairly, (2) the scope and nature of the cooperation
among the companies, and each company's responsibilities, are adequately
defined, (3) each company has access to the combined resources and financial,
managerial and technological strengths of the others, and (4) Thermo Electron
and the Thermo Subsidiaries, in the aggregate, are able to obtain the most
favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external
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<PAGE> 30
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 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 each of the
Thermo Subsidiaries.
The Charter presently 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 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. However, 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.
The General Corporation Law of the State of Delaware, under which the
Company is organized, imposes a fiduciary duty on the Directors and officers of
the Company to act in the best interests of the Company's shareholders.
CORPORATE SERVICES AGREEMENT
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 certain financial and other services to the Company. Beginning in
fiscal 1996, the Company will pay an annual fee for these services equal to 1.0%
of the Company's revenues. The fee may be changed by mutual agreement of the
Company and Thermo Electron. The Company was not charged for these services in
fiscal 1992, 1993, 1994 or 1995 because the Company recorded no revenues during
these periods and the amount of services received was not material. Management
believes that the charges under the Services Agreement are reasonable and that
the terms of the Services Agreement are representative of the expenses the
Company would incur 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 on charges attributable to the Company. 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.
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<PAGE> 31
TAX ALLOCATION AGREEMENT
The Tax Allocation Agreement between the Company and Thermo Fibertek
outlines the terms under which the Company is to be included in Thermo
Electron's consolidated Federal and state income tax returns. Under current law,
the Company will be included in such tax returns so long as Thermo Electron owns
at least 80% of the outstanding common stock of Thermo Fibertek and Thermo
Fibertek owns at least 80% of the outstanding Common Stock of the Company.
Immediately following this offering, Thermo Fibertek will own less than 80% of
the Company's outstanding Common Stock and the Company will not be included in
Thermo Electron's consolidated federal and state income tax returns for periods
commencing thereafter.
MASTER GUARANTEE REIMBURSEMENT AGREEMENTS
The Company has entered into a Master Guarantee Reimbursement Agreement
with Thermo Electron which provides that the Company will reimburse Thermo
Electron for any costs it incurs in the event it is required to pay third
parties pursuant to any guarantees it issues on the Company's behalf, including
the Guarantees of the Redemption Rights. Thermo Fibertek has entered into a
similar agreement with Thermo Electron with regard to the Company's obligations
which are guaranteed by Thermo Electron. The Company has also entered into a
Master Guarantee Reimbursement Agreement with Thermo Fibertek which provides
that the Company will reimburse Thermo Fibertek for any costs it incurs in the
event that Thermo Fibertek is required to pay Thermo Electron or any other party
pursuant to any guarantees or other commitments Thermo Fibertek issues or enters
into on the Company's behalf.
MISCELLANEOUS
Currently, Thermo Fibertek beneficially owns 100% of the outstanding shares
of Common Stock. Thermo Fibertek intends to maintain a majority ownership of the
Company. This may require the purchase by Thermo Fibertek of additional shares
of Common Stock from time to time as the number of outstanding shares issued by
the Company increases. These purchases may be made either on the open market or
directly from the Company.
The Company's cash equivalents may be invested in a repurchase agreement
with Thermo Electron, pursuant to which the Company in effect lends cash to
Thermo Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, United States 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 will be readily convertible into cash
by the Company and have an original maturity of three months or less. 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.
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MANAGEMENT
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
William A. Rainville.................... 54 Chairman of the Board and Director
Dr. Yiannis A. Monovoukas............... 35 President, Chief Executive Officer and Director
John N. Hatsopoulos..................... 61 Vice President, Chief Financial Officer and Director
Paul F. Kelleher........................ 54 Chief Accounting Officer
Jonathan W. Painter..................... 37 Treasurer and Director
Anne T. Barrett(1)...................... 66 Director
</TABLE>
- ---------------
(1) Member of the Audit and Human Resources Committees.
All of the Company's Directors are elected annually and hold office until
their respective successors are elected and qualified. Executive officers are
elected annually by the Board of Directors and serve at its discretion. Messrs.
Hatsopoulos, Kelleher and Painter are employees of Thermo Electron and certain
of its subsidiaries other than the Company, but devote such time to the affairs
of the Company as the Company's needs reasonably require from time to time. Mr.
Rainville is also President and Chief Executive Officer of Thermo Fibertek, and
is responsible for certain operations within Thermo Fibertek that are not
related to the Company's operations.
Mr. William A. Rainville has been Chairman of the Board and a Director of
the Company since its incorporation in February 1996. Mr. Rainville has been
President and Chief Executive Officer of Thermo Fibertek since its inception in
November 1991 and a Director of Thermo Fibertek since January 1992. From 1984
until January 1993, Mr. Rainville was President and Chief Executive Officer of
Thermo Electron Web Systems Inc., a subsidiary of Thermo Fibertek. He has been a
Senior Vice President of Thermo Electron since March 1993 and a Vice President
since 1986. Mr. Rainville is also a director of Thermo Fibertek, Thermo Ecotek
Corporation, Thermo TerraTech Inc. and Thermo Remediation Inc.
Dr. Yiannis A. Monovoukas has been President, Chief Executive Officer and a
Director of the Company since its incorporation in February 1996. Dr. Monovoukas
has been a Corporate Business Analyst since he joined Thermo Electron in July
1995. From 1993 through June 1995, Dr. Monovoukas was a graduate student at the
Harvard Business School. From 1990 until 1993 he was a staff scientist/engineer
with Raychem Corporation, a materials science company, which he joined upon
completion of a Ph.D. program in chemical engineering at Stanford University.
John N. Hatsopoulos has been a Vice President, Chief Financial Officer and
a Director of the Company since its incorporation in February 1996. Mr.
Hatsopoulos has been a Vice President and Chief Financial Officer of Thermo
Fibertek since its inception in November 1991, the Chief Financial Officer of
Thermo Electron since 1988 and an Executive Vice President of Thermo Electron
since 1986. He is also a Director of Thermedics Inc., Thermo Ecotek Corporation,
Thermo Fibertek, Thermo Instrument Systems Inc., Thermo Power Corporation,
Thermo TerraTech Inc., ThermoTrex Corporation, Thermo Optek Corporation,
ThermoQuest Corporation, Thermo Sentron Inc., Trex Medical Corporation and
Lehman Brothers Funds, Inc., an open-end investment management company.
Paul F. Kelleher has been the Chief Accounting Officer of the Company since
its incorporation in February 1996. Mr. Kelleher has been Vice President,
Finance of Thermo Electron since 1987 and served as its Controller from 1982 to
January 1996. He is a director of ThermoLase Corporation.
Jonathan W. Painter has been Treasurer and a Director of the Company since
its inception in February 1996. Mr. Painter has been Treasurer of Thermo
Electron since August 1994 and Treasurer of Thermo Fibertek since October 1994.
Mr. Painter had served as Director of Strategic Planning of Thermo Fibertek from
February 1993 through August 1994. Prior to that time, Mr. Painter was Associate
General Counsel of Thermo Electron and its subsidiaries.
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<PAGE> 33
Anne T. Barrett has been a Director of the Company since July 1996. Ms.
Barrett has been an independent consultant on investor relations and
communications matters since her retirement in November 1993. Prior to that
time, Ms. Barrett was Director of Corporate Communications for Thermo Electron
for more than five years.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company, Thermo Fibertek or Thermo
Electron receive an annual retainer of $2,000 and a fee of $1,000 per day for
attending 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.
Messrs. Rainville, Monovoukas, Hatsopoulos and Painter are all employees of
Thermo Electron companies and do not receive any cash compensation from the
Company for their services as Directors. Directors are also reimbursed for
reasonable out-of-pocket expenses incurred in attending such meetings.
Directors Deferred Compensation Plan. Under the Company's Deferred
Compensation Plan for Directors (the "Deferred Compensation Plan"), a Director
has the right to defer receipt of his 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 occurrence,
without the prior approval of the Board of Directors, of the acquisition,
directly or indirectly, by any person of 50% or more of the outstanding Common
Stock or 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 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 Common Stock. When payable, amounts deferred may be
disbursed solely in shares of Common Stock accumulated under the Deferred
Compensation Plan. The Company has reserved 25,000 shares under this plan. The
Deferred Compensation Plan will not become effective until completion of an
initial public offering. No units have been accumulated under this plan.
Directors Stock Option Plan. The Company has adopted a directors stock
option plan (the "Plan") providing for the grant of stock options to purchase
shares of the Common Stock to outside Directors (Directors who are not employees
of the Company or any of its affiliates) as additional compensation for their
service as Directors. The Plan provides for the grant of stock options upon a
Director's initial appointment and, beginning in 2000, awards options to
purchase 1,000 shares annually to eligible Directors, provided the Company's
Common Stock is then publicly traded. A total of 200,000 shares of Common Stock
have been reserved for issuance under the Plan.
Under the Plan, each eligible Director will be granted an option to
purchase 20,000 shares of Common Stock upon the later of the Director's
appointment or election, or the completion of an initial public offering or
private placement of shares of Common Stock of the Company primarily to
independent investors. In addition, each new director initially joining the
Board of Directors in 1996 will be granted an option to purchase 20,000 shares
of Common Stock. The size of the award to new Directors appointed to the Board
of Directors after 1996 is reduced by 5,000 shares in each subsequent year.
Directors initially joining the Board of Directors after 1999 would not receive
an option grant upon their appointment or election to the Board of Directors,
but would be eligible to participate in the annual option awards described
below. Options evidencing initial grants to Directors vest and are exercisable
upon the fourth anniversary of the grant date, unless the Common Stock
underlying the option grant is registered under Section 12 of the Securities
Exchange Act of 1934, as amended ("Section 12 Registration") prior to the fourth
anniversary of the grant date. In the event that the effective date of Section
12 Registration occurs prior to the fourth anniversary of the grant date, then
the option becomes exercisable (on the later of 90 days after Section 12
Registration or six months after the grant date) and the shares acquired upon
exercise will be subject to restrictions on transfer and the right of the
Company to repurchase such shares at the exercise price in the event the
Director ceases to serve as a Director of the Company or any other Thermo
Electron company. In such event, the restrictions and repurchase rights shall
lapse or be deemed to have lapsed in equal annual installments of 5,000 shares,
starting with the first anniversary of the grant date, provided the Director has
continuously served as a Director of the Company or any other Thermo Electron
company since the grant date. These options expire on the fifth anniversary of
the grant date, unless the Director dies or otherwise ceases to serve as a
Director of the Company or any other Thermo Electron company prior to that date.
32
<PAGE> 34
Commencing in 2000, eligible Directors will also receive an annual grant of
options to purchase 1,000 shares of Common Stock provided the Common Stock is
then publicly traded. The annual grant would be made at the close of business on
the date of each annual meeting of stockholders of the Company to each Director
then holding office, commencing with the annual meeting to be held in 2000.
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 would be subject to repurchase by the
Company at the exercise price if the recipient ceased 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 Plan is determined by the
average of the closing prices reported by the American Stock Exchange (or other
principal exchange in which the Common Stock is then traded) for the five
trading days immediately preceding and including the date the option is granted
or, if the shares underlying the option are not so traded, at the last price
paid per share by independent investors in an arms-length transaction with the
Company prior to the option grant.
As of August 31, 1996, no options to purchase Common Stock had been granted
under the Plan.
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
Summary Compensation Table
The following table summarizes compensation for services to the Company in
all capacities awarded to, earned by or paid to the Company's chief executive
officer for the fiscal year ended December 30, 1995. No other executive officer
of the Company who held office at the end of fiscal 1995 met the definition of
"highly compensated" within the meaning of the Securities and Exchange
Commission's executive compensation disclosure rules for this period.
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 Services Agreement between the Company and Thermo Electron.
Accordingly, the compensation for these individuals is not reported in the
following table. See "Relationship with Thermo Electron and Thermo Fibertek."
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
---------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS (NO. OF
FISCAL ------------------- SHARES AND
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPANY)(1)
--------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Yiannis A. Monovoukas
President and Chief Executive Officer(2).................. 1995 $39,583(2) -- 80,000(TFG)
11,250(TMO)
<FN>
- ---------------
(1) All options to purchase shares of the Company's Common Stock shown in the
table were granted after the end of fiscal 1995, but are included in the
table for clarity of presentation. In addition to grants of options to
purchase Common Stock of the Company (designated in the table as TFG), Dr.
Monovoukas has been granted options to purchase shares of common stock of
Thermo Electron (designated in the table as TMO) as part of Thermo
Electron's stock option program. Information with respect to options to
purchase such stock reflects a three-for-two split in the form of a 50%
stock dividend paid on June 1996.
(2) Dr. Monovoukas was appointed President and Chief Executive Officer of the
Company in February 1996. Prior to that time, he served as a Corporate
Business Analyst for Thermo Electron since joining Thermo Electron in July
1995. Reported in the table under "Salary" is the salary paid in 1995 to Dr.
Monovoukas for his service as Corporate Business Analyst of Thermo Electron,
which was paid at an annualized rate of $95,000 and is representative of the
salary to be paid in 1996 for his service as President and Chief Executive
Officer of the Company. None of the bonus paid to Dr. Monovoukas with
respect to 1995 performance was attributable to his service as President and
Chief Executive Officer of the Company.
</TABLE>
33
<PAGE> 35
Stock Options Granted During Fiscal 1995
The following table sets forth information concerning individual grants of
stock options made during fiscal 1995 to the Company's chief executive officer.
It has not been the Company's policy in the past to grant stock appreciation
rights, and no rights were granted during fiscal 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
- -------------------------- ----------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Yiannis A. Monovoukas..... 80,000(TFG) 23.7%(1) $ 10.00 8/14/08 $636,800 $1,710,400
11,250(TMO) 0.9%(3) $ 28.23 7/24/02 $129,263 $ 301,391
</TABLE>
- ---------------
(1) All options to purchase shares of the Common Stock of the Company
(designated in the table as TFG) were granted after the end of fiscal 1995,
but are included in the table for clarity of presentation. In addition,
options to purchase shares of the common stock of Thermo Electron
(designated in the table as TMO) were granted in 1995 to Dr. Monovoukas. The
options to purchase shares of Thermo Electron are immediately exercisable,
while the options to purchase shares of the Common Stock of the Company are
not exercisable until the earlier of (i) 90 days after the effective date of
the registration of the Company's Common Stock under Section 12 of the
Securities Exchange Act of 1934 and (ii) nine years after the grant date. In
all cases, the shares acquired upon exercise are subject to repurchase by
the granting corporation at the exercise price if Dr. Monovoukas ceases to
be employed by such corporation or another Thermo Electron company. The
granting corporation may exercise its repurchase rights within six months
after the termination of Dr. Monovoukas' employment. For publicly traded
companies, the repurchase rights generally lapse ratably over a five- to
ten-year period, depending on the option term which may vary from seven to
twelve years, provided that the optionee continues to be employed by Thermo
Electron or another Thermo Electron company. For companies that are not
publicly traded, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date. The granting corporation may permit Dr.
Monovoukas to exercise options and satisfy tax withholding obligations by
surrendering shares equal in fair market value to the exercise price or
withholding obligation. The options to purchase shares of common stock of
Thermo Electron have been adjusted to reflect a three-for-two stock split in
the form of a 50% stock dividend paid on June 5, 1996.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the 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 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 common stock underlying the options, the
optionholder's continued employment through the option period and the date
on which the options are exercised.
(3) These options were granted under a stock option plan maintained by Thermo
Electron and accordingly are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
34
<PAGE> 36
Stock Options Exercised During Fiscal 1995 and Fiscal Year-end Option Values
The following table reports certain information regarding stock option
exercises during fiscal 1995 and outstanding stock options held at the end of
fiscal 1995 by the Company's chief executive officer. No stock options were
exercised, and no stock appreciation rights were exercised or were outstanding
during fiscal 1995.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND
FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL FISCAL
YEAR-END YEAR-END
----------------- ------------
EXERCISABLE/ EXERCISABLE/
NAME COMPANY UNEXERCISABLE(1) UNEXERCISABLE
- --------------------------------------------- ----------------- ----------------- ------------
<S> <C> <C> <C>
Yiannis A. Monovoukas........................ Thermo Fibergen -/80,000 -/-(2)
Thermo Electron 11,250/- $ 72,413/-
</TABLE>
- ---------------
(1) All options to purchase shares of the Common Stock of the Company were
granted after the end of fiscal 1995, but are included in the table for
clarity of presentation. All of the options reported in the table were
immediately exercisable at the end of the fiscal year, except for options to
purchase shares of the Common Stock of the Company, which are not
exercisable until the earlier of (i) 90 days after the effective date of the
registration of the Company's Common Stock under Section 12 of the
Securities Exchange Act of 1934 and (ii) nine years after 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 corporation at the exercise
price if the optionee ceases to be employed by such corporation or another
Thermo Electron company. The granting corporation may exercise its
repurchase rights within six months after the termination of the optionee's
employment. For companies whose shares are not publicly traded, the
repurchase rights lapse in their entirety on the ninth anniversary of the
grant date. For publicly traded companies, the repurchase rights generally
lapse ratably over a five- to ten-year period, depending on the option term
which may vary from seven to twelve years, provided that the optionee
continues to be employed by the granting corporation or another Thermo
Electron company. The options to purchase shares of common stock of Thermo
Electron have been adjusted to reflect a three-for-two stock split in the
form of a 50% stock dividend paid on June 5, 1996.
(2) No public market existed for the shares underlying these options as of
December 30, 1995. Accordingly, no value in excess of the exercise price has
been attributed to those options.
CERTAIN TRANSACTIONS
The Company has adopted a program under which it may make interest-free
loans to certain key employees, including certain of the named executive
officers, to enable such employees to purchase the Company's Common Stock in the
open market. The Company has made no such loans as of the date of this
Prospectus.
35
<PAGE> 37
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 August 31, 1996 with respect to each person who
was known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- ----------------------- ----------------
<S> <C> <C>
Thermo Fibertek Inc.(1)......................................... 10,000,000 shares 100%
81 Wyman Street
Waltham, Massachusetts 02254-9046
</TABLE>
- ---------------
(1) Thermo Fibertek is an 81.5%-owned subsidiary of Thermo Electron and,
therefore, Thermo Electron may be deemed to be a beneficial owner of the
shares of Common Stock beneficially owned by Thermo Fibertek. Thermo
Electron disclaims beneficial ownership of these shares. After the sale of
the Common Stock in this offering, Thermo Fibertek will own approximately
70.9% of the outstanding Common Stock (68.0% if the Underwriters'
over-allotment option is exercised in full).
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 30, 1996 as well as information
regarding the beneficial ownership of the Common Stock and the common stock of
Thermo Fibertek and Thermo Electron, as of March 30, 1996, with respect to (i)
each Director, (ii) each executive officer named in the summary compensation
table above, and (iii) all Directors and current executive officers as a group.
<TABLE>
<CAPTION>
THERMO THERMO THERMO ELECTRON
NAME(1) FIBERGEN INC.(2) FIBERTEK INC.(3) CORPORATION(4)
------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
William A. Rainville.................................. 0 506,713 300,893
Dr. Yiannis A. Monovoukas............................. 0 31,500 11,450
John N. Hatsopoulos................................... 0 173,655 646,317
Jonathan W. Painter................................... 0 103,515 35,673
Anne T. Barrett....................................... 0 3,450 10,187
All Directors and current executive officers as a
group (6 persons)................................... 0 902,608 1,145,777
</TABLE>
- ---------------
(1) Except as reflected in the footnotes to this table, shares of Common Stock
and common stock of Thermo Fibertek and Thermo Electron 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) No Director or executive officer beneficially owned more than 1% of the
Common Stock outstanding as of such date, and all Directors and executive
officers as a group beneficially owned less than 1% of the Common Stock
outstanding as of such date.
(3) The shares of common stock of Thermo Fibertek have been adjusted to reflect
a three-for-two stock split effected in the form of a 50% stock dividend
paid on June 26, 1996. Shares of the common stock of Thermo Fibertek
beneficially owned by Mr. Rainville, Dr. Monovoukas, Mr. Hatsopoulos, Mr.
Painter and all Directors and executive officers as a group include 495,000,
30,000, 97,200, 103,500 and 799,950 shares, respectively, that such person
or group has the right to acquire within 60 days of March 30, 1996, through
the exercise of stock options. Shares beneficially owned by Ms. Barrett
consist of shares held by a trust of which Ms. Barrett is a trustee. No
Director or executive officer beneficially owned more than 1% of the common
stock of Thermo Fibertek outstanding as of March 30, 1996; all Directors and
executive officers as a group beneficially owned 1.5% of such common stock
outstanding as of such date.
(4) The shares of common stock of Thermo Electron have been adjusted to reflect
a three-for-two stock split in the form of a 50% stock dividend paid on June
5, 1996. Shares of the common stock of Thermo Electron beneficially owned by
Mr. Rainville, Dr. Monovoukas, Mr. Hatsopoulos, Mr. Painter and all
Directors and
36
<PAGE> 38
executive officers as a group include 199,198, 11,250, 342,735, 31,495 and
677,302 shares, respectively, that such person or group has the right to
acquire within 60 days of March 30, 1996, through the exercise of stock
options. Shares beneficially owned by Mr. Hatsopoulos, Mr. Painter and all
Directors and executive officers as a group include 18,375, 391 and 19,994
full shares, respectively, allocated through March 30, 1996 to their
respective accounts maintained pursuant to Thermo Electron's employee stock
ownership plan ("ESOP"). The trustees of the ESOP, who have investment power
over its assets, are Mr. Hatsopoulos and Mr. Peter Pantazelos (an executive
officer of Thermo Electron). Shares beneficially owned by Mr. Hatsopoulos
include 168,750 shares held by a QTIP trust of which Mr. Hatsopoulos is a
trustee. Shares beneficially owned by Ms. Barrett include 4,847 shares held
by a trust of which Ms. Barrett is a trustee. No Director or executive
officer nor all Directors and executive officers as a group beneficially
owned more than 1% of the common stock of Thermo Electron outstanding as of
March 30, 1996.
37
<PAGE> 39
INFORMATION CONCERNING THERMO ELECTRON
Thermo Electron develops, manufactures and markets environmental monitoring
and analysis instruments, biomedical products including heart-assist systems,
mammography systems and respiratory care products, paper-recycling and
papermaking equipment, alternative-energy systems, industrial process equipment,
and other specialized products. Thermo Electron also provides environmental and
metallurgical services and conducts advanced technology research and
development. Thermo Electron performs its business through its divisions and
wholly owned subsidiaries, as well as majority-owned subsidiaries that are
partially owned by the public or by private investors.
Thermo Electron has developed leading market positions in many lines of
business, including environmental monitoring and analysis instruments,
mammography systems, biomass power plants, and paper-recycling equipment and
papermaking accessories. Thermo Electron is currently seeking to establish
leading market positions in the fields of left ventricular-assist devices,
explosives-detection systems, thermal soil-remediation services and dedicated
natural gas engines. Thermo Electron is developing new products in its Advanced
Technologies segment, as well as other segments.
A key element in Thermo Electron's growth has been its ability to
commercialize innovative products and services emanating from research and
development activities conducted at Thermo Electron's various subsidiaries and
divisions. Thermo Electron's strategy has been to identify business
opportunities arising from social, economic and regulatory issues and to seek a
leading market share through the application of proprietary technology. As part
of this strategy, Thermo Electron continues to focus on the acquisition of
complementary businesses that can be integrated into existing core businesses to
leverage Thermo Electron's access to new markets.
Thermo Electron believes that maintaining an entrepreneurial atmosphere is
essential to continuing its growth and development. In order to preserve this
environment, Thermo Electron adopted the strategy of having certain subsidiaries
sell a minority interest to outside investors. Thermo Electron believes that
this strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock options,
as well as capital to support the subsidiaries' growth. Thermo Electron's wholly
owned and majority-owned subsidiaries are provided with centralized strategic
planning, corporate development, administrative, financial and other services
that would not be available to many independent companies of similar size. As of
June 29, 1996, Thermo Electron had 20 subsidiaries that have sold minority
equity interests, 16 of which are publicly traded.
Thermo Electron, a Delaware corporation, was incorporated in 1956,
completed its initial public offering in 1967, and was listed on the New York
Stock Exchange in 1980. The principal executive office of Thermo Electron is
located at 81 Wyman Street, Waltham, Massachusetts 02254-9046 (telephone:
617-622-1000).
38
<PAGE> 40
DESCRIPTION OF SECURITIES
The following is a brief description of the principal terms applicable to
the Units, the authorized shares of the Company's Common Stock, $.01 par value,
and the Redemption Rights, as well as a description of the Guarantees.
UNITS
Each Unit being offered by the Company consists of one share of Common
Stock and one Redemption Right. The Common Stock and the Redemption Rights will
trade together as Units on the American Stock Exchange until the 90th day after
the date of this Prospectus, after which date the Common Stock and the
Redemption Rights will trade separately. The value of the Redemption Rights will
generally have an inverse relationship to the value of the Common Stock. As the
market price of the Common Stock rises, the value represented by the Redemption
Rights generally will decrease, reflecting generally the increased spread
between the market price of a share of Common Stock deliverable upon exercise of
a Redemption Right and the price at which the Company is obligated to redeem the
Common Stock pursuant to the Redemption Rights. Conversely, decreases in the
market price of the Common Stock generally will increase the value of the
Redemption Rights.
COMMON STOCK
The Company has 25,000,000 shares of Common Stock authorized for issuance,
of which 10,000,000 are issued and outstanding. Each share of Common Stock is
entitled to pro rata participation in distributions upon liquidation and to one
vote on all matters submitted to a vote of stockholders. Dividends may be paid
to the holders of Common Stock when and if declared by the Board of Directors
out of funds legally available therefor. Holders of Common Stock have no
preemptive or similar rights. The outstanding shares of Common Stock are, and
the shares offered hereby when issued will be, legally issued, fully paid and
nonassessable.
The shares of Common Stock have noncumulative voting rights, which means
that the holders of more than 50% of the shares voting can elect all the
Directors if they so choose, and in such event, the holders of the remaining
shares cannot elect any Directors. Prior to this offering, Thermo Fibertek owned
10,000,000 shares of Common Stock, which represented 100% of the outstanding
Common Stock. Upon completion of this offering, Thermo Fibertek (and Thermo
Electron through its majority ownership of Thermo Fibertek) will continue to
beneficially own a majority of the outstanding Common Stock, and will have the
power to elect all of the members of the Company's Board of Directors.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of Directors. The provisions eliminate a Director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts or omissions, which involve intentional misconduct or a
knowing violation of law. The Company's Certificate of Incorporation also
contains provisions to indemnify the Directors and officers of the Company to
the fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as Directors and officers.
REDEMPTION RIGHTS
General
The holder of a Redemption Right may require the Company to redeem one
share of Common Stock for an amount of cash equal to the initial public offering
price (the "Redemption Price") during the month of September 2000 (the "First
Redemption Period") and during the month of September 2001 (the "Second
Redemption Period"). The First Redemption Period and the Second Redemption
Period are collectively referred to herein as the "Redemption Periods."
Exercise of Rights
Notice of commencement of each Redemption Period will be published in the
Wall Street Journal, and will be mailed to holders of record of the Redemption
Rights, not less than 15 nor more than 45 days prior to the commencement of such
Redemption Period. To be redeemed, certificates for shares of Common Stock must
be
39
<PAGE> 41
received at the office of the Company or its agent, as specified in the notice,
along with certificates for Redemption Rights duly executed indicating the
number of shares being tendered for redemption during the Redemption Period. The
Company or its agent after the end of the Redemption Period will promptly return
to each shareholder a certificate for all shares and Redemption Rights
surrendered but not redeemed and will mail to each shareholder a check in
consideration for the shares that were redeemed. Shareholders who elect to
redeem their shares will be entitled to revoke their election by delivering a
written notice of such revocation to the agent or to the Company as specified in
the notice prior to the end of the Redemption Period.
The Company's obligation to make such redemptions would be deferred to the
extent that such redemptions are made at a time when the Company's capital is
impaired or when such redemptions would cause any impairment of the Company's
capital or if such redemptions are otherwise prohibited by law. These provisions
do not affect the guarantee by Thermo Electron of the Company's redemption
obligations.
Adjustments
Both the consideration payable by the Company upon redemption of the shares
of Common Stock and the number of shares of Common Stock which are subject to
redemption are subject to adjustment upon the occurrence of certain events,
including (i) the issuance of Common Stock as a dividend or the distribution of
a security or right convertible into or exchangeable for shares of Common Stock
to all of the holders of Common Stock, (ii) a subdivision or combination of the
Company's outstanding Common Stock and (iii) the issuance by reclassification or
reorganization of the outstanding shares of Common Stock.
Expiration of Redemption Rights
The Redemption Rights will expire and become worthless in the event that,
at any time after the 90th day after the date of this Prospectus and (i) prior
to the beginning of the First Redemption Period or (ii) after the end of the
First Redemption Period and prior to the beginning of the Second Redemption
Period, the closing price of the Common Stock as reported on the principal
trading market for the Common Stock has been at least 150% of the Redemption
Price, as adjusted as provided above, for 20 of any 30 consecutive trading days,
provided that neither Thermo Electron nor any of its subsidiaries have purchased
any shares of Common Stock on any of such days.
Covenants of the Company and Thermo Electron
Pursuant to the Guarantee Agreement described below, the Company and Thermo
Electron have covenanted that they will not, without the consent of the holders
of a majority of the Redemption Rights other than Thermo Electron and its
subsidiaries, take any voluntary action to avoid or seek to avoid the observance
or performance of any of the terms of the redemption obligations described in
this Prospectus. While any Redemption Rights are outstanding, the Company may
(i) reorganize or reclassify its Common Stock, (ii) merge or consolidate with
another corporation or other legal entity or (iii) sell or transfer all or
substantially all of its business or assets only if adequate provision is made
so that the Redemption Rights are adjusted so as to preserve the economic
benefits thereof to the holders, as determined by the Board of Directors of the
Company in its reasonable discretion, which benefits shall include the right to
receive cash.
THE GUARANTEES
The Company, Thermo Electron and the Representatives of the Underwriters
(as defined below) have entered into a Guarantee Agreement, pursuant to which
Thermo Electron has agreed to guarantee, on a subordinated basis, the due and
punctual performance by the Company of its redemption obligations described
above. The text of the Guarantees will be endorsed on each certificate
representing Redemption Rights offered hereby. Thermo Electron will be obligated
to honor the Guarantees upon the failure of the Company to perform its
redemption obligations, including any failure due to the impairment or potential
impairment of the Company's capital. The Guarantee Agreement may not be amended
in a way that will dilute or impair the Redemption Rights described above
without the consent of the holders of two-thirds of the then-outstanding
Redemption Rights other than Thermo Electron and its subsidiaries.
40
<PAGE> 42
Subordination of Guarantees
The obligations represented by the Guarantees will be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness of Thermo
Electron, whether outstanding at the date of execution of the Guarantee
Agreement or thereafter incurred or created. There are no limitations, in the
Guarantee Agreement or otherwise, on Thermo Electron's ability to incur or
create additional Senior Indebtedness in the future. Senior Indebtedness of
Thermo Electron is defined for this purpose as the principal of, premium, if
any, and interest and other amounts due on or with respect to the following,
whether outstanding at the date of execution of the Guarantee Agreement or
thereafter incurred or created: (a) indebtedness of Thermo Electron for money
borrowed by Thermo Electron (including, without limitation, purchase money
obligations), whether or not evidenced by debentures, bonds, notes or other
corporate debt securities or similar instruments issued by Thermo Electron
(including the principal of, premium, if any, and interest on Thermo Electron's
5% Senior Convertible Debentures due 2001 and 4 5/8% Senior Convertible
Debentures due 1997); (b) obligations to reimburse any bank or other person in
respect of amounts paid under letters of credit; (c) leases of real property,
equipment or other assets, which leases are capitalized in Thermo Electron's
financial statements in accordance with generally accepted accounting
principles; (d) commitment, standby and other fees due and payable to financial
institutions with respect to credit facilities available to Thermo Electron; (e)
obligations of Thermo Electron under interest rate or currency swaps, floors,
caps or other similar arrangements intended to hedge interest rates or currency
exposure; (f) indebtedness secured by any mortgage, pledge, lien or other
encumbrance on property which is owned or held by Thermo Electron subject to
such mortgage, pledge, lien or encumbrance, whether or not the indebtedness
secured thereby shall have been assumed by Thermo Electron; (g) obligations of
Thermo Electron constituting guarantees of indebtedness of or joint obligations
with another or others which would be included in the preceding clauses (a),
(b), (c), (d), (e) or (f) (including Thermo Electron's guarantee of the
principal of, premium, if any, and interest on the 3 3/4% Senior Convertible
Debentures due 2000 of Thermo Instrument Systems Inc.); and (h) modifications,
renewals, extensions or refundings of any of the indebtedness, leases, fees or
obligations referred to in the preceding clauses (a), (b), (c), (d), (e), (f) or
(g) or debentures, notes or other evidences of indebtedness issued in exchange
therefor; provided that Senior Indebtedness shall not include any particular
indebtedness, lease, fee or obligation, modification, renewal, extension or
refunding or exchanged securities if, under the express provisions of the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, such indebtedness, lease, fee or obligation or such modification,
renewal, extension or refunding thereof or exchanged securities are stated to be
not superior in right of payment to the Guarantees. Most of Thermo Electron's
assets are owned by its subsidiaries. Thermo Electron's rights as a shareholder
and the rights of its creditors, including holders of the Redemption Rights, to
participate in the assets of any subsidiary upon the latter's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors. At June 29, 1996, the aggregate amount of Senior Indebtedness and
indebtedness of subsidiaries not constituting Senior Indebtedness (but to which
the Guarantees are effectively subordinated) was approximately $517,680,000.
The obligations represented by the Guarantees will rank pari passu with
Thermo Electron's obligations with respect to its outstanding 4 1/4% Convertible
Subordinated Debentures due 2003 and the 4 7/8% Convertible Subordinated
Debentures due 1997. In addition, the obligations represented by the Guarantees
will rank pari passu with Thermo Electron's subordinated guarantees of the
principal, premium, if any, and interest on the Non-Interest Bearing Convertible
Subordinated Debentures due 2003 issued by Thermedics Inc., the Non-Interest
Bearing Convertible Subordinated Debentures due 2001 issued by Thermo Ecotek
Corporation, the 6 1/2% Convertible Subordinated Debentures due 1997 and the
4 5/8% Convertible Subordinated Debentures due 2003 issued by Thermo TerraTech
Inc., the 6 5/8% Convertible Subordinated Debentures due 2001 issued by Thermo
Instrument Systems Inc., the Non-Interest Bearing Convertible Subordinated
Debentures due 1997 issued by Thermo Cardiosystems Inc., the 3 3/4% Convertible
Subordinated Debentures due 2000 issued by Thermo Voltek Corp., the 4 7/8%
Convertible Subordinated Debentures due 2000 issued by Thermo Remediation Inc.,
the 5% Convertible Subordinated Debentures due 2000 issued by ThermoQuest
Corporation and the 5% Convertible Subordinated Debentures due 2000 issued by
Thermo Optek Corporation. In addition, the obligations represented by the
Guarantees will rank pari passu with Thermo Electron's subordinated guarantee of
the obligations to redeem the common stock of ThermoLyte Corporation. The
obligation of ThermoLyte Corporation to redeem its common stock requires
ThermoLyte Corporation at the option of the holders to redeem up to an aggregate
of approximately
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<PAGE> 43
1,845,000 shares of its common stock for $10.00 per share at the end of 1998 and
1999. As of June 29, 1996, the aggregate outstanding principal amount of the
above obligations was approximately $1,100,289,000.
In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection herewith, relative to Thermo Electron or to its creditors as such, or
to its property, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up, of Thermo Electron, or in the event of any
assignment for the benefit of creditors of Thermo Electron or any marshaling of
assets of Thermo Electron, the holders of all Senior Indebtedness of Thermo
Electron will be entitled to receive payment in full of the principal of and
premium, if any, and interest, including interest accruing after the
commencement of any such proceeding, on all Senior Indebtedness of Thermo
Electron, before holders of the Common Stock offered hereby will be entitled to
receive any payment in respect of the Guarantees. Upon the maturity of any
Senior Indebtedness of Thermo Electron by lapse of time, acceleration or
otherwise, such Senior Indebtedness of Thermo Electron shall first be paid in
full (to the same extent as provided in the preceding sentence) or provided for
before any payment is made by Thermo Electron, directly or indirectly, with
respect to the Redemption Rights. Upon the occurrence of any event of default
with respect to any Senior Indebtedness of Thermo Electron, as defined therein
or in the instrument under which it is outstanding, permitting the holders to
accelerate the maturity thereof, then, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by Thermo Electron, directly or indirectly, with respect to the
Redemption Rights. By reason of such subordination, in the event of insolvency,
creditors of Thermo Electron that are not holders of Senior Indebtedness of
Thermo Electron may recover less, ratably, than holders of Senior Indebtedness
of Thermo Electron and may recover more, ratably, than the holders of the
Guarantees.
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<PAGE> 44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Because of the unique features of the Units, it is not possible to provide
a definitive discussion of the characterization of the Common Stock for federal
income tax purposes, or of the federal income tax consequences of the purchase,
ownership and disposition of Units, Common Stock and Redemption Rights. The
discussion below represents the Company's view of the possible federal income
tax consequences of the purchase, ownership and disposition of the Securities
based on what the Company believes are the most likely characterizations of the
Common Stock and is provided for general information purposes only. The Company
has not sought a ruling from the Internal Revenue Service, or an opinion of
counsel, with respect to such matters. It is possible that characterizations
other than those discussed might apply and that the federal income tax
consequences may accordingly be different than those discussed.
Purchasers are urged to consult their own tax advisors with regard to an
investment in the Units and as to the particular tax consequences to them
(including the effect and applicability of state, local, foreign and other tax
laws) of the purchase, ownership and disposition (including a disposition
pursuant to exercise of a Redemption Right) of Common Stock.
The following discussion does not address the tax consequences of the
ownership of Units to purchasers based on their particular tax situations, and
is not intended to be applicable to all categories of purchasers, some of whom,
such as dealers in securities, insurance companies, tax-exempt organizations,
and foreign persons, will be subject to special rules.
TREATMENT OF COMMON STOCK AS EQUITY
The Company intends to treat the Common Stock as equity for federal income
tax purposes. For financial accounting purposes the Common Stock will be treated
as Common Stock subject to redemption until the expiration of the Redemption
Rights.
Whether the Common Stock is in fact determined to be equity for federal
income tax purposes during the period prior to the expiration of the Redemption
Rights is a question of fact, and no one factor is conclusive. Although no
definitive set of relevant factors exists, Section 385 of the Internal Revenue
Code of 1986, as amended (the "Code"), lists five factors that "may" be taken
into account in regulations, yet to be issued, setting forth rules for
determining whether an interest in a corporation is to be treated as equity or
debt for federal income tax purposes. These factors are (1) whether there is a
written unconditional promise to pay on demand or on a specified date a sum
certain in money in return for an adequate consideration in money or money's
worth, and to pay a fixed rate of interest, (2) whether there is a subordination
to or preference over any indebtedness of the corporation, (3) the ratio of debt
to equity of the corporation, (4) whether there is convertibility into the stock
of the corporation, and (5) the relationship between holdings of stock in the
corporation and the holdings of the interest in question. The Internal Revenue
Service has indicated that the intent of the parties in creating the instrument
is a factor that may be taken into account as well.
An analysis of these factors indicates that it is likely, although not
certain, that the Common Stock will, in fact, be treated as equity for tax
purposes even prior to the expiration of the Redemption Rights. The Company is
obliged to redeem the Common Stock for a fixed amount of money upon exercise of
Redemption Rights at essentially predetermined dates, raising the possibility
that the Common Stock will during that time period be treated as convertible
debt. However, no provisions for interest payments or guaranteed dividends of
any sort are made. The Company is also prohibited from redeeming the Common
Stock to the extent that such redemptions are made at a time when the Company's
capital is impaired or when such redemptions would cause any impairment of the
Company's capital or if such redemptions are otherwise prohibited by law. Under
those circumstances, the Common Stock may be purchased by Thermo Electron
pursuant to the Guarantee in what will generally not be a redemption.
Furthermore, the Common Stock will be subordinated to all indebtedness of the
Company, the stock is voting stock, there are no "conversion" rights other than
a possible "deemed" conversion at the time of expiration of the Redemption
Periods, and, finally, the parties intend to create an equity interest
notwithstanding the contrary treatment for financial accounting purposes.
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<PAGE> 45
The discussion that follows is premised on the characterization of the
Common Stock as equity and not as convertible debt. Section 385 of the Code
provides that the issuer's characterization of an interest in a corporation as
debt or equity will be binding on the issuer and all holders, but will not be
binding on the Internal Revenue Service. Accordingly, because the Company
intends to treat the Common Stock as equity for federal income tax purposes,
holders will not be able to treat the Common Stock as debt for such purposes. If
the Common Stock were to be treated as debt by the Internal Revenue Service or a
court, certain other considerations would apply. For example, distributions of
property by the Company with respect to the Common Stock would be treated as
interest, and not dividends, and so would not be eligible for the dividends
received deduction. Similarly, redemptions by the Company of the Common Stock
would not be subject to the rules of Section 302 of the Code, as discussed
below, but would instead be treated as payments of principal and interest.
SALE OF COMMON STOCK AND REDEMPTION RIGHTS
In general, gain or loss will be recognized upon a sale of a share of
Common Stock or a Redemption Right. When the Common Stock and the associated
Redemption Right are "decoupled" and may be sold or otherwise disposed of
separately, the event of "decoupling" will not by itself cause the holder to
recognize gain or loss. The sale of Common Stock or Redemption Rights, whether
as a Unit or separately, will cause gain or loss to be recognized only with
respect to the Common Stock or Redemption Rights sold. The amount of such gain
or loss will be the difference between the amount received in exchange for the
Common Stock or Redemption Rights sold and the holder's adjusted basis in the
Common Stock or Redemption Rights sold. The holder's tax basis in a share of
Common Stock and the associated Redemption Right will be determined by
allocating the purchase price paid per Unit between the Common Stock and the
associated Redemption Right on the basis of the fair market value of each on the
date of issuance. Where the Common Stock and the associated Redemption Right are
sold together (e.g., as a Unit within the 90-day period before they are
"decoupled"), the precise allocation of basis would not generally alter the net
amount of gain or loss to the holder.
Such gain or loss will generally be treated as capital gain or loss if the
Common Stock or Redemption Right sold was held as a capital asset. Such gain or
loss will be long term capital gain or loss if the Common Stock or Redemption
Right sold was held for more than one year, and short term capital gain or loss
if it has been held for one year or less. To the extent applicable, the straddle
rules, summarized below, will likely defer the commencement of a holder's
holding period for this purpose, resulting in short term capital gain or loss.
Upon the lapse of a Redemption Right acquired on the same day as a share of
Common Stock identified as intended to be used in exercising such Redemption
Right, the cost of the Redemption Right (determined as described above with
respect to allocation of basis) will be added to the tax basis of such Common
Stock. Upon the lapse of a Redemption Right acquired at any other time, the
holder thereof will be treated as if the Redemption Right were sold or exchanged
on the date of such lapse. Under the straddle rules, summarized below, a risk
exists that all or part of any loss that may arise on a lapse of a Redemption
Right, or that arises from the sale of either the Common Stock or the Redemption
Right, while a holder holds the other component of the Unit, may not be
recognized until a sale or other disposition of the other component.
SHORT SALE AND STRADDLE RULES
While the holding period of a share of Common Stock normally commences on
the date that it is acquired, under certain circumstances the holding period may
be suspended. It is possible that the right to cause the Company to redeem the
Common Stock will be characterized for federal income tax purposes as an option
to sell the Common Stock. In that case, it is possible that the short sale rules
of Section 1233 of the Code would apply, resulting in, among other possible
results, suspension of the holding period of each share of Common Stock until
the expiration of the Second Redemption Period (i.e., September 30, 2001) with
respect to that share. However, Section 1233(c) of the Code and Treas. Reg.
sec. 1.1233-1(c)(3) provide that, if the Common Stock is identified by
appropriate entries in the holder's records within fifteen days after the date
of its acquisition as subject to such option, the rules of Section 1233(b),
including the holding period suspension rules, will not apply.
It is also possible that the Common Stock may also be considered to be a
tax straddle subject to the rules of Section 1092 of the Code, if the equity
aspect of the Common Stock and the Redemption Rights were considered to be
"offsetting positions" for this purpose. The tax straddle rules would apply only
if both (a) the Common Stock is
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<PAGE> 46
considered to be actively traded, and (b) the Redemption Rights are considered
to be either (i) "options" with respect to the Common Stock or substantially
identical stock or securities or (ii) a position with respect to substantially
similar or related property (other than stock). If the Common Stock is
considered to be a tax straddle, Temporary Treasury Regulations provide that the
holding period of a share of Common Stock generally will not begin earlier than
the expiration of the Second Redemption Period with respect to that share. In
addition, under Section 263(g) of the Code, interest and carrying charges
relating to a tax straddle are not deductible and must be capitalized and added
to basis.
DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION
The Company has never paid any cash dividends on its Common Stock, and
anticipates that no dividends will be paid in the foreseeable future. See "Risk
Factors -- Lack of Dividends." A distribution of property by the Company to its
shareholders will be treated as a dividend only to the extent of its accumulated
earnings and profits or its earnings and profits in the taxable year in which
such distributions occur. Any distribution of property by the Company that is
not a dividend would be treated first as a return of basis to the shareholder,
and then as gain from the sale or exchange of property.
To the extent that the Company does have earnings and profits and does make
dividend distributions with respect to shares of Common Stock, corporate holders
would generally be eligible for the dividends received deduction. This deduction
generally equals 70% of the amount received as dividends, although corporations
owning 20% or more of the stock of the Company are eligible for an 80%
deduction. Corporate holders would be eligible for the dividends received
deduction only if, among other things, the Common Stock is held for more than 45
days. Under Section 246(c) of the Code, the holding period of Common Stock will
be suspended for any periods for which the holder has, among other things, (i)
an option to sell such Common Stock or (ii) under regulations to be prescribed
by the Treasury a diminished risk of loss by holding one or more other positions
with respect to substantially similar or related property. It is possible that
the Redemption Rights would be considered an option or other position triggering
the suspension of the holding period under Section 246(c) of the Code.
For corporate holders of Common Stock, Section 246A of the Code reduces the
dividends received deduction in the case of "debt-financed portfolio stock."
Debt-financed portfolio stock is defined as portfolio stock, such as the Common
Stock, acquired or carried by the corporate holder with indebtedness that is
"directly attributable" to the investment in such stock. The reduction is
generally a fraction, the numerator of which is the amount of the holder's
indebtedness attributable to such stock and the denominator of which is the
holder's adjusted tax basis in the stock.
In addition, any such dividends received by corporate holders would be
subject to the provisions of Section 1059 of the Code relating to "extraordinary
dividends" if the Common Stock with respect to which the dividend is considered
paid has not been held for more than two years and the amount of the dividend is
considered extraordinary. For this purpose, the holding period of the Common
Stock will be considered suspended under rules similar to those applicable to
the determination of the availability of the dividends received deduction. In
general, a dividend paid with respect to common stock is treated as an
extraordinary dividend if it equals or exceeds ten percent of the shareholder's
adjusted basis in the stock. Dividends that have ex-dividend dates within 85
consecutive days are aggregated for this purpose. An aggregation period of one
year applies if the aggregated dividends exceed 20 percent of the shareholder's
basis. In addition, except as may be provided in regulations yet to be proposed
or promulgated, Section 1059(e)(1) of the Code provides that the extraordinary
dividend rules of Section 1059 will apply to any redemption of Common Stock of
the Company that is not pro rata as to all shareholders. If a dividend is
subject to the rules of Section 1059, the tax basis of the holder's remaining
Common Stock will be reduced by the "non-taxed portion" of the dividend. If the
non-taxed portion exceeds the tax basis, such excess will be treated as gain
from the sale of Common Stock upon disposition of that Common Stock.
CONSEQUENCES OF THE REDEMPTION OF COMMON STOCK
The amount of cash received by a holder of Common Stock on the redemption
of that Common Stock by the Company will be treated either (i) as a distribution
by the Company in exchange for its stock, in which case the holder will
recognize gain or loss measured by the difference between the amount realized
and the holder's tax basis for the Common Stock surrendered or (ii) as a
distribution of property to which Section 301 applies (that is, as a dividend,
to the extent of the Company's earnings and profits; see "Dividends; Dividends
Received Deduction,"
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above). For this purpose, the determination of whether the distribution will be
treated as an exchange for stock or as a Section 301 distribution will be made
in accordance with the provisions of Section 302 of the Code, as explained
below.
Under Section 302 of the Code, a holder will not be treated as having
received a Section 301 distribution upon the redemption of Common Stock if (1)
the redemption results in the complete termination of the holder's interest in
the Company, (2) the holder's percentage ownership of the outstanding Common
Stock of the Company (and voting stock if any voting stock other than Common
Stock is outstanding) immediately after such redemption is less than 80% of such
holder's percentage ownership of the total of such outstanding stock immediately
before the redemption, or (3) the distribution from the Company upon such
redemption is not "essentially equivalent to a dividend" based on the individual
holder's particular facts and circumstances. For purposes of making these
determinations, the holder's percentage ownership will in general be calculated
by taking into account all shares owned by him, including those deemed to be
owned by him pursuant to Section 318 of the Code. Section 318 of the Code
provides that in applying the above rules, a holder is considered to own shares
directly or indirectly owned by certain members of his family or certain related
entities and to own shares with respect to which he holds options.
For a redemption of Common Stock to qualify as "not essentially equivalent
to a dividend," it must result in a "meaningful reduction" in the holder's
percentage interest in the Company. The Internal Revenue Service has indicated
in a published ruling that any reduction in percentage interest of a small
stockholder in a publicly held corporation who exercises no control over
corporate affairs may constitute such a "meaningful reduction," although in
another ruling the Internal Revenue Service has indicated that under
circumstances that may correspond to certain redemptions made under the terms of
this offering no "meaningful reduction" will be found despite a reduction in a
shareholder's percentage interest in the Company. Specifically, an actual
reduction in percentage interest is required, and if a distribution results in
no reduction or an increase in percentage interest, the distribution proceeds
will, in general, be treated as a dividend. In applying these rules, other
transactions that are part of an overall plan may be taken into account. In view
of the terms of this offering, a redemption can result in an increase in a
holder's percentage interest in the Company by reason of redemptions effected
simultaneously by other holders of the Company's Common Stock. This result could
occur, for example, if a shareholder owning a small number of shares tendered a
relatively small percentage (e.g., 1%) of his Common Stock during the Redemption
Period while other shareholders, in the aggregate, tendered a much larger
percentage (e.g., 30%). Although, in such cases, holders could avoid dividend
treatment by selling Common Stock rather than redeeming it, there can be no
assurance that there will be a market for the Common Stock or that if such a
market exists the proceeds received will not be substantially less than those
that would be received by redemption.
In the event that, upon the tendering of Common Stock during a Redemption
Period, Thermo Electron is required to acquire the tendered Common Stock
pursuant to the terms of the Guarantee, it is probable that no redemption of the
tendered Common Stock will be deemed to have occurred (absent circumstances in
which the selling holder is deemed to be in control of the Company and Thermo
Electron). If Thermo Electron is the purchaser, the holder will probably be
deemed to have disposed of the Common Stock through a sale or exchange, the
consequences of which are discussed in "Sale of Common Stock and Redemption
Rights" above.
If a redemption is not treated as a Section 301 distribution, any gain or
loss recognized will be capital gain or loss if the redeemed Common Stock is
held as a capital asset. Such gain or loss will be long term or short term
depending on the holding period of such Common Stock. See "Sale of Common Stock
and Redemption Rights" above.
If (i) redemptions during a Redemption Period are treated as dividends,
(ii) the redemptions are considered to be part of a plan of periodic redemptions
and not as isolated transactions within the meaning of Treas. Reg. sec.1.305-
3(b)(3), and (iii) the Common Stock is not considered to be part of a security
arrangement within the meaning of Treas. Reg. sec.1.305-3(e) Example (14), then
the holders of Common Stock whose proportionate interests in the earnings and
profits of the Company increase as the result of the redemptions would be
treated as having received deemed dividend income under the rules of Sections
305(b)(2) and 305(c) of the Code. The amount of such deemed distribution to each
such holder would be measured by the fair market value of the number of shares
that would have been distributed to such holder had the Company sought to
increase that holder's interest by the actual
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amount of the increase, assuming that the other shareholders' interests in the
Company remained constant. See Treas. Reg. sec.1.305-3(e) Examples (8) and (9).
President Clinton has recently introduced legislation which, if enacted
into law, could change the federal income tax consequences attributable to the
purchase, ownership and/or disposition of Units, Common Stock or Redemption
Rights as described herein. Specifically, the legislation proposes, among other
things, certain rules regarding the basis of substantially identical securities;
constructive sales treatment for appreciated financial positions, if taxpayers
enter into certain transactions which substantially eliminate risk of loss and
opportunity for gain with respect to such appreciated financial positions
(including short sales and options); and the characterization of interest as
equity versus debt. It is possible that this legislation, if enacted into law,
could require holders to recognize gain in connection with the ownership of
Common Stock prior to the date that the Common Stock is sold, if the Redemption
Rights are treated as substantially eliminating the holder's risk of loss and
opportunity for gain with respect to the Common Stock. If the Redemption Rights
are substantially certain to be exercised then the holder's opportunity for gain
may be eliminated. Since the legislation currently provides for retroactive
effective dates, there can be no assurance that this legislation or any other
legislation would not materially change the federal income tax consequences
described herein.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 14,100,000 shares of Common
Stock of the Company outstanding (assuming no exercise of the Underwriters'
over-allotment option). The shares issued in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by affiliates of the Company, as that term is
defined in Rule 144 under the Securities Act, may generally only be resold in
compliance with applicable provisions of Rule 144.
Of such 14,100,000 outstanding shares, 10,000,000 shares will be owned by
Thermo Fibertek. Thermo Fibertek has agreed that, without the prior written
consent of the Representatives (as defined below under the caption
"Underwriters"), it will not offer, sell, grant any option to purchase or
otherwise dispose of any shares of the Common Stock within 180 days after the
date of this Prospectus, other than (i) shares of Common Stock to be sold to the
Underwriters in this offering, (ii) the issuance of options and sales of shares
of Common Stock pursuant to existing stock-based compensation plans, (iii)
shares of Common Stock which may be sold to Thermo Fibertek, and (iv) the
issuance of shares of Common Stock as consideration for the acquisition of one
or more businesses (provided that such Common Stock may not be resold prior to
the expiration of the 180-day period referenced above). Upon expiration of this
lock-up agreement, Thermo Fibertek may sell its shares of Common Stock in an
offering registered under the Securities Act or pursuant to an exemption from
such registration. So long as Thermo Fibertek is able to elect a majority of the
Board of Directors it will be able to cause the Company at any time to register
under the Securities Act all or a portion of the Common Stock owned by Thermo
Fibertek or its affiliates, in which case it would be able to sell such shares
without restriction upon effectiveness of the registration statement.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date of the notice filed
pursuant to Rule 144. Sales under Rule 144 are also subject to certain manner of
sale restrictions and notice requirements and to the availability of current
public information about the Company. In addition, a person who is deemed an
"affiliate" of the Company must comply with Rule 144 in any sale of shares of
Common Stock not covered by a registration statement (except, in the case of
registered shares acquired by the affiliate on the open market, for the holding
period requirement). A person (or person whose shares are aggregated) who is not
deemed an "affiliate" of the Company and who has beneficially owned restricted
shares for at least three years is entitled to sell such shares under Rule
144(k) without regard to the volume, notice and other limitations of Rule 144.
In meeting the two and three year holding periods described above, a holder of
restricted shares can include the holding periods of a prior owner who was not
an affiliate.
The Company has reserved 825,000 shares for grants under its existing
stock-based compensation plans. As of August 31, 1996, the Company had options
outstanding to purchase 338,000 shares of Common Stock to certain of
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its employees, officers and directors at an exercise price of $10.00 per share.
None of such options are currently exercisable. Ninety days after the completion
of the Company's initial public offering, such options will become immediately
exercisable, subject to the right of the Company to repurchase the underlying
shares over a five to ten year period depending upon the term of the option. As
of August 31, 1996, the repurchase right had not lapsed as to any shares
issuable upon exercise of outstanding options. The Company has reserved 487,000
shares for future grant under plans. The Company intends to file registration
statements under the Securities Act to register all shares of Common Stock
issuable under such plans. Shares covered by these registration statements will
be eligible for sale in the public market after the effective date of such
registration statements.
Each of the Company, Thermo Fibertek and Thermo Electron has agreed that it
will not offer, sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock (except for the grant of options and the sale of shares
of Common Stock pursuant to stock-based compensation plans, sales to Thermo
Fibertek and the issuance of shares as consideration for the acquisition of one
or more businesses (provided that such shares may not be resold prior to the
expiration of 180 days after the date of this Prospectus)) within 180 days after
the date of this Prospectus, without the prior consent of the Representatives of
the Underwriters.
Prior to this offering there has been no public market for the Common
Stock. The effect, if any, of public sales or the availability of shares for
sale at prevailing market prices cannot be predicted. Nevertheless, sales of
substantial amounts of shares in the public market could adversely affect
prevailing market prices.
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UNDERWRITING
<TABLE>
Subject to the terms and conditions set forth in the Underwriting
Agreement, each of the Underwriters named below, for whom NatWest Securities
Limited, Lehman Brothers Inc. and Oppenheimer & Co., Inc. are acting as
Representatives (the "Representatives"), has severally agreed to purchase from
the Company the following respective number of Units at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<CAPTION>
UNDERWRITER NUMBER OF UNITS
----------- ---------------
<S> <C>
NatWest Securities Limited......................................
Lehman Brothers Inc.............................................
Oppenheimer & Co., Inc..........................................
---------
Total...................................................... 4,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent. The nature of the
Underwriters' obligations is that they are committed to purchase all Units
offered hereby if any such Units are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Units directly to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain selected dealers
(who may include the Underwriters) at such price less a selling concession not
in excess of $ per Unit. The Underwriters may allow and such dealers
may re-allow a concession not in excess of $ per Unit to certain other
dealers (who may include the Underwriters). After commencement of the offering
to the public, the public offering price and other selling terms may be changed
by the Representatives. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales of Units to any accounts over which
they exercise discretionary authority.
The Company has granted to the several Underwriters an option, exercisable
not later than 30 days after the date of this Prospectus, to purchase up to
615,000 additional Units at the public offering price, less the aggregate
underwriting discounts and commissions, set forth on the cover page of this
Prospectus, solely to cover over-allotments. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of such Units proportionate to such
Underwriter's initial commitment.
The Underwriting Agreement provides that the Company, Thermo Fibertek and
Thermo Electron will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company, Thermo Fibertek and Thermo Electron have also agreed that they
will not, without the Representatives' prior written consent, offer, sell, grant
any options to purchase or otherwise dispose of any shares of Common Stock
within 180 days after the date of this Prospectus, other than (i) the shares of
Common Stock to be sold to the Underwriters in this offering, (ii) the issuance
of options and sales of Common Stock pursuant to currently existing stock-based
compensation plans, (iii) sales of shares to Thermo Fibertek, and (iv) the
issuance of shares of Common Stock as consideration for the acquisition of one
or more businesses (provided that such Common Stock may not be resold prior to
the expiration of the 180-day period referenced above). See "Shares Eligible for
Future Sale" and "Risk Factors -- Shares Eligible for Future Sale."
Certain of the Underwriters from time to time have performed various
investment banking services for Thermo Electron and its subsidiaries.
49
<PAGE> 51
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Units offered hereby and subject to certain exceptions, it
will not offer or sell any Units within the United States, its territories or
possessions or to persons who are citizens thereof or residents therein. The
Underwriting Agreement does not limit sales of Units offered hereby outside of
the United States.
NatWest Securities Limited has also represented and agreed that (i) it has
not offered or sold and will not offer or sell any Units to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, managing, holding or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 or the
Financial Services Act 1986 (the "Act"), (ii) it has complied and will comply
with all applicable provisions of the Act with respect to anything done by it in
relation to the Units in, from or otherwise involving the United Kingdom; (iii)
it has only issued or passed on and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issue of the Units,
other than any document which consists of or any part of listing particulars,
supplementary listing particulars or any other document or instrument required
or permitted to be published by listing rules under Part IV of the Act, to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 or is a person
to whom the document may otherwise be lawfully issued or passed on.
Prior to this offering there has been no public market for the Units, the
Common Stock or the Redemption Rights. The initial public offering price for the
Units will be determined by negotiation among the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price will be prevailing market and economic conditions,
estimates of the business potential and prospects of the Company, the state of
the Company's business operations, an assessment of the Company's management,
the consideration of the above factors in relation to market valuations of
companies in related businesses and other factors deemed relevant. The estimated
initial public offering price range set forth on the cover page of this
preliminary prospectus is subject to change as a result of market conditions and
other factors.
LEGAL OPINIONS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company and Thermo Electron by Seth H. Hoogasian, Esq.,
General Counsel of the Company, Thermo Fibertek and Thermo Electron, and certain
legal matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Mr. Hoogasian is a full-time employee of
Thermo Electron and owns or has the right to acquire 5,000 shares of Common
Stock, 51,750 shares of common stock of Thermo Fibertek and 115,927 shares of
common stock of Thermo Electron.
EXPERTS
The financial statements of the Company and Thermo Electron included or
incorporated by reference in this Prospectus and the financial statement
schedule incorporated by reference in the Registration Statement of which this
Prospectus forms a part have been audited by Arthur Andersen LLP, independent
public accountants, to the extent and for the periods as indicated in their
reports with respect thereto, and are included or incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports. Reference is made to said report with respect
to Thermo Electron's financial statements which includes an explanatory fourth
paragraph with respect to the change in method of accounting for investments in
debt and marketable equity securities in 1994 as discussed in Note 2 to the
financial statements.
The financial statements of Granulation Technology, Inc. and Biodac, a
division of Edward Lowe Industries, Inc., included in this Prospectus have been
audited by Crowe, Chizek and Company LLP, independent public accountants, to the
extent and for the periods as indicated in their reports with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing in giving said reports.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish holders of the Units, the Common Stock
and/or the Redemption Rights offered hereby with annual reports containing
financial statements audited by an independent public accounting firm
50
<PAGE> 52
and with quarterly reports containing unaudited summary financial statements for
each of the first three quarters of each fiscal year.
ADDITIONAL INFORMATION
The Company and Thermo Electron have filed with the Securities and Exchange
Commission (the "Commission") a combined registration statement on Form S-1 and
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, Thermo Electron, the Units and
the Guarantees, reference is made to the Registration Statement, copies of which
may be obtained upon payment of the fees prescribed by the Commission from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
New York, New York 10048 and at 500 West Madison Street, Chicago, Illinois
60661. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company and Thermo Electron.
The address of such site is http://www.sec.gov.
Thermo Electron is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and at 500 West Madison Street, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The common stock
of Thermo Electron is listed on the New York Stock Exchange, and the reports,
proxy statements and other information filed by Thermo Electron with the
Commission can be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THERMO FIBERGEN INC.
Report of Independent Public Accountants.............................................. F-2
Statement of Operations for the years ended January 1, 1994, December 31, 1994 and
December 30, 1995, Inception through December 30, 1995 and the six months ended July
1, 1995 and June 29, 1996............................................................ F-3
Balance Sheet as of December 31, 1994, December 30, 1995 and June 29, 1996............ F-4
Statement of Cash Flows for the years ended January 1, 1994, December 31, 1994 and
December 30, 1995, Inception through December 30, 1995 and the six months ended July
1, 1995 and June 29, 1996............................................................ F-5
Statement of Shareholder's Investment for the years ended January 1, 1994, December
31, 1994 and December 30, 1995 and the six months ended June 29, 1996................ F-6
Notes to Financial Statements......................................................... F-7
GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
Report of Independent Auditors........................................................ F-11
Combined Statement of Operations for the years ended September 30, 1993, 1994 and 1995
and for the nine months ended June 30, 1995 and 1996................................. F-12
Combined Balance Sheet as of September 30, 1994 and 1995 and June 30, 1996............ F-13
Combined Statement of Cash Flows for the years ended September 30, 1993, 1994 and 1995
and for the nine months ended June 30, 1995 and 1996................................. F-14
Combined Statement of Shareholder's Equity (Deficit) for the years ended September 30,
1993, 1994 and 1995 and for the nine months ended June 30, 1996...................... F-15
Notes to Combined Financial Statements................................................ F-16
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF THERMO FIBERGEN INC. AND GRANULATION
TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. (UNAUDITED)
Pro Forma Combined Condensed Statement of Operations for the twelve months ended
December 30, 1995.................................................................... F-20
Pro Forma Combined Condensed Statement of Operations for the six months ended
June 29, 1996....................................................................... F-21
Pro Forma Combined Condensed Balance Sheet as of June 29, 1996........................ F-22
Notes to Pro Forma Combined Condensed Financial Statements............................ F-23
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Fibergen Inc.:
We have audited the accompanying balance sheet of Thermo Fibergen Inc. (a
Delaware corporation in the development stage and 100%-owned subsidiary of
Thermo Fibertek Inc.) as of December 31, 1994 and December 30, 1995, and the
related statements of operations, shareholder's investment, and cash flows for
each of the three years in the period ended December 30, 1995, and the
statements of operations and cash flows for the period from inception (December
29, 1991) through December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of Thermo Fibergen Inc. as of
December 31, 1994 and December 30, 1995, and the results of its operations and
cash flows for each of the three years in the period ended December 30, 1995 and
for the period from inception through December 30, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 3, 1996
F-2
<PAGE> 55
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION SIX MONTHS ENDED
THROUGH ----------------------
DECEMBER 30, JULY 1, JUNE 29,
1993 1994 1995 1995 1995 1996
------- ------- ------- ------------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Costs and Operating Expenses:
Research and development
expenses....................... $ 106 $ 128 $ 601 $ 982 $ 276 $ 548
------- ------- ------- ------- ------- -------
Operating Loss...................... (106) (128) (601) (982) (276) (548)
Interest Income..................... -- -- -- -- -- 267
------- ------- ------- ------- ------- -------
Loss Before Income Taxes............ (106) (128) (601) (982) (276) (281)
Income Taxes (Note 3)............... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
NET LOSS............................ $ (106) $ (128) $ (601) $ (982) $ (276) $ (281)
======= ======= ======= ======= ======= =======
LOSS PER SHARE...................... $ (.01) $ (.01) $ (.06) $ (.10) $ (.03) $ (.03)
======= ======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES............. 10,073 10,073 10,073 10,073 10,073 10,073
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 56
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 29,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ -- $ -- $12,513
Other current assets........................................... -- -- 17
------- -------
-- -- 12,530
------- -------
Machinery and Equipment, at Cost................................. -- -- 219
Less: Accumulated depreciation................................. -- -- --
------- -------
-- -- 219
------- -------
Other Assets..................................................... -- -- 11
------- -------
$ -- $ -- $12,760
======= =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Other accrued liabilities...................................... $ -- $ -- $ 38
Due to parent company.......................................... -- -- 409
------- -------
-- -- 447
------- -------
Shareholder's Investment (Notes 4 and 5):
Net parent company investment.................................. -- -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
10,000,000 shares issued and outstanding.................... -- -- 100
Capital in excess of par value (includes deficit accumulated
during the development stage through capitalization of the
Company of $1,076).......................................... -- -- 12,400
Deficit accumulated during the development stage subsequent to
capitalization of the Company............................... -- -- (187)
------- -------
-- -- 12,313
------- -------
$ -- $ -- $12,760
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 57
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
INCEPTION ENDED
THROUGH -------------------
DECEMBER 30, JULY 1, JUNE 29,
1993 1994 1995 1995 1995 1996
----- ----- ----- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net loss.................................. $(106) $(128) $(601) $ (982) $ (137) $ (281)
Adjustments to reconcile net loss to net
cash used in operating activities:
Changes in current accounts:
Other current assets................. -- -- -- -- -- (17)
Other current liabilities............ -- -- -- -- -- 38
----- ----- ----- ----- ----- -----
Net cash used in operating
activities...................... (106) (128) (601) (982) (137) (260)
----- ----- ----- ----- ----- -----
Investing Activities:
Purchases of machinery and equipment...... -- -- -- -- -- (219)
Due to parent company and affiliates...... -- -- -- -- -- 409
Other..................................... -- -- -- -- -- (11)
----- ----- ----- ----- ----- -----
Net cash provided by investing
activities...................... -- -- -- -- -- 179
----- ----- ----- ----- ----- -----
Financing Activities:
Transfers from parent company............. 106 128 601 982 137 94
Cash transfer from parent company in
connection with capitalization of the
Company................................ -- -- -- -- -- 12,500
----- ----- ----- ----- ----- -----
Net cash provided by financing
activities...................... 106 128 601 982 137 12,594
----- ----- ----- ----- ----- -----
Increase in Cash and Cash Equivalents....... -- -- -- -- -- 12,513
Cash and Cash Equivalents at Beginning
of Period................................. -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Cash and Cash Equivalents at End
of Period................................. $-- $-- $-- $-- $-- $ 12,513
===== ===== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 58
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDER'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
CAPITAL DURING THE
NET COMMON IN DEVELOPMENT STAGE
PARENT STOCK, EXCESS SUBSEQUENT TO
COMPANY $.01 PAR OF PAR CAPITALIZATION
INVESTMENT VALUE VALUE OF THE COMPANY
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
BALANCE JANUARY 2, 1993....................... $ -- $ -- $ -- $--
Net loss...................................... (106) -- -- --
Net transfer from parent company.............. 106 -- -- --
------- ---- ------- -------
BALANCE JANUARY 1, 1994....................... -- -- -- --
Net loss...................................... (128) -- -- --
Net transfer from parent company.............. 128 -- -- --
------- ---- ------- -------
BALANCE DECEMBER 31, 1994..................... -- -- -- --
Net loss...................................... (601) -- -- --
Net transfer from parent company.............. 601 -- -- --
------- ---- ------- -------
BALANCE DECEMBER 30, 1995..................... -- -- -- --
(UNAUDITED)
Net loss prior to capitalization of the
Company..................................... (94) -- -- --
Net transfer from parent company.............. 94 -- -- --
Cash transfer from parent company in
connection with capitalization of the
Company..................................... 12,500 -- -- --
Capitalization of the Company................. (12,500) 100..... 12,400 --
Net loss after capitalization of the
Company..................................... -- -- -- (187)
------- ---- ------- -------
BALANCE JUNE 29, 1996......................... $ -- $ 100 $ 12,400 $ (187)
======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 59
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Thermo Fibergen Inc. (the "Company") was established as a subsidiary of
Thermo Fibertek Inc. ("Thermo Fibertek") to develop and commercialize equipment
and systems to recover valuable materials from pulp residue generated by plants
that produce recycled pulp and paper. The Company is in the development stage,
has yet to generate any revenues, and has no assurance of future revenues. To
the Company's knowledge, no Company has yet developed commercially stable
products using the proposed technology. Even if successful, substantial time
will pass before significant revenues might be realized. Further, during the
period required to develop the commercial product, the Company may require
additional funds that may not be available to it. Research and development began
on December 29, 1991 (the date of inception).
Relationship with Thermo Fibertek and Thermo Electron Corporation
The Company was incorporated on February 12, 1996 as a wholly owned
subsidiary of Thermo Fibertek, at which time Thermo Fibertek was an 81%-owned
subsidiary of Thermo Electron Corporation ("Thermo Electron"). Thermo Fibertek
transferred to the Company a license to use certain technology and its business
relating to the development of its fiber-recovery system in the paper and pulp
industries, together with $12,500,000 in cash, in exchange for 10,000,000 shares
of the Company's common stock, representing all of such stock outstanding.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1993, 1994 and 1995 are for the fiscal years ended January 1,
1994, December 31, 1994 and December 30, 1995, respectively.
Income Taxes
The Company and Thermo Fibertek entered into a tax allocation agreement
under which the Company and Thermo Fibertek are included in Thermo Electron's
consolidated federal and state income tax returns. If Thermo Fibertek's equity
ownership of the Company were to drop below 80%, the Company would be required
to file its own income tax returns.
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.
Loss per Share
Pursuant to Securities and Exchange Commission requirements loss per share
have been presented for all periods. Weighted average shares for all periods
represent 10,000,000 shares issued to Thermo Fibertek in connection with the
capitalization of the Company and the effect of the assumed exercise of stock
options issued within one year prior to the Company's proposed initial public
offering.
Cash and Cash Equivalents
Prior to its incorporation in February 1996, the Company's cash
disbursements were combined with other Thermo Fibertek corporate cash balances.
Subsequent to the Company's incorporation, the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the
F-7
<PAGE> 60
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company in effect lends excess cash to Thermo Electron, which Thermo Electron
collateralizes with investments principally consisting of U.S. government agency
securities, corporate notes, 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 and have an original maturity of three months or less. The
repurchase agreement earns a rate based on the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. Cash
equivalents are carried at cost, which approximates market value.
Machinery 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 using the straight-line method over the estimated useful life of
its machinery and equipment, which is five years.
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 and
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.
Interim Financial Statements
The financial statements as of June 29, 1996 and for the six-month periods
ended July 1, 1995 and June 29, 1996, are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of results for these interim periods. The results of
operations for the six-month period ended June 29, 1996 are not necessarily
indicative of the results to be expected for the entire year.
2. EMPLOYEE BENEFIT PLAN
Substantially all of the Company's employees are eligible to participate in
an employee stock purchase plan sponsored by Thermo Fibertek. Prior to the
November 1995 plan year, shares of Thermo Fibertek's and Thermo Electron's
common stock could be purchased at the end of a 12-month plan year at 85% of the
fair market value at the beginning of the plan year, and the shares purchased
were subject to a one-year resale restriction. Effective November 1, 1995, the
applicable shares of common stock may be purchased at 95% of the fair market
value at the beginning of the plan year, and the shares purchased will be
subject to a six-month resale restriction. Shares are purchased through payroll
deductions of up to 10% of each participating employee's gross wages. Prior to
November 1993, the Company's eligible employees participated in an employee
stock purchase plan sponsored by Thermo Electron.
F-8
<PAGE> 61
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The income tax benefit differs from the amounts calculated by applying the
statutory federal income tax rate of 35% to loss before income taxes due to the
following:
<TABLE>
<CAPTION>
INCEPTION
THROUGH
DECEMBER 30,
1993 1994 1995 1995
------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income tax benefit at statutory rate..................... $ 37 $ 45 $ 210 $ 342
Differences resulting from:
Net operating loss valuation allowance provided.......... (37) (45) (210) (342)
------- ------- ------- -------
$ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
Prepaid income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net operating loss carryforwards.................................. $ 132 $ 342
Less: Valuation allowance......................................... (132) (342)
-----
$ -- $ --
=====
</TABLE>
Due to cumulative losses, a valuation allowance equal to total net deferred
tax assets has been established.
4. RELATED PARTY TRANSACTION
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. Thermo
Electron will assess the Company an annual fee based upon the Company's
revenues. The Company was not charged for these services in 1993, 1994 and 1995
since no revenues were recorded by the Company during these periods and the
amount of services received was not material. Beginning in fiscal 1996, the
Company will pay an annual fee equal to 1.0% of the Company's revenues. The
annual fee is reviewed and adjusted annually by mutual agreement of the parties.
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the Company
would incur on a stand-alone basis. The corporate services agreement is renewed
annually but can be terminated upon 30 days' prior notice by the Company or upon
the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo
Electron Corporate Charter defines the relationship among Thermo Electron and
its majority-owned subsidiaries). For additional items such as employee benefit
plans, insurance coverage, and other identifiable costs, Thermo Electron charges
the Company based upon costs attributable to the Company.
5. SUBSEQUENT EVENTS
Acquisition
On July 3, 1996, the Company's newly formed GranTek subsidiary acquired
substantially all of the assets, subject to certain liabilities, of Granulation
Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc.
(collectively "GT/ELI") for approximately $12,000,000 in cash, subject to a
post-closing adjustment based upon the net asset value of GT/ELI as of the
closing date. The Company will account for the acquisition using the purchase
method of accounting. The cost of this acquisition exceeded the estimated
F-9
<PAGE> 62
THERMO FIBERGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
fair value of the acquired net assets by approximately $5,062,000, which will be
amortized over 20 years. The allocation of the purchase price will be based on
an estimate of the fair value of net assets acquired. Pro forma information for
the Company and GT/ELI is available elsewhere in this Prospectus.
GT/ELI converts the residue produced by recycled pulp and paper mills into
granules that can be used as absorbents for oil and grease, as cat-box fillers
and as carriers for agricultural chemicals. GT/ELI produces an agricultural
carrier marketed as BIODAC(R), which is sold exclusively by GT/ELI.
Stock-based Compensation Plans
On July 2, 1996, the Company adopted a stock-based compensation plan for
its key employees, directors, and others, which permits the grant of a variety
of stock and stock-based awards as determined by the human resources committee
of the Company's Board of Directors (the Board Committee), including restricted
stock, stock options, stock bonus shares or performance-based shares. The option
recipients and the terms of options granted under this plan are determined by
the Board Committee. Options generally vest and become immediately exercisable
on the ninth anniversary of the grant date, unless the Company's common stock
becomes publicly traded prior to such date. In such an event options become
exercisable 90 days after the Company becomes subject to the Securities Exchange
Act of 1934, 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 are deemed to have lapsed ratably over periods ranging from five to
ten years after the first anniversary of the grant date, depending on the term
of the option, which generally ranges from ten to twelve years. Nonqualified
stock options may be granted at any price determined by the Board Committee,
although incentive stock options must be granted at not less than the fair
market value of the Company's common stock on the date of grant. As of August
14, 1996, options to purchase 338,000 shares of the Company's common stock,
exercisable at $10.00 per share, were outstanding under this plan. As of August
14, no options have been exercised and no options are exercisable under the
stock-based compensation plan described above.
The Company also has a directors' stock option plan, adopted on July 2,
1996, that provides for the grant of stock options to outside directors pursuant
to a formula approved by the Company's shareholders. Options granted under this
plan will have the same general terms as options granted under the stock-based
compensation plan described above, except that the restrictions and repurchase
rights generally are deemed to have lapsed ratably over a four-year period and
the option term is five years. As of August 14, 1996, no options to purchase
shares of the Company's common stock have been granted under this plan. In
addition to the Company's stock-based compensation plans, certain officers and
key employees may also participate in the stock-based compensation plans of
Thermo Electron or its majority-owned subsidiaries.
In addition to participating in the Company's stock-based compensation
plans, certain officers and key employees may also participate in the
stock-based compensation plans of Thermo Electron or its other majority-owned
subsidiaries.
No accounting recognition is given to options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
Reserved Shares
At August 14, 1996, the Company had reserved 825,000 unissued shares of its
common stock for possible issuance under stock-based compensation plans.
F-10
<PAGE> 63
REPORT OF INDEPENDENT AUDITORS
Board of Trustees Edward Lowe Foundation, Inc.,
Granulation Technology, Inc. and Biodac, a division of
Edward Lowe Industries, Inc.:
We have audited the accompanying combined balance sheet of Granulation
Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. as of
September 30, 1994 and 1995, and the related combined statements of operations
and shareholder's equity (deficit) and cash flows for each of the three years in
the period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Granulation
Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. as of
September 30, 1994 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles.
CROWE, CHIZEK AND COMPANY LLP
South Bend, Indiana
July 2, 1996
F-11
<PAGE> 64
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER NINE MONTHS ENDED
30, JUNE 30,
--------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues........................................... $ 4,709 $ 3,670 $ 4,233 $ 3,711 $ 4,325
------- ------- ------- -------
Costs and Operating Expenses:
Cost of revenues................................. 3,287 3,234 3,188 2,409 3,035
Selling, general and administrative expenses..... 995 988 756 542 1,006
Research and development expenses................ 367 281 303 217 139
Patent litigation expenses....................... -- -- 1,654 654 1,130
------- ------- ------- -------
4,649 4,503 5,901 3,822 5,310
------- ------- ------- -------
Operating Income (Loss)............................ 60 (833) (1,668) (111) (985)
Other Income (Note 6).............................. -- -- -- -- 700
Interest Expense (Note 3).......................... (1,042) (1,140) (1,469) (1,078) --
------- ------- ------- -------
Net Loss (Note 4).................................. $ (982) $(1,973) $(3,137) $(1,189) $ (285)
======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 65
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1994 1995 1996
------------- ------------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash........................................................ $ -- $ 43 $ 50
Accounts receivable......................................... 305 298 757
Inventories................................................. 683 695 361
Federal income tax deposit.................................. 163 -- --
Other current assets........................................ 11 1 --
-------- -------- --------
Total current assets..................................... 1,162 1,037 1,168
-------- -------- --------
Property, Plant and Equipment:
Land and improvements....................................... 267 267 267
Buildings and improvements.................................. 4,412 4,375 4,533
Machinery and equipment..................................... 7,419 7,282 7,200
Office furniture and equipment.............................. 53 59 51
-------- -------- --------
12,151 11,983 12,051
Accumulated depreciation and amortization................... 4,512 5,513 6,389
-------- -------- --------
7,639 6,470 5,662
-------- -------- --------
Other Assets:
Cash surrender value of life insurance...................... 28 37 44
Patents, net of accumulated amortization of $146, $182
and $175................................................. 152 116 123
-------- -------- --------
180 153 167
-------- -------- --------
$ 8,981 $ 7,660 $ 6,997
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Notes payable -- shareholder (Note 3)....................... $ 16,048 $ -- $ --
Accounts payable............................................ 137 81 302
Salaries, wages and bonus payable........................... 57 54 113
Accrued property taxes...................................... 121 100 41
Accrued legal expenses (Note 6)............................. -- 999 193
Other accrued expenses...................................... -- -- 50
Interest payable (Note 3)................................... 1,663 -- --
-------- -------- --------
Total current liabilities................................ 18,026 1,234 699
-------- -------- --------
Shareholder's Equity (Deficit):
Common stock, $1.00 par value: 20,000 shares authorized and
10,000 shares outstanding................................ 10 10 10
Additional paid-in capital (Note 3)......................... 1,386 20,565 20,565
Accumulated deficit......................................... (11,292) (12,844) (13,472)
Divisional equity (deficit)................................. 851 (1,305) (805)
-------- -------- --------
(9,045) 6,426 6,298
-------- -------- --------
$ 8,981 $ 7,660 $ 6,997
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE> 66
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash Flows from Operating Activities:
Net loss............................................. $ (982) $(1,973) $(3,137) $(1,189) $ (285)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 1,168 1,231 1,242 945 876
Provision for obsolete inventory................. -- -- 150 -- --
Provision for warranty reserve................... -- -- -- -- 50
Increase in cash surrender value of life
insurance..................................... (9) (9) (9) (6) (7)
Loss on disposal of equipment.................... -- -- 38 -- 2
Changes in current accounts:
Accounts receivable........................... 978 (32) 7 (712) (459)
Inventories................................... (289) 112 (162) (76) 334
Due from related party........................ 96 -- -- -- --
Federal income tax deposit.................... -- (163) 163 -- --
Other current assets.......................... 7 -- 10 1 1
Accounts payable.............................. (385) (51) (56) (26) 221
Salaries, wages and bonus payable............. (47) (26) (3) (42) 59
Accrued property taxes........................ 17 (1) (21) 415 (59)
Accrued legal fees............................ -- -- 999 -- (806)
Interest payable.............................. (558) 1,140 1,469 1,076 --
------ ------- ------- ----- -----
Net cash provided by (used in) operating
activities................................ (4) 228 690 386 (73)
------ ------- ------- ----- -----
Cash Flows from Investing Activities:
Proceeds from sale of equipment...................... -- -- 7 -- --
Capital expenditures................................. (452) (336) (83) (79) (77)
------ ------- ------- ----- -----
Net cash used in investing activities....... (452) (336) (76) (79) (77)
------ ------- ------- ----- -----
Cash Flows from Financing Activities:
Borrowings from shareholder.......................... 200 -- -- -- --
Net transfer (to) from parent company................ 238 76 (571) (282) 157
------ ------- ------- ----- -----
Net cash provided by (used in) financing
activities................................ 438 76 (571) (282) 157
------ ------- ------- ----- -----
Increase (Decrease) in Cash............................ (18) (32) 43 25 7
Cash at Beginning of Period............................ 50 32 -- -- 43
------ ------- ------- ----- -----
Cash at End of Period.................................. $ 32 $ -- $ 43 $ 25 $ 50
====== ======= ======= ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............. $ 1,600 $ -- $ -- $ -- $ --
During the year ended September 30, 1995, debt of
$16,048 and accrued interest of $3,131 was
contributed to equity.
</TABLE>
See accompanying notes to combined financial statements.
F-14
<PAGE> 67
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
COMBINED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DIVISIONAL
---------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT) TOTAL
------ ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992.......... 10,000 $ 10 $ 1,386 $ (8,024) $ 224 $(6,404)
Net loss -- -- -- (1,134) 152 (982)
Net transfer from parent company....... -- -- -- -- 238 238
------ --- ------ ------- ------ ------
BALANCE AT SEPTEMBER 30, 1993.......... 10,000 10 1,386 (9,158) 614 (7,148)
Net loss -- -- -- (2,134) 161 (1,973)
Net transfer from parent company....... -- -- -- -- 76 76
------ --- ------ ------- ------ ------
BALANCE AT SEPTEMBER 30, 1994.......... 10,000 10 1,386 (11,292) 851 (9,045)
Net loss............................... -- -- -- (1,552) (1,585) (3,137)
Net transfer to parent company......... -- -- -- -- (571) (571)
Contributed debt to equity............. -- -- 19,179 -- -- 19,179
------ --- ------ ------- ------ ------
BALANCE AT SEPTEMBER 30, 1995.......... 10,000 10 20,565 (12,844) (1,305) 6,426
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)...................... -- -- -- (628) 343 (285)
Net transfer from parent company....... -- -- -- -- 157 157
------ ------ ---------- ----------- ---------- -------
BALANCE AT JUNE 30, 1996............... 10,000 $ 10 $ 20,565 $ (13,472) $ (805) $ 6,298
====== ====== ======= ========= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-15
<PAGE> 68
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the operations of Granulation
Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. ("parent
company"). Both GranTech and Edward Lowe Industries, Inc. are owned 100% by the
Henry Edward Lowe Amended and Restated Irrevocable Trust. The financial
statements include the complete operations of GranTech and the divisional
activity of Biodac which includes accounts receivable, inventory, patents,
accounts payable, divisional equity (deficit) and all related operations and
expenses associated with the selling and marketing of the product manufactured
by GranTech. Divisional equity (deficit) represents the parent company's net
investment in Biodac. Material intercompany accounts and transactions have been
eliminated.
GranTech and Biodac collectively will be referred to as the Company.
Nature of Operations
Granulation Technology, Inc. ("GranTech") produces, from paper mill
residue, cellulosic based granules, sold under the BIODAC(R) trademark, for the
agricultural, lawn and garden markets. The main manufacturing plant is located
in Green Bay, Wisconsin. The corporate office is located in Cassopolis,
Michigan. After the product is manufactured, it is stored in the facility in
Green Bay until shipment. Biodac, a division of Edward Lowe Industries, Inc., is
a related company and under an agreement with GranTech, is the sole distributor
and marketer of GranTech manufactured products. The Company's products are
primarily sold in the United States. The patents and trademarks which encompass
both the manufacturing process and the use of such products are owned by Biodac.
Market Concentration
Products are sold primarily in the agricultural, lawn and garden markets
and the Company has four major customers with large concentrations of revenue
and accounts receivable. Management does not believe that this concentration of
credit risk has or will have a significant negative impact on the Company.
Revenue for fiscal years ended September 30:
<TABLE>
<CAPTION>
CUSTOMER 1993 1994 1995
-------- ---- ---- ----
<S> <C> <C> <C>
A 52% 45% 47%
B 20% 25% 18%
C 12% 11% 12%
D 6% 10% 11%
</TABLE>
Accounts receivable as of September 30:
<TABLE>
<CAPTION>
CUSTOMER 1994 1995
-------- ---- ----
<S> <C> <C> <C>
A 1% 6%
B 29% --%
C 20% 20%
D 22% 35%
</TABLE>
Use of Estimates in the Preparation of Financial Statements
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
F-16
<PAGE> 69
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and 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.
Accounts Receivable
The financial statements contain no allowance for doubtful accounts since
management expects that receivables are fully collectible.
Inventory
Inventory is recorded at the lower of cost (on a first-in, first-out basis
determined on average cost of production) or market method.
Property, Plant and Equipment
Maintenance and repair expenditures that are normal and recurring are
charged against income in the period incurred. Expenditures which materially
improve or extend the useful lives of existing properties are capitalized and
depreciated over their useful lives. Depreciation is provided on the various
classes of depreciable assets using straight-line and accelerated methods based
on their estimated useful lives as follows:
<TABLE>
<S> <C>
Land improvements 15 years
Buildings and improvements 40 years
Machinery and equipment 5-7 years
Office furniture and equipment 5-7 years
</TABLE>
Patents
Patent costs are included in other assets and are amortized on a straight
line basis over the life of the patents. Two patents expire in 2003, while the
other patent expires in 2002.
Interim Financial Statements
The financial statements as of June 30, 1996 and for the nine-month periods
ended June 30, 1995 and 1996, are unaudited but, in the opinion of management,
reflect all adjustments of a normal recurring nature necessary for a fair
presentation of results for these interim periods. The results of operations for
the nine-month period ended June 30, 1996 are not necessarily indicative of the
results to be expected for the entire year.
2. INVENTORY
Inventory is comprised of the following as of September 30, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---- -----
(IN THOUSANDS)
<S> <C> <C>
Supplies....................................................... $ 6 $ 6
Finished goods................................................. 677 689
---- -----
$683 $ 695
==== =====
</TABLE>
F-17
<PAGE> 70
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTE PAYABLE -- SHAREHOLDER
As of September 30, 1994, GranTech had unsecured promissory notes with the
Company's shareholder totaling $16,048,000. The notes, which were dated from
January 27, 1989 through October 27, 1992, were payable upon demand with
interest due monthly at fifty basis points over the CitiBank prime money rate.
As of September 29, 1995, the outstanding debt of $16,048,000 plus accrued
interest of $3,131,000 was contributed to paid in capital.
4. INCOME TAXES
Granulation Technology, Inc. and Edward Lowe Industries, Inc. have both
individually elected, with the consent of its shareholder, to be taxed as S
corporations under the Internal Revenue Code and similar sections of state
income tax laws (where applicable) which provide that, in lieu of corporation
income taxes, the shareholder will be taxed on the Company's taxable income.
There is no provision for income taxes for the years ended September 30, 1993,
1994 and 1995.
5. CONTRACTS AND COMMITMENTS
GranTech has entered into the following agreements with various parties:
A multiple year supply agreement with a nearby paper mill, dated
November 2, 1988 and amended March 5, 1990 and August 17, 1995, whereby the
mill will supply paper sludge to GranTech, at no cost to GranTech other
than the mill's incremental disposal costs. These incremental expenses are
defined in the contract to represent expenses in excess of current landfill
disposal costs. The agreement expires December 26, 1997, subject to
successive, mutual, two-year extensions.
An employment agreement with GranTech's president effective January 1,
1989 through September 30, 1996 with extension options available. The
agreement specifies the president's salary, discretionary bonus, benefits,
severance and noncompete aspects of his employment. The agreement includes
certain provisions relative to the sale or disposition of the business of
GranTech, which would require GranTech to pay additional compensation of
2 1/2 times his base salary. No provision for this liability has been
recorded as of September 30, 1995.
A September 1992 supply agreement with American Cyanamid Company
("American Cyanamid") was renewed through December 31, 1996 and is
renewable from year to year thereafter until either party terminates the
agreement. The BIODAC(R) products are sold to American Cyanamid, at a fixed
price, for its exclusive use as a granular carrier with certain chemicals
and cannot be sold to others for use with the same chemicals.
Effective October 1, 1995, GranTech and Biodac entered into a four
year supply agreement with The Solaris Group, a unit of Monsanto Company.
The Company is to supply a specific product, known as BIODAC(R) HLG-SR, to
The Solaris Group for use in the consumer home, lawn and garden markets in
the United States and Canada. The price per ton is fixed for the period
October 1, 1995 through September 30, 1997 and thereafter adjusted based
upon changes in natural gas and electricity prices. The contract is subject
to a one year extension.
The Company uses certain sales agents and employees to sell its products.
Biodac division has a sales agency agreement with Ontario 361267 Ltd. d/b/a The
Consulting Group dated October 1, 1995, to pay a 5% commission on gross sales as
the exclusive sales agent for the Canadian provinces. Sales are subject to the
commission if the products are shipped into Canada or sold to a U.S. customer
having a presence in Canada.
F-18
<PAGE> 71
GRANULATION TECHNOLOGY, INC.
AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONCLUDED)
The agreement is for a one year term and includes an automatic renewal for
additional terms of one year until either party terminates the agreement.
6. GAIN CONTINGENCY
In December 1994, Biodac filed suit against a company for patent
infringement. On February 21, 1996, this matter was resolved. A consent decree
and settlement agreement were executed by all parties. Settlement of $700,000
was received in February 1996 and has been recorded as of the date of receipt.
As of September 30, 1995, no contingent gain was recorded. Legal and
professional fees incurred relative to the suit for the year ended September 30,
1995 were approximately $1,654,000. No fees were incurred relative to this suit
prior to the year ended September 30, 1995.
7. SUBSEQUENT EVENT
On July 2, 1996, an asset purchase agreement was signed to sell
substantially all of the assets of the Company, subject to certain liabilities,
to Thermo Fibergen Inc., for approximately $12,000,000 in cash, subject to a
post-closing adjustment based upon the net asset value of the Company as of the
closing date.
F-19
<PAGE> 72
THERMO FIBERGEN INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 30, 1995
(UNAUDITED)
On July 3, 1996, Thermo Fibergen Inc. (the "Company") acquired
substantially all of the assets, subject to certain liabilities, of Granulation
Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc.
(collectively "GT/ELI") for approximately $12,000,000 in cash, subject to a
post-closing adjustment. The Company will account for this acquisition using the
purchase method of accounting.
The following unaudited pro forma combined condensed statement of
operations sets forth the results of operations for the twelve months ended
December 30, 1995, as if the acquisition of GT/ELI, which is assumed to be
financed with the $12,500,000 in cash received by the Company in connection with
its capitalization, had occurred on January 1, 1995. GT/ELI has a fiscal year
end which differs from the Company's fiscal year end. The pro forma combined
condensed statement of operations below combines the historical September 30
fiscal year end financial statements of GT/ELI and the calendar year end
financial statements of the Company. The results of operations of GT/ELI for the
three months ended December 31, 1995 have not been included in the pro forma
combined condensed statement of operations. GT/ELI revenues and net loss were
$1,171,000 and $855,000, respectively, for the three months ended December 31,
1995. The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisition of GT/ELI been made on January 1, 1995. This statement should be
read in conjunction with the accompanying notes, the pro forma combined
condensed balance sheet and the respective historical financial statements and
related notes of the Company and GranTech and Biodac appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA
THERMO -----------------------
FIBERGEN GT/ELI ADJUSTMENTS COMBINED
-------- ------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................................. $ -- $ 4,233 $ -- $ 4,233
------- ------- ----- -------
Costs and Operating Expenses:
Cost of revenues....................................... -- 3,188 53 3,241
Selling, general and administrative expenses........... -- 756 326 1,082
Research and development expenses...................... 601 303 -- 904
Patent litigation expenses............................. -- 1,654 -- 1,654
------- ------- ----- -------
601 5,901 379 6,881
------- ------- ----- -------
Operating Loss........................................... (601) (1,668) (379) (2,648 )
Interest Expense......................................... -- (1,469) -- (1,469 )
------- ------- ----- -------
Loss Before Income Taxes................................. (601) (3,137) (379) (4,117 )
Income Taxes............................................. -- -- -- --
------- ------- ----- -------
Net Loss................................................. $ (601) $(3,137) $ (379) $(4,117 )
======= ======= ===== =======
Loss per Share........................................... $ (.06) $ (.41 )
======= =======
Weighted Average Shares.................................. 10,073 10,073
======= =======
</TABLE>
F-20
<PAGE> 73
THERMO FIBERGEN INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1996
(UNAUDITED)
The following unaudited pro forma combined condensed statement of
operations sets forth the results of operations for the six months ended June
29, 1996, as if the acquisition of GT/ELI, which is assumed to be financed with
the $12,500,000 in cash received by the Company in connection with its initial
capitalization, had occurred on January 1, 1995. The pro forma results of
operations are not necessarily indicative of future operations or the actual
results that would have occurred had the acquisition of GT/ELI been made on
January 1, 1995. This statement should be read in conjunction with the
accompanying notes, the pro forma combined condensed balance sheet and the
respective historical financial statements and related notes of the Company and
GT/ELI appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
THERMO -----------------------
FIBERGEN GT/ELI ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................................ $ -- $ 3,154 $ -- $ 3,154
------- ------- ----- -------
Costs and Operating Expenses:
Cost of revenues...................................... -- 2,083 -- 2,083
Selling, general and administrative expenses.......... -- 822 164 986
Research and development expenses..................... 548 89 -- 637
Patent litigation expenses............................ -- 290 -- 290
------- ------- ----- -------
548 3,284 164 3,996
------- ------- ----- -------
Operating Loss.......................................... (548) (130) (164) (842 )
Interest Income......................................... 267 -- (263) 4
Other Income............................................ -- 700 -- 700
------- ------- ----- -------
Income (Loss) Before Income Taxes....................... (281) 570 (427) (138 )
Income Taxes............................................ -- -- -- --
------- ------- ----- -------
Net Income (Loss)....................................... $ (281) $ 570 $ (427) $ (138 )
======= ======= ===== =======
Loss per Share.......................................... $ (.03) $ (.01 )
======= =======
Weighted Average Shares................................. 10,073 10,073
======= =======
</TABLE>
F-21
<PAGE> 74
THERMO FIBERGEN INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 29, 1996
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet sets
forth the financial position as of June 29, 1996, to reflect the acquisition of
GT/ELI as if the acquisition had occurred on June 29, 1996. This statement
should be read in conjunction with the accompanying notes, the pro forma
combined condensed statements of operations and the respective historical
financial statements and related notes of the Company and GranTech and Biodac
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
THERMO -----------------------
FIBERGEN GT/ELI ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 12,513 $ 50 $ (12,046) $ 517
Accounts receivable................................. -- 757 -- 757
Inventories......................................... -- 361...... 53 414
Other current assets................................ 17 -- -- 17
------- ------- ----- -------
12,530 1,168 (11,993) 1,705
------- ------- ----- -------
Property, Plant and Equipment, Net.................... 219 5,662 -- 5,881
------- ------- ----- -------
Patents and Other Assets.............................. 11 167 833 1,011
------- ------- ----- -------
Cost in Excess of Net Assets of Acquired Company...... -- -- 5,062 5,062
------- ------- ----- -------
$ 12,760 $ 6,997 $ (6,098) $ 13,659
======= ======= ===== =======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Accounts payable.................................... $ -- $ 302 $ -- $ 302
Other accrued expenses.............................. 38 397 200 635
Due to parent company and affiliates................ 409 -- -- 409
------- ------- ----- -------
447 699 200 1,346
------- ------- ----- -------
Shareholder's Investment:
Common stock........................................ 100 10 (10) 100
Capital in excess of par value...................... 12,400 20,565 (20,565) 12,400
Deficit accumulated during the development stage
subsequent to capitalization of the Company...... (187) -- -- (187)
Accumulated deficit................................. -- (13,472) 13,472 --
Divisional deficit.................................. -- (805) 805 --
------- ------- ----- -------
12,313 6,298 (6,298) 12,313
------- ------- ----- -------
$ 12,760 $ 6,997 $ (6,098) $ 13,659
======= ======= ===== =======
</TABLE>
F-22
<PAGE> 75
THERMO FIBERGEN INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995 (In
thousands, except in text)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 30, 1995
-------------------
DEBIT (CREDIT)
<S> <C>
COST OF REVENUES
Increase in the finished goods inventory of GT/ELI to the estimated selling
price, less the sum of the costs of disposal and a reasonable profit
allowance for the Company's selling efforts............................... $ 53
-----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization over 12 years of the increase in the recorded amount of patents
as a result of the acquisition of GT/ELI.................................. 73
Amortization over 20 years of cost in excess of net assets of acquired
company created by the acquisition of GT/ELI.............................. 253
-----
326
-----
</TABLE>
NOTE 2 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 29, 1996 (In thousands,
except in text)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 29, 1996
-------------------
DEBIT (CREDIT)
<S> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization over 12 years of the increase in the recorded amount of patents
as a result of the acquisition of GT/ELI.................................. $ 37
Amortization over 20 years of cost in excess of net assets of acquired
company created by the acquisition of GT/ELI.............................. 127
-----
164
-----
INTEREST INCOME
Decrease in interest income attributable to the lower cash position as a
result of the acquisition of GT/ELI....................................... (263)
-----
</TABLE>
F-23
<PAGE> 76
THERMO FIBERGEN INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONCLUDED)
(UNAUDITED)
NOTE 3 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------
<S> <C>
CASH AND CASH EQUIVALENTS
Cash payment to acquire GT/ELI.................................................... $(12,000)
Elimination of cash of GT/ELI not acquired........................................ (46)
--------
(12,046)
--------
INVENTORIES
Increase in the finished goods inventory of GT/ELI to the estimated selling price,
less the sum of the costs of disposal and a reasonable profit allowance for the
Company's selling efforts...................................................... 53
--------
PATENTS AND OTHER ASSETS
Elimination of asset of GT/ELI not acquired....................................... (44)
Increase in the patents of GT/ELI to appraised fair market value.................. 877
--------
833
--------
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANY
Excess of cost over the fair value of the net assets acquired of GT/ELI........... 5,062
--------
OTHER ACCRUED EXPENSES
Estimated accrued acquisition expenses for exit costs............................. (200)
--------
SHAREHOLDER'S INVESTMENT
Elimination of equity accounts of GT/ELI.......................................... 6,298
--------
</TABLE>
F-24
<PAGE> 77
==============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THERMO ELECTRON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference................................ 2
Prospectus Summary......................... 3
Risk Factors............................... 6
The Company................................ 12
Use of Proceeds............................ 12
Dividend Policy............................ 12
Capitalization............................. 13
Dilution................................... 14
Selected Financial Information............. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Thermo Fibergen............ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of GT/ELI..................... 18
Business................................... 20
Relationship with Thermo Electron and
Thermo Fibertek.......................... 28
Management................................. 31
Security Ownership of Certain Beneficial
Owners and Management.................... 36
Information Concerning Thermo Electron..... 38
Description of Securities.................. 39
Certain Federal Income Tax Consequences.... 43
Shares Eligible for Future Sale............ 47
Underwriting............................... 49
Legal Opinions............................. 50
Experts.................................... 50
Reports to Security Holders................ 50
Additional Information..................... 51
Index to Financial Statements.............. F-1
------------------------
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
==============================================================================
==============================================================================
4,100,000 UNITS
(EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK AND ONE
REDEMPTION RIGHT)
THERMO FIBERGEN INC.
------------------
REDEMPTION PAYMENTS GUARANTEED
ON A SUBORDINATED BASIS BY
THERMO ELECTRON CORPORATION
------------------
NATWEST SECURITIES LIMITED
LEHMAN BROTHERS
OPPENHEIMER & CO., INC.
, 1996
==============================================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<S> <C>
FORM S-1 ITEM 13.
FORM S-3 ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
</TABLE>
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission (the "Commission") registration fee
and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 24,876
NASD filing fee................................................ 7,714
American Stock Exchange listing fee............................ 45,000
Legal fees and expenses........................................ 20,000
Accounting fees and expenses................................... 60,000
Blue Sky fees and expenses (including legal fees).............. 10,000
Printing and engraving expenses................................ 120,000
Transfer agent fees............................................ 5,000
Miscellaneous.................................................. 82,410
--------
Total................................................ $375,000
========
</TABLE>
<TABLE>
<S> <C>
FORM S-1 ITEM 14.
FORM S-3 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
</TABLE>
The Delaware General Corporation Law and the Registrants' Certificates of
Incorporation and By-Laws limit the monetary liability of directors to the
Company, Thermo Electron and their respective stockholders and provide for
indemnification of the their respective officers and directors for liabilities
and expenses that they may incur in such capacities. In general, officers and
directors are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Company or Thermo Electron, as the case may be, and with respect to any
criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. The Registrants also have indemnification
agreements with their respective directors and officers that provide for the
maximum indemnification allowed by law. Reference is made to the Company's
Certificate of Incorporation, By-Laws and form of Indemnification Agreement for
Officers and Directors set forth as Exhibits 3.1, 3.2 and 10.14 hereto,
respectively.
Thermo Electron has an insurance policy which insures the directors and
officers of Thermo Electron and its subsidiaries, including the Company, against
certain liabilities which might be incurred in connection with the performance
of their duties.
Under Section 6 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrants against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1 hereto.
FORM S-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 12, 1996, the Company issued 1,000 shares (10,000,000 shares
after giving effect to a 10,000-for-one stock split effected on June 26, 1996)
of Common Stock to Thermo Fibertek in consideration of the contribution of
certain assets to the capital of the Company at the time of the incorporation of
the Company. Exemption from registration of this transaction is claimed under
Section 4(2) of the Securities Act.
II-1
<PAGE> 79
FORM S-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM S-3 ITEM 16. EXHIBITS
(A) EXHIBITS
See the Exhibit Indexes included immediately preceding the exhibits to this
Registration Statement.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or are not
required under Regulation S-X.
<TABLE>
<S> <C>
FORM S-1 ITEM 17.
FORM S-3 ITEM 17. UNDERTAKINGS
</TABLE>
(a) The undersigned Registrants hereby undertake to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
for the Securities in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
(b) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Thermo Electron hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Thermo Electron's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned Registrants hereby undertake that, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the provisions contained in the Certificates of Incorporation and
By-Laws of the Registrants and the laws of the State of Delaware, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
either of the Registrants of expenses incurred or paid by a director, officer or
controlling person of the respective Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrants will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Waltham, Commonwealth of Massachusetts, on this 9th day of September, 1996.
THERMO FIBERGEN INC.
By: /s/ JONATHAN W. PAINTER
----------------------------------
JONATHAN W. PAINTER
Treasurer
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on this 9th day of September, 1996.
THERMO ELECTRON CORPORATION
By: /s/ JONATHAN W. PAINTER
----------------------------------
JONATHAN W. PAINTER
Treasurer
II-3
<PAGE> 81
<TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
YIANNIS A. MONOVOUKAS* President, Chief Executive September 9, 1996
- ------------------------------------------ Officer and Director
YIANNIS A. MONOVOUKAS (Principal Executive
Officer)
JOHN N. HATSOPOULOS* Vice President, Chief September 9, 1996
- ------------------------------------------ Financial Officer and
JOHN N. HATSOPOULOS Director (Principal
Financial Officer)
PAUL F. KELLEHER* Chief Accounting Officer September 9, 1996
- ------------------------------------------ (Principal Accounting
PAUL F. KELLEHER Officer)
WILLIAM A. RAINVILLE* Chairman of the Board and September 9, 1996
- ------------------------------------------ Director
WILLIAM A. RAINVILLE
JONATHAN W. PAINTER* Director September 9, 1996
- ------------------------------------------
JONATHAN W. PAINTER
ANNE T. BARRETT* Director September 9, 1996
- ------------------------------------------
ANNE T. BARRETT
<FN>
* The undersigned, Sandra L. Lambert, by signing her name hereto, does hereby
execute this Amendment No. 2 to Registration Statement on behalf of each of
the above-named persons pursuant to powers of attorney executed by such
persons and filed with the Securities and Exchange Commission.
</TABLE>
/s/ SANDRA L. LAMBERT
--------------------------------
SANDRA L. LAMBERT
ATTORNEY-IN-FACT
II-4
<PAGE> 82
AS TO THERMO ELECTRON:
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
GEORGE N. HATSOPOULOS* President, Chief Executive September 9, 1996
- ------------------------------------------ Officer, Chairman of the
GEORGE N. HATSOPOULOS Board and Director (Principal
Executive Officer)
JOHN N. HATSOPOULOS* Executive Vice President and September 9, 1996
- ------------------------------------------ Financial Officer (Principal
JOHN N. HATSOPOULOS Financial Officer)
PAUL F. KELLEHER* Vice President, Finance September 9, 1996
- ------------------------------------------ (Principal Accounting
PAUL F. KELLEHER Officer)
JOHN M. ALBERTINE* Director September 9, 1996
- ------------------------------------------
JOHN M. ALBERTINE
PETER O. CRISP* Director September 9, 1996
- ------------------------------------------
PETER O. CRISP
ELIAS P. GYFTOPOULOS* Director September 9, 1996
- ------------------------------------------
ELIAS P. GYFTOPOULOS
FRANK JUNGERS* Director September 9, 1996
- ------------------------------------------
FRANK JUNGERS
ROBERT A. MCCABE* Director September 9, 1996
- ------------------------------------------
ROBERT A. MCCABE
FRANK E. MORRIS* Director September 9, 1996
- ------------------------------------------
FRANK E. MORRIS
DONALD E. NOBLE* Director September 9, 1996
- ------------------------------------------
DONALD E. NOBLE
HUTHAM S. OLAYAN* Director September 9, 1996
- ------------------------------------------
HUTHAM S. OLAYAN
ROGER D. WELLINGTON* Director September 9, 1996
- ------------------------------------------
ROGER D. WELLINGTON
<FN>
- ---------------
* The undersigned, Sandra L. Lambert, by signing her name hereto, does hereby
execute this Amendment No. 2 to Registration Statement on behalf of each of
the above-named persons pursuant to powers of attorney executed by such
persons and filed with the Securities and Exchange Commission.
</TABLE>
/s/ SANDRA L. LAMBERT
------------------------------------
SANDRA L. LAMBERT
ATTORNEY-IN-FACT
II-5
<PAGE> 83
EXHIBIT INDEX
TO THERMO FIBERGEN INC.'S REGISTRATION STATEMENT ON FORM S-1
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
+1 Form of Underwriting Agreement...............................................
3.1 Certificate of Incorporation of the Company, as amended......................
3.2 By-Laws of the Company.......................................................
4.1 Form of Guarantee of Thermo Electron.........................................
4.2 Guarantee Agreement among the Company, Thermo Electron and the
Representatives of the Underwriters..........................................
4.3 Form of Common Stock Certificate.............................................
4.4 Form of Redemption Right Certificate.........................................
+5 Opinion of Seth H. Hoogasian with respect to the validity of the Units,
Common Stock and Redemption Rights being offered.............................
10.1 Asset Transfer Agreement dated as of July 2, 1996 between Thermo Fibertek
Inc. and the Company.........................................................
+10.2 License and Supply Agreement dated as of July 2, 1996 between Thermo Fibertek
Inc. and the Company.........................................................
10.3 Corporate Services Agreement dated July 2, 1996, between Thermo Electron and
the Company..................................................................
10.4 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)............................................
10.5 Tax Allocation Agreement dated as of July 2, 1996 between Thermo Fibertek
Inc. and the Company.........................................................
10.6 Master Repurchase Agreement dated as of July 2, 1996 between Thermo Electron
and the Company..............................................................
10.7 Master Guarantee Reimbursement Agreement dated as of July 2, 1996 among
Thermo Electron, Thermo Fibertek and the Company.............................
10.8 Master Guarantee Reimbursement Agreement dated as of July 2, 1996 between
Thermo Fibertek Inc. and the Company.........................................
10.9 Lease dated as of April 12, 1996, by and between Al and Lee Realty and the
Company......................................................................
10.10 [Reserved]...................................................................
10.11 Equity Incentive Plan of the Company.........................................
10.12 Deferred Compensation Plan for Directors of the Company......................
10.13 Directors Stock Option Plan of the Company...................................
10.14 Form of Indemnification Agreement for Officers and Directors of the Company.
In addition to the stock-based compensation plans of the Company, the
executive officers of the Company may be granted awards under stock-based
compensation plans of Thermo Electron and its subsidiaries, for services
rendered to the Company or to such affiliated corporations. Such plans were
filed as Exhibits 10.19 through 10.21 and 10.24 through 10.47 to the Annual
Report on Form 10-K of Thermo Fibertek for the fiscal year ended December 30,
1995 [File No. 11406] and are incorporated herein by reference...............
11 Statement Re: Computation of Earnings per Share..............................
21 Subsidiaries of the Company..................................................
+23.1 Consent of Arthur Andersen LLP...............................................
+23.2 Consent of Arthur Andersen LLP...............................................
+23.3 Consent of Crowe, Chizek and Company LLP.....................................
23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)...................
24 Power of Attorney (See Signature Page of this Registration Statement)........
27 Financial Data Schedule......................................................
</TABLE>
- ---------------
+ Filed herewith. All other exhibits previously filed.
<PAGE> 84
<TABLE>
EXHIBIT INDEX
TO THERMO ELECTRON CORPORATION'S REGISTRATION STATEMENT ON FORM S-3
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ---------------------- ----
<C> <S>
**1 Form of Underwriting Agreement..............................................
**4.1 Form of Guarantee of Thermo Electron........................................
**4.2 Guarantee Agreement between the Company, Thermo Electron and the
Representatives of the Underwriters.........................................
*5 Opinion of Seth H. Hoogasian with respect to the validity of the Guarantees
being offered...............................................................
*23.2 Consent of Arthur Andersen LLP..............................................
23.3 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)..................
24 Power of Attorney (See Signature Page of this Registration Statement).......
<FN>
- ---------------
* Filed as an exhibit with the corresponding exhibit number to Thermo Fibergen
Inc.'s Registration Statement on Form S-1 combined with this Registration
Statement on Form S-3.
** Previously filed as an exhibit with the corresponding exhibit number to
Thermo Fibergen Inc.'s Registration Statement on Form S-1 combined with this
Registration Statement on Form S-3.
</TABLE>
<PAGE> 1
Exhibit 1
TH&T DRAFT 9/9/96
4,100,000 Units
THERMO FIBERGEN INC.
(Each Unit Consisting of One Share of
Common Stock and One Redemption Right)
UNDERWRITING AGREEMENT
_____________, 1996
NATWEST SECURITIES LIMITED
LEHMAN BROTHERS INC.
OPPENHEIMER & CO., INC.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o NatWest Securities Limited
135 Bishopsgate
London EC2M3UR
England
Dear Sirs:
Thermo Fibergen Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the several underwriters named in Schedule I hereto (the
"Underwriters") 4,100,000 Units (the "Firm Units"), each Unit consisting of one
share of Common Stock, $0.01 par value, of the Company (such class of stock
being herein called the "Common Stock") and one redemption right to require the
Company to repurchase one share of Common Stock, as further described in the
Prospectus referred to below. In addition, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Units, the Company
proposes to grant to the Underwriters an option to purchase up to an additional
615,000 Units (the "Option Units").
The Company currently is a wholly owned subsidiary of Thermo Fibertek
Inc., a Delaware corporation ("Fibertek"), which is, in turn, a majority-owned
subsidiary of Thermo Electron Corporation, a Delaware corporation ("Thermo
Electron"). The Redemption Rights are guaranteed on a subordinated basis by
Thermo Electron (such guarantees being referred to herein
<PAGE> 2
as the "Guarantees"). To the extent provided herein and for good and valuable
consideration, each of Fibertek and Thermo Electron has become a party to this
Underwriting Agreement.
The Firm Units and any Option Units purchased pursuant to this
Agreement are referred to herein as the "Units"; the shares of Common Stock
which issuable as part of the Units are referred to herein as the "Shares"; the
redemption rights which are issuable as part of the Units are referred to herein
as the "Redemption Rights"; and the Units, the Shares, the Redemption Rights and
the Guarantees are referred to herein together as the "Securities".
This is to confirm the agreement concerning the purchase of the Units
from the Company by the Underwriters. You represent and warrant that you are
acting as the representatives (the "Representatives") of the Underwriters and
that you have been authorized by each of the other Underwriters to enter into
this Underwriting Agreement on its behalf and to act for it in the manner herein
provided.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, FIBERTEK AND THERMO
ELECTRON. The Company, Fibertek and Thermo Electron jointly and severally
represent and warrant to, and agree with, each Underwriter as follows. The
following representations, warranties and agreements shall be deemed to apply to
each Subsidiary (as defined in Section 13) of the Company, if any, unless the
context does not permit:
(a) A joint registration statement of the Company and Thermo Electron
on Form S-1 (File No. 333- ) and Form S-3 (File No. 333- ) with
respect to the Securities (i) has been prepared by the Company and Thermo
Electron in material conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, (ii) has been filed with the
Commission under the Securities Act and (iii) has become effective under
the Securities Act. If any post-effective amendment to such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent such amendment has been
declared effective by the Commission. Copies of such registration
statement as amended to date have been delivered by the Company to the
Representatives, and, to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to the Commission's Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), except to the extent permitted by Regulation
S-T. For purposes of this Agreement, "Effective Time" means the date and
the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by
the Company pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended at
the Effective Time, and including all information deemed to be a part
thereof as of the Effective Time pursuant to paragraph (b) of Rule 430A of
the Rules and
2
<PAGE> 3
Regulations together with any registration statement filed by the Company
and Thermo Electron pursuant to Rule 462(b) of the Rules and Regulations;
and "Prospectus" means (i) the form of prospectus relating to the Units,
as first filed pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations, or (ii) the term sheet or abbreviated term sheet
described in Rule 434(b) of the Rules and Regulations, as first filed
pursuant to paragraph (7) of Rule 424(b) of the Rules and Regulations
together with the last preliminary prospectus included in the Registration
Statement filed prior to the Effective Time or filed pursuant to Rule
424(a) of the Rules and Regulations that is delivered by the Company to
the Underwriters for delivery to purchasers of the Units. Reference made
herein to any Preliminary Prospectus or to the Prospectus or to the
Registration Statement, or to any amendment or supplement to any of the
foregoing, shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the Securities Act, as of the date of such Preliminary Prospectus or the
Prospectus or the Registration Statement (or amendment or supplement), as
the case may be, and any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any document filed under the Securities Exchange Act of 1934 (the
"Exchange Act") after the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and incorporated by reference in such
Preliminary Prospectus or the Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed
to include any annual report of the Company filed with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act after the Effective
Time that is incorporated by reference in the Registration Statement.
Reference made herein to any statement or document "given" or "included",
or words of similar meaning, in any of the foregoing documents shall be
deemed to include the documents incorporated by reference therein. In
addition, for purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement to any of the foregoing, shall be deemed to
include the respective copies thereof filed with the Commission pursuant
to EDGAR. The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus
(b) The Registration Statement contains, and any post-effective
amendment to the Registration Statement filed with the Commission after
the Effective Time, the Prospectus and the Prospectus as amended or
supplemented will contain, all statements which are required by the
Securities Act and the Rules and Regulations; at the time of filing
thereof, any Preliminary Prospectus did not, and on the Effective Date,
the Registration Statement did not, and any post-effective amendment to
the Registration Statement filed with the Commission after the Effective
Time, the Prospectus and the Prospectus as amended or supplemented will
not, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that the Company, Fibertek and
Thermo Electron make no representation or warranty as to information
contained in or omitted from the Registration Statement, the Preliminary
Prospectus or the Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by you, or by any Underwriter
through you, specifically for inclusion therein. The documents
incorporated by reference in the
3
<PAGE> 4
Prospectus, when they were filed with the Commission, conformed in all
material respects to the requirements of the Exchange Act and the rules
and regulations of the Commission thereunder; and any further documents so
filed and incorporated by reference in the Prospectus, when such documents
are filed with the Commission will conform in all material respects to the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. There
is no contract or document required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required.
(c) The accounting firms whose reports appear in the Prospectus are
independent certified public accountants as required by the Securities Act
and the Rules and Regulations. The historical and pro forma financial
statements and schedules (including the related notes) included in the
Registration Statement, any Preliminary Prospectus or the Prospectus
present fairly, in all material respects, the financial condition, results
of operations and cash flows of the entities purported to be shown
thereby, on a historical or pro forma basis as applicable, at the dates
and for the periods indicated and have been prepared in accordance with
generally accepted accounting principles and in accordance with Regulation
S-X of the Rules and Regulations.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, and is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of
the properties owned or leased by it makes such qualification necessary
except where the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its Subsidiaries taken
as a whole; and, except as described in the Prospectus, the Company holds
all material licenses, certificates and permits from governmental
authorities necessary for the conduct of its business as described in the
Prospectus.
(e) All of the outstanding shares of Common Stock have been, and the
Shares, upon issuance and delivery and payment therefor in the manner
herein described, will be, duly authorized, validly issued, fully paid and
nonassessable. The Redemption Rights have been duly and validly
authorized, and, when duly executed, issued and delivered as contemplated
hereby and upon payment for the Units as provided herein, will be validly
issued and outstanding, and will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and by general equity principles and except as
described in the Prospectus (with respect to certain provisions of
Delaware law). Other than as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any Securities pursuant to the
Company's corporate charter, by-laws or other governing documents or any
agreement or
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<PAGE> 5
other instrument to which the Company is a party or by which it may be
bound. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied and other
than as described in the Prospectus, for or relating to the registration
of any shares of Common Stock or other securities of the Company. The
capitalization of the Company is as set forth in the Prospectus as of the
date shown, and the Units, the Shares and the Redemption Rights conform to
the description thereof contained in the Prospectus. All of the
outstanding shares of capital stock of each Subsidiary (as defined in
Section 13) of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and are owned directly or indirectly by
the Company, free and clear of any claim, lien, encumbrance, security
interest, restriction upon voting or transfer or any other claim of any
third party.
(f) Except as described in or contemplated by the Registration
Statement and the Prospectus, there has not been any material adverse
change in, or any adverse development which materially affects, the
condition (financial or other), results of operations, business or
prospects of the Company and its Subsidiaries on a consolidated basis from
the date as of which information is given in the Prospectus.
(g) The Company is not, and would not be with the giving of notice or
lapse of time or both, in violation of or in default under, nor will the
execution or delivery hereof or consummation of the transactions
contemplated hereby result in a violation of, or constitute a default
under, the corporate charter, by-laws or other governing documents of the
Company, or any material agreement, indenture or other instrument to which
the Company is a party or by which it is bound, or to which any of its
properties is subject, nor will the performance by the Company of its
obligations hereunder violate any existing law, rule, administrative
regulation or decree of any court or any governmental agency or body
having jurisdiction over the Company or any of its properties, or result
in the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company, which would be material to the
Company and its Subsidiaries taken as a whole. Except for permits and
similar authorizations required under the Securities Act and the
securities or "Blue Sky" laws of certain jurisdictions and for such
permits and authorizations as have been obtained, no consent, approval,
authorization or order of any U.S. court, governmental agency or body or
any financial institution is required in connection with the consummation
by the Company of the transactions contemplated by this Agreement.
(h) This Agreement has been duly authorized, executed and delivered by
the Company.
(i) The Company owns, or has valid rights to use, all items of real and
personal property which are material to the business of the Company and
its Subsidiaries taken as a whole, free and clear of all liens,
encumbrances and claims which may materially interfere with the business,
properties, financial condition or results of operations of the Company
and its Subsidiaries on a consolidated basis.
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<PAGE> 6
(j) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or Fibertek or Thermo
Electron is a party or to which any property of the Company is subject or
which is pending or, to the knowledge of the Company, Fibertek or Thermo
Electron, contemplated against the Company, Fibertek or Thermo Electron
that is required to be disclosed in the Prospectus and that is not so
disclosed.
(k) The Company is not in violation of any law, ordinance, governmental
rule or regulation or court decree to which it is subject, which violation
could have a material adverse effect on the condition (financial or
other), results of operations, business or prospects of the Company and
its Subsidiaries on a consolidated basis.
(l) Except as disclosed in the Prospectus, the Company owns or
possesses adequate licenses or other rights to use all intellectual
property rights, including patents and trademarks, necessary to conduct
its business as described or referred to in the Prospectus, except where
such failure, singularly or in the aggregate, would not have a material
adverse effect on the Company and its Subsidiaries on a consolidated
basis, and, except as disclosed in the Prospectus, neither Thermo
Electron, Fibertek nor the Company has received any notice of infringement
of or conflict with (or knows of any such infringement of or conflict
with) rights or claims of others with respect to any patents, trademarks,
service marks, trade names, copyrights or know-how, that if the subject of
an unfavorable decision, ruling or finding, would result in a material
adverse effect upon the Company and its Subsidiaries on a consolidated
basis, and, except as disclosed in the Prospectus, all products or
processes referred to in the Prospectus and relating to the business of
the Company now conducted by it do not infringe upon or conflict with any
right or patent, or with any discovery, invention, product or process
which is the subject of any patent application known to the Company,
Fibertek or Thermo Electron, in a manner which would materially and
adversely affect the Company and its Subsidiaries on a consolidated basis.
(m) Each of the Corporate Services Agreement between the Company and
Thermo Electron (the "Services Agreement"), and the other agreements
between the Company and Fibertek or Thermo Electron pursuant to which the
Company was initially organized and capitalized (collectively, the
"Organization Agreements"), and the Tax Allocation Agreement between
Thermo Electron and the Company (all of the foregoing agreements being
referred to herein as the "Inter-corporate Agreements") has been duly and
validly authorized, executed and delivered by the Company and is the valid
and binding agreement of the Company enforceable in accordance with its
terms, except as provided by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally and subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) (collectively, "applicable
bankruptcy laws"). The execution, delivery and performance of the
Inter-corporate Agreements by the Company, the consummation of the
transactions therein contemplated and compliance with the terms thereof do
not and will not result in a violation of, or constitute a default under,
the corporate charter, by-laws or other governing documents of the
Company, or any agreement, indenture or other instrument to which the
Company is a party or by which it is
6
<PAGE> 7
bound, or to which any of its properties is subject, and do not and will
not violate any existing law, rule, administrative regulation or decree of
any court or any governmental agency or body having jurisdiction over the
Company or any of its properties, or result in the creation or imposition
of any lien, charge, claim or encumbrance upon any property or asset of
the Company, which would be material to the Company and its Subsidiaries
taken as a whole. No consent, approval, authorization or order of any
court, governmental agency or body or financial institution is required in
connection with the consummation of the transactions contemplated by such
Inter-corporate Agreements.
(n) Neither the Company nor Thermo Electron nor Fibertek or any other
Subsidiary of Thermo Electron has taken and none of such companies shall
take, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any of the
Securities to facilitate the sale or resale of the Units.
(o) The Units, the Shares and the Redemption Rights have been approved
for listing on the American Stock Exchange, subject only to official
notice of issuance.
1A. REPRESENTATIONS AND WARRANTIES OF FIBERTEK AND THERMO ELECTRON.
Fibertek and Thermo Electron each represent and warrant to, and agree with, each
Underwriter that:
(a) Each of Fibertek and Thermo Electron has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority
(corporate and other) to own or lease its properties and conduct its
business, and is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the business conducted by it
or the location of the properties owned or leased by it makes such
qualification necessary, except where the failure to so qualify or be in
good standing would not have a material adverse effect on Thermo Electron
and its Subsidiaries taken as a whole.
(b) There has not been any material adverse change in, or any adverse
development which materially affects, the condition (financial or other),
results of operations, business or prospects of Thermo Electron and its
Subsidiaries taken as a whole, from the date as of which information is
given in the most recent quarterly or annual report filed by Thermo
Electron pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except any as may have been disclosed to the public.
(c) Except as may be described in their filings under the Exchange Act,
neither Fibertek nor Thermo Electron is, nor with the giving of notice or
lapse of time or both would be, in violation of or in default under, nor
will the execution or delivery hereof or consummation of the transactions
contemplated hereby, including the issuance of the Guarantees by Thermo
Electron, result in a violation of, or constitute a default under, the
corporate charter, by-laws or other governing documents of Fibertek or
Thermo Electron, or any material agreement, indenture or other instrument
to which Fibertek or Thermo Electron is a party or by which any of them is
bound, or to which any of their properties is subject,
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<PAGE> 8
nor will the performance by Fibertek or Thermo Electron of its obligations
hereunder, including the issuance of the Guarantees by Thermo Electron,
violate any existing law, rule, administrative regulation or decree of any
court or any governmental agency or body having jurisdiction over Fibertek
or Thermo Electron or any of their respective properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of Fibertek or Thermo Electron, which would be material
to Thermo Electron and its Subsidiaries taken as a whole. Except for
permits and similar authorizations required under the Securities Act and
the securities or "Blue Sky" laws of certain jurisdictions and for such
permits and authorizations as have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body or
financial institution is required in connection with the consummation by
Fibertek and Thermo Electron of the transactions contemplated by this
Agreement, including the issuance by Thermo Electron of the Guarantees.
(d) This Agreement has been duly authorized, executed and delivered by
Fibertek and Thermo Electron.
(e) Fibertek owns, and will own as of each Closing Date (as defined
below), of record and beneficially, the number of shares of Common Stock
of the Company set forth in the Prospectus, free and clear of any liens,
encumbrances, claims or restrictions, except that certain of such shares
are reserved for issuance pursuant to stock option and other benefit plans
under which options to purchase Common Stock of the Company owned by
Fibertek are granted to certain employees, directors or consultants of
Thermo Electron and its Subsidiaries.
(f) The most recent Annual Report on Form 10-K of Fibertek and of
Thermo Electron and any subsequent reports filed pursuant to the Exchange
Act complied as of the date thereof in all material respects with the
Exchange Act and the rules and regulations thereunder.
(g) The transfer by Fibertek to the Company of certain stock and/or
assets, as described in the Prospectus and in the Organization Agreements,
has been completed by all required corporate and other action. Each of the
Inter-corporate Agreements to which Fibertek is a party has been duly and
validly authorized, executed and delivered by Fibertek and is the valid
and binding agreement of Fibertek enforceable in accordance with its
terms, except as provided by applicable bankruptcy laws. The execution,
delivery and performance of each of the Inter-corporate Agreements to
which Fibertek is a party by Fibertek, the consummation of the
transactions therein contemplated and compliance with the terms thereof do
not and will not result in a violation of, or constitute a default under,
the corporate charter, by-laws or other governing documents of Fibertek,
or any agreement, indenture or other instrument to which Fibertek is a
party or by which it is bound, or to which any of its properties is
subject, and do not and will not violate any existing law, rule,
administrative regulation or decree of any court or any governmental
agency or body having jurisdiction over Fibertek or any of its properties,
or result in the creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of Fibertek, which would
8
<PAGE> 9
be material to Fibertek. No consent, approval, authorization or order of
any court, governmental agency or body or financial institution is
required in connection with the consummation by Fibertek of the
transactions contemplated by the Inter-corporate Agreements to which
Fibertek is a party, except such as have been obtained.
(h) The Guarantees have been duly and validly authorized, and, when
duly executed, issued and delivered as contemplated hereby and upon
payment for the Units as provided herein, will be validly issued and
outstanding, and will constitute valid and legally binding obligations of
Thermo Electron enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally and by general equity principles. The Guarantees conform
in all material respects to the description thereof contained in the
Prospectus. The Services Agreement and the Tax Allocation Agreement have
been duly and validly authorized, executed and delivered by Thermo
Electron and are the valid and binding agreements of Thermo Electron,
enforceable in accordance with their terms.
1B. REPRESENTATIONS AND WARRANTIES OF NATWEST SECURITIES LIMITED.
NatWest Securities Limited represents and agrees that (i) it has not offered or
sold and will not offer or sell any Units to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 or the Financial Services Act
1986 (the "Act"), (ii) it has complied and will comply with all applicable
provisions of the Act with respect to anything done by it in relation to the
Units in, from or otherwise involving the United Kingdom and (iii) it has only
issued or passed on, and will only issue or pass on, in the United Kingdom any
document received by it in connection with the issue of the Units, other than
any document which consists of or any part of listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by listing rules under Part IV of the Act, to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) (No. 2) Order 1995 or is a person to whom the
document may otherwise lawfully be issued or passed on.
2. PURCHASE OF THE UNITS BY THE UNDERWRITERS. (a) Subject to the terms
and conditions and upon the basis of the representations and warranties herein
set forth, the Company agrees to issue and sell to the Underwriters the Firm
Units and each of the Underwriters agrees, severally and not jointly, to
purchase at a price of ______ per Unit, the number of Firm Units set forth
opposite such Underwriter's name in Schedule I hereto. The Underwriters agree to
offer the Firm Units to the public as set forth in the Prospectus.
(b) The Company hereby grants to the Underwriters an option to
purchase from the Company, solely for the purpose of covering over-allotments in
the sale of Firm Units, all or any portion of the Option Units for a period of
thirty (30) days from the date hereof at the purchase price per Unit set forth
above. Option Units shall be purchased from the Company,
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<PAGE> 10
severally and not jointly, for the accounts of the several Underwriters in
proportion to the number of Firm Units set forth opposite such Underwriter's
name in Schedule I hereto, except that the respective purchase obligations of
each Underwriter shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Units other than in 100-share quantities.
3. DELIVERY OF AND PAYMENT FOR THE UNITS. Delivery of certificates for
the Shares and the Redemption Rights comprising the Firm Units and certificates
for the Shares and the Redemption Rights comprising the Option Units, if the
option to purchase the same is exercised on or before the second Business Day
(as defined in Section 13 hereof) prior to the First Closing Date (as defined
below), to be purchased by the Underwriters from the Company and payment
therefor shall be made at the offices of Testa, Hurwitz & Thibeault, LLP, 125
High Street, Boston, Massachusetts 02110 (or such other place as mutually may be
agreed upon), at 10:00 A.M., Eastern time, on the third business day after the
date of this Agreement (the "First Closing Date").
The option to purchase Option Units from the Company granted in Section
2 hereof may be exercised during the term thereof by written notice to the
Company from the Representatives. Such notice shall set forth the aggregate
number of Option Units as to which the option is being exercised and the time
and date, not earlier than either the First Closing Date or the second Business
Day after the date on which the option shall have been exercised nor later than
the third Business Day after the date of such exercise, as determined by the
Representatives, when the Option Units are to be delivered (the "Option Closing
Date"). Delivery and payment for such Option Units are to be at the offices set
forth above for delivery and payment of the Firm Units. (The First Closing Date
and the Option Closing Date are herein individually referred to as a "Closing
Date" and collectively referred to as the "Closing Dates.")
Delivery of certificates for the Units shall be made by or on behalf of
the Company to you, for the respective accounts of the Underwriters, against
payment by you, for the several accounts of the Underwriters, of the purchase
price therefor by certified or official bank check payable in New York Clearing
House funds to the order of the Company. The certificates for the Units shall be
registered in such names and denominations as you shall have requested at least
two full Business Days prior to the applicable Closing Date, and shall be made
available for checking and packaging at a location in New York, New York as may
be designated by you at least one full Business Day prior to such Closing Date.
Time shall be of the essence and delivery at the time and place specified in
this Agreement is a further condition to the obligations of each Underwriter.
4. COVENANTS OF THE COMPANY, FIBERTEK AND THERMO ELECTRON. The Company,
Fibertek and Thermo Electron, jointly and severally, covenant and agree with
each Underwriter that:
(a) The Company and Thermo Electron shall comply with the provisions
of, and make all requisite filings with the Commission pursuant to, Rule
430A and Rule 424(b) of the Rules and Regulations and shall notify you
promptly (in writing, if requested) of all
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<PAGE> 11
such filings. The Company shall notify you promptly of any request by the
Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information; the Company and
Thermo Electron shall prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement
or the Prospectus which, in your opinion, may be necessary or advisable in
connection with the distribution of the Units; and the Company and Thermo
Electron shall not file any amendment or supplement to the Registration
Statement or the Prospectus, which filing is not consented to by you after
reasonable notice thereof, such consent not to be unreasonably withheld or
delayed. The Company shall advise you promptly of its receipt of notice of
the issuance by the Commission or any state or other regulatory body of
any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any
Preliminary Prospectus or the Prospectus or suspending the qualification
of the Units for offering or sale in any jurisdiction, or of the
institution of any proceedings for any such purpose; and the Company and
Thermo Electron shall use their best efforts to prevent the issuance of
any stop order or other such order and, should a stop order or other such
order be issued, to obtain as soon as possible the lifting thereof.
(b) The Company shall furnish to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement
as originally filed and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith, and shall furnish to
the Underwriters such number of conformed copies of the Registration
Statement, as originally filed and each amendment thereto (excluding
exhibits other than this Agreement), the Prospectus and all amendments and
supplements to any of such documents and any document incorporated by
reference in the Prospectus, in each case as soon as available and in such
quantities as the Representatives may from time to time reasonably
request. To the extent applicable, the copies of the Registration
Statement and each amendment thereto (including all exhibits filed
therewith), any Preliminary Prospectus or Prospectus (in each case, as
amended or supplemented) furnished to the Representative and counsel to
the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(c) Within the time during which a prospectus relating to the Units is
required to be delivered under the Securities Act, the Company and Thermo
Electron shall comply with all requirements imposed upon them by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Units as
contemplated by the provisions hereof and by the Prospectus. If during
such period any event occurs as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances then existing, not misleading,
or if during such period it is necessary to amend the Registration
Statement or to supplement the Prospectus in order to comply with the
Securities Act or to file any document under the Securities Act or the
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<PAGE> 12
Exchange Act, the Company shall promptly notify you and the Company and
Thermo Electron shall amend the Registration Statement or supplement the
Prospectus or file such document (at their expense) so as to correct such
statement or omission or to effect such compliance.
(d) The Company and Thermo Electron shall take or cause to be taken all
necessary action and furnish to whomever you may direct such information
as may be required in qualifying the Units for sale under the laws of such
jurisdictions as you shall designate, and to continue such qualifications
in effect for as long as may be necessary for the distribution of the
Units; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a
general consent to service of process.
(e) The Company and Thermo Electron shall make generally available to
their security holders (and shall deliver to the Representatives), in the
manner contemplated by Rule 158(b) of the Rules and Regulations or
otherwise, as soon as practicable but in any event not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of
the Effective Date occurs, an earnings statement satisfying the
requirements of Section 11(a) of the Securities Act and covering a period
of at least 12 consecutive months beginning after the Effective Date.
(f) The Company, Fibertek and Thermo Electron shall not, during the
180-day period following the date of the Prospectus, except with your
prior written consent, offer for sale, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock (except for the
issuance of shares of Common Stock pursuant to existing stock option,
purchase and compensation plans, or upon conversion of any currently
outstanding convertible securities described in the Prospectus, sales of
shares of Common Stock by the Company to Fibertek or the issuance of
shares of Common Stock as consideration for the acquisition of one or more
businesses provided that such Common Stock may not be resold prior to the
expiration of such 180-day period), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than the grant
of options pursuant to existing stock option, purchase and compensation
plans), otherwise than in accordance with this Agreement or as
contemplated in the Prospectus. The Company, Fibertek and Thermo Electron
will not permit any employee stock option, director stock option or other
stock option to purchase Common Stock of the Company granted by it to be
exercised, and the Common Stock issued upon exercise of the stock option
to be sold, prior to the expiration of the 180-day period following the
date of this Prospectus, without your prior written consent.
(g) The Company shall take such steps as shall be necessary to ensure
that neither the Company nor any Subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
(h) Whether or not this Agreement is terminated or the sale of the
Units to the Underwriters is consummated, the Company shall pay or cause
to be paid (A) all expenses (including stock transfer taxes) incurred in
connection with the delivery to the several
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<PAGE> 13
Underwriters of the Units, (B) all fees and expenses (including, without
limitation, fees and expenses of the Company's and Thermo Electron's
accountants and counsel, but excluding fees and expenses of counsel for
the Underwriters) in connection with the preparation, printing, filing,
delivery and shipping of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
each Preliminary Prospectus, the Prospectus and any amendments or
supplements of the foregoing and the printing, delivery and shipping of
this Agreement and other underwriting documents, including, but not
limited to, any Underwriters' Questionnaires, Underwriters' Powers of
Attorney, Blue Sky Memoranda, Agreements Among Underwriters and Selected
Dealer Agreements, (C) all filing fees and fees and disbursements of
counsel to the Underwriters incurred in connection with qualification of
the Units under state securities laws as provided in Section 4(d) hereof,
(D) the filing fee of the National Association of Securities Dealers,
Inc., (E) any applicable listing or other fees, (F) the cost of printing
certificates representing the Shares and the Redemption Rights comprising
the Units (including the Guarantees endorsed thereon), (G) the cost and
charges of any transfer agent or registrar, and (H) all other costs and
expenses incident to the performance of its obligations hereunder for
which provision is not otherwise made in this Section. It is understood,
however, that, except as provided in this Section, Section 6 and Section 8
hereof, the Underwriters shall pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes due upon resale
of any of the Units by them and any advertising expenses incurred in
connection with any offers they may make. If the sale of the Units
provided for herein is not consummated by reason of any failure, refusal
or inability on the part of the Company, Fibertek or Thermo Electron to
perform any agreement on its part to be performed or because any other
condition of the Underwriters' obligations hereunder is not fulfilled or
if the Underwriters shall decline to purchase the Units for any reason
permitted under this Agreement, the Company shall reimburse the several
Underwriters for all reasonable out-of-pocket disbursements (including
fees and disbursements of counsel) incurred by the Underwriters in
connection with any investigation or preparation made by them in respect
of the marketing of the Units or in contemplation of the performance by
them of their obligations hereunder.
(i) The Company shall on or prior to each Closing Date use its best
efforts to cause the Units (and the Shares and Redemption Rights
comprising the Units) to be purchased on such date by the Underwriters to
be approved for listing on the American Stock Exchange, subject only to
official notice of issuance, and shall take such action as shall be
necessary to comply with the rules and regulations of the American Stock
Exchange with respect to such Securities.
(j) During a period of five years from the Effective Date, the Company
and Thermo Electron shall furnish to the Representatives copies of all
reports or other communications furnished to shareholders and copies of
any reports or financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company or Thermo Electron is listed. To the extent
applicable, such reports or documents shall be identical to the
electronically transmitted copies thereof filed
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with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and each Closing Date (as if made at such Closing Date), of the
representations and warranties of the Company, Fibertek and Thermo Electron
contained herein, to the performance by the Company, Fibertek and Thermo
Electron of their respective obligations hereunder and to the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
in a timely fashion in accordance with Section 4(a) hereof, all post-effective
amendments to the Registration Statement shall have become effective, all
filings required by Rule 430A and Rule 424 of the Rules and Regulations shall
have been made and no such filings shall have been made without the consent of
the Representatives; no stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto shall have been
issued; no proceedings for the issuance of any such order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been disclosed to you and complied with to your
satisfaction.
(b) No Underwriter shall have been advised by the Company,
Fibertek or Thermo Electron or shall have discovered and disclosed to the
Company that the Registration Statement, or the Prospectus or any amendment or
supplement thereto, contains an untrue statement of fact which in your
reasonable opinion, or in the reasonable opinion of counsel for the
Underwriters, is material, or omits to state a fact which, in your reasonable
opinion, or in the reasonable opinion of counsel to the Underwriters, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) On or prior to each Closing Date, you shall have received
from Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion
or opinions with respect to corporate proceedings by the Company, Fibertek and
Thermo Electron, the form of the Registration Statement and Prospectus (other
than financial statements and other financial or statistical data), the validity
of the Securities, and other related matters as you may reasonably request and
such counsel shall have received such documents and information as they
reasonably request to enable them to pass upon such matters.
(d) On each Closing Date there shall have been furnished to
you the opinion (addressed to the Underwriters) of Seth H. Hoogasian, Esq.,
General Counsel of Thermo Electron, Fibertek and the Company, dated such Closing
Date and in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) Each of the Company and its Significant Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full corporate
power and authority to own or lease its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business and
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<PAGE> 15
is in good standing in each jurisdiction in which the character of the
business conducted by it or the location of the properties owned or leased
by it makes such qualification necessary, except where the failure to so
qualify or be in good standing would not have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
(ii) Each of Thermo Electron and its Significant Subsidiaries (as
defined in Section 13) has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, and is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of
the properties owned or leased by it makes such qualification necessary,
except where the failure to so qualify or be in good standing would not
have a material adverse effect on Thermo Electron and its Subsidiaries
taken as a whole.
(iii) All of the outstanding shares of Common Stock have been and the
Shares, upon issuance and delivery and payment therefor in the manner
herein described, will be, duly authorized, validly issued, fully paid and
nonassessable. The authorized, issued and outstanding Common Stock is as
set forth in the Prospectus. The Redemption Rights have been duly and
validly authorized, and, when duly executed, issued and delivered as
contemplated hereby and upon payment for the Units as provided herein,
will be validly issued and outstanding, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally and by general equity principles,
and subject to the restrictions under Section 160 of the General
Corporation Law of the State of Delaware. The Guarantees have been duly
and validly authorized, and, when duly executed, issued and delivered as
contemplated hereby and upon payment for the Units as provided herein,
will be validly issued and outstanding, and will constitute valid and
legally binding obligations of Thermo Electron enforceable in accordance
with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equity
principles. There are no preemptive or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any of the
Securities pursuant to the Company's corporate charter, by-laws, other
governing documents, or any agreement or other instrument known to such
counsel to which the Company or a Subsidiary thereof is a party or by
which the Company or a Subsidiary thereof may be bound or to which any of
their respective properties is subject; and, to the best of such counsel's
knowledge, neither the filing of the Registration Statement nor the
offering or sale of the Units as contemplated by this Agreement gives rise
to any rights for or relating to the registration of any shares of Common
Stock except such as have been waived or satisfied, other than as
described in the Prospectus. The Securities conform in all material
respects to the description thereof contained in the Prospectus. All of
the outstanding shares of capital stock of each Subsidiary of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and are owned directly or indirectly by the Company free and
clear of any
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<PAGE> 16
claim, lien, encumbrance or security interest known to such counsel
(except for certain obligations of the Company pursuant to stock and
employee benefit plans maintained for the benefit of employees, officers,
directors and consultants of the Company and its Subsidiaries).
(iv) Each of the Company and its Subsidiaries is not, nor with the
giving of notice or lapse of time or both would be, in violation of or in
default under, nor will the execution or delivery hereof or consummation
of the transactions contemplated hereby result in a violation of, or
constitute a default under, the corporate charter, by-laws or other
governing documents of the Company or any of its Subsidiaries or, to the
best knowledge of such counsel, any material agreement, indenture or other
instrument to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries may be bound, or to which
any of the properties of the Company or any of its Subsidiaries is
subject, nor, to best of such counsel's knowledge, will the performance by
the Company of its obligations hereunder violate any existing law, rule,
administrative regulation or decree of any court or any governmental
agency or body having jurisdiction over the Company or any of its
Subsidiaries or the properties of the Company or any of its Subsidiaries,
or, to the best knowledge of such counsel, result in the creation or
imposition of any lien, charge, claim or encumbrance upon the properties
or assets of the Company or any of its Subsidiaries which would be
material to the Company and its Subsidiaries taken as a whole. Except for
permits and similar authorizations required under the Securities Act and
the securities or "Blue Sky" laws of certain jurisdictions and for such
permits and authorizations as have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body or
financial institution is required in connection with the consummation by
the Company, Fibertek or Thermo Electron of the transactions contemplated
by this Agreement.
(v) Each of Thermo Electron and its Significant Subsidiaries is not,
nor with the giving of notice or lapse of time or both would be, in
violation of or in default under, nor will the execution or delivery
hereof or consummation of the transactions contemplated hereby result in a
violation of, or constitute a default under, the corporate charter,
by-laws or other governing documents of Thermo Electron or any of its
Significant Subsidiaries or, except as described in the Exchange Act
filings of Fibertek and Thermo Electron, to the best knowledge of such
counsel, any material agreement, indenture, or other instrument to which
Thermo Electron or any of its Significant Subsidiaries is a party or by
which Thermo Electron or any of it Significant Subsidiaries may be bound,
or to which any of the properties of Thermo Electron or any of its
Significant Subsidiaries is subject, nor will the performance by Thermo
Electron of its obligations hereunder, including the issuance of the
Guarantees, violate any existing law, rule, administrative regulation or
decree of any court or any governmental agency or body having jurisdiction
over Thermo Electron or any of its Significant Subsidiaries or the
properties of Thermo Electron or any of its Significant Subsidiaries, or,
to the best knowledge of such counsel, result in the creation or
imposition of any lien, charge, claim or encumbrance upon the properties
or assets of Thermo Electron or any of its Significant Subsidiaries, which
would be material to Thermo Electron and its Subsidiaries taken as a
whole.
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<PAGE> 17
(vi) This Agreement has been duly authorized, executed and delivered by
the Company, Fibertek and Thermo Electron.
(vii) Each of the Inter-corporate Agreements has been duly authorized,
executed and delivered by Fibertek and Thermo Electron, as the case may
be, and is the valid and binding agreement of each of Fibertek and Thermo
Electron, enforceable in accordance with its terms except as provided by
applicable bankruptcy laws. The execution, delivery and performance of
each of the Inter-corporate Agreements by each of the parties thereto, the
consummation of the transactions therein contemplated and compliance with
the terms thereof do not and will not result in a violation of, or
constitute a default under the corporate charter, by-laws or other
governing documents of Fibertek or Thermo Electron, or any material
agreement, indenture or other instrument known to such counsel to which
Fibertek or Thermo Electron is a party or by which either of them is
bound, or to which any of their properties is subject and do not and will
not violate any existing law, rule, administrative regulation or decree of
any court or any governmental agency or body having jurisdiction over
Fibertek or Thermo Electron or any of their properties, or, to the best of
such counsel's knowledge, result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or asset of Fibertek
or Thermo Electron, which would be material to Fibertek or Thermo Electron
and their respective Subsidiaries taken as a whole. Except for permits and
similar authorizations required under the Securities Act and the
securities or "Blue Sky" laws of certain jurisdictions and for such
permits and authorizations as have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body or, to
the knowledge of such counsel, financial institution is required in
connection with the consummation by Fibertek and Thermo Electron of the
transactions contemplated by the Inter-corporate Agreements.
(viii) The Registration Statement and all post-effective amendments
thereto have become effective under the Securities Act and, to the best of
such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending before or contemplated by the
Commission. All filings required by Rule 424 and Rule 430A of the Rules
and Regulations have been made; the Registration Statement as of the
Effective Date, and the Prospectus and any amendment or supplement thereto
as of their respective dates, complied as to form in all material respects
with the requirements of the Securities Act and the Rules and Regulations
(it being understood that such counsel need express no opinion on the
financial statements or other financial and statistical data included
therein); and the documents incorporated by reference in the Prospectus,
when they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission thereunder (it being understood that
such counsel need express no opinion on the financial statements or other
financial and statistical data included therein). Such counsel has no
reason to believe that (i) the Registration Statement, as of its Effective
Date, or any amendment thereto, at the time it became effective contained
any untrue statement of a material fact or omitted to state any
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<PAGE> 18
material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or (ii) the Prospectus or any
supplement or amendment thereto, on such Closing Date or at the time such
Prospectus or supplement or amendment thereto was issued, contains or
contained any untrue statement of a material fact or omits or omitted 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 were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements
or other financial and statistical data included in the Registration
Statement and the Prospectus).
(ix) To the best knowledge of such counsel, all descriptions in the
Prospectus of statutes, regulations, legal or governmental proceedings,
contracts and other documents are accurate in all material respects, and
fairly present in all material respects the information required to be
shown and such counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be filed as
exhibits thereto that are not so summarized, described or filed, nor does
such counsel know of any pending or threatened litigation or any
governmental proceeding, statute or regulation required to be described in
the Prospectus that is not so described.
In rendering the foregoing opinion, counsel may rely, as to matters of
fact, upon certificates of officers of the Company, Fibertek and Thermo Electron
and certificates of public officials. Certificates so relied upon shall be
furnished to you and shall be satisfactory to you and your counsel.
(e) There shall have been furnished to you a certificate,
dated such Closing Date and addressed to you, signed by the President or a Vice
President and by the Treasurer or Secretary of the Company to the effect that:
(i) the representations and warranties of the Company contained in this
Agreement are true and correct, as if made at and as of such Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such Closing
Date; (ii) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
initiated or, to the knowledge of the signers of such certificate, threatened;
(iii) all filings required by Rule 424 and Rule 430A of the Rules and
Regulations have been made; (iv) the signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments or
supplements thereto and such documents contain all statements and information
required to be included therein, and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and (v) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not been so set forth.
(f) There shall have been furnished to you certificates, dated
such Closing Date and addressed to you, signed by the President or a Vice
President and by the Treasurer or Secretary of each of Fibertek and Thermo
Electron to the effect that: (i) the representations and warranties of Thermo
Electron or Fibertek (as applicable) contained in this Agreement are true
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<PAGE> 19
and correct, as if made at and as of such Closing Date, and Thermo Electron and
Fibertek (as applicable) has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to such
Closing Date; (ii) the signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, and such documents contain all statements and information required to
be included therein and do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and (iii) since the effective date
of the Registration Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration Statement or the
Prospectus which has not been so set forth.
(g) Since the Effective Time, neither the Company nor any of
the Subsidiaries of the Company shall have sustained any loss by fire, flood,
accident or other calamity, or shall have become a party to or the subject of
any litigation, which is material to the Company and its Subsidiaries taken as a
whole, nor shall there have been a material adverse change in the general
affairs, operations, business, prospects, key personnel, capitalization,
financial condition or net worth of the Company and its Subsidiaries taken as a
whole, whether or not arising in the ordinary course of business, which loss,
litigation or change, in your judgment, shall render it inadvisable to proceed
with the payment for and delivery of the Units.
(h) On the date of this Agreement and on each Closing Date you
shall have received a letter from each accounting firm whose report appears in
the Prospectus, dated the date of this Underwriting Agreement or such Closing
Date, as the case may be, and addressed to you, confirming that they are
independent certified public accountants within the meaning of the Securities
Act and the applicable published Rules and Regulations, and stating, as of the
date of such letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of each such letter), the conclusions and findings of each
such firm with respect to the financial information and other matters covered by
its letter delivered to you concurrently with the execution of this Agreement,
and with respect to each letter delivered on a Closing Date confirming the
conclusions and findings set forth in such prior letter.
(i) You shall have been furnished with such additional
documents and certificates as you or counsel for the Underwriters may reasonably
request.
(j) The Units (and the Shares and Redemption Rights comprising
the Units) to be purchased on such Closing Date by the Underwriters shall be
approved for listing on the American Stock Exchange, subject only to official
notice of issuance.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to counsel for the Underwriters. The Company,
Fibertek and Thermo Electron shall furnish to you such conformed copies of such
opinions, certificates, letters and other documents as you shall reasonably
request. If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement, this Agreement and all
obligations of the
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<PAGE> 20
Underwriters hereunder may be canceled at, or at any time prior to, such Closing
Date, by you. Any such cancellation shall be without liability of the
Underwriters to the Company, Fibertek or Thermo Electron. Notice of such
cancellation shall be given to the Company in writing, or by telegraph or
telephone and confirmed in writing.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company, Fibertek and Thermo Electron, jointly and severally,
shall indemnify and hold harmless each Underwriter against any loss, claim,
damage or liability (or any action in respect thereof), joint or several, to
which such Underwriter may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement made by the Company, Fibertek or Thermo Electron in
Section 1 hereof or by Fibertek or Thermo Electron in Section 1A hereof, or (ii)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement to any thereof, or (B) in any "Blue Sky"
application or other document executed by the Company specifically for that
purpose or based upon any written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called "Blue Sky Information"), or (iii) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement to any thereof, or in
any Blue Sky Information a material fact required to be stated therein or
necessary to make the statements therein not misleading or (iv) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Securities or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (ii) or (iii) above (provided that the Company, Fibertek and
Thermo Electron shall not be liable under this clause (iv) to the extent that it
is determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly or indirectly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct); and shall
reimburse each Underwriter promptly after receipt of invoices from such
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action, notwithstanding the possibility that payments for such
expenses might later be held to be improper, in which case the person receiving
them shall promptly refund them; provided, however, that the Company, Fibertek
and Thermo Electron shall not be liable in any such case to the extent, but only
to the extent, that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in the preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement to any thereof, or any Blue Sky Information; and provided, further,
that as to any Preliminary Prospectus this indemnity agreement shall not inure
to the benefit of any Underwriter on account of any loss,
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<PAGE> 21
claim, damage, liability or action arising from the sale of Units to any person
by that Underwriter if that Underwriter failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Securities Act and the Rules and Regulations, and the
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact in such Preliminary Prospectus was
corrected in the Prospectus, unless such failure resulted from non-compliance by
the Company with Section 4(b).
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company, Fibertek and Thermo Electron against
any loss, claim, damage or liability (or action in respect thereof) to which the
Company, Fibertek or Thermo Electron may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement to any thereof, or (B) in any Blue Sky Information, or (ii) the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement to any
thereof, or in any Blue Sky Information a material fact required to be stated
therein or necessary to make the statements therein not misleading; and shall
reimburse any legal or other expenses reasonably incurred by the Company,
Fibertek or Thermo Electron promptly after receipt of invoices from the Company,
Fibertek or Thermo Electron in connection with investigating or defending
against any such loss, claim, damage, liability or action, notwithstanding the
possibility that payments for such expenses might later be held to be improper,
in which case the Company, Fibertek and Thermo Electron shall promptly refund
them; provided, however, that such indemnification shall be available in each
such case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company through
you by or on behalf of such Underwriter specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 6 except to the extent it has
been prejudiced in any material respect by such failure or from any liability
which it may have to an indemnified party otherwise than under this Section 6.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it or they wish, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under such subsection for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation, except that the
Representatives shall have the right to employ counsel to
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<PAGE> 22
represent you and those other Underwriters who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the Company, Fibertek or Thermo Electron under such
subsection if, in your reasonable judgment, it is advisable for you and those
Underwriters to be represented by separate counsel, and in that event the fees
and expenses of such separate counsel shall be paid by the indemnifying party or
parties; provided, however, in no event, shall the indemnifying party or parties
be responsible for the expenses of more than one separate counsel for all such
indemnified parties.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company, Fibertek and Thermo Electron on the one hand and the Underwriters
on the other from the offering of the Units or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, Fibertek and Thermo Electron
on the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, Fibertek and Thermo Electron on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Units (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by one of the parties and such
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, Fibertek,
Thermo Electron and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of this
subsection (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
against any action or claim which is the subject of this subsection (d), subject
to the proviso in the last sentence of subsection (c). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Units underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their
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<PAGE> 23
respective underwriting obligations and not joint. Each party entitled to
contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise (except as specifically provided in subsection
(c) hereof).
(f) The obligations of the Company, Fibertek and Thermo Electron under
this Section 6 shall be in addition to any liability which the Company, Fibertek
and Thermo Electron may otherwise have, and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Securities Act or the Exchange Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability that the
respective Underwriters may otherwise have, and shall extend, upon the same
terms and conditions, to each director of the Company (including any person who,
with his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to Fibertek and Thermo Electron, and each other
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act.
7. SUBSTITUTION OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase the number of Units which it has agreed to purchase under
this Agreement, the non-defaulting Underwriters shall be obligated to purchase
(in the respective proportions which the number of Units set forth opposite the
name of each non-defaulting Underwriter in Schedule I hereto bears to the total
number of Units set forth in Schedule I hereto) the Units which the defaulting
Underwriter agreed but failed to purchase; except that the non-defaulting
Underwriters shall not be obligated to purchase any of the Units if the total
number of Units which the defaulting Underwriter or Underwriters agreed but
failed to purchase exceed 9.09% of the total number of Units, and any
non-defaulting Underwriters shall not be obligated to purchase more than 110% of
the number of Units set forth opposite its name in Schedule I hereto plus the
total number of Option Units purchasable by it pursuant to the terms of Section
2. If the foregoing maximums are exceeded, the non-defaulting Underwriters, and
any other underwriters satisfactory to you that so agree, shall have the right,
but shall not be obligated, to purchase (in such proportions as may be agreed
upon among them) all of the Units. If the non-defaulting Underwriters or the
other underwriters satisfactory to you do not elect to purchase the Units which
the defaulting Underwriter or Underwriters agreed but failed to purchase, the
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter, the Company, Fibertek or Thermo Electron except for the payment of
expenses to be borne by the Company, Fibertek and Thermo Electron and the
Underwriters as provided in Section 4(h) hereof and the indemnity and
contribution agreements of the Company, Fibertek, Thermo Electron and the
Underwriters contained in Section 6 hereof.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agree to purchase the Units of
a defaulting Underwriter, either you or the Company may
23
<PAGE> 24
postpone the First Closing Date for up to seven full Business Days in order to
effect any changes that may be necessary in the Registration Statement or the
Prospectus or in any other document or agreement, and to file promptly any
amendments or any supplements to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary.
8. TERMINATION.
(a) Until the First Closing Date, this Agreement may be terminated by
you by giving notice as hereinafter provided to the Company, if (i) the Company,
Fibertek or Thermo Electron shall have failed, refused or been unable, at or
prior to the First Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the obligations of the
Underwriters hereunder is not fulfilled, (iii) trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or the
International Stock Exchange of the United Kingdom or the over-the-counter
market shall have been suspended or minimum prices shall have been established
on any of such exchanges or such market by the Commission or by such exchange or
other regulatory body or governmental authority having jurisdiction, (iv) a
banking moratorium shall have been declared by Federal, New York, United Kingdom
or Massachusetts authorities, or (v) the United States or the United Kingdom is
or becomes engaged in hostilities which result in the declaration of a national
emergency or war, or (vi) there shall have been such a material adverse change
in general economic, political or financial conditions, or the effect of
international conditions on the financial markets in the United States or the
United Kingdom shall be such, as to, in the judgment of a majority in interest
of the several Underwriters, make it inadvisable or impracticable to proceed
with the delivery of the Units. Any termination of this Agreement pursuant to
this Section 8 shall be without liability on the part of the Company, Fibertek,
Thermo Electron or any Underwriter, except as otherwise provided in Sections
4(h) and 6 hereof.
Any notice referred to above may be given at the address specified in
Section 10 hereof in writing or by telegraph or telephone, and if by telegraph
or telephone, shall be immediately confirmed in writing.
9. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND
REPRESENTATIONS. The agreements contained in Section 6 and the representations,
warranties and agreements of the Company, Fibertek and Thermo Electron in
Sections 1, 1A and 4 shall survive the delivery of the Units to the Underwriters
hereunder and shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any indemnified party.
10. NOTICES. Except as otherwise provided in this Agreement, (a)
whenever notice is required by the provisions of this Agreement to be given to
the Company, Fibertek or Thermo Electron, such notice shall be in writing
addressed to the Company, Fibertek or Thermo Electron at 81 Wyman Street, P.O.
Box 9046, Waltham, Massachusetts 02254-9046, Attention: Chief Financial Officer;
and (b) whenever notice is required by the provisions of the Agreement to be
given to the several Underwriters, such notice shall be in writing addressed to
you in care of
24
<PAGE> 25
NatWest Securities Limited, 135 Bishopsgate, London EC2M3UR, England, Attention:
Syndicate Department.
11. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the outside cover page, the paragraph containing
stabilization information on the inside front cover page and the statements
under the caption "Underwriting" in any Preliminary Prospectus and in the
Prospectus, constitute the only written information furnished by or on behalf of
any Underwriter referred to in paragraph (b) of Section 1 hereof and in
paragraphs (a) and (b) of Section 6 hereof.
12. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company, Fibertek and Thermo
Electron, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(a) the representations, warranties, indemnities and agreements of the Company,
Fibertek and Thermo Electron contained in this Agreement shall also be deemed to
be for the benefit of the person or persons, if any, who control any Underwriter
within the meaning of the Securities Act or the Exchange Act and (b) the
indemnity agreement of the Underwriters contained in Section 6 hereof shall be
deemed to be for the benefit of directors of the Company, officers of the
Company who signed the Registration Statement, and any person controlling the
Company, including Fibertek and Thermo Electron. Nothing in this Agreement shall
be construed to give any person, other than the persons referred to in this
paragraph, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
13. DEFINITION OF "BUSINESS DAY", "SUBSIDIARY" AND "SIGNIFICANT
SUBSIDIARY". For purposes of this Agreement, (a) "Business Day" means any day on
which the American Stock Exchange is open for trading, (b) "Subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations and (c) "Significant
Subsidiary" has the meaning set forth in Item 1-02(v) of the Regulation S-X of
the Rules and Regulations.
14. PERFORMANCE BY THE COMPANY. Thermo Electron and Fibertek agree to
cause the Company to perform each of the agreements and obligations of the
Company contained in this Agreement.
15. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
choice of law or conflict of law principles thereof.
16. COUNTERPARTS. This agreement may be signed in one or more
counterparts, each of which together shall constitute one and the same
agreement.
25
<PAGE> 26
Please confirm, by signing and returning to us eight counterparts of
this Agreement, that you are acting on behalf of yourselves and the other
several Underwriters and that the foregoing correctly sets forth the agreement
among the Company, Fibertek, Thermo Electron and the several Underwriters.
Very truly yours,
THERMO FIBERGEN INC.
By:
-------------------------------------
Title:
THERMO FIBERTEK INC.
By:
-------------------------------------
Title:
THERMO ELECTRON CORPORATION
By:
-------------------------------------
Title:
Confirmed and accepted as of the
date first above mentioned:
NATWEST SECURITIES LIMITED
LEHMAN BROTHERS INC.
OPPENHEIMER & CO., INC.
as Representatives of the several
Underwriters named in Schedule I hereto
By: NATWEST SECURITIES LIMITED
By:
-------------------------------------
Authorized Signatory
26
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Units To be
Underwriter Purchased
----------- ---------
<S> <C>
NatWest Securities Limited
Lehman Brothers Inc. .....................................
Oppenheimer & Co., Inc. ..................................
Total ........................................... 4,100,000
=========
</TABLE>
27
<PAGE> 1
EXHIBIT 5
THERMO ELECTRON CORPORATION
81 Wyman Street
Waltham, MA 02254-9046
September 9, 1996
Thermo Fibergen Inc.
8 Alfred Circle
Bedford, Massachusetts 01730
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254-9046
Re: Combined Registration Statement on Form S-1 and Form S-3
Relating to 4,715,000 Units of Thermo Fibergen Inc. and
Guarantees by Thermo Electron Corporation
Ladies and Gentlemen:
I am Vice President and General Counsel to Thermo Electron Corporation,
a Delaware corporation (the "Guarantor"), and am General Counsel to its
subsidiary, Thermo Fibergen Inc., a Delaware corporation (the "Company"). I have
acted as counsel in connection with the filing of a combined registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), (i) on Form S-1, with respect to 4,715,000 units
(the "Units"), each of which consists of one share of the Company's common
stock, $.01 par value per share (the "Common Stock"), and the right to sell one
share of Common Stock to the Company during certain periods in the future (the
"Redemption Rights"); and (ii) on Form S-3, with respect to the Guarantor's
guarantees of the Company's obligations under the Redemption Rights (the
"Guarantees"). The Units, the shares of Common Stock registered pursuant to the
Registration Statement (the "Shares"), the Redemption Rights and the Guarantees,
together with any Units, Shares, Redemption Rights and Guarantees registered
under a registration statement related to the offering contemplated by the
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act (a "462(b) Registration Statement"), are
collectively referred to herein as the "Securities."
I or a member of my legal staff have reviewed the corporate proceedings
taken by the Company and/or by the Guarantor with respect to the authorization
of the issuance of the Securities. I or a member of my legal staff have also
examined and relied upon originals or copies, certified or otherwise
authenticated to my satisfaction, of all corporate records, documents,
agreements or other instruments of the Company and/or of the Guarantor and have
<PAGE> 2
made all investigations of law and have discussed with representatives of the
Company and of the Guarantor all questions of fact that I have deemed necessary
or appropriate.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Company and the Guarantor are each corporations duly organized,
validly existing and in corporate good standing under the laws of the State of
Delaware.
2. The issuance and sale of the Securities registered pursuant to the
Registration Statement have been duly authorized by the Company or by the
Guarantor, as the case may be, and the issuance and sale of the Securities
registered pursuant to a 462(b) Registration Statement will have been duly
authorized by the Company or by the Guarantor, as the case may be, prior to
their issuance and sale.
3. The Shares, when issued and sold in accordance with the provisions
of the Underwriting Agreement between the Company and the several Underwriters
named on Schedule I thereto (in the form of Exhibit 1 to the Registration
Statement) will be validly issued, fully paid and non-assessable.
4. The Redemption Rights have been duly authorized on behalf of the
Company and, when issued and countersigned by the Company or on its behalf by
its transfer agent and registrar, will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting the rights and remedies of creditors, (ii)
general principles of equity regardless of whether such enforcement is
considered in a proceeding in equity or at law and (iii) compliance with
Section 160 of the Delaware General Corporation Law.
5. The Guarantees have been duly authorized on behalf of the Guarantor
and, when issued and countersigned by the Guarantor or on its behalf by its
transfer agent and registrar, will constitute valid and binding obligations of
the Guarantor, enforceable against the Guarantor in accordance with their terms,
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting the rights and remedies of creditors and (ii)
general principles of equity regardless of whether such enforcement is
considered in a proceeding in equity or at law.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement or any 462(b) Registration Statement.
Very truly yours,
Seth H. Hoogasian
Vice President and
General Counsel
<PAGE> 1
Exhibit 10.2
------------
LICENSE AND SUPPLY AGREEMENT
THIS AGREEMENT dated as of July 2, 1996 is made by and between Thermo
Fibertek Inc., a Delaware corporation having its principal place of business at
81 Wyman Street, Waltham, Massachusetts 02254 ("TFT"), and Thermo Fibergen Inc.,
a Delaware corporation having its principal place of business at 8 Alfred
Circle, Bedford, Massachusetts 01730 ("TFG").
WHEREAS, TFT is the owner of one or more inventions, patent rights and
other intellectual property rights covering a device developed by its AES
Engineered Systems Division to wash, thicken and classify solids (the "AES
Washer");
WHEREAS, the AES Washer is suitable for use in washing, thickening and
classifying fibers used for paper making as well as for separating cellulosic
fibers from the rejected residue from deinked fiber pulping systems and other
pulp and paper systems;
WHEREAS, TFG is engaged in the design of systems for processing pulp and
paper mill residue, which systems include the separation of useful fibers from
post-clarifier pulp and paper mill residue;
WHEREAS, TFG desires to obtain an exclusive license from TFT, and TFT is
willing to grant such a license to TFG;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants set forth below, and of other good and valuable consideration, receipt
of which is hereby acknowledged, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
As used in this Agreement, the following terms, whether used in the
singular or plural, have the meanings set forth below:
1.1. "TFT PATENT RIGHTS" mean all patents and patent applications (which
for all purposes of this Agreement shall be deemed to include certificates of
invention, applications for certificates of invention and utility models),
including but not limited to those set forth on Schedule A, throughout the
world, covering or relating to the AES Washer (or its components or replacement
parts) developed by TFT's AES Engineered Systems Division prior to and during
the term of this Agreement, including any substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations or continuations-in-part,
which TFT owns or controls, and under which TFT has the right to grant licenses
or sublicenses to TFG, as of the date of this Agreement and thereafter during
the term of this Agreement.
<PAGE> 2
1.2. "TFT KNOW-HOW" means any designs, specifications, research data and
other information relating to the AES Washer which is owned or controlled by TFT
as of the date of this Agreement or which TFT acquires in connection with its
activities under this Agreement.
1.3. "TFT INTELLECTUAL PROPERTY RIGHTS" means the TFT Patent Rights and
the TFT Know-How.
1.4. "FIELD" means all applications for and in the pulp and paper
industry.
1.5. "LICENSED PRODUCT" means a product (i) which, or the manufacture,
use, offer for sale or sale of which, is covered by a Valid Claim of any of the
TFT Patent Rights in the country where the product is manufactured, offered for
sale, sold or used or (ii) which embodies any TFT Know-How.
1.6. "PARTY" means TFT or TFG; "PARTIES" means TFT and TFG.
1.7. "VALID CLAIM" means a claim of any unexpired United States or
foreign patent or patent application which shall not have been withdrawn,
canceled or disclaimed, nor held invalid by a court of competent jurisdiction in
an unappealed or unappealable decision.
1.8. "INITIAL TERM" means the eight-year period commencing on the date
of this Agreement and ending on the eighth anniversary hereof.
ARTICLE 2
LICENSE GRANT
-------------
Subject to the terms of this Agreement, including but not limited to
Section 5.1 hereof, TFT hereby grants to TFG a worldwide, royalty-free, paid-up,
exclusive (against TFT and against all third parties) license under the TFT
Intellectual Property Rights, including the right to sublicense any or all of
such rights, to use, have used, sell, have sold, offer to sell and import
Licensed Products for use in the Field.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND LIMITATIONS OF LIABILITY
--------------------------------------------------------
3.1. REPRESENTATIONS OF BOTH PARTIES. Each Party represents and
warrants that it has the full authority to enter into this Agreement.
3.2. REPRESENTATIONS OF TFT. TFT hereby represents and warrants that
it owns or has the right to license all of the TFT Patent Rights set forth in
Schedule A and the other TFT Intellectual Property Rights licensed hereunder.
TFT hereby represents and warrants that the exercise of the license granted
pursuant to Article 2 hereof does not infringe any patent or
2
<PAGE> 3
copyright or misappropriate any trade secret of any third party. TFT also hereby
represents and warrants that any use, sale, offer to sell or importation of any
improvements, modifications or enhancements to the AES Washer made by TFT will
not infringe any patent or copyright or misappropriate any trade secret of any
third party.
3.3. REPRESENTATIONS OF TFG. TFG hereby represents and warrants that
any use, sale, offer to sell or importation of any improvements, modifications
or enhancements to the AES Washer made by TFG will not infringe any patent or
copyright or misappropriate any trade secret of any third party.
3.4. DISCLAIMER OF WARRANTY. EXCEPT AS SET FORTH IN SECTION 3.2 OR IN
ANY OTHER WRITTEN AGREEMENT, PURCHASE ORDER OR OTHER DOCUMENT EXECUTED BY TFT,
TFT HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE AES
WASHER AND ANY OTHER LICENSED PRODUCTS, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
3.5. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT
DAMAGES ARISING OUT OF THIS AGREEMENT.
ARTICLE 4
INTELLECTUAL PROPERTY RIGHTS
----------------------------
4.1. OWNERSHIP. Except as otherwise provided in this Agreement, TFT
shall retain the entire right, title and interest in and to all TFT Patent
Rights. TFT shall be responsible for filing, prosecuting and maintaining the TFT
Patent Rights at its sole expense. In the event that TFT fails to take any
action which is necessary to file, prosecute and/or maintain the TFT Patent
Rights, TFG shall have the right to take such action, and TFT shall reimburse
TFG for all expenses incurred in connection therewith. To enable TFG to take
such action, TFT shall provide TFG with copies of all substantive communications
to and from patent offices regarding each patent and patent application covering
the TFT Patent Rights, and shall furnish TFG notice of any election by TFT not
to maintain any TFT Patent Rights not less than 30 days prior to the due date of
an action.
4.2. IMPROVEMENTS. Any patents or other intellectual property rights in
any modifications, improvements or enhancements to the AES Washer made by either
Party shall be owned by the Party making such modifications, improvements or
enhancements; PROVIDED, HOWEVER, that TFT shall have a worldwide, royalty-free,
paid-up, exclusive right to make, use, offer to sell and sell products outside
the Field (and, after the expiration or termination of this Agreement, in the
Field), and, except as otherwise provided in this Agreement, to make and have
made AES Washers and their components and replacement parts, incorporating
modifications, improvements or enhancements made by TFG to the AES Washer during
the term of this
3
<PAGE> 4
Agreement. In the event that the Parties jointly develop any modifications,
improvements or enhancements, any patent applications and resulting patents
covering such modifications, improvements or enhancements shall be jointly owned
by the Parties. TFT, however, shall have the exclusive right, at its expense but
in the joint names of the Parties, to file, prosecute or maintain any such
jointly-owned patent applications and the resulting patents. Copies of all
substantive communications to and from patent offices regarding such patent
applications shall be provided to TFG for comment by TFG. In the event that TFT
fails to take any action which is necessary to file, prosecute and/or maintain
such patent applications or patents, TFT shall furnish TFG notice as set forth
in Section 4.1 and TFG shall have the right to take such action in the joint
name of the Parties, and TFT shall reimburse TFG for all expenses incurred in
connection therewith.
4.3. INFRINGEMENT.
(a) Each Party shall promptly report in writing to the other
Party during the term of this Agreement any (i) known infringement or suspected
infringement of any of the TFT Intellectual Property Rights in the Field by any
third party of which it becomes aware, and shall provide the other Party with
all available evidence supporting such infringement or suspected infringement.
Within 90 days after TFG becomes, or is made, aware of any of the foregoing,
TFG shall decide whether or not to initiate an infringement suit or other
appropriate litigation and shall advise TFT of its decision in writing. The
inability of TFG to decide on a course of action within such 90-day period
shall for purposes of this Agreement be deemed a decision not to initiate an
infringement suit or other appropriate litigation. TFG shall not have any
rights to enforce TFT Intellectual Property Rights outside the Field.
(b) Except as provided in paragraph (d) below, TFG shall have
the right to initiate an infringement suit or other appropriate litigation
anywhere in the world against any third party who at any time has infringed, or
is suspected of infringing, any of the TFT Intellectual Property Rights in the
Field. TFG shall give TFT sufficient advance notice of its intent to commence
such action and the reasons therefor, and shall provide TFT with an opportunity
to make suggestions and comments with respect thereto. TFG shall keep TFT
promptly informed of, and shall from time to time consult with TFT regarding,
the status of any such action and shall provide TFT with copies of all documents
filed therein, and all written communications relating thereto.
(c) Any damages, settlement fees or other consideration for
past infringement received as a result of any such litigation in the Field shall
be retained by TFG. If necessary, TFT shall join as a party to the litigation
but shall be under no obligation to participate except to the extent that such
participation is required as the result of being named a party to the
litigation. TFT shall offer reasonable assistance to TFG in connection therewith
at no charge to TFG except for reimbursement of reasonable expenses, including
out-of-pocket expenses and salaries of TFT personnel, incurred in rendering such
assistance. TFG shall not settle any such litigation which diminishes the rights
of TFT outside the Field without obtaining the prior written consent of TFT,
which consent shall not be unreasonably withheld.
4
<PAGE> 5
(d) TFG shall promptly advise TFT of its intent not to initiate
an infringement suit or other appropriate litigation pursuant to paragraph (b)
above. In the event that TFG does not initiate an infringement suit or other
appropriate litigation pursuant to paragraph (b) above within 180 days of
becoming aware of any infringement or suspected infringement of any of the TFT
Intellectual Property Rights in the Field or if TFG shall have advised TFT of
its intent not to initiate such litigation, TFT shall have the right, at its
expense, to initiate an infringement or other appropriate litigation with
respect to infringements of the TFT Intellectual Property Rights in the Field.
TFT shall pay all attorneys' fees and court costs, and TFT shall retain all
amounts recovered in such litigation. If necessary, TFG shall join as a party to
the litigation but shall be under no obligation to participate except to the
extent that such participation is required as the result of being named a party
to the litigation.
ARTICLE 5
SUPPLY OF AES WASHERS, COMPONENTS AND REPLACEMENT PARTS
-------------------------------------------------------
5.1. PURCHASE AND SALE COMMITMENTS. Except as otherwise provided in
this Agreement, TFG hereby agrees to purchase from TFT, and TFT hereby agrees to
sell to TFG, all of TFG's requirements of AES Washers (and all components and
replacement parts thereof manufactured from time to time by TFT) during the term
of this Agreement. TFG agrees not to purchase any equipment for washing,
thickening and classifying solids in pulp and paper residue from any other
vendor during the term of this Agreement.
5.2. PRICING. Such AES Washers, components and replacement parts will
be sold to TFG at TFT's cost plus an amount sufficient to yield to TFT a Gross
Margin of 55% thereon. For purposes of this Agreement, "Gross Margin" shall mean
the difference between the prices TFT receives upon the sale of AES Washers,
components and/or replacement parts to TFG and the costs thereof. For purposes
of the two preceding sentences, TFT's costs shall include its manufacturing
costs and overhead related thereto, but shall not include selling, general or
administrative costs. TFT agrees to use reasonable efforts to minimize such
costs over the term of this Agreement.
5.3. MANUFACTURING RIGHTS. If TFT fails to sell AES Washers, components
and/or replacement parts to TFG on reasonable terms and conditions, other than
the pricing terms set forth in Section 5.2, which the Parties agree to be
reasonable, then TFG shall have the right to manufacture or have manufactured
such AES Washers, components and/or replacement parts, as the case may be, and
the exclusive license granted in Section 2.1 shall be extended to make or have
made such Licensed Products in the Field.
5.4 CONVERSION TO NON-EXCLUSIVE LICENSE.
(a) If TFG fails to purchase at least 35 AES Washers from TFT
prior to the end of the fifth year of the Initial Term, then the exclusive
license granted in Article 2 shall be modified to be non-exclusive for the
remainder of the Initial Term and during any subsequent
5
<PAGE> 6
renewal term unless, prior to the end of such fifth year, TFG shall have paid to
TFT an amount equal to the aggregate Gross Margin which TFT would have received
with respect to the unpurchased AES Washers had TFG actually purchased such
unpurchased AES Washers prior to the end of such fifth year.
(b) If TFG fails to purchase at least five AES Washers from
TFT during each of the sixth, seventh and eighth years of the Initial Term, then
the exclusive license granted in Article 2 shall be modified to be non-exclusive
for the remainder of the Initial Term and during any subsequent renewal term
unless, prior to the end of such sixth, seventh or eighth year, as the case may
be, TFG shall have paid to TFT an amount equal to the aggregate Gross Margin
which TFT would have received with respect to the unpurchased AES Washers had
TFG actually purchased such unpurchased AES Washers prior to the end of such
year.
ARTICLE 6
TERMINATION
-----------
6.1. TERM. This Agreement shall remain in effect until the earlier of
(i) the expiration of the Initial Term or (ii) termination of this Agreement in
accordance with the provisions of this Article 6. In the event that this
Agreement has not been terminated in accordance with Section 6.2 hereof prior to
the expiration of the Initial Term (or any applicable renewal term), then this
Agreement shall be automatically renewed for successive one-year renewal terms
unless, not later than 90 days prior to the expiration of the Initial Term (or
such applicable renewal term), either Party shall have delivered notice in
writing to the other Party that it elects not to renew this Agreement.
6.2. TERMINATION FOR DEFAULT. Either Party may terminate this Agreement
upon default by the other Party of any material obligation hereunder if, within
60 days after written notice of such default to the defaulting Party, such
defaulting Party has not remedied such default. Upon termination of this
Agreement pursuant to this Section 6.2, neither Party shall be relieved of any
obligations incurred prior to such termination.
6.3. SURVIVAL OF OBLIGATIONS. Notwithstanding any termination of this
Agreement, the obligations of the Parties with respect to infringement
indemnification pursuant to Article 7, as well as any other provisions which by
their nature are intended to survive such termination (including without
limitation the licenses with respect to AES Washers purchased by TFG prior to
such termination) shall survive and continue to be enforceable. Upon any
termination by TFG for default of a material obligation of TFT pursuant to
Section 6.2, TFG shall have the right to manufacture or have manufactured the
AES Washer and all components and replacement parts thereof then manufactured by
TFT, and the exclusive license granted in Article 2 shall be extended to make or
have made Licensed Products in the Field.
6
<PAGE> 7
ARTICLE 7
INFRINGEMENT INDEMNIFICATION
----------------------------
TFT shall defend and indemnify TFG from and against any damages,
liabilities, costs and expenses (including reasonable attorneys' fees) arising
out of any claim that any Licensed Product infringes any patent or copyright or
misappropriates a trade secret of a third party and such claim relates to the
use in the Licensed Product of either TFT Intellectual Property Rights or
devices or products supplied by TFT, PROVIDED, HOWEVER, that (i) TFG shall have
promptly provided TFT with written notice thereof and reasonable cooperation,
information and assistance in connection therewith and (ii) TFT shall have sole
control and authority with respect to the defense, settlement or compromise
thereof. Should any Licensed Product become or, in TFT's opinion, be likely to
become the subject of an infringement claim, TFT may, at its option and at its
expense, (i) procure for TFG the right to continue using such Licensed Product,
(ii) replace or modify such Licensed Product so that it becomes non-infringing,
or, if the preceding remedies are not reasonably available to TFG, (iii) demand
that TFG return to TFT the Licensed Products supplied by TFT and TFT shall
refund to TFG the amount paid to TFT for such Licensed Products; PROVIDED,
HOWEVER, that option (iii) shall be available to TFT only with respect to
Licensed Products supplied by TFT and which are within the possession or control
of TFG. TFT shall have no liability or obligation to TFG hereunder with respect
to any patent, copyright or trade secret infringement or claim thereof based
upon (i) use or sale by TFG or its customers of Licensed Products in combination
with devices or products not designed by TFT unless such Licensed Products would
be infringing absent their use in such combinations, or (ii) modifications,
alterations or enhancements of the Licensed Products created by TFG. TFG shall
indemnify and hold TFT harmless from all costs, damages and expenses (including
reasonable attorneys' fees) arising from any claim enumerated in clauses (i) and
(ii) above in the preceding sentence.
ARTICLE 8
COVENANTS OF TFG
----------------
8.1. PROPRIETARY INFORMATION. TFG hereby covenants that it will not,
during the term of this Agreement or at any time thereafter, disclose to others,
or use for its own benefit or the benefit of others (except as contemplated by
this Agreement), any Proprietary Information. For purposes of this Agreement,
"Proprietary Information" shall mean all trade secrets or other confidential or
proprietary information owned, possessed or used by TFT that is communicated to,
learned of or otherwise acquired by TFG in the course of this Agreement. TFG's
obligations under this Agreement shall not apply to Proprietary Information that
(i) is or becomes known to the general public without any wrongful act or
omission by TFG, (ii) is made available to TFG as a matter of right by any third
party, (iii) is independently developed by TFG, (iv) is required to be disclosed
by TFG under compulsion of law, rule or judicial process, (v) is generally
disclosed to third parties by TFT without restriction on such third parties or
(vi) is approved for release by written authorization from TFT.
7
<PAGE> 8
8.2. REFERRALS BY TFG. TFG hereby covenants that it shall promptly
refer to TFT's AES Engineered Systems Division all inquiries it receives from
third parties during the term of this Agreement regarding the possible
application of the Licensed Products and/or the AES Washers outside of the
Field.
ARTICLE 9
MISCELLANEOUS
-------------
9.1. NO AGENCY. Nothing herein shall be deemed to constitute either
Party as the agent of the other, or the Parties as joint venturers or partners
of one another for any purpose. Neither Party shall be responsible for the acts
or omissions of the other. Neither Party has any authority to speak for,
represent or obligate the other Party in any way without prior written authority
from such other Party.
9.2. NOTICES. Any notice or other communication shall be in writing and
shall be personally delivered, or sent by overnight or second day courier or by
first class mail, return receipt requested, to the Party to whom such notice or
other communication is to be given or made at such Party's address set forth
below, or to such other address as such Party shall designate by written notice
to the other Party as follows:
If to TFT:
Thermo Fibertek Inc.
81 Wyman Street
Waltham, Massachusetts 02254
Attention: President
If to TFG:
Thermo Fibergen Inc.
8 Alfred Circle
Bedford, Massachusetts 01730
Attention: President
PROVIDED, HOWEVER, that any notice of change of address, and any notice or other
communication given otherwise than as specified above shall be effective only
upon receipt; and further that any presumption of receipt by the addressee shall
be inoperable during the period of any interruption in Postal Service.
9.3. ENTIRE AGREEMENT. This Agreement, including Schedule A hereto,
sets forth the entire agreement between the Parties with respect to its subject
matter, and supersedes all prior agreements, written or oral, with respect
thereto.
8
<PAGE> 9
9.4. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF
REMEDIES. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the Parties or, in the case of a waiver, by the Party waiving
compliance. No delay on the part of either Party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any waiver on
the part of either Party of any such right, power or privilege, nor any single
or partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that either Party may otherwise have at law or in equity.
9.5. ASSIGNMENT. Neither Party shall assign its rights or obligations
hereunder without the prior written consent of the other Party; PROVIDED,
HOWEVER, that notwithstanding the foregoing, a Party may assign its rights and
obligations hereunder without the prior written consent of the other Party in
connection with the sale to any person or entity of all or substantially all of
the business or assets of the assigning Party relating to the development,
manufacture, use or sale of Licensed Products; PROVIDED, HOWEVER, that such
person or entity shall first have agreed with the other Party to assume and
perform the obligations of such Party hereunder.
9.6. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Parties, their permitted assigns and their respective
successors and legal representatives.
9.7. SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
9.8. COUNTERPARTS. This Agreement may be executed by the Parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
9.9. HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
9.10. FORCE MAJEURE. Neither Party shall be responsible to the other
Party for nonperformance or delay in performance of the terms or conditions of
this Agreement due to acts of God, acts of governments, war, riots, strikes,
accidents in transportation, or other causes beyond the reasonable control of
such Party.
9.11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts.
9
<PAGE> 10
IN WITNESS WHEREOF, the Parties have executed this Agreement under seal
as of the date first above written.
THERMO FIBERTEK INC. THERMO FIBERGEN INC.
By: /s/ William A. Rainville By: /s/ Yiannis A. Monovoukas
----------------------------- -----------------------------
Name: William A. Rainville Name: Yiannis A. Monovoukas
--------------------------- ----------------------------
Title: President and Chief Title: President and Chief
-------------------------- ---------------------------
Executive Officer Executive Officer
10
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SCHEDULE A
List of Patent Rights
---------------------
US Patent No. 5,259,955 and all foreign counterparts, including without
limitation, patents issued by, and patents pending in, Australia, Brazil,
Canada, the European Union, Finland, Japan and Mexico
US Patent No. 5,453,193 and all foreign counterparts, including without
limitation, patents issued by, and patents pending in, Brazil, Canada, the
European Union and Japan
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Fibergen Inc.:
As independent public accountants, we hereby consent to the use of our
report dated July 3, 1996 (and to all references to our Firm) included in or
made part of this Registration Statement on Form S-1 and related Prospectus of
Thermo Fibergen Inc.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 5, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Electron Corporation:
As independent public accountants, we hereby consent to the
incorporation by reference in the Registration Statements and related
prospectuses of Thermo Fibergen Inc. and Thermo Electron Corporation on Forms
S-1 and S-3, respectively, of our report dated February 15, 1996 (except with
respect to matters discussed in Note 16 as to which the date is June 28, 1996)
included or incorporated by reference in Thermo Electron Corporation's Amendment
No. 1 on Form 10-K/A for the year ended December 30, 1995 and to all references
to our Firm included in these Registration Statements.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 5, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Trustees of Edward Lowe Foundation, Inc., Granulation Technology, Inc.
and Biodac, a division of
Edward Lowe Industries, Inc.:
We hereby consent to the use of our report, dated July 2, 1996 on the
combined financial statements of Granulation Technology, Inc. and Biodac, a
division of Edward Lowe Industries, Inc., as of September 30, 1994 and 1995 and
for the years ended September 30, 1993, 1994 and 1995 in this Registration
Statement on Form S-1 and the Prospectus of Thermo Fibergen, Inc. We also
consent to the use of our name and the statements with respect to us appearing
under the heading "Experts" in the Prospectus.
CROWE, CHIZEK AND COMPANY LLP
South Bend, Indiana
September 5, 1996
