<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THERMO ELECTRON CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3569 04-2209186
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
</TABLE>
81 WYMAN STREET
WALTHAM, MASSACHUSETTS 02454-9046
(781) 622-1000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
SANDRA L. LAMBERT, SECRETARY
THERMO ELECTRON CORPORATION
81 WYMAN STREET
WALTHAM, MASSACHUSETTS 02454-9046
(781) 622-1000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
SETH H. HOOGASIAN, ESQ. WILLIAM P. GELNAW, JR., P.C.
GENERAL COUNSEL CHOATE, HALL & STEWART
THERMO ELECTRON CORPORATION EXCHANGE PLACE
81 WYMAN STREET 53 STATE STREET
WALTHAM, MASSACHUSETTS 02454-9046 BOSTON, MASSACHUSETTS 02109
(781) 622-1000 (617) 248-5000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective time of the Registration Statement and as soon
as certain other conditions under the Agreement and Plan of Merger, dated as of
October 19, 1999, among Thermo Electron Corporation, TTT Acquisition
Corporation, and Thermo TerraTech Inc. (the "Merger Agreement"), attached as
Appendix A to the Proxy Statement-Prospectus forming a part of this Registration
Statement as described herein, are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE PRICE(2)
<S> <C> <C> <C>
Common Stock, par value
$1.00 per share (3).............. 1,800,000 shares $6.625 $11,925,000
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value
$1.00 per share (3).............. $3,316
</TABLE>
(1) Based upon the maximum number of shares of Common Stock, par value $1.00 per
share ("Thermo Common Stock"), of Thermo Electron Corporation ("Thermo
Electron") that may be issued pursuant to the Merger Agreement.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"). This fee has been computed pursuant to Rules 457(f) and (c) thereof
and is based on (i) $6.625, the average of the high and low per share prices
of Common Stock, par value $0.10 per share ("TerraTech Common Stock") of
Thermo TerraTech Inc. ("Thermo TerraTech") on the American Stock Exchange on
November 5, 1999, and (ii) the maximum number of shares of TerraTech Common
Stock to be acquired by Thermo Electron pursuant to the Merger.
(3) The Thermo Common Stock being registered hereby includes associated
preferred stock purchase rights.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[THERMO TERRATECH LOGO]
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
I am pleased to invite you to a Special Meeting of the stockholders of
Thermo TerraTech Inc., at which you will be asked to adopt an Agreement and Plan
of Merger dated as of October 19, 1999 by and among Thermo TerraTech, Thermo
Electron Corporation (Thermo TerraTech's parent company) and TTT Acquisition
Corporation, a newly formed subsidiary of Thermo Electron. The Special Meeting
will take place at 10:00 a.m., local time, on , , 2000 at
the offices of Thermo Electron, 81 Wyman Street, Waltham, Massachusetts 02454.
The Merger would result in the public stockholders of Thermo TerraTech receiving
0.4 shares of the common stock of Thermo Electron for each share of TerraTech
Common Stock held by them (subject to adjustment as described herein) and Thermo
TerraTech becoming a private company and a wholly owned subsidiary of Thermo
Electron. Thermo Electron may terminate the Merger Agreement if it would be
required to issue more than 1.8 million shares of Thermo Common Stock under the
Merger Agreement.
The Thermo Common Stock is listed on the New York Stock Exchange under the
trading symbol "TMO". On , 1999, the Thermo Common Stock closed at
$ per share. The Merger cannot be completed unless the holders of the
TerraTech Common Stock, representing a majority of the votes entitled to be
cast, adopt the Merger Agreement, which is attached as Appendix A to, and
incorporated by reference into, the enclosed Proxy Statement-Prospectus. Please
read the entire Merger Agreement carefully. Only stockholders who hold their
shares of TerraTech Common Stock at the close of business on , 1999
will be entitled to vote at the Special Meeting. Each holder of a share of
TerraTech Common Stock will be entitled to cast one vote per share at the
meeting.
A Special Committee of the Board of Directors of Thermo TerraTech, acting in
the interests of Thermo TerraTech stockholders other than Thermo Electron and
the directors and officers of Thermo TerraTech and Thermo Electron and their
respective affiliates, evaluated the merits and negotiated the terms of the
Merger. The Special Committee received an opinion from Adams, Harkness & Hill,
Inc. as to the fairness of the Merger from a financial point of view, as of the
date of its opinion, to the Thermo TerraTech stockholders (other than Thermo
Electron and its affiliates). Please read carefully the written opinion of
Adams, Harkness & Hill, dated October 19, 1999, which is attached as Appendix B
to the enclosed Proxy Statement-Prospectus. The Special Committee recommended
that Thermo TerraTech's Board of Directors approve the Merger Agreement.
Thermo TerraTech's Board of Directors and its Special Committee believe that
the proposed Merger is both substantively and procedurally fair to the public
stockholders of Thermo TerraTech, and the Board recommends that stockholders
vote "FOR" adoption of the Merger Agreement. You should be aware that five of
the six members of the Thermo TerraTech Board of Directors are either directors
or employees of Thermo Electron and thus have interests that are in addition to,
or different from, your interests as stockholders of Thermo TerraTech. You
should also be aware that Thermo Electron, which beneficially owns approximately
87% of the outstanding shares of TerraTech Common Stock, has agreed to vote its
shares in favor of the Merger Agreement, and accordingly stockholder adoption is
assured.
This Proxy Statement-Prospectus provides you with detailed information
concerning Thermo Electron and the proposed Merger. Please give all of the
information contained in the Proxy Statement-Prospectus your careful attention.
In particular, you should carefully consider the discussion in the section
entitled "Risk Factors" on page of this Proxy Statement-Prospectus. You can
find out how to obtain additional information regarding Thermo Electron and
Thermo TerraTech in the section entitled "Where You Can Find More Information"
on page .
1
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED
ENVELOPE. RETURNING THE PROXY DOES NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND THE
MEETING AND TO VOTE YOUR SHARES IN PERSON. YOUR VOTE IS VERY IMPORTANT. THANK
YOU FOR YOUR INTEREST AND PARTICIPATION.
Very truly yours,
John P. Appleton
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Proxy Statement-Prospectus. Any representation to
the contrary is a criminal offense.
This Proxy Statement-Prospectus is dated , 1999 and was first
mailed to stockholders on or about , 1999.
This Proxy Statement-Prospectus incorporates important business and
financial information about Thermo TerraTech and Thermo Electron that is not
included in or delivered with the document. This information is available
without charge to you upon your written or oral request. Please contact Sandra
L. Lambert, Corporate Secretary, Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts 02454 (telephone: 781-622-1000; facsimile: 781-768-6620).
In order to receive timely delivery, please contact us no later than ,
1999.
2
<PAGE>
[Thermo TerraTech logo]
NOTICE OF SPECIAL MEETING
, 1999
TO THE HOLDERS OF THE COMMON STOCK OF
THERMO TERRATECH INC.
I am pleased to give you notice of and cordially invite you to attend in
person or by proxy the Special Meeting of the stockholders of Thermo TerraTech
Inc., a Delaware corporation (the "Company" or "Thermo TerraTech"), which will
be held on , , 2000, at 10:00 a.m., local time, at the offices of
Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454, and
at any adjournment or adjournments thereof (the "Special Meeting"). At the
Special Meeting, stockholders will:
1. Consider and vote on a proposal to adopt an Agreement and Plan of Merger
dated as of October 19, 1999 (the "Merger Agreement"), by and among
Thermo TerraTech, Thermo Electron Corporation ("Thermo Electron") and TTT
Acquisition Corporation (the "Merger Sub"), pursuant to which the Merger
Sub, a newly formed, wholly owned subsidiary of Thermo Electron, will be
merged with and into Thermo TerraTech (the "Merger"). Upon the Merger,
each stockholder of Thermo TerraTech (other than Thermo Electron) will
become entitled to receive 0.4 share (subject to adjustment as described
herein) of the common stock, $1.00 par value, of Thermo Electron (the
"Thermo Common Stock") for each outstanding share of common stock, $.10
par value, of Thermo TerraTech (the "TerraTech Common Stock") owned by
such stockholder immediately prior to the effective time of the Merger. A
copy of the Merger Agreement is attached as Appendix A to and is
described in the accompanying Proxy Statement-Prospectus.
2. Transact such other business as may properly come before the Special
Meeting.
Only stockholders of record at the close of business on , 1999
will receive notice of and be able to vote at the Special Meeting.
The accompanying Proxy Statement-Prospectus describes the Merger Agreement,
the proposed Merger and the actions to be taken in connection with the Merger.
Thermo TerraTech's Bylaws require that the holders of a majority of the
outstanding shares of TerraTech Common Stock entitled to vote be present or
represented by proxy at the Special Meeting in order to constitute a quorum for
the transaction of business. It is important that your shares be represented at
the Special Meeting regardless of the number of shares you hold. Whether or not
you are able to be present in person, please sign and return promptly the
enclosed Proxy Card in the accompanying envelope, which requires no postage if
mailed in the United States. You may revoke your proxy in the manner described
in the accompanying Proxy Statement-Prospectus at any time before it is voted at
the Special Meeting.
This Notice, the Proxy Card and Proxy Statement-Prospectus enclosed herewith
are sent to you by order of the Board of Directors.
SANDRA L. LAMBERT
Secretary
3
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. TO ADOPT THE MERGER AGREEMENT, THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF TERRATECH COMMON
STOCK ENTITLED TO VOTE THEREON IS REQUIRED. YOU ARE REQUESTED TO PROMPTLY
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE
PROVIDED. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE
MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS. ANY STOCKHOLDER
PRESENT AT THE SPECIAL MEETING MAY REVOKE SUCH HOLDER'S PROXY AND VOTE
PERSONALLY ON THE MERGER AGREEMENT AT THE SPECIAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATION OF THE BOARD OF
DIRECTORS WITH RESPECT TO THE MERGER, STOCKHOLDERS OTHER THAN THERMO ELECTRON
AND THE DIRECTORS AND OFFICERS OF THERMO TERRATECH AND THERMO ELECTRON (THE
"'PUBLIC STOCKHOLDERS") SHOULD BE AWARE THAT CERTAIN OFFICERS AND DIRECTORS OF
THERMO TERRATECH HAVE CERTAIN INTERESTS THAT ARE IN ADDITION TO, OR DIFFERENT
FROM, THE INTERESTS OF THE PUBLIC STOCKHOLDERS. SEE "THE MERGER--CONFLICTS OF
INTEREST."
IF A PROPERLY EXECUTED PROXY CARD IS SUBMITTED AND NO INSTRUCTIONS ARE
GIVEN, THE SHARES OF TERRATECH COMMON STOCK REPRESENTED BY THAT PROXY WILL BE
VOTED "FOR" ADOPTION OF THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO THERMO TERRATECH AT THIS TIME.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 8
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS................... 11
Date, Time and Place of the Special Meeting............... 11
Purpose of the Special Meeting............................ 11
Record Date and Quorum.................................... 11
Vote Required and Revocation of Proxies................... 12
Parties to the Merger..................................... 12
The Merger................................................ 13
Effective Time of the Merger and Payment for Shares....... 14
Effect of the Merger on Thermo TerraTech Stock Options,
Warrants and Debentures................................. 14
The Special Committee's and the Board's Recommendation.... 15
Opinion of Adams, Harkness & Hill......................... 16
Purpose and Reasons of Thermo Electron for the Merger..... 16
Purpose and Reasons of Thermo TerraTech for the Merger.... 17
Position of Thermo Electron as to Fairness of the
Merger.................................................. 18
Conflicts of Interest..................................... 18
Certain Effects of the Merger............................. 20
Conditions to the Merger, Termination and Expenses........ 20
Federal Income Tax Consequences........................... 22
Accounting Treatment...................................... 22
Federal and State Regulatory Requirements................. 22
Restrictions on the Ability to Sell Thermo Electron
Stock................................................... 22
You Do Not Have Dissenters' or Appraisal Rights........... 23
Where You Can Find More Information....................... 23
Differences between Your Rights as a Thermo TerraTech
Stockholder and as a Thermo Electron Stockholder........ 23
Forward Looking Statements in this Proxy
Statement-Prospectus.................................... 23
Comparative Per Share Market Price Data................... 23
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL
INFORMATION................................................. 24
RISK FACTORS................................................ 26
Thermo Electron is in the Midst of a Corporate
Reorganization, which Includes Taking Several
Subsidiaries Private and Selling Several Businesses..... 26
The Value of the Thermo Common Stock You Receive in the
Merger May Vary......................................... 26
Acquired Businesses May Be Unprofitable and Difficult to
Integrate............................................... 26
Thermo Electron Has Significant Competition in the Sale of
its Products and Services............................... 27
International Operations Involve Many Risks............... 27
Thermo Electron Must Adapt to Rapid and Significant
Technological Change and Respond to Introductions of New
Products................................................ 27
Changes in Governmental Regulations May Adversely Affect
Demand for Thermo Electron's Products................... 27
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Some of Thermo Electron's Products Must be Approved by
Government Agencies; Thermo Electron may not Obtain the
Necessary Approvals..................................... 28
Demand for Some Thermo Electron Products Depends on
Capital Spending Policies of its Customers and on
Government Funding Policies............................. 28
Thermo Electron Depends on its Patents and Proprietary
Rights.................................................. 28
The Year 2000 Computer Issue may Disrupt Thermo Electron's
or its Customers'
Businesses.............................................. 29
THE MERGER.................................................. 30
Background of the Merger.................................. 30
The Special Committee's and the Board's Recommendation.... 37
Opinion of Adams, Harkness & Hill......................... 40
Purpose and Reasons of Thermo Electron for the Merger..... 49
Purpose and Reasons of Thermo TerraTech for the Merger.... 50
Position of Thermo Electron as to Fairness of the
Merger.................................................. 50
Conflicts of Interest..................................... 51
Certain Effects of the Merger............................. 53
Conduct of Thermo TerraTech's Business After the Merger... 54
Conduct of the Business of Thermo TerraTech if the Merger
is Not Consummated...................................... 54
Conversion of Securities.................................. 55
Effect of the Merger on Thermo TerraTech Stock Options,
Warrants and Debentures................................. 56
Deferred Compensation Plan for Directors.................. 56
Transfer of Shares........................................ 56
Conditions................................................ 56
Representations and Warranties............................ 58
Covenants................................................. 58
Indemnification and Insurance............................. 59
Termination, Amendment and Waiver......................... 60
Expenses.................................................. 61
Accounting Treatment...................................... 61
Regulatory Approvals...................................... 61
Restrictions on Sales of Shares by Affiliates of Thermo
TerraTech and Thermo Electron........................... 61
Listing on the New York Stock Exchange of Thermo Common
Stock to be Issued in the Merger........................ 62
Dissenters' and Appraisal Rights.......................... 62
Comparative Per Share Market Price Data................... 62
THE SPECIAL MEETING......................................... 63
Proxy Solicitation........................................ 63
Record Date and Quorum Requirement........................ 63
Voting Procedures......................................... 63
Voting and Revocation of Proxies.......................... 64
Effective Time............................................ 64
SELECTED FINANCIAL INFORMATION--THERMO ELECTRON............. 65
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SELECTED FINANCIAL INFORMATION--THERMO TERRATECH............ 66
FEDERAL INCOME TAX CONSEQUENCES............................. 67
CERTAIN PROJECTED FINANCIAL DATA............................ 69
COMPARISON OF RIGHTS OF HOLDERS OF THERMO TERRATECH AND
THERMO COMMON STOCK......................................... 71
CERTAIN TRANSACTIONS........................................ 78
RECENT DEVELOPMENTS.........................................
LEGAL OPINION............................................... 80
EXPERTS..................................................... 80
STOCKHOLDER PROPOSALS....................................... 81
WHERE YOU CAN FIND MORE INFORMATION......................... 81
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS........ F-1
APPENDIX A--Agreement and Plan of Merger.................... A-1
APPENDIX B--Opinion of Adams, Harkness & Hill, Inc.......... B-1
APPENDIX C--Annual Report on Form 10-K of Thermo
TerraTech Inc. for the Fiscal Year ended April 3, 1999.... C-1
APPENDIX D--Amendment No. 1 on Form 10-K to Annual Report on
Form 10-K/A of Thermo TerraTech Inc. for the Fiscal Year
ended April 3, 1999....................................... D-1
APPENDIX E--Quarterly Report on Form 10-Q of Thermo
TerraTech Inc. for the Quarter ended July 3, 1999......... E-1
</TABLE>
7
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
1. WHEN AND WHERE IS THE THERMO TERRATECH SPECIAL MEETING?
The Special Meeting will take place on , 2000, at 10:00 a.m.,
local time, at the offices of Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts 02454.
2. WHAT PROPOSALS ARE THERMO TERRATECH STOCKHOLDERS VOTING ON?
Thermo TerraTech stockholders are being asked to adopt the Merger Agreement.
The Merger Agreement provides that a wholly owned subsidiary of Thermo Electron
will merge with and into Thermo TerraTech and, as a result, Thermo Electron will
own all of the outstanding Common Stock of Thermo TerraTech.
3. WHAT WILL THERMO TERRATECH STOCKHOLDERS RECEIVE IN THE MERGER?
In the Merger, Thermo TerraTech stockholders will receive 0.4 share of
Thermo Common Stock for each share of TerraTech Common Stock owned by them (as
adjusted the "Exchange Ratio"). The Exchange Ratio may be adjusted, as follows:
- If the average of the closing prices as reported in the consolidated
transaction reporting system of shares of the Thermo Common Stock for each
of the 20 consecutive trading days ending on the fifth trading day prior
to the effective date of the Merger (the "Pre-Closing Average Price")
multiplied by the Exchange Ratio is less than $7.25, then the Exchange
Ratio shall be adjusted to be equal to $7.25 divided by the Pre-Closing
Average Price, provided that Thermo Electron may terminate the Merger
Agreement if it would be required to issue more than 1,800,000 shares of
Thermo Common Stock as a result of this adjustment.
- If the Pre-Closing Average Price multiplied by the Exchange Ratio is
greater than $9.25, the Exchange Ratio will be adjusted to be equal to
$9.25 divided by the Pre-Closing Average Price.
In other words:
(i) If during the 20 trading days ending on the fifth trading day prior
to the effective date of the Merger, the average closing price of Thermo
Common Stock is less than $18.125, Thermo TerraTech stockholders would
receive Thermo Common Stock worth the equivalent of $7.25 per share of
TerraTech Common Stock (however, Thermo Electron may elect to terminate the
Merger Agreement if it would be required to issue more than 1,800,000 shares
of Thermo Common Stock in the transaction).
(ii) If the average closing price of Thermo Common Stock is between
$18.125 and $23.125, each share of Common Stock would be exchanged for 0.4
shares of Thermo Common Stock.
(iii) If the average closing price of Thermo Common Stock is greater
than $23.125, Thermo TerraTech shareholders would receive Thermo Common
Stock worth the equivalent of $9.25 per share of Common Stock.
On April 30, 1999, the last day before the public announcement of Thermo
Electron's proposal to take Thermo TerraTech private (no price having been
determined as of that date, and, accordingly, no exchange ratio or financial
terms announced as of that date) on which the TerraTech Common Stock traded, the
closing price of TerraTech Common Stock reported in the consolidated transaction
reporting system was $4.1875; on May 4, 1999, the last trading day before the
public announcement of Thermo Electron's proposal to take Thermo TerraTech
private, the closing price of Thermo Common Stock reported in the consolidated
transaction reporting system was $16.25; on October 19, 1999 (the last trading
day before the announcement of the financial terms of the proposed Merger), the
closing prices of TerraTech Common Stock and Thermo Common Stock reported in the
consolidated transaction reporting
8
<PAGE>
system were $5.375 and $13.0625, respectively; and on , 1999 (the
most recent practicable date prior to the printing of this Proxy
Statement-Prospectus), the closing prices of TerraTech Common Stock and Thermo
Common Stock reported in the consolidated transaction reporting system were
$ and $ , respectively.
4. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
The Merger is intended to qualify as a reorganization under the Internal
Revenue Code. Accordingly, no gain or loss will generally be recognized by
Thermo TerraTech, Thermo Electron or the Merger Sub as a result of the Merger.
Additionally, no gain or loss will generally be recognized by Thermo TerraTech
stockholders to the extent they receive shares of Thermo Common Stock in the
Merger. In general, however, Thermo TerraTech stockholders will recognize
taxable gain to the extent they receive cash in lieu of fractional shares in the
Merger. Thermo TerraTech stockholders should consult their tax advisors for a
full understanding of the tax consequences of the Merger.
5. WHY IS THERMO TERRATECH'S BOARD OF DIRECTORS RECOMMENDING ADOPTION OF THE
TRANSACTION?
Thermo TerraTech's Board of Directors believes, based on the recommendation
of its Special Committee, that the proposed transaction is fair to and in the
best interests of, Thermo TerraTech and its stockholders other than Thermo
Electron and the directors and officers of Thermo TerraTech and Thermo Electron
(the "Public Stockholders").
6. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
Yes. In evaluating the Merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" on page .
7. AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
Under Delaware law, holders of TerraTech Common Stock are not entitled to
dissenters' or appraisal rights in the Merger.
8. WHAT STOCKHOLDER VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT?
Under Delaware law and the charter documents of Thermo TerraTech, a majority
of the outstanding shares of TerraTech Common Stock entitled to vote must vote
to adopt the Merger Agreement. Thermo Electron owns approximately 87% of the
outstanding TerraTech Common Stock and has agreed to vote in favor of adoption
of the Merger Agreement. Accordingly, the stockholder vote adopting the Merger
Agreement is assured.
9. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HOLDING MY SHARES AS TO HOW TO
VOTE THEM OR I ABSTAIN FROM VOTING?
If your shares are held by a broker as nominee, your broker will not be able
to vote your shares without instructions from you. If your broker is unable to
vote your shares or if you abstain, it will have the effect of voting against
adoption of the Merger Agreement under Delaware law; however, as indicated
above, Thermo Electron owns sufficient shares to satisfy the Delaware law voting
requirement.
10. WHO IS ENTITLED TO VOTE?
Holders of record of TerraTech Common Stock at the close of business on
, 1999, the record date for the Special Meeting, are entitled to vote at
the Special Meeting.
9
<PAGE>
11. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
We are working to complete all aspects of the Merger as quickly as possible.
If adopted by the stockholders, we currently expect the Merger to be completed
by , 2000.
12. WHAT DO I NEED TO DO NOW?
After you have carefully read this Proxy Statement-Prospectus, please
complete, sign and mail your Proxy Card in the enclosed return envelope as soon
as possible. That way, your shares can be represented at the Special Meeting. If
your shares are held by a broker as nominee, you should receive a Proxy Card
from your broker.
Thermo TerraTech stockholders must return their Proxy Cards before the
Special Meeting or attend the Special Meeting in order for their votes to be
counted at the Special Meeting.
13. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
You may change your vote at any time before the vote takes place at the
Special Meeting. To do so, you can attend the Special Meeting and vote in
person, complete and send a new Proxy Card with a later date or send a written
notice stating you would like to revoke your proxy. The notice should be sent
to: Thermo TerraTech Inc., c/o Thermo Electron Corporation, 81 Wyman Street,
Waltham, MA 02454-9046, Attention: Corporate Secretary.
14. SHOULD I SEND IN MY THERMO TERRATECH STOCK CERTIFICATES NOW?
No. You should continue to hold your certificates for TerraTech Common
Stock. If the Merger is completed, you will receive a package containing
instructions on how to exchange your shares of TerraTech Common Stock for Thermo
Common Stock.
15. WILL THERMO TERRATECH'S 4 5/8% CONVERTIBLE SUBORDINATED DEBENTURES BE
EXCHANGED IN THE MERGER?
No. However, following the Merger, holders of the debentures will have the
right to convert their debentures into Thermo Common Stock, rather than into
TerraTech Common Stock. Holders of the debentures will not have the right to
cause Thermo TerraTech to redeem the debentures in connection with the Merger.
See "THE MERGER--Effect of the Merger on Thermo TerraTech Stock Options,
Warrants and Debentures."
16. WHAT WILL HAPPEN TO THE THERMO TERRATECH STOCK OPTIONS AND WARRANTS?
Options and warrants to purchase TerraTech Common Stock outstanding on the
effective date of the Merger, whether or not the options are then exercisable,
will be assumed by Thermo Electron and converted into options or warrants, as
the case may be, to purchase shares of Thermo Common Stock.
17. WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?
You should call Thermo TerraTech Investor Relations at (781) 622-1111.
18. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
We do not expect to ask you to vote on any other matters at the Special
Meeting. If you are voting by proxy, however, we ask that you give the proxies
listed in the Proxy Card the power to act in their discretion upon any other
matters that may come before the Special Meeting.
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SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the Merger. In particular, you
should read the documents attached to this Proxy Statement-Prospectus, including
the Merger Agreement, which is attached as Appendix A and incorporated by
reference into the Proxy Statement-Prospectus. In addition, we incorporate by
reference important business and financial information about Thermo Electron and
Thermo TerraTech into this Proxy Statement-Prospectus. You may obtain the
information incorporated by reference into this Proxy Statement-Prospectus
without charge by following the instructions in the section entitled "Where You
Can Find More Information" on page of this Proxy Statement-Prospectus.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting of stockholders of Thermo TerraTech Inc., a Delaware
corporation (the "Company" or "Thermo TerraTech"), will be held on ,
, 2000, at 10:00 a.m., local time, at the offices of Thermo Electron
Corporation, 81 Wyman Street, Waltham, Massachusetts 02454.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote on a proposal to adopt an Agreement and Plan of Merger dated as of
October 19, 1999 (the "Merger Agreement"), which is attached to this Proxy
Statement as Appendix A. The Merger Agreement provides that TTT Acquisition
Corporation (the "Merger Sub"), a newly-formed Delaware corporation that is a
wholly owned subsidiary of Thermo Electron Corporation, a Delaware corporation
("Thermo Electron"), would merge with and into Thermo TerraTech (the "Merger").
Thermo TerraTech would be the surviving corporation (the "Surviving
Corporation") in the Merger, and each outstanding share of common stock, $.01
par value, of Thermo TerraTech (the "TerraTech Common Stock"), other than shares
held by Thermo TerraTech in treasury and shares held by Thermo Electron, will be
converted automatically into the right to receive 0.4 share of the common stock,
$1.00 par value per share, of Thermo Electron (the "Thermo Common Stock") (the
"Exchange Ratio"), subject to adjustment as described below. See "THE MERGER."
RECORD DATE AND QUORUM
The close of business on , 1999 is the record date (the "Record Date")
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting. Each holder of record of TerraTech Common Stock at the close of
business on the Record Date is entitled to one vote for each share then held on
each matter submitted to a vote of stockholders. At the close of business on the
Record Date, there were shares of TerraTech Common Stock outstanding. The
holders of a majority of the outstanding shares of TerraTech Common Stock
entitled to vote at the Special Meeting must be present in person or represented
by proxy to constitute a quorum for the transaction of business. Abstentions
will be counted as shares present and entitled to vote for purposes of
determining whether a quorum exists. If you hold your shares of TerraTech Common
Stock through a broker, bank or other nominee, generally the nominee may only
vote the Common Stock that it holds for you in accordance with your
instructions. However, if it has not timely received your instructions, the
nominee may vote on certain matters for which it has discretionary voting
authority. Brokers generally will not have discretionary voting authority with
respect to the proposal to adopt the Merger Agreement. If a nominee cannot vote
on a particular matter because it does not have discretionary voting authority,
this is a "broker non-vote" on that matter. Broker non-votes are also counted as
present or represented at the Special Meeting for purposes of determining
whether a quorum exists. See "THE SPECIAL MEETING--Record Date and Quorum
Requirement."
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VOTE REQUIRED AND REVOCATION OF PROXIES
Under Delaware law, holders of a majority of the outstanding shares of
TerraTech Common Stock entitled to vote at the Special Meeting must adopt the
Merger. For the purposes of this vote, a failure to vote, a vote to abstain and
a broker non-vote will have the same legal effect as a vote cast against
adoption of the Merger Agreement. Thermo Electron, which owns approximately 87%
of the outstanding TerraTech Common Stock, owns enough shares of TerraTech
Common Stock to adopt the Merger under Delaware law without the vote of any
other holders of TerraTech Common Stock and has agreed to vote its shares in
favor of the Merger Agreement. See "THE SPECIAL MEETING--Voting Procedures."
A stockholder who returns a proxy may revoke it at any time before the
stockholder's shares are voted at the Special Meeting. The proxy may be revoked
by written notice to the Secretary of the Company received prior to the Special
Meeting, by executing and returning a later-dated proxy or by voting by ballot
at the Special Meeting. See "THE SPECIAL MEETING--Voting and Revocation of
Proxies."
If a properly executed Proxy Card is submitted and no instructions are
given, the shares of TerraTech Common Stock represented by that proxy will be
voted "FOR" the adoption of the proposed Merger Agreement.
The Board of Directors of the Company (the "Board" or the "Board of
Directors") is not aware of any other matters to be voted on at the Special
Meeting. If any other matters properly come before the Special Meeting,
including a motion to adjourn the Special Meeting for the purpose of soliciting
additional proxies, the persons named on the accompanying Proxy Card will vote
the shares represented by all properly executed proxies on such matters in their
discretion, except that shares represented by proxies that have been voted
"AGAINST" adoption of the Merger Agreement will not be used to vote "FOR"
adjournment of the Special Meeting for the purpose of allowing additional time
for soliciting additional votes "FOR" the Merger Agreement. See "THE SPECIAL
MEETING--Voting Procedures."
PARTIES TO THE MERGER
THERMO ELECTRON
Thermo Electron and its subsidiaries develop, manufacture and market
monitoring, analytical, and biomedical instrumentation; biomedical products
including heart-assist devices, respiratory-care equipment, and mammography
systems; and paper recycling and papermaking equipment. Thermo Electron also
develops alternative-energy systems and clean fuels, industrial process
equipment; and other specialized products. Thermo Electron also provides a range
of services including industrial outsourcing, particularly in
environmental-liability management, laboratory analysis and metallurgical
processing, and conducts advanced-technology research and development. Thermo
Electron performs its business through wholly owned subsidiaries and divisions,
as well as majority-owned subsidiaries that are partially owned by the public or
private investors.
Thermo Electron is a Delaware corporation and was incorporated in 1956. It
completed its initial public offering in 1967, and the Thermo Common Stock has
been listed on the New York Stock Exchange since 1980. The principal executive
offices of Thermo Electron are located at 81 Wyman Street, Waltham,
Massachusetts 02454-9046, and its telephone number is (781) 622-1000.
THERMO TERRATECH
Thermo TerraTech provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations. Thermo TerraTech operates
in four segments: environmental-liability management, engineering and design,
laboratory testing, and metal treating.
The Environmental-liability Management segment includes Thermo TerraTech's
majority-owned, publicly held ThermoRetec Corporation subsidiary
("ThermoRetec"), which is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices,
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ThermoRetec offers these and related consulting services in four areas:
consulting and engineering, nuclear remediation, soil remediation, and fluids
recycling. As of , 1999, Thermo TerraTech owned % of ThermoRetec's
outstanding common stock. ThermoRetec and Thermo Electron have entered into an
Agreement and Plan of Merger, dated as of October 19, 1999, pursuant to which
Retec Acquisition Corporation, a newly formed, wholly owned subsidiary of Thermo
Electron, would be merged with and into ThermoRetec (the "ThermoRetec Merger")
and, as a result, Thermo Electron would own all of the outstanding common stock
of ThermoRetec.
Thermo TerraTech's majority-owned, privately-held Thermo EuroTech N.V.
subsidiary, located in the Netherlands, specializes in converting "off-spec" and
contaminated petroleum fluids into useable oil products. Thermo EuroTech also
provides in-plant waste management and recycling services through its
Ireland-based Green Sunrise Holdings Ltd. subsidiary. As of , 1999, Thermo
TerraTech owned % of Thermo EuroTech's outstanding common stock.
The Engineering and Design segment includes Thermo TerraTech's
majority-owned, publicly held subsidiary, The Randers Killam Group Inc.
("Randers Killam"), which provides comprehensive engineering and outsourcing
services in four areas: water and wastewater treatment, process engineering and
construction, highway and bridge engineering, and infrastructure engineering. As
of , 1999, Thermo TerraTech owned approximately 95% of Randers Killam's
outstanding common stock. Randers Killam and Thermo Electron have entered into
an Agreement and Plan of Merger, dated as of October 19, 1999, pursuant to which
RK Acquisition Corporation, a newly formed, wholly owned subsidiary of Thermo
Electron, would be merged with and into Randers Killam (the "Randers Killam
Merger") and, as a result, Thermo Electron would own all of the outstanding
common stock of Randers Killam. This segment also includes Thermo TerraTech's
wholly owned Normandeau Associates Inc. subsidiary, which provides consulting
services that address natural resource management issues.
Thermo TerraTech's wholly owned Thermo Analytical Inc. subsidiary, which
represents the Laboratory Testing segment, operates analytical laboratories that
provide environmental- and pharmaceutical-testing services, primarily to
commercial clients throughout the United States.
The Metal Treating segment performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin.
As of , 1999, Thermo Electron owned shares of TerraTech
Common Stock, representing % of such stock outstanding. The principal
executive offices of Thermo TerraTech are located at 85 First Avenue, Waltham,
Massachusetts 02451, and its telephone number is (781) 370-1640.
THE MERGER SUB
The Merger Sub is a newly-formed Delaware corporation organized at the
direction of Thermo Electron for the sole purpose of effecting the Merger and
has not conducted any prior business.
The principal executive offices of the Merger Sub are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.
THE MERGER
The Merger Agreement provides that, subject to satisfaction of certain
conditions, the Merger Sub will be merged with and into Thermo TerraTech, and
that following the Merger, the separate existence of the Merger Sub will cease
and Thermo TerraTech will continue as the Surviving Corporation. At the
effective time of the Merger, which shall be the date and time of filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time") (and the date on which the Effective Time occurs being the
"Effective Date"), and subject to the terms and conditions set forth in the
Merger Agreement, each share of issued and outstanding TerraTech Common Stock
(other than shares held by Thermo TerraTech in treasury and shares held by
Thermo Electron) will, by virtue of the Merger, be canceled and converted into
the right to receive the Exchange Ratio, subject to adjustment as described
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below. As a result of the Merger, the TerraTech Common Stock will no longer be
publicly traded and will be 100% owned by Thermo Electron. See "THE MERGER."
The Exchange Ratio may be adjusted, as follows:
- If the average of the closing prices as reported in the consolidated
transaction reporting system of shares of the Thermo Common Stock for each
of the 20 consecutive trading days ending on the fifth trading day prior
to the Effective Time (the "Pre-Closing Average Price") multiplied by the
Exchange Ratio is less than $7.25 (the "Floor Price"), then the Exchange
Ratio shall be adjusted to be equal to $7.25 divided by the Pre-Closing
Average Price, provided that Thermo Electron may terminate the Merger
Agreement if it would be required to issue more than 1,800,000 shares of
Thermo Common Stock as a result of this adjustment.
- If the Pre-Closing Average Price multiplied by the Exchange Ratio is
greater than $9.25, the Exchange Ratio will be adjusted to be equal to
$9.25 divided by the Pre-Closing Average Price.
The Floor Price ($7.25 per share) represents a premium of (i) approximately
73% over the closing price of the TerraTech Common Stock reported in the
consolidated transaction reporting system on April 30, 1999, the last day on
which trading in the TerraTech Common Stock occurred prior to Thermo Electron's
first public announcement of a proposal to take Thermo TerraTech private (no
price having been determined and, accordingly, no exchange ratio or financial
terms announced as of that date) and (ii) approximately 35% over the closing
price of the TerraTech Common Stock reported in the consolidated transaction
reporting system on October 19, 1999, the last trading day immediately prior to
the public announcement of the financial terms of Thermo Electron's proposal.
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The Effective Time is currently expected to occur as soon as practicable
after the Special Meeting, subject to adoption of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the terms and conditions of the
Merger Agreement. See "--Conditions to the Merger, Termination and Expenses" and
"THE MERGER--Conditions." Detailed instructions with regard to the surrender of
stock certificates, together with a letter of transmittal, will be forwarded to
stockholders by Thermo TerraTech's transfer agent, American Stock Transfer and
Trust Company (the "Exchange Agent"), promptly following the Effective Time.
Stockholders should not submit their stock certificates to the Exchange Agent
until they have received such materials. The Exchange Agent will send
certificates for Thermo Common Stock to Thermo TerraTech stockholders as
promptly as practicable following receipt by the Exchange Agent of their stock
certificates and other required documents. See "THE MERGER--Conversion of
Securities." Stockholders should not send any stock certificates to Thermo
Electron, Thermo TerraTech or the Exchange Agent at this time.
EFFECT OF THE MERGER ON THERMO TERRATECH STOCK OPTIONS, WARRANTS AND DEBENTURES
At the Effective Time, each outstanding option to purchase shares of
TerraTech Common Stock (each, a "Thermo TerraTech Stock Option") under the
TerraTech Stock Option Plans (as defined below), whether or not exercisable,
will be assumed by Thermo Electron. Each Thermo TerraTech Stock Option so
assumed by Thermo Electron will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Thermo TerraTech Stock Option
Plan immediately prior to the Effective Time, except that (i) each Thermo
TerraTech Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Thermo Common
Stock equal to the product of the number of shares of TerraTech Common Stock
that were issuable upon exercise of such Thermo TerraTech Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
(ii) the per share exercise price for the shares of Thermo Common Stock issuable
upon exercise of such assumed Thermo TerraTech Stock Option will be equal to the
quotient determined by dividing the exercise price per share of TerraTech Common
Stock at which such Thermo TerraTech Stock Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent.
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In addition, at the Effective Time, all warrants to purchase TerraTech
Common Stock then outstanding shall be converted at the Effective Time into
warrants to purchase Thermo Common Stock. The number of whole shares of Thermo
Common Stock for which each warrant will be exercisable (or will become
exercisable in accordance with its terms) and the per share exercise price for
the shares of Thermo Common Stock issuable upon exercise of such Thermo
TerraTech warrant will be determined in accordance with the terms of such
warrants.
The consummation of the Merger will also make Thermo TerraTech's 4 5/8%
convertible subordinated debentures due May 1, 2003 (the "4 5/8% Debentures")
convertible into shares of Thermo Common Stock, rather than into the TerraTech
Common Stock into which the debentures are now convertible. Such 4 5/8%
Debentures are currently convertible into TerraTech Common Stock at a price of
$15.90 per share. An aggregate of $111,850,000 principal amount of the 4 5/8%
Debentures was outstanding as of October 2, 1999. Holders of the 4 5/8%
Debentures will not have the right to cause Thermo TerraTech to redeem the
debentures as a result of the Merger. Assuming an Exchange Ratio of .55,
following the Merger the 4 5/8% Debentures will be convertible into Thermo
Common Stock at a conversion price of $28.91 per share.
See "THE MERGER--Effect of the Merger on Thermo TerraTech Stock Options,
Warrants and Debentures."
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
In May 1999, the Board appointed a committee (the "Special Committee") of
one director, Mr. Polyvios Vintiadis (who is not an officer or employee of
Thermo TerraTech, the Merger Sub or Thermo Electron and who is not a director of
Thermo Electron or the Merger Sub), to act on behalf of, and in the interests
of, the Public Stockholders in his review of and evaluation of the proposed
Merger. See "SPECIAL FACTORS--The Special Committee's and the Board's
Recommendation." Mr. Vintiadis does not own any shares of TerraTech Common Stock
outright; however, he does hold options to acquire 6,300 shares of TerraTech
Common Stock, with exercise prices ranging from $4.16 to $10.03, which will be
assumed by Thermo Electron and converted into options to acquire shares of
Thermo Common Stock on the same terms as all the other holders of Thermo
TerraTech Stock Options. See "THE MERGER--Effect of the Merger on Thermo
TerraTech Stock Options, Warrants and Debentures." Further, deferred units equal
to 10,716 shares of TerraTech Common Stock have accumulated under the Company's
deferred compensation plan for outside directors for the benefit of
Mr. Vintiadis, which units will be converted into the right to receive 5,893.8
shares of Thermo Common Stock (assuming an Exchange Ratio of .55 shares of
Thermo Common Stock, as would have been the case had the Pre-Closing Average
Price been $13.1875, which was the closing price of the Thermo Common Stock on
October 25, 1999). See "THE MERGER--Deferred Compensation Plan for Directors."
At the conclusion of its review and evaluation of the proposed Merger, on
October 19, 1999, the Special Committee recommended to Thermo TerraTech's Board
that the Merger Agreement be approved and that it be recommended to the
stockholders of Thermo TerraTech for adoption. In connection with its
recommendation, the Special Committee considered the opinion of Adams,
Harkness & Hill, Inc. ("Adams, Harkness & Hill"), that the consideration of 0.4
shares of Thermo Common Stock for each share of TerraTech Common Stock under the
Merger Agreement (subject to adjustment as provided therein) was fair, from a
financial point of view, as of the date of its opinion, to the Public
Stockholders. See "THE MERGER--Opinion of Adams, Harkness & Hill." As part of
its deliberations, the Special Committee determined that the Merger is
substantively and procedurally fair to the Public Stockholders.
Following the recommendation of the Special Committee, the Board of
Directors approved the Merger Agreement, declared its advisability and
recommended that the stockholders of Thermo TerraTech adopt the Merger
Agreement. In connection with its recommendation, the Board also adopted the
findings and recommendation of the Special Committee with regard to both the
substantive and procedural fairness of the Merger. In reaching their respective
decisions to recommend adoption of the Merger Agreement, the Special Committee
and the Board also considered the factors set forth elsewhere in this Proxy
Statement. See "THE MERGER--The Special Committee's and the Board's
Recommendation."
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In considering the recommendations of the Board of Directors with respect to
the Merger, the Public Stockholders should be aware that certain officers and
directors of Thermo TerraTech have certain interests that are in addition to, or
different from, the interests of the Public Stockholders. See "THE
MERGER--Conflicts of Interest."
The Special Committee and the Board recommend that the Thermo TerraTech
stockholders vote "FOR" adoption of the Merger Agreement.
OPINION OF ADAMS, HARKNESS & HILL
Adams, Harkness & Hill provided its opinion to the Special Committee on
October 19, 1999, that, as of the date of such opinion, the consideration to be
received in the Merger was fair, from a financial point of view, to the Public
Stockholders of the Company. The full text of the written opinion of Adams,
Harkness & Hill dated October 19, 1999, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix B and is incorporated herein by
reference. The opinion of Adams, Harkness & Hill referred to herein does not
constitute a recommendation as to how any stockholder should vote with respect
to the Merger. Holders of shares of TerraTech Common Stock are urged to, and
should, read the opinion in its entirety. See "THE MERGER--Opinion of Adams,
Harkness & Hill."
The Special Committee retained Adams, Harkness & Hill to assist it in its
evaluation of the proposed Merger. Pursuant to the terms of Adams, Harkness &
Hill's engagement letter with the Special Committee, the Company paid Adams,
Harkness & Hill a retainer fee of $50,000 and a fee of $87,500 upon the delivery
of its written fairness opinion dated October 19, 1999 (which fee was payable
regardless of the conclusions expressed therein). In addition, the Company has
agreed to pay Adams, Harkness & Hill an additional $50,000 if the Special
Committee requests an additional fairness opinion in connection with a new or
materially revised transaction. The Company has also agreed to reimburse Adams,
Harkness & Hill for all reasonable fees and disbursements of its counsel and all
of its reasonable travel and other out-of-pocket expenses arising in connection
with its engagement, and to indemnify Adams, Harkness & Hill and its affiliates
to the full extent permitted by law against liabilities relating to or arising
out of its engagement, except for liabilities found to have resulted from the
bad faith, willful misconduct or gross negligence of Adams, Harkness & Hill.
The Merger Agreement provides that it is a condition to the obligations of
Thermo TerraTech to effect the Merger that Adams, Harkness & Hill shall reaffirm
orally its written opinion as of the date of mailing of this Proxy
Statement-Prospectus and at the Effective Time.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of TerraTech Common Stock. In determining to acquire such shares of
TerraTech Common Stock at this time, Thermo Electron considered the following
factors: (i) recent public capital market trends affecting micro-cap companies;
(ii) the latest market trends in the markets in which the Company competes,
primarily the environmental-liability and resource-management services industry;
(iii) the debt owed by the Company, including the debt owed to Thermo Electron;
(iv) the reduction in the amount of public information available to competitors
about Thermo TerraTech's business that would result from the termination of the
Company's obligations as a reporting company to the Securities and Exchange
Commission (the "Commission"), (v) the elimination of additional burdens on
management associated with public reporting and other tasks resulting from the
Company's public company status, including, for example, the dedication of time
and resources of management and of the Board to stockholder and analyst
inquiries, and investor and public relations; (vi) the decrease in costs,
particularly those associated with being a public company (for example, as a
privately-held entity, the Company would no longer be required to file
quarterly, annual or other periodic
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reports with the Commission or publish and distribute to its stockholders annual
reports and proxy statements), that Thermo Electron anticipates could result in
savings of approximately $450,000 per year, including the approximate cost of
associated legal and accounting fees; and (vii) the greater flexibility that the
Company's management would have to focus on long-term business goals, as opposed
to quarterly earnings, as a non-reporting company.
Thermo Electron also considered the advantages and disadvantages of certain
alternatives to taking Thermo TerraTech private, including leaving Thermo
TerraTech as a public majority-owned subsidiary. Thermo Electron considered the
number of Thermo TerraTech shares held by the Public Stockholders, recent trends
in the price of the TerraTech Common Stock and the relative lack of liquidity
for the TerraTech Common Stock. Thermo Electron also reviewed the net overall
cost of the transaction and its benefits. Thermo Electron also explored the
impact on its own common stock of the issuance of shares proposed to be used for
this transaction. In addition, Thermo Electron considered that, by acquiring the
minority stockholder interest in Thermo TerraTech, it would advance the goal of
its proposed corporate reorganization, announced in August 1998, to reduce the
number of Thermo Electron's majority-owned, public subsidiaries. After
consideration of these various factors, Thermo Electron decided to make a
proposal to Thermo TerraTech to acquire for stock, through a merger, all of the
outstanding shares of TerraTech Common Stock that it did not already own. See
"THE MERGER--Purpose and Reasons of Thermo Electron for the Merger."
As of , Thermo Electron beneficially owned approximately 87% of the
outstanding TerraTech Common Stock.
PURPOSE AND REASONS OF THERMO TERRATECH FOR THE MERGER
The purpose of Thermo TerraTech for engaging in the transactions
contemplated by the Merger Agreement is to become part of a larger operating
entity and thereby potentially realize improved operating and financial results
and a stronger competitive position. Thermo TerraTech considered the following
factors in determining to engage in the Merger at this time: (i) the benefits to
be gained from becoming part of a larger operating entity, (ii) recent public
capital market trends affecting micro-cap companies; (iii) the latest market
trends in the markets in which the Company competes, primarily the
environmental-liability and resource-management services industry; (iv) the debt
owed by the Company, including the debt owed to Thermo Electron; (v) the
reduction in the amount of public information available to competitors about
Thermo TerraTech's business that would result from the termination of the
Company's obligations as a reporting company to the Commission, (vi) the
elimination of additional burdens on management associated with public reporting
and other tasks resulting from the Company's public company status, including,
for example, the dedication of time and resources of management and of the Board
to stockholder and analyst inquiries, and investor and public relations;
(vii) the decrease in costs, particularly those associated with being a public
company (for example, as a privately-held entity, the Company would no longer be
required to file quarterly, annual or other periodic reports with the Commission
or publish and distribute to its stockholders annual reports and proxy
statements), that Thermo Electron anticipates could result in savings of
approximately $450,000 per year, including the approximate cost of associated
legal and accounting fees; and (viii) the greater flexibility that the Company's
management would have to focus on long-term business goals, as opposed to
quarterly earnings, as a non-reporting company. See "THE MERGER--Purpose and
Reasons of Thermo TerraTech for the Merger."
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings and recommendation of the Special
Committee and the Board of Thermo TerraTech with respect to the fairness of the
Merger to the Public Stockholders (see "THE MERGER--The Special Committee's and
the Board's Recommendation"). As of the date of the
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Merger Agreement, Thermo Electron adopted the findings and recommendation of the
Special Committee and the Board with respect to the fairness of the Merger.
Based solely on the findings and recommendation of the Special Committee and its
own internal review of the terms of the Merger, Thermo Electron believes that
the Merger is both procedurally and substantively fair to the Public
Stockholders and that the Exchange Ratio is fair to the Public Stockholders from
a financial point of view. Thermo Electron did not attach specific weights to
any factors in reaching its belief as to fairness. Thermo Electron is not making
any recommendation as to how the Public Stockholders should vote on the Merger
Agreement. See "THE MERGER--Position of Thermo Electron as to Fairness of the
Merger."
The Public Stockholders should be aware that certain officers and directors
of Thermo Electron are also officers and directors of the Company and have
certain interests that are in addition to, or different from, the interests of
the Public Stockholders. See "THE MERGER--Conflicts of Interest." Thermo
Electron considered these potential conflicts of interest and based in part
thereon, Thermo Electron's proposed offer was conditioned on, among other
things, the approval of the Merger by the Special Committee and the receipt by
the Special Committee of a fairness opinion from an investment banking firm.
CONFLICTS OF INTEREST
In considering the recommendation of the Special Committee and the Board
with respect to the Merger, the Public Stockholders should be aware that certain
officers and directors of Thermo TerraTech have interests in connection with the
Merger that present them with actual or potential conflicts of interest, which
are described in more detail under "THE MERGER--Conflicts of Interest."
THE SPECIAL COMMITTEE
Mr. Vintiadis holds options to acquire 6,300 shares of TerraTech Common
Stock, with exercise prices ranging from $4.16 to $10.03, which will be assumed
by Thermo Electron and be converted into options to acquire shares of Thermo
Common Stock on the same terms as all other Thermo TerraTech Stock Options. See
"--Assumption of Thermo TerraTech Stock Options and Warrants by Thermo
Electron." In addition, deferred units equal to 10,716 shares of TerraTech
Common Stock have accumulated under Thermo TerraTech's deferred compensation
plan for outside directors for the benefit of Mr. Vintiadis, which units will be
converted into the right to receive 5,893.8 shares of Thermo Common Stock
(assuming an Exchange Ratio of .55). Such options and deferred units were issued
to Mr. Vintiadis pursuant to terms approved by Thermo TerraTech's stockholders.
The Special Committee formally met 16 times, either in person or telephonically,
with one or more of its advisors, from May 1999 through the date of this Proxy
Statement-Prospectus and, in addition, had numerous informal discussions and
consultations telephonically. As compensation for serving on the Special
Committee, the Board has authorized that Mr. Vintiadis receive a special
retainer fee of $20,000 and additional fees of $1,000 for each meeting attended
in person and $500 for each meeting attended telephonically. See "THE
MERGER--Conflicts of Interest."
THE THERMO TERRATECH DIRECTORS AND EXECUTIVE OFFICERS
The members of the Thermo TerraTech Board of Directors (other than the
member of the Special Committee) and executive officers of Thermo TerraTech own
in the aggregate 177,645 shares of TerraTech Common Stock (or approximately 0.9%
of the outstanding shares of TerraTech Common Stock) and will receive an
aggregate of 97,705 shares of Thermo Common Stock upon consummation of the
Merger (assuming an Exchange Ratio of .55). In addition, such Board members and
executive officers hold options to acquire an aggregate of 673,000 shares of
TerraTech Common Stock, with exercise prices ranging from $4.16 to $10.03, which
will be assumed by Thermo Electron and converted into options to acquire shares
of Thermo Common Stock on the same terms as all the other holders of Thermo
TerraTech Stock Options. See "--Effect of the Merger on Thermo TerraTech Stock
Options, Warrants and Debentures." One member of the Thermo TerraTech Board of
Directors owns a warrant to purchase an aggregate of 12,500
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shares of TerraTech Common Stock, which will be converted into a warrant to
purchase Thermo Common Stock on the same terms as all the other holders of
warrants to purchase TerraTech Common Stock. Such Board members and executive
officers also beneficially owned an aggregate of 2,312,349 shares of Thermo
Common Stock as of October 2, 1999. Further, certain members of the Board and
certain executive officers hold directorship or officer positions with Thermo
Electron. See "THE MERGER--Conflicts of Interest."
Directors and executive officers of Thermo Electron own in the aggregate
33,521 shares of TerraTech Common Stock, or approximately 0.2% of the
outstanding TerraTech Common Stock.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the Surviving Corporation shall, and
Thermo Electron will cause the Surviving Corporation to, fulfill and honor in
all respects the indemnification obligations of Thermo TerraTech, pursuant to
Thermo TerraTech's Certificate of Incorporation and Bylaws, as in effect on the
date of the Merger Agreement. In addition, the directors and officers of Thermo
TerraTech will be provided with continuing directors' and executive officers'
liability insurance coverage for a period of six years following the Effective
Time, subject to certain limitations. See "THE MERGER--Conflicts of Interest"
and "THE MERGER--Indemnification and Insurance."
The Merger Agreement also provides that Thermo TerraTech will, regardless of
whether the Merger becomes effective, indemnify Mr. Vintiadis against any costs
and expenses paid in connection with any claim or action arising out of or
pertaining to any action or omission in Mr. Vintiadis' capacity as a director or
fiduciary of Thermo TerraTech (including as a member of the Special Committee or
in connection with the transactions contemplated by the Merger Agreement) that
occurs on, before or after the Effective Time, until the expiration of the
statute of limitations relating to any such action or omission. Thermo TerraTech
shall pay Mr. Vintiadis' expenses in advance of the final disposition of the
action upon receipt of an undertaking by Mr. Vintiadis to repay those expenses
if it is later decided that he is not entitled to such payment. If the Merger
becomes effective, Thermo Electron will be jointly and severally responsible for
the indemnification and expense advancement obligations as described above. If
the Merger does not become effective, Thermo Electron shall only be responsible
for indemnifying or advancing expenses for matters that arise out of or pertain
to the work of the Special Committee, the Merger Agreement or the transactions
contemplated by the Merger Agreement.
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in certain
circumstances. See "THE MERGER--Indemnification and Insurance."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, Thermo Electron will beneficially own the entire
equity interest in Thermo TerraTech. Thermo Electron will have complete control
over the conduct of Thermo TerraTech's business and will have a 100% interest in
the net book value and net earnings of Thermo TerraTech and any future increases
in the value of Thermo TerraTech. Thermo Electron's ownership of Thermo
TerraTech prior to the transaction contemplated herein was approximately 87%.
Upon completion of this transaction, Thermo Electron's interest in the Company's
net book value of $48.9 million on July 3, 1999 and net loss of $1.4 million and
$45.1 million for the year ended April 3, 1999 and the three months ended
July 3, 1999, respectively, would increase from approximately 87% of such
amounts to 100% of such amounts. The Public Stockholders will no longer have any
interest in, and will not be stockholders of, Thermo TerraTech and therefore
will not participate in Thermo TerraTech's future earnings and potential growth
and will no longer bear the risk of any decreases in the value of the Company.
Instead, the stockholders of the
19
<PAGE>
Company other than Thermo Electron will have the right to receive the Exchange
Ratio for each share held.
In addition, the TerraTech Common Stock will no longer be traded on the
American Stock Exchange (the "AMEX") and price quotations with respect to sales
of shares in the public market will no longer be available. The registration of
the TerraTech Common Stock under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") will be terminated, and this termination will eliminate the
Company's obligation to file periodic financial and other information with the
Commission and will make most other provisions of the Exchange Act inapplicable.
See "THE MERGER--Certain Effects of the Merger."
CONDITIONS TO THE MERGER, TERMINATION AND EXPENSES
Each party's obligation to effect the Merger is subject to the satisfaction
of the following conditions:
- the Merger Agreement shall have been adopted by the affirmative vote of
the holders of a majority of the outstanding shares of TerraTech Common
Stock entitled to vote thereon in accordance with the provisions of
Section 251 of the General Corporation Law of the State of Delaware (the
"DGCL");
- no court, administrative agency or commission or other governmental or
regulatory body or authority or instrumentality shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order that is in effect and
that has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger;
- the registration statement of which this Proxy Statement-Prospectus forms
a part and a resale registration statement relating to the sale of shares
of Thermo Common Stock issuable upon exercise of the TerraTech warrants
assumed by Thermo Electron (the "Warrant Registration Statement") shall be
effective and no order suspending the effectiveness of such registration
statements shall have been issued, and no proceedings for that purpose
shall have been initiated or threatened by the Commission;
- the Thermo Common Stock issuable pursuant to the Merger Agreement and all
shares of Thermo Common Stock subject to issuance pursuant to the
TerraTech Stock Option Plans, the 4 5/8% Debentures and the warrants
issued by TerraTech, each as assumed by Thermo Electron under the Merger
Agreement, shall have been authorized for listing on the New York Stock
Exchange;
- Thermo TerraTech and Thermo Electron shall have received a tax opinion
regarding certain tax matters relating to the transactions contemplated
under the Merger Agreement; and
- no stock acquisition date or other event that would result in the
occurrence of a distribution date shall have occurred with respect to the
rights to purchase a unit consisting of one ten-thousandth of a share of
Thermo Electron's Series B Junior Participating Preferred Stock, as
defined in the Rights Agreement dated as of January 19, 1996, as amended,
by and between Thermo Electron and BankBoston, N.A.
The obligations of Thermo TerraTech to effect the Merger are subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time, unless waived in writing by Thermo TerraTech (upon the written consent of
the Special Committee):
- the representations and warranties of the Merger Sub and Thermo Electron
in the Merger Agreement shall be true and correct in all material respects
on and as of the Effective Time, except as permitted by the Merger
Agreement;
- the Merger Sub and Thermo Electron shall have performed or complied in all
material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by them on or prior to the
Effective Time;
20
<PAGE>
- Thermo TerraTech shall have received a certificate of the President, Chief
Executive Officer or Vice President of Thermo Electron certifying to the
effect of above two clauses;
- at the time of mailing of this Proxy Statement-Prospectus to the
stockholders of Thermo TerraTech and at the Effective Time, Adams,
Harkness & Hill shall have reaffirmed orally its fairness opinion and
shall not have withdrawn such opinion; and
- any and all necessary state securities approvals for the issuance of
Thermo Common Stock pursuant to the Merger Agreement shall have been
obtained.
The obligations of the Merger Sub and Thermo Electron to effect the Merger
are subject to the satisfaction of each of the following conditions at or prior
to the Effective Time, unless waived in writing by Thermo Electron:
- the representations and warranties of Thermo TerraTech in the Merger
Agreement shall be true and correct in all material respects on and as if
made at the Effective Time, except as otherwise permitted by the Merger
Agreement;
- Thermo TerraTech shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by it on or prior to the Effective Time;
- Thermo Electron shall have received a certificate of the President, Chief
Executive Officer or Vice President of Thermo TerraTech certifying to the
effect of the above two clauses; and
- the Special Committee shall not have withdrawn its recommendation to the
Board of Directors that the Merger Agreement, including the Exchange
Ratio, is fair to, and in the best interests of, the Public Stockholders.
Certain conditions that have not been satisfied by one party may be waived
by the other party; however, prior approval of the Special Committee is required
for Thermo TerraTech to waive or amend any provision of the Merger Agreement.
See "THE MERGER--Conditions." Although stockholder adoption of the Merger
Agreement is assured, there can be no assurance that the Merger will be
consummated.
At any time prior to the Effective Time, whether before or after adoption of
the Merger Agreement by the stockholders of Thermo TerraTech, the Merger
Agreement may be terminated by the mutual written consent of the board of
directors of the Merger Sub and the Board of Directors of Thermo TerraTech (upon
approval of the Special Committee). In addition, either the Merger Sub or Thermo
TerraTech (upon approval of the Special Committee), in accordance with the
provisions of the Merger Agreement, may terminate the Merger Agreement prior to
the Effective Time, whether before or after adoption of the Merger Agreement by
the stockholders of Thermo TerraTech, if (i) the Merger has not been consummated
by March 31, 2000 (in which case the right of Thermo TerraTech to terminate
shall be exercised as directed by the Special Committee), subject to certain
exceptions, (ii) a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission issues an order, decree or ruling or
takes any other action enjoining, restraining or otherwise prohibiting the
Merger and such order, decree or ruling is final and nonappealable or (iii) the
approval of the stockholders of Thermo TerraTech necessary to consummate the
Merger has not been obtained, subject to certain exceptions. Thermo Electron has
agreed to vote, or cause to be voted, all of the Common Stock owned by it and
any of its subsidiaries in favor of the Merger. See "THE MERGER--Termination,
Amendment and Waiver."
In addition, the Merger Sub may terminate the Merger Agreement prior to the
Effective Time, whether before or after adoption of the Merger Agreement by the
stockholders of Thermo TerraTech, if (i) Thermo TerraTech breaches any
representation, warranty, covenant or agreement in any material respect and
fails to cure such breach within 10 business days after written notice of such
breach from the Merger Sub or (ii) Thermo Electron would be required to issue
more than 1,800,000 shares of Thermo
21
<PAGE>
Common Stock as a result of an adjustment to the Exchange Ratio. See "THE
MERGER--Conversion of Securities." Thermo TerraTech may terminate the Merger
Agreement prior to the Effective Time, whether before or after adoption of the
Merger Agreement by the stockholders of Thermo TerraTech, if (i) the Special
Committee determines after consultation with outside legal counsel that failure
to do so would be inconsistent with the Board's or the Special Committee's
fiduciary duties under applicable law (which determination would result in the
withdrawal or modification of the Special Committee's recommendation and, at the
Special Committee's election, the termination of the Merger Agreement) or
(ii) Thermo Electron breaches any representation, warranty, covenant or
agreement in any material respect and fails to cure such breach within
10 business days after written notice of such breach from Thermo TerraTech.
There is no termination fee payable by either party in the event that the Merger
Agreement is terminated. See "THE MERGER--Termination, Amendment and Waiver."
Each of the parties has agreed to pay its own costs and expenses in
connection with the Merger Agreement, whether or not the Merger is consummated.
See "THE MERGER--Expenses."
FEDERAL INCOME TAX CONSEQUENCES
The receipt of shares of Thermo Common Stock solely in exchange for
TerraTech Common Stock pursuant to the Merger will generally not be a taxable
transaction. See "FEDERAL INCOME TAX CONSEQUENCES" and "THE MERGER--Certain
Effects of the Merger."
ACCOUNTING TREATMENT
The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
FEDERAL AND STATE REGULATORY REQUIREMENTS
No federal or state regulatory approvals are required to be obtained that
have not already been obtained, nor any regulatory requirements complied with,
in connection with the consummation of the Merger by any party to the Merger
Agreement, except for (i) the requirements of the Delaware General Corporation
Law in connection with stockholder approvals and consummation of the Merger and
(ii) the requirements of the federal securities laws.
RESTRICTIONS ON THE ABILITY TO SELL THERMO ELECTRON STOCK
All shares of Thermo Common Stock received by you in connection with the
Merger will be freely transferable unless you are considered an "affiliate" of
Thermo Electron under the Securities Act of 1933, as amended. Shares of Thermo
Common Stock held by its affiliates may only be sold pursuant to a registration
statement or exemption under the Securities Act.
YOU DO NOT HAVE DISSENTERS' OR APPRAISAL RIGHTS
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in connection with the Merger.
WHERE YOU CAN FIND MORE INFORMATION
If you have any questions about the Merger, please call Thermo Electron
Investor Relations at 1-781-622-1111.
22
<PAGE>
DIFFERENCES BETWEEN YOUR RIGHTS AS A THERMO TERRATECH STOCKHOLDER AND AS A
THERMO ELECTRON STOCKHOLDER
There are certain differences between the rights you have as a holder of
TerraTech Common Stock and the rights you will have as a holder of Thermo Common
Stock. See "COMPARISON OF RIGHTS OF HOLDERS OF THERMO TERRATECH AND THERMO
COMMON STOCK."
FORWARD LOOKING STATEMENTS IN THIS PROXY STATEMENT-PROSPECTUS
This Proxy Statement-Prospectus and the documents incorporated by reference
into this Proxy Statement-Prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the Merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page .
COMPARATIVE PER SHARE MARKET PRICE DATA
Thermo Common Stock is traded on the New York Stock Exchange under the
symbol "TMO." TerraTech Common Stock is traded on the American Stock Exchange
under the symbol "TTT."
The following table sets forth the closing prices per share of the TerraTech
Common Stock as reported in the consolidated transaction reporting system and
the closing prices per share of Thermo Common Stock as reported in the
consolidated transaction reporting system on (1) May 4, 1999, the last trading
day before the public announcement of Thermo Electron's proposal (with no price
having been determined) to take Thermo TerraTech private (in the case of the
TerraTech Common Stock, closing price information is given as of April 30, 1999,
which was the last day on which the TerraTech Common Stock traded prior to the
May 5 announcement), and (2) October 19, 1999, the last trading day before the
public announcement that Thermo Electron and Thermo TerraTech had entered into
the Merger Agreement.
The chart also sets forth, in the column entitled "Equivalent Per Share
Price," the price per share of TerraTech Common Stock you would have received if
the Exchange Ratio was set at .55, which is the assumed fraction of one Thermo
Electron share into which one share of TerraTech Common Stock would be exchanged
if the Pre-Closing Average Price was $13.1875 (the closing price of the Thermo
Common Stock on October 25, 1999).
<TABLE>
<CAPTION>
APRIL 30, 1999/
STOCK/DATE MAY 4, 1999 OCTOBER 19, 1999
- ---------- --------------- ----------------
<S> <C> <C>
Thermo TerraTech............................................ $4.1875 $ 5.375
Thermo Electron............................................. 16.25 13.0625
Equivalent Per Share Price.................................. 7.25 7.25
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
The following table presents unaudited pro forma combined selected financial
information for Thermo Electron and Thermo TerraTech, historical selected
financial information for Thermo Electron and Thermo TerraTech, and unaudited
pro forma combined per share data for Thermo Electron and Thermo TerraTech. The
historical financial information is derived from the financial statements of
Thermo Electron and Thermo TerraTech, included in or incorporated by reference
into this Proxy Statement-Prospectus. The pro forma information is derived from
the pro forma combined condensed financial information included elsewhere in
this Proxy Statement-Prospectus. The unaudited pro forma consolidated condensed
statements of operations data set forth the results of operations for the six
months ended July 3, 1999, and the fiscal year ended January 2, 1999, as if the
Merger, the ThermoRetec Merger, and the Randers/Killam Merger had become
effective at the beginning of 1998. The unaudited pro forma consolidated
condensed balance sheet data sets forth the financial position as of July 3,
1999, as if the Merger, the ThermoRetec Merger, and the Randers/Killam Merger
had become effective on July 3, 1999.
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have occurred
had the Merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JULY 3, 1999 JANUARY 2, 1999
------------------ -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
PRO FORMA COMBINED:
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $2,101,878 $3,867,596
Net Income (Loss)........................................ (216,331) 177,177
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital.......................................... $1,667,060
Total Assets............................................. 5,932,076
Long-term Obligations.................................... 1,983,760
Minority Interest........................................ 527,270
Common Stock of Subsidiaries Subject to Redemption....... 57,871
Shareholders' Investment................................. 1,978,468
PER SHARE DATA:
THERMO ELECTRON (HISTORICAL):
Book Value per Common Share.............................. $ 12.35 $ 14.18
Earnings (Loss) per Share:
Basic.................................................. $ (1.31) $ 1.12
Diluted................................................ $ (1.32) $ 1.07
PRO FORMA:
COMBINED PER SHARE OF THERMO ELECTRON STOCK:
Book Value per Common Share.............................. $ 12.40
Earnings (Loss) per Share:
Basic.................................................. $ (1.36) $ 1.09
Diluted................................................ $ (1.37) $ 1.04
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JULY 3, 1999 JANUARY 2, 1999
------------------ -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
COMBINED PER THERMO ELECTRON SHARE EQUIVALENT (1):
Book Value per Common Share.............................. $ 6.82
Cash Dividends Declared per Share........................ -- --
Earnings (Loss) per Share:
Basic.................................................. $ (.75) $ .60
Diluted................................................ $ (.75) $ .57
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
JULY 3, 1999 APRIL 3, 1999
------------------ -----------------
<S> <C> <C>
THERMO TERRATECH (HISTORICAL):
Book Value per Common Share.............................. $ 2.57 $4.84
Loss per Share:
Basic.................................................. $(2.37) $(.07)
Diluted................................................ $(2.37) $(.07)
</TABLE>
- ------------------------
(1) Pro forma combined per Thermo Electron share equivalent data has been
calculated based on the pro forma combined data for Thermo Common Stock,
multiplied by an assumed Exchange Ratio of .55, which is the assumed
fraction of one Thermo Electron share into which one share of TerraTech
Common Stock would be exchanged pursuant to the Merger if the Pre-Closing
Average Price was $13.1875 (the closing price of the Thermo Common Stock on
October 25, 1999).
25
<PAGE>
RISK FACTORS
If you hold your shares of TerraTech Common Stock until the Merger, you will
thereafter be investing in Thermo Common Stock. The following important factors,
among others, in some cases have affected, and in the future could affect,
Thermo Electron's actual results and could cause its actual results in the
remainder of fiscal 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, Thermo Electron. In
addition to the other information contained in or incorporated by reference into
this Proxy Statement-Prospectus, you should carefully consider the following
risk factors in deciding whether to vote for the Merger.
THERMO ELECTRON IS IN THE MIDST OF A CORPORATE REORGANIZATION, WHICH
INCLUDES TAKING SEVERAL SUBSIDIARIES PRIVATE AND SELLING SEVERAL
BUSINESSES. This corporate reorganization, which was initially announced on
August 12, 1998, is meant to reduce the complexity of Thermo Electron's
corporate structure, consolidate certain businesses to improve their competitive
position and increase liquidity for stockholders by providing larger market
floats for some subsidiaries. In addition, as part of its corporate
reorganization, Thermo Electron has announced the sale of several business units
by many of its publicly-held subsidiaries. Both the reduction of the number of
Thermo Electron's publicly-held subsidiaries and the sale of several businesses
are time-consuming, expensive, and consume management resources. In addition,
the successful completion of the reorganization depends, in part, on many
factors that are not in Thermo Electron's control. The failure to complete these
transactions in a timely manner could have an adverse effect on Thermo Electron.
THE VALUE OF THE THERMO COMMON STOCK YOU RECEIVE IN THE MERGER MAY
VARY. Upon completion of the Merger, each share of TerraTech Common Stock will
be exchanged for shares of Thermo Common Stock. There will be no adjustment to
the Exchange Ratio in the event of any fluctuation in the market price of
TerraTech Common Stock. As described in "THE MERGER--Conversion of Securities,"
the Exchange Ratio may be adjusted based on changes in the price per share of
the Thermo Common Stock. Specifically, the actual dollar value of Thermo Common
Stock to be received by you upon completion of the Merger will depend on the
market value of Thermo Common Stock during the 20 trading days ending on the
fifth business day prior to the completion of the Merger. As of , 1999,
the last trading date for which information was available before the printing of
this Proxy Statement-Prospectus, the closing price of Thermo Common Stock was
$ per share. The share prices of both TerraTech Common Stock and Thermo
Common Stock are subject to general price fluctuations in the market for
publicly traded equity securities and have experienced significant volatility.
No prediction can be made as to the market prices of either TerraTech Common
Stock or Thermo Common Stock at any time before the completion of the Merger or
as to the market price of Thermo Common Stock after the completion of the
Merger.
ACQUIRED BUSINESSES MAY BE UNPROFITABLE AND DIFFICULT TO INTEGRATE. One of
Thermo Electron's principal growth strategies is to supplement its internal
growth with the acquisition of businesses and technologies that complement or
augment Thermo Electron's existing product lines. Certain businesses recently
acquired by Thermo Electron have to date not been highly profitable. In
addition, businesses that Thermo Electron may seek to acquire in the future may
also be marginally profitable or unprofitable. In order for any acquired
businesses to be as profitable as Thermo Electron would like, Thermo Electron
must successfully integrate the acquired operations and improve market
penetration. Thermo Electron may not succeed at this effort. Promising
acquisitions are difficult to identify and complete for a number of reasons,
including competition among prospective buyers, the need for regulatory
approvals, including antitrust approvals, and the high valuations of businesses
resulting from historically high stock prices in many countries. Thermo Electron
may have to pay substantial premiums over the fair value of the net assets of
the companies it acquires. Thermo Electron may not be able to complete pending
or future acquisitions, and it may not be able to successfully integrate any
acquired businesses into its existing business or make the acquired businesses
profitable.
26
<PAGE>
In order to finance any acquisitions, Thermo Electron may have to raise
additional funds, either through public or private financings. Any equity or
debt financing, if available at all, may be on unfavorable terms and may dilute
Thermo Electron's shareholders.
THERMO ELECTRON HAS SIGNIFICANT COMPETITION IN THE SALE OF ITS PRODUCTS AND
SERVICES. Thermo Electron has significant competition in the sale of its
products and services. Thermo Electron competes against many large multinational
corporations. Some competitors may adapt more quickly to new technologies and
changes in customer requirements, or may devote more resources to promoting and
selling their products than Thermo Electron. Competition may increase if new
companies enter the market or if existing competitors expand their product lines
or intensify efforts within existing product lines. Thermo Electron's current
products, products under development, and ability to develop new technologies
may not be sufficient to enable it to compete effectively.
INTERNATIONAL OPERATIONS INVOLVE MANY RISKS. International revenues account
for a substantial portion of Thermo Electron's revenues, and Thermo Electron
intends to continue to expand its presence in international markets.
International revenues are subject to a number of risks, including the
following:
- changes in exchange rates may affect product demand and adversely affect
the profitability in U.S. dollars of products and services provided by
Thermo Electron in foreign markets, where payment for Thermo Electron's
products and services is made in the local currency;
- Thermo Electron may find it hard to enforce agreements and collect
receivables using a foreign country's legal system;
- foreign customers may have longer payment cycles;
- foreign countries may impose additional withholding taxes or otherwise tax
Thermo Electron's foreign income, impose tariffs, or adopt other
restrictions on foreign trade;
- U.S. export licenses may be difficult to obtain; and
- intellectual property rights may be harder to enforce.
All of these factors may have a material adverse impact on Thermo Electron's
business and results of operations. Some of Thermo Electron's revenues come from
exports to Asia. Certain countries in Asia are in a severe economic crisis,
involving sharply reduced economic activity and liquidity, highly volatile
foreign-currency-exchange and interest rates, and unstable stock markets. Thermo
Electron's export sales to Asia may continue to be adversely affected by the
unstable economic conditions there, which may continue to adversely affect
Thermo Electron's results of operations, financial condition, or business.
THERMO ELECTRON MUST ADAPT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE AND
RESPOND TO INTRODUCTIONS OF NEW PRODUCTS. The markets for Thermo Electron's
products undergo rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of
Thermo Electron's products and products under development are technologically
innovative and require significant planning, design, development, and testing at
the technological, product, and manufacturing-process levels. These activities
require significant capital commitments and investment by Thermo Electron. In
addition, products that are competitive in Thermo Electron's markets are
characterized by rapid and significant technological change due to industry
standards that may change on short notice and by the introduction of new
products and technologies that render existing products and technologies
uncompetitive or obsolete. The products currently being developed by Thermo
Electron, or those to be developed in the future, may not be technologically
feasible or accepted by the marketplace, and Thermo Electron's products or
proprietary technologies could become uncompetitive or obsolete.
CHANGES IN GOVERNMENTAL REGULATIONS MAY ADVERSELY AFFECT DEMAND FOR THERMO
ELECTRON'S PRODUCTS. Thermo Electron competes in several markets in which its
customers must comply with federal, state, local, and foreign regulations, such
as environmental, health and safety, and food and drug regulations. Thermo
27
<PAGE>
Electron develops, configures, and markets its products to meet customer needs
created by those regulations. These regulations may be changed in response to
new scientific evidence or political or economic considerations. Any significant
change in regulations could adversely affect demand for Thermo Electron's
products in these markets.
SOME OF THERMO ELECTRON'S PRODUCTS MUST BE APPROVED BY GOVERNMENT AGENCIES;
THERMO ELECTRON MAY NOT OBTAIN THE NECESSARY APPROVALS. Some of Thermo
Electron's products must receive pre-marketing clearance or approval by the U.S.
Food and Drug Administration (the "FDA") and similar agencies in foreign
countries. The use or sale of certain of Thermo Electron's products under
development may require approvals by other government agencies. The process of
obtaining clearance and approval from the FDA and other government agencies is
time-consuming and expensive. Furthermore, the necessary clearances or approvals
for Thermo Electron's products, services, and products and services under
development may not be obtained on a timely basis, if at all.
FDA regulations also require continuing compliance with specific standards
in conjunction with the maintenance and marketing of products and services that
have been approved or cleared. Failure to comply with applicable regulatory
requirements can result in, among other things, civil and criminal penalties,
suspension of approvals, recalls, or seizures of products, injunctions, and
criminal prosecutions.
DEMAND FOR SOME THERMO ELECTRON PRODUCTS DEPENDS ON CAPITAL SPENDING
POLICIES OF ITS CUSTOMERS AND ON GOVERNMENT FUNDING POLICIES. Thermo Electron's
customers include manufacturers of semiconductors and products incorporating
semiconductors, pharmaceutical and chemical companies, laboratories,
universities, healthcare providers, paper manufacturers, consumer product
companies, government agencies, and public and private research institutions.
The capital spending of these entities can have a significant effect on the
demand for Thermo Electron's products. Such spending is based on many factors,
including the resources available to make purchases, the spending priorities
among various types of equipment, public policy, and the effects of different
economic cycles, including fluctuating demand in the semiconductor industry. Any
decrease in capital spending by any of the customer groups that account for a
significant portion of Thermo Electron's sales could have a material adverse
effect on Thermo Electron's business and results of operations.
THERMO ELECTRON DEPENDS ON ITS PATENTS AND PROPRIETARY RIGHTS. Obtaining
patent and trade secret protection for important new technologies, products, and
processes is crucial to Thermo Electron, because developing new products and
bringing them to the marketplace is time-consuming and expensive. Thermo
Electron depends on being able to develop patentable products and obtain and
enforce patent protection for its products in the U.S. and overseas. Thermo
Electron owns many United States and foreign patents, and intends to file
additional applications for patents as appropriate to cover its products.
Patents may not be issued from any pending or future patent applications owned
by or licensed to Thermo Electron. In addition, the claims allowed under any
issued patents may not be broad enough to protect Thermo Electron's technology.
Proceedings initiated by Thermo Electron to protect its proprietary rights could
be very expensive to Thermo Electron. In addition, any issued patents owned by
or licensed to Thermo Electron may be challenged, invalidated, or circumvented,
and the rights granted thereunder may not provide competitive advantages to
Thermo Electron. Third parties may claim that Thermo Electron is infringing
their intellectual property rights. Defending those claims would be expensive,
divert management's attention and could have a material adverse effect on Thermo
Electron's business, financial condition, and results of operations.
Furthermore, those claims could result in substantial damages awards and/or
injunctive or other equitable relief, which could effectively block Thermo
Electron's ability to make, use or sell its products and services in the United
States or abroad. If a claim relating to intellectual property is made against
Thermo Electron, Thermo Electron may seek licenses to such intellectual
property. However, such licenses may not be obtained on commercially reasonable
terms, if at all. The failure to obtain the necessary licenses or other rights
could preclude the sale, manufacture, or distribution of Thermo Electron's
products and, therefore, could have a material adverse effect on Thermo
Electron's business, financial condition, and results of operations.
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Thermo Electron relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. These agreements may be breached, Thermo Electron
may not have adequate remedies for any breach, and Thermo Electron's trade
secrets may otherwise become known or be independently developed by competitors.
THE YEAR 2000 COMPUTER ISSUE MAY DISRUPT THERMO ELECTRON'S OR ITS CUSTOMERS'
BUSINESSES. Thermo Electron is attempting to minimize any negative consequences
arising from the year 2000 issue. However, year 2000 problems may still have a
material adverse impact on Thermo Electron's business, operations, or financial
condition. Thermo Electron expects that upgrades to its internal business
systems will be completed soon, but it may encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, Thermo Electron may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of Thermo Electron's
older products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose Thermo Electron to claims. If any of Thermo
Electron's significant suppliers or vendors experience business disruptions due
to year 2000 issues, there may also be a material adverse effect on Thermo
Electron. There is expected to be a significant amount of litigation relating to
the year 2000 issue, and Thermo Electron could incur material costs in defending
or bringing lawsuits. In addition, if any year 2000 issues are identified,
Thermo Electron may not be able to retain qualified personnel to remedy such
issues. Any unexpected costs or delays arising from the year 2000 issue could
have a significant adverse impact on Thermo Electron's business, operations, and
financial condition in amounts that Thermo Electron cannot reasonably estimate
at this time.
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THE MERGER
BACKGROUND OF THE MERGER
In August 1998, Thermo TerraTech and Thermo Electron's senior management
initially considered the possibility of an acquisition by Thermo TerraTech of
the minority stockholder interests in Thermo TerraTech's two public
subsidiaries, Randers/Killam and ThermoRetec, in connection with the proposed
corporate reorganization of Thermo Electron and certain of its subsidiaries.
Each of the acquisitions of Randers/Killam and ThermoRetec would be accomplished
by means of a stock-for-stock merger. The goals of Thermo Electron's proposed
corporate reorganization include (i) reducing the complexity of Thermo
Electron's corporate structure, (ii) consolidating and strategically realigning
certain businesses to enhance their competitive market positions and improve
management coordination, and (iii) increasing liquidity in the public markets by
providing larger market floats for Thermo Electron's publicly traded
subsidiaries. If Thermo Electron's reorganization plan is completed as currently
proposed, the number of Thermo Electron's majority-owned subsidiaries will be
reduced from 22 to 12.
In the context of the review of Thermo Electron's entire corporate structure
which was taking place at the time, in April, 1999, Thermo Electron's management
began to examine several factors, including the financial performance and
profitability of Thermo TerraTech, uncertainty regarding Thermo TerraTech's
future growth prospects, and the potential benefits to Thermo TerraTech's
business if it were to become part of a larger business unit. Thermo Electron
also considered the following factors: (i) recent public capital market trends
affecting micro-cap companies; (ii) the latest trends in the markets in which
the Company competes; (iii) the debt owed by the Company to, primarily, Thermo
Electron; (iv) the reduction in the amount of public information available to
competitors about Thermo TerraTech's business that would result from the
termination of the Company's obligations under the Commission's reporting
requirements; (v) the elimination of additional burdens on management associated
with public reporting and other tasks resulting from the Company's public
company status, including, for example, the dedication of time and resources of
management and of the Board to stockholder and analyst inquiries, and investor
and public relations; (vi) the decrease in costs, particularly those associated
with being a public company (for example, as a privately-held entity, the
Company would no longer be required to file quarterly, annual or other periodic
reports with the Commission or publish and distribute to its stockholders annual
reports and proxy statements), that Thermo Electron anticipates could result in
savings of approximately $450,000 per year, including fees for an audit by an
independent accounting firm and legal fees; and (vii) the greater flexibility
that the Company's management would have to focus on long-term business goals,
as opposed to quarterly earnings, as a non-reporting company.
Thermo Electron also considered the relatively low volume of trading in the
TerraTech Common Stock and considered that the Merger would result in the Public
Stockholders' receiving a somewhat more liquid, more readily tradeable security
(the Thermo Common Stock). Management of Thermo Electron also considered that
acquiring the minority stockholder interest in Thermo TerraTech would advance
the goal of Thermo Electron's proposed corporate reorganization to reduce the
number of majority-owned, public subsidiaries of Thermo Electron. Management of
Thermo Electron also considered recent trends in the price of the TerraTech
Common Stock, although Thermo TerraTech's current stock price was not a
significant factor in the timing of Thermo Electron's decision to propose
acquiring the minority stockholder interest in Thermo TerraTech. In April 1999,
management of Thermo Electron decided to propose to the Board of Directors of
Thermo Electron that it include TerraTech in the corporate reorganization and
make an offer to acquire all of the shares of TerraTech Common Stock that Thermo
Electron did not already own, for shares of Thermo Common Stock.
On May 5, 1999, the Board of Directors of Thermo Electron held a special
meeting at which Thermo Electron's management presented the proposal for Thermo
Electron to acquire all of the shares of common stock held by the Public
Stockholders, as a part of the ongoing corporate reorganization of Thermo
Electron and certain of its subsidiaries. At that meeting, the Thermo Electron
Board of Directors
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discussed several factors presented by management regarding this proposal,
including the factors described in the preceding two paragraphs.
The Thermo Electron Board of Directors also considered the advantages and
disadvantages of certain alternatives to acquiring the minority stockholder
interest in Thermo TerraTech, including (i) selling its equity interest in the
Company and (ii) leaving Thermo TerraTech as a majority-owned, public
subsidiary. The first alternative, of selling Thermo Electron's equity interest
in the Company, was briefly considered by Thermo Electron management, but it was
not an alternative that was pursued at length, given that Thermo Electron did
not want to sell its equity interest in the Company, but rather intended to
retain the Company as a part of the larger Thermo Electron operating unit. The
advantages to leaving Thermo TerraTech as a majority-owned, public subsidiary of
Thermo Electron which were considered by the Thermo Electron Board of Directors
included (i) avoidance of the need to issue additional shares of Thermo Common
Stock at a time when the price of such shares was relatively low and
(ii) maintaining the potential access Thermo TerraTech has to capital in the
public markets as a public company. The disadvantages to leaving Thermo
TerraTech as majority-owned, public subsidiary which were considered by Thermo
Electron included (i) the burden on Thermo TerraTech of its debt owed,
primarily, to Thermo Electron, (ii) the costs associated with being a public
company, including those relating to reporting obligations and public and
investor relations functions and (iii) the public information available to
competitors about Thermo TerraTech's business as a result of its filing
obligations with the Commission. Thermo Electron ultimately concluded that the
advantages of leaving Thermo TerraTech as a majority-owned, public subsidiary
were outweighed by the disadvantages of doing so, and accordingly that
alternative was also rejected. The Thermo Electron board of directors also
discussed the fact that acquiring the minority stockholder interest in Thermo
TerraTech would advance the goal of Thermo Electron's proposed corporate
reorganization to reduce the number of Thermo Electron's majority-owned, public
subsidiaries. After consideration of these various factors, Thermo Electron's
board of directors authorized further revisions to its corporate reorganization
plan, including taking Thermo TerraTech private through its acquisition for
shares of Thermo Common Stock of all of the shares of Thermo TerraTech that
Thermo Electron did not already own.
On May 5, 1999, Thermo Electron issued a press release announcing that
Thermo TerraTech would be included in the larger reorganization of Thermo
Electron and its subsidiaries. The Board of Directors of Thermo TerraTech met on
May 6, 1999 and determined that, because Thermo Electron controlled
approximately 87% of the outstanding common stock of Thermo TerraTech, it was
desirable to appoint a special committee to act on behalf of and in the
interests of the Public Stockholders for the purpose of evaluating the merits of
and negotiating the proposed transaction, as well as making a recommendation to
the full Board of Directors of Thermo TerraTech on whether or not to approve
such transaction. The Board appointed Mr. Polyvios Vintiadis to act as the sole
member of the Special Committee. The Board authorized the Special Committee to
retain a legal advisor, an investment bank to provide a fairness opinion and any
other professional advisors that the Special Committee deemed necessary or
appropriate to assist it in carrying out its duties. Further, the Board granted
the Special Committee and its advisors access to all of the officers and
management of Thermo TerraTech, Thermo Electron and its direct and indirect
subsidiaries, their respective books, records, projections and financial
statements deemed necessary by the Special Committee and its advisors for their
review. The Thermo TerraTech Board of Directors, in appointing Mr. Vintiadis to
the Special Committee, noted that Mr. Vintiadis' position as a director of
Thermo Instrument Systems, Inc., a majority-owned subsidiary of Thermo Electron,
and Randers/Killam, a majority-owned subsidiary of Thermo TerraTech, did not
prevent him from fulfilling his duties as an independent member of the Special
Committee. As discussed below, Mr. Vintiadis elected to resign from the Board of
Directors of Randers/Killam effective July 26, 1999.
In May 1999, the Special Committee considered several law firms to act as
its legal advisor. The Special Committee elected to retain Choate, Hall &
Stewart ("Choate Hall") as its legal advisor. In making its determination, the
Special Committee considered Choate Hall's reputation and experience,
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including its mergers and acquisition experience. The Special Committee
considered that Choate Hall had already been selected to represent the special
committee of the board of directors of Randers/Killam in connection with Thermo
Electron's proposed acquisition of the minority interest of Randers/Killam. The
Special Committee believed it to be an advantage to the Special Committee that
Choate Hall was already familiar with the companies involved in the transaction
and that it had already commenced its due diligence review. The Special
Committee also determined that the interests of the special committees of Thermo
TerraTech and Randers/Killam, respectively, were adverse to Thermo Electron and
not adverse to each other in the proposed two transactions.
In May 1999, the Special Committee met with Choate Hall and discussed the
scope of the duties of the Special Committee, the scope of the Special
Committee's authority and the requirement that the Special Committee be
independent. The member of the Special Committee affirmed his independence, his
understanding of his obligations and his intent to get the best result for the
Public Stockholders. The Special Committee also determined that it would not
recommend a transaction unless it believed that the proposed transaction was at
a fair price and was the best transaction available for the Public Stockholders.
The Special Committee discussed a proposed schedule for hiring an investment
banker and for conducting due diligence in connection with the proposed
transaction, including discussions with management of Thermo TerraTech,
Randers/Killam, ThermoRetec and Thermo Electron about the business, financial
condition and prospects of Thermo TerraTech and Thermo Electron. The sole member
of the Special Committee had substantial experience in working with investment
bankers. Over the next few weeks, the Special Committee then requested proposals
from and conducted telephonic interviews with two investment banking firms,
including Adams, Harkness & Hill.
On May 24, 1999, Thermo TerraTech announced its plan to sell certain
operating units of its majority-owned subsidiary, Randers/Killam, including its
Randers division, BAC Killam and E3-Killam. In addition, it was announced that
Thermo TerraTech's majority-owned subsidiary, Thermo EuroTech N.V., would sell
its used-oil processing operations and that ThermoRetec would sell certain
soil-recycling facilities. As of the date of mailing this Proxy Statement to
stockholders, Thermo TerraTech has not entered into a definitive agreement to
sell any of these operating units. Pursuant to the terms of the Merger
Agreement, Thermo Electron is obligated to notify the Special Committee of any
such offers it receives which set forth a proposed purchase price of greater
than $3 million or in which the total value of the assets being sold is greater
than $3 million.
After due deliberation, the Special Committee decided in late May 1999 to
retain Adams, Harkness & Hill. The Special Committee selected Adams, Harkness &
Hill because of its reputation and experience generally, and in particular its
experience in providing fairness opinions in public transactions. The Special
Committee considered that Adams, Harkness & Hill had not previously acted as a
financial advisor to or provided investment banking services for Thermo Electron
or any of its subsidiaries. The Special Committee also considered that Adams,
Harkness & Hill was located in Boston and could therefore meet more easily with
the Special Committee and conduct its diligence of Thermo Electron. In making
its decision to engage Adams, Harkness & Hill, the Special Committee noted and
considered that Adams, Harkness & Hill already represented the special committee
of the board of directors of Randers/Killam and had been contacted about
representing the special committee of the board of directors of ThermoRetec in
connection with the proposed acquisition by Thermo Electron of the minority
interests of each of Thermo TerraTech, Randers/Killam and ThermoRetec. The
Special Committee determined that, in each case, the interests of the special
committees of Thermo TerraTech, Randers/Killam and ThermoRetec, respectively,
were adverse to Thermo Electron and not adverse to each other in the proposed
transactions. The Special Committee decided that, given the corporate structure
of Thermo Electron, Thermo TerraTech (a first tier subsidiary of Thermo
Electron), and Randers/Killam and ThermoRetec (each majority-owned subsidiaries
of Thermo TerraTech), Adams, Harkness & Hill's engagement in the parallel
mergers and more detailed knowledge of Thermo Electron and its subsidiaries
would
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be an advantage to the Special Committee. Adams, Harkness & Hill agreed to
assist the Special Committee in, among other things:
- conducting due diligence on Randers/Killam, ThermoRetec and Thermo
Electron, including without limitation, visiting the facilities of and
interviewing the management of Thermo TerraTech, Randers/Killam,
ThermoRetec and Thermo Electron;
- reviewing Thermo TerraTech and Thermo Electron's historical, current and
projected operating results and financial position, within the context of
the business condition in the industry segments in which Thermo TerraTech
and Thermo Electron compete and reviewing similar information for the peer
group of companies deemed to be comparable to Thermo TerraTech and Thermo
Electron;
- evaluating the historical stock price trading records of Thermo TerraTech,
Thermo Electron and the peer group;
- identifying business combinations deemed to be comparable and assessing
the terms of these precedent business combinations;
- preparing an analysis of Thermo TerraTech to determine valuation
parameters for Thermo TerraTech;
- assisting in evaluating and negotiating the terms and conditions of any
proposed offer from Thermo Electron; and
- providing a written opinion, and any oral opinions, if requested, as to
the fairness, from a financial point of view, of the consideration to be
received by the Public Stockholders in connection with any proposed offer
from Thermo Electron.
Following its engagement, Adams, Harkness & Hill continued its diligence
review and analysis, including preparation of a financial model that
incorporated financial projections provided by Thermo TerraTech's and Thermo
Electron's management, review of the valuations of comparable public companies
and the financial terms of comparable merger transactions, and preparation of
discounted cash flow valuations. See "--Opinion of Adams, Harkness & Hill".
On June 8, 1999, the Special Committee met with Adams, Harkness & Hill and
Choate Hall to review the status of the legal and financial due diligence and
discuss the proposed schedule for the transaction, including the timing of
Thermo Electron's proposed offer.
Throughout June and July, Adams, Harkness & Hill provided the Special
Committee with regular, periodic telephonic updates on its progress on due
diligence and preliminary valuation methods. On July 22, 1999, the Special
Committee met with Adams, Harkness & Hill and Choate Hall to review the
preliminary valuation of Thermo TerraTech and Thermo Electron established by
Adams, Harkness & Hill and to prepare for Thermo Electron's presentation and
offer. The Special Committee decided in advance that it would defer responding
to any offer until it had fully considered the offer, reviewed its underlying
assumptions and analyses, and assessed the merits of the offer. Adams,
Harkness & Hill discussed the valuation methodologies it employed, including
without limitation those discussed in "--Opinion of Adams, Harkness & Hill", in
determining its preliminary valuations. Full discussion ensued on the
appropriateness of certain assumptions and analyses contained in the preliminary
valuation. There was also a detailed discussion of the valuation methodologies
used by Adams, Harkness & Hill and any material assumptions used by Adams,
Harkness & Hill to prepare its preliminary valuation. After discussion, the
Special Committee authorized Adams, Harkness & Hill to engage Environmental
Business International, Inc., an environmental consultant, for the limited
purpose of reviewing certain assumptions about the environmental industry
contained in Adams, Harkness & Hill's preliminary valuation. See "Opinion of
Adams, Harkness & Hill." Choate Hall again discussed with the Special Committee
the duties
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and responsibilities of the independent committee of the Board of Directors in
evaluating and negotiating the terms of the offer. Mr. Vintiadis resigned as a
director of Randers/Killam effective on July 26, 1999.
On July 23, 1999, Thermo Electron provided the Special Committee and Choate
Hall with a draft Merger Agreement containing all of the proposed terms other
than the proposed exchange ratio. The Special Committee instructed Choate Hall
to review the proposed Merger Agreement and negotiate the agreement along the
lines discussed with the Special Committee.
On August 16, 1999, Thermo Electron provided the Special Committee with a
proposal to acquire the outstanding shares of Thermo TerraTech. Under this
proposal, each outstanding share of Thermo TerraTech common stock held by the
Public Shareholders would be exchanged for 0.26 of a share of Thermo Electron
common stock. On August 16, 1999, the date of the proposal, the closing stock
prices for Thermo TerraTech and Thermo Electron were $5.25 and $16.875,
respectively. While the terms of the proposal included a premium on the market
value of the Thermo TerraTech common stock, a substantial premium also had been
added to the Thermo Electron common stock, reflecting Thermo Electron's belief
that its common stock was currently undervalued by the financial markets. The
Special Committee instructed Adams, Harkness & Hill to review the terms of and
assumptions underlying the proposed exchange ratio.
On August 20, 1999, the Special Committee held a telephonic meeting with
Adams, Harkness & Hill and Choate Hall to review the proposed exchange ratio.
After detailed discussion, the Special Committee determined that it was
incumbent on Thermo Electron to propose a more acceptable alternative. The
Special Committee decided that no proposed exchange ratio would be considered
that had the effect of valuing Thermo TerraTech common stock at less than its
current market value or that valued Thermo Electron stock at a premium to its
then market value. Furthermore, the Special Committee discussed possible ways to
protect the Public Stockholders from fluctuations in the price of Thermo
TerraTech and Thermo Electron common stock, including a collar on the proposed
valuation and a oral update of the Adams, Harkness & Hill fairness opinion as of
the date of distribution of the proxy statement to Thermo TerraTech stockholders
and/or immediately prior to closing the transaction to ensure that the
transaction remained fair. The Special Committee discussed requiring a collar on
the proposed value of the deal, including a minimum dollar value (a "floor") for
each share of Thermo TerraTech common stock held by the Public Stockholders. If
the market value of Thermo Electron Common Stock to be issued in the proposed
transaction went below the proposed floor, the exchange ratio would be adjusted
such that each outstanding share of Thermo TerraTech common stock would be worth
the number of shares of Thermo Electron Common Stock equal to the fixed dollar
amount. For this purpose, the Thermo Common Stock would be valued based on the
average closing price of such stock during a specified period prior to the
Effective Date of the Merger. Similarly, a maximum dollar value (a "ceiling")
could be placed on each share of the Thermo TerraTech common stock held by the
Public Stockholders if the Thermo Electron common stock exceeded a specified
price. The Special Committee asked Adams, Harkness & Hill and Choate Hall to
propose a transaction structure that included a two-way collar on the price of
Thermo Electron common stock. The Special Committee also requested Choate Hall
to continue negotiations on the Merger Agreement along the lines discussed at
the meeting.
On August 24, 1999, Adams, Harkness & Hill communicated to Mr. Theo
Melas-Kyriazi, the Chief Financial Officer of Thermo Electron, that the proposed
exchange ratio was unacceptable and presented the proposed collar structure. On
August 26, 1999, Thermo Electron responded with a new proposal that contained no
premium on the trading price of Thermo Electron common stock and a proposed
implied exchange ratio of 0.40 shares of Thermo Electron common stock for each
outstanding share of Thermo TerraTech common stock held by the Public
Stockholders. The Exchange Ratio would be subject to adjustment based on the
average closing price of Thermo Electron Common Stock during a specified period
prior to the effective time of the Merger, but would provide a minimum value, or
floor, of $6.00 and a maximum value, or ceiling, of $8.00 for each outstanding
share of Thermo TerraTech Common Stock.
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On August 26, 1999, the Special Committee held a telephonic meeting with
Adams, Harkness & Hill and Choate Hall to discuss Thermo Electron's revised
proposal. After extensive discussion, the Special Committee determined that the
overall value of Thermo TerraTech was still greater than that reflected in
Thermo Electron's revised proposal. The Special Committee and Adams, Harkness &
Hill believed that the prevailing trading price of Thermo TerraTech did not
reflect the underlying value of the company since, among other considerations,
the stock was thinly-traded. Moreover, in certain cases Thermo Electron used
different assumptions in its valuation of Thermo TerraTech than those used in
Adams, Harkness & Hill preliminary projections. The Special Committee instructed
Adams, Harkness & Hill to request an increase in both the proposed minimum value
and maximum value per share.
Several days later, Thermo Electron made a revised proposal. On August 31,
1999, the Special Committee held a telephonic meeting with Adams, Harkness &
Hill and Choate Hall to discuss Thermo Electron's most recent proposal which
contained an implied exchange ratio of 0.40 shares of Thermo Electron common
stock for each share of outstanding Thermo TerraTech common stock held by the
Public Stockholders, subject to adjustment but having a minimum value of $6.80
and a maximum value of $8.50 for each outstanding share. After discussion with
Adams, Harkness & Hill, the Special Committee determined that although the
maximum value or ceiling was acceptable, the proposed floor of $6.80 per share
still did not reflect sufficient overall value for Thermo TerraTech. After a
discussion of applicable legal requirements, the Special Committee's
responsibilities and the applicability of the various pricing valuation models,
the Special Committee determined that it would continue its efforts to obtain a
minimum price higher than $6.80 per share. After several discussions between the
Special Committee and Thermo Electron in which the Special Committee indicated
that the minimum value should be increased to $7.00 per share, Thermo Electron
proposed the implied exchange ratio remain at 0.40, subject to a minimum value
of $7.00 and a maximum value of $8.50 for each outstanding share of Thermo
TerraTech common stock. That offer was agreed upon by the Special Committee as
fair from a financial point of view to the Public Stockholders on September 2,
1999. The closing prices for Thermo Electron common stock and Thermo TerraTech
common stock on September 1, 1999 were $15.875 and $5.375, respectively.
Beginning in August, 1999, the Special Committee and Choate Hall also
negotiated the terms and conditions of the proposed merger agreement.
On September 7, 1999, the Special Committee was informed that its
majority-owned subsidiary, ThermoRetec, might shortly be awarded a material
contract which could increase the value of ThermoRetec and, therefore, Thermo
TerraTech. The Special Committee decided to postpone meeting with the full Board
of Directors of Thermo TerraTech and making a recommendation with respect to the
Merger until such time as the impact, if any, of the new contract, if awarded,
on the price of the TerraTech Common Stock could be quantified and until
negotiations between Thermo Electron and the ThermoTech Special Committee could
be completed. These activities occurred throughout September and the beginning
of October. On October 7, 1999, Thermo Electron made a new proposal, subject to
approval of a final merger agreement. After discussing with Adams, Harkness &
Hill and Choate Hall, the Special Committee accepted Thermo Electron's offer of
an implied exchange ratio of 0.40, subject to adjustment but having a minimum
value of $7.25 and a maximum value of $8.50 for each outstanding share of
TerraTech Common Stock.
On October 19, 1999, Adams, Harkness & Hill met with the Special Committee
and Choate Hall to give its final report on the terms of the proposed Merger and
rendered its oral opinion to the Special Committee that the proposal by Thermo
Electron of an implied exchange ratio of 0.40 shares of Thermo Electron common
stock for each share of Thermo TerraTech common stock, subject to adjustment but
having a minimum value of $7.25 and a maximum value of $8.50 for each
outstanding share of Thermo TerraTech was fair, from a financial point of view,
to the Public Stockholders. Adams, Harkness & Hill reviewed the various factors
it considered in rendering its opinion, which are described below under
"--Opinion of Adams, Harkness & Hill." The full Board of Directors of Thermo
TerraTech then met to
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hear the report of the Special Committee and Adams, Harkness & Hill, to review
the terms of the Merger Agreement and to review the recommendations of the
Special Committee. After the terms of the transaction were outlined but before
Adams Harkness provided its report or the Special Committee made its
recommendation, the Board meeting was adjourned. During the adjournment,
representatives of Thermo Electron expressed concern to the Special Committee
and its advisors over the decline in the trading price of Thermo Electron Common
Stock since September. Thermo Electron's representatives also expressed concern
that Thermo Electron's Board of Directors would not support a transaction which
did not have a mechanism for limiting the potential dilution to Thermo
Electron's stockholders from the Merger if the trading price of Thermo
Electron's common stock experienced a supstantial drop. In other words, the
adjustments to the exchange ratio did not, as currently proposed, have any
limit. The representatives of Thermo Electron then left the room and the Special
Committee met alone with its advisors. After a detailed discussion of Thermo
Electron's concerns, the Special Committee invited Mr. Melas-Kyriazi, acting on
behalf of Thermo Electron, to meet with the Special Committee and its advisors.
Mr. Melas-Kyriazi proposed to the Special Committee that the exchange ratio
should not be permitted to increase beyond a ratio of 0.65 shares of Thermo
Common Stock for each share of TerraTech Common Stock held by the Public
Stockholders. The Special Committee then again met privately with Choate Hall
and Adams, Harkness & Hill. After discussion, the Special Committee determined
that it was reasonable that Thermo Electron have the ability to put some limit
on the number of shares issuable in the Merger. However, the Special Committee
rejected the Thermo Electron proposal because it did not leave sufficient room
for a potential decline in Thermo Electron's common stock. The Special Committee
advised Thermo Electron that it believed Thermo Electron should only be in a
position to proceed with the transaction if there were a substantial drop in
Thermo Electron's trading price. Thermo Electron then proposed to change the
terms of the Merger Agreement such that either party be allowed to terminate the
agreement if the average of closing prices of Thermo Electron Common Stock for a
specified period prior to the closing fell below a certain number. After
discussion and several private meetings with its advisors, the Special Committee
agreed that, pursuant to the terms of the Merger Agreement for adjustment of the
Exchange Ratio, if Thermo Electron would otherwise be required to issue, at the
effective time of the Merger Agreement, 1.8 million or more shares of Thermo
Electron Common Stock to the Public Stockholders, Thermo Electron could elect to
terminate the agreement. If Thermo Electron failed to terminate the Merger
Agreement, no cap would be placed on the upward adjustments to the exchange
ratio and therefore there would be no limit on the number of shares of Thermo
Electron Common Stock issuable. In addition, the Special Committee requested and
Thermo Electron agreed to delete the provision which Thermo Electron had
demanded be included in the Merger Agreement pursuant to which Thermo Electron
could refuse to close the Terra Tech Merger if the proposed transactions with
either Randers/Killam or ThermoRetec did not close.
The meeting of the full Board then resumed, Adams Harkness & Hill made its
presentation and of the Special Committee then recommended to the full Board of
Directors that it accept Thermo Electron's offer and approve the Merger
Agreement in the form presented at the meeting. Adams, Harkness & Hill rendered
its written opinion to the Special Committee on October 19, 1999, to the effect
that, as of that date, the per share consideration to be received pursuant to
the proposed Merger was fair, from a financial point of view, to the Public
Stockholders. The Board of Directors unanimously approved the Merger Agreement,
declared its advisability and recommended that the stockholders vote in favor of
the proposed Merger.
Later on October 19, 1999, the Merger Agreement was presented to the Board
of Directors of Thermo Electron at a special meeting of the Board of Directors.
Thermo Electron's Board of Directors unanimously approved the Merger Agreement.
The Merger Agreement was then duly executed by the parties. The next day, Thermo
TerraTech issued a press release announcing that, based on the recommendation of
the Special Committee, its Board of Directors had approved the Merger Agreement
with Thermo Electron.
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THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
The Special Committee and the Board believe that the terms of the Merger are
fair to, and in the best interests of, the Public Stockholders. In reaching this
conclusion, the Special Committee has determined that the Merger is both
substantively and procedurally fair, and is therefore entirely fair, to the
Public Stockholders. The Board has adopted the findings and recommendation of
the Special Committee with regard to both the substantive and procedural
fairness of the Merger. Accordingly, the Board has unanimously approved the
Merger Agreement and unanimously recommends its adoption by the stockholders.
In reaching their decisions to approve the Merger Agreement, the Special
Committee and the Board considered the following factors, each of which the
Special Committee and the Board deemed favorable:
--THE PREMIUM REFLECTED IN THE EXCHANGE RATIO. The Exchange Ratio, viewed in
light of the course of negotiations with Thermo Electron and the historical
market price of the Common Stock, was considered by the Special Committee and
the Board in making their respective decisions to approve the Merger Agreement.
- COURSE OF NEGOTIATIONS. The Special Committee and the Board considered the
history of negotiations with respect to the Merger Agreement, which led to
an increase in Thermo Electron's initial proposal of 0.26 of a share of
Thermo Common Stock per share of TerraTech Common Stock on August 16,
1999, to an exchange ratio of 0.4 of a share of Thermo Common Stock with a
value range of $6.00 to $8.00 per share offered on August 26, 1999 to an
exchange ratio of 0.4 of a share of Thermo Common Stock with a value range
of $6.80 to $8.50 per share offered on August 31, 1999 to an exchange
ratio of 0.4 of a share of Thermo Common Stock with a value range of $7.00
to $8.50 per share offered later on August 31, 1999 to an exchange ratio
of 0.4 of a share of Thermo Common Stock with a value range of $7.25 to
$8.50 per share offered on October 7, 1999, and finally to an exchange
ratio of 0.4 of a share of Thermo Common Stock with a value range of $7.25
to $9.25 per share offered on October 19, 1999.
- THE RELATIONSHIP OF THE EXCHANGE RATIO, WITH A MINIMUM VALUE OF $7.25 AND
A MAXIMUM VALUE OF $9.25, TO THE HISTORICAL MARKET PRICES FOR THE
TERRATECH COMMON STOCK. The Special Committee and the Board considered the
declining per share price of the TerraTech Common Stock and the
possibility that the price would remain depressed. The Special Committee
and the Board noted that it had been approximately two years since the
Common Stock had consistently traded at or above $7.25 and that the Common
Stock had ranged from a high of $12.0625 in the first quarter of 1997 to a
low of $3.75 in the fourth quarter of 1998. The Special Committee and the
Board concluded that the Exchange Ratio proposed by Thermo Electron would
enable the Public Stockholders to obtain a higher price for their stock
than would otherwise be available in the market at that time. The purchase
by Thermo Electron would also eliminate the exposure of the Public
Stockholders to any future or continued declines in the price of the
Common Stock.
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<PAGE>
--INFORMATION CONCERNING THE FINANCIAL PERFORMANCE, CONDITION, BUSINESS
OPERATIONS AND PROSPECTS OF THERMO TERRATECH. The Special Committee and the
Board considered the historical, current and potential future performance of
Thermo TerraTech and determined that the premium reflected in the price per
share offered by Thermo Electron was attractive in light of the current
performance, declining sales and profitability, and the uncertainty of the
Company's growth prospects. In addition, the Special Committee and the Board
determined that the Merger would shift the risk of the future financial
performance of Thermo TerraTech from the Public Stockholders, who do not have
the power to control Thermo TerraTech, entirely to Thermo Electron, which does
have the power to control Thermo TerraTech and has the resources to manage and
bear that risk over the long term.
--TERMS OF THE MERGER AGREEMENT. The Special Committee and the Board
considered the terms of the Merger Agreement, including (i) the amount and form
of the consideration, (ii) the limited number of conditions to the obligations
of Thermo Electron, (iii) the right of the Special Committee to terminate the
Merger Agreement if the Special Committee determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's or the Special Committee's fiduciary duties under applicable law, and
(iv) the absence of a termination fee in the event Thermo TerraTech terminates
the Merger Agreement. The Special Committee and the Board believed that the
foregoing made the consummation of the transaction more likely than it would if
more significant conditions were placed on the completion of the transaction.
Further, the Special Committee and the Board believed that the ability of the
Special Committee to terminate the Merger Agreement without payment of a
termination fee in the event its fiduciary duties to the Thermo TerraTech
stockholders required it to do so provided the Board the freedom to protect the
interests of the Public Stockholders.
--THE IMPROVED TRADING MARKET FOR THEIR INVESTMENT THAT WOULD BE REALIZED BY
THE PUBLIC STOCKHOLDERS FROM THEIR RECEIPT OF THERMO COMMON STOCK. The Special
Committee and the Board believed that the improved trading market and liquidity
of their investment to be realized by the Public Stockholders would be
beneficial to such stockholders since Thermo Electron's significant ownership of
the TerraTech Common Stock (i) resulted in a relatively small public float that
necessarily limited the amount of trading in the TerraTech Common Stock and
(ii) decreased the likelihood that a proposal to acquire the TerraTech Common
Stock would be made by an independent entity without the consent of Thermo
Electron and furthermore, Thermo Electron had stated its current intention to
retain its majority holding in the Company, which foreclosed the opportunity to
consider an alternative transaction with a third party purchaser of the Company
or otherwise provide liquidity to the Public Stockholders.
--THE OPINION OF ADAMS, HARKNESS & HILL THAT THE CONSIDERATION OFFERED BY
THERMO ELECTRON OF 0.4, SUBJECT TO ADJUSTMENT BUT HAVING A MINIMUM VALUE OF
$7.25 AND A MAXIMUM VALUE OF $9.25 FOR EACH OUTSTANDING SHARE OF TERRATECH
COMMON STOCK IS FAIR, FROM A FINANCIAL POINT OF VIEW, AS OF THE DATE OF ITS
OPINION, TO THE PUBLIC STOCKHOLDERS. The Special Committee reviewed the
independent financial analyses performed by Adams, Harkness & Hill, including
analyses of relative value and discounted cash flows that assume Thermo
TerraTech will continue as a going concern, and found them to be reasonable. It
believed that Adams, Harkness & Hill's conclusion that the Exchange Ratio
offered by Thermo Electron was fair, from a financial point of view, to the
Public Stockholders was a reasonable conclusion based on the analyses performed.
See "--Opinion of Adams, Harkness & Hill."
The Special Committee and the Board also considered the following factors,
all of which they considered as negative factors in their deliberations
concerning their respective decisions to approve the Merger Agreement:
- FOLLOWING THE MERGER, THE PUBLIC STOCKHOLDERS WILL CEASE TO PARTICIPATE
DIRECTLY IN THE FUTURE EARNINGS OR GROWTH, IF ANY, OF THERMO TERRATECH OR
BENEFIT FROM INCREASES, IF ANY, IN THE VALUE OF THERMO TERRATECH. The
Special Committee and the Board evaluated this in light of the recent
financial performance of Thermo TerraTech, the current industry outlook
and the risks and uncertainties associated with Thermo TerraTech's future
prospects, as described above.
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<PAGE>
- THE POSITIVE ASPECTS OF THE COMPANY, INCLUDING ITS HIGH QUALITY SERVICES,
HIGHLY REGARDED MANAGEMENT TEAM, LEADING MARKET POSITION IN CERTAIN AREAS,
DIVERSIFIED CUSTOMER BASE AND STRONG EXISTING SERVICES PORTFOLIO. The
Special Committee and the Board believed that these aspects were potential
contributors to the future success of Thermo TerraTech and weighed in
favor of continuing Thermo TerraTech as a public company. However, these
positive aspects were offset by the many other considerations listed
above.
- POTENTIAL OR ACTUAL CONFLICTS OF INTEREST OF OFFICERS AND DIRECTORS OF
THERMO TERRATECH IN CONNECTION WITH THE MERGER. See "--Conflicts of
Interest."
The Special Committee and the Board also considered evaluating the Company
on a going concern basis, but accorded this method of analysis little, if any,
weight, because Thermo Electron indicated to the Special Committee and the Board
that it had no desire or intention to sell the Company, but rather wanted to
continue to operate the Company substantially as it was being operated.
In determining that the Merger is fair to the Public Stockholders, the
Special Committee and the Board considered the above factors as a whole and did
not assign specific or relative weights to them. The factors described above
constitute all of the material factors considered by the Special Committee and
the Board. In the view of the Special Committee and the Board, each of the
positive factors listed above, in the aggregate, reinforced their belief that
the transaction was in the best interests of the Public Stockholders and
outweighed the negative factors listed above.
The Special Committee's and the Board's belief as to the procedural fairness
of the Merger was based, among other things, on their recognition that (i) the
Special Committee consisted of an independent director appointed by a majority
of the Board of Directors to represent solely the interests of the Public
Stockholders and to provide independent consideration of the transaction;
(ii) the Special Committee retained and was advised by independent legal
counsel; (iii) the Special Committee retained Adams, Harkness & Hill to assist
in evaluating the proposed transaction and received advice from Adams,
Harkness & Hill; and (iv) the Exchange Ratio and the other terms and conditions
of the Merger Agreement resulted from active arms-length bargaining between
representatives of the Special Committee and representatives of management of
Thermo Electron. No other unaffiliated representative was retained to act solely
on behalf of the Public Stockholders for the purposes of negotiating the terms
of the Merger or the Merger Agreement.
THE SPECIAL COMMITTEE AND THE BOARD HAVE APPROVED THE MERGER AGREEMENT,
BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR TO THE PUBLIC STOCKHOLDERS AND THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO ADOPT THE MERGER
AGREEMENT.
In considering the recommendation of the Special Committee and the Board
with respect to the Merger Agreement, stockholders should be aware that certain
members of the Special Committee and the Board have certain interests in the
Merger that are different from, or in addition to, the interests of stockholders
generally and that represent actual or potential conflicts of interest. The
Special Committee and the Board were aware of these interests and considered
them, among other matters, in approving the Merger Agreement. See "--Conflicts
of Interest."
In order to aid the evaluation of the Company by the Special Committee and
Adams, Harkness & Hill and Adams, Harkness & Hill's assessment of the fairness,
from a financial point of view, of the consideration of payable to the Public
Stockholders pursuant to the Merger Agreement, the Company furnished the Special
Committee and Adams, Harkness & Hill with certain projected financial data
prepared by the Company's management. See "CERTAIN PROJECTED FINANCIAL DATA."
OPINION OF ADAMS, HARKNESS & HILL
Pursuant to a letter agreement dated as of , 1999 (the "Adams,
Harkness & Hill Engagement Letter"), Adams, Harkness & Hill was retained by the
Special Committee to render an opinion (the
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<PAGE>
"Opinion") as to the fairness, from a financial point of view, to the Public
Stockholders, of the consideration to be received by such Public Stockholders in
connection with the Merger. The Special Committee selected Adams, Harkness &
Hill for a number of reasons, including its qualifications, expertise and
reputation in the area of valuation and financial advisory work. Adams,
Harkness & Hill is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. Adams, Harkness &
Hill also was engaged by the special committees of the Board of Directors of
each of ThermoRetec and Randers/Killam, respectively, to render opinions as to
the fairness to the holders of common stock of ThermoRetec and Randers/Killam
other than Thermo Electron and its affiliates, of the consideration to be
received by such holders in separate transactions involving Thermo Electron, and
received customary fees therefor. At the meeting of the TerraTech Board on
October 19, 1999, Adams, Harkness & Hill rendered its oral Opinion, subsequently
confirmed in writing, that, as of October 19, 1999, based upon and subject to
the various considerations set forth in the Opinion, the consideration pursuant
to the Merger Agreement was fair from a financial point of view to the holders
of shares of TerraTech Common Stock other than Thermo Electron and its
affiliates. It is a condition to the obligation of Thermo TerraTech to effect
the Merger that Adams, Harkness & Hill shall reaffirm orally its written Opinion
as of the date of mailing of this Proxy Statement-Prospectus and at the
Effective Time.
THE FULL TEXT OF THE WRITTEN OPINION OF ADAMS, HARKNESS & HILL DATED OCTOBER
19, 1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY ADAMS, HARKNESS & HILL IN RENDERING ITS OPINION, IS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THERMO TERRATECH SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. ADAMS, HARKNESS & HILL'S OPINION IS
DIRECTED TO THE SPECIAL COMMITTEE AND ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY THE PUBLIC STOCKHOLDERS PURSUANT TO THE MERGER
AGREEMENT, FROM A FINANCIAL POINT OF VIEW AS OF OCTOBER 19, 1999, AND DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF THERMO TERRATECH COMMON STOCK AS TO HOW TO VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF ADAMS, HARKNESS & HILL SET FORTH IN THIS
PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
The following is a summary of the various sources of information and
valuation methodologies used by Adams, Harkness & Hill in arriving at its
Opinion regarding the proposed transaction with Thermo Electron. To determine
the fairness of the transaction, Adams, Harkness & Hill employed analyses based
on the following:
- Public company peers' financial performance and relative valuations;
- Transaction premiums paid in selected precedent acquisitions;
- Stock price performance of Thermo TerraTech, ThermoRetec, and
Randers/Killam;
- Discounted cash flow analysis; and
- Break-up analysis of Thermo TerraTech.
In conducting its investigation and analysis and in arriving at its Opinion,
Adams, Harkness & Hill reviewed the information and took into account the
financial and economic factors it deemed relevant and
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<PAGE>
material under the circumstances. The material actions undertaken by Adams,
Harkness & Hill in its analysis were as follows:
- Reviewed internal financial information concerning the business and
operations of Thermo TerraTech that was furnished to Adams, Harkness &
Hill by Thermo TerraTech's management for purposes of its analysis, as
well as publicly available information, including but not limited to
Thermo TerraTech's recent filings with the Commission;
- Reviewed the Merger Agreement in the form presented to the Special
Committee;
- Compared the historical market prices and trading activity of the Common
Stock with those of other publicly traded companies that Adams,
Harkness & Hill deemed relevant;
- Compared the financial position and operating results of Thermo TerraTech
with those of other publicly traded companies that Adams, Harkness & Hill
deemed relevant;
- Compared the proposed financial terms of the Merger with the terms of
other merger and acquisition transactions that Adams, Harkness & Hill
deemed relevant; and
- Held discussions with members of Thermo TerraTech's senior management
concerning Thermo TerraTech's historical and current financial condition
and operating results, as well as its future prospects.
Adams, Harkness & Hill also reviewed relevant industry market research
studies, company research reports and key economic and market indicators,
including interest rates, and general stock market performance. Other than as
set forth above, Adams, Harkness & Hill did not review any additional
information in preparing its opinion that, independently, was material to its
analysis. As a part of its engagement, Adams, Harkness & Hill was not requested
to, and did not, solicit any third party indications of interest in acquiring
Thermo TerraTech. The Special Committee did not place any limitation upon Adams,
Harkness & Hill with respect to the procedures followed or factors considered by
Adams, Harkness & Hill in rendering its Opinion.
In rendering its Opinion, Adams, Harkness & Hill assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to Adams, Harkness & Hill by, or on behalf of,
Thermo TerraTech, and did not independently verify that information. Adams,
Harkness & Hill assumed, with the Special Committee's consent, that:
- All material assets and liabilities (contingent or otherwise, known or
unknown) of Thermo TerraTech are as set forth in its financial statements;
- Obtaining all regulatory and other approvals and third party consents
required for consummation of the proposed Merger would not have a material
effect on the anticipated benefits of the Merger; and
- The Merger would be consummated in accordance with the terms set forth in
the Merger Agreement, without any amendment thereto and without waiver by
Thermo TerraTech or Thermo Electron of any of the conditions to their
respective obligations thereunder.
Adams, Harkness & Hill assumed that the projections examined by it were
reasonably prepared based upon the best available estimates and good faith
judgments of the Company's senior management as to the future performance of
TerraTech. In conducting its review, Adams, Harkness & Hill did not obtain an
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of TerraTech. After consultation with the Special
Committee and with its consent, however, Adams, Harkness & Hill engaged
Environmental Business International, Inc., a leading independent strategic
consulting firm serving the environmental services industry, to support its
assessments of environmental industry conditions. Adams, Harkness & Hill's
Opinion did not predict or take into account any possible economic,
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<PAGE>
monetary or other changes which may occur, or information which may come
available, after the date of its written Opinion.
PUBLIC COMPANY PEER ANALYSIS--TERRATECH
Thermo TerraTech provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations. Thermo TerraTech operates
in four segments: environmental-liability management, engineering and design,
laboratory testing, and metal treating. The Environmental-liability Management
segment includes ThermoRetec, a majority-owned, publicly held subsidiary of
Thermo TerraTech. ThermoRetec is a national provider of environmental-liability
and resource-management services. Through a nationwide network of offices,
ThermoRetec offers these and related consulting services in four areas:
consulting and engineering, nuclear remediation, soil remediation, and fluids
recycling. Thermo TerraTech's majority-owned, privately-held Thermo EuroTech
N.V. subsidiary, located in the Netherlands, specializes in converting
"off-spec" and contaminated petroleum fluids into useable oil products. Thermo
EuroTech also provides in-plant waste management and recycling services through
its Ireland-based Green Sunrise Holdings Ltd. subsidiary.
The Engineering and Design segment includes Randers/Killam, another
majority-owned, publicly-held subsidiary of Thermo TerraTech. Randers/Killam
provides comprehensive engineering and outsourcing services in four areas: water
and wastewater treatment, process engineering and construction, highway and
bridge engineering, and infrastructure engineering. This segment also includes
Thermo TerraTech's wholly owned Normandeau Associates Inc. subsidiary, which
provides consulting services that address natural resource management issues.
Thermo TerraTech's wholly owned Thermo Analytical Inc. subsidiary, which
represents the Laboratory Testing segment, operates analytical laboratories that
provide environmental- and pharmaceutical-testing services, primarily to
commercial clients throughout the United States. The Metal Treating segment
performs metallurgical processing services using thermal-treatment equipment at
locations in California, Minnesota, and Wisconsin.
Accordingly, Adams, Harkness & Hill established three groups of publicly
traded companies to address the four business areas in which Thermo TerraTech
operates, either directly, through wholly-owned subsidiaries, or indirectly,
through financial reporting consolidation of majority-owned subsidiaries
ThermoRetec and Randers/Killam. The three groups consist of:
- Environmental Services Companies
- Diversified Civil Engineering/Construction/Environmental/Consulting
Companies
1) Baker (Michael) Corp.;
2) Jacobs Engineering Group, Inc.; and
3) URS Corp.
- Environmental Services and Consulting Companies
1) EA Engineering Science & Technology;
2) Ecology and Environment;
3) GZA GeoEnvironmental Technologies;
4) Harding Lawson Associates Group; and
5) Tetra Tech Inc.
- Environmental Engineering and Remediation Services
1) IT Group Inc.;
2) National Environmental Services Co.;
3) Sevenson Environmental Services Inc.;
4) TRC Companies Inc.;
5) Versar, Inc.; and
6) Weston (Roy F.)
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- Metal Treatment Companies
1) Bodycote International;
2) Gibraltar Steel Corp.; and
3) Lindberg Corp.
- Commercial Laboratories
1) Applied Analytical Ind.;
2) BioReliance Corp.;
3) Covance Inc.;
4) Parexel International Corp.; and
5) Quintiles Transnational Corp.
Adams, Harkness & Hill compared certain financial measures and metrics of
Thermo TerraTech with those of the Peer Group Companies. Such information
included: Market Capitalization ("MC"); Enterprise Value ("EV"); Price/Projected
Calendar 1999 & 2000 Earnings Ratios ("Forward 1999 & 2000 P/ Es"); Enterprise
Value/last twelve months' ("LTM") Revenue; LTM Operating Margin; Market
Capitalization/Book Value; and Year/Year Quarterly Revenue Growth.
Enterprise Value/LTM Revenue ("EV/LTM Revenue") and Price/Earnings ("P/E")
multiples imply the range of value public markets place on companies in a
particular market segment. Adams, Harkness & Hill employed an EV valuation in
this analysis because this methodology implies value based on a company's
operations, regardless of how the company finances those operations. To
determine EV, MC is calculated as the product of a company's common stock price
per share (Adams, Harkness & Hill used the closing price on October 8, 1999, for
all public company comparable analyses) multiplied by the number of diluted
shares outstanding. The MC is then adjusted for a company's debt and cash
positions by adding the debt balance and subtracting the cash balance to arrive
at an EV. Unlike EV-based valuation methodologies, P/E-based valuation
methodologies imply a value based on net after-tax earnings inclusive of the
earnings impact of how the company finances its operations. The following
equation illustrates the manner in which EV has been calculated:
((market value of equity) + (debt))-(cash, cash equivalents and short-term
investments)
In order of descending EV/LTM Revenue, the Peer Group Companies (for which
sufficient data was available) ranked as follows:
- Environmental Services Companies
1) Tetra Tech Inc.;
2) National Environmental Services Co.;
3) URS Corp.;
4) IT Group Inc.;
5) TRC Companies Inc.;
6) Versar, Inc.;
7) Sevenson Environmental Services Inc.;
8) Jacobs Engineering Group, Inc.;
9) Ecology and Environment;
10) Weston (Roy F.);
11) GZA GeoEnvironmental Technologies;
12) Baker (Michael) Corp.;
13) EA Engineering Science & Technology; and
14) Harding Lawson Associates Group
- Metal Treatment Companies
1) Bodycote International;
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<PAGE>
2) Gibraltar Steel Corp.; and
3) Lindberg Corp.
- Commercial Laboratories
1) Applied Analytical Ind.;
2) Quintiles Transnational Corp.;
3) Covance Inc.;
4) BioReliance Corp.; and
5) Parexel International Corp.
In order of descending Price/Projected Calendar 1999 Earnings (where
earnings per share estimates were available), the Peer Group Companies ranked as
follows:
- Environmental Services Companies
1) Tetra Tech Inc.;
2) EA Engineering Science & Technology;
3) Jacobs Engineering Group, Inc.;
4) TRC Companies Inc.;
5) Harding Lawson Associates Group;
6) URS Corp.; and
7) IT Group Inc.
- Metal Treatment Companies
1) Gibraltar Steel Corp.; and
2) Lindberg Corp.
- Commercial Laboratories
1) Quintiles Transnational Corp.;
2) Parexel International Corp.; and
3) Covance Inc.
In order of descending Price/Projected Calendar 2000 Earnings (where
earnings per share estimates were available), the Peer Group Companies ranked as
follows:
- Environmental Services Companies
1) Tetra Tech Inc.;
2) Jacobs Engineering Group, Inc.;
3) URS Corp.;
4) IT Group Inc.; and
5) EA Engineering Science & Technology
- Metal Treatment Companies
1) Gibraltar Steel Corp.; and
2) Lindberg Corp.
- Commercial Laboratories
1) BioReliance Corp.;
2) Applied Analytical Ind.;
3) Quintiles Transnational Corp.;
4) Covance Inc.; and
5) Parexel International Corp.
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<PAGE>
The low, high and average financial ratios for the Peer Group Companies are
listed in the table below:
- ENVIRONMENTAL SERVICES COMPANIES
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- -------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/LTM Revenue............................. 0.1 1.2 0.6
Calendar Year 1999 Price/Earnings........................ 8.5 21.2 14.1
Calendar Year 2000 Price/Earnings........................ 4.2 17.6 9.5
</TABLE>
- METAL TREATMENT COMPANIES
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- -------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/LTM Revenue............................. 0.8 2.7 1.4
Calendar Year 1999 Price/Earnings........................ 6.0 12.1 9.1
Calendar Year 2000 Price/Earnings........................ 5.9 10.5 8.2
</TABLE>
- COMMERCIAL LABORATORIES
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
- -------- -------- -------- --------
<S> <C> <C> <C>
Enterprise Value/LTM Revenue............................ 0.4 2.5 1.2
Calendar Year 1999 Price/Earnings....................... 10.7 13.9 11.9
Calendar Year 2000 Price/Earnings....................... 8.8 11.5 10.0
</TABLE>
To arrive at TerraTech's P/E multiples for Calendar Year 1999 and Calendar
Year 2000, Adams, Harkness & Hill used TerraTech's internal management
projections, as external research analysts' projections have not been published.
Adams, Harkness & Hill compared these ranges of multiples to the multiple
implied by the proposed consideration of approximately:
<TABLE>
<S> <C>
- - Enterprise Value/LTM Revenue:............................. 0.9
- - Calendar Year 1999 Price/Earnings:........................ 24.3
- - Calendar Year 2000 Price/Earnings:........................ 12.0
</TABLE>
TRANSACTION PREMIUMS PAID ANALYSIS
Premiums paid in precedent public company change of control transactions
typically imply the range of consideration acquirers are willing to pay above a
seller's stock price prior to the announcement of the relevant transaction. In
this analysis, the value of consideration paid in transactions involving stock
is computed using the buyer's stock price immediately prior to announcement,
while the seller's stock price is measured one trading day, one week, and one
month prior to the announcement of the transaction. Adams, Harkness & Hill
reviewed 44 precedent transactions involving selected environmental services
companies from January 1, 1998 to October 19, 1999, of which seven transactions
involved the acquisition of the equity shares of publicly-traded companies for
which share price data was available. In addition, Adams, Harkness & Hill
reviewed 20 comparable precedent transactions involving selected metal treatment
companies and 21 precedent transactions involving selected commercial
laboratories. Although
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<PAGE>
Adams, Harkness & Hill is aware of the consolidation activity in the competitive
metal treatment and commercial laboratory industries, and as such is aware of
the appropriate metrics and multiples used to establish a range of value for
companies in the respective industries, such data for publicly-traded companies
was not sufficiently available.
In order of descending premium paid based on the seller's stock price one
trading day prior to announcement, the selected environmental transactions used
were as follows:
1) Carmeuse Lime's acquisition of Dravo Corp.;
2) IT Group Inc.'s acquisition of Fluor Daniel GTI;
3) URS Corp.'s acquisition of Dames & Morre Group;
4) IT Group Inc.'s acquisition of OHM Corp.;
5) IT Group Inc.'s acquisition of Emcon;
6) USA Waste Services' acquisition of Trans American Waste Industries; and
7) Special purposes acquisition vehicle of Weiss, Peck & Greer's
acquisition of ATC Group Services.
Based upon Adams, Harkness & Hill's analysis of premia paid in selected
precedent environmental services industry transactions, the low, high and
average premia (discounts) paid to sellers' share prices (using the buyer's
share price on the day prior to the announcement date of the transaction to
calculate consideration in stock transactions) for the month, week, and day
prior are listed below:
<TABLE>
<CAPTION>
LOW HIGH AVERAGE
-------- -------- --------
<S> <C> <C> <C>
Premium Paid--1 Month prior.............................. 3% 74% 42%
Premium Paid--1 Week prior............................... (8%) 84% 33%
Premium Paid--1 Day prior................................ 0% 87% 31%
</TABLE>
Adams, Harkness & Hill compared these ranges of implied premia to the
implied premium offered by the difference between $7.25 (assuming that no less
than the Floor Price would be paid) and the closing price of the ThermoTerraTech
Common Stock on the dates noted below:
Prior to announcement of the Merger Agreement (10/20/99):
<TABLE>
<S> <C>
- - Premium Paid--1 Month prior:.............................. 30%
- - Premium Paid--1 Week prior:............................... 38%
- - Premium Paid--1 Day prior:................................ 35%
</TABLE>
Adams, Harkness & Hill also compared these ranges of precedent premia to the
implied premium offered by the difference between $7.25 (assuming no less than
the Floor Price would be paid) and the closing price of the Thermo TerraTech
Common Stock on the dates noted below:
Prior to original TMO reorganization announcement (8/12/98):
<TABLE>
<S> <C>
- - Premium Paid--1 Month prior:.............................. 49%
- - Premium Paid--1 Week prior:............................... 53%
- - Premium Paid--1 Day prior:................................ 49%
</TABLE>
Prior to TMO restructuring announcement (5/24/99):
<TABLE>
<S> <C>
- - Premium Paid--1 Month prior:.............................. 61%
- - Premium Paid--1 Week prior:............................... 66%
- - Premium Paid--1 Day prior:................................ 41%
</TABLE>
STOCK PRICE PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following for Thermo TerraTech and
Thermo Electron:
1) 200-Day stock price performance;
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<PAGE>
2) Stock price performance since IPO;
3) Stock price performance from January 1, 1998 to present compared to
the NASDAQ Composite, S&P 500 and Russell 2000 stock indices;
4) Stock price performance from January 1, 1998 to present compared to
an index of each companies' respective public company comparables.
In addition, in assessing the value of the Thermo Common Stock, Adams,
Harkness & Hill examined selected research reports on Thermo Electron, produced
between February 25, 1999 and June 1, 1999, by a number of institutional
research analysts.
DISCOUNTED CASH FLOW ANALYSIS
Adams, Harkness & Hill performed a discounted cash flow analysis to estimate
the present value of the stand-alone unlevered (i.e. before interest expense)
after-tax cash flows of Thermo TerraTech. To perform the discounted cash flow
analysis, Adams, Harkness & Hill used the following data sources and
assumptions:
- Management projections for the year ended December 31, 1999 through the
year ended December 31, 2003 for the following Thermo TerraTech
subsidiaries or divisions:
ThermoRetec;
Randers/Killam;
Lancaster Labs;
Metal Treating;
Normandeau; and
EuroTech.
- Unlevered after-tax cash flows were calculated as the after-tax (40%
effective rate) operating earnings of the above listed businesses adjusted
for the addition of non-cash expenses and the deduction of uses of cash
not reflected in the income statement.
- Weighted average costs of capital that ranged from 9.0% to 16.5% for the
Environmental Services Companies (e.g. ThermoRetec, Randers/Killam,
Normandeau and EuroTech) and Metal Treatment Companies and from 11.0% to
18.5% for the Commercial Laboratories.
- Terminal values based on the above listed businesses' Earnings Before
Interest and Taxes ("EBIT") for the year ended December 31, 2003, times
EBIT multiples that ranged from 7.0x to 12.0x for the Environmental
Services and Metal Treatment Companies (excluding Eurotech, whose EBIT
multiple ranged from 5.0x to 10.0x) and from 10.0x to 15.0x for Commercial
Laboratories.
Adams, Harkness & Hill calculated the weighted average cost of capital for
each of the Peer Group Companies, using a risk free rate of 6.0% and a market
risk premium of 7.4%, and arrived at the following ranges:
- Environmental Services Companies: 7.1% to 11.1%, with an average of 9.3%
- Metal Treatment Companies: 9.0% to 10.7%, with an average of 9.9%
- Commercial Laboratories: 9.2% to 14.1%, with an average of 11.9%
In order to calculate an appropriate range of terminal values, Adams,
Harkness & Hill also calculated an EV/EBIT multiple for each of the Peer Group
Companies and arrived at the following ranges:
- Environmental Services Companies: 1.5x to 25.9x, with an average of 10.6x
- Metal Treatment Companies: 5.5x to 12.0x, with an average of 8.9x
- Commercial Laboratories: 3.1x to 12.7x with an average of 7.1x
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For each of the above listed TerraTech businesses, Adams, Harkness & Hill
combined the calculated present value of cash flows for the year ended
December 31, 1999 through December 31, 2003 with the business' respective EBIT
terminal value to arrive at a range of EVs based on the above assumptions.
The EVs of ThermoRetec, Randers/Killam and EuroTech were then multiplied by
TerraTech's percent ownership of each entity and combined with the EVs for the
remaining businesses to arrive at a range of total EVs for TerraTech. These EVs
were adjusted by adding TerraTech's cash balance and subtracting its debt
balance to arrive at implied MCs (i.e. equity values). Adams, Harkness & Hill
divided the computed equity values by TerraTech's shares outstanding and arrived
at a range of implied per share values of $5.90 to $17.21, with a median implied
value of $10.88.
BREAK-UP ANALYSIS OF TERRATECH
Adams, Harkness & Hill performed a break-up analysis of Thermo TerraTech. A
break-up analysis is an assessment of the cumulative value of individual
operations and/or assets if valued on a stand-alone basis, assuming the arm's
length sale of each operation to a third party.
Adams, Harkness & Hill derived an implied value for each of TerraTech's
businesses based on the high, low and median EV/LTM Revenue multiples from the
businesses' respective public company peers analyses.
EV/LTM REVENUE MULTIPLE
<TABLE>
<CAPTION>
HIGH LOW MEDIAN
-------- -------- --------
<S> <C> <C> <C>
- - ThermoRetec............................................ 1.3 0.2 0.5
- - Randers/Killam......................................... 1.3 0.2 0.5
- - Lancaster Labs......................................... 2.5 0.4 1.0
- - Metal Treating......................................... 2.7 0.8 0.8
- - Normandeau............................................. 1.3 0.2 0.5
- - EuroTech............................................... 1.3 0.2 0.5
</TABLE>
To arrive at a range of overall implied value for Thermo TerraTech, Adams,
Harkness & Hill undertook the following:
- Multiplied the respective businesses' LTM revenues by the above multiples
to arrive at high, low and median implied valuations for each business.
- The high, low and median valuations of ThermoRetec, Randers/Killam and
EuroTech were then multiplied by Thermo TerraTech's percent ownership of
each entity and combined with the high, low and median valuations for the
remaining businesses to arrive at high, low and median EVs for TerraTech.
- The high, low and median EVs were adjusted by adding Thermo TerraTech's
cash balance and subtracting its debt balance to arrive at implied equity
values.
- Adams, Harkness & Hill divided the computed equity values by Thermo
TerraTech's shares outstanding and arrived at implied per share values of:
high--$16.02 and median--$1.21 (the low value was less than $0.00).
SUMMARY OF VALUATION ANALYSES
The foregoing summary does not purport to be a complete description of the
analyses performed by Adams, Harkness & Hill. The preparation of a fairness
opinion is a complex process and is not susceptible
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to partial analysis or summary description. Adams, Harkness & Hill believes that
its analyses must be considered as a whole, and that selecting portions of such
analysis without considering all analyses and factors would create an incomplete
view of the processes underlying its Opinion. Adams, Harkness & Hill did not
attempt to assign specific weights to particular analyses. However, there were
no specific factors reviewed by Adams, Harkness & Hill that did not support its
Opinion. Any estimates contained in Adams, Harkness & Hill's analyses are not
necessarily indicative of actual values, which may be significantly more or less
favorable than as set forth therein. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at which companies
may actually be sold. Because such estimates are inherently subject to
uncertainty, Adams, Harkness & Hill does not assume responsibility for their
accuracy.
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall Opinion that the consideration to
be received in the merger is fair, from a financial point of view, to the
Minority Stockholders.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
The purpose of Thermo Electron for engaging in the transactions contemplated
by the Merger Agreement is for Thermo Electron to acquire all of the outstanding
shares of TerraTech Common Stock. In determining to acquire such shares of
TerraTech Common Stock at this time, Thermo Electron considered the following
factors: (i) recent public capital market trends affecting micro-cap companies;
(ii) the latest market trends in the markets in which the Company competes,
primarily the environmental-liability management market; (iii) the debt owed by
the Company, including the debt owed to Thermo Electron; (iv) the reduction in
the amount of public information available to competitors about Thermo
TerraTech's business that would result from the termination of the Company's
obligations as a reporting company to the Commission; (v) the elimination of
additional burdens on management associated with public reporting and other
tasks resulting from the Company's public company status, including, for
example, the dedication of time and resources of management and of the Board to
stockholder and analyst inquiries, and investor and public relations, (vi) the
decrease in costs, particularly those associated with being a public company
(for example, as a privately-held entity, the Company would no longer be
required to file quarterly, annual or other periodic reports with the Commission
or publish and distribute to its stockholders annual reports and proxy
statements), that Thermo Electron anticipates could result in savings of
approximately $450,000 per year, including the approximate cost of associated
legal and accounting fees; and (vii) the greater flexibility that the Company's
management would have to focus on long-term business goals, as opposed to
quarterly earnings, as a non-reporting company.
In addition, the Thermo Electron board of directors considered the
advantages and disadvantages of certain alternatives to acquiring the Public
Stockholder interest in Thermo TerraTech, including (i) selling its equity
interest in the Company and (ii) leaving Thermo TerraTech as a majority-owned,
public subsidiary. The first alternative, that of selling its equity interest in
the Company, was briefly considered by Thermo Electron management, but it was
not an alternative that was pursued as reasonable, given that Thermo Electron
did not want to sell its equity interest in the Company. The advantages to
leaving Thermo TerraTech as a majority-owned, public subsidiary that Thermo
Electron considered included (i) the avoidance of dilution to the Thermo
Electron stockholders by the issuance of more of its shares of common stock as
consideration for shares of TerraTech Common Stock and (ii) maintaining the
potential access Thermo TerraTech has to capital in the public markets as a
public company. The disadvantages to leaving Thermo TerraTech as a
majority-owned, public subsidiary that Thermo Electron considered included
(i) the costs associated with being a public company and (ii) the public
information available to competitors about Thermo TerraTech's business as result
of its filing obligations with the Commission. Thermo Electron also considered
the number of Thermo TerraTech shares held by the Public Stockholders, recent
trends in the price of the TerraTech Common Stock and the relative lack of
liquidity for the TerraTech Common Stock. Thermo Electron also reviewed the net
overall cost of the transaction and its benefits, including the transaction's
contribution to Thermo Electron's earnings. Thermo Electron also
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explored the impact on its own common stock of the issuance of shares proposed
to be used for this transaction. In addition, Thermo Electron considered that,
by acquiring the minority stockholder interest in Thermo TerraTech, it would
advance the goal of its proposed corporate reorganization, announced in
August 1998, to reduce the number of Thermo Electron's majority-owned, public
subsidiaries. After consideration of these various factors, Thermo Electron
decided to make a proposal to Thermo TerraTech to acquire for stock, through a
merger, all of the outstanding shares of TerraTech Common Stock that it did not
already own. After extensive negotiations with the Special Committee, Thermo
Electron proposed an exchange ratio of 0.4 share of Thermo Common Stock for
every share of TerraTech Common Stock (which ratio is subject to adjustment).
The Floor Price ($7.25 per share) represents a premium of (i) approximately 73%
over the closing price of the TerraTech Common Stock reported in the
consolidated transaction reporting system on April 30, 1999, the last day on
which trading in the TerraTech Common Stock occurred prior to Thermo Electron's
first public announcement of a proposal to take Thermo TerraTech private (no
price having been determined and, accordingly, no exchange ratio or financial
terms announced as of that date) and (ii) approximately 35% over the closing
price of the TerraTech Common Stock reported in the consolidated transaction
reporting system on October 19, 1999, the trading day immediately prior to the
public announcement of the financial terms of Thermo Electron's proposal.
As of , Thermo Electron beneficially owned approximately 87% of the
outstanding TerraTech Common Stock.
PURPOSE AND REASONS OF THERMO TERRATECH FOR THE MERGER
The purpose of Thermo TerraTech for engaging in the transactions
contemplated by the Merger Agreement is to become part of a larger operating
entity and thereby potentially realize improved operating and financial results
and a stronger competitive position. Thermo TerraTech considered the following
factors in determining to engage in the Merger at this time: (i) the benefits to
be gained from becoming part of a larger operating entity, (ii) recent public
capital market trends affecting micro-cap companies; (iii) the latest market
trends in the markets in which the Company competes, primarily the
environmental-liability and resource-management services industry; (iv) the debt
owed by the Company, including the debt owed to Thermo Electron; (v) the
reduction in the amount of public information available to competitors about
Thermo TerraTech's business that would result from the termination of the
Company's obligations as a reporting company to the Commission, (vi) the
elimination of additional burdens on management associated with public reporting
and other tasks resulting from the Company's public company status, including,
for example, the dedication of time and resources of management and of the Board
to stockholder and analyst inquiries, and investor and public relations;
(vii) the decrease in costs, particularly those associated with being a public
company (for example, as a privately-held entity, the Company would no longer be
required to file quarterly, annual or other periodic reports with the Commission
or publish and distribute to its stockholders annual reports and proxy
statements), that Thermo Electron anticipates could result in savings of
approximately $450,000 per year, including the approximate cost of associated
legal and accounting fees; and (viii) the greater flexibility that the Company's
management would have to focus on long-term business goals, as opposed to
quarterly earnings, as a non-reporting company.
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings and recommendation of the Special
Committee and the Board with respect to the fairness of the Merger to the Public
Stockholders (see "--The Special Committee's and the Board's Recommendation").
As of the date of the Merger Agreement, Thermo Electron adopted the findings and
recommendation of the Special Committee and the Board with respect to the
fairness of the Merger. Based solely on the findings and recommendation of the
Special Committee and its own internal review of the terms of the Merger, Thermo
Electron believes that the Merger is both procedurally and substantively fair to
the Public Stockholders and that the Exchange Ratio is fair to the Public
Stockholders from a financial point of view. Thermo Electron did not attach
specific weights to any
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factors in reaching its belief as to fairness. Thermo Electron is not making any
recommendation as to how the Public Stockholders should vote on the Merger
Agreement.
Certain officers and directors of Thermo Electron are also officers and
directors of Thermo TerraTech and have certain interests that are in addition
to, or different from, the interests of the Public Stockholders. See
"--Conflicts of Interest." Thermo Electron considered these potential conflicts
of interest and based in part thereon, Thermo Electron's proposed offer was
conditioned on, among other things, the approval of the Merger by the Special
Committee and the receipt by the Special Committee of a fairness opinion from an
investment banking firm.
CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the Merger,
the Public Stockholders should be aware that certain officers and directors of
Thermo TerraTech have interests in connection with the Merger that present them
with actual or potential conflicts of interest, as summarized below. In making
their respective decisions to recommend the Merger, the Special Committee and
the Board were aware of these interests and considered them among the other
matters described above under "--The Special Committee's and the Board's
Recommendation."
Following consummation of the Merger, the current officers and directors of
Thermo TerraTech will continue as the initial officers and directors of the
Surviving Corporation; however, Thermo Electron intends to appoint a board of
directors comprised solely of members of the Surviving Corporation's and Thermo
Electron's management after the Merger. Officers and directors who own TerraTech
Common Stock will receive shares of Thermo Common Stock on the same terms as all
the other stockholders.
SPECIAL COMMITTEE
As compensation for serving on the Special Committee, which formally met
with one or more of its advisors on 16 occasions, either in person or
telephonically, from May 1999 through the date of this Proxy
Statement-Prospectus, the Board has authorized that the member of the Special
Committee receive a special retainer fee of $20,000 and additional fees of
$1,000 for each meeting attended in person and $500 for each meeting attended
telephonically.
Mr. Vintiadis, the sole member of the Special Committee, holds options to
acquire 6,300 shares of TerraTech Common Stock. The options have exercise prices
ranging from $4.16 to $10.03. Under the terms of the Merger Agreement, the
options held by Mr. Vintiadis will be treated on the same terms as all the other
holders of Thermo TerraTech Stock Options and therefore will be assumed by
Thermo Electron and converted into options to acquire shares of Thermo Common
Stock. See "--Effect of the Merger on Thermo TerraTech Stock Options, Warrants
and Debentures." Mr. Vintiadis owns no shares of Thermo TerraTech Common Stock,
and accordingly will receive no shares of Thermo Common Stock upon consummation
of the Merger. Deferred units equal to 10,716 shares of TerraTech Common Stock
have accumulated under Thermo TerraTech's deferred compensation plan for
directors for the benefit of Mr. Vintiadis, which units will be converted into
the right to receive 5,893.8 shares of Thermo Electron Common Stock (assuming an
Exchange Ratio of .55). See "--Deferred Compensation Plan for Directors." The
options and deferred units were issued to Mr. Vintiadis pursuant to benefit
plans approved by the Company's stockholders.
Mr. Vintiadis is also a member of the Board of Directors of Thermo
Instrument Systems Inc., a majority-owned subsidiary of Thermo Electron ("Thermo
Instrument"). As compensation for serving on the Thermo Instrument board,
Mr. Vintiadis receives an annual retainer of $8,000 and a fee of $1,000 per
meeting for attending regular meetings of the board of directors and $500 per
meeting 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. In addition, Mr. Vintiadis has been awarded options to
purchase 8,636 shares of common stock of Thermo Instrument. Until his
resignation on July 26, 1999, Mr. Vintiadis was also a director of
Randers/Killam. In addition, Mr. Vintiadis owns shares of Thermo
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Common Stock, as set forth in more detail under "Security Ownership of Certain
Beneficial Owners and Management--Management."
THE THERMO TERRATECH DIRECTORS AND EXECUTIVE OFFICERS
The members of the Thermo TerraTech Board of Directors, other than the
member of the Special Committee, and executive officers of Thermo TerraTech own
in the aggregate 177,645 shares of TerraTech Common Stock and will receive an
aggregate of 97,705 shares of Thermo Electron Common Stock upon consummation of
the Merger (assuming an Exchange Ratio of .55). In addition, such Board members
and executive officers hold options to acquire an aggregate of 673,000 shares of
Thermo TerraTech Common Stock, with exercise prices ranging from $4.16 to
$10.03, which will be assumed by Thermo Electron and converted into options to
acquire shares of Thermo Electron Common Stock on the same terms as all the
other holders of Thermo TerraTech Stock Options. See "--Effect of the Merger on
Thermo TerraTech Stock Options, Warrants and Debentures." Deferred units equal
to 33,731 shares of Thermo TerraTech Common Stock have accumulated under Thermo
TerraTech's deferred compensation plan for directors, which units will be
converted into the right to receive 18,552 shares of Thermo Common Stock
(assuming an Exchange Ratio of .55). See "--Deferred Compensation Plan for
Directors." One member of the Thermo TerraTech Board of Directors owns a warrant
to purchase an aggregate of 12,500 shares of TerraTech Common Stock, which will
be converted into a warrant to purchase Thermo Common Stock on the same terms as
all the other holders of warrants to purchase TerraTech Common Stock. See
"--Effect of the Merger on Thermo TerraTech Stock Options, Warrants and
Debentures." Such Board members and executive officers also beneficially owned
an aggregate of 2,312,349 shares of common stock of Thermo Electron as of
October 2, 1999.
Further, certain members of the Board and certain executive officers hold
directorship or officer positions with Thermo Electron. Mr. Melas-Kyriazi, the
chief financial officer of Thermo TerraTech, is also a vice president and the
chief financial officer of Thermo Electron. Mr. Kelleher, the chief accounting
officer of Thermo TerraTech, is also senior vice president, finance and
administration, and the chief accounting officer of Thermo Electron.
Mr. Hatsopoulos, a director of Thermo TerraTech, is also a director and vice
chairman of the board of Thermo Electron. Mr. Holt, a director of Thermo
TerraTech, is also the chief operating officer, energy and environment, of
Thermo Electron. Mr. Rainville, a director of Thermo TerraTech, is also the
chief operating officer, recycling and resource recovery, of Thermo Electron.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the Surviving Corporation shall, and
Thermo Electron will cause the Surviving Corporation to, fulfill and honor in
all respects the indemnification obligations of Thermo TerraTech, pursuant to
Thermo TerraTech's Certificate of Incorporation and Bylaws, as in effect on the
date of the Merger Agreement. The Surviving Corporation's Certificate of
Incorporation and Bylaws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in Thermo TerraTech's Certificate of Incorporation and Bylaws and such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights of those individuals who, as of the date of the Merger Agreement and at
any time from the date of the Merger Agreement until the Effective Time, were
directors and executive officers of Thermo TerraTech, unless such modification
is required by law. See "--Indemnification and Insurance."
In addition, Thermo Electron will cause the Surviving Corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for a period of six (6) years after the Effective Time, a
directors' and officers' liability insurance policy covering the Thermo
TerraTech executive officers and directors who, on the date of the Merger
Agreement, were then covered by Thermo Electron's liability insurance policy,
with coverage no less favorable in amount and scope than such director's and
officer's existing coverage. However, in no event will the Surviving Corporation
be required
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to pay premiums for such insurance in excess of 175% of the current annual
premiums, as adjusted for inflation each year, allocable to and paid by Thermo
TerraTech. See "--Indemnification and Insurance."
The Merger Agreement also provides that Thermo TerraTech will, regardless of
whether the Merger becomes effective, indemnify Mr. Vintiadis against any costs
and expenses paid in connection with any claim or action arising out of or
pertaining to any action or omission in Mr. Vintiadis' capacity as a director or
fiduciary of Thermo TerraTech (including as a member of the Special Committee or
in connection with the transactions contemplated by the Merger Agreement) that
occurs on, before or after the Effective Time, until the expiration of the
statute of limitations relating to such action or omission. Thermo TerraTech
shall pay Mr. Vintiadis' expenses in advance of the final disposition of the
action upon receipt of an undertaking by Mr. Vintiadis to repay those expenses
if it is later decided that he is not entitled to such payment. If the Merger
becomes effective, Thermo Electron will be jointly and severally responsible for
the indemnification and expenses advancement obligations as described above. If
the Merger does not become effective, Thermo Electron shall only be responsible
for indemnifying or advancing expenses for matters that arise out of or pertain
to the work of the Special Committee, the Merger Agreement or the transactions
contemplated by the Merger Agreement. See "--Indemnification and Insurance."
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in the
event that a director, by reason of his or her status as a director or officer
of Thermo TerraTech (or service as a director, officer or fiduciary of another
enterprise at the request of Thermo Electron), is made or threatened to be made
a party to any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative or investigative, if the
director acted in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of Thermo Electron, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. In the case of any threatened, pending or completed
action, suit or proceeding by or in the right of Thermo Electron,
indemnification shall be made to the maximum extent permitted under Delaware
law. See "THE MERGER--Indemnification and Insurance."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, Thermo Electron will beneficially own the entire
equity interest in Thermo TerraTech. Thermo Electron will have complete control
over the conduct of Thermo TerraTech's business and will have a 100% interest in
the net book value and net earnings of Thermo TerraTech and any future increases
in the value of Thermo TerraTech. Thermo Electron's ownership of Thermo
TerraTech prior to the transaction contemplated herein was approximately 87%.
Upon completion of this transaction, Thermo Electron's interest in the Company's
net book value of $48.9 million on July 3, 1999 and net loss of $1.4 million and
$45.1 million for the fiscal year ended April 3, 1999 and the three months ended
July 3, 1999, respectively, would increase from approximately 87% of such
amounts to 100% of such amounts. The Public Stockholders will no longer have any
interest in, and will not be stockholders of, Thermo TerraTech and therefore
will not directly participate in Thermo TerraTech's future earnings and
potential growth and will no longer bear the risk of any decreases in the value
of the Company. Instead, the stockholders of the Company other than Thermo
Electron will have the right to receive 0.4 share of Thermo Common Stock for
each share held, subject to adjustment.
In addition, upon consummation of the Merger, the TerraTech Common Stock
will no longer be traded on the AMEX, price quotations with respect to sales of
shares in the public market will no longer be available and the registration of
the TerraTech Common Stock under the Exchange Act will be terminated. The
termination of registration of the TerraTech Common Stock under the Exchange Act
will eliminate the Company's obligation to file periodic financial and other
information with the Commission and will make most of the provisions of the
Exchange Act, such as the short-swing profit recovery
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provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with stockholders' meetings, no longer
applicable.
As a condition to the consummation of the Merger, Thermo Electron and Thermo
TerraTech will receive an opinion from Hale and Dorr LLP regarding certain tax
matters relating to the Merger, including that the Merger will be treated for
federal income tax purposes as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code if the Merger is consummated in accordance with the
terms of the Merger Agreement. Provided that the Merger does qualify as a
reorganization, no gain or loss will generally be recognized for federal income
tax purposes by Thermo TerraTech stockholders upon their receipt of shares of
Thermo Common Stock in exchange for their shares of TerraTech Common Stock,
except to the extent of cash received in lieu of fractional shares. Such opinion
is subject to certain limitations and qualifications and is based upon certain
factual assumptions and representations. Furthermore, such opinion is not
binding on the Internal Revenue Service. IN VIEW OF THE COMPLEXITIES OF FEDERAL
INCOME AND OTHER TAX LAWS, EACH THERMO TERRATECH STOCKHOLDER SHOULD CONSULT WITH
SUCH STOCKHOLDER'S TAX ADVISOR REGARDING, AMONG OTHER THINGS, THE FEDERAL,
STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF THE MERGER APPLICABLE TO
SUCH STOCKHOLDER'S SPECIFIC CIRCUMSTANCES.
The Merger will not have any United States federal tax consequences for
Thermo Electron stockholders. See "FEDERAL INCOME TAX CONSEQUENCES."
CONDUCT OF THERMO TERRATECH'S BUSINESS AFTER THE MERGER
Thermo Electron is continuing to evaluate Thermo TerraTech's business,
assets, practices, operations, properties, corporate structure, capitalization,
management and personnel and discuss what changes, if any, will be desirable.
Subject to the foregoing and the balance of this section, for the foreseeable
future, Thermo Electron expects that the day-to-day business and operations of
Thermo TerraTech will be conducted substantially as they are currently being
conducted by Thermo TerraTech. On May 24, 1999, Thermo TerraTech announced its
decision to sell various businesses at its Thermo EuroTech N.V., ThermoRetec and
Randers/Killam subsidiaries and to record pretax restructuring and other charges
totaling approximately $65 million in connection with the sales of such
businesses. The Company has had preliminary discussions with potential buyers
for these facilities, but except as described in the next paragraph, the Company
has not received any firm offers for these units. Thermo Electron intends to
carry out Thermo TerraTech's intention with respect to these matters to the
extent that they are not completed prior to the consummation of the Merger.
Thermo Electron does not currently intend to cause the disposition of any other
material assets of Thermo TerraTech, but it may, in the future, reconsider its
position as it continues to evaluate the Company. Additionally, Thermo Electron
does not currently contemplate any material change in the composition of Thermo
TerraTech's current management except that Thermo Electron intends to appoint a
board of directors comprised of the Surviving Corporation's management after the
Merger.
Randers/Killam is currently negotiating with one of its directors,
Mr. Thomas R. Eurich, who is also a Vice President of Randers/Killam, the sale
of its Randers division to a corporation to be formed by Mr. Eurich and other
members of the Randers division management. The terms of this proposed
transaction have been considered and will be considered by Adams, Harkness &
Hill in providing its oral opinion prior to the date of mailing of this Proxy
Statement and the Effective Time, that the Merger is fair, from a financial
point of view, to the Public Stockholders. See "CERTAIN TRANSACTIONS."
CONDUCT OF THE BUSINESS OF THERMO TERRATECH IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, the Board of Directors expects that the
Company's current management will continue to operate the Company's business
substantially as currently operated, except with respect to the businesses that
may be sold. See "--Conduct of Thermo TerraTech's Business After the Merger." No
other alternatives are currently being considered.
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CONVERSION OF SECURITIES
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of Thermo TerraTech Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares held in treasury by Thermo TerraTech and shares held by Thermo Electron)
will, by virtue of the Merger, be converted into the right to receive 0.4 share
of Thermo Electron Common Stock, subject to adjustment as set forth below.
Except for the right to receive shares of Thermo Electron Common Stock, from and
after the Effective Time, all shares of Thermo TerraTech Common Stock, by virtue
of the Merger and without any action on the part of the holders, will no longer
be outstanding and will be canceled and retired and will cease to exist. Each
holder of a stock certificate formerly representing any shares of Thermo
TerraTech Common Stock will after the Effective Time cease to have any rights
with respect to such shares other than the right to receive shares of Thermo
Electron Common Stock for their shares of Thermo TerraTech Common Stock upon
surrender of the stock certificate.
In the Merger, Thermo TerraTech stockholders will receive 0.4 share of
Thermo Electron Common Stock for each share of Thermo TerraTech Common Stock
owned by them (the "Exchange Ratio") (rounded down to the nearest whole share),
without interest, plus a check issued for any fractional share of Thermo
Electron Common Stock. The Exchange Ratio may be adjusted, as follows:
- If the average of the closing prices as reported in the consolidated
transaction reporting system of shares of the Thermo Electron Common Stock
for each of the 20 consecutive trading days ending on the fifth trading
day prior to the Effective Time (the "Pre-Closing Average Price")
multiplied by the Exchange Ratio is less than $7.25, then the Exchange
Ratio shall be adjusted to be equal to $7.25 divided by the Pre-Closing
Average Price, provided that Thermo Electron may terminate the Merger
Agreement if it would be required to issue more than 1,800,000 shares of
Thermo Common Stock as a result of this adjustment.
- If the Pre-Closing Average Price multiplied by the Exchange Ratio is
greater than $9.25, the Exchange Ratio will be adjusted to be equal to
$9.25 divided by the Pre-Closing Average Price.
No interest will be paid or accrued on the consideration payable upon the
surrender of any stock certificate. Payment of the Exchange Ratio to be made to
a person other than the registered holder of the stock certificate surrendered
is conditioned upon the stock certificate so surrendered being properly endorsed
and otherwise in proper form for transfer, as determined by the Exchange Agent.
Further, the person requesting such payment will be required to pay any transfer
or other taxes required by reason of the payment to a person other than the
registered holder of the stock certificate surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable. Six months following the Effective Time, Thermo Electron may require
the Exchange Agent to deliver to it any shares of Thermo Electron Common Stock
and any cash in lieu of fractional shares (including any interest received with
respect thereto) made available to the Exchange Agent which have not been
disbursed to holders of stock certificates formerly representing shares
outstanding prior to the Effective Time. Neither the Exchange Agent nor any
party to the Merger Agreement will be liable to any holder of stock certificates
formerly representing shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of common stock of the Merger Sub
issued and outstanding immediately prior to the Effective Time held by Thermo
Electron will, by virtue of the Merger, be converted at the Effective Time into
one share of common stock of the Surviving Corporation. All shares held in
treasury by Thermo TerraTech immediately prior to the Effective Time will, at
the Effective Time, cease to be outstanding, be canceled and retired without
payment of any consideration therefor and cease to exist.
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<PAGE>
EFFECT OF THE MERGER ON THERMO TERRATECH STOCK OPTIONS, WARRANTS AND DEBENTURES
Thermo TerraTech has, from time to time, issued options to acquire TerraTech
Common Stock pursuant to its Incentive and Nonqualified Stock Option Plans, its
Equity Incentive Plan, and its Directors Stock Option Plan, each as amended (the
"TerraTech Stock Option Plans"). At the Effective Time, each outstanding Thermo
TerraTech Stock Option under the TerraTech Stock Option Plans, whether or not
exercisable, will be assumed by Thermo Electron. Each Thermo TerraTech Stock
Option so assumed by Thermo Electron will continue to have, and be subject to,
the same terms and conditions set forth in the applicable Thermo TerraTech Stock
Option Plan immediately prior to the Effective Time, except that (i) each Thermo
TerraTech Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of Thermo Common
Stock equal to the product of the number of shares of TerraTech Common Stock
that were issuable upon exercise of such Thermo TerraTech Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
(ii) the per share exercise price for the shares of Thermo Common Stock issuable
upon exercise of such assumed Thermo TerraTech Stock Option will be equal to the
quotient determined by dividing the exercise price per share of TerraTech Common
Stock at which such Thermo TerraTech Stock Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent.
In addition, at the Effective Time, all warrants to purchase TerraTech
Common Stock then outstanding shall be converted at the Effective Time into
warrants to purchase Thermo Common Stock. The number of whole shares of Thermo
Common Stock for which each warrant will be exercisable (or will become
exercisable in accordance with its terms) and the per share exercise price for
the shares of Thermo Common Stock issuable upon exercise of such Thermo
TerraTech warrant will be determined in accordance with the terms of such
warrants.
Following the consummation of the Merger, Thermo TerraTech's 4 5/8%
Debentures will be convertible into shares of Thermo Common Stock, rather than
into the TerraTech Common Stock into which the debentures are now convertible.
Such 4 5/8% Debentures are currently convertible into TerraTech Common Stock at
a price of $15.90 per share. An aggregate of $111,850,000 principal amount of
the 4 5/8% Debentures was outstanding as of October 2, 1999. Holders of the
4 5/8% Debentures will not have the right to cause Thermo TerraTech to redeem
the debentures as a result of the Merger. Assuming an Exchange Ratio of .55,
following the Merger the 4 5/8% Debentures will be convertible into Thermo
Common Stock at a conversion price of $28.91 per share.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
At the Effective Time, subject to obtaining the consents of the affected
participants, the Thermo TerraTech deferred compensation plan for directors (the
"Deferred Compensation Plan") will terminate, and Thermo TerraTech will
distribute to each participant Thermo Common Stock or cash in an amount equal to
the balance of stock units credited as of the Effective Time multiplied by the
Exchange Ratio.
TRANSFER OF SHARES
Shares of TerraTech Common Stock will not be transferred on the stock
transfer books at or after the Effective Time. If certificates representing such
shares are presented to Thermo TerraTech after the Effective Time, together with
an executed letter of transmittal, such shares will be canceled and exchanged
for shares of Thermo Common Stock and cash in lieu of fractional shares.
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<PAGE>
CONDITIONS
Each party's obligation to effect the Merger is subject to the satisfaction
of each of the following conditions at or prior to the Effective Time:
(i) the Merger Agreement shall have been adopted by the affirmative vote of
the holders of a majority of the outstanding shares of TerraTech Common
Stock entitled to vote thereon in accordance with the provisions of
Section 251 of the DGCL;
(ii) no governmental entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order that is in effect and that has the
effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger;
(iii) the registration statement of which this Proxy Statement-Prospectus
forms a part and the Warrant Registration Statement shall be effective
and no order suspending the effectiveness of the registration statement
shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the Commission;
(iv) the Thermo Common Stock issuable under the Merger Agreement and the
shares of Thermo Common Stock subject to issuance pursuant to the
TerraTech Stock Option Plans, the 4 5/8% Debentures and the warrants
issued by TerraTech, each as assumed by Thermo Electron under the
Merger Agreement, shall have been authorized for issuance on the New
York Stock Exchange;
(v) Thermo TerraTech and Thermo Electron shall have received a tax opinion
regarding certain tax matters relating to the transactions contemplated
under the Merger Agreement, including that the Merger will be treated
for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code; and
(vi) no stock acquisition date or other event that would result in the
occurrence of a distribution date shall have occurred with respect to
the rights to purchase a unit consisting of one ten-thousandth of a
share of Thermo Electron's Series B Junior Participating Preferred
Stock, as defined in the Rights Agreement dated as of January 19, 1996,
as amended, by and between Thermo Electron and BankBoston, N.A.
The obligations of Thermo TerraTech to effect the Merger are subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time, unless waived in writing by Thermo TerraTech (upon the written consent of
the Special Committee):
(i) the representations and warranties of the Merger Sub and Thermo Electron
in the Merger Agreement shall be true and correct in all material
respects on and as of the Effective Time, except as otherwise permitted
by the Merger Agreement;
(ii) the Merger Sub and Thermo Electron shall have performed or complied in
all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by them at or prior
to the Effective Time;
(iii) Thermo TerraTech shall have received a certificate of the President,
Chief Executive Officer or Vice President of Thermo Electron certifying
to the effect of above clauses (i) and (ii);
(iv) at the time of mailing of this Proxy Statement-Prospectus to the
stockholders of Thermo TerraTech and at the Effective Time, Adams,
Harkness & Hill shall have reaffirmed orally its fairness opinion and
shall not have withdrawn such opinion; and
(v) any and all necessary state securities approvals for the issuance of
Thermo Common Stock pursuant to the Merger Agreement shall have been
obtained.
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<PAGE>
The obligations of the Merger Sub and Thermo Electron to effect the Merger
are subject to the satisfaction of each of the following conditions at or prior
to the Effective Time, unless waived in writing by Thermo Electron:
(i) the representations and warranties of Thermo TerraTech in the Merger
Agreement shall be true and correct in all material respects on and as
if made at the Effective Time, except as otherwise permitted by the
Merger Agreement;
(ii) Thermo TerraTech shall have performed or complied in all material
respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by it on or prior to the
Effective Time;
(iii) Thermo Electron shall have received a certificate of the President,
Chief Executive Officer or Vice President of Thermo TerraTech
certifying to the effect of above clauses (i) and (ii); and
(iv) the Special Committee shall not have withdrawn its recommendation to
the Board of Directors that the Merger Agreement, including the
Exchange Ratio, is fair to, and in the best interests of, the
stockholders of Thermo TerraTech (other than Thermo Electron).
REPRESENTATIONS AND WARRANTIES
Thermo TerraTech has made representations and warranties in the Merger
Agreement regarding, among other things, its organization and good standing,
authority to enter into the Merger Agreement and consummate the transactions
contemplated thereby, its capitalization, the accuracy of information supplied
by Thermo TerraTech for inclusion in the Registration Statement of which this
Proxy Statement-Prospectus forms a part, requisite governmental and other
consents and approvals, and its receipt of a fairness opinion from Adams,
Harkness & Hill.
Thermo Electron and the Merger Sub have made representations and warranties
in the Merger Agreement regarding, among other things, their organization and
good standing, authority to enter into the Merger Agreement and consummate the
transactions contemplated thereby, Thermo Electron's capitalization, the
accuracy of information supplied by Thermo Electron for inclusion in forms and
reports required to be filed with the Commission and supplied to Adams,
Harkness & Hill, the accuracy of the representations contained in the tax
representation letters to be given in connection with the rendering of the tax
opinion, and requisite governmental and other consents and approvals.
Except for the representation as to the accuracy of the tax representation
letters, the representations and warranties of the parties in the Merger
Agreement will expire upon consummation of the Merger. After such expiration,
none of the parties to the Merger Agreement or their respective officers,
directors or principals will have any liability for any such representations or
warranties.
COVENANTS
In the Merger Agreement, Thermo TerraTech has agreed that during the period
from the date of the Merger Agreement and continuing until the earlier of
termination of the Merger Agreement or the Effective Time, Thermo TerraTech will
carry on its business in the usual, regular and ordinary course, substantially
consistent with past practice, will pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
In the Merger Agreement, Thermo Electron has agreed that during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement or the
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Effective Time, Thermo Electron will, except for such actions which are
contemplated by the Merger Agreement or certain other actions, carry on its
business materially in the usual, regular and ordinary course, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, Thermo Electron agreed that it will not, and will not
permit any of its material subsidiaries to, take any action which would make any
of the representations and warranties of Thermo Electron contained in the Merger
Agreement untrue or cause Thermo Electron not to be in compliance with any
covenant in the Merger Agreement.
Thermo Electron has also agreed to give prompt notice to Thermo TerraTech of
any written offers or indications of interest that it receives from a
prospective purchaser of any material properties or assets of Thermo TerraTech
or its subsidiaries, which set forth a proposed purchase price greater than
$3 million, or in which the book value of the assets being sold is greater than
$3 million, other than sales of assets in the ordinary course of business. In
addition, Thermo Electron has agreed that, until the Effective Time of the
Merger, neither Thermo Electron nor Merger Sub will take, or permit any of
Thermo Electron's direct or indirect subsidiaries to take, any action that would
cause the Merger not to be a tax-free reorganization under Section 368(a) of the
Code.
INDEMNIFICATION AND INSURANCE
The Surviving Corporation shall, and Thermo Electron will cause the
Surviving Corporation to, fulfill and honor in all respects the indemnification
obligations of Thermo TerraTech, pursuant to Thermo TerraTech's Certificate of
Incorporation and Bylaws, each as in effect on the date of the Merger Agreement.
The Merger Agreement provides that the Surviving Corporation's Certificate of
Incorporation and Bylaws will contain the provisions with respect to
indemnification and elimination of liability for monetary damages currently set
forth in Thermo TerraTech's Certificate of Incorporation and Bylaws, and such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights of those individuals who, as of the date of the Merger Agreement and at
any time from the date of the Merger Agreement until the Effective Time, were
directors or officers of Thermo TerraTech, unless such modification is required
by law.
In addition, Thermo Electron will cause the Surviving Corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for a period of six years after the Effective Time, a
directors' and officers' liability insurance policy covering the Thermo
TerraTech directors and officers who, on the date of the Merger Agreement, were
then covered by Thermo Electron's liability insurance policy, with coverage no
less favorable in amount and scope than such directors' and officers' existing
coverage. However, in no event will the Surviving Corporation be required to pay
premiums for such insurance in excess of 175% of the current annual premiums, as
adjusted for inflation each year, allocable to and paid by Thermo TerraTech.
The Merger Agreement also provides that Thermo TerraTech will, regardless of
whether the Merger becomes effective, indemnify Mr. Vintiadis against any costs
and expenses paid in connection with any claim or action arising out of or
pertaining to any action or omission in Mr. Vintiadis' capacity as a director or
fiduciary of Thermo TerraTech (including as a member of the Special Committee or
in connection with the transactions contemplated by the Merger Agreement) that
occurs on, before or after the Effective Time, until the expiration of the
statute of limitations relating to such action or omission. Thermo TerraTech
shall pay Mr. Vintiadis' expenses in advance of the final disposition of the
action upon receipt of an undertaking by Mr. Vintiadis to repay those expenses
if it is later decided that he is not entitled to such payment. If the Merger
becomes effective, Thermo Electron will be jointly and severally responsible for
the indemnification and expenses advancement obligations as described above. If
the Merger does not become effective, Thermo Electron shall only be responsible
for indemnifying or advancing expenses for
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<PAGE>
matters that arise out of or pertain to the work of the Special Committee, the
Merger Agreement or the transactions contemplated by the Merger Agreement.
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the Board of Directors, including the
member of the Special Committee, providing for indemnification of and
advancement of expenses to such directors directly by Thermo Electron in the
event that a director, by reason of his or her status as a director or officer
of Thermo TerraTech (or service as a director, officer or fiduciary of another
enterprise at the request of Thermo Electron), is made or threatened to be made
a party to any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative or investigative, if the
director acted in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of Thermo Electron, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. In the case of any threatened, pending or completed
action, suit or proceeding by or in the right of Thermo Electron,
indemnification shall be made to the maximum extent permitted under Delaware
law.
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the Effective Time, whether before or after adoption of
the Merger Agreement by the stockholders of Thermo TerraTech, the Merger
Agreement may be terminated by the mutual written consent of the board of
directors of the Merger Sub and the Board of Directors of Thermo TerraTech (upon
approval of the Special Committee).
In addition, either the Merger Sub or Thermo TerraTech (upon approval of the
Special Committee), in accordance with the provisions of the Merger Agreement,
may terminate the Merger Agreement prior to the Effective Time, whether before
or after adoption of the Merger Agreement by the stockholders of Thermo
TerraTech, if (i) the Merger has not been consummated by March 31, 2000 (in
which case the right of Thermo TerraTech to terminate shall be exercised as
directed by the Special Committee), unless such party's action or inaction
constitutes a breach of the Merger Agreement and has been a principal cause of
or resulted in the failure of the Merger to be consummated, (ii) a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission issues an order, decree or ruling or takes any other action
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or action is final and nonappealable or (iii) the approval of the
stockholders of Thermo TerraTech necessary to consummate the Merger has not been
obtained, unless such party's action or inaction constitutes a breach of the
Merger Agreement and has been the principal cause of or resulted in the failure
to obtain the requisite stockholder approval to consummate the Merger. Thermo
Electron has agreed to vote, or cause to be voted, all of the Common Stock owned
by it and any of its subsidiaries in favor of the Merger.
In addition, the Merger Sub may terminate the Merger Agreement prior to the
Effective Time, whether before or after adoption of the Merger Agreement by the
stockholders of Thermo TerraTech, if Thermo TerraTech breaches any
representation, warranty, covenant or agreement in any material respect and
fails to cure such breach within 10 business days after written notice of such
breach from the Merger Sub.
Thermo TerraTech may terminate the Merger Agreement prior to the Effective
Time, whether before or after adoption of the Merger Agreement by the
stockholders of Thermo TerraTech, if (i) the Special Committee determines after
consultation with outside legal counsel that failure to do so would be
inconsistent with the Board's or the Special Committee's fiduciary duties under
applicable law (which determination would result in the withdrawal or
modification of the Special Committee's recommendation and, at the Special
Committee's election, the termination of the Merger Agreement) or (ii) Thermo
Electron or Merger Sub breaches any representation, warranty, covenant or
agreement in any material respect and fails to cure such breach within
10 business days after written notice of such breach from Thermo TerraTech.
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Subject to the provisions of applicable law, the Merger Agreement may be
amended by the parties thereto at any time by written agreement of the parties;
provided, however, that Thermo TerraTech may not amend the Merger Agreement
without the approval of the Special Committee.
There is no termination fee payable by either party in the event that the
Merger Agreement is terminated.
EXPENSES
The parties have agreed to pay their own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby. Assuming
the Merger is consummated, the estimated costs and fees in connection with the
Merger and the related transactions which will be paid by Thermo TerraTech are
as follows:
<TABLE>
<CAPTION>
COST OR FEE ESTIMATED AMOUNT
- ----------- ----------------
<S> <C>
Financial advisory fees..................................... $137,500
Listing fees................................................ 14,750
Legal fees.................................................. 100,000
Accounting fees............................................. 15,000
Special Committee fees...................................... 40,000
Printing and mailing fees................................... 100,000
Commission filing fees...................................... 3,316
Other regulatory filing fees................................ 5,000
Miscellaneous............................................... 34,434
--------
$450,000
========
</TABLE>
See "--Opinion of Adams, Harkness & Hill" for a description of the fees to
be paid to Adams, Harkness & Hill in connection with its engagement. For a
description of certain fees payable to the member of the Special Committee, see
"--Conflicts of Interest."
ACCOUNTING TREATMENT
The Merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained that
have not already been obtained, nor any regulatory requirements complied with,
in connection with the consummation of the Merger by any party to the Merger
Agreement, except for (i) the requirements of the Delaware General Corporation
Law in connection with stockholder approvals and consummation of the Merger and
(ii) the requirements of the federal securities laws.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF THERMO TERRATECH AND THERMO
ELECTRON
The shares of Thermo Common Stock to be issued in connection with the Merger
will be registered under the Securities Act of 1933, as amended, and will be
freely transferable under the Securities Act, except for shares of Thermo Common
Stock issued to any person who is deemed to be an "affiliate" of either of
Thermo TerraTech or Thermo Electron at the time of the special meeting. Persons
who may be deemed to be affiliates include individuals or entities that control,
are controlled by, or are under the common control of either Thermo TerraTech or
Thermo Electron and may include some of the officers and directors of Thermo
Electron or Thermo TerraTech, as well as the principal stockholders of each
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company. Affiliates may not sell their shares of Thermo Common Stock acquired in
connection with the Merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
Thermo Electron's registration statement on Form S-4, of which this Proxy
Statement-Prospectus forms a part, does not cover the resale of shares of Thermo
Common Stock to be received by affiliates in the Merger.
LISTING ON THE NEW YORK STOCK EXCHANGE OF THERMO COMMON STOCK TO BE ISSUED IN
THE MERGER
Thermo Electron will use its best efforts to cause the shares of its common
stock to be issued in connection with the Merger to be approved for listing on
the New York Stock Exchange, subject to official notice of issuance, before the
completion of the Merger.
DISSENTERS' AND APPRAISAL RIGHTS
Under Delaware law, shareholders of Thermo TerraTech are not entitled to
exercise dissenters' or appraisal rights as a result of the Merger or to demand
payment for shares of TerraTech Common Stock.
COMPARATIVE PER SHARE MARKET PRICE DATA
The Thermo Common Stock is traded on the New York Stock Exchange under the
symbol "TMO." The TerraTech Common Stock is traded on the American Stock
Exchange under the symbol "TTT."
The following table sets forth the closing prices per share of the TerraTech
Common Stock as reported in the consolidated transaction reporting system and
the closing prices per share of Thermo Common Stock as reported in the
consolidated transaction reporting system on (1) May 4, 1999, the last trading
day before the public announcement of Thermo Electron's proposal (with no price
having been determined) to take Thermo TerraTech private (in the case of the
TerraTech Common Stock, closing price information is given as of April 30, 1999,
which was the last day on which the TerraTech Common Stock traded prior to the
May 5 announcement) and (2) October 19, 1999, the last trading day before the
public announcement that Thermo Electron and Thermo TerraTech had entered into
the Merger Agreement.
<TABLE>
<CAPTION>
APRIL 30, 1999/
STOCK/DATE MAY 4, 1999 OCTOBER 19, 1999
- ---------- --------------- ----------------
<S> <C> <C>
Thermo TerraTech............................................ $4.1875 $ 5.375
Thermo Electron............................................. 16.25 13.0625
Equivalent Per Share Price.................................. 7.25 7.25
</TABLE>
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THE SPECIAL MEETING
PROXY SOLICITATION
This Proxy Statement-Prospectus is being delivered to you in connection with
the solicitation by the Board of proxies to be voted at the Special Meeting to
be held on , 2000 at 10:00 a.m., local time, at the offices of
Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454.
Thermo TerraTech will pay all expenses incurred in connection with solicitation
of the Proxy Statement-Prospectus. Officers, directors and regular employees of
Thermo TerraTech, who will receive no additional compensation for their
services, may solicit proxies by telephone or personal call. Thermo TerraTech
has requested brokers and nominees who hold stock in their names to furnish the
Proxy Statement-Prospectus to their customers. Thermo TerraTech will reimburse
such brokers and nominees for their related out-of-pocket expenses. This Proxy
Statement-Prospectus and the accompanying Proxy Card are first being mailed on
or about , 1999.
RECORD DATE AND QUORUM REQUIREMENT
The close of business on , 1999 is the Record Date for the
determination of stockholders entitled to notice of, and to vote at, the Special
Meeting. Each holder of record of TerraTech Common Stock at the close of
business on the Record Date is entitled to one vote for each share then held on
each matter voted on by stockholders. At the close of business on the Record
Date, there were shares of TerraTech Common Stock issued and
outstanding held by holders of record and by approximately
persons or entities holding in nominee name.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining whether a quorum exists for the transaction of business. If you
hold your shares of TerraTech Common Stock through a broker, bank or other
nominee, generally the nominee may only vote the TerraTech Common Stock that it
holds for you in accordance with your instructions. However, if it has not
timely received your instructions, the nominee may vote on certain matters for
which it has discretionary voting authority. Brokers generally will not have
discretionary voting authority with respect to the proposal to adopt the Merger
Agreement. If a nominee cannot vote on a particular matter because it does not
have discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are also counted as shares present or represented at the
Special Meeting for purposes of determining whether a quorum exists.
VOTING PROCEDURES
Under Delaware law, holders of a majority of the outstanding shares of
TerraTech Common Stock entitled to vote at the Special Meeting must vote to
adopt the Merger Agreement. The Merger Agreement is attached to this Proxy
Statement-Prospectus as Appendix A. For the purposes of the vote required under
Delaware law, a failure to vote, a vote to abstain and a broker non-vote will
each have the same legal effect as a vote cast against adoption of the Merger
Agreement. Thermo Electron, which owns approximately 87% of the outstanding
TerraTech Common Stock, owns enough shares of TerraTech Common Stock to vote to
adopt the Merger Agreement under Delaware law without the vote of the Public
Stockholders and has agreed to vote its shares in favor of the Merger Agreement.
In addition, the Company's directors and executive officers have expressed their
intention to vote to adopt the Merger Agreement.
If a properly executed Proxy Card is submitted and no instructions are
given, the shares of TerraTech Common Stock represented by that Proxy Card will
be voted "FOR" adoption of the proposed Merger Agreement.
The Board is not aware of any other matters to be voted on at the Special
Meeting. If any other matters properly come before the Special Meeting,
including a motion to adjourn the Special Meeting for
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the purpose of soliciting additional proxies, the persons named on the
accompanying Proxy Card will vote the shares represented by all properly
executed proxies on such matters in their discretion, except that shares
represented by proxies that have been voted "AGAINST" adoption of the Merger
Agreement will not be used to vote "FOR" adjournment of the Special Meeting for
the purpose of allowing additional time for soliciting additional votes "FOR"
the Merger Agreement.
VOTING AND REVOCATION OF PROXIES
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Secretary of Thermo TerraTech an
instrument revoking it, (ii) submitting a duly executed proxy bearing a later
date or (iii) voting in person at the Special Meeting. Subject to such
revocation, all shares represented by each properly executed proxy received by
the Secretary of Thermo TerraTech will be voted in accordance with the
instructions indicated thereon, and if no instructions are indicated, will be
voted to adopt the Merger Agreement. The shares represented by the accompanying
Proxy Card and entitled to vote will be voted if the Proxy Card is properly
signed and received by the Secretary of Thermo TerraTech prior to the Special
Meeting.
EFFECTIVE TIME
The Merger will be effective as soon as practicable following stockholder
adoption of the Merger Agreement at the Special Meeting and satisfaction or
waiver of the terms and conditions set forth in the Merger Agreement, and upon
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware. See "THE MERGER--Conditions."
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SELECTED FINANCIAL INFORMATION--THERMO ELECTRON
The selected financial information presented below as of and for the fiscal
years ended January 2, 1999, and January 3, 1998, and for the fiscal year ended
December 28, 1996, has been derived from Thermo Electron's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report incorporated by
reference into this Proxy Statement-Prospectus. The selected financial
information presented below as of December 28, 1996, and as of and for the
fiscal years ended December 30, 1995, and December 31, 1994, has been derived
from Thermo Electron's Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, but have not been included or incorporated by
reference herein. This information should be read in conjunction with Thermo
Electron's Consolidated Financial Statements and related notes incorporated by
reference into this Proxy Statement-Prospectus. The selected financial
information for the six months ended July 3, 1999, and July 4, 1998, has not
been audited but, in the opinion of Thermo Electron, includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounts principles
applied on a consistent basis. The results of operations for the six months
ended July 3, 1999, are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------- FISCAL YEAR (1)
JULY 3, JULY 4, --------------------------------------------------------------
1999 (2) 1998 1998 (3) 1997 1996 (4) 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $2,101,878 $1,892,062 $3,867,596 $3,558,320 $2,932,558 $2,270,291 $1,729,191
Net Income (Loss)...................... (206,889) 127,278 181,901 239,328 190,816 139,582 104,711
Earnings (Loss) per Share:
Basic................................ (1.31) .78 1.12 1.57 1.35 1.10 .90
Diluted.............................. (1.32) .71 1.07 1.41 1.17 .95 .78
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital........................ $1,702,221 $2,515,617 $2,163,006 $2,001,963 $2,218,617 $1,317,146 $1,150,732
Total Assets........................... 5,934,991 6,436,209 6,331,645 5,795,869 5,141,244 3,786,339 3,061,935
Long-term Obligations.................. 1,983,760 1,949,982 2,025,531 1,742,907 1,550,342 1,118,077 1,049,850
Minority Interest...................... 555,518 840,411 649,382 719,622 684,050 471,648 327,734
Common Stock of Subsidiaries Subject to
Redemption........................... 57,871 93,806 94,301 93,312 76,525 17,513 --
Shareholders' Investment............... 1,953,135 2,359,933 2,248,124 1,997,909 1,754,369 1,309,729 1,007,486
OTHER DATA (UNAUDITED):
Book Value per Share................... $ 12.35 $ 14.14 $ 14.18 $ 12.56 $ 11.70 $ 9.85 $ 8.37
Cash Dividends
Declared per Share................... -- -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) Thermo Electron's 1998, 1997, 1996, 1995, and 1994 fiscal years ended
January 2, 1999, January 3, 1998, December 28, 1996, December 30, 1995, and
December 31, 1994, respectively.
(2) Reflects a $422.9 million pretax charge for restructuring and other related
costs and $24.9 million of other nonoperating charges.
(3) Reflects the issuance of $150.0 million principal amount of Thermo
Electron's senior notes and Thermo Electron's public offering of common
stock for net proceeds of $290.1 million.
(4) Reflects the issuance of $585.0 million principal amount of Thermo
Electron's convertible debentures.
65
<PAGE>
SELECTED FINANCIAL INFORMATION--THERMO TERRATECH
The selected financial information presented below as of and for the fiscal
years ended April 3, 1999, and April 4, 1998, and for the fiscal year ended
March 29, 1997, has been derived from Thermo TerraTech's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included in or incorporated by
reference into this Proxy Statement-Prospectus. The selected financial
information presented below as of March 29, 1997, and as of and for the fiscal
years ended March 30, 1996, and April 1, 1995, has been derived from Thermo
TerraTech's Consolidated Financial Statements, which have been audited by Arthur
Andersen LLP, but have not been included or incorporated by reference herein.
This information should be read in conjunction with Thermo TerraTech's
Consolidated Financial Statements and related notes included in or incorporated
by reference into this Proxy Statement-Prospectus. The selected financial
information for the three months ended July 3, 1999, and July 4, 1998, has not
been audited but, in the opinion of Thermo TerraTech, includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles
applied on a consistent basis. The results of operations for the three months
ended July 3, 1999, are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------- FISCAL YEAR (1)
JULY 3, JULY 4, ----------------------------------------------------
1999 (2) 1998 1999 (3) 1998 (4) 1997 (5) 1996 (6) 1995
---------- ---------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 75,908 $ 76,693 $310,039 $298,786 $278,503 $220,484 $136,985
Net Income (Loss)............................... (45,094) 1,001 (1,421) 3,273 (162) 3,447 4,476
Earnings (Loss) per Share:
Basic......................................... (2.37) .05 (.07) .18 (.01) .20 .26
Diluted....................................... (2.37) .05 (.07) .17 (.01) .18 .26
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital................................. $ 21,163 $ 67,450 $ 67,043 $ 69,319 $ 77,315 $ 66,008 $ 63,459
Total Assets.................................... 307,560 345,298 351,698 360,526 393,784 333,656 273,298
Long-term Obligations........................... 120,618 153,111 158,617 153,144 165,186 155,384 96,851
Shareholders' Investment........................ 48,936 98,976 92,157 97,130 83,526 85,870 77,217
OTHER DATA (UNAUDITED):
Book Value per Share............................ $ 2.57 5.07 $ 4.84 $ 4.97 $ 4.67 $ 4.89 $ 4.45
Cash Dividends Declared per Share............... -- -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) Thermo TerraTech's 1999, 1998, 1997, 1996, and 1995 fiscal years ended
April 3, 1999, April 4, 1998, March 29, 1997, March 30, 1996, and April 1,
1995, respectively.
(2) Reflects a $55.9 million pretax charge for restructuring and related costs.
(3) Reflects a $10.2 million pretax charge for restructuring costs.
(4) Reflects a pretax gain of $3.0 million from ThermoRetec's sale of its
investment in a joint venture.
(5) Reflects $7.8 million of pretax restructuring costs and a loss $1.5 million
relating to the sale of Thermo TerraTech's J. Amerika division. Also
reflects the issuance of $115.0 million principal amount of 4 7/8%
subordinated convertible debentures, and a gain on issuance of stock by
subsidiary of $1.5 million.
(6) Reflects the acquisition of Lancaster Laboratories, Inc. in May 1995, the
purchase of the businesses formerly operated by the environmental services
joint venture from Thermo Instrument Systems Inc., and the issuance of a
$35.0 million promissory note to Thermo Electron to fund the purchase.
Reflects ThermoRetec's acquisition of Remediation Technologies, Inc. in
December 1995, the issuance of $38.0 million principal amount of 4 7/8%
subordinated convertible debentures by ThermoRetec, and a gain on issuance
of stock by subsidiaries of $4.1 million. Also reflects pretax restructuring
costs of $5.0 million and a loss on the sale of assets of $0.6 million.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax considerations relevant to the Merger that are applicable to holders
of Thermo TerraTech Common Stock. This discussion is based on currently existing
provisions of the Internal Revenue Code, existing Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Thermo Electron, Thermo TerraTech or Thermo
TerraTech stockholders as described herein.
Thermo TerraTech stockholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Thermo TerraTech stockholders in light of their particular
circumstances (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign persons, stockholders who own
their stock as part of a hedge, appreciated financial position, straddle or
conversion transaction, stockholders who do not own their stock as a capital
asset and stockholders who have acquired their stock upon the exercise of
employee options or otherwise as compensation). In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws, the tax consequences of transactions effectuated prior
or subsequent to, or concurrently with, the Merger (whether or not any such
transactions are undertaken in connection with the Merger), including without
limitation any transaction in which shares of TerraTech Common Stock are
acquired or shares of Thermo Common Stock are disposed of, the tax consequences
of the assumption by Thermo Electron of outstanding options and subscriptions to
acquire TerraTech Common Stock, or the tax consequences to holders of the 4 5/8%
Debentures. ACCORDINGLY, THERMO TERRATECH STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER.
As a condition to the consummation of the Merger, Thermo Electron and Thermo
TerraTech will receive an opinion from Hale and Dorr LLP regarding certain tax
matters relating to the Merger, including that the Merger will be treated for
federal income tax purposes as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code if the Merger is consummated in accordance with the
terms of the Merger Agreement. Such tax opinion is subject to certain
assumptions, limitations and qualifications, and is based upon certain factual
representations of Thermo Electron, Merger Sub and Thermo TerraTech. Assuming
the Merger is a reorganization, then, subject to the assumptions, limitations
and qualifications referred to herein and in the tax opinion, the Merger should
result in the following federal income tax consequences:
(a) No gain or loss will be recognized by Thermo Electron, Merger Sub or
Thermo TerraTech as a result of the Merger;
(b) No gain or loss will be recognized by Thermo TerraTech stockholders
upon the exchange of TerraTech Common Stock solely for Thermo Common Stock
in the Merger (except to the extent of cash received in lieu of a fractional
share of Thermo Common Stock);
(c) Cash received by the Thermo TerraTech stockholders in lieu of a
fractional share of Thermo Common Stock will be treated as received as a
distribution in redemption of such fractional share, subject to the
provisions of Section 302 of the Internal Revenue Code, as if such
fractional share had been issued in the Merger and then redeemed by Thermo
Electron. A Thermo TerraTech stockholder receiving such cash will recognize
gain or loss, upon such payment, measured by the difference (if any) between
the amount of cash received and the basis in such fractional share;
(d) The tax basis of the Thermo Common Stock received by Thermo
TerraTech stockholders in the Merger will be equal to the tax basis of the
TerraTech Common Stock exchanged therefor in the Merger, reduced by any
basis allocable to a fractional share of Thermo Common Stock treated as sold
or exchanged under Section 302 of the Internal Revenue Code; and
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<PAGE>
(e) The holding period for the shares of Thermo Common Stock received by
each Thermo TerraTech stockholder in the Merger will include the holding
period for the shares of TerraTech Common Stock exchanged therefor in the
Merger, provided that the shares of TerraTech Common Stock are held as
capital assets at the Effective Time.
The parties will not request a ruling from the Internal Revenue Service in
connection with the Merger. Thermo TerraTech stockholders should be aware that
the Hale and Dorr LLP tax opinion described above does not bind the Internal
Revenue Service and the IRS is therefore not precluded from successfully
asserting a contrary opinion. A successful IRS challenge to the reorganization
status of the Merger would result in Thermo TerraTech stockholders recognizing
taxable gain or loss with respect to each share of TerraTech Common Stock
surrendered equal to the difference between the stockholder's basis in such
share and the fair market value, as of the Effective Time, of the Thermo Common
Stock received in exchange therefor. In such event, a stockholder's tax basis in
the Thermo Common Stock so received would equal its fair market value as of the
Effective Time, and the stockholder's holding period for such stock would begin
the day after the Merger.
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<PAGE>
CERTAIN PROJECTED FINANCIAL DATA
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in order to
aid the evaluation of the Company by the Special Committee and Adams,
Harkness & Hill and Adams, Harkness & Hill's assessment of the fairness, from a
financial point of view, of the consideration of 0.4 shares of Thermo Common
Stock per share of TerraTech Common Stock payable to the Public Stockholders
pursuant to the Merger Agreement, the Company, in July 1999, furnished the
Special Committee and Adams, Harkness & Hill with certain projections (the
"Projections") prepared by the Company's management. The following summary of
the Projections is included in this Proxy Statement solely because the
Projections were made available to such parties. The Projections do not reflect
any of the effects of the Merger or other changes that may in the future be
deemed appropriate concerning the Company and its assets, business, operations,
properties, policies, corporate structure, capitalization and management in
light of the circumstances then existing. The Company has not updated the
Projections to reflect changes that have occurred since their preparation.
The Projections were not prepared with a view toward public disclosure or
compliance with published guidelines of the Commission or the American Institute
of Certified Public Accountants regarding forward-looking information or
generally accepted accounting principles. Neither the Company's independent
auditors, nor any other independent accountants, have compiled, examined or
performed any procedures with respect to the prospective financial information
contained in the Projections, nor have they expressed any opinion or given any
form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, such prospective
financial information. Furthermore, the Projections necessarily make numerous
assumptions, some (but not all) of which are set forth below and many of which
are beyond the control of the Company and may prove not to have been, or may no
longer be, accurate. Additionally, this information, except as otherwise
indicated, does not reflect revised prospects for the Company's businesses,
changes in general business and economic conditions, or any other transaction or
event that has occurred or that may occur and that was not anticipated at the
time such information was prepared. Accordingly, such information is not
necessarily indicative of current values or future performance, which may be
significantly more favorable or less favorable than as set forth below, and
should not be regarded as a representation that they will be achieved.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF THE
COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF
THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND THE
COMPANY'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE
PROJECTIONS WILL BE REALIZED OR THAT THE COMPANY'S FUTURE FINANCIAL RESULTS WILL
NOT MATERIALLY VARY FROM THE PROJECTIONS. THE COMPANY DOES NOT INTEND TO UPDATE
OR REVISE THE PROJECTIONS.
The Projections included herein have been prepared by the Company based upon
management's estimates of the total market for its services and the Company's
own performance through 2003, as well as the impact on the Company's financial
results of the completion of the announced sales of various business units. The
projected results for calendar 1999 set forth in the Projections were based upon
actual results through April 3, 1999 and management forecasts for the remainder
of the year.
69
<PAGE>
PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR YEAR
----------------------------------------------------
1999 (P) 2000 (P) 2001 (P) 2002 (P) 2003 (P)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.................................. $311,836 $288,745 $305,615 $330,711 $358,342
Costs and Operating Expenses:
Cost of revenues........................ 243,849 222,043 234,378 253,855 274,594
Selling, general, and administrative
expenses.............................. 46,478 38,433 39,304 41,031 43,516
Restructuring costs..................... 53,689 -- -- -- --
-------- -------- -------- -------- --------
344,016 260,476 273,682 294,886 318,110
-------- -------- -------- -------- --------
Operating Income (Loss)................... (32,180) 28,269 31,933 35,825 40,232
Interest Income........................... 2,357 2,771 3,146 3,682 4,164
Interest Expense.......................... (8,858) (8,637) (8,307) (8,042) (7,792)
-------- -------- -------- -------- --------
Income (Loss) Before Provision for Income
Taxes................................... (38,681) 22,403 26,772 31,465 36,604
Provision for Income Taxes................ 2,407 9,921 12,037 14,363 16,788
Minority Interest Expense................. 953 275 275 275 275
-------- -------- -------- -------- --------
Net Income (Loss)......................... $(42,041) $ 12,207 $ 14,460 $ 16,827 $ 19,541
======== ======== ======== ======== ========
SELECTED BALANCE SHEET DATA:
Accounts Receivable, Net.................. $ 57,481 $ 52,921 $ 53,205 $ 55,591 $ 59,188
Unbilled Contract Costs and Fees.......... 18,531 14,359 14,535 15,839 16,938
Inventories............................... 1,015 122 122 122 122
Prepaid Income Taxes and Other Current
Assets.................................. 11,641 11,339 11,564 11,689 11,809
-------- -------- -------- -------- --------
Total Current Assets Excluding Cash and
Investments............................. 88,668 78,741 79,426 83,241 88,057
Property, Plant, and Equipment:
Balance, beginning of year.............. 91,419 72,660 71,112 70,048 69,655
Additions............................... 15,510 11,729 9,869 10,965 11,450
Depreciation expense.................... (12,032) (10,590) (10,933) (11,358) (11,388)
Sales and retirements................... (22,237) (2,687) -- -- --
-------- -------- -------- -------- --------
Balance, end of year...................... 72,660 71,112 70,048 69,655 69,717
Cost in Excess of Net Assets of Acquired
Companies............................... 88,706 86,848 84,242 81,636 79,030
</TABLE>
70
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF TERRATECH AND THERMO COMMON STOCK
This section of the Proxy Statement-Prospectus describes certain differences
between the rights of holders of TerraTech Common Stock and Thermo Common Stock.
While we believe that the description covers the material differences between
the two, this summary may not contain all of the information that is important
to you. You should carefully read this entire document and the other documents
we refer to for a more complete understanding of the differences between being a
stockholder of Thermo TerraTech and being a stockholder of Thermo Electron.
As a stockholder of Thermo TerraTech, your rights are governed by Thermo
TerraTech's Certificate of Incorporation and Thermo TerraTech's Bylaws. After
completion of the Merger, you will become a stockholder of Thermo Electron. As a
Thermo Electron stockholder, your rights will be governed by Thermo Electron's
Certificate of Incorporation and Thermo Electron's Bylaws. We are each
incorporated under the laws of the State of Delaware and accordingly, your
rights as a stockholder will continue to be governed by the Delaware General
Corporation Law after completion of the Merger.
CLASSES OF COMMON STOCK OF THERMO TERRATECH AND THERMO ELECTRON
Each of Thermo Electron and Thermo TerraTech has only one class of common
stock issued and outstanding. There are 350,000,000 shares of Thermo Common
Stock authorized, and Thermo TerraTech presently has 30,000,000 shares of
TerraTech Common Stock authorized.
Thermo Electron presently has authorized a class of 50,000 shares of
Preferred Stock, of which Thermo Electron presently has 40,000 shares designated
as Series B Junior Participating Preferred Stock. A description of such
preferred stock is set forth below under "Preferred Stock".
CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Thermo Electron's board of
directors is divided into three classes, as nearly equal in size as possible,
with one class being elected annually. Thermo Electron directors are elected for
a term of three years, provided that the term of each director is subject to the
election and qualification of such director's successor and to such director's
earlier death, resignation or removal. Thermo Electron's classified board of
directors may make it more difficult for a third party to gain control of Thermo
Electron.
Thermo TerraTech's board of directors is not divided into different classes.
Members of Thermo TerraTech's board of directors are elected by a majority of
the votes cast at the annual meeting of the stockholders. Thermo TerraTech
directors are elected until the next annual meeting of the stockholders and
until their successors are elected and qualified or until their earlier
resignation or removal.
NUMBER OF DIRECTORS
Thermo Electron's board of directors currently consists of thirteen
directors. The number of directors on Thermo Electron's board is determined by
resolution of the board, but in no event shall be less than three.
Thermo TerraTech's board of directors currently consists of six directors.
The number of directors on Thermo TerraTech's board shall not be less than three
nor more than thirteen, the exact number of which is fixed from time to time by
the board of directors or by the stockholders at an annual meeting.
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<PAGE>
REMOVAL OF DIRECTORS
Thermo TerraTech directors, or the entire Thermo TerraTech board, may be
removed with or without cause by the affirmative vote of the holders of a
majority of the shares of TerraTech Common Stock then entitled to vote at an
election of directors.
Neither the Certificate of Incorporation or the Bylaws of Thermo Electron
contains an explicit procedure for the removal of a member of the board of
directors. Delaware law provides that unless otherwise provided in the
Certificate of Incorporation of a company, a director of a classified board such
as Thermo Electron's can be removed only for cause, by the holders of a majority
of the shares then entitled to vote at an election of directors of such company.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Except as otherwise required by the Certificate of Incorporation or the
Delaware General Corporation Law, any vacancies in the Thermo Electron and
Thermo TerraTech boards of directors, however occurring, or any newly-created
directorship resulting from an increase in the number of seats on the board of
directors, will be filled by vote of a majority of the directors then in office,
even if less than a quorum, or by the sole remaining director, and not by the
stockholders. Newly created directorships or decreases in directorships in
Thermo Electron's board of directors are to be apportioned among the classes of
directors so as to make all classes as nearly equal in number as practicable.
To the extent reasonably possible, any newly created Thermo Electron
directorship will be added to the class of directors whose term of office is to
expire at the latest date following the creation of that directorship, unless
otherwise provided for by resolution of the majority of the directors then in
office. Any newly eliminated Thermo Electron directorship will be subtracted
from the class whose office is to expire at the earliest date following the
elimination of the directorship, unless otherwise provided for by resolution of
the majority of the directors then in office.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Thermo Electron stockholders may take action at annual or special meetings
of stockholders, or by the written consent of stockholders having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Thermo TerraTech stockholders may take action at annual or special meetings
of stockholders, or by the written consent of stockholders having not less than
50% of all of the stock entitled to vote upon the action if a meeting were held.
ABILITY TO CALL SPECIAL MEETINGS
Special meetings of Thermo Electron stockholders may be called only by
Thermo Electron's Board of Directors, the Chairman of the Board of Directors, or
its Chief Executive Officer. Special meetings of Thermo TerraTech stockholders
may be called only by Thermo TerraTech's Board of Directors, the Chairman of the
Board of Directors, its President, or any Vice President.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The Thermo Electron Bylaws allow stockholders to nominate candidates for
election to Thermo Electron's board of directors or to propose business to be
transacted at an annual stockholder meeting. However, such nominations and
proposals may only be made by a stockholder who has given timely written notice
to the secretary of Thermo Electron before the annual stockholder meeting in the
manner described below.
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<PAGE>
Under Thermo Electron's Bylaws, to be timely, notice of stockholder
nominations or proposals to be made at an annual stockholder meeting must be
delivered to the secretary of Thermo Electron not less than 60 days nor more
than 75 days before the first anniversary of the date on which Thermo Electron
first mailed its proxy materials for the preceding year's annual stockholder
meeting. However, if the date of the annual meeting is advanced more than
30 days before or delayed by more than 30 days after the anniversary of the
preceding year's annual stockholder meeting, notice to be timely must be
delivered not later than the close of business on the later of (i) the 90(th)
day prior to such annual meeting or (ii) the 10(th) day following the day on
which public announcement of the date of such meeting is first made.
Stockholder nominations and proposals will not be brought before any Thermo
Electron stockholder meeting unless the nomination or proposal was brought
before the meeting in accordance with Thermo Electron's stockholder advance
notice procedure, as set forth in the Bylaws.
Thermo TerraTech does not have a provision in its Certificate of
Incorporation or Bylaws requiring advance notice or a specific procedural
process for stockholder nominations of candidates for election to the board of
directors or for stockholder proposals before Thermo TerraTech's annual
stockholder meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, a Certificate of Incorporation of a Delaware corporation
may be amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote for the amendment, unless a higher vote is required by the corporation's
Certificate of Incorporation. Neither Thermo Electron nor Thermo TerraTech
currently has a higher vote required by their respective Certificates of
Incorporation in order to amend such documents.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal Bylaws. In addition, a corporation may, in its Certificate of
Incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal Bylaws, even though the board
may also be delegated such power.
Thermo Electron's board of directors is authorized to alter, amend and
repeal Thermo Electron's Bylaws or to make new Bylaws. Thermo Electron's Bylaws
may also be altered, amended and repealed, or new Bylaws may be made, by the
affirmative vote of the holders of a majority of the shares of capital stock of
Thermo Electron issued and outstanding and entitled to vote, voting together as
a single class, except that the affirmative vote of the holders of at least
66 2/3% of the shares of capital stock of Thermo Electron issued and outstanding
and entitled to vote is required to alter, amend or repeal, or make new Bylaws
inconsistent with, Article II (on matters relating to Directors) or Article VI
(on amendments to the Bylaws) of the Bylaws.
Thermo TerraTech's board of directors is authorized to alter, amend and
repeal Thermo TerraTech's Bylaws at any meeting of the board. Its Bylaws do not
contain any supermajority voting requirements for amendments.
DELAWARE ANTI-TAKEOVER STATUTE
We are both subject to Section 203 of the Delaware General Corporation Law
which, under certain circumstances, may make it more difficult for a person who
would be an "interested stockholder", as defined in Section 203, in our
respective companies, to effect various business combinations with either of us
for a three-year period after becoming an interested stockholder. Under Delaware
law, a corporation's Certificate of Incorporation or Bylaws may exclude a
corporation from the restrictions imposed by
73
<PAGE>
Section 203. Our respective certificates of incorporation and Bylaws do not
exclude us from the restrictions imposed by Section 203.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action or proceeding, which they
had no reasonable cause to believe was unlawful.
Thermo Electron's Certificate of Incorporation and Thermo TerraTech's Bylaws
each provide that any person who was or is a party or is threatened to be a
party to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative (with certain
exceptions), because that person is or was a director or officer of Thermo
Electron or Thermo TerraTech, respectively (or an employee or agent of Thermo
TerraTech), or is or was serving at the request of Thermo Electron or Thermo
TerraTech, respectively, as a director or officer (or employee or agent, in the
case of Thermo TerraTech) of another corporation, partnership, joint venture,
trust or other enterprise, will be indemnified against expenses, including
attorney's fees, judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding, to the fullest extent permitted by the Delaware General Corporation
Law. The indemnification rights conferred by Thermo Electron and Thermo
TerraTech are not exclusive of any other right to which persons seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
In the case of any action or suit by Thermo Electron or Thermo TerraTech,
respectively, to procure a judgment in its favor, no indemnification shall be
made (1) except for expenses (including attorneys' fees) or (2) relating to any
claim, issue or matter as to which the director or officer has been judged to be
liable to Thermo Electron or Thermo TerraTech, respectively, unless and only to
the extent that the court in which the action was brought determines that,
despite the adjudication of liability but in view of all of the circumstances of
the case, the director or officer is entitled to indemnity for such expenses
which the court deems proper.
Additionally, Thermo Electron and Thermo TerraTech may each pay expenses
incurred by their respective directors or officers in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of that
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay all amounts advanced if it is ultimately determined
that he or she is not entitled to be indemnified by Thermo Electron or Thermo
TerraTech, respectively.
PREFERRED STOCK
Thermo Electron's Board of Directors may, without further action of Thermo
Electron's stockholders, issue up to 50,000 shares of Preferred Stock, in one or
more classes and one or more series and fix the number of shares constituting
any such class or series. Pursuant to a Certificate of Designation filed on
January 31, 1996, 40,000 shares of the Preferred Stock have been designated as
Series B Junior Participating Preferred Stock of the par value of $100 per
share. The terms of the Series B Junior Participating Preferred Stock are
described in "Stockholder Rights Plan", below. Thermo Electron's Board may fix
the rights and preferences of any class or series of the remaining 10,000 shares
of Preferred Stock, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
maturity dates, redemption prices and liquidation preferences. The rights of the
holders of Thermo Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any Preferred Stock that may be issued in the
future. Issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a majority of the outstanding voting stock of Thermo Electron.
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Thermo TerraTech does not have any shares of Preferred Stock authorized.
STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
Certificate of Incorporation. The price and terms of such shares must be stated
in the Certificate of Incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
Thermo Electron has entered into a Rights Agreement (as amended from time to
time, the "Rights Agreement") dated as of January 19, 1996 between Thermo
Electron and BankBoston, N.A. (formerly, The First National Bank of Boston), as
Rights Agent. As with most stockholder rights agreements, the terms of Thermo
Electron's rights agreement are complex and not easily summarized, particularly
as they relate to the acquisition of Thermo Electron's common stock and to
exercisability.
On January 19, 1996, the Board of Directors of Thermo Electron declared a
dividend distribution of one Right for each outstanding share of Thermo
Electron's Common Stock to stockholders of record at the close of business on
January 29, 1996. Each Right entitles the registered holder to purchase from
Thermo Electron a unit consisting of one ten-thousandth of a share (a "Unit") of
Series B Junior Participating Preferred Stock, $100 par value (the "Preferred
Stock") at a Purchase Price of $250.00 in cash per Unit, subject to adjustment.
The description and terms of the Rights are set forth in the Rights Agreement.
Initially, the Rights attach to all Thermo Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. The Rights will separate from the Thermo Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Thermo Common Stock (the
"Stock Acquisition Date"), or (ii) 10 business days following the commencement
of a tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of Thermo Common
Stock. Until the Distribution Date, (i) the Rights will be evidenced by the
Thermo Common Stock certificates and will be transferred with and only with such
Thermo Common Stock certificates, (ii) new Thermo Common Stock certificates will
contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Thermo Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Thermo Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January 29, 2006, unless earlier redeemed or
exchanged by Thermo Electron as described below.
In the event that a Person becomes the beneficial owner of 15% or more of
the then outstanding shares of Thermo Common Stock, except pursuant to an offer
for all outstanding shares of Thermo Common Stock that at least a majority of
the Board of Directors determines to be fair to, and otherwise in the best
interests of, stockholders, each holder of a Right will thereafter have the
right to receive, upon exercise, that number of shares of Thermo Common Stock
(or, in certain circumstances, cash, property or other securities of Thermo
Electron) which equals the exercise price of the Right divided by one-half of
the current market price (as defined in the Rights Agreement) of the Thermo
Common Stock at the date of the occurrence of the event. However, Rights are not
exercisable following the event set forth above until such time as the Rights
are no longer redeemable by Thermo Electron as set forth below. Notwithstanding
any of the foregoing, following the occurrence of such event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will be null and void. The event set
forth in this paragraph is referred to as a "Section 11(a)(ii) Event."
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For example, at an exercise price of $250.00 per Right, each Right not owned
by an Acquiring Person (or by certain related parties) following a
Section 11(a)(ii) Event would entitle its holder to purchase for $250.00 such
number of shares of Thermo Common Stock (or other consideration, as noted above)
as equals $250.00 divided by one-half of the current market price (as defined in
the Rights Agreement) of the Thermo Common Stock. Assuming that the Thermo
Common Stock had a per share value of $50.00 at such time, the holder of each
valid Right would be entitled to purchase ten shares of Thermo Common Stock for
$250.00.
In the event that, at any time after any person has become an Acquiring
Person, (i) Thermo Electron is acquired in a merger or other business
combination transaction in which Thermo Electron is not the surviving
corporation or its Common Stock is changed or exchanged (other than a merger
which follows an offer determined by the board of directors to be fair as
described in the first sentence of the second preceding paragraph), or (ii) 50%
or more of Thermo Electron's assets or earning power is sold or transferred,
each holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, that
number of shares of common stock of the acquiring company which equals the
exercise price of the Right divided by one-half of the current market price of
such common stock at the date of the occurrence of the event.
For example, at an exercise price of $250.00 per Right, each Right following
an event set forth in the preceding paragraph would entitle its holder to
purchase for $250.00 such number of shares of common stock of the acquiring
company as equals $250.00 divided by one-half of the current market price (as
defined in the Rights Agreement) of such common stock. Assuming that such common
stock had a per share value of $100.00 at such time, the holder of each valid
Right would be entitled to purchase five shares of common stock of the acquiring
company for $250.00.
At any time after the occurrence of a Section 11(a)(ii) Event, the board of
directors of Thermo Electron may exchange the Rights (other than Rights owned by
such Acquiring Person that have become void), in whole or in part, at an
exchange ratio of one share of Thermo Common Stock, or one ten-thousandth of a
share of Preferred Stock (or of a share of a class or series of Thermo
Electron's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $100 per share and will be entitled
to an aggregate dividend of 10,000 times the dividend declared per share of
Thermo Common Stock. In the event of liquidation, the holders of the Preferred
Stock will be entitled to a minimum preferential liquidating payment of $100 per
share and will be entitled to an aggregate payment of 10,000 times the payment
made per share of Thermo Common Stock. Each share of Preferred Stock will have
10,000 votes, voting together with the Thermo Common Stock. Finally, in the
event of any merger, consolidation or other transaction in which Thermo Common
Stock is changed or exchanged, each share of Preferred Stock will be entitled to
receive 10,000 times the amount received per share of Thermo Common Stock. These
rights are protected by customary antidilution provisions and, in accordance
therewith, in light of Thermo Electron's stock dividend in 1996, currently
provide for (i) an aggregate dividend per share of Preferred Stock of 15,000
times the dividend declared per share of Thermo Common Stock, (ii) an aggregate
payment per share of Preferred Stock, in the event of liquidation, of 15,000
times the payment made per share of Thermo Common Stock and (iii) 15,000 votes
per share of Preferred Stock, voting together with the Thermo Common Stock.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of one ten-thousandth of a share of Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of Thermo Common Stock.
At any time until ten days following the Stock Acquisition Date, Thermo
Electron may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (payable in cash or stock). Immediately upon the action of the board of
directors ordering redemption of the Rights, the Rights will terminate and the
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only right of the holders of Rights will be to receive the $.01 redemption
price. The Rights may also be redeemable following certain other circumstances
specified in the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Thermo Electron, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to Thermo Electron, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Thermo Common Stock (or other consideration) of Thermo Electron
or for common stock of the acquiring company as set forth above.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Thermo
Electron without conditioning the offer on a substantial number of Rights being
acquired. The Rights, however, should not affect any prospective offeror willing
to make an offer at a fair price and otherwise in the best interests of Thermo
Electron and its stockholders, as determined by a majority of the Board of
Directors. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors of Thermo Electron since the
Board of Directors may, at its option, at any time prior to the close of
business on the earlier of (i) the tenth day following the Stock Acquisition
Date or (ii) January 29, 2006, and in certain other circumstances, redeem all
but not less than all of the then outstanding Rights at the Redemption Price.
Thermo TerraTech has not entered into a stockholder's rights agreement.
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CERTAIN TRANSACTIONS
Thermo Electron has, from time to time, caused certain subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly held subsidiaries. Thermo Electron has created the Company as a
majority-owned publicly held subsidiary. The Company and such other majority-
owned Thermo Electron subsidiaries are hereinafter referred to as the "Thermo
Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Company, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined,
(3) each company has access to the combined resources and financial, managerial
and technological strengths of the others, and (4) Thermo Electron and the
Thermo Subsidiaries, in the aggregate, are able to obtain the most favorable
terms from outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Company, can withdraw from participation in the Charter upon
30 days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Company and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides
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certain administrative services, including general legal advice and services,
risk management, employee benefit administration, tax advice and preparation of
tax returns, centralized cash management and certain financial and other
services to the Company. The Company is assessed an annual fee equal to 0.8% of
the Company's revenues for these services. The fee is reviewed annually and may
be changed by mutual agreement of the Company and Thermo Electron. During fiscal
1998, 1999 and the three months ended July 3, 1999, Thermo Electron assessed the
Company $2,845,000, $2,480,000 and $607,000, respectively, in fees under the
Services Agreement. Management believes that the charges under the Services
Agreement are reasonable and that the terms of the Services Agreement are fair
to the Company. In fiscal 1998, 1999 and the three months ended July 3, 1999,
the Company paid Thermo Electron an additional $160,000, $765,000 and $26,000
for certain administrative services required by the Company that were not
covered by the Services Agreement. The Services Agreement automatically renews
for successive one-year terms, unless canceled by the Company upon 30 days'
prior notice. In addition, the Services Agreement terminates automatically in
the event the Company ceases to be a member of the Thermo Group or ceases to be
a participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis by
the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
The Company has entered into a Tax Allocation Agreement with Thermo Electron
that outlines the terms under which the Company and certain of its subsidiaries
will 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 as
long as Thermo Electron owns at least 80% of the outstanding TerraTech Common
Stock. In years in which the Company has taxable income, it will pay to Thermo
Electron amounts comparable to the taxes the Company would have paid if it had
filed its own separate company tax returns. If Thermo Electron's equity
ownership of the Company were to drop below 80%, the Company would file its own
tax returns. In fiscal 1998 and 1999, the Company paid Thermo Electron $669,000
and $1,217,000 under the Tax Allocation Agreement. No amounts were paid to
Thermo Electron under the Tax Allocation Agreement during the three months ended
July 3, 1999.
The Company leases an office and operating facility from Thermo Electron.
The total rental payments made to Thermo Electron during fiscal 1998, 1999 and
the three months ended July 3, 1999 under these agreements was $166,000,
$166,000 and $42,000. The future minimum payments due under the lease are
$166,000 in fiscal 2000 through 2005 and thereafter.
The Company and Thermo Electron entered into a development agreement under
which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect
costs of the Company's development of soil-remediation centers. In exchange for
this funding, the Company granted Thermo Electron a royalty equal to
approximately 3% of net revenues from soil-remediation services performed at the
centers developed under this agreement. The royalty payments may cease if the
amounts paid by the Company yield a certain internal rate of return to Thermo
Electron on the funds advanced to the Company under this agreement. The Company
paid Thermo Electron royalties under this agreement of $115,000, $186,000 and
$44,000 in fiscal 1998, 1999 and the three months ended July 3, 1999,
respectively.
As of July 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $2,405,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
firm and for miscellaneous items, net of amounts owed to the Company by Thermo
Electron and its other subsidiaries for miscellaneous items. The largest amount
of net indebtedness owed by the Company to Thermo Electron and its other
subsidiaries since April 5, 1998 was $3,129,000. These amounts do not bear
interest and are expected to be paid in the normal course of business.
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The Company's Thermo EuroTech N.V. subsidiary ("Thermo EuroTech"), along
with certain other European-based Thermo Subsidiaries, participates in a zero
balance arrangement with ABN AMRO, which includes a $22,534,000 credit facility.
The Company has access to $8,424,000 under this credit facility. Funds borrowed
by the Company under this arrangement pay interest at a rate set by Thermo
Finance B.V., a wholly owned subsidiary of Thermo Electron, at the beginning of
each month, based on Netherlands market rates. Funds invested by the Company
under the arrangement earn a rate set by Thermo Finance B.V. at the beginning of
each month, based on Netherlands market rates. Thermo Electron guarantees all of
the obligations of each participant in this arrangement. As of July 3, 1999, the
Company had a negative cash balance of approximately $7,500,000 based on an
exchange rate of $0.4680/NLG 1.00. As of July 3, 1999, the average annual
interest rate earned on NLG deposits by participants in this credit arrangement
was approximately 3.29% and the average annual interest rate paid on overdrafts
was approximately 3.83%.
As of July 3, 1999, $39,338,000 of the Company's cash equivalents were
invested in a cash management arrangement with Thermo Electron. Under the cash
management arrangement, the Company lends excess cash to Thermo Electron and has
the contractual right to withdraw its invested funds upon 30 days' prior notice.
Thermo Electron is contractually required to maintain cash, cash equivalents
and/or immediately available bank lines of credit equal to at least 50% of all
funds invested under the arrangement by all Thermo Electron subsidiaries other
than wholly owned subsidiaries. The Company's funds invested in the cash
management arrangement earn a rate equal to the 30-day Dealer Commercial Paper
Rate as reported in THE WALL STREET JOURNAL plus 50 basis points, set at the
beginning of each month.
The Company purchases and sells products and services in the ordinary course
of business with other companies affiliated with Thermo Electron. In fiscal
1998, 1999 and the three months ended July 3, 1999, purchases from these
companies totaled $938,000, $231,000 and $27,000, respectively, and sales to
these companies totaled $320,000, $379,000 and $23,000, respectively.
The human resources committee of the Company's board of directors
established a stock holding policy that required its executive officers to
acquire and hold a minimum number of shares of TerraTech Common Stock. In order
to assist the executive officers in complying with the policy, the Company also
adopted a stock holding assistance plan under which it may make interest-free
loans to certain key employees, including its executive officers, to enable them
to purchase the TerraTech Common Stock in the open market. The stock holding
policy and the stock holding assistance plan were both subsequently amended to
apply only to the chief executive officer. During fiscal 1998 and 1999,
Dr. Appleton, the Company's president and chief executive officer, received
loans in the principal amount of $137,607 under this plan to purchase 20,000
shares, the entire amount of which was outstanding as of July 3, 1999. The loan
is repayable upon the earlier of demand or the fifth anniversary of the date of
the loan, unless otherwise authorized by the human resources committee of the
Company's board of directors.
Randers/Killam is currently negotiating with one of its directors, Mr.
Thomas R. Eurich, who is also a Vice President of Randers/Killam, the sale of
its Randers division for approximately $2.7 million to a corporation to be
formed by Mr. Eurich and other members of the Randers division management. The
purchase price proposed by Mr. Eurich approximates the book value of the Randers
division as of October 2, 1999. In the fiscal year ended April 3, 1999 and the
three months ended July 3, 1999, the revenues of the Randers division were
$18,300,000 and $2,788,000, respectively.
RECENT DEVELOPMENTS
On November 8, 1999, Thermo TerraTech issued a press release containing
information as to its earnings for the fiscal quarter ended October 2, 1999.
Thermo TerraTech reported net income of $1,207,000 on revenues of $78,036,000
for the quarter, compared with a net loss of $3,696,000 on revenues of
$77,177,000 for the same period in fiscal 1999. Diluted earnings per share for
the second quarter of fiscal 2000 were $.06, compared with a loss per diluted
share of $.19 for the same period in fiscal 1999.
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Thermo TerraTech recorded pretax restructuring costs of $120,000 and $10,217,000
in the fiscal 2000 and 1999 quarters, respectively. Excluding restructuring and
related costs, net income for the second quarter of fiscal 2000 and 1999 would
have been $1,265,000 and $1,106,000, respectively, or $.06 per diluted share for
both periods.
LEGAL OPINION
The validity of the shares of Thermo Common Stock offered by this Proxy
Statement-Prospectus will be passed upon for Thermo Electron by Seth H.
Hoogasian, Esq. Mr. Hoogasian is a full-time employee of Thermo Electron, is an
officer of Thermo TerraTech and Thermo Electron, and owns or has the right to
acquire 5,258 shares of TerraTech Common Stock, 348,828 shares of Thermo Common
Stock, and 159,070 shares of the common stock of Thermo Electron's subsidiaries
other than Thermo TerraTech.
EXPERTS
The financial statements of Thermo Electron and Thermo TerraTech
incorporated by reference in this Proxy Statement-Prospectus and the financial
statement schedules incorporated by reference in the Registration Statement of
which this Proxy Statement-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 incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
STOCKHOLDER PROPOSALS
If the Merger is not completed, Thermo TerraTech will set a date for its
2000 Annual Meeting of Stockholders. Proposals of stockholders of Thermo
TerraTech intended to be included in the proxy statement and form of proxy
relating to the 2000 Annual Meeting of Stockholders must be received by Thermo
TerraTech for inclusion in the proxy statement and form of proxy on or before
December 14, 1999. Management proxies will be authorized to exercise
discretionary voting authority with respect to any shareholder proposal not
included in Thermo TerraTech's proxy materials for the 2000 Annual Meeting
unless (a) Thermo TerraTech receives notice of such proposal by March 1, 2000
and (b) the conditions set forth in Rule 14a-4(c)(2)(i)-(iii) under the Exchange
Act are met. Such proposals must also meet other requirements of the rules of
the Commission relating to stockholders' proposals. If the Merger is
consummated, the annual meeting of stockholders may be scheduled for an earlier
or later date consistent with Thermo TerraTech's organizational documents.
WHERE YOU CAN FIND MORE INFORMATION
This Proxy Statement-Prospectus incorporates documents by reference,
including important business and financial information, which are not presented
in or delivered with this Proxy Statement-Prospectus.
All documents filed by Thermo Electron, pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy
Statement-Prospectus and before the date of the Special Meeting are incorporated
by reference into and are deemed to be a part of this Proxy Statement-Prospectus
from the date of filing of those documents.
You should rely only on the information contained in this document or that
to which we have referred you. We have not authorized anyone to provide you with
any additional information.
THERMO TERRATECH
The following documents, filed by Thermo TerraTech (File No. 1-9549) with
the Securities and Exchange Commission, are hereby incorporated by reference
into this Proxy Statement-Prospectus:
- Annual Report on Form 10-K for the fiscal year ended April 3, 1999, as
amended;
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- Current Report on Form 8-K filed on May 12, 1999 regarding the
announcement that Thermo TerraTech may be merged into Thermo Electron;
- Current Report on Form 8-K filed on May 25, 1999 regarding certain pretax
restructuring and other charges to be taken by Thermo TerraTech;
- Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999;
and
- Current Report on Form 8-K filed on October 21, 1999 regarding the
execution of the Merger Agreement.
THERMO ELECTRON
The following documents, filed by Thermo Electron (File No. 1-8002) with the
Securities and Exchange Commission, are hereby incorporated by reference into
this Proxy Statement-Prospectus:
- Annual Report on Form 10-K for the fiscal year ended January 2, 1999;
- Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 1999;
- Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999;
- Current Report on Form 8-K filed on January 8, 1999 regarding the
commencement of Thermo Instrument Systems Inc.'s cash tender offer for all
outstanding shares of Spectra-Physics AB;
- Current Report on Form 8-K filed on March 9, 1999 regarding the
declaration by Thermo Instrument that its cash tender offer for all
outstanding shares of Spectra-Physics AB was unconditional;
- Current Report on Form 8-K filed on March 15, 1999 regarding the
appointment of Richard F. Syron as President and Chief Executive Officer
and regarding expected earnings per share for the first quarter of 1999;
- Current Report on Form 8-K filed on May 25, 1999 regarding additions to
Thermo Electron's proposed reorganization plan;
- The description of the Thermo Common Stock which is contained in Thermo
Electron's Registration Statement on Form 8-A filed under the Exchange
Act, as amended; and
- The description of Thermo Electron's Preferred Stock Purchase Rights which
is contained in Thermo Electron's Registration Statement on Form 8-A filed
under the Exchange Act, as amended.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this Proxy Statement-Prospectus will be deemed to
be modified or superseded for purposes of this Proxy Statement-Prospectus to the
extent that a statement contained in this Proxy Statement-Prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this Proxy Statement-Prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement-Prospectus.
The documents incorporated by reference into this Proxy Statement-Prospectus
are available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this Proxy Statement-Prospectus
to any person, without charge, upon written or oral request. If exhibits to the
documents incorporated by reference in this Proxy Statement-Prospectus are not
themselves specifically incorporated by reference in this Proxy
Statement-Prospectus, then such exhibits will not be provided. Any request for
documents should be made by , 1999 to ensure timely delivery of the
documents.
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Requests for documents relating to Thermo TerraTech or Thermo Electron
should be directed to: Sandra L. Lambert, Corporate Secretary, Thermo Electron
Corporation, 81 Wyman Street, Waltham, Massachusetts 02454 (telephone:
781-622-1000; facsimile: 781-768-6620).
We file reports, proxy statements and other information with the SEC. Copies
of our reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Reports, proxy statements and other information concerning Thermo TerraTech
may be inspected at:
The American Stock Exchange
86 Trinity Place
New York, New York 10006-1881
Reports, proxy statements and other information concerning Thermo Electron
may be inspected at:
The New York Stock Exchange
20 Broad Street
New York, New York 10005
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room at the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at l-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy statements and other information regarding each of
us. The address of the SEC website is http://www.sec.gov.
Thermo Electron has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to the
Thermo Common Stock to be issued to Thermo TerraTech stockholders in the Merger.
This Proxy Statement-Prospectus constitutes the prospectus of Thermo Electron
filed as part of the registration statement. This Proxy Statement-Prospectus
does not contain all of the information set forth in the registration statement
because certain parts of the registration statement are omitted in accordance
with the rules and regulations of the SEC. The registration statement and its
exhibits are available for inspection and copying as set forth above.
Copies of Thermo TerraTech's Annual Report on Form 10-K for the fiscal year
ended April 3, 1999, its Annual Report on Form 10-K/A for the fiscal year ended
April 3, 1999, and its Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 are attached to this Proxy Statement-Prospectus as Appendices C, D
and E, respectively. Please read each of such documents in their entirety for
the important information they contain regarding the business of Thermo
TerraTech.
If you have any questions about the Merger, please call Thermo TerraTech
Investor Relations at 1-781-622-1111.
This Proxy Statement-Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Proxy
Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement-Prospectus nor any distribution of securities
pursuant to this Proxy Statement-Prospectus shall, under any circumstances,
create any implication that there has been no change in the information set
forth or incorporated into this Proxy Statement-Prospectus by reference or in
our affairs since the date of this Proxy Statement-Prospectus.
83
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THERMO
ELECTRON CORPORATION, THERMO TERRATECH INC., THERMORETEC
CORPORATION, AND THE RANDERS KILLAM GROUP INC.
(UNAUDITED)............................................... F-2
Pro Forma Consolidated Condensed Statement of Operations
for the six months ended July 3, 1999................... F-3
Pro Forma Consolidated Condensed Statement of Operations
for the year ended January 2, 1999...................... F-4
Pro Forma Consolidated Condensed Balance Sheet as of July
3, 1999................................................. F-5
Notes to Pro Forma Consolidated Condensed Financial
Statements.............................................. F-6
</TABLE>
F-1
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated condensed statements of
operations set forth the results of operations for the six months ended July 3,
1999, and the year ended January 2, 1999, as if the Merger, the ThermoRetec
Merger, and the Randers/Killam Merger had become effective at the beginning of
1998. The following unaudited pro forma consolidated condensed balance sheet
sets forth the financial position as of July 3, 1999, as if the Merger, the
ThermoRetec Merger, and the Randers/Killam Merger had become effective on
July 3, 1999. For purposes of determining the number of shares of Thermo
Electron that will be issued under the Merger Agreement, an Exchange Ratio of
.55 shares of Thermo Electron Common Stock for each share of Thermo TerraTech
Common Stock has been assumed. The pro forma results of operations are not
necessarily indicative of future operations or the actual results that would
have occurred had these mergers become effective at the beginning of 1998.
F-2
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 3, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Product and service revenues............................ $2,006,466 $ -- $2,006,466
Research and development contract revenues.............. 95,412 -- 95,412
---------- ------- ----------
2,101,878 -- 2,101,878
---------- ------- ----------
Costs and Operating Expenses:
Cost of product and service revenues.................... 1,224,548 -- 1,224,548
Expenses for research and development................... 213,273 -- 213,273
Selling, general, and administrative expenses........... 541,103 403 541,506
Restructuring and other nonrecurring costs, net......... 388,291 -- 388,291
---------- ------- ----------
2,367,215 403 2,367,618
---------- ------- ----------
Operating Loss............................................ (265,337) (403) (265,740)
Other Expense, Net........................................ (41,683) (897) (42,580)
---------- ------- ----------
Loss Before Income Taxes and Minority Interest............ (307,020) (1,300) (308,320)
Income Tax Benefit........................................ 56,733 332 57,065
Minority Interest Income (Expense)........................ 43,398 (8,474) 34,924
---------- ------- ----------
Net Loss.................................................. $ (206,889) $(9,442) $ (216,331)
========== ======= ==========
Loss per Share:
Basic................................................... $ (1.31) $ -- $ (1.36)
========== ======= ==========
Diluted................................................. $ (1.32) $ -- $ (1.37)
========== ======= ==========
Basic and Diluted Weighted Average Shares................. 158,028 1,369 159,397
========== ======= ==========
</TABLE>
F-3
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Product and service revenues............................ $3,690,545 $ -- $3,690,545
Research and development contract revenues.............. 177,051 -- 177,051
---------- ------- ----------
3,867,596 -- 3,867,596
---------- ------- ----------
Costs and Operating Expenses:
Cost of product and service revenues.................... 2,186,893 -- 2,186,893
Expenses for research and development................... 367,343 -- 367,343
Selling, general, and administrative expenses........... 937,640 806 938,446
Restructuring and other nonrecurring costs, net......... 44,450 -- 44,450
---------- ------- ----------
3,536,326 806 3,537,132
---------- ------- ----------
Operating Income.......................................... 331,270 (806) 330,464
Gain on Issuance of Stock by Subsidiaries................. 51,775 -- 51,775
Other Income, Net......................................... 8,465 (1,980) 6,485
---------- ------- ----------
Income Before Income Taxes, Minority Interest, and
Extraordinary Items..................................... 391,510 (2,786) 388,724
Income Tax Benefit (Provision)............................ (170,680) 732 (169,948)
Minority Interest Expense................................. (44,023) (2,670) (46,693)
---------- ------- ----------
Income Before Extraordinary Items......................... 176,807 (4,724) 172,083
Extraordinary Items, Net of Provision for Income Taxes and
Minority Interest of $8,247............................. 5,094 -- 5,094
---------- ------- ----------
Net Income................................................ $ 181,901 $(4,724) $ 177,177
========== ======= ==========
Earnings per Share:
Basic................................................... $ 1.12 $ -- $ 1.09
========== ======= ==========
Diluted................................................. $ 1.07 $ -- $ 1.04
========== ======= ==========
Weighted Average Shares:
Basic................................................... 161,866 1,369 163,235
========== ======= ==========
Diluted................................................. 178,449 1,369 179,818
========== ======= ==========
</TABLE>
F-4
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JULY 3, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 386,864 $(35,161) $ 351,703
Short-term available-for-sale investments, at quoted
market value.......................................... 681,197 -- 681,197
Accounts receivable, net.................................. 930,228 -- 930,228
Inventories............................................... 645,992 -- 645,992
Other current assets...................................... 297,483 -- 297,483
---------- -------- ----------
2,941,764 (35,161) 2,906,603
---------- -------- ----------
Property, Plant, and Equipment, at Cost, Net.............. 710,848 -- 710,848
---------- -------- ----------
Other Assets.............................................. 356,942 -- 356,942
---------- -------- ----------
Cost in Excess of Net Assets of Acquired Companies........ 1,925,437 32,246 1,957,683
---------- -------- ----------
$5,934,991 $ (2,915) $5,932,076
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities....................................... $1,239,543 $ -- $1,239,543
---------- -------- ----------
Deferred Income Taxes and Other Deferred Items............ 145,164 -- 145,164
---------- -------- ----------
Long-term Obligations:
Subordinated convertible obligations.................... 1,588,071 -- 1,588,071
Other................................................... 395,689 -- 395,689
---------- -------- ----------
1,983,760 -- 1,983,760
---------- -------- ----------
Minority Interest......................................... 555,518 (28,248) 527,270
---------- -------- ----------
Common Stock of Subsidiaries Subject to Redemption........ 57,871 -- 57,871
---------- -------- ----------
Shareholders' Investment:
Common stock............................................ 167,253 1,369 168,622
Capital in excess of par value.......................... 1,027,956 23,964 1,051,920
Retained earnings....................................... 1,009,652 -- 1,009,652
Treasury stock at cost.................................. (161,598) -- (161,598)
Deferred compensation................................... (6,524) -- (6,524)
Accumulated other comprehensive items................... (83,604) -- (83,604)
---------- -------- ----------
1,953,135 25,333 1,978,468
---------- -------- ----------
$5,934,991 $ (2,915) $5,932,076
========== ======== ==========
</TABLE>
F-5
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-- PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS
(IN THOUSANDS EXCEPT IN TEXT)
<TABLE>
<CAPTION>
FISCAL
SIX MONTHS ENDED YEAR ENDED
JULY 3, 1999 JANUARY 2, 1999
---------------- ---------------
DEBIT (CREDIT)
<S> <C> <C>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Amortization over 40 years of $32,246,000 of cost in excess
of net assets of acquired companies created by Thermo
Electron's increased ownership of Thermo TerraTech,
ThermoRetec, and Randers/Killam........................... $ 403 $ 806
----- -----
OTHER INCOME (EXPENSE), NET
Decrease in interest income as a result of the use of
$35,161,000 of cash to fund the acquisition of additional
shares of ThermoRetec and Randers/Killam, calculated using
an average interest rate of 5.10% and 5.63% for the six
months ended July 3, 1999, and the year ended January 2,
1999, respectively........................................ 897 1,980
----- -----
INCOME TAX BENEFIT (PROVISION)
Increase in income tax benefit for the six months ended July
3, 1999, and decrease in income tax provision for the year
ended January 2, 1999, associated with the pro forma
adjustment for interest income above, calculated at Thermo
Electron's applicable tax rate of 37%..................... (332) (732)
----- -----
MINORITY INTEREST INCOME (EXPENSE)
Decrease in minority interest income for the six months
ended July 3, 1999, and increase in minority interest
expense for the year ended January 2, 1999, as a result of
Thermo Electron's increased ownership of Thermo TerraTech,
ThermoRetec, and Randers/Killam, which reported
consolidated losses for both periods...................... 8,474 2,670
----- -----
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance of 1,369,159 shares of Thermo Electron's
common stock for the acquisition of additional shares of
Thermo TerraTech as of the beginning of 1998.............. 1,369 1,369
----- -----
</TABLE>
F-6
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2-- PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 3, 1999
--------------
DEBIT (CREDIT)
<S> <C>
CASH AND CASH EQUIVALENTS
Decrease in cash and cash equivalents as a result of the use
of cash to fund the acquisition of additional shares of
ThermoRetec and Randers/Killam and the payment under
Thermo TerraTech's outstanding put rights................. $(35,161)
--------
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Increase in cost in excess of net assets of acquired
companies as a result of Thermo Electron's increased
ownership of Thermo TerraTech, ThermoRetec, and
Randers/Killam............................................ 32,246
--------
MINORITY INTEREST
Decrease in minority interest as a result of Thermo
Electron's increased ownership of Thermo TerraTech,
ThermoRetec, and Randers/Killam........................... 28,248
--------
COMMON STOCK
Increase in common stock due to the assumed issuance of
1,369,159 shares of Thermo Electron's common stock for the
acquisition of additional shares of Thermo TerraTech...... (1,369)
--------
CAPITAL IN EXCESS OF PAR VALUE
Increase in capital in excess of par value as a result of
Thermo Electron's increased ownership of Thermo TerraTech
and the conversion of outstanding stock options of Thermo
TerraTech, ThermoRetec, and Randers/Killam into stock
options of Thermo Electron................................ (23,964)
--------
</TABLE>
F-7
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THERMO ELECTRON CORPORATION
TTT ACQUISITION CORPORATION
AND
THERMO TERRATECH INC.
DATED AS OF OCTOBER 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER............................................. 2
1.1 The Merger.................................................. 2
1.2 Effective Time; Closing..................................... 2
1.3 Effect of the Merger........................................ 2
1.4 Certificate of Incorporation; Bylaws........................ 3
1.5 Directors and Officers...................................... 3
1.6 Effect on Capital Stock..................................... 3
1.7 Surrender of Certificates................................... 5
1.8 No Further Ownership Rights in TerraTech Common Stock....... 6
1.9 Lost, Stolen or Destroyed Certificates...................... 6
1.10 Dividends................................................... 7
1.11 Fractional Shares........................................... 7
1.12 Closing of Transfer Books................................... 7
1.13 Taking of Necessary Action; Further Action.................. 7
1.14 Tax Treatment............................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TERRATECH........... 8
2.1 Organization of TerraTech................................... 8
2.2 TerraTech Capital Structure................................. 8
2.3 Authority................................................... 8
2.4 Board Approval.............................................. 9
2.5 Fairness Opinion............................................ 9
2.6 Registration Statement; Proxy Statement/Prospectus.......... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND
MERGER SUB........................................... 10
3.1 Organization................................................ 10
3.2 Authority................................................... 10
3.3 Capitalization.............................................. 11
3.4 Reports and Financial Statements............................ 12
3.5 Merger Sub.................................................. 13
3.6 Tax Treatment............................................... 13
3.7 Information Provided to Investment Bankers.................. 13
3.8 Litigation.................................................. 13
3.9 Compliance with Agreements.................................. 13
3.10 Registration Statement; Proxy Statement/Prospectus.......... 14
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................... 14
4.1 Conduct of Business by TerraTech............................ 14
4.2 Conduct of Business by Thermo Electron...................... 14
ARTICLE V ADDITIONAL AGREEMENTS.................................. 15
5.1 Registration Statement; Other Filings....................... 15
5.2 Meeting of TerraTech Stockholders........................... 16
5.3 Access to Information....................................... 17
5.4 Public Disclosure........................................... 17
5.5 Legal Requirements.......................................... 17
5.6 Notification of Certain Matters............................. 18
5.7 Best Efforts and Further Assurances......................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Stock Option and Employee Stock Purchase Plans; Reservation
5.8 of Shares................................................... 18
5.9 Thermo Electron Form S-8.................................... 19
5.10 Thermo Electron Form S-3.................................... 19
5.11 Indemnification; Insurance.................................. 19
5.12 Deferred Compensation Plan.................................. 21
5.13 Compliance by Merger Sub.................................... 21
5.14 Tax Treatment............................................... 22
5.15 NYSE Listing................................................ 22
ARTICLE VI CONDITIONS TO THE MERGER.............................. 22
Conditions to Obligations of Each Party to Effect the
6.1 Merger...................................................... 22
6.2 Additional Conditions to Obligations of TerraTech........... 23
Additional Conditions to the Obligations of Thermo Electron
6.3 and Merger Sub.............................................. 24
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................... 24
7.1 Termination................................................. 24
7.2 Notice of Termination; Effect of Termination................ 25
7.3 Fees and Expenses........................................... 26
7.4 Amendment................................................... 26
7.5 Extension; Waiver........................................... 26
ARTICLE VIII GENERAL PROVISIONS.................................. 26
8.1 Non-Survival of Representations and Warranties.............. 26
8.2 Notices..................................................... 26
8.3 Counterparts................................................ 27
8.4 Entire Agreement............................................ 27
8.5 Severability................................................ 28
8.6 Other Remedies; Specific Performance........................ 28
8.7 Governing Law............................................... 28
8.8 Assignment.................................................. 28
8.9 Headings.................................................... 28
</TABLE>
Exhibit A: Form of Tax Opinion
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of October 19,
1999 is by and among Thermo Electron Corporation, a Delaware corporation
("Thermo Electron"), TTT Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Thermo Electron ("Merger Sub"), and Thermo
TerraTech Inc., a Delaware corporation ("TerraTech").
RECITALS
A. Thermo Electron owns approximately 87% of the outstanding shares of
common stock, par value $.10 per share, of TerraTech (the "TerraTech Common
Stock"), and Thermo Electron desires to acquire all of the remaining outstanding
shares of TerraTech Common Stock.
B. Thermo Electron has formed the Merger Sub as a subsidiary with the intent
of causing it to merge with TerraTech, as described in this Agreement.
C. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Thermo
Electron and TerraTech will enter into a business combination transaction
pursuant to which Merger Sub will merge with and into TerraTech (the "Merger").
D. The Board of Directors of Thermo Electron (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Thermo Electron, and (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement.
E. The Board of Directors of TerraTech, on the recommendation of a special
committee of the Board of Directors (the "Special Committee"), consisting of a
director of TerraTech who is not an officer or director of Thermo Electron or an
officer of TerraTech, (i) has determined that this Agreement, including the
Exchange Ratio (as defined below), and the transactions contemplated by this
Agreement, are fair to, and in the best interests of, the stockholders of
TerraTech (other than Thermo Electron), (ii) has approved and declared the
advisability of this Agreement, the Merger and the other transactions
contemplated by this Agreement and (iii) has resolved to recommend the approval
and adoption of this Agreement by the stockholders of TerraTech.
F. Adams, Harkness & Hill ("AH&H") has delivered to the Special Committee,
for its consideration, and for delivery to the stockholders of TerraTech, its
written opinion that, subject to the various assumptions and limitations set
forth therein, as of the date of such opinion the consideration to be received
by the stockholders of TerraTech (other than Thermo Electron) is fair to such
stockholders from a financial point of view.
G. The parties hereto intend that this transaction shall qualify for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
H. Thermo Electron, TerraTech and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
A-1
<PAGE>
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, Merger Sub shall be merged with and into
TerraTech, the separate corporate existence of Merger Sub shall cease and
TerraTech shall continue as the surviving corporation. TerraTech as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the Surviving Corporation shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the relevant provisions of the DGCL
(the time of such filing, or such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger, being the "Effective Time"
and the date on which the Effective Time occurs being the "Effective Date") as
soon as practicable on the Closing Date (as herein defined). Unless the context
otherwise requires, the term "Agreement" as used herein refers collectively to
this Agreement and the Certificate of Merger. The closing of the Merger (the
"Closing") shall take place at the executive offices of Thermo Electron at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date"). At the Closing, (i) TerraTech shall
deliver to Thermo Electron the various certificates and instruments required
under Article VI, (ii) Thermo Electron and Merger Sub shall deliver to TerraTech
the various certificates and instruments required under Article VI and
(iii) TerraTech shall execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the DGCL.
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of TerraTech and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of TerraTech and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Subject to the requirements of Section 5.11 hereof, at the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) Subject to the requirements of Section 5.11 hereof, the Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, shall be, at the
Effective Time, the Bylaws of the Surviving Corporation until thereafter
amended.
1.5. DIRECTORS AND OFFICERS. The directors of TerraTech immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
to serve until their respective successors are duly elected or appointed and
qualified. The officers of TerraTech immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to serve until their
successors are duly elected or appointed or qualified.
1.6. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, TerraTech or the holders of
any of the following securities:
(a) EXCHANGE OF TERRATECH COMMON STOCK. Subject to the balance of this
Section 1.6, each share of TerraTech Common Stock issued and outstanding
immediately prior to the Effective Time will be automatically converted into the
right to receive 0.4 share (subject to adjustment pursuant to Section 1.6(g)
A-2
<PAGE>
hereof, the "Exchange Ratio") of the common stock, $1.00 par value, of Thermo
Electron (the "Thermo Common Stock"). As of the Effective Time, all such shares
of TerraTech Common Stock shall no longer be outstanding and shall be
automatically canceled and retired and shall cease to exist, and each holder of
a certificate representing any such shares of TerraTech Common Stock shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration (as defined in Section 1.7(b)) upon surrender of the certificate
representing such share of TerraTech Common Stock in the manner provided in
Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.9).
(b) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN. All options to purchase
TerraTech Common Stock outstanding immediately prior to the Effective Time under
stock option plans maintained by TerraTech (including those plans adopted when
TerraTech was known as Thermo Process Systems Inc.), consisting of the Thermo
Process Systems Inc. Incentive Stock Option Plan, the Thermo Process
Systems Inc. Nonqualified Stock Option Plan, the Thermo Process Systems Inc.
Equity Incentive Plan and the Thermo Process Systems Inc. Directors Stock Option
Plan, each as amended (together, the "TerraTech Stock Option Plans"), shall be
converted into options to purchase Thermo Common Stock in accordance with
Section 5.8 hereof. All options to purchase shares of TerraTech Common Stock
under the Amended and Restated Thermo TerraTech Employees' Stock Purchase Plan
(the "TerraTech ESPP") shall be converted into options to purchase Thermo Common
Stock in accordance with Section 5.8 hereof.
(c) WARRANTS. All warrants to purchase TerraTech Common Stock outstanding
immediately prior to the Effective Time shall be converted at the Effective Time
into warrants to purchase Thermo Common Stock. The number of whole shares of
Thermo Common Stock for which each warrant will be exercisable (or will become
exercisable in accordance with its terms) and the per share exercise price for
the shares of Thermo Common Stock issuable upon exercise of such TerraTech
warrant will be determined in accordance with the terms of such warrants.
(d) CONVERTIBLE DEBENTURES. All TerraTech convertible debentures (the
"Convertible Debentures") issued pursuant to the Fiscal Agency Agreement dated
as of May 2, 1996 by and among TerraTech, Thermo Electron and Chase Manhattan
Bank (formerly Chemical Bank) as Fiscal Agent (the "Fiscal Agency Agreement"),
outstanding at the Effective Time shall remain the Convertible Debentures of
TerraTech, provided however, that in lieu of TerraTech Common Stock being
issuable upon conversion of such Convertible Debentures, after the Effective
Time, Thermo Common Stock shall be issuable upon conversion of such Convertible
Debentures in accordance with the terms of the Fiscal Agency Agreement. At the
Effective Time, the price at which the TerraTech Convertible Debentures then
outstanding will be convertible into Thermo Common Stock shall be adjusted in
accordance with the terms of the Fiscal Agency Agreement.
(e) CAPITAL STOCK OF MERGER SUB. Each share of common stock, par value $.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully paid
and non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(f) TREASURY STOCK; STOCK HELD BY THERMO ELECTRON. Notwithstanding any other
provision of this Agreement, each share of TerraTech Common Stock issued and
outstanding and owned by Thermo Electron or any wholly owned subsidiary of
Thermo Electron, together with all treasury shares held by TerraTech immediately
prior to the Effective Time shall cease to be outstanding, and shall
automatically be cancelled and retired without payment of any consideration
therefor, cash or otherwise, and cease to exist.
(g) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into, or
exercisable or exchangeable for, TerraTech Common Stock or Thermo Common Stock,
as the case may be), recapitalization or other like change without receipt of
consideration with respect to
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either the TerraTech Common Stock or the Thermo Common Stock occurring on or
after the date hereof and prior to the Effective Time. The Exchange Ratio shall
also be subject to adjustment as follows:
(i) In the event the average of the closing prices per share of Thermo
Common Stock as reported in the consolidated transaction reporting system
for each of the 20 consecutive trading days ending on the fifth trading day
prior to the Effective Time (the "Pre-Closing Average Price") multiplied by
the Exchange Ratio is less than $7.25, then the Exchange Ratio shall be
adjusted to be equal to $7.25 divided by the Pre-Closing Average Price,
subject to the provisions of Section 7.1(h).
(ii) In the event the Pre-Closing Average Price multiplied by the
Exchange Ratio is greater than $9.25, then the Exchange Ratio shall be
adjusted to be equal to $9.25 divided by the Pre-Closing Average Price.
1.7. SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Thermo Electron shall
authorize Boston EquiServe to act as the exchange agent (the "Exchange Agent")
in the Merger. Immediately following the Effective Time, Thermo Electron shall
deposit with the Exchange Agent, for the benefit of the holders of shares of
TerraTech Common Stock, for exchange in accordance with the provisions of this
Article I, certificates representing the shares of Thermo Common Stock issuable
pursuant to this Agreement in exchange for outstanding shares of TerraTech
Common Stock. The Thermo Common Stock into which TerraTech Common Stock shall be
converted pursuant to the Merger shall be deemed to have been issued at the
Effective Time.
(b) EXCHANGE PROCEDURES. As soon as practicable after, and in no event more
than three business days after, the Effective Time, Thermo Electron shall cause
the Exchange Agent to mail to each holder of record (as of the Effective Time)
of a certificate (a "Certificate" or the "Certificates") representing TerraTech
Common Stock (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall otherwise
be in such form and have such other provisions as Thermo Electron may reasonably
specify and as are reasonably acceptable to TerraTech, with the approval of the
Special Committee) and (ii) instructions for effecting the exchange of the
Certificates for certificates representing shares of Thermo Common Stock, as
provided herein. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal duly completed and
validly executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing shares of Thermo Common Stock equal to the Exchange Ratio
multiplied by the number of shares of TerraTech Common Stock represented by such
Certificate (rounded down to the nearest whole share), (y) any dividends or
other distributions to which such holder is entitled pursuant to Section 1.10
and (z) a check issued pursuant to Section 1.11 hereof for any fractional share
of Thermo Common Stock (the consideration specified in clauses (x), (y) and
(z) being collectively referred to herein as the "Merger Consideration"), and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of shares of TerraTech Common Stock which is not
registered in the transfer records of TerraTech as of the Effective Time, the
Merger Consideration may be paid in accordance with this Article I to a
transferee if the Certificate evidencing such shares is presented to the
Exchange Agent, accompanied by all documents required by law to evidence and
effect such transfer pursuant to this Section. Until so surrendered, each
outstanding Certificate will be deemed from and after the Effective Time, for
all corporate purposes, to evidence only the right to receive shares of Thermo
Common Stock equal to the Exchange Ratio for each share of TerraTech Common
Stock represented on such Certificate, and the other Merger Consideration.
(c) TRANSFERS OF OWNERSHIP. If payment of the Exchange Ratio is to be made
to any person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it will be a condition of such payment that the
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such payment will have paid to
Thermo Electron
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or any agent designated by it any transfer or other taxes required by reason of
payment to a person other than the registered holder of the Certificate
surrendered, or established to the satisfaction of Thermo Electron or any agent
designated by it that such tax has been paid or is not payable.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Thermo Electron, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares of
TerraTech Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(e) RESPONSIBILITY; TERM. During the term of its engagement, the Exchange
Agent shall be responsible for delivering certificates representing Thermo
Common Stock and the other Merger Consideration to the holders of properly
endorsed Certificates that are returned to the Exchange Agent. Promptly
following the date that is six months after the Effective Date, the Exchange
Agent shall, upon request by Thermo Electron, deliver to Thermo Electron all
cash, Certificates, certificates representing shares of Thermo Common Stock and
other documents in its possession relating to the transactions described in this
Agreement, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of a Certificate formerly representing shares of TerraTech Common Stock
may surrender such Certificate to Thermo Electron and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor the
Merger Consideration represented by such Certificate, without any interest
thereon.
1.8. NO FURTHER OWNERSHIP RIGHTS IN TERRATECH COMMON STOCK. The Thermo
Common Stock and cash, if any, delivered to the holders of TerraTech Common
Stock upon the surrender of shares of TerraTech Common Stock in accordance with
the terms hereof shall be deemed to have been delivered in full satisfaction of
all rights pertaining to such shares of TerraTech Common Stock.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall deliver the
certificates representing Thermo Common Stock and the other Merger Consideration
in respect of such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof; provided, however, that, as a
condition precedent to the payment thereof, the owner of such lost, stolen or
destroyed Certificates shall deliver a bond in such sum as Thermo Electron or
the Exchange Agent may reasonably direct as indemnity against any claim that may
be made against Thermo Electron or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed, unless Thermo
Electron waives such requirement in writing.
1.10. DIVIDENDS. No dividends or other distributions that are payable to the
holders of record of Thermo Common Stock as of a date on or after the Effective
Time shall be paid to the holders of TerraTech Common Stock entitled by reason
of the Merger to receive Thermo Common Stock until such holders surrender their
Certificates in accordance with Section 1.7(b) or provide an affidavit and
indemnity in accordance with Section 1.9. Upon such surrender, the Exchange
Agent or Thermo Electron (in the event that the Exchange Agent's term has
expired), shall pay or deliver to the persons in whose name the certificates
representing such Thermo Common Stock are issued any dividends or other
distributions that are payable to the holders of record of Thermo Common Stock
as of a date on or after the Effective Time and which were paid or delivered
between the Effective Time and the time of such surrender; provided that no such
person shall be entitled to receive any interest on such dividends or other
distributions.
1.11. FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Thermo Common Stock shall be issued to holders of TerraTech Common
Stock upon the surrender for exchange of Certificates, and such holders of
TerraTech Common Stock shall not be entitled to any voting rights, rights to
receive any dividends or distributions or other rights as a stockholder of
Thermo Electron with respect to any fractional shares of Thermo Common Stock
that would otherwise be issued to such holders of TerraTech Common Stock. In
lieu of any fractional shares of Thermo Common Stock that would otherwise be
issued, each holder of TerraTech Common Stock that would have been entitled to
receive a fractional share of Thermo Common Stock shall, upon proper surrender
of such person's Certificates, receive a cash payment (rounded to the nearest
cent) equal to the closing price per share of Thermo Common Stock as
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reported in the consolidated transaction reporting system on the trading day
immediately preceding the Closing Date, multiplied by the fraction of a share
that such holder of TerraTech Common Stock would otherwise be entitled to
receive.
1.12. CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of TerraTech shall be closed and no transfer of TerraTech Common Stock
shall thereafter be made. If, after the Effective Time, Certificates are
presented to Thermo Electron, they shall be canceled and exchanged for the
Merger Consideration in accordance with Article I.
1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of TerraTech and Merger Sub, the officers and directors of the
Surviving Corporation are fully authorized in the name of TerraTech and Merger
Sub or otherwise to take, and will take, all such lawful and necessary action,
so long as such action is consistent with this Agreement.
1.14 TAX TREATMENT. The Merger is intended to constitute a tax-free
reorganization under Section 368(a) of the Code. The parties hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Section 368(a) of
the Code and the regulations thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TERRATECH
TerraTech represents and warrants to Thermo Electron and Merger Sub as
follows:
2.1. ORGANIZATION OF TERRATECH. TerraTech and each of its subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or similar power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed by
TerraTech to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation or other legal entity in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
TerraTech. In this Agreement, the term "Material Adverse Effect" used in
reference to TerraTech means any event, change or effect, that is or is
reasonably likely to be, individually or in the aggregate with other events,
changes or effects, materially adverse to the financial condition, assets,
liabilities, results of operations or business of TerraTech and its
subsidiaries, taken as a whole.
2.2. TERRATECH CAPITAL STRUCTURE. The authorized capital stock of TerraTech
consists of 75,000,000 shares of Common Stock, par value $.10 per share, of
which there were 19,072,133 shares issued and outstanding as of October 2, 1999,
and 511,640 shares in treasury as of October 2, 1999. All outstanding shares of
TerraTech Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of TerraTech or any agreement or document
to which TerraTech is a party or by which it is bound. As of October 2, 1999, an
aggregate of 2,038,550 shares of TerraTech Common Stock, net of exercises, were
reserved for issuance to employees, consultants and non-employee directors
pursuant to the TerraTech Stock Option Plans, under which options were
outstanding for an aggregate of 1,628,725 shares as of such date. As of
October 2, 1999, an aggregate of 700,500 shares of TerraTech Common Stock were
reserved for issuance upon the exercise of warrants and an aggregate of
7,034,592 shares of TerraTech Common Stock were reserved for issuance upon the
conversion of the Convertible Debentures. All shares of TerraTech Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and non-assessable.
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2.3. AUTHORITY.
(a) TerraTech has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of TerraTech, subject only to the adoption of this
Agreement by TerraTech's stockholders and the filing and recording of the
Certificate of Merger pursuant to the DGCL. Under the DGCL, TerraTech's
stockholders may adopt this Agreement by vote of the holders of a majority of
the outstanding shares of TerraTech Common Stock. This Agreement has been duly
executed and delivered by TerraTech, and assuming the due authorization,
execution and delivery by Thermo Electron and Merger Sub, constitutes the valid
and binding obligation of TerraTech, enforceable in accordance with its terms.
The execution and delivery of this Agreement by TerraTech do not, and the
performance of this Agreement by TerraTech will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of TerraTech or (ii) subject
to obtaining the adoption by TerraTech's stockholders of this Agreement as
contemplated in Section 5.2 and compliance with the requirements set forth in
Section 2.3(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to TerraTech or any of its material subsidiaries
or by which its or their respective properties is bound, except, with respect to
clause (ii), for any such conflicts, violations, defaults or other occurrences
that would not have a Material Adverse Effect on TerraTech or the Surviving
Corporation.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to TerraTech in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Secretary of State of Delaware, (ii) the filing
by TerraTech and Thermo Electron of the Proxy Statement and the Registration
Statement (as defined in Section 5.1), respectively, with the U.S. Securities
and Exchange Commission ("SEC") in accordance with the Securities Act of 1933,
as amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws.
2.4. BOARD APPROVAL. The Board of Directors of TerraTech, upon
recommendation of the Special Committee that this Agreement, including the
Exchange Ratio, is fair to, and in the best interests of, the stockholders of
TerraTech (other than Thermo Electron), has, as of the date of this Agreement,
unanimously (i) adopted a resolution approving this Agreement and declaring its
advisability, (ii) determined that the Merger is fair to, and in the best
interests of, TerraTech and its stockholders, and (iii) determined to recommend
that the stockholders of TerraTech approve this Agreement.
2.5. FAIRNESS OPINION. The Special Committee has received an opinion from
AH&H dated October 19, 1999 that, as of such date, the consideration to be
received by TerraTech's stockholders in the Merger is fair, from a financial
point of view, to TerraTech's stockholders other than Thermo Electron.
2.6 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
supplied by TerraTech for inclusion in the Registration Statement (including any
information incorporated by reference in the Registration Statement from other
filings made by TerraTech with the SEC) shall not, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein not misleading. Other than with
respect to the information supplied by Thermo Electron and/or Merger Sub, the
Proxy Statement shall not, on the date the Proxy Statement is first mailed to
stockholders, at the time of the TerraTech Stockholders' Meeting (as defined in
Section 5.1(b)) or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading. The Proxy
Statement will comply (other than with respect to
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information relating to Thermo Electron and/or Merger Sub) as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB
Thermo Electron and Merger Sub, jointly and severally, represent and warrant
to TerraTech as follows:
3.1. ORGANIZATION. Thermo Electron is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, each has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted and
as proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Thermo Electron. In this
Agreement, the term "Material Adverse Effect" used in reference to Thermo
Electron means any event, change or effect, that is or is reasonably likely to
be, individually or in the aggregate with other events, changes or effects,
materially adverse to the financial condition, assets, liabilities, results of
operations or business of Thermo Electron and its subsidiaries, taken as a
whole.
3.2. AUTHORITY.
(a) Each of Thermo Electron and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Thermo Electron and Merger Sub,
subject only to the filing and recording of the Certificate of Merger pursuant
to the DGCL. This Agreement has been duly executed and delivered by each of
Thermo Electron and Merger Sub and, assuming the due authorization, execution
and delivery of this Agreement by TerraTech, this Agreement constitutes the
valid and binding obligation of each of Thermo Electron and Merger Sub,
enforceable in accordance with its terms. The execution and delivery of this
Agreement by each of Thermo Electron and Merger Sub do not, and the performance
of this Agreement by each of Thermo Electron and Merger Sub will not,
(i) conflict with or violate the Certificate of Incorporation or Bylaws of
Thermo Electron or the Certificate of Incorporation or Bylaws of Merger Sub or
of any material subsidiary, direct or indirect, of Thermo Electron (each, a
"Material Thermo Subsidiary"), (ii) subject to compliance with the requirements
set forth in Section 3.2(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Thermo Electron or any
Material Thermo Subsidiaries (including Merger Sub, but excluding TerraTech and
its wholly owned subsidiaries) or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair Thermo Electron's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Thermo
Electron or any Material Thermo Subsidiaries (including Merger Sub, but
excluding TerraTech and its wholly owned subsidiaries) pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Thermo Electron or any
Material Thermo Subsidiaries (including Merger Sub, but excluding TerraTech and
its wholly owned subsidiaries) is a party or by which Thermo Electron or any
Material Thermo Subsidiaries (including Merger Sub, but excluding TerraTech and
its wholly owned subsidiaries) or its or any of their respective properties are
bound or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on Thermo Electron.
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(b) All shares of Thermo Common Stock issuable in accordance with this
Agreement, and shares of Thermo Common Stock which will be subject to issuance
pursuant to the TerraTech Stock Option Plans, the TerraTech ESPP, the
Convertible Debentures and the warrants issued by TerraTech, each as assumed by
Thermo Electron pursuant to this Agreement will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of Thermo Electron or any other agreement or document to which Thermo Electron
is a party or by which it is bound.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Thermo Electron or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger with the
Secretary of State of Delaware, (ii) the filing of the Proxy Statement and the
Registration Statement (as defined in Section 5.1) with the SEC in accordance
with the Securities Act and the Exchange Act, and (iii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws.
3.3. CAPITALIZATION.
(a) The authorized capital stock of Thermo Electron consists of 350,000,000
shares of Thermo Common Stock, par value $1.00 per share, of which there were
158,236,781 shares issued and outstanding as of October 2, 1999, and 9,011,451
shares in treasury as of October 2, 1999, and 50,000 shares of preferred stock,
$100 par value per share, of which 40,000 shares have been designated Series B
Junior Participating Preferred Stock, none of which are issued and outstanding.
All of the outstanding shares of Thermo Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of Thermo
Electron or any agreement or document to which Thermo Electron is a party or by
which it is bound. As of October 2, 1999, an aggregate of 15,653,373 shares of
Thermo Common Stock, net of exercises, were reserved for issuance to employees,
consultants and non-employee directors pursuant to stock option plans maintained
by Thermo Electron, under which options are outstanding for an aggregate of
11,912,116 shares. As of October 2, 1999, an aggregate of 15,476,191 shares of
Thermo Common Stock were reserved for issuance upon the conversion of
convertible debentures issued by Thermo Electron. All shares of Thermo Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and non-assessable. There
are no bonds, debentures, notes or other indebtedness of Thermo Electron issued
and outstanding which have rights to vote in the election of directors of Thermo
Electron. Except as set forth in the Thermo Reports (as defined in Section 3.4)
filed prior to the date of this Agreement, there are no other material
outstanding options, warrants, equity securities, subscriptions, calls, rights,
commitments or agreements of any character to which Thermo Electron or any of
its subsidiaries is a party or by which it is bound, obligating Thermo Electron
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity securities of Thermo Electron or
obligating Thermo Electron to grant or enter into any such option, warrant,
equity security, call, right, commitment or agreement.
(b) Since July 3, 1999, there have been no material issuances of options,
warrants, equity securities, subscriptions, calls, rights, commitments or
agreements of any character to which Thermo Electron or any of its subsidiaries
is a party or by which it is bound, obligating Thermo Electron to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other equity securities of Thermo Electron or obligating Thermo
Electron to grant or enter into any such option, warrant, equity security, call,
right, commitment or agreement.
(c) As of the date of this Agreement, no Stock Acquisition Date or other
event that would result in the occurrence of a Distribution Date has occurred
(as such terms are defined in the Rights Agreement
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dated January 19, 1996, as amended, by and between Thermo Electron and
BankBoston, N.A. (the "Rights Agreement")), with respect to the rights to
purchase a unit consisting of one ten-thousandth of a share of Thermo Electron's
Series B Junior Participating Preferred Stock pursuant to the Rights Agreement.
3.4 REPORTS AND FINANCIAL STATEMENTS. Thermo Electron has filed all material
forms, reports and documents required to be filed by it with the SEC since
January 1, 1997. Thermo Electron has made available to TerraTech complete and
accurate copies, as amended or supplemented, of (a) its Annual Report on
Form 10-K for the fiscal year ended January 2, 1999 as filed with the SEC, and
(b) all other reports filed by Thermo Electron with the SEC under Sections 13 or
14 of the Exchange Act since January 2, 1999 (such reports are collectively
referred to herein as the "Thermo Reports"). No event has occurred since
July 3, 1999 which will be required to be reported by Thermo Electron on a
report required to be filed under Sections 13 or 14 of the Exchange Act. Without
limitation of the foregoing, since July 3, 1999, there has been no change in the
business, financial condition or results of operations of Thermo Electron that
has resulted or is reasonably likely to result in a Material Adverse Effect on
Thermo Electron. As of their respective dates, the Thermo Reports (i) complied
in all material respects with the requirements of the Exchange Act and the
applicable rules of the SEC thereunder and (ii) did not contain any 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, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of Thermo Electron
included in the Thermo Reports (in each case including the notes thereto)
(i) comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present, in all material respects, the
consolidated financial condition, results of operation and cash flows of Thermo
Electron as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent with the books and records of Thermo Electron.
There are no liabilities of Thermo Electron which are not disclosed in the
Thermo Reports which would be reasonably likely to have a Material Adverse
Effect on Thermo Electron.
3.5 MERGER SUB. Since the date of its incorporation, Merger Sub has not
engaged in any activities other than in connection with or as contemplated by
this Agreement.
3.6 TAX TREATMENT. As of the Effective Time, all representations contained
in the Representation Letters delivered to Hale and Dorr LLP pursuant to
Section 6.1(d) shall be true, correct and complete in all material respects.
Stockholders of TerraTech are each third party beneficiaries of this
Section 3.6 and may seek relief for breach hereof in their own names.
3.7 INFORMATION PROVIDED TO INVESTMENT BANKERS. To the knowledge of Thermo
Electron, the information provided by Thermo Electron and TerraTech to AH&H in
connection with the Merger does not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. For purposes of the foregoing sentence, any
projections or forward-looking statements shall not be deemed to be statements
of material facts; however, the projections were prepared in good faith and
based on assumptions that were reasonable at the time such projections were
prepared, given the information known by management at such time. Furthermore,
it is recognized that such projections and forward-looking statements do not
constitute any warranty as to the future performance of Thermo Electron or
TerraTech and that actual results may vary from projected results.
3.8 LITIGATION. Except as discussed in the Thermo Reports, there are no
suits, actions, arbitrations, demands, claims or proceedings pending, or to the
knowledge of Thermo Electron, threatened against Thermo Electron or any
subsidiary of Thermo Electron which, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Thermo Electron.
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3.9 COMPLIANCE WITH AGREEMENTS. The treatment provided for herein with
respect to outstanding Convertible Debentures, options (both under the TerraTech
Stock Option Plans and the TerraTech ESPP) and warrants of TerraTech is in
compliance with the applicable agreements and instruments governing such
securities. No consent or approval of the holders of such instruments is
required in connection with the transactions contemplated by this Agreement.
3.10 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Other than with
respect to the information supplied by TerraTech, the Registration Statement
shall not, at the time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements included therein not
misleading. The information supplied by Thermo Electron for inclusion in the
Proxy Statement (including any information incorporated by reference in the
Proxy Statement from other filings made by Thermo Electron with the SEC) shall
not, on the date the Proxy Statement is first mailed to stockholders, at the
time of the TerraTech Stockholders' Meeting or at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading. The Proxy Statement will comply (with respect to information
relating to Thermo Electron) as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS BY TERRATECH. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, TerraTech shall, except
for such actions which are contemplated by this Agreement or reasonably
appropriate in connection with the transactions contemplated by this Agreement,
and except as consented to by Thermo Electron, carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
4.2 CONDUCT OF BUSINESS BY THERMO ELECTRON. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Thermo Electron
(i) shall, except for such actions which are contemplated by this Agreement or
reasonably appropriate in connection with the transactions contemplated by this
Agreement, or which are undertaken in connection with the Merger or with the
reorganization of Thermo Electron and its subsidiaries as publicly announced or
as disclosed to AH&H prior to the date of this Agreement, carry on its business
materially in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted, pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings; and
(ii) shall not, and shall not permit any Material Thermo Subsidiary to, take any
action which would make any of the representations and warranties of Thermo
Electron contained herein untrue or cause Thermo Electron not to be in
compliance with any covenant set forth herein.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1. REGISTRATION STATEMENT; OTHER FILINGS. (a) As promptly as practicable
after the execution of this Agreement, TerraTech and Thermo Electron will
jointly prepare and file with the SEC a preliminary proxy statement (with
appropriate requests for confidential treatment) relating to the Merger and this
Agreement (such proxy statement, as amended or supplemented, the "Proxy
Statement"), and Thermo Electron will prepare and file with the SEC a
registration statement on Form S-4 (the "Registration Statement"), in which the
Proxy Statement shall be included as a prospectus. Thermo Electron will use
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as soon as practicable after such filing, and
will take all actions required under applicable federal or state securities laws
in connection with the issuance of Thermo Common Stock in the Merger. Each party
will notify the other promptly upon the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Proxy Statement, the Registration
Statement or any other filing or for additional information and will supply the
other party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement or the Merger. Whenever any event occurs that is
required to be set forth in an amendment or supplement to the Registration
Statement or the Proxy Statement, the relevant party will promptly inform the
other party of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, and/or mailing to stockholders of TerraTech,
such amendment or supplement.
(b) The information supplied by TerraTech for inclusion in the Registration
Statement (including any information incorporated by reference in the
Registration Statement from other filings made by TerraTech with the SEC) will
not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by TerraTech for inclusion in the Proxy Statement to be sent to the
stockholders of TerraTech in connection with the meeting of TerraTech's
stockholders to consider the adoption of this Agreement and approval of the
Merger (the "TerraTech Stockholders' Meeting") (including any information
incorporated by reference in the Proxy Statement from other filings made by
TerraTech with the SEC) will not, on the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to TerraTech
stockholders, at the time of the TerraTech Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading in light of
the circumstances under which they were made, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the TerraTech Stockholders' Meeting which has
become false or misleading.
(c) The information supplied by Thermo Electron and Merger Sub for inclusion
in the Registration Statement (including any information incorporated by
reference in the Registration Statement from other filings made by Thermo
Electron with the SEC) will not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by Thermo Electron and Merger Sub for
inclusion in the Proxy Statement to be sent to the stockholders of TerraTech in
connection with the TerraTech Stockholders' Meeting (including any information
incorporated by reference in the Proxy Statement from other filings made by
Thermo Electron with the SEC) will not, on the date the Proxy Statement (or any
amendment thereof or
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supplement thereto) is first mailed to TerraTech stockholders, at the time of
the TerraTech Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statements
made therein not false or misleading in light of the circumstances under which
they were made, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the TerraTech Stockholders' Meeting which has become false or
misleading.
(d) The Proxy Statement will include the recommendation of the Special
Committee in favor of approval of this Agreement (except that the Special
Committee may withdraw, modify or refrain from making such recommendation to the
extent that the Special Committee determines after consultation with outside
legal counsel that failure to do so would be inconsistent with the Special
Committee's fiduciary duties under applicable law).
(e) The Proxy Statement will include the recommendation of the Board of
Directors of TerraTech in favor of approval of this Agreement (except that the
Board of Directors of TerraTech may withdraw, modify or refrain from making such
recommendation to the extent that the Board determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's fiduciary duties under applicable law).
(f) To the extent that the Special Committee or the Board withdraws,
modifies or refrains from making their respective recommendations pursuant to
Sections 5.1(d) or (e) hereof, the Proxy Statement will reflect such action.
5.2. MEETING OF TERRATECH STOCKHOLDERS. Promptly after the date hereof,
TerraTech will take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to convene the TerraTech Stockholders'
Meeting to be held as promptly as practicable for the purpose of voting upon
this Agreement. Unless the Special Committee determines after consultation with
outside legal counsel that to do so would be inconsistent with the Board's or
the Special Committee's fiduciary duties under applicable law, TerraTech will
use its reasonable best efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement and the Merger, and will take all other
action necessary or advisable to secure the vote or consent of its stockholders
required by the DGCL to obtain such approvals. Thermo Electron shall vote, or
cause to be voted, all of the TerraTech Common Stock then owned by it and any of
its subsidiaries in favor of the approval of this Agreement and the Merger.
5.3. ACCESS TO INFORMATION. Subject to applicable legal restrictions, each
of the parties hereto will afford the other (including, in the case of
TerraTech, the Special Committee) and each of their respective accountants,
counsel and other representatives reasonable access during normal business hours
to the properties, books, records and personnel of each of them during the
period prior to the Effective Time to obtain all information concerning the
their respective businesses, including the status of their respective product
development efforts, properties, results of operations and personnel, as each of
them may reasonably request. Each of the parties hereto agrees that it will, and
will cause its representatives and agents to, keep all such information
confidential and will not, and will cause its representatives or agents not to,
use any information obtained pursuant to this Section 5.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, none of the parties hereto shall be
required to keep confidential any information (i) which is or becomes generally
available to the public, other than by wrongful disclosure by the disclosing
party in violation of this Agreement or (ii) which becomes available to the
disclosing party on a nonconfidential basis from a source other than the
nondisclosing party or any officer or director of such party.
5.4. PUBLIC DISCLOSURE. Thermo Electron and TerraTech will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and will not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange. Promptly upon the
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execution hereof, the parties shall jointly make a press release with respect to
the transactions contemplated by this Agreement, in form reasonably satisfactory
to the Special Committee, and TerraTech shall, within five days after the
execution hereof, file with the SEC a Current Report on Form 8-K, which shall
attach as an exhibit this Agreement.
5.5. LEGAL REQUIREMENTS. Subject to the terms of this Agreement, each of
Thermo Electron, Merger Sub and TerraTech will take all reasonable actions
necessary or desirable to comply promptly with all legal requirements that may
be imposed on them with respect to the consummation of the transactions
contemplated by this Agreement (including furnishing all information required in
connection with approvals of or filings with any Governmental Entity, and
including using its reasonable best efforts to defend any litigation prompted
hereby) and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon any of
them or their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement.
5.6. NOTIFICATION OF CERTAIN MATTERS. Subject to the terms of this
Agreement, Thermo Electron and Merger Sub will give prompt notice to TerraTech,
and TerraTech will give prompt notice to Thermo Electron, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (a) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time, or (b) any material failure of
Thermo Electron and Merger Sub or TerraTech, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. From the date of this Agreement until the Effective Time, Thermo
Electron will give prompt notice to TerraTech (including, without limitation,
the Special Committee) of any written offers or indications of interest it
receives from a prospective purchaser of any material properties or assets of
TerraTech or its subsidiaries, which set forth a proposed purchase price greater
than $3 million or in which the book value of the assets being sold is greater
than $3 million, other than sales of assets and services in the ordinary course
of business. Notwithstanding the above, the delivery of any notice pursuant to
this section will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice or the conditions to such party's obligation
to consummate the Merger.
5.7. BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Thermo Electron and TerraTech under this Agreement, each of
the parties to this Agreement will use its reasonable best efforts to effectuate
the Merger and the other transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to closing under this Agreement, it being
understood that such efforts shall not include any obligation to settle any
litigation prompted hereby. Subject to the terms hereof, each party hereto, at
the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
the transactions contemplated hereby.
5.8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS; RESERVATION OF SHARES.
(a) At the Effective Time, each outstanding option to purchase shares of
TerraTech Common Stock (each a "TerraTech Stock Option") under the TerraTech
Stock Option Plans, whether or not exercisable, will be assumed by Thermo
Electron. Each TerraTech Stock Option so assumed by Thermo Electron under this
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable TerraTech Stock Option Plan immediately
prior to the Effective Time (including, without limitation, any repurchase
rights), except that (i) each TerraTech Stock Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of whole
shares of Thermo Common Stock equal to the product of the number of shares of
TerraTech Common Stock that were issuable upon exercise of such TerraTech Stock
Option immediately prior to the Effective Time multiplied by the Exchange Ratio
and (ii) the per share exercise price for the shares of Thermo Common Stock
issuable upon exercise of such assumed TerraTech Stock Option will be equal to
the quotient determined by
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dividing the exercise price per share of TerraTech Common Stock at which such
TerraTech Stock Option was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded up to the nearest whole cent. After the Effective
Time, Thermo Electron will issue to each holder of an outstanding TerraTech
Stock Option a notice describing the foregoing assumption of such TerraTech
Stock Option by Thermo Electron.
(b) At the Effective Time, each outstanding option to purchase shares of
TerraTech Common Stock (each, a "TerraTech ESPP Stock Option") under the
TerraTech ESPP will be assumed by Thermo Electron. Each TerraTech ESPP Stock
Option so assumed by Thermo Electron will continue to have, and be subject to,
the same terms and conditions as are set forth in the TerraTech ESPP immediately
prior to the Effective Time except that (i) the assumed option shall be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Thermo Common Stock equal to the product of the number
of shares of TerraTech Common Stock that would have been issuable upon exercise
of such TerraTech ESPP Stock Option multiplied by the Exchange Ratio; (ii) the
purchase price per share of Thermo Common Stock shall be the lower of
(A) eighty-five percent (85%) of (x) the per-share Market Value of TerraTech
Common Stock on the Grant Date divided by (y) the Exchange Ratio, with the
resulting price rounded up to the nearest whole cent, and (B) eighty-five
percent (85%) of the Market Value of Thermo Common Stock as of the Exercise
Date; and (iii) the $25,000 limit under Section 9.2(i) of the TerraTech ESPP
shall be applied by taking into account Thermo Electron's assumption of the
TerraTech ESPP Stock Options in accordance with the Code and applicable
regulations. For purposes of this subsection, "Market Value," "Grant Date," and
"Exercise Date" shall have the meaning given them in the TerraTech ESPP.
(c) Thermo Electron will reserve sufficient shares of Thermo Common Stock
for issuance under this Section 5.8 and pursuant to conversion of the
Convertible Debentures and the exercise of warrants issued by TerraTech.
5.9. THERMO ELECTRON FORM S-8. Thermo Electron agrees to file a registration
statement on Form S-8 or, if possible, an amendment to Thermo Electron's then
effective registration statement on Form S-8, for the shares of Thermo Common
Stock issuable with respect to the assumed TerraTech Stock Options and the
assumed TerraTech ESPP Stock Options within five (5) business days of the
Effective Time, and shall keep such registration statement effective for so long
as any such options remain outstanding.
5.10. THERMO ELECTRON FORM S-3. Thermo Electron agrees to file, promptly
after the date of this Agreement, a registration statement on Form S-3 to cover
the shares of Thermo Common Stock issuable upon the exercise of the warrants
issued by TerraTech (the "Warrant Share S-3"), and shall keep such Warrant Share
S-3 effective until all of the shares of Thermo Common Stock covered thereby
have been sold pursuant thereto or until, by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect, the shares of Thermo Common
Stock covered thereby are no longer required to be registered for the public
sale thereof by the holders of such securities or the warrants have expired by
their terms.
5.11. INDEMNIFICATION; INSURANCE.
(a) The Certificate of Incorporation and Bylaws of the Surviving Corporation
will contain the provisions with respect to indemnification and elimination of
liability for monetary damages set forth in the Certificate of Incorporation and
Bylaws of TerraTech, which provisions will not be amended, repealed or otherwise
modified for a period of six (6) years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who, as of the
date hereof and at any time from the date hereof to the Effective Time, were
directors or officers of TerraTech, unless such modification is required by law.
The Surviving Corporation shall, and Thermo Electron will cause the Surviving
Corporation to, fulfill and honor in all respects the indemnification
obligations of TerraTech pursuant to the provisions of the Certificate of
Incorporation and the Bylaws of TerraTech as in effect on the date of this
Agreement.
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(b) For a period of six (6) years after the Effective Time, Thermo Electron
shall cause the Surviving Corporation to, either directly or through
participation in Thermo Electron's umbrella policy, maintain in effect a
directors' and officers' liability insurance policy covering those TerraTech
directors and officers currently covered by Thermo Electron's liability
insurance policy with coverage no less favorable in amount and scope than
existing coverage for such TerraTech directors and officers (which coverage may
be an endorsement extending the period in which claims may be made under such
existing policy); provided, however, that in no event shall the Surviving
Corporation be required to expend to maintain or procure insurance coverage
pursuant to this Section 5.11, directly or through participation in Thermo
Electron's policy, an amount per annum in excess of 175% of the current annual
premiums, as adjusted for inflation each year, allocable and payable by
TerraTech (the "Maximum Premium") with respect to such insurance, or, if the
cost of such insurance exceeds the Maximum Premium, the maximum amount of
coverage that can be purchased or maintained for the Maximum Premium.
(c) TerraTech shall, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, indemnify and hold
harmless Polyvios Vintiadis ("Vintiadis") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in
Vintiadis' capacity as a director (including, without limitation, as a member of
the Special Committee) or fiduciary of TerraTech (including, without limitation,
in connection with the transactions contemplated by this Agreement) occurring
on, before or after the Effective Time (or, if this Agreement is terminated
without the Merger becoming effective, occurring on, before or after the date of
such termination), until the expiration of the statute of limitations relating
thereto (and shall pay any expenses in advance of the final disposition of such
action or proceeding to Vintiadis to the fullest extent permitted under
applicable law, upon receipt from Vintiadis of an undertaking (which need not be
secured or subject to a bond or other requirement) to repay any advanced
expenses if it shall ultimately be determined that Vintiadis is not entitled to
be indemnified against such expenses). If the Merger becomes effective, Thermo
Electron shall be jointly and severally responsible, to the fullest extent
permitted by applicable law (it being understood that applicable law may permit
Thermo Electron to indemnify or advance expenses to Vintiadis under
circumstances in which TerraTech could not do so), for the indemnification and
advancement of expenses obligations provided for in the first sentence of this
Section 5.11(c). If the Merger does not become effective, Thermo Electron shall
have the same responsibilities set forth in the immediately preceding sentence,
except that Thermo Electron shall have no responsibility for indemnifying or
advancing expenses to Vintiadis with respect to matters that do not arise out of
or pertain to the work of the Special Committee, this Agreement or the
transactions contemplated hereby. In the event of any claim, action, suit,
proceeding or investigation covered by this Section 5.11(c), (i) TerraTech,
Thermo Electron and the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of counsel selected by Vintiadis, promptly after
statements therefor are received, and (ii) TerraTech, Thermo Electron and the
Surviving Corporation shall cooperate in the defense of any such matter;
provided, however, that neither TerraTech nor Thermo Electron nor the Surviving
Corporation shall be liable for any settlement effected without Thermo
Electron's prior written consent (such consent not to be unreasonably withheld
or delayed); and provided, further, that, in the event any claim for
indemnification is asserted or made within the period prior to the expiration of
the applicable statute of limitations, all rights to indemnification in respect
of such claim shall continue until the disposition of such claim. In connection
with Thermo Electron or the Surviving Corporation making any payment or
advancing any funds pursuant to this Section 5.11(c), Thermo Electron or the
Surviving Corporation, as the case may be, shall be entitled to require
Vintiadis to use commercially reasonable efforts, at the cost and expense of
Thermo Electron and the Surviving Corporation, to cause Thermo Electron or the
Surviving Corporation, as the case may be, to be subrogated to Vintiadis' rights
under any insurance coverage maintained by the Surviving Corporation, Thermo
Electron or any of their respective affiliates with respect to the underlying
subject matter of, and to the extent of, such payment or advance.
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(d) In the event TerraTech, Thermo Electron or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers all or
substantially all of its properties or assets to any person, then, and in each
such case, proper provision shall be made so that the successors and assigns of
TerraTech, Thermo Electron and the Surviving Corporation, as the case may be,
shall assume the obligations set forth in this Section 5.11.
(e) Heirs, representatives and estates of the officers and directors of
TerraTech (including, without limitation, Vintiadis) shall have the right to
enforce the obligations arising under this Section 5.11.
(f) The rights of the officers and directors of TerraTech (including,
without limitation, Vintiadis) under this Section 5.11 are in addition to any
rights of such persons under separate indemnification agreements any such
persons may have with TerraTech and/or Thermo Electron, under the Certificate of
Incorporation or Bylaws of TerraTech or Thermo Electron or otherwise.
5.12. DEFERRED COMPENSATION PLAN. Subject to obtaining the consents of the
affected participants, at the Effective Time, the TerraTech Deferred
Compensation Plan for Directors (the "Deferred Compensation Plan") will
terminate, and TerraTech will distribute to each participant the sum in cash
equal to the balance of stock units credited to his or her deferred compensation
account under the Deferred Compensation Plan as of the Effective Time multiplied
by the Exchange Ratio.
5.13 COMPLIANCE BY MERGER SUB. Thermo Electron shall cause Merger Sub to
timely perform and comply with all of its obligations under or related to this
Agreement.
5.14 TAX TREATMENT. From and after the date of this Agreement until the
Effective Time, neither Thermo Electron nor Merger Sub will take, or permit any
of Thermo Electron's direct or indirect subsidiaries to take, any action that
would cause the Merger not to be a tax-free reorganization under Section 368(a)
of the Code. Notwithstanding anything in this Agreement to the contrary, this
Section 5.14 shall survive the Closing and shall apply without regard to any
disclosure made on behalf of Thermo Electron or Merger Sub. Stockholders of
TerraTech are each third party beneficiaries of this Section 5.14 and may seek
relief for breach hereof in their own names.
5.15 NYSE LISTING. Thermo Electron shall use its best efforts to cause all
shares of Thermo Common Stock issuable to stockholders of TerraTech, and all
shares of Thermo Common Stock which will be subject to issuance pursuant to the
TerraTech Stock Option Plans, the TerraTech ESPP, the Convertible Debentures and
the warrants issued by TerraTech, each as assumed by Thermo Electron pursuant to
this Agreement, to be authorized for listing on the New York Stock Exchange.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(b) REGISTRATION STATEMENTS. The Registration Statement and the Warrant
Share S-3 shall have been declared effective by the SEC and no stop order
suspending the effectiveness of the Registration Statement or the Warrant Share
S-3 shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
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(c) NYSE LISTING. The Thermo Common Stock issuable to holders of TerraTech
Common Stock and all shares of Thermo Common Stock which will be subject to
issuance pursuant to the TerraTech Stock Option Plans, the TerraTech ESPP, the
Convertible Debentures and the warrants issued by TerraTech, each as assumed by
Thermo Electron pursuant to this Agreement, shall have been authorized for
listing on the New York Stock Exchange.
(d) TAX OPINION. TerraTech and Thermo Electron shall have received an
opinion from Hale and Dorr LLP, dated the Closing Date, in substantially the
form attached to this Agreement, regarding certain tax matters relating to the
transactions contemplated under this Agreement, including that the Merger will
be treated for federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Code, in form and substance reasonably
satisfactory to TerraTech (including the Special Committee) and Thermo Electron.
Such opinion shall be based upon factual representations (reasonably
satisfactory to TerraTech (including the Special Committee) and Thermo Electron)
from TerraTech and Thermo Electron contained in certain letters to be delivered
to Hale and Dorr LLP (the "Representation Letters").
(e) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote under the DGCL by the stockholders of TerraTech.
(f) RIGHTS AGREEMENT. No Stock Acquisition Date or other event that would
result in the occurrence of a Distribution Date shall have occurred (as such
terms are defined in the Rights Agreement), with respect to the rights to
purchase a unit consisting of one ten-thousandth of a share of Thermo Electron's
Series B Junior Participating Preferred Stock pursuant to the Rights Agreement.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF TERRATECH. The obligations of
TerraTech to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by TerraTech
(provided that the Special Committee shall have consented in writing to any such
waiver):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Thermo Electron and Merger Sub contained in this Agreement shall be true and
correct in all material respects (other than those already qualified by a
materiality standard, which shall be true and correct in all respects) on and as
of the Effective Time, except for changes expressly contemplated by this
Agreement and except for those representations and warranties that address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Effective Time; and TerraTech shall have received a certificate to such
effect signed on behalf of Thermo Electron by the President, Chief Executive
Officer or Vice President of Thermo Electron.
(b) AGREEMENTS AND COVENANTS. Thermo Electron and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and TerraTech shall have received a certificate to such
effect signed on behalf of Thermo Electron by the President, Chief Executive
Officer or Vice President of Thermo Electron.
(c) FAIRNESS OPINION. At the time of mailing of the Proxy Statement to the
stockholders of TerraTech and at the Effective Time, AHH shall have reaffirmed
orally the fairness opinion previously prepared and delivered by it to the
Special Committee and AHH shall not have withdrawn such opinion.
(d) STATE SECURITIES LAWS. Any and all necessary state securities approvals
for the issuance of Thermo Common Stock pursuant to this Agreement shall have
been obtained.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction
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at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by Thermo Electron:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
TerraTech contained in this Agreement shall be true and correct in all material
respects (other than those already qualified by a materiality standard, which
shall be true and correct in all respects) on and as of the Effective Time,
except for changes contemplated by this Agreement and except for those
representations and warranties that address matters only as of a particular date
(which shall remain true and correct as of such particular date), with the same
force and effect as if made on and as of the Effective Time, except, in all such
cases, where the failure to be so true and correct would not have a Material
Adverse Effect on TerraTech; and Thermo Electron and Merger Sub shall have
received a certificate to such effect signed on behalf of TerraTech by the
President, Chief Executive Officer or Vice President of TerraTech.
(b) AGREEMENTS AND COVENANTS. TerraTech shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Thermo Electron shall have received a certificate to such effect
signed on behalf of TerraTech by the President, Chief Executive Officer or Vice
President of TerraTech.
(c) NO WITHDRAWAL OF SPECIAL COMMITTEE RECOMMENDATION. The Special Committee
shall not have withdrawn its recommendation to the Board of Directors of
TerraTech as set forth in Section 2.4 hereof.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of this Agreement
by the stockholders of TerraTech:
(a) by mutual written consent duly authorized by the Boards of Directors of
Merger Sub and TerraTech (upon approval of the Special Committee);
(b) by either TerraTech (at the direction of the Special Committee) or
Merger Sub if the Merger shall not have been consummated by March 31, 2000;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date if such action or failure to act constitutes a
breach of this Agreement;
(c) by either TerraTech (upon approval of the Special Committee) or Merger
Sub if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action (an "Order"), in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree or ruling is final and nonappealable;
(d) by either TerraTech (upon approval of the Special Committee) or Merger
Sub if the required approval of the stockholders of TerraTech contemplated by
this Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of stockholders duly convened
therefor or at any adjournment thereof (provided that the right to terminate
this Agreement under this Section 7.1(d) shall not be available to TerraTech
where the failure to obtain stockholder approval of TerraTech shall have been
caused by the action or failure to act of TerraTech in breach of this Agreement
and the right to terminate this Agreement under this Section 7.1(d) shall not be
available to Merger Sub where the failure to obtain the requisite vote by the
stockholders of TerraTech shall have been caused by the failure of Thermo
Electron or any direct or indirect subsidiary of Thermo Electron (whether or not
wholly-owned) to vote its shares of TerraTech Common Stock in favor of the
Merger and this Agreement);
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<PAGE>
(e) by TerraTech if the Special Committee determines after consultation with
outside legal counsel that failure to do so would be inconsistent with the
Board's or the Special Committee's fiduciary duties under applicable law;
(f) by TerraTech (upon approval of the Special Committee), upon a breach of
any representation, warranty, covenant or agreement on the part of Thermo
Electron or Merger Sub set forth in this Agreement, if (i) as a result of such
breach the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be
satisfied as of the time of such breach and (ii) such breach shall not have been
cured by Thermo Electron or Merger Sub within ten (10) business days following
receipt by Thermo Electron of written notice of such breach from TerraTech;
(g) by Merger Sub, upon a breach of any representation, warranty, covenant
or agreement on the part of TerraTech set forth in this Agreement, if (i) as a
result of such breach the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach and
(ii) such breach shall not have been cured by TerraTech within ten
(10) business days following receipt by TerraTech of written notice of such
breach from Merger Sub; or
(h) by Merger Sub at the direction of Thermo Electron if, as a result of an
adjustment in the Exchange Ratio pursuant to Section 1.6(g) hereof, Thermo
Electron would be required to issue more than 1,800,000 shares of Thermo Common
Stock (exclusive of shares issuable upon the exercise of options or warrants or
the conversion of convertible debentures outstanding on the date of this
Agreement; and subject to adjustment for any stock split, reverse stock split,
stock dividend, recapitalization or other like change).
7.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice by the terminating party to the other parties hereto
(or, in the case of a termination pursuant to Section 7.1(f) or 7.1(g), the
expiration of the ten business day period referred to therein). In the event of
the termination of this Agreement as provided in Section 7.1, this Agreement
shall be of no further force or effect, except that (i) the confidentiality
obligations of each party hereto contained in Section 5.3, the obligations
contained in Section 5.11, and the provisions of Sections 7.2, 7.3 and 8.1 shall
survive any such termination and (ii) nothing herein shall relieve any party
from liability for any willful and material breach of this Agreement.
7.3. FEES AND EXPENSES. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, whether or not the Merger is consummated.
7.4. AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto; provided, however, that TerraTech may
not amend this Agreement without the approval of the Special Committee.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein; provided, however, that TerraTech may not take
any such actions without the approval of the Special Committee. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
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<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TerraTech, Thermo Electron and Merger Sub contained in this
Agreement (other than those contained in Section 3.6) shall terminate at the
Effective Time, and only the covenants that by their terms, or as the context
requires, survive the Effective Time shall survive the Effective Time.
8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Thermo Electron or Merger Sub, to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: President
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
with a copy (which shall not constitute notice to Thermo Electron or Merger
Sub) to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: General Counsel
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
(b) if to TerraTech, to:
Thermo TerraTech Inc.
85 First Avenue
Waltham, MA 02451
Attention: President
Telephone: (781) 370-1640
Facsimile: (781) 370-1615
with a copy (which shall not constitute notice to TerraTech) to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: William P. Gelnaw, Jr., Esq.
Telephone: (617) 248-5000
Facsimile: (617) 248-4000
8.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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<PAGE>
8.4. ENTIRE AGREEMENT. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein (a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, with the exception of the agreements relating to the Convertible
Debentures, the TerraTech ESPP, the TerraTech Stock Option Plans, the warrants
issued by TerraTech, the Deferred Compensation Plan, and any agreements relating
to indemnification of members of the Board; and (b) are not intended to confer
upon any other person any rights or remedies hereunder, except as set forth or
otherwise contemplated herein. Notwithstanding the foregoing, Section 5.11
hereof is intended to be for the benefit of, and may be enforced by, those
individuals who, as of the date hereof and at any time from the date hereof to
the Effective Time, were directors or officers of TerraTech.
8.5. SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.6. OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, regardless of the
laws that might otherwise govern under applicable principles of conflicts of law
thereof, except to the extent that the DGCL applies.
8.8. ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties.
8.9 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
[The rest of this page intentionally left blank.]
A-22
<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub and TerraTech have caused
this Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
THERMO ELECTRON CORPORATION
By: /s/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
TTT ACQUISITION CORPORATION
By: /s/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: PRESIDENT
THERMO TERRATECH INC.
By: /s/ KENNETH J. APICERNO
-----------------------------------------
Name: Kenneth J. Apicerno
Title: TREASURER
</TABLE>
A-23
<PAGE>
H&D Draft of 10/18/99
[Hale and Dorr LLP letterhead]
October [ ], 1999
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Thermo TerraTech Inc.
85 First Avenue
Waltham, MA 02451
Re: Merger Pursuant to Agreement and Plan of Merger by and Among
Thermo Electron Corporation, TT Acquisition Corporation, and Thermo
TerraTech Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of October [ ], 1999 (the "Merger Agreement"), by and
among Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"),
TT Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of Thermo Electron ("Merger Sub"), and Thermo TerraTech Inc., a Delaware
corporation ("TerraTech"). Pursuant to the Merger Agreement, Merger Sub will
merge with and into TerraTech (the "Merger"). Except as otherwise provided,
capitalized terms not defined herein have the meanings set forth in the Merger
Agreement and the exhibits thereto or in the letters delivered to Hale and Dorr
LLP by Thermo Electron and TerraTech containing certain representations of
Thermo Electron and TerraTech relevant to this opinion (the "Representation
Letters"). All section references, unless otherwise indicated, are to the United
States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Thermo Electron in the Merger, and for
purposes of rendering this opinion, we have examined and relied upon the
Registration Statement, the Merger Agreement and the exhibits thereto, the
Representation Letters, and such other documents as we considered relevant to
our analysis. In our examination of documents, we have assumed the authenticity
of original documents, the accuracy of copies, the genuineness of signatures,
and the legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
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<PAGE>
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you or your
shareholders of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
TerraTech that are subject to special tax rules (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who own their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction, stockholders who do not
own their stock as a capital asset and stockholders who have acquired their
stock upon the exercise of employee options or otherwise as compensation), and
we express no opinion regarding the tax consequences of the Merger arising in
connection with the ownership of options or warrants for TerraTech stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Thermo Electron, Merger Sub, or
TerraTech as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of TerraTech
upon the exchange of TerraTech stock solely for shares of Thermo Electron
stock in the Merger;
4. Cash received by the shareholders of TerraTech in lieu of fractional
shares of Thermo Electron stock will be treated as received as a
distribution in redemption of such fractional shares, subject to the
provisions of Section 302, as if such fractional shares had been issued in
the Merger and then redeemed by Thermo Electron;
5. The tax basis of the shares of Thermo Electron stock received by the
shareholders of TerraTech in the Merger will be equal to the tax basis of
the shares of TerraTech stock exchanged therefor in the Merger, reduced by
any basis allocable to a fractional share of Thermo Electron stock treated
as sold or exchanged under Section 302; and
6. The holding period for the shares of Thermo Electron stock received
by the shareholders of TerraTech will include the holding period for the
shares of TerraTech stock exchanged therefor in the Merger, provided that
the shares of TerraTech stock are held as capital assets at the Effective
Time.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, other than
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<PAGE>
you and your shareholders, and may not be made available to any other person or
entity without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name in the Registration Statement in connection with references
to this opinion and the tax consequences of the Merger. In giving this consent,
however, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
HALE AND DORR LLP
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<PAGE>
APPENDIX B
ADAMS, HARKNESS & HILL LETTERHEAD
October 19, 1999
Special Committee of the Board of Directors
Thermo TerraTech Inc.
81 Wyman Street
Waltham, MA 02254
Dear Sirs:
The Special Committee of the Board of Directors (the "Special Committee") of
Thermo TerraTech Inc. ("TTT" or the "Company") has requested our opinion (the
"Opinion"), as investment bankers, as to the fairness, from a financial point of
view, to the shareholders of the Company other than Thermo Electron Corporation
("Thermo Electron"), of the consideration to be received by such shareholders,
in the form of shares of the common stock, par value $1.00 per share, of Thermo
Electron ("Thermo Common Stock"), in connection with the proposed acquisition
(the "Transaction") of the Company by Thermo Electron, pursuant to an Agreement
and Plan of Merger to be dated as of October 19, 1999 (the "Merger Agreement"),
by and among Thermo Electron, TT Acquisition Corporation, a wholly-owned
subsidiary of Thermo Electron ("Merger Sub"), and the Company. Adams,
Harkness & Hill, Inc. ("AH&H"), as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In the Transaction and pursuant to the Merger Agreement, subject to Company
shareholder approval, each share of the Company's common stock, par value $.10
per share (the "Common Shares"), issued and outstanding immediately prior to the
effective date of the Transaction, will be converted into the right to receive
0.4 of a share of Thermo Common Stock at or subsequent to the effective date of
the Transaction (the "Exchange Ratio"), subject to adjustment as follows:
- If the average of the closing prices per share of the Thermo Common Stock
as reported in the consolidated transaction reporting system for each of
the 20 consecutive trading days ending on the fifth trading day prior to
the effective time of the Merger (the "Pre-Closing Average Price")
multiplied by the Exchange Ratio is less than $7.25, the Exchange Ratio
will be adjusted to become equal to a fraction, the numerator of which is
$7.25 and the denominator of which is the Pre-Closing Average Price;
PROVIDED, HOWEVER, that if the Exchange Ratio, as so adjusted, would
result in the aggregate issuance by Thermo Electron in the Transaction of
greater than 1,800,000 shares of Thermo Common Stock, then Thermo Electron
may elect to terminate the Merger Agreement.
- If the product of the Pre-Closing Average Price multiplied by the Exchange
Ratio is greater than $9.25, the Exchange Ratio will be adjusted to become
equal to a fraction, the numerator of which is $9.25 and the denominator
of which is the Pre-Closing Average Price.
In developing our Opinion, we have, among other activities: (i) reviewed the
Company's Annual Reports, Reports on Form 10-K and related financial information
for the three fiscal years ended April 3, 1999, and the Company's Report on
Form 10-Q and the related unaudited financial information for the three month
period ending July 3, 1999 (the "Public Historical Financial Information");
(ii) reviewed Thermo Electron's Annual Reports, Reports on Form 10-K and related
financial information for the three fiscal years ended January 2, 1999, and
Thermo Electron's Reports on Form 10-Q and the related unaudited financial
information for the three month periods ending April 3, 1999 and July 3, 1999;
(iii) analyzed certain internal financial statements and other internal
financial and operating data and
B-1
<PAGE>
business plans prepared by the management of the Company, including five-year
financial budgets (the "Budgets"); (iv) conducted due diligence discussions with
members of senior management of the Company and Thermo Electron, and discussed
with members of senior management of the Company and Thermo Electron their views
regarding the business and prospects of the Company and Thermo Electron and
financial and operating benefits arising from the Transaction; (v) reviewed the
historical market prices and trading activity for the Common Shares and compared
them with that of certain publicly traded companies we deemed to be relevant and
comparable to the Company; (vi) compared the results of operations of the
Company with those of certain companies we deemed to be relevant and comparable
to the Company; (vii) compared the financial terms of the Transaction with the
financial terms of certain other mergers and acquisitions we deemed to be
relevant and comparable to the Transaction; (viii) reviewed the Merger
Agreement; and (ix) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
we deemed necessary, including our assessment of general economic, monetary,
market and industry conditions. In support of our assessment of environmental
industry conditions, we engaged and consulted Environmental Business
International, Inc. ("EBI"), a leading strategic consulting firm serving the
environmental services industry. EBI reviewed the Public Historical Financial
Information, the Budgets, and certain financial and industry analyses prepared
by AH&H, and provided to us its professional opinion that the Budgets had been
prepared on a reasonable basis, the analysis, procedures and industry
assessments performed by AH&H were sufficiently comprehensive, and the major
industry-related factors affecting TTT had been duly considered by AH&H.
Our Opinion as expressed herein is limited to the fairness, from a financial
point of view, of the proposed consideration and does not address the Company's
underlying business decision to engage in the Transaction. Our Opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote on the Transaction. We are expressing no opinion as to
the value of Common Shares at the time of our analysis or at any time prior to
and including the effective date of the Transaction. In connection with our
review and in arriving at our Opinion, we have not independently verified any
information received from the Company, have relied on such information, and have
assumed that all such information is complete and accurate in all material
respects. With respect to any internal forecasts or budgets reviewed relating to
the prospects of the Company, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance and
cash requirements of the Company. Our Opinion is rendered on the basis of
securities market conditions prevailing as of the date hereof and on the
conditions and prospects, financial and otherwise, of the Company as known to us
on the date hereof. We have not conducted, nor have we received copies of, any
independent valuation or appraisal of any of the assets of the Company. In
addition, we have assumed, with your consent, that the terms set forth in the
executed Merger Agreement will not differ materially from the proposed terms
provided to us in the October 19, 1999 draft Merger Agreement.
AH&H also has been engaged by Special Committees of the Boards of Directors
of each of Randers Killam Group, Inc. ("RGI") and ThermoRetec Corporation
("Retec") to develop opinions as to the fairness to the holders of common stock
of RGI and Retec other than Thermo Electron and TTT, respectively, of the
consideration to be received by such holders in separate transactions involving
Thermo Electron.
It is understood that this letter is for the information of the Special
Committee and the Board of Directors of the Company and may not be used for any
other purpose without our prior written consent, except that this opinion may be
included in its entirety in any filing made by the Company with the Securities
and Exchange Commission with respect to the transactions contemplated by the
Merger Agreement.
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<PAGE>
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration to be received in the Transaction by the
shareholders of the Company other than Thermo Electron is fair, from a financial
point of view, to such shareholders.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
By: /s/ James A. Simms
James A. Simms
Group Head, Mergers & Acquisitions
B-3
<PAGE>
APPENDIX C
ANNUAL REPORT ON FORM 10-K OF THERMO TERRATECH
FOR THE FISCAL YEAR ENDED APRIL 3, 1999
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<PAGE>
APPENDIX C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended April 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925807
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
81 Wyman Street, P.O. Box 9046 02454-9046
Waltham, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------------- -----------------------------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of April 30, 1999, was approximately $9,493,000.
As of April 30, 1999, the Registrant had 19,049,354 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Fiscal 1999 Annual Report to Shareholders for the
year ended April 3, 1999, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on September 16, 1999, are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Thermo TerraTech Inc. (the Company or the Registrant) provides industrial
outsourcing services and manufacturing support encompassing a broad range of
specializations. The Company operates in four segments: environmental-liability
management, engineering and design, laboratory testing, and metal treating.
The Environmental-liability Management segment includes the Company's
majority-owned, publicly held ThermoRetec Corporation (formerly Thermo
Remediation Inc.) subsidiary, which is a national provider of
environmental-liability and resource-management services. Through a nationwide
network of offices, ThermoRetec offers these and related consulting services in
four areas: consulting and engineering, nuclear remediation, soil remediation,
and fluids recycling. As of April 3, 1999, the Company owns 70% of ThermoRetec's
outstanding common stock and holds a $2.7 million principal amount 3 7/8%
subordinated convertible note due 2000 issued by ThermoRetec, convertible into
shares of ThermoRetec common stock at a conversion price of $9.83 per share. The
Company's majority-owned Thermo EuroTech N.V. subsidiary, located in the
Netherlands, specializes in converting "off-spec" and contaminated petroleum
fluids into useable oil products. Thermo EuroTech also provides in-plant waste
management and recycling services through its Ireland-based Green Sunrise
Holdings Ltd. subsidiary. As of April 3, 1999, the Company owns 78% of Thermo
EuroTech's outstanding common stock.
The Engineering and Design segment includes the Company's majority-owned,
publicly held The Randers Killam Group Inc. (formerly The Randers Group
Incorporated) subsidiary, which provides comprehensive engineering and
outsourcing services in four areas: water and wastewater treatment, process
engineering and construction, highway and bridge engineering, and infrastructure
engineering. As of April 3, 1999, the Company owns approximately 95% of Randers
Killam's outstanding common stock. This segment also includes the Company's
wholly owned Normandeau Associates Inc. subsidiary, which provides consulting
services that address natural resource management issues.
The Company's wholly owned Thermo Analytical Inc. subsidiary, which
represents the Laboratory Testing segment, operates analytical laboratories that
provide environmental- and pharmaceutical-testing services, primarily to
commercial clients throughout the U.S.
The Metal Treating segment performs metallurgical processing services
using thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin.
In May 1999, the Company announced the planned sale of several businesses
by its majority-owned subsidiaries. In connection with these proposed sales, the
Company expects to incur pretax charges totaling approximately $65 million,
primarily in the first quarter of fiscal 2000. Thermo EuroTech intends to sell
its used-oil processing operations, Randers Killam plans to sell three operating
units, and ThermoRetec plans to sell three soil-recycling facilities. For the
fiscal year ended April 3, 1999, revenues and operating loss from these
businesses totaled approximately $50 million and $0.1 million, respectively.
The Company was incorporated on May 30, 1986, as an indirect, wholly
owned subsidiary of Thermo Electron Corporation. As of April 3, 1999, Thermo
Electron owned 16,605,831 shares of the Company's common stock, representing 87%
of such stock outstanding. Thermo Electron is a world leader in monitoring,
analytical, and biomedical instrumentation; biomedical products including
heart-assist devices, respiratory-care equipment, and mammography systems; and
paper recycling and papermaking equipment. Thermo Electron also develops
alternative-energy systems and clean fuels, provides a range of services
including industrial outsourcing and environmental-liability management, and
conducts research and development in advanced imaging, laser, and electronic
information-management technologies.
2
<PAGE>
Thermo Electron has from time to time repurchased shares of the
Company's, ThermoRetec's, Randers Killam's, and Thermo EuroTech's common stock
in the open market or in negotiated transactions. During fiscal 1999*, Thermo
Electron purchased 670,521 shares, 70,800 shares, and 474,000 shares of the
Company's, ThermoRetec's, and Thermo EuroTech's common stock, respectively, in
the open market and negotiated transactions for a total price of $3.4 million,
$0.2 million, and $1.5 million, respectively.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company, ThermoRetec, and Randers Killam would be merged into Thermo Electron.
As a result, all three companies would become wholly owned subsidiaries of
Thermo Electron. The public shareholders of the Company, ThermoRetec, and
Randers Killam would receive common stock in Thermo Electron in exchange for
their shares. The completion of these transactions is subject to numerous
conditions, as outlined in Note 17 to Consolidated Financial Statements in the
Registrant's Fiscal 1999 Annual Report to Shareholders, which statements are
incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
"seeks," "estimates," and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements, including those detailed under the heading
"Forward-looking Statements" in the Registrant's Fiscal 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Financial information concerning the Company's segments is summarized in
Note 15 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders, which information is incorporated herein by
reference.
(c) DESCRIPTION OF BUSINESS
(i) PRINCIPAL SERVICES AND PRODUCTS
ENVIRONMENTAL-LIABILITY MANAGEMENT
The Company provides environmental consulting and remediation
construction management to clients in the transportation, refining, chemical,
wood-treating, gas, and electric utility industries across the nation. The
Company offers a broad array of remedial solutions to help clients manage
problems associated with environmental compliance, resource management, and the
remediation of industrial sites contaminated with various wastes and residues.
The Company provides particular expertise in bioremediation and in managing
wastes from manufactured-gas plants, refineries, and railroad properties.
The Company also performs cleanups of hazardous waste sites for
government and industry as a prime construction contractor and completes
predesigned remedial action contracts at sites containing hazardous, toxic, and
radioactive wastes. Under contracts with federal and state governments, and
other public and private sector clients, the Company also provides project
management and construction services for the remediation of hazardous and
nonhazardous wastes. Most of this contract work is obtained through a bid
process, with the job being awarded to the best qualified bidder.
- --------------------
* References to fiscal 1999, 1998, and 1997 herein are for the fiscal years
ended April 3, 1999, April 4, 1998, and March 29, 1997, respectively.
3
<PAGE>
In addition, the Company helps public utilities, government institutions,
and Fortune 500 companies develop and implement management and computer-based
systems that aid in the collection and application of environmental and
resource-management data. By helping to establish or improve a customer's
environmental-compliance program, the Company's customized services promote and
support the integration of environmental-management functions with everyday
business activities. The Company's services help multinational companies
accurately estimate and control the cost of their environmental-compliance and
health and safety efforts. The Company also develops measurement systems that
track clients' progress toward their stated environmental performance goals.
The Company provides services to remove radioactive contaminants from
sand, gravel, and soil, as well as health physics services, radiochemistry
laboratory services, radiation dosimetry services, radiation-instrument
calibration and repair services, and radiation-source production. As part of its
radiation and nuclear/health physics services business, the Company provides
site surveys for radioactive materials and on-site samples, as well as analysis
in support of decontamination programs and dosimetry services to measure
personnel exposure. In addition, using its proprietary segmented-gate system
technology, the Company removes radioactive contaminants from sand, gravel, and
soil. A substantial part of the Company's health physics services has been
performed under the U.S. Department of Energy's remedial action programs.
The Company designs and operates facilities for the remediation of
nonhazardous soil. The Company's soil-remediation centers are environmentally
secure facilities for receiving, storing, and processing petroleum-contaminated
soils. Each site consists principally of a soil-remediation unit and a
soil-storage area. The Company currently provides soil-remediation services at
facilities in California, Oregon, Washington, Maryland, and New York. During
fiscal 1999, the Company announced plans to close two soil-recycling facilities,
one of which was closed in March 1999. The Company is actively seeking a buyer
for the second facility. In May 1999, ThermoRetec announced plans to sell three
additional soil-recycling facilities.
The market for remediation of petroleum-contaminated soils, as with many
other waste markets, was created by environmental regulations. The market for
soil-remediation services has been driven largely by state programs to enforce
the Environmental Protection Agency's (EPA's) underground storage tank (UST)
regulations and to fund cleanups. UST compliance requirements and attendant
remediation costs are often beyond the financial capabilities of individuals and
smaller companies. To address this problem, some states established
tax-supported trust funds to assist in the financing of UST compliance and
remediation. Many states have realized that the number of sites requiring
remediation and the costs of compliance are substantially higher than were
originally estimated. As a result, several states have significantly reduced
compliance requirements and altered regulatory approaches and standards in order
to reduce the costs of cleanup. More lenient regulatory standards, reduced
enforcement, and uncertainty with respect to such changes have already resulted
in lower levels of cleanup activity in most states where the Company conducts
business, which had a material adverse effect on the Company's business in
recent years. Although the Company expects this market to remain viable for some
time after April 3, 1999, there can be no assurance that this business will not
decline in future years.
The Company offers a full spectrum of environmental services related to
managing and recycling nonhazardous, liquid, and solid materials generated by
business and industry. The Company's client base is largely public retail and
industrial businesses, but also includes municipalities, public utilities,
railroads, the mining industry, and government agencies. The materials managed
by the Company for its customers primarily are used oils and oil-contaminated
waters, which are continuously generated as part of the customers' operations.
As such, the Company provides services for its customers on a recurring basis.
The Company processes the materials it collects into products for resale and/or
recycling, such as fuel, glycol, steel, and clean water. The Company has
expanded its services to include a variety of field technical services,
including on-site waste sampling and testing, emergency response, and tank
cleaning.
4
<PAGE>
Thermo EuroTech specializes in processing "off-spec" mixtures of oil that
contain water, ash, and sediment into commercially tradable end products used in
blending. The end products of this process are commercial grade oils that can be
blended to make diesel fuels and marine fuels or be used as a feed material. In
recent years, the global drop in oil prices has affected sales of the off-spec
oil produced at Thermo EuroTech's North Refinery division. Because of the price
decline and instability in the worldwide oil market, Thermo EuroTech has applied
to Dutch authorities for licenses to broaden the variety of waste streams that
could be treated at North Refinery. In addition, Thermo EuroTech has taken steps
to replace and diversify its feedstock suppliers. However, no assurance can be
given that it will not experience future disruptions in deliveries. In May 1999,
the Company announced plans to exit this business. Thermo EuroTech also provides
in-plant waste management and recycling services through its Ireland-based Green
Sunrise subsidiary.
During fiscal 1999, 1998, and 1997, the Company derived revenues of
$159.1 million, $141.1 million, and $126.8 million, respectively, from
environmental-liability management services.
ENGINEERING AND DESIGN
The Company provides comprehensive engineering and outsourcing services
in such areas as water and wastewater treatment, process engineering and
construction, highway and bridge engineering, and infrastructure engineering. A
substantial portion of the Company's engineering and design services sales are
made to existing customers on a repeat basis. Engineering and design services
are often performed as multiyear studies. In addition to federal, state, and
local governments, customers include public utilities, waste management
companies, oil refineries, mining companies, chemical manufacturers,
architectural and engineering firms, and a variety of service companies involved
with real estate transactions.
The Company specializes in the design, planning, and construction
observation of municipal and privately owned water treatment plants, wastewater
treatment plants, and hazardous wastewater facilities. The Company provides
full-service contract operations to plant owners in the public and private
sectors. These services facilitate regulatory compliance; optimize day-to-day
plant operations; reduce costs; provide competent, experienced personnel; and
promote good community relations.
In addition, the Company provides design engineering, project management,
and construction services for industrial clients in the manufacturing,
pharmaceutical, and chemical-processing industries, principally in the Mid-West,
Massachusetts, and West Virginia; a broad range of consulting services that
address transportation planning and design; and transportation and environmental
consulting, professional engineering, and architectural services.
In May 1999, Randers Killam announced plans to sell three businesses: the
Randers division, which provides the Company's process engineering and
construction services; BAC Killam Inc., which provides the Company's highway and
bridge engineering services; and E3-Killam Inc., which provides a small portion
of the Company's water and wastewater treatment services.
During fiscal 1999, 1998, and 1997, the Company derived revenues of $91.8
million, $84.6 million, and $74.8 million, respectively, from engineering and
design services.
LABORATORY TESTING
The Company provides comprehensive laboratory-based services for the
environmental and pharmaceutical industries. Analytical laboratory services
consist of a comprehensive range of analytical tests to detect and measure
organic contaminants and inorganic contaminants in samples of soil, water, air,
industrial wastes, and biological materials. The Company also provides testing
services for major pharmaceutical companies in support of their new healthcare
drug development.
During fiscal 1999, 1998, and 1997, the Company derived revenues of $40.5
million, $37.5 million, and $35.4 million, respectively, from laboratory testing
services.
5
<PAGE>
METAL TREATING
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. Through its Holcroft Division, which was sold in October 1997, the
Company designed, manufactured, and installed computer-controlled,
custom-engineered, thermal-processing systems used to treat primary metals and
metal parts.
During fiscal 1999, 1998, and 1997, the Company derived revenues of $19.3
million, $36.6 million, and $44.3 million, respectively, from metal treating
services and process systems.
(ii) NEW PRODUCTS
The Company has made no commitments to new products that would require
the investment of a material amount of the Company's assets.
(iii) RAW MATERIALS
Prior to fiscal 1996, a large percentage of oil feedstock at Thermo
EuroTech's North Refinery division came from the former Soviet Union. Thermo
EuroTech no longer receives any oil from that nation as a result of political
and economic changes that make transportation of waste oil difficult. To
overcome this loss of supply, Thermo EuroTech has taken steps to replace and
diversify its feedstock suppliers. However, no assurance can be given that it
will not experience future disruptions in deliveries. In May 1999, the Company
announced plans to sell the North Refinery division.
Since the Company's business is primarily service oriented, it does not
involve the processing of raw materials and is not dependent on fluctuations in
the supply or price of raw materials, except as described above. To date, the
Company has not experienced any difficulty in obtaining any of the materials or
components used in its operations and does not foresee any such difficulty in
the future. The Company has multiple sources for all of its significant raw
material needs.
(iv) PATENTS, LICENSES, AND TRADEMARKS
The Company currently owns or has rights under licenses to a number of
U.S. patents. Although the Company believes that patent protection provides it
with competitive advantages with respect to certain portions of its business and
will continue to seek patent protection when appropriate, the Company also
believes that its business depends primarily upon trade secrets and the
technical and marketing expertise of its personnel.
(v) SEASONAL INFLUENCES
A majority of the Company's businesses experience seasonal fluctuations.
A majority of the Company's soil-remediation sites, as well as the Company's
fluids-recycling sites, experience declines in revenues if severe weather
conditions occur. Site remediation work and certain environmental testing
services may decline in winter months as a result of severe weather conditions.
In Europe, Thermo EuroTech may experience a decline in the feedstock delivered
to and from its facilities during winter months due to frozen waterways.
(vi) WORKING CAPITAL REQUIREMENTS
In general, there are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the Company's
working capital.
6
<PAGE>
(vii) DEPENDENCY ON A SINGLE CUSTOMER
See Government Contracts.
(viii) BACKLOG
The Company's backlog of firm orders at fiscal year-end 1999 and 1998
was:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
Environmental-liability Management $ 47,635 $ 51,860
Engineering and Design 62,136 59,633
Laboratory Testing 2,517 2,362
Metal Treating 300 300
-------- --------
$112,588 $114,155
-------- --------
-------- --------
</TABLE>
These amounts include the backlog of all of the Company's subsidiaries,
with the exception of soil-recycling, fluids-recycling, and in-plant waste
management and recycling services, which are provided on a current basis
pursuant to purchase orders. Included in the Company's backlog at fiscal
year-end 1999 and 1998 is the incomplete portion of contracts that are accounted
for using the percentage-of-completion method. The Company believes that
substantially all of the backlog at April 3, 1999, will be completed during
fiscal 2000. Certain of these orders are subject to cancellation by the customer
upon payment of a cancellation charge and all government contracts are subject
to termination at any time by the government without penalty.
(ix) GOVERNMENT CONTRACTS
Approximately 6%, 4%, and 13%, of the Company's revenues in fiscal 1999,
1998, and 1997, respectively, were derived from contracts or subcontracts with
the federal government that are subject to renegotiation of profits or
termination. The Company does not have any knowledge of threatened or pending
renegotiation or termination of any material contract or subcontract.
(x) COMPETITION
Many of the Company's businesses are engaged in highly competitive,
regional markets, with competition coming from numerous small firms offering
limited services, as well as much larger firms that offer an array of services.
ENVIRONMENTAL-LIABILITY MANAGEMENT
In the market for consulting and engineering services, the Company
competes with numerous regional and local companies as well as a number of
national remediation contractors. The Company competes primarily on the basis of
value, with the vast majority of the contracts it seeks awarded on the basis of
scope, effectiveness, and cost. Other competitive factors for the Company's
consulting and engineering businesses include: reputation; experience; breadth
and quality of services offered; and technical, managerial, and business
proficiency.
The type of radiation and nuclear/health physics services offered by the
Company are also offered by many large national companies. The Company competes
primarily on the basis of its proprietary technology and price.
Competition in the soil-remediation business is intense. The Company's
principal competitors are landfills, including major landfill companies. The
Company also currently competes with companies offering a wide range of disposal
options, including other fixed-site, thermal-treatment facilities, operators of
mobile thermal-treatment facilities, bioremediation and vapor-extraction
facilities, and, in certain states, with asphalt plants and brick kilns that
7
<PAGE>
use the contaminated soil in their production processes. Competition in the
soil-remediation market has always been highly localized, consisting mostly of
single-site or single-unit operators. Competitive conditions limit the prices
charged by the Company in each local market for soil-remediation services.
Pricing is therefore a major competitive factor for the Company. The Company
believes competition and price pressure will remain intense for the foreseeable
future.
Competition in the fluids recycling market is highly fragmented and
ranges in size from small, under-capitalized private enterprises to larger
national public companies. At both ends of this spectrum, the industry continues
to consolidate and restructure. The Company competes primarily on the basis of
quality and price.
Thermo EuroTech faces competition for oil from other oil processors and
blenders and from a company with a similar distillation technology in Italy. The
market for blending oils is very large and oils such as Thermo EuroTech's end
products represent a very small percentage of the total market. Green Sunrise is
the leading integrated service provider in an emerging, still fragmented market.
No one competitor offers Green Sunrise's complete line of services and no single
firm is dominant in any of Green Sunrise's primary service areas. Thermo
EuroTech competes primarily on the basis of price.
ENGINEERING AND DESIGN
The Company's engineering and design businesses are engaged in highly
competitive markets in all of its service areas. These markets tend to be
regional. In its geographic service area, competition consists of small, one- to
three-person firms offering a limited scope of services, as well as much larger
firms that may be regional, national, or international in the scope of services
they offer. The principal competitive factors for the Company are: reputation;
experience; price; breadth and quality of services offered; and technical,
managerial, and business proficiency.
LABORATORY TESTING
Hundreds of independent analytical testing laboratories and consulting
firms compete for business nationwide. Many of these firms use equipment and
processes similar to those of the Company. Competition is based not only on
price, but also on reputation for accuracy, quality, and the ability to respond
rapidly to customer requirements. In addition, many industrial companies have
their own in-house analytical testing capabilities. The Company believes that
its competitive strength lies in the quality of its services.
METAL TREATING
The market for metal-treating services is typically regional and
competitive. All regions in which the Company has facilities contain numerous
competitors. In addition, in-house heat-treating facilities provide a major
source of competition. The Company competes in this segment on the basis of
services provided, turnaround time, and price.
(xi) ENVIRONMENTAL PROTECTION REGULATIONS
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xii) NUMBER OF EMPLOYEES
As of April 3, 1999, the Company employed approximately 2,900 persons.
(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company's sales in foreign locations are currently insignificant.
8
<PAGE>
(e) EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Present Title (Fiscal Year First Became Executive Officer)
------------------------------------- ------- -----------------------------------------------------------------
<S> <C> <C>
Dr. John P. Appleton 64 President and Chief Executive Officer (1993)
Emil C. Herkert 61 Vice President (1996)
Jeffrey L. Powell 40 Vice President (1994)
Theo Melas-Kyriazi 39 Chief Financial Officer (1999)
Paul F. Kelleher 56 Chief Accounting Officer (1986)
</TABLE>
Each executive officer serves until his successor is chosen or appointed
by the Board of Directors and qualified or until earlier resignation, death, or
removal. All executive officers, except Mr. Herkert and Mr. Powell, have held
comparable positions for at least five years, either with the Company or with
its parent company, Thermo Electron. Mr. Herkert has served as President of
Killam Associates, a subsidiary of Randers Killam, since 1977 and was appointed
Chief Executive Officer of Randers Killam in May 1997. Mr. Powell served as
President of ThermoRetec since its inception in 1993, and as its Chief Executive
Officer from May 1997 until April 1998, when he was named Senior Vice President.
Mr. Melas-Kyriazi was appointed Chief Financial Officer of the Company and
Thermo Electron on January 1, 1999. He joined Thermo Electron in 1986 as
Assistant Treasurer, and became Treasurer in 1988. He was named President and
Chief Executive Officer of ThermoSpectra Corporation, a public subsidiary of
Thermo Instrument Systems Inc., in 1994, a position he held until becoming Vice
President of Corporate Strategy for Thermo Electron in 1998. Mr. Melas-Kyriazi
remains a Vice President of Thermo Electron. Messrs. Melas-Kyriazi and Kelleher
are full-time employees of Thermo Electron, but devote such time to the affairs
of the Company as the Company's needs reasonably require.
Item 2. PROPERTIES
The location and general character of the Company's principal properties
by segment as of April 3, 1999, are:
ENVIRONMENTAL-LIABILITY MANAGEMENT
The Company owns approximately 115,000 square feet of office,
engineering, laboratory, and production space, principally in Ireland, the
Netherlands, and California, and leases approximately 200,000 square feet of
office, engineering, laboratory, and production space pursuant to leases
expiring in fiscal 2000 through 2023, principally in Ireland, Colorado,
Pennsylvania, Massachusetts, and New Mexico.
The Company also owns approximately 72 acres in Maryland, California,
Oregon, and Idaho, from which it provides soil-remediation services. The Company
occupies approximately 20 acres principally in New York, Washington, and South
Carolina pursuant to leases expiring in fiscal 2000 through 2006, from which it
provides soil-remediation services.
The Company leases approximately six acres on one site in Arizona and one
site in Nevada pursuant to leases expiring in fiscal 2001 and 2003,
respectively, upon which it has constructed fluids storage and processing
equipment.
The Company occupies approximately 15 acres in Delfzijl, the Netherlands,
pursuant to a lease expiring in 2059, consisting of office space, distillation
facilities, and oil storage tanks.
ENGINEERING AND DESIGN
The Company owns approximately 75,000 square feet of office, engineering,
and laboratory space in New Jersey, Massachusetts, and Michigan, and leases
approximately 180,000 square feet of office, engineering, and laboratory space
pursuant to leases expiring in fiscal 2000 through 2008, principally in
Pennsylvania, New Jersey, New York, Florida, New Hampshire, and Michigan.
9
<PAGE>
LABORATORY TESTING
The Company owns approximately 180,000 square feet of office and
laboratory space in Pennsylvania, and leases approximately 12,000 square feet of
office and laboratory space pursuant to leases expiring in fiscal 2001 and 2009
in Michigan and South Carolina, respectively.
METAL TREATING
The Company owns approximately 140,000 square feet of office, laboratory,
and production space in Minnesota and Wisconsin, and leases approximately
330,000 square feet of office, laboratory, and production space pursuant to
leases expiring in fiscal 2003 in California.
The Company believes that these facilities are in good condition and are
adequate for its present operations and that other suitable space is readily
available if any of such leases are not extended. With respect to leases
expiring in the near future, in the event the Company does not renew such
leases, the Company believes suitable alternate space is available for lease on
acceptable terms.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information concerning the market and market price for the Registrant's
Common Stock, $.10 par value, and dividend policy are included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements as of April 3, 1999,
are included in the Registrant's Fiscal 1999 Annual Report to Shareholders and
are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference from the material contained under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the caption
"Stock Ownership" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive Compensation"
in the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the close of the fiscal year.
12
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a,d) FINANCIAL STATEMENTS AND SCHEDULES
(1) The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2) The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
LIST OF FINANCIAL STATEMENTS AND SCHEDULES REFERENCED IN THIS ITEM 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedule filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or the notes thereto.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
See Exhibit Index on the page immediately preceding exhibits.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Date: June 10, 1999 THERMO TERRATECH INC.
By: /S/ John P. Appleton
-------------------------------
John P. Appleton
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of June 10, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
By: /S/ John P. Appleton President, Chief Executive Officer, and Director
---------------------------
John P. Appleton
By: /S/ Theo Melas-Kyriazi Chief Financial Officer
---------------------------
Theo Melas-Kyriazi
By: /S/ Paul F. Kelleher Chief Accounting Officer
---------------------------
Paul F. Kelleher
By: /S/ John N. Hatsopoulos Director
---------------------------
John N. Hatsopoulos
By: /S/ Brian D. Holt Director
---------------------------
Brian D. Holt
By: /S/ Donald E. Noble Director
---------------------------
Donald E. Noble
By: /S/ William A. Rainville Director
---------------------------
William A. Rainville
By: /S/ Polyvios C. Vintiadis Chairman of the Board and Director
---------------------------
Polyvios C. Vintiadis
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Thermo TerraTech Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo TerraTech
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated May 11, 1999 (except with respect
to the matters discussed in Note 19, as to which the date is June 1, 1999). Our
audits were made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 on page 13 is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
May 11, 1999
15
<PAGE>
SCHEDULE II
THERMO TERRATECH INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
Beginning Charged to Accounts Written at End
Description of Year Expense Recovered Off Other (a) of Year
- ------------------------------------------ -------------- ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended April 3, 1999 $ 4,450 $ 2,085 $ (45) $ (2,479) $ (434) $ 3,577
Year Ended April 4, 1998 $ 3,838 $ 1,141 $ - $ (773) $ 244 $ 4,450
Year Ended March 29, 1997 $ 2,861 $ 625 $ 49 $ (516) $ 819 $ 3,838
</TABLE>
<TABLE>
<CAPTION>
Balance at Provision Balance
Beginning Charged to Cash at End
Description of Year Expense (c) Payments of Year
- -------------------------------------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ACCRUED RESTRUCTURING COSTS (b)
Year Ended April 3, 1999 $ - $ 2,095 $ (376) $ 1,719
</TABLE>
(a) Includes allowances of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders. Fiscal 1999 amount includes an acquired
company's reserves that were not required and were therefore reversed to
cost in excess of net assets of acquired companies.
(b) The nature of activity in this account is described in Note 13 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(c) Excludes provision of $8.1 million for fixed asset and intangible asset
write-downs.
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
2.1 Purchase and Sale Agreement executed October 6, 1997, by and
among Remediation Technologies, Inc., RETEC Thermal, Inc.,
TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed as
Exhibit 2.1 to Thermo Remediation Inc.'s Current Report on
Form 8-K dated October 6, 1997 [File No. 1-12636] and
incorporated herein by reference).
2.2 Assignment and Assumption Agreement executed October 6, 1997,
by and among Remediation Technologies, Inc., RETEC Thermal,
Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed
as Exhibit 2.2 to Thermo Remediation Inc.'s Current Report on
Form 8-K dated October 6, 1997 [File No. 1-12636] and
incorporated herein by reference).
2.3 Asset Purchase Agreement dated as of October 10, 1997, between
the Registrant and Holcroft L.L.C. (filed as Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated October 10, 1997
[File No. 1-9549] and incorporated herein by reference).
2.4 $2,218,000.00 Principal Promissory Note issued by Holcroft L.L.C.
to the Registrant (filed as Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated October 10, 1997 [File No. 1-9549]
and incorporated herein by reference).
2.5 $663,117.82 Principal Promissory Note issued by Holcroft L.L.C.
to the Registrant (filed as Exhibit 2.3 to the Registrant's
Current Report on Form 8-K dated October 10, 1997 [File No. 1-9549]
and incorporated herein by reference).
2.6 Subordination Agreement dated as of October 10, 1997, between the
Registrant and Comerica Bank (filed as Exhibit 2.4 to the
Registrant's Current Report on Form 8-K dated October 10, 1997
[File No. 1-9549] and incorporated herein by reference).
2.7 Stock Purchase and Sale Agreement dated May 12, 1997, by and
between the Registrant and Thomas R. Eurich, Michael J.
Krivitzky, Thomas J. McEnhill, and Bruce M. Bourdon (filed as
Exhibit (iv) to Amendment No. 3 to Schedule 13D filed by
Thermo Electron Corporation, Thermo Power Corporation, and the
Registrant on May 13, 1997, and incorporated herein by
reference).
2.8 Amendment No. 1 dated September 19, 1997, to Stock Purchase
and Sale Agreement dated May 12, 1997, by and between the
Registrant and Thomas R. Eurich, Michael J. Krivitzky, Thomas
J. McEnhill, and Bruce M. Bourdon (filed as Exhibit 2.5 to The
Randers Group Incorporated's Annual Report on Form 10-K for
the fiscal year ended April 4, 1998 [File No. 0-18095] and
incorporated herein by reference).
2.9 Letter of Intent dated May 12, 1997, by and between the Registrant
and The Randers Group Incorporated (filed as Exhibit (v) to
Amendment No. 3 to Schedule 13D filed by Thermo Electron
Corporation and the Registrant on May 13, 1997, and incorporated
herein by reference).
2.10 Stock Purchase Agreement entered on September 19, 1997, by and
between the Registrant and The Randers Group Incorporated
(filed as Exhibit (vii) to Amendment No. 4 to Schedule 13D
filed by Thermo Electron Corporation and the Registrant on
October 3, 1997, and incorporated herein by reference).
</TABLE>
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
2.11 Amendment No. 1 dated as of April 4, 1998, to Stock Purchase
Agreement entered on September 19, 1997, by and between the
Registrant and The Randers Group Incorporated (filed as
Exhibit 2.8 to The Randers Killam Group Incorporated's Annual
Report on Form 10-K for the fiscal year ended April 4, 1998
[File No. 0-18095] and incorporated herein by reference).
2.12 Agreement by and among the Registrant, The Randers Group
Incorporated, Thomas R. Eurich, Michael J. Krivitzky, Thomas
J. McEnhill, Bruce M. Bourdon, and David A. Wiegerink (filed
as Exhibit 10 to The Randers Group Incorporated's Current
Report on Form 8-K dated October 3, 1997 [File No. 0-18095]
and incorporated herein by reference).
3.1 Restated Certificate of Incorporation, as amended (filed as
Exhibit 99 to the Registrant's Registration Statement on Form
S-2 [Reg. No. 333-02269] and incorporated herein by
reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended April 2, 1988 [File No. 1-9549] and incorporated
herein by reference).
4.1 Fiscal Agency Agreement dated as of May 2, 1996, among the
Registrant, Thermo Electron Corporation, and Chemical Bank,
as Fiscal Agent (filed as Exhibit 4.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 30,
1996 [File No. 1-9549] and incorporated herein by reference).
4.2 Fiscal Agency Agreement dated as of May 5, 1995, among Thermo
Remediation Inc., Thermo Electron Corporation, and Chemical
Bank, as fiscal agent (filed as Exhibit 4.1 to Thermo
Remediation Inc.'s Annual Report on Form 10-K for the fiscal
year ended April 4, 1998 [File No. 1-12636] and incorporated
herein by reference).
The Registrant hereby agrees, pursuant to Item 601(b)(4)(iii)
(A) of Regulation S-K, to furnish to the Commission, upon
request, a copy of each other instrument with respect to other
long-term debt of the Company or its subsidiaries.
10.1 Thermo Electron Corporate Charter as amended and restated effective
January 3, 1993 (filed as Exhibit 10(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended April 3,
1993 [File No. 1-9549] and incorporated herein by reference).
10.2 Amended and Restated Corporate Services Agreement dated
January 3, 1993, between Thermo Electron Corporation and the
Registrant (filed as Exhibit 10(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 3, 1993
[File No. 1-9549] and incorporated herein by reference).
10.3 Agreement of Lease dated December 31, 1985, between Claridge
Properties Ltd. and Thermo Electron Corporation (filed as
Exhibit 10(c) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-6763] and incorporated herein by
reference).
10.4 Assignment of Lease dated December 31, 1985, between Thermo
Electron Corporation and TMO, Inc. (filed as Exhibit 10(d)
to the Registrant's Registration Statement on Form S-1 [Reg.
No. 33-6763] and incorporated herein by reference).
</TABLE>
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.5 Sublease dated March 30, 1986, between TMO, Inc. and
Holcroft/Loftus, Inc. (filed as Exhibit 10(e) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-6763] and incorporated herein by reference).
10.6 Lease Amending Agreement dated January 1, 1995, between Claridge
Properties Ltd., Thermo Electron Corporation, and TMO, Inc.
(filed as Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended April 1, 1995 [File No.
1-9549] and incorporated by reference).
10.7 Second Amendment to Sublease dated as of October 10, 1997,
between the Registrant and TMO, Inc. (filed as Exhibit 2.5
to the Registrant's Current Report on Form 8-K dated October 10,
1997 [File No. 1-9549] and incorporated herein by reference).
10.8 Sublease dated as of October 10, 1997, between the Registrant
and Holcroft L.L.C. (filed as Exhibit 2.6 to the
Registrant's Current Report on Form 8-K dated October 10,
1997 [File No. 1-9549] and incorporated herein by reference).
10.9 Exclusive License and Marketing Agreement dated March 22, 1990,
among TPS Technologies Inc., Holcroft Inc., and Thermo Soil
Recyclers Inc. (filed as Exhibit 10(q) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31,
1990 [File No. 1-9549] and incorporated herein by reference).
10.10 Form of Indemnification Agreement with Directors and Officers
(filed as Exhibit 10(k) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 30, 1991 [File No.
1-9549] and incorporated herein by reference).
10.11 Development Agreement dated September 15, 1991, between Thermo
Electron Corporation and the Registrant (filed as Exhibit
10(l) to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 28, 1991 [File No. 1-9549]
and incorporated herein by reference).
10.12 Amended and Restated Development Agreement dated January 2, 1992,
between Thermo Electron Corporation and the Registrant
(filed as Exhibit 10(m) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 28, 1992 [File No.
1-9549] and incorporated herein by reference).
10.13 Asset Transfer Agreement dated as of October 1, 1993, among
the Registrant, TPS Technologies Inc., and Thermo Remediation
Inc. (filed as Exhibit 2.3 to Thermo Remediation Inc.'s
Registration Statement on Form S-1 [Reg.
No. 33-70544] and incorporated herein by reference).
10.14 Exclusive License Agreement dated as of October 1, 1993, among the
Registrant, TPS Technologies Inc., and Thermo Remediation
Inc. (filed as Exhibit 2.4 to Thermo Remediation Inc.'s
Registration Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
10.15 Non-Competition and Non-Disclosure Agreement dated as of October 1, 1993,
among the Registrant, TPS Technologies Inc.'s, and Thermo
Remediation Inc. (filed as Exhibit 2.5 to Thermo Remediation
Inc.'s Registration Statement on Form S-1 [Reg. No.
33-70544] and incorporated herein by reference).
10.16 Tax Allocation Agreement dated as of June 1, 1992, between the
Registrant and Thermo Remediation Inc. (filed as Exhibit 10.3 to
Thermo Remediation Inc.'s Registration Statement on Form S-1
[Reg. No. 33-70544] and incorporated herein by reference).
</TABLE>
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- -------- ----------------------
<S> <C>
10.17 Agreement of Partnership dated May 16, 1994, among Terra Tech
Labs Inc. (a wholly owned subsidiary of the Registrant) and
Eberline Analytical Corporation, Skinner & Sherman, Inc.,
TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews
& Clark Inc., Fellows, Read & Associates Inc., and Thermo
Consulting Engineers Inc. (each a wholly owned subsidiary of
Thermo Instrument Systems Inc.; filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K relating to the events
occurring on May 16, 1994 [File No. 1-9549] and incorporated
herein by reference).
10.18 Promissory Note dated May 16, 1994, issued by the Registrant
to Thermo Electron Corporation (filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K relating to the events
occurring on May 16, 1994 [File No. 1-9549] and incorporated
herein by reference).
10.19 Agreement of Dissolution of Partnership dated May 9, 1995,
among Thermo Terra Tech (the Partnership), Terra Tech Labs,
Inc. (a wholly owned subsidiary of the Registrant) and
Eberline Analytical Corporation, Skinner & Sherman, Inc.,
TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews
& Clark Inc., Fellows, Read & Associates Inc., and Thermo
Consulting Engineers Inc. (each a wholly owned subsidiary of
Thermo Instrument Systems Inc.; filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K relating to the events
occurring on May 9, 1995 [File No. 1-9549] and incorporated
herein by reference).
10.20 Stock Purchase Agreement dated May 9, 1995, between the Registrant
and Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to
the Registrant's Current Report on Form 8-K relating to the
events occurring on May 9, 1995 [File No. 1-9549] and
incorporated herein by reference).
10.21 Note dated May 17, 1995, from the Registrant to Thermo Electron
Corporation (filed as Exhibit 2.3 to the Registrant's Current
Report on Form 8-K relating to the events occurring on May 9,
1995 [File No. 1-9549] and incorporated herein by reference).
10.22 Stock Purchase and Note Issuance Agreement dated as of November 22, 1993,
between the Registrant and Thermo Remediation Inc. (filed as
Exhibit 10.11 to Thermo Remediation Inc.'s Registration
Statement on Form S-1 [Reg. No. 33-70544] and incorporated
herein by reference).
10.23 $2,650,000 principal amount Subordinated Convertible Note dated
as of November 22, 1993, made by Thermo Remediation Inc.,
issued to the Registrant (filed as Exhibit 10.12 to Thermo
Remediation Inc.'s Registration Statement on Form S-1 [Reg.
No. 33-70544] and incorporated herein by reference).
10.24 Stock Purchase and Sale Agreement made and entered into on
February 6, 1995, to be effective as of January 29, 1995, by
and between Nord Est S.A., the Registrant, and Emil C.
Herkert, Kenneth L. Zippler, Franklin O. Williamson, Jr.,
Fletcher N. Platt, Jr., Eugene J. Destefano, Meint Olthof,
and Stanley P. Kaltnecker, Jr. (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K relating to the
events occurring on February 6, 1995 [File No. 1-9549] and
incorporated herein by reference).
10.25 Agreement and Plan of Merger dated as of June 28, 1995, by and
among the Registrant, Eberline Acquisition Inc., Thermo
Remediation Inc., and Eberline Holdings Inc. (filed as
Appendix B to Thermo Remediation Inc.'s Proxy Statement for
the Annual Meeting held on December 13, 1995 [File No.
1-12636] and incorporated herein by reference).
</TABLE>
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- -------- ----------------------
<S> <C>
10.26 $28,000,000 Secured Promissory Note dated as of January 29, 1995,
issued by the Registrant to Nord Est S.A. (filed as Exhibit 2
to the Registrant's Current Report on Form 8-K relating to
the events occurring on February 6, 1995 [File No. 1-9549]
and incorporated herein by reference).
10.27 $38,000,000 Promissory Note dated as of February 21, 1995,
issued by the Registrant to Thermo Electron Corporation (filed
as Exhibit 3 to the Registrant's Current Report on Form 8-K
relating to the events occurring on February 6, 1995 [File No.
1-9549] and incorporated herein by reference).
10.28 Asset Purchase Agreement by and among Thermo Analytical Inc.
(as Buyer); Lancaster Laboratories, Inc. and Clewmark
Holdings (as Sellers); and Earl H. Hess, Anita F. Hess,
Kenneth E. Hess, J. Wilson Hershey, and Carol D. Hess (as
the principal owners of Sellers) (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K relating to the
events occurring on May 10, 1995 [File No. 1-9549] and
incorporated herein by reference).
10.29 Agreement and Plan of Merger dated as of the first day of
December 1995, by and among Thermo Remediation Inc., TRI
Acquisition Inc., and Remediation Technologies, Inc. (filed
as Exhibit 2(a) to the Registrant's Current Report on Form
8-K relating to the events occurring on December 8, 1995
[File No. 1-9549] and incorporated herein by reference).
10.30 Purchase and Sale Agreement dated as of December 20, 1994, by
and among TPS Technologies Inc., TPST Soil Recyclers of
Maryland Inc., Rafich Corporation, Harry Ratrie, John C.
Cyphers, and J. Thomas Hood (filed as Exhibit 1 to Thermo
Remediation Inc.'s Current Report on Form 8-K for the events
occurring on December 21, 1994 [File No. 1-12636] and
incorporated herein by reference).
10.31 Stock Purchase Agreement entered into on March 29, 1995, by
and among Stalt Holding, B.V., Beheersmaatschappij J. Amerika
N.V., A.J. Van Es, J.B. Van Es and D.A. Slager, and the
Registrant (filed as Exhibit 1 to the Registrant's Current
Report on Form 8-K relating to the events occurring on March
29, 1995 [File No. 1-9549] and incorporated herein by
reference).
10.32 Thermo TerraTech Inc. - The Randers Group Incorporated
Nonqualified Stock Option Plan (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 3, 1998 [File No. 1-9549] and incorporated
herein by reference).
10.33 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10(h) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-6763] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Nonqualified
Stock Option Plan is 1,850,000 shares, after adjustment to
reflect share increases approved in 1987, 1989, and 1992,
6-for-5 stock splits effected in July 1988 and March 1989, and
3-for-2 stock split effected in September 1989.)
10.34 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 10(i) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-6763] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Incentive Stock
Option Plan is 1,850,000 shares, after adjustment to reflect
share increases approved in 1987, 1989, and 1992, 6-for-5
stock splits effected in July 1988 and March 1989, and 3-for-2
stock split effected in September 1989.)
10.35 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10(k) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-6763] and incorporated
herein by reference).
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.36 Equity Incentive Plan (filed as Exhibit 10.63 to Thermedics Inc.'s
Annual Report on Form 10-K for the fiscal year ended January 1,
1994 [File No. 1-9567] and incorporated herein by
reference; maximum number of shares issuable is 1,750,000
shares, after adjustment to reflect share increase approved
in 1994).
10.37 Directors Stock Option Plan, as amended and restated effective
January 1, 1995 (filed as Exhibit 10.39 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended April 1, 1995
[File No. 1-9549] and incorporated herein by reference).
10.38 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)
- Thermo Remediation Inc. Nonqualified Stock Option Plan
(filed as Exhibit 10(l) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended January 1, 1994
[File No. 1-9549] and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron for services rendered to the Registrant or to such
affiliated corporations. The terms of such plans are
substantially the same as those of the Registrant's Equity
Incentive Plan.
10.39 Restated Stock Holdings Assistance Plan and Form of Executive
Loan (filed as Exhibit 10.42 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended March 29, 1997 [File
No. 1-9549] and incorporated herein by reference).
10.40 Deferred Compensation Agreement dated September 16, 1996,
between Elson T. Killam Associates Inc. and Emil C. Herkert
(filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 4, 1998 [File No.
1-9549] and incorporated herein by reference).
10.41 Addendum dated 1990, to Deferred Compensation Agreement dated
September 16, 1986, between Elson T. Killam Associates Inc.
and Emil C. Herkert (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 4, 1998 [File No. 1-9549] and incorporated herein by
reference).
10.42 Amendment No. 1, dated April 27, 1990, to Deferred
Compensation Agreement dated September 16, 1986, between Elson
T. Killam Associates Inc. and Emil C. Herkert (filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 4, 1998 [File No. 1-9549]
and incorporated herein by reference).
10.43 Master Cash Management, Guarantee Reimbursement, and Loan
Agreement dated as of June 1, 1999, between the Registrant and
Thermo Electron Corporation.
10.44 Master Cash Management, Guarantee Reimbursement, and Loan
Agreement dated as of June 1, 1999, between ThermoRetec
Corporation and Thermo Electron Corporation (filed as Exhibit
10.17 to ThermoRetec Corporation's Annual Report on Form 10-K
for the fiscal year ended April 3, 1999 [File No. 1-12636] and
incorporated herein by reference).
10.45 Master Cash Management, Guarantee Reimbursement, and Loan
Agreement dated as of June 1, 1999, between The Randers Killam
Group Inc. and Thermo Electron Corporation (filed as Exhibit
10.18 to The Randers Killam Group Inc.'s Annual Report on Form
10-K for the fiscal year ended April 3, 1999 [File No.
0-18095] and incorporated herein by reference).
</TABLE>
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
13 Annual Report to Shareholders for the fiscal year ended
April 3, 1999 (only those portions incorporated herein by
reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
23
<PAGE>
EXHIBIT 13
Thermo TerraTech Inc.
Consolidated Financial Statements
Fiscal 1999
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
April 3, April 4, March 29,
(In thousands except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
REVENUES (Note 12):
Service revenues $ 310,039 $ 281,456 $ 251,384
Product revenues - 17,330 27,119
----------- ---------- ----------
310,039 298,786 278,503
----------- ---------- ----------
Costs and Operating Expenses:
Cost of service revenues 247,610 230,376 204,724
Cost of product revenues - 14,735 22,677
Selling, general, and administrative expenses (Note 8) 46,224 41,941 39,191
Restructuring and nonrecurring items (Notes 3 and 13) 10,217 - 9,282
----------- ---------- ----------
304,051 287,052 275,874
----------- ---------- ----------
Operating Income 5,988 11,734 2,629
Interest Income 2,185 4,163 7,253
Interest Expense (includes $162, $593, and $2,638 to parent company) (8,981) (10,778) (12,914)
Gain on Issuance of Stock by Subsidiary (Note 10) - - 1,475
Gain on Sale of Unconsolidated Subsidiary (Note 3) - 3,012 -
Equity in Earnings of Unconsolidated Subsidiary - 174 865
Other Income, Net - 209 401
----------- ---------- ----------
Income (Loss) Before Provision for Income Taxes and Minority Interest (808) 8,514 (291)
Provision for Income Taxes (Note 5) 1,786 5,146 1,705
Minority Interest (Income) Expense (1,173) 95 (1,834)
----------- ---------- ----------
NET INCOME (LOSS) $ (1,421) $ 3,273 $ (162)
----------- ---------- ----------
----------- ---------- ----------
EARNINGS (LOSS) PER SHARE (Note 16)
Basic $ (.07) $ .18 $ (.01)
----------- ---------- ----------
----------- ---------- ----------
Diluted $ (.07) $ .17 $ (.01)
----------- ---------- ----------
----------- ---------- ----------
WEIGHTED AVERAGE SHARES (Note 16)
Basic 19,402 18,700 18,090
----------- ---------- ----------
----------- ---------- ----------
Diluted 19,402 18,978 18,090
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes $41,667 and $29,583 under repurchase agreements
with parent company; Note 19) $ 43,013 $ 34,711
Available-for-sale investments, at quoted market value (amortized cost of $2,008; Note 2) - 2,003
Short-term held-to-maturity investments, at amortized cost (quoted market value of
$13,979; Note 2) - 13,939
Accounts receivable, less allowances of $3,577 and $4,450 59,377 60,050
Unbilled contract costs and fees 21,207 20,547
Inventories 1,869 1,498
Prepaid and refundable income taxes (Note 5) 6,946 6,224
Prepaid expenses 3,196 3,810
---------- ----------
135,608 142,782
---------- ----------
Property, Plant, and Equipment, at Cost, Net 91,514 91,709
---------- ----------
Other Assets 15,949 18,227
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 13) 108,627 107,808
---------- ----------
$ 351,698 $ 360,526
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
April 3, April 4,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term obligations (includes $9,228 under
overdraft facility with related party; Note 6) $ 17,618 $ 27,165
Accounts payable 17,404 17,728
Accrued payroll and employee benefits 12,771 11,359
Deferred revenue 3,908 3,394
Other accrued expenses (Note 13) 14,342 11,476
Due to parent company and affiliated companies 2,522 2,341
---------- ----------
68,565 73,463
---------- ----------
Deferred Income Taxes (Note 5) 3,538 2,901
---------- ----------
Other Deferred Items 1,076 1,049
---------- ----------
Long-term Obligations (Notes 6 and 11):
Subordinated convertible debentures (includes $4,695 and $3,000 of related-party debt) 156,799 149,800
Other 1,818 3,344
---------- ----------
158,617 153,144
---------- ----------
Minority Interest 27,745 32,839
---------- ----------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.10 par value, 75,000,000 shares authorized; 19,583,773 shares issued 1,958 1,958
Capital in excess of par value 70,633 70,437
Retained earnings 25,898 27,319
Treasury stock at cost, 543,319 and 51,188 shares (4,130) (484)
Deferred compensation (Note 4) (252) -
Accumulated other comprehensive items (1,950) (2,100)
---------- ----------
92,157 97,130
---------- ----------
$ 351,698 $ 360,526
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,421) $ 3,273 $ (162)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 16,823 14,784 12,900
Noncash restructuring and nonrecurring items (Note 13) 8,122 - 9,282
Gain on sale of unconsolidated subsidiary (Note 3) - (3,012) -
Equity in earnings of unconsolidated subsidiary - (174) (865)
Minority interest (income) expense (1,173) 95 (1,834)
Provision for losses on accounts receivable 2,085 1,141 625
Other noncash items 199 327 430
Increase (decrease) in deferred income taxes 443 (1,583) (43)
Gain on issuance of stock by subsidiary (Note 10) - - (1,475)
Changes in current accounts, excluding the effects of acquisitions
and dispositions:
Accounts receivable (643) (11,154) (6,818)
Inventories and unbilled contract costs and fees (2,026) (3,353) (7,784)
Other current assets (176) 1,715 403
Accounts payable 55 5,507 895
Other current liabilities 7,653 (1,038) 3,399
---------- --------- ---------
Net cash provided by operating activities 29,941 6,528 8,953
---------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (Note 3) (643) (12,746) (5,156)
Purchases of available-for-sale investments - - (38,913)
Proceeds from sale and maturities of available-for-sale investments (Note 2) 2,006 16,372 29,822
Proceeds from maturity of held-to-maturity investments (Note 2) 14,065 13,935 -
Purchases of property, plant, and equipment (17,415) (18,460) (15,426)
Proceeds from sale of businesses (Note 3) - 19,722 347
Issuances of notes receivable - (569) -
Purchases of other assets (1,570) (1,993) (450)
Other, net 474 2,464 1,356
---------- --------- ---------
Net cash provided by (used in) investing activities $ (3,083) $ 18,725 $ (28,420)
---------- --------- ---------
</TABLE>
6
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from issuance of subordinated convertible debentures $ - $ - $ 112,398
Repayment of notes payable to parent company - (38,000) (50,000)
Proceeds from issuance of Company and subsidiaries' common stock (Note 10) 58 1,148 5,346
Repurchase of Company and subsidiaries' common stock and subordinated
convertible debentures (3,390) (7,355) (14,984)
Issuance of short-term obligations - 6,171 803
Repayment of notes payable (Note 2) (14,748) (14,878) (736)
Dividends paid by subsidiary to minority shareholders (805) (751) (847)
Other, net 425 - (266)
---------- --------- ---------
Net cash provided by (used in) financing activities (18,460) (53,665) 51,714
---------- --------- ---------
Exchange Rate Effect on Cash (96) (49) (257)
---------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 8,302 (28,461) 31,990
Cash and Cash Equivalents at Beginning of Year 34,711 63,172 31,182
---------- --------- ---------
Cash and Cash Equivalents at End of Year $ 43,013 $ 34,711 $ 63,172
---------- --------- ---------
---------- --------- ---------
See Note 14 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
COMPREHENSIVE INCOME
Net Income (Loss) $ (1,421) $ 3,273 $ (162)
--------- --------- ---------
Other Comprehensive Items:
Foreign currency translation adjustment 147 (1,071) (1,661)
Unrealized gains (losses) on available-for-sale investments 3 (10) 15
--------- --------- ---------
150 (1,081) (1,646)
--------- --------- ---------
Minority Interest Income (Expense) (284) 461 724
--------- --------- ---------
$ (1,555) $ 2,653 $ (1,084)
--------- --------- ---------
--------- --------- ---------
SHAREHOLDERS' INVESTMENT
Common Stock, $.10 Par Value:
Balance at beginning of year $ 1,958 $ 1,830 $ 1,760
Issuance of stock under employees' and directors' stock plans - - 24
Conversions of subordinated convertible debentures - 128 46
--------- --------- ---------
Balance at end of year 1,958 1,958 1,830
--------- --------- ---------
Capital in Excess of Par Value:
Balance at beginning of year 70,437 62,610 59,419
Activity under employees' and directors' stock plans (130) (5,490) 264
Tax benefit related to employees' and directors' stock plans 181 655 461
Effect of outstanding put rights (1,271) - -
Conversions of subordinated convertible debentures (Note 6) - 13,092 4,766
Effect of majority-owned subsidiaries' equity transactions 1,416 (430) (2,300)
--------- --------- ---------
Balance at end of year 70,633 70,437 62,610
--------- --------- ---------
Retained Earnings:
Balance at beginning of year 27,319 24,046 24,474
Net income (loss) (1,421) 3,273 (162)
Metal Treating, Inc. transfer of cash to parent company (Note 3) - - (266)
--------- --------- ---------
Balance at end of year 25,898 27,319 24,046
--------- --------- ---------
Treasury Stock:
Balance at beginning of year (484) (3,941) (410)
Activity under employees' and directors' stock plans 411 6,637 260
Purchases of Company common stock (4,057) (3,180) (3,791)
--------- --------- ---------
Balance at end of year $ (4,130) $ (484) $ (3,941)
--------- --------- ---------
</TABLE>
8
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS' INVESTMENT
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
Deferred Compensation (Note 4):
Balance at beginning of year $ - $ - $ -
Activity under employees' stock plans (252) - -
--------- --------- ---------
Balance at end of year (252) - -
--------- --------- ---------
Accumulated Other Comprehensive Items:
Balance at beginning of year (2,100) (1,019) 627
Other comprehensive items 150 (1,081) (1,646)
--------- --------- ---------
Balance at end of year (1,950) (2,100) (1,019)
--------- --------- ---------
$ 92,157 $ 97,130 $ 83,526
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Thermo TerraTech Inc. (the Company) provides industrial outsourcing
services and manufacturing support encompassing a broad range of
specializations. The Company operates in four segments: environmental-liability
management, engineering and design, laboratory testing, and metal treating.
RELATIONSHIP WITH THERMO ELECTRON CORPORATION
The Company was incorporated on May 30, 1986, as an indirect, wholly
owned subsidiary of Thermo Electron Corporation. As of April 3, 1999, Thermo
Electron owned 16,605,831 shares of the Company's common stock, representing 87%
of such stock outstanding.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company and its majority-owned subsidiaries, ThermoRetec Corporation (formerly
Thermo Remediation Inc.) and The Randers Killam Group Inc. (formerly The Randers
Group Incorporated), would be merged into Thermo Electron (Note 17).
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the
Company; its wholly owned subsidiaries; its majority-owned public subsidiaries,
ThermoRetec and Randers Killam; and its majority-owned, privately held Thermo
EuroTech N.V. subsidiary. All material intercompany accounts and transactions
have been eliminated. The Company accounted for its investment in a business in
which it owned 50% using the equity method. In October 1997, the Company sold
this investment (Note 3).
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest March
31. References to fiscal 1999, 1998, and 1997 are for the fiscal years ended
April 3, 1999, April 4, 1998, and March 29, 1997, respectively. Fiscal years
1999 and 1997 each included 52 weeks; fiscal 1998 included 53 weeks.
REVENUE RECOGNITION
For the majority of its operations, the Company recognizes revenues upon
completion of the services it renders. Revenues and profits on substantially all
contracts are recognized using the percentage-of-completion method. Revenues
recorded under the percentage-of-completion method were $109,798,000 in fiscal
1999, $117,464,000 in fiscal 1998, and $113,481,000 in fiscal 1997. The
percentage of completion is determined by relating either the actual costs or
actual labor incurred to date to management's estimate of total costs or total
labor, respectively, to be incurred on each contract. If a loss is indicated on
any contract in process, a provision is made currently for the entire loss. The
Company's contracts generally provide for billing of customers upon the
attainment of certain milestones specified in each contract. Revenues earned on
contracts in process in excess of billings are classified as unbilled contract
costs and fees in the accompanying balance sheet. There are no significant
amounts included in the accompanying balance sheet that are not expected to be
recovered from existing contracts at current contract values, or that are not
expected to be collected within one year, including amounts that are billed but
not paid under retainage provisions. Amounts billed in excess of revenues
recognized are included in other accrued expenses in the accompanying balance
sheet. Revenues from soil-remediation services are recognized as soil is
processed and the Company bills customers upon receipt of contaminated soil at
its remediation centers.
10
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
GAIN ON ISSUANCE OF STOCK BY SUBSIDIARY
At the time a subsidiary sells its stock to unrelated parties at a price
in excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not engaged
principally in research and development, the Company records the increase as a
gain (Note 10).
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased either by the
subsidiary, the Company, or Thermo Electron, gain recognition does not occur
on issuances subsequent to the date of a repurchase until such time as shares
have been issued in an amount equivalent to the number of repurchased shares.
Such transactions are reflected as equity transactions and the net effect of
these transactions is reflected in the accompanying statement of
comprehensive income and shareholders' investment as effect of majority-owned
subsidiaries' equity transactions.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARY
Equity in earnings of unconsolidated subsidiary in the accompanying
statement of operations represents the Company's proportionate share of income
from a 50% investment in RETEC/TETRA L.C., acquired in December 1995 through
ThermoRetec's acquisition of RETEC. In October 1997, ThermoRetec sold its 50%
limited-liability interest in RETEC/TETRA to Tetra Thermal, Inc. (Note 3).
For the year ended December 31, 1996, RETEC/TETRA reported revenues of
$12,066,000, cost of revenues of $9,040,000, gross profit of $3,026,000, and net
income of $981,000.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
INCOME TAXES
The Company and Thermo Electron have a tax allocation agreement under
which the Company and certain of its subsidiaries, exclusive of foreign
operations, are included in Thermo Electron's consolidated federal and certain
state income tax returns. The agreement provides that in years in which the
Company has taxable income, it will pay to Thermo Electron amounts comparable to
the taxes the Company would have paid if it had filed separate tax returns. If
Thermo Electron's equity ownership of the Company were to drop below 80%, the
Company would be required to file its own federal income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share have been computed by dividing net income
(loss) by the weighted average number of shares outstanding during the year.
Except where the result would be antidilutive, diluted earnings (loss) per share
have been computed assuming the exercise of stock options and warrants, as well
as their related income tax effects. Diluted earnings (loss) per share for all
periods exclude the effect of assuming the conversion of convertible obligations
and the elimination of the related interest expense and the exercise of put
rights, because the result would be antidilutive.
11
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
At fiscal year-end 1999 and 1998, $40,625,000 and $29,583,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, U.S. government-agency
securities, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter (Note 19).
At fiscal year-end 1999, $1,042,000 of the Company's cash equivalents,
denominated in Dutch guilders, were invested in a repurchase agreement with a
wholly owned subsidiary of Thermo Electron. Under this agreement, the Company in
effect lends excess cash to the subsidiary, which Thermo Electron collateralizes
with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily convertible into
cash by the Company. The repurchase agreement earns a rate based on the
Netherlands market rates, set at the beginning of each month.
At fiscal year-end 1999 and 1998, the Company's cash equivalents also
included investments in a money market fund, which has an original maturity of
three months or less. Cash equivalents are carried at cost, which approximates
market value.
INVENTORIES
Inventories are stated at the lower of cost (on an average-cost basis) or
market value and include materials, labor, and overhead. The components of
inventories are:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Raw Materials and Supplies $ 640 $ 618
Work in Process and Finished Goods 1,229 880
---------- ----------
$ 1,869 $ 1,498
---------- ----------
---------- ----------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company provides
for depreciation and amortization primarily using the straight-line method over
the estimated useful lives of the property as follows: buildings and
improvements, 5 to 40 years; machinery and equipment, 2 to 15 years; and
leasehold improvements, the shorter of the term of the lease or the life of the
asset. Soil-remediation units, which accounted for 8% and 12% of the Company's
machinery and equipment, net, at fiscal year-end 1999 and 1998, respectively,
are depreciated based on an hourly rate that is computed by estimating total
hours of operation for each unit. Property, plant, and equipment consists of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Land $ 7,741 $ 7,743
Buildings 42,161 38,785
Machinery, Equipment, and Leasehold Improvements 101,317 95,840
---------- ----------
151,219 142,368
Less: Accumulated Depreciation and Amortization 59,705 50,659
---------- ----------
$ 91,514 $ 91,709
---------- ----------
---------- ----------
</TABLE>
12
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OTHER ASSETS
Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets that
are being amortized using the straight-line method over their estimated useful
lives, which range from 5 to 20 years. These assets were $3,291,000 and
$5,212,000, net of accumulated amortization of $6,771,000 and $5,716,000, at
fiscal year-end 1999 and 1998, respectively. In fiscal 1999, the Company wrote
off $1,169,000 of other assets in connection with restructuring actions (Note
13).
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over periods ranging from
20 to 40 years. Accumulated amortization was $16,725,000 and $13,651,000 at
fiscal year-end 1999 and 1998, respectively. The Company assesses the future
useful life of this asset whenever events or changes in circumstances indicate
that the current useful life has diminished (Note 13). The Company considers the
future undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.
FOREIGN CURRENCY
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of operations and are not material for the three years presented.
COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." This pronouncement sets forth
requirements for disclosure of the Company's comprehensive income and
accumulated other comprehensive items. In general, comprehensive income combines
net income and "other comprehensive items," which represents certain amounts
that are reported as components of shareholders' investment in the accompanying
balance sheet, including foreign currency translation adjustments and unrealized
net of tax gains and losses on available-for-sale investments. At fiscal
year-end 1999, the balance of accumulated other comprehensive items represents
the Company's cumulative translation adjustment. At fiscal year-end 1998, the
balance also includes net unrealized losses on available-for-sale investments of
$3,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRESENTATION
Certain amounts in fiscal 1998 and 1997 have been reclassified to conform
to the presentation in the fiscal 1999 financial statements.
13
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. AVAILABLE-FOR-SALE AND HELD-TO-MATURITY INVESTMENTS
The Company's debt securities are considered available-for-sale
investments in the accompanying balance sheet and are carried at market value,
with the difference between cost and market value, net of related tax effects,
recorded in the "Accumulated other comprehensive items" component of
shareholders' investment. The aggregate market value and cost basis of
available-for-sale investments in the accompanying fiscal 1998 balance sheet,
which represents investments in corporate bonds, were $2,003,000 and $2,008,000,
respectively. The gross unrealized loss on these investments was $5,000.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. In fiscal 1997, the Company recorded gross
realized gains of $204,000 and gross realized losses of $9,000 relating to the
sale of available-for-sale investments.
In order to secure the Company's obligation to the former owner of a
business acquired in fiscal 1995, the Company purchased U.S. treasury bonds. In
May 1998 and February 1998, $13,939,000 and $13,935,000 principal amounts,
respectively, of the U.S. treasury bonds matured and the proceeds were used to
repay the Company's zero coupon promissory note to the seller. The unmatured
portion of these securities was classified as short-term held-to-maturity
investments in the accompanying fiscal 1998 balance sheet and was carried at
amortized cost.
3. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
During fiscal 1999, the Company, through ThermoRetec, acquired one
company for $576,000 in cash and paid an additional $67,000 for a post-closing
adjustment relating to a fiscal 1998 acquisition.
In May 1997, the Company purchased a controlling interest in The Randers
Group Incorporated, a publicly traded provider of design, engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. The Company
purchased 1,420,000 shares of Randers' common stock from certain members of
Randers' management, and 84,000 shares from Thermo Power Corporation, an
affiliate of the Company, at a price of $3.125 per share, for an aggregate cost
of $4,700,000. Following these transactions, the Company owned approximately
53.3% of Randers' outstanding common stock. In addition, Thermo Electron owned
approximately 8.9% of Randers' outstanding common stock.
Subsequently, in September 1997, the Company entered into a definitive
agreement to transfer The Killam Group Inc., its wholly owned engineering and
consulting businesses, to Randers in exchange for newly issued shares of
Randers' common stock. Effective April 4, 1998, the agreement was amended to
provide that the price for these businesses would equal $70,644,407, the book
value of the transferred businesses as of April 4, 1998. The number of new
shares of Randers' common stock issued to the Company equaled such book value
divided by $3.125, or 22,606,210 shares. In January 1999, the Randers
shareholders approved the listing of these shares on the American Stock Exchange
and an amendment to Randers' certificate of incorporation changing Randers' name
to The Randers Killam Group Inc. Upon such issuance, the Company and Thermo
Electron owned approximately 94.8% and 1.0%, respectively, of Randers Killam's
outstanding common stock.
In addition, during fiscal 1998, ThermoRetec made three acquisitions for
an aggregate purchase price of $5,665,000 in cash and 459,613 shares of
ThermoRetec's common stock, valued at $2,850,000. In fiscal 1998, Thermo
EuroTech made an acquisition of 70% of the outstanding shares of a business for
$4,400,000 in cash and a commitment to issue 69,200 shares of Thermo EuroTech's
common stock valued at $275,000. As of April 3, 1999, these shares had not been
issued.
In October 1996, the Company acquired Metal Treating, Inc. from Thermo
Electron in exchange for $1,600,000 in cash. Metal Treating provides heat
treating services, including carburizing, vacuum hardening, silver and copper
brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern
Wisconsin areas. Because the Company and Metal Treating were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Electron, the transaction has been accounted for at historical cost in a manner
similar to a pooling-of-interests and the results of Metal Treating are included
in the accompanying statement of operations from the beginning of fiscal 1997.
14
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In addition, during fiscal 1997, the Company, directly and through
ThermoRetec, acquired two companies for an aggregate of $3,865,000 in cash,
311,040 shares of ThermoRetec's common stock valued at $2,006,000, and the
issuance of $1,300,000 of short- and long-term obligations.
These acquisitions, except for Metal Treating, have been accounted for
using the purchase method of accounting, and their results have been included in
the accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the estimated
fair value of the acquired net assets by $27,181,000, which is being amortized
over periods ranging from 20 to 40 years. Allocation of the purchase price for
these acquisitions was based on estimates of the fair value of the net assets
acquired. Pro forma data is not presented since the acquisitions were not
material to the Company's results of operations.
DISPOSITIONS
In October 1997, ThermoRetec sold its 50% limited-liability interest in
RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in cash. The Company
realized a pretax gain of $3,012,000 on the sale, which is classified as "gain
on sale of unconsolidated subsidiary" in the accompanying statement of
operations.
In addition, in October 1997, the Company sold substantially all of the
assets of its Holcroft Division, its thermal-processing equipment business,
excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of
Madison Capital Partners. The sale price for the transferred assets consisted of
$10,897,000 in cash, two promissory notes for principal amounts aggregating
$2,881,000, which is generally payable in annual installments through fiscal
2003, and the assumption by Holcroft L.L.C. of certain liabilities of the
Holcroft Division. After recording a post-closing purchase price adjustment, the
Company incurred a nominal loss on the sale. This business represented the
Company's product revenues in the accompanying statement of operations and
contributed $893,000 and $1,765,000 of operating income in fiscal 1998 and 1997,
respectively.
In fiscal 1997, the Company sold its J. Amerika division, resulting in a
loss of $1,482,000, which is included in restructuring and other nonrecurring
items in the accompanying statement of operations. J. Amerika's revenues and
operating loss were $3,970,000 and $552,000, respectively, in fiscal 1997.
4. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
STOCK OPTION PLANS
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans permit the grant of nonqualified and
incentive stock options. A third plan 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 these plans are determined by
the Board Committee. Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a one- to ten-year period, depending on the term of
the option, which may range from five 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 stock on the date of grant. Generally, all options have been
granted at fair market value. The Company also has a directors' stock option
plan that provides for the grant of stock options to outside directors pursuant
to a formula approved by the Company's shareholders. Options awarded under this
plan are exercisable six months after the date of grant and expire three to
seven years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also participate in
the stock-based compensation plans of Thermo Electron.
15
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 1,182,000 shares at a weighted average exercise price of $8.80 elected
to participate in this exchange and, as a result, received options to purchase
591,000 shares of Company common stock at $4.50 per share, which are included in
the fiscal 1999 grants in the table below. The other terms of the new options
are the same as the exchanged options except that the holders may not sell
shares purchased pursuant to such new options for six months from the exchange
date. The options exchanged were canceled by the Company.
In February 1999, the Company awarded 50,400 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$252,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period.
A summary of the Company's stock option activity is:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- ------------------------------------------------------- ----------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding, Beginning of Year 1,986 $ 8.87 2,558 $ 6.99 2,561 $ 6.13
Granted 1,111 4.78 296 7.67 288 10.10
Exercised - - (696) 1.36 (242) 1.16
Forfeited (158) 8.28 (172) 9.35 (49) 8.79
Canceled due to exchange (1,182) 8.80 - - - -
------- ------ ------
Options Outstanding, End of Year 1,757 $ 6.38 1,986 $ 8.87 2,558 $ 6.99
------- ------- ------ -------- ------ --------
------- ------- ------ -------- ------ --------
Options Exercisable 1,757 $ 6.38 1,986 $ 8.87 2,558 $ 6.99
------- ------- ------ -------- ------ --------
------- ------- ------ -------- ------ --------
Options Available for Grant 351 327 483
------- ------ ------
------- ------ ------
</TABLE>
A summary of the status of the Company's stock options at April 3, 1999,
is:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
---------------------------------------------------------------
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
- ------------------------------------------------------ -------------------------- ----------------------- ----------------------
<S> <C> <C> <C>
$ 4.16 - $ 5.85 1,065 6.9 years $ 4.74
5.86 - 7.55 55 4.5 years 6.62
7.56 - 9.24 230 3.6 years 8.40
9.25 - 10.93 407 4.6 years 9.49
------
$ 4.16 - $10.93 1,757 5.9 years $ 6.38
------
------
</TABLE>
16
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Prior to November 1, 1998, the applicable shares of common
stock could be purchased at the end of a 12-month period at 95% of the fair
market value at the beginning of the period and the shares purchased were
subject to a six-month resale restriction. Effective November 1, 1998, the
applicable shares of common stock may be purchased at 85% of the lower of the
fair market value at the beginning or end of the plan year, and the shares
purchased are subject to a one-year resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's gross
wages. No shares were issued under this program during fiscal 1999. During
fiscal 1998 and 1997, the Company issued 13,976 shares and 25,053 shares,
respectively, of its common stock under this program.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net income (loss) and
earnings (loss) per share would have been:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------------- -------------- ------------- ------------
<S> <C> <C> <C>
Net Income (Loss):
As reported $ (1,421) $ 3,273 $ (162)
Pro forma (3,172) 2,218 (866)
Basic Earnings (Loss) per Share:
As reported (.07) .18 (.01)
Pro forma (.16) .12 (.05)
Diluted Earnings (Loss) per Share:
As reported (.07) .17 (.01)
Pro forma (.16) .12 (.05)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $1.45,
$2.27, and $4.15 in fiscal 1999, 1998, and 1997, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------- ------------- -------------- ------------
<S> <C> <C> <C>
Volatility 28% 27% 29%
Risk-free Interest Rate 4.9% 5.6% 6.2%
Expected Life of Options 4.0 years 3.6 years 6.1 years
</TABLE>
17
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) SAVINGS PLAN
The majority of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to this
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. For this plan,
the Company contributed and charged to expense $650,000, $955,000, and $975,000
in fiscal 1999, 1998, and 1997, respectively.
OTHER RETIREMENT PLANS
Certain of the Company's subsidiaries offer other retirement plans in
lieu of participation in the Thermo Electron 401(k) savings plan. Company
contributions to these plans are based on formulas determined by the Company.
For these plans, the Company contributed and charged to expense $4,258,000,
$3,585,000, and $2,872,000 in fiscal 1999, 1998, and 1997, respectively.
5. INCOME TAXES
The components of income (loss) before provision for income taxes and
minority interest are:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Domestic $ 179 $ 8,812 $ 3,149
Foreign (987) (298) (3,440)
--------- --------- ---------
$ (808) $ 8,514 $ (291)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's foreign results of operations prior to fiscal 1998 include
losses associated with its J. Amerika division, which was sold during the fourth
quarter of fiscal 1997 (Note 3).
18
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Currently Payable (Prepaid):
Federal $ 2,232 $ 2,688 $ 1,271
State 1,415 1,330 1,122
Foreign (78) (110) (234)
-------- -------- ---------
3,569 3,908 2,159
-------- -------- ---------
Net Deferred (Prepaid):
Federal (1,365) 1,035 389
State (201) 203 88
Foreign (217) - (931)
-------- -------- ---------
(1,783) 1,238 (454)
-------- -------- ---------
$ 1,786 $ 5,146 $ 1,705
-------- -------- ---------
-------- -------- ---------
</TABLE>
The Company and its majority-owned subsidiaries receive a tax deduction
upon exercise of nonqualified stock options by employees for the difference
between the exercise price and the market price of the underlying common stock
on the date of exercise. The provision for income taxes that is currently
payable does not reflect $676,000, $928,000, and $659,000 in fiscal 1999, 1998,
and 1997, respectively, of such benefits of the Company and its majority-owned
subsidiaries that have been allocated to capital in excess of par value,
directly or through the effect of majority-owned subsidiaries' equity
transactions.
The provision for income taxes in the accompanying statement of
operations differs from the provision calculated by applying the statutory
federal income tax rate of 34% to income (loss) before provision for income
taxes and minority interest due to:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Provision (Benefit) for Income Taxes at Statutory Rate $ (275) $ 2,895 $ (99)
Differences Resulting From:
State income taxes, net of federal tax 801 1,012 764
Amortization and write-off of cost in excess of net assets of acquired
companies 898 739 1,344
Gain on issuance of stock by subsidiary - - (501)
Nondeductible expenses 90 64 62
Dividend from less than 80%-owned subsidiary 122 118 115
Other, net 150 318 20
-------- -------- ---------
$ 1,786 $ 5,146 $ 1,705
-------- -------- ---------
-------- -------- ---------
</TABLE>
19
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Prepaid Income Taxes:
Accrued compensation $ 2,315 $ 2,220
Reserves and accruals 3,519 3,640
Net operating loss and tax credit carryforward 3,111 1,934
Allowance for doubtful accounts 212 (137)
Other 179 -
-------- --------
9,336 7,657
Less: Valuation allowance 1,328 739
-------- --------
$ 8,008 $ 6,918
-------- --------
-------- --------
Deferred Income Taxes:
Depreciation $ 3,637 $ 2,785
Other deferred items (99) 116
-------- --------
$ 3,538 $ 2,901
-------- --------
-------- --------
</TABLE>
The valuation allowance relates to the uncertainty surrounding the
realization of the tax benefits attributable primarily to state operating loss
carryforwards. The valuation allowance increased in fiscal 1999 as a result of
certain losses that arose during the year. Of the total fiscal 1999 valuation
allowance, $168,000 will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized.
The Company has not recognized a deferred tax liability for the
difference between the book basis and tax basis of its investment in the common
stock of its domestic subsidiaries (such difference relates primarily to
unremitted earnings and gains on issuance of stock by subsidiaries) because the
Company does not expect this basis difference to become subject to tax at the
parent level. The Company believes it can implement certain tax strategies to
recover its investment in its domestic subsidiaries tax-free.
The net operating loss carryforward primarily consists of $10,600,000 of
foreign carryforwards, which do not expire, and $11,050,000 of state
carryforwards, substantially all of which expire in 2003.
6. SHORT- AND LONG-TERM OBLIGATIONS
SHORT-TERM OBLIGATIONS
Effective in fiscal 1999, Thermo EuroTech has an agreement with a wholly
owned subsidiary of Thermo Electron under which Thermo EuroTech can borrow funds
that bear interest at a rate based on the Netherlands market rates, set at the
beginning of each month. At fiscal year-end 1999, $9,228,000 was outstanding
under this arrangement, bearing interest at 4.00%. Borrowings under this
overdraft facility are guaranteed by Thermo Electron. Available borrowings at
fiscal year-end 1999 were $632,000.
Prior to fiscal 1999, Thermo EuroTech had a line of credit, denominated
in Dutch guilders, under which approximately $6,700,000 could be borrowed at the
Dutch discount rate plus 125 basis points. At fiscal year-end 1998, $6,346,000
was outstanding under this arrangement, bearing interest at 4.02%.
20
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHORT- AND LONG-TERM OBLIGATIONS (CONTINUED)
In addition, in fiscal 1998, Thermo EuroTech entered into a line of
credit, denominated in Irish punts. Borrowings, which are due in February 2000,
were $6,705,000 and $6,052,000 at fiscal year-end 1999 and 1998, respectively,
bearing interest at 3.60% and 5.75%, respectively. There are no additional
amounts available under this line of credit.
LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible at $15.90 per Share
(includes $515 held by Thermo Electron in fiscal 1999) $ 111,850 $ 111,850
4 7/8% Subordinated Convertible Debentures, Due May 2000, Convertible into Shares of
ThermoRetec at $17.92 per Share (includes $4,180 and $3,000 held by Thermo Electron) 37,950 37,950
2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible into Shares of Thermo
EuroTech (Delaware) Inc. at $5.25 per Share 6,999 -
Zero Coupon Promissory Note (Note 2) - 13,939
6.25% Mortgage Loan, Payable in Monthly Installments of $9, With Balloon Payment in May
1999 1,063 1,173
Mortgage Loan, Payable in Monthly Installments of $5, With Final Payment in 2003 (a) 856 949
Other 1,584 2,050
---------- ----------
160,302 167,911
Less: Current Maturities 1,685 14,767
---------- ----------
$ 158,617 $ 153,144
---------- ----------
---------- ----------
</TABLE>
(a) Bears interest at Prime Rate, which was 7.75% at April 3, 1999.
During fiscal 1999, the Company reorganized the capital structure of
Thermo EuroTech by offering shareholders the right to exchange their common
shares in Thermo EuroTech for 2 1/2% subordinated convertible debentures due
2001 (the Debentures) issued by a new wholly owned Delaware subsidiary of the
Company, known as Thermo EuroTech (Delaware) Inc. (TETD). As of October 31,
1998, when the exchange offer expired, 1,646,854 common shares had been
exchanged by Thermo EuroTech's shareholders, subject to certain conditions, for
Debentures having an aggregate principal amount equal to $6,999,000. The
reacquisition of these shares was accounted for using the purchase method of
accounting. The Debentures are not redeemable prior to maturity, and are
convertible into common stock of TETD at an initial conversion price of $5.25
per share. The Debentures are guaranteed on a subordinated basis by Thermo
Electron. Following the transaction, the Company owned 78% of Thermo EuroTech's
outstanding common shares.
The 4 5/8% and 4 7/8% subordinated convertible debentures are guaranteed
on a subordinated basis by Thermo Electron. The Company has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantees. During fiscal 1999, none of the 4 5/8% debentures were converted
into shares of the Company's common stock.
The annual requirements for long-term obligations as of April 3, 1999,
are $1,685,000 in fiscal 2000; $38,490,000 in fiscal 2001; $7,492,000 in fiscal
2002; $652,000 in fiscal 2003; $111,912,000 in fiscal 2004; and $71,000 in
fiscal 2005 and thereafter. Total requirements of long-term obligations are
$160,302,000. See Note 11 for information pertaining to the fair value of the
Company's long-term obligations.
21
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases land, office, operating facilities, and equipment
under operating leases expiring at various dates through fiscal 2008. The
accompanying statement of operations includes expenses from operating leases of
$6,273,000, $5,822,000, and $5,424,000 in fiscal 1999, 1998, and 1997,
respectively. Future minimum payments due under noncancelable operating leases
at April 3, 1999, are $5,217,000 in fiscal 2000; $4,228,000 in fiscal 2001;
$3,030,000 in fiscal 2002; $1,625,000 in fiscal 2003; $427,000 in fiscal 2004;
and $311,000 in 2005 and thereafter. Total future minimum lease payments are
$14,838,000. See Note 8 for an office and manufacturing facility leased from
Thermo Electron.
CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
8. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar 1997 and 1996, the Company paid an amount
equal to 1.0% of the Company's revenues. For these services, the Company was
charged $2,480,000, $2,845,000, and $2,785,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. The corporate services agreement is renewed annually but can be
terminated upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron
Corporate Charter defines the relationship among Thermo Electron and its
majority-owned subsidiaries). Management believes that the service fee charged
by Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For additional
items such as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable to the
Company. In fiscal 1999, Thermo Electron billed the Company an additional
$157,000 for certain administrative services required by the Company that were
not covered by the corporate services agreement.
DEVELOPMENT AGREEMENT
The Company and Thermo Electron entered into a development agreement
under which Thermo Electron agreed to fund up to $4,000,000 of the direct and
indirect costs of the Company's development of soil-remediation centers. As of
October 2, 1993, all such funding under this agreement was completed. In
exchange for this funding, the Company granted Thermo Electron a royalty equal
to approximately 3% of net revenues from soil-remediation services performed at
the centers developed under the agreement. The royalty payments may cease if the
amounts paid by the Company yield a certain internal rate of return to Thermo
Electron on the funds advanced to the Company under the agreement. Two sites
were developed under this agreement. The Company paid royalties of $186,000,
$115,000, and $186,000 in fiscal 1999, 1998, and 1997, respectively, relating to
this agreement, which are included in selling, general, and administrative
expenses in the accompanying statement of operations.
OPERATING LEASE
In addition to the operating leases discussed in Note 7, the Company
leases an office and operating facility from Thermo Electron. The accompanying
statement of operations includes expenses from this operating lease of $166,000
in fiscal 1999 and 1998 and $106,000 in fiscal 1997. The future minimum payments
due under the lease as of April 3, 1999, are $166,000 in fiscal 2000 through
2005 and thereafter. Total future minimum lease payments are $996,000.
22
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED-PARTY TRANSACTIONS (CONTINUED)
OTHER RELATED-PARTY TRANSACTIONS
The Company purchases and sells products and services in the ordinary
course of business with other companies affiliated with Thermo Electron. Sales
of services to such affiliated companies totaled $379,000, $320,000, and $49,000
in fiscal 1999, 1998, and 1997, respectively. Purchases of products and services
from such affiliated companies total $231,000, $938,000, and $455,000 in fiscal
1999, 1998, and 1997, respectively.
REPURCHASE AGREEMENTS
The Company invests excess cash in repurchase agreements with Thermo
Electron as discussed in Notes 1 and 19.
SHORT- AND LONG-TERM OBLIGATIONS
See Note 6 for a description of short- and long-term obligations of the
Company held by Thermo Electron.
9. COMMON STOCK
Put rights are attached to certain shares of Company common stock which
were previously issued in connection with an acquisition. The put rights
obligate the Company, at the holders' option, to purchase shares of the
Company's common stock for $8.00 per share at any time through January 2002. At
the time a holder elects to tender shares, the Company has the option to net
cash settle the obligation in lieu of purchasing the shares. At April 3, 1999,
put rights with respect to 423,854 shares were outstanding. During fiscal 1999,
the Company repurchased 423,824 shares of common stock under such arrangements.
At April 3, 1999, the Company had 700,500 warrants outstanding to
purchase shares of its common stock, which are exercisable at prices ranging
from $10.00 to $11.34 per share and expire in fiscal 2001. The warrants were
issued in fiscal 1992 and 1993 in connection with private placements completed
by three of ThermoRetec's soil-remediation subsidiaries.
At April 3, 1999, the Company had reserved 9,926,347 unissued shares of
its common stock for possible issuance under stock-based compensation plans,
conversion of the 4 5/8% subordinated convertible debentures, and exercise of
warrants.
10. TRANSACTIONS IN STOCK OF SUBSIDIARIES
During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its common
stock in a private placement at $4.25 per share for net proceeds of $4,314,000,
resulting in a gain of $1,475,000.
Dividends declared by ThermoRetec were $2,610,000, $2,504,000, and
$2,557,000 in fiscal 1999, 1998, and 1997, respectively. Dividends declared by
ThermoRetec include $1,798,000, $1,736,000, and $1,694,000 in fiscal 1999, 1998,
and 1997, respectively, that were allocated to the Company and reinvested in
611,957 shares, 254,833 shares, and 194,961 shares, respectively, of
ThermoRetec's common stock pursuant to ThermoRetec's Dividend Reinvestment Plan.
The Company's percentage ownership of its majority-owned subsidiaries at
year end was:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------ ------------ ------------- ------------
<S> <C> <C> <C>
ThermoRetec 70% 69% 69%
Randers Killam (a) 95% 53% 100%
Thermo EuroTech 78% 56% 53%
</TABLE>
(a) Upon issuance of 22,606,210 shares of Randers Killam common stock to the
Company, as described in Note 3, the Company owned approximately 95% of
Randers Killam outstanding common stock. Fiscal 1997 represents the
Company's ownership of The Killam Group prior to its transfer to Randers in
fiscal 1998.
23
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, available-for-sale and held-to-maturity investments, accounts
receivable, notes payable and current maturities of long-term obligations,
accounts payable, due to parent company and affiliated companies, and long-term
obligations. The carrying amounts of these financial instruments, with the
exception of available-for-sale and held-to-maturity investments and long-term
obligations, approximate fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying fiscal 1998 balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for fair value information pertaining to these
financial instruments. Held-to-maturity investments are carried at amortized
cost in the accompanying fiscal 1998 balance sheet. The fair values are
disclosed on the accompanying balance sheet and were determined based on quoted
market prices.
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the respective
year ends. The carrying amount and fair value of the Company's long-term
obligations are:
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Subordinated Convertible Debentures $ 156,799 $ 139,587 $ 149,800 $ 143,416
Other 1,818 1,818 3,344 3,344
----------- ---------- ----------- -----------
$ 158,617 $ 141,405 $ 153,144 $ 146,760
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
12. SIGNIFICANT CUSTOMERS
During fiscal 1999, 1998, and 1997, revenues derived from U.S. government
agencies accounted for 6%, 4%, and 13%, respectively, of the Company's total
revenues.
13. RESTRUCTURING COSTS
During fiscal 1999, the Company recorded $10,217,000 of restructuring
costs, which were accounted for in accordance with Emerging Issues Task Force
Pronouncement 94-3. Of these restructuring costs, $9,176,000 was recorded by
ThermoRetec in connection with the closure of two soil-recycling facilities. The
costs include a $6,238,000 write-down of fixed assets to their estimated
disposal value of $895,000 and a $1,884,000 write-off of intangible assets,
including $715,000 of cost in excess of net assets of acquired companies, as
well as $1,054,000 for ongoing lease costs and severance for 13 employees, 6 of
whom were terminated in fiscal 1999. ThermoRetec closed one soil-recycling
facility in March 1999 and is actively seeking a buyer for the second
soil-recycling facility. If no buyer is found, ThermoRetec will close the
facility. In addition, the Company recorded $1,041,000 of restructuring costs
for abandoned-facility payments relating to the consolidation of the facilities
of another business.
24
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTRUCTURING COSTS (CONTINUED)
A summary of the changes in accrued restructuring costs, which are
included in other accrued expenses in the accompanying balance sheet, is:
<TABLE>
<CAPTION>
Facility
(In thousands) Severance Costs Total
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
BALANCE AT APRIL 4, 1998 $ - $ - $ -
Provision charged to expense 213 1,882 2,095
Usage (101) (275) (376)
--------- --------- ---------
BALANCE AT APRIL 3, 1999 $ 112 $ 1,607 $ 1,719
--------- --------- ---------
--------- --------- ---------
</TABLE>
During fiscal 1997, ThermoRetec recorded $7,800,000 of restructuring
costs to write-down certain capital equipment and intangible assets in response
to a severe downturn in its soil-recycling business, which resulted in the
closure of two soil-remediation sites. The charge included a $2,206,000
write-down of cost in excess of net assets of acquired companies, which was
nondeductible for tax purposes. In addition, the Company's analysis indicated
that the future undiscounted cash flows from certain other soil-remediation
sites that remained open would be insufficient to recover ThermoRetec's
investment in these business units, thus requiring a write-down of certain
assets, which is also included in the $7,800,000 charge.
In May 1999, the Company announced certain other restructuring actions
(Note 19).
14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
Cash Paid For:
Interest $ 8,244 $ 10,363 $ 10,255
Income taxes $ 3,025 $ 4,041 $ 1,958
Noncash Activities:
Fair value of assets of acquired companies $ 643 $ 29,477 $ 12,996
Cash paid for acquired companies (643) (14,765) (5,465)
Issuance of notes payable for acquired company - - (1,300)
Issuance of subsidiary common stock for acquired companies - (3,125) (2,006)
---------- ---------- ---------
Liabilities assumed of acquired companies $ - $ 11,587 $ 4,225
---------- ---------- ---------
---------- ---------- ---------
Issuance of subsidiary subordinated convertible debentures in exchange for
subsidiary common stock (Note 6) $ 6,999 $ - $ -
Conversions of subordinated convertible debentures $ - $ 13,220 $ 4,812
Company common stock received in settlement of a note receivable $ 668 $ - $ -
Notes receivable received upon sale of business (Note 3) $ - $ 2,881 $ -
</TABLE>
25
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. BUSINESS SEGMENT INFORMATION
The Company organizes and manages its businesses by individual functional
operating entity. The Company has combined its operating entities into four
segments: Environmental-liability Management, Engineering and Design, Laboratory
Testing, and Metal Treating. In classifying entities into a particular segment,
the Company aggregates businesses with similar economic characteristics,
services, methods of providing services, customers, and regulatory environments.
The Environmental-liability Management segment is a national provider of
environmental-liability and resource-management services, offering these and
related consulting services in four areas: consulting and engineering, nuclear
remediation, soil remediation, and fluids recycling.
The Engineering and Design segment provides comprehensive engineering and
outsourcing services such as water and wastewater treatment, process engineering
and construction, highway and bridge engineering, and infrastructure
engineering. In addition, this segment provides consulting services that address
natural resource management issues.
The Laboratory Testing segment operates analytical laboratories that
provide environmental- and pharmaceutical-testing services.
The Metal Treating segment performs metallurgical processing services
using thermal-treatment equipment. Until the October 1997 sale of its equipment
division (Note 3), this segment also designed, manufactured, and installed
advanced custom-engineered, thermal-processing systems.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Environmental-liability Management (a) $ 159,094 $ 141,115 $ 126,811
Engineering and Design (b) 91,839 84,566 74,832
Laboratory Testing (c) 40,523 37,485 35,431
Metal Treating 19,274 36,618 44,342
Intersegment sales elimination (d) (691) (998) (2,913)
---------- ----------- ---------
$ 310,039 $ 298,786 $ 278,503
---------- ----------- ---------
---------- ----------- ---------
Income (Loss) Before Provision for Income Taxes and Minority Interest:
Environmental-liability Management (e) $ (3,644) $ (454) $ (6,254)
Engineering and Design (f) 4,406 6,303 6,689
Laboratory Testing 5,206 4,363 1,494
Metal Treating 2,493 4,278 4,326
Corporate (g) (2,473) (2,756) (3,626)
---------- ---------- -----------
Total operating income 5,988 11,734 2,629
Interest and other expense, net (6,796) (3,220) (2,920)
---------- ---------- -----------
$ (808) $ 8,514 $ (291)
---------- ---------- -----------
---------- ---------- -----------
Total Assets:
Environmental-liability Management $ 169,956 $ 166,925 $ 150,362
Engineering and Design 106,301 102,394 85,679
Laboratory Testing 48,434 43,557 39,795
Metal Treating 11,509 12,795 34,338
Corporate (h) 15,498 34,855 83,610
---------- ---------- -----------
$ 351,698 $ 360,526 $ 393,784
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
26
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Depreciation and Amortization:
Environmental-liability Management $ 9,245 $ 7,672 $ 7,049
Engineering and Design 3,117 3,003 2,245
Laboratory Testing 3,527 2,865 2,484
Metal Treating 834 1,007 1,089
Corporate 100 237 33
-------- ------- --------
$ 16,823 $14,784 $ 12,900
-------- ------- --------
-------- ------- --------
Capital Expenditures:
Environmental-liability Management $ 8,385 $ 8,916 $ 9,008
Engineering and Design 1,632 1,759 1,157
Laboratory Testing 6,463 7,018 3,321
Metal Treating 1,053 764 1,839
Corporate (118) 3 101
-------- ------- --------
$ 17,415 $18,460 $ 15,426
-------- ------- --------
-------- ------- --------
</TABLE>
(a) Includes intersegment sales of $7,000, $82,000, and $1,799,000 in fiscal
1999, 1998, and 1997, respectively.
(b) Includes intersegment sales of $60,000, $73,000, and $4,000 in fiscal 1999,
1998, and 1997, respectively.
(c) Includes intersegment sales of $624,000, $843,000, and $1,110,000 in fiscal
1999, 1998, and 1997, respectively.
(d) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(e) Includes restructuring costs of $9,176,000 and $7,800,000 in fiscal 1999 and
1997, respectively (Note 13). In addition, fiscal 1997 includes loss on sale
of of $1,482,000 (Note 3).
(f) Includes restructuring costs of $1,023,000 in fiscal 1999 (Note 13).
(g) Primarily general and administrative expenses.
(h) Primarily cash, cash equivalents, and available-for-sale investments.
16. EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
BASIC
Net Income (Loss) $ (1,421) $ 3,273 $ (162)
-------- -------- --------
Weighted Average Shares 19,402 18,700 18,090
-------- -------- --------
Basic Earnings (Loss) per Share $ (.07) $ .18 $ (.01)
-------- -------- --------
-------- -------- --------
</TABLE>
27
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. EARNINGS (LOSS) PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
DILUTED
Net Income (Loss) $ (1,421) $ 3,273 $ (162)
Effect of Majority-owned Subsidiaries' Dilutive Securities (2) (13) -
--------- --------- ---------
Income (Loss) Available to Common Shareholders, as Adjusted $ (1,423) $ 3,260 $ (162)
--------- --------- ---------
Weighted Average Shares 19,402 18,700 18,090
Effect of Stock Options - 278 -
--------- --------- ---------
Weighted Average Shares, as Adjusted 19,402 18,978 18,090
--------- --------- ---------
Diluted Earnings (Loss) per Share $ (.07) $ .17 $ (.01)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options, warrants, and put rights because the effect would be antidilutive. As
of April 3, 1999, there were 2,464,925 of such options and warrants outstanding,
with exercise prices ranging from $4.16 to $11.34 per share. As of April 3,
1999, put rights with respect to an aggregate 423,854 shares were outstanding.
The put rights obligate the Company, at the holder's option, to purchase shares
of the Company's common stock for $8.00 per share.
In addition, the computation of diluted earnings (loss) per share for
each period excludes the effect of assuming the conversion of convertible
obligations because the effect would be antidilutive. As of April 3, 1999, the
calculation excluded $111,850,000 principal amount of 4 5/8% subordinated
convertible debentures, convertible at $15.90 per share.
17. PROPOSED REORGANIZATION
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company, ThermoRetec, and Randers Killam would be merged into Thermo Electron.
As a result, all three companies would become wholly owned subsidiaries of
Thermo Electron. The public shareholders of all three companies would receive
common stock in Thermo Electron in exchange for their shares. The completion of
these transactions is subject to numerous conditions, including the
establishment of prices and exchange ratios; confirmation of anticipated tax
consequences; the approval of the Board of Directors of ThermoRetec and Randers
Killam; the negotiation and execution of definitive merger agreements; the
receipt of fairness opinions from investment banking firms that the transactions
are fair to the Company's and subsidiaries' shareholders (other than the Company
and Thermo Electron) from a financial point of view; the approval of the
Company's Board of Directors, including its independent directors; and
completion of review by the Securities and Exchange Commission of any necessary
documents regarding the proposed transactions.
28
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. UNAUDITED QUARTERLY INFORMATION
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1999 First Second (a) Third Fourth
- ------------------------------------------------------------------------------ --------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 76,693 $ 77,177 $ 80,400 $ 75,769
Gross Profit 15,648 15,143 15,851 15,787
Net Income (Loss) 1,001 (3,696) 771 503
Basic and Diluted Earnings (Loss) per Share .05 (.19) .04 .03
1998 First Second Third (b) Fourth
- ------------------------------------------------------------------------------ ------------ ------------- ------------ -----------
Revenues $ 72,519 $ 81,161 $ 73,875 $ 71,231
Gross Profit 14,568 15,485 14,001 9,621
Net Income (Loss) 1,332 1,567 1,656 (1,282)
Earnings (Loss) per Share:
Basic .08 .09 .09 (.07)
Diluted .07 .08 .09 (.07)
</TABLE>
(a) Reflects a pretax charge of $10,217,000 for restructuring costs.
(b) Reflects a pretax gain of $3,012,000 from ThermoRetec's sale of its
investment in a joint venture.
19. SUBSEQUENT EVENTS
RESTRUCTURING ACTIONS
In May 1999, the Company announced the planned sale of several businesses
by its majority-owned subsidiaries. These include the following:
-- The used-oil processing business by Thermo EuroTech.
-- Three soil-recycling facilities by ThermoRetec.
-- The businesses of BAC Killam Inc., the Randers division, and E3-Killam
Inc. by Randers Killam.
In connection with these actions, the Company expects to incur
approximately $65 million in pretax charges, primarily during the first quarter
of fiscal 2000. These charges primarily represent the excess of book value of
the businesses to be sold over the estimated proceeds from the sale. As a result
of the sale of the businesses, the Company also expects to incur costs for
ongoing lease obligations, severance, and other exit costs, which have been
provided for in the estimate of $65 million. Revenues and operating loss from
these businesses aggregated $49,627,000 and $112,000, respectively, in fiscal
1999.
CASH MANAGEMENT ARRANGEMENT
Effective June 1, 1999, the Company and Thermo Electron commenced use of
a new domestic cash management arrangement (Note 1). Under the new arrangement,
amounts advanced to Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. The
Company will report amounts invested in this arrangement as "advance to
affiliate" in its balance sheet, beginning in the first quarter of fiscal 2000.
29
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Thermo TerraTech Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
TerraTech Inc. (a Delaware corporation and an 87%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of April 3, 1999, and April 4, 1998,
and the related consolidated statements of operations, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended April 3, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
TerraTech Inc. and subsidiaries as of April 3, 1999, and April 4, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended April 3, 1999, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 11, 1999 (except with respect
to the matters discussed in Note 19,
as to which the date is June 1, 1999)
30
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
OVERVIEW
The Company provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations. The Company operates in
four segments: environmental-liability management, engineering and design,
laboratory testing, and metal treating.
ENVIRONMENTAL-LIABILITY MANAGEMENT
The Company's majority-owned ThermoRetec Corporation subsidiary is a
national provider of environmental-liability and resource-management services.
ThermoRetec offers these and related consulting services in four areas:
consulting and engineering, nuclear remediation, soil remediation, and fluids
recycling. The Company's majority-owned Thermo EuroTech N.V. subsidiary, located
in the Netherlands, specializes in converting "off-spec" and contaminated
petroleum fluids into useable oil products. Thermo EuroTech also provides
in-plant waste management and recycling services through its Ireland-based Green
Sunrise Holdings Ltd. subsidiary, acquired in February 1998. Through December
1996, this segment also included the results of the Company's J. Amerika
division, an underground tank and groundwater treatment services company.
ENGINEERING AND DESIGN
The Company's majority-owned The Randers Killam Group Inc. subsidiary
provides comprehensive engineering and outsourcing services such as water and
wastewater treatment, process engineering and construction, highway and bridge
engineering, and infrastructure engineering. The Company's wholly owned
Normandeau Associates Inc. subsidiary provides consulting services that address
natural resource management issues.
LABORATORY TESTING
The Company's wholly owned Thermo Analytical Inc. subsidiary operates
analytical laboratories that provide environmental- and pharmaceutical-testing
services, primarily to commercial clients throughout the U.S.
METAL TREATING
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. Until the October 1997 sale of its equipment division located in
Michigan (Note 3), the Company also designed, manufactured, and installed
advanced custom-engineered, thermal-processing systems.
In May 1999, the Company announced the planned sale of several businesses
by its majority-owned subsidiaries. These include the used-oil processing
business by Thermo EuroTech; three soil-recycling facilities by ThermoRetec; and
the businesses of BAC Killam Inc., the Randers division, and E3-Killam Inc. by
Randers Killam. In connection with these actions, the Company expects to incur
approximately $65 million in pretax charges, primarily during the first quarter
of fiscal 2000. These charges primarily represent the excess of book value of
the businesses to be sold over the estimated proceeds from the sale. As a result
of the sale of the businesses, the Company also expects to incur costs for
ongoing lease obligations, severance, and other exit costs, which have been
provided for in the estimate of $65 million. Revenues and operating loss from
these businesses aggregated $49.6 million and $0.1 million, respectively, in
fiscal 1999.
31
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
Total revenues were $310.0 million in fiscal 1999, compared with $298.8
million in fiscal 1998. Metal Treating segment revenues decreased to $19.3
million in fiscal 1999 from $36.6 million in fiscal 1998, due to the sale of the
Company's thermal-processing equipment business in October 1997, which
contributed revenues of $17.3 million in fiscal 1998 (Note 3). Revenues from the
Environmental-liability Management segment increased 13% to $159.1 million in
fiscal 1999 from $141.1 million in fiscal 1998. Excluding intrasegment sales,
revenues at ThermoRetec increased to $141.6 million in fiscal 1999 from $127.1
million in fiscal 1998, primarily due to $8.6 million of higher revenues from
consulting and engineering services at RETEC and, to a lesser extent, the
inclusion of $6.2 million of revenues from businesses acquired in fiscal 1998.
Revenues from ThermoRetec's soil-remediation services increased $6.4 million in
fiscal 1999, resulting from higher volumes of soil processed. These increases
were offset in part by a decrease in revenues resulting from a decline in the
number of contracts in process at ThermoRetec's eastern construction operations.
Revenues from Thermo EuroTech increased $3.5 million to $17.5 million due to the
inclusion for the full fiscal 1999 period of revenues from Green Sunrise, which
was acquired in February 1998 and added incremental revenues of $6.4 million,
offset in part by a decrease in sales of useable oil products. Revenues from the
Engineering and Design segment increased to $91.8 million in fiscal 1999 from
$84.6 million in fiscal 1998, primarily due to increased revenues from two
construction and labor management contracts, which are expected to be completed
by the end of the first quarter of fiscal 2000. Engineering and Design segment
revenues also increased $3.5 million due to the inclusion for the full fiscal
1999 period of revenues from Randers, acquired May 1997. Revenues from the
Laboratory Testing segment increased to $40.5 million in fiscal 1999 from $37.5
million in fiscal 1998 due to higher demand.
The gross profit margin increased to 20% in fiscal 1999 from 18% in
fiscal 1998. The gross profit margin from the Environmental-liability Management
segment increased in fiscal 1999 primarily due to a reduction of losses on
certain remedial-construction contracts, higher utilization of billable
personnel, and higher volumes of soil processed at RETEC and, to a lesser
extent, higher gross profit margin at Thermo EuroTech due to the inclusion of
higher-margin revenue at Green Sunrise. The gross profit margin from the
Engineering and Design segment decreased in fiscal 1999, primarily due to a
change in the mix of contracts.
Selling, general, and administrative expenses as a percentage of revenues
increased slightly to 15% in fiscal 1999 from 14% in fiscal 1998, primarily due
to the absence in fiscal 1999 of lower relative expenses at the Company's Metal
Treating segment due to the fiscal 1998 sale of the thermal-processing equipment
business and higher relative expenses at Green Sunrise, which was acquired in
February 1998. In addition, selling, general, and administrative expenses at the
Environmental-liability Management segment increased due to higher provisions
for uncollectible accounts, increased administrative costs associated with
ThermoRetec's name change, higher insurance costs, and inclusion for the full
period of expenses from acquired businesses.
During fiscal 1999, the Company recorded $10.2 million of restructuring
costs. Of these restructuring costs, $9.2 million was recorded by ThermoRetec in
connection with the closure of two soil-recycling facilities. The costs include
a write-down of fixed assets to their estimated disposal value and a write-off
of intangible assets, including cost in excess of net assets of acquired
companies, as well as other closure costs. The closure was in response to
changes in market conditions, which resulted in lower-priced disposal
alternatives. These facilities reported aggregated revenues and operating losses
of $2.2 million and $0.8 million, respectively, in fiscal 1998, and aggregated
revenues and operating losses prior to the decision to close the facilities of
$1.8 million and $0.1 million, respectively, in fiscal 1999. In addition, the
Company recorded $1.0 million of restructuring costs for abandoned-facility
payments relating to the consolidation of the facilities of another business
(Note 13).
Interest income decreased to $2.2 million in fiscal 1999 from $4.2
million in fiscal 1998, primarily as a result of lower average invested cash
balances. Interest expense decreased to $9.0 million in fiscal 1999 from $10.8
million in fiscal 1998, primarily due to the repayment of a note payable in
February and May 1998, the repayment of a
32
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998 (CONTINUED)
promissory note to Thermo Electron Corporation, and the conversion of the
Company's 6 1/2% subordinated convertible debentures during fiscal 1998,
offset in part by increased borrowings at Thermo EuroTech during fiscal 1999
and the issuance of $7.0 million principal amount of 2 1/2% convertible
subordinated debentures due 2001 (Note 6).
Equity in earnings of unconsolidated subsidiary in fiscal 1998
represented ThermoRetec's proportionate share of income from a joint venture.
Gain on sale of unconsolidated subsidiary in fiscal 1998 resulted from
ThermoRetec's sale of its interest in this joint venture (Note 3).
The Company recorded income tax expense of $1.8 million in fiscal 1999 on
a pretax loss primarily due to the effect of nondeductible amortization and
write off of cost in excess of net assets of acquired companies. The effective
tax rate in fiscal 1998 was 60%. This rate exceeded the statutory federal income
tax rate primarily due to the impact of state income taxes and the nondeductible
amortization of cost in excess of net assets of acquired companies.
The Company recorded minority interest income of $1.2 million in fiscal
1999, compared with minority interest expense of $0.1 million in fiscal 1998,
primarily due to the effect of a net loss at ThermoRetec in fiscal 1999.
FISCAL 1998 COMPARED WITH FISCAL 1997
Total revenues increased 7% to $298.8 million in fiscal 1998 from $278.5
million in fiscal 1997. Revenues from the Environmental-liability Management
segment increased 11% to $141.1 million in fiscal 1998 from $126.8 million in
fiscal 1997. Excluding intrasegment sales, revenues at ThermoRetec increased to
$127.1 million in fiscal 1998 from $114.8 million in fiscal 1997, primarily due
to the inclusion of $20.1 million of revenues from acquired businesses and, to a
lesser extent, increased revenues from construction, consulting, and engineering
services at RETEC. These increases were offset in part by an $11.1 million
decrease in revenues resulting from a decline in the number of contracts in
process at ThermoRetec's eastern construction operations. Revenues from
soil-remediation services decreased $3.5 million, resulting from the closure of
two sites, as well as heavy rains, which unfavorably affected operations at
certain west coast sites, and, to a lesser extent, competitive pricing
pressures. Revenues from Thermo EuroTech increased 17% to $14.0 million,
primarily due to increased revenues relating to contracts to process oil-based
muds and perform soil-remediation services overseas and the inclusion of $1.2
million of revenues from Green Sunrise, acquired in February 1998, offset in
part by a decrease in revenues as a result of the sale of the Company's J.
Amerika division in the fourth quarter of fiscal 1997 (Note 3). Revenues from
the Engineering and Design segment increased to $84.6 million in fiscal 1998
from $74.8 million in fiscal 1997. The inclusion of an aggregate of $15.0
million of revenues from CarlanKillam Consulting Group, Inc. and Randers,
acquired in November 1996 and May 1997, respectively, was offset in part by a
decrease in revenues due to the completion of two major contracts in fiscal
1997. Revenues from the Laboratory Testing segment increased to $37.5 million in
fiscal 1998 from $35.4 million in fiscal 1997 due to higher demand. Metal
Treating segment revenues decreased to $36.6 million in fiscal 1998 from $44.3
million in fiscal 1997, primarily due to the sale of the Company's
thermal-processing equipment business in October 1997 (Note 3), offset in part
by an increase in demand for the Company's metallurgical-processing services in
fiscal 1998.
The gross profit margin remained constant at 18% in fiscal 1998 and 1997.
The gross profit margin for the Laboratory Testing segment increased in fiscal
1998 due to lower margins in fiscal 1997 as a result of costs incurred related
to efforts to eliminate redundant capabilities at regional laboratories. The
gross profit margin from the Environmental-liability Management segment
decreased in fiscal 1998 primarily due to losses on certain
remedial-construction contracts at ThermoRetec's eastern construction operations
as a result of poorly bid and executed contracts, and an increase in
lower-margin revenues at ReTec, offset in part by increased margins at Thermo
EuroTech due to a shift to higher-margin contracts in fiscal 1998.
Selling, general, and administrative expenses as a percentage of revenues
remained constant at 14% in fiscal 1998 and 1997. Selling, general, and
administrative expenses increased primarily due to the inclusion of costs from
acquired companies.
33
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997 (CONTINUED)
Restructuring and nonrecurring items of $9.3 million in fiscal 1997
includes a charge at ThermoRetec of $7.8 million to write down certain capital
equipment and intangible assets in response to a severe downturn in its
soil-recycling business, which resulted in the closure of two soil-remediation
sites. The charge included a $2.2 million write-down of cost in excess of net
assets of acquired companies, which was nondeductible for tax purposes. In
addition, the Company's analysis indicated that the future undiscounted cash
flows from certain other soil-remediation sites that remained open would be
insufficient to recover ThermoRetec's investment in these business units, thus
requiring a write-down of certain assets, which is included in the $7.8 million
charge. In addition, restructuring and nonrecurring items in fiscal 1997
includes a $1.5 million loss on the sale of the Company's J. Amerika division
(Note 3).
Interest income decreased to $4.2 million in fiscal 1998 from $7.3
million in fiscal 1997 as a result of lower average investment balances
following the repayment of a $38.0 million promissory note to Thermo Electron,
the repurchase of Company and subsidiary common stock, as well as cash expended
for acquisitions. These decreases were offset in part by cash received from the
sale of the Company's thermal-processing equipment business and ThermoRetec's
interest in a joint venture (Note 3). Interest expense decreased to $10.8
million in fiscal 1998 from $12.9 million in fiscal 1997, primarily due to the
repayment of a promissory note to Thermo Electron and the conversion of the
Company's 6 1/2% subordinated convertible debentures during fiscal 1998.
The Company adopted a strategy of spinning out certain of its businesses
into separate subsidiaries and having these subsidiaries sell a minority
interest to outside investors. The Company believes that this strategy provides
additional motivation and incentives for the management of the subsidiaries
through the establishment of subsidiary-level stock option incentive programs,
as well as capital to support the subsidiaries' growth. As a result of the
issuance of common stock by Thermo EuroTech in fiscal 1997, the Company recorded
a gain of $1.5 million. This gain represents an increase in the Company's net
investment in the subsidiary and is classified as gain on issuance of stock by
subsidiary in the accompanying statement of operations. The Company does not
expect to have transactions that will result in such gains in the future.
Equity in earnings of unconsolidated subsidiary represents ThermoRetec's
proportionate share of income from a joint venture. Gain on sale of
unconsolidated subsidiary in fiscal 1998 resulted from ThermoRetec's sale of its
interest in this joint venture (Note 3).
The effective tax rates in fiscal 1998 and 1997 exceeded the statutory
federal income tax rate primarily due to the nondeductible amortization of cost
in excess of net assets of acquired companies and the impact of state income
taxes. The effective tax rate in fiscal 1997 was reduced by the effect of a
nontaxable gain on issuance of stock by subsidiary.
The Company recorded minority interest expense of $0.1 million in fiscal
1998, compared with minority interest income of $1.8 million in fiscal 1997,
primarily due to higher earnings from the Company's majority-owned subsidiaries
and the inclusion of minority interest expense associated with Randers (Note 3).
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $67.0 million at April 3, 1999, compared
with $69.3 million at April 4, 1998. Cash, cash equivalents, and
available-for-sale investments were $43.0 million at April 3, 1999, compared
with $36.7 million at April 4, 1998. Of the $43.0 million balance at April 3,
1999, $37.6 million was held by the Company's majority-owned subsidiaries and
the remainder was held by the Company and its wholly owned subsidiaries. During
fiscal 1999, $29.9 million of cash was provided by operating activities. During
this period, $7.7 million of cash was provided by an increase in other current
liabilities due to increased subcontract work at Randers Killam, as well as the
timing of payments, including restructuring costs (Note 13). This effect was
offset in part by an increase in unbilled contract costs and fees of $1.5
million, primarily due to the timing of billings on certain contracts.
Excluding available-for-sale and held-to-maturity investment activity,
the Company's investing activities in fiscal 1999 primarily consisted of capital
additions. The Company expended $17.4 million for purchases of property, plant,
and equipment in fiscal 1999 and expects to spend approximately $13.0 million
for capital additions during fiscal 2000.
34
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's financing activities used cash of $18.5 million in fiscal
1999. During fiscal 1999, the Company repaid notes payable totaling $14.7
million. In October 1998, the Company, through Thermo EuroTech (Delaware) Inc.,
issued $7.0 million principal amount of 2 1/2% subordinated convertible
debentures due 2001 in exchange for 1,646,854 common shares of the Company's
Thermo EuroTech N.V. subsidiary (Note 6). During fiscal 1999, the Company used
cash of $3.4 million to repurchase Company common stock pursuant to certain put
rights on shares issued in connection with an acquisition. The Company has cash
obligations to purchase additional shares under such arrangement aggregating
$3.4 million through fiscal 2002 (Note 9).
The Company generally expects to have positive cash flow from its
existing operations. Although the Company does not presently intend to actively
seek to acquire additional businesses in the near future, it may acquire one or
more complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. In addition, ThermoRetec's $38.0 million principal amount
4 7/8% subordinated convertible debentures mature on May 1, 2000. The maturity
of ThermoRetec's debentures could adversely affect the Company's liquidity in
the first quarter of fiscal 2001. The Company expects that it will finance any
such acquisitions and the redemption of such debentures through a combination
of internal funds and/or short-term borrowings from Thermo Electron, although
it has no agreement with Thermo Electron to ensure that funds will be available
on acceptable terms or at all. Except as described in this paragraph with
respect to ThermoRetec's debentures, the Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
MARKET RISK
The Company is exposed to market risk from changes in interest rates,
foreign currency exchange rates, and equity prices, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing activities.
FOREIGN CURRENCY EXCHANGE RATES
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in Dutch guilders. The effect
of a change in foreign exchange rates on the Company's net investment in foreign
subsidiaries is reflected in the "Accumulated other comprehensive items"
component of shareholders' investment. A 10% depreciation in fiscal year-end
1999 functional currencies, relative to the U.S. dollar, would result in
a $1.1 million reduction of shareholders' investment.
EQUITY PRICES
The Company's and its subsidiaries' subordinated convertible debentures
are sensitive to fluctuations in the price of Company or subsidiary common stock
into which the debentures are convertible. Changes in equity prices would result
in changes in the fair value of the Company's and its subsidiaries' subordinated
convertible debentures due to the difference between the current market price
and the market price at the date of issuance of the debentures. A 10% increase
in fiscal year-end 1999 market equity prices would result in a negative impact
to the Company of $1.0 million on the fair value of its subordinated convertible
debentures.
INTEREST RATES
The Company's subordinated convertible debentures are sensitive to
changes in interest rates. Interest rate changes would result in a change in the
fair value of the Company's and its subsidiaries' subordinated convertible
debentures due to the difference between the market interest rate and the rate
at the date of issuance of the debentures. A 10% decrease in fiscal year-end
1999 market interest rates would result in a negative impact to the Company of
$0.2 million on the fair value of its subordinated convertible debentures.
35
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARKET RISK (CONTINUED)
The Company's cash, cash equivalents, and variable-rate short- and
long-term obligations are sensitive to changes in interest rates. Interest rate
changes would result in a change in interest income and expense due to the
difference between the current interest rates on cash, cash equivalents, and the
variable-rate short- and long-term obligations and the rate that these financial
instruments may adjust to in the future. A 10% decrease in fiscal year-end 1999
interest rates would result in a negative impact of $0.1 million on the
Company's net income.
YEAR 2000
The following constitutes a "Year 2000 Readiness Disclosure" under the
Year 2000 Information and Readiness Disclosure Act. The Company continues to
assess the potential impact of the year 2000 date recognition issue on the
Company's internal business systems, services, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers and vendors; and (iii) developing a contingency plan.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications, and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company's efforts included testing the
year 2000 readiness of the utility and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any noncompliant systems or facilities that were identified during
phase one are prioritized and remediated. Based on its evaluations of its
critical facilities, the Company does not believe that any material upgrades or
modifications are required. The Company is currently upgrading or replacing its
material noncompliant information technology systems, and this process was
approximately 80% complete as of April 3, 1999. In many cases, such upgrades or
replacements are being made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company expects
that all of its material information technology systems and critical facilities
will be year 2000 compliant by October 1999.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that its business operations will be materially disrupted
by the year 2000 issue. The Company has started to follow up with significant
suppliers and vendors that have not responded to the Company's questionnaires.
The Company has not completed the majority of its assessment of third-party
risk, but expects to be substantially completed by October 1999.
CONTINGENCY PLAN
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required.
36
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $325,000 as of April 3, 1999, and the total
external costs of year 2000 remediation are expected to be approximately
$620,000. All of the external costs incurred as of April 3, 1999, were spent on
testing and upgrading information technology systems. In fiscal year 1999, an
immaterial amount of the Company's total information technology budget was spent
on year 2000 issues. All internal costs and related external costs, other than
capital additions, related to year 2000 remediation have been and will continue
to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
problems in its material information technology systems that cause the Company
to be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations, and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
37
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in fiscal 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
DEPENDENCE ON ENVIRONMENTAL REGULATION. Federal, state, and local
environmental laws govern each of the markets in which the Company conducts
business, as well as many of the Company's operations. The markets for many of
the Company's services, including industrial-remediation services,
nuclear-remediation services, hazardous waste-remedial construction services,
soil-remediation services, waste-fluids recycling services, engineering and
design services, and laboratory services, and the standards governing most
aspects of the construction and operation of the Company's facilities, were
directly or indirectly created by, and are dependent on, the existence and
enforcement of those laws. There can be no assurance that these laws and
regulations will not change in the future, requiring new technologies or
stricter standards with which the Company must comply. In addition, there can be
no assurance that these laws and regulations will not be made more lenient in
the future, thereby reducing the size of the markets addressed by the Company.
Any such change in such federal, state, and local environmental laws and
regulations may have a material adverse effect on the Company's business.
Responsibility for establishing and enforcing certain federal policies,
such as the federal underground storage tank policy, has been delegated to the
states, which are not only required to establish regulatory programs, but are
also permitted to mandate more stringent requirements than are otherwise
required by federal law. Recently, certain states have adopted a "risk-based"
approach to prioritizing site cleanups and setting cleanup standards, which
attempts to balance the costs of remediation against the potential harm to human
health and the environment from leaving sites unremediated. There can be no
assurance that additional states will not adopt these policies or that these
policies will not reduce the size of the potential market addressed by the
Company.
POTENTIAL ENVIRONMENTAL AND REGULATORY LIABILITY. The Company's
operations are subject to comprehensive laws and regulations related to the
protection of the environment. Among other things, these laws and regulations
impose requirements to control air, soil, and water pollution, and regulate
health, safety, zoning, land use, and the handling and transportation of
hazardous and nonhazardous materials. Such laws and regulations also impose
liability for remediation and cleanup of environmental contamination, both
on-site and off-site, resulting from past and present operations. These
requirements may also be imposed as conditions to operating permits or licenses
that are subject to renewal, modification, or revocation. Existing laws and
regulations, and new laws and regulations, may require the Company to modify,
supplement, replace, or curtail its operating methods, facilities, or equipment
at costs which may be substantial without any corresponding increase in revenue.
The Company is also potentially subject to monetary fines, penalties,
remediation, cleanup or stop orders, injunctions, or orders to cease or suspend
certain of its practices. The outcome of any proceedings and associated costs
and expenses could have a material adverse impact on the Company's business. In
addition, the Company is subject to numerous laws and regulations related to the
protection of human health and safety. Such laws and regulations may pose
liability on the Company for exposure of its employees to radiation or other
hazardous contamination or failure to isolate and remove radioactive or other
hazardous contaminants from soil.
The Company endeavors to operate its business to minimize its exposure to
environmental and other regulatory liabilities. Although no claims giving rise
to such liabilities have been asserted by the Company's customers or employees
to date, there can be no assurance that such claims cannot or will not be
asserted against the Company.
UNCERTAINTY OF FUNDING. Remediation compliance requirements and attendant
costs are often beyond the financial capabilities of individuals and small
companies. To address this problem, some states have established tax-supported
trust funds to assist in the financing of compliance and site remediation. As a
consequence, in many of the states in which the Company markets its soil
remediation services, the majority, and in some cases virtually all, of the soil
remediated by the Company is paid for by large companies and/or these state
trust funds. Any substantial decrease
38
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
in this funding could have a material adverse effect on the Company's business
and financial performance. Many states have realized that the number of sites
requiring remediation and the costs of compliance are substantially higher than
were originally estimated. As a result, several states have relaxed enforcement
activities and others have reduced compliance requirements in order to reduce
the costs of cleanup. These factors have already resulted in lower levels of
cleanup activity in some states and have had a material adverse effect on the
Company's business. Continued de-emphasis on enforcement activities and/or
further reductions in compliance requirements will have an even more severe
adverse effect on the Company's business.
The Company depends on funding from the federal and state governments,
and their agencies and instrumentalities, for compensation for its services. For
example, ThermoRetec's nuclear-remediation business provides a large portion of
its services directly or indirectly to the U.S. Department of Energy (DOE) and
the Company's engineering and design businesses perform significant amounts of
services for state and municipal governments. Thermo NUtech has experienced a
decrease in its radiochemistry laboratory work as a result of ongoing reductions
in spending at the DOE as well as a shift in DOE spending from investigative
work to cleanup work. Continued declines in spending by DOE and other
governmental agencies could have a material adverse effect on the Company's
business.
COMPETITION. The markets for many of the Company's services are regional
and are characterized by intense competition from numerous local competitors.
Some of the Company's competitors have greater technical and financial resources
than those of the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their services than the
Company. Competition could increase if new companies enter the market or its
existing competitors expand their service lines. There can be no assurance that
the Company's current technology, technology under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively
with its competitors.
SEASONAL INFLUENCES. A majority of the Company's businesses experience
seasonal fluctuations. A majority of the Company's soil-remediation sites, as
well as the Company's fluids-recycling sites, experience declines in revenues if
severe weather conditions occur. Site remediation work and certain environmental
testing services, such as the services provided by Lancaster Laboratories,
ReTec, Randers, IEM Sealand, and Thermo NUtech, may decline in winter months as
a result of severe weather conditions. In Europe, Thermo EuroTech may experience
a decline in the feedstock delivered to and from its facilities during winter
months due to frozen waterways.
POSSIBLE OBSOLESCENCE DUE TO TECHNOLOGICAL CHANGE. Technological
developments are expected to continue at a rapid pace in the environmental
services industry. The Company's technologies could be rendered obsolete or
uneconomical by technological advances by one or more companies that address the
Company's markets or by future entrants into the industry. There can be no
assurance that the Company would have the resources to, or otherwise would be
successful in, developing responses to technological advances by others.
DEPENDENCE OF THERMO EUROTECH ON AVAILABILITY OF WASTE OIL SUPPLIES.
Thermo EuroTech's North Refinery facility has historically received a large
percentage of its oil feedstock from the former Soviet Union. North Refinery no
longer receives any oil from that nation, due to political and economic changes
that have made the transportation of waste oil difficult. To overcome this loss
of supply, North Refinery has taken steps to replace and diversify its feedstock
suppliers. No assurance can be given, however, that North Refinery will not
experience future disruptions in deliveries. Any such disruptions could have a
material adverse effect on the Company's results of operations.
39
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
POTENTIAL PROFESSIONAL LIABILITY. The Company's business exposes it to
potential liability for the negligent performance of its services, and the
Company could face substantial liability to clients and third parties for
damages resulting from faulty designs or other professional services. The
Company currently maintains professional errors and omissions insurance, but
there can be no assurance that this insurance will provide sufficient coverage
in the event of a claim, that the Company will be able to maintain such coverage
on acceptable terms, if at all, or that a professional liability claim would not
result in a material adverse effect on the Company's business, financial
condition, and results of operations.
DEPENDENCE ON SALES TO GOVERNMENT ENTITIES. A significant portion of the
Company's revenues is derived from municipalities, state governments, and
government utility authorities. Any decreases in purchases by these entities,
including, without limitation, decreases resulting from shifts in priorities or
overall budgeting limitations, could have a material adverse effect on the
Company's business, financial condition, and results of operations. In addition,
most of the Company's contracts require the Company to perform specific services
for a fixed fee. Contracts with governmental entities often permit the purchaser
to cancel the agreement at any time. A significant overrun in the Company's
expenses or cancellation of a significant contract could also result in a
material adverse effect on the Company's business, financial condition, and
results of operations. The Company's contracts with governmental entities are
also subject to other risks, including contract suspensions; protests by
disappointed bidders of contract awards, which can result in the re-opening of
the bidding process; and changes in government policies or regulations.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY. The Company's strategy
includes the acquisition of businesses that complement or augment the Company's
existing services. The Company does not presently intend to actively seek to
make additional acquisitions in the near future, and expects instead to
concentrate its resources on strengthening its core businesses. The Company may,
however, acquire one or more additional businesses if they are presented to the
Company on terms the Company believes to be attractive.
Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the need
for regulatory approvals. Any acquisitions completed by the Company may be made
at substantial premiums over the fair value of the net assets of the acquired
companies. There can be no assurance that the Company will be able to complete
future acquisitions or that the Company will be able to successfully integrate
any acquired businesses. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds through public or private
financings. Any equity or debt financing, if available at all, may be on terms
that are not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's shareholders.
RISKS ASSOCIATED WITH SPIN-OUT OF SUBSIDIARIES. The Company adopted a
strategy of spinning out certain of its businesses into separate subsidiaries
and having these subsidiaries sell a minority interest to outside investors. As
a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures, and similar
transactions, the Company records gains that represent the increase in the
Company's net investment in the subsidiaries. These gains have represented a
substantial portion of the net income reported by the Company in certain
periods. The Company does not expect to have transactions that will result in
such gains in the future.
40
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
NO ASSURANCE OF DEVELOPMENT AND COMMERCIALIZATION OF TECHNOLOGY UNDER
DEVELOPMENT. The Company is currently engaged in the development of several
technologies that may ultimately be commercialized to provide services to
customers. There are a number of technological challenges that the Company must
successfully address to complete any of its development efforts. Technology
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such technology.
There can be no assurance that any of the technologies currently being developed
by the Company, or those to be developed in the future by the Company, will be
technologically feasible or accepted by the marketplace, or that any such
development will be completed in any particular timeframe.
RISKS ASSOCIATED WITH CASH MANAGEMENT ARRANGEMENT WITH THE PARENT
COMPANY. The Company participates in a cash management arrangement with its
parent company, Thermo Electron. Under this cash management arrangement, the
Company lends its excess cash to Thermo Electron on an unsecured basis. The
Company has the contractual right to withdraw its funds invested in the cash
management arrangement upon 30 days' prior notice. Thermo Electron is
contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
the cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The funds are held on an unsecured basis and
therefore are subject to the credit risk of Thermo Electron. The Company's
ability to receive its cash upon notice of withdrawal could be adversely
affected if participants in the cash management arrangement demand withdrawal of
their funds in an aggregate amount in excess of the 50% reserve required to be
maintained by Thermo Electron. In the event of a bankruptcy of Thermo Electron,
the Company would be treated as an unsecured creditor and its right to receive
funds from the bankruptcy estate would be subordinated to secure creditors and
would be treated on a pari passu basis with all other unsecured creditors.
Further, all cash withdrawn by the Company from the cash management arrangement
within one year before the bankruptcy would be subject to rescission. The
inability of Thermo Electron to return the Company's cash on a timely basis or
at all could have a material adverse effect on the Company's results of
operations and financial position.
POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING DATE-SENSITIVE INFORMATION.
While the Company is attempting to minimize any negative consequences arising
from the year 2000 issue, there can be no assurance that year 2000 problems will
not have a material adverse impact on the Company's business, operations, or
financial condition. While the Company expects that upgrades to its internal
business systems will be completed in a timely fashion, there can be no
assurance that the Company will not encounter unexpected costs or delays. Some
services provided by the Company involve the delivery to clients of third-party
software and hardware. In addition, certain older third-party products, which
the Company no longer uses in providing its services to clients, may not be year
2000 compliant, which may expose the Company to claims. As discussed above, if
any of the Company's key suppliers or vendors experience business disruptions
due to year 2000 issues, the Company might also be materially adversely
affected. There is expected to be a significant amount of litigation relating to
the year 2000 issue and there can be no assurance that the Company will not
incur material costs in defending or bringing lawsuits. In addition, if any year
2000 issues are identified, there can be no assurance that the Company will be
able to retain qualified personnel to remedy such issues. Any unexpected costs
or delays arising from the year 2000 issue could have a material adverse impact
on the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
41
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995
- ------------------------------------------------------------- ------------ ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 310,039 $ 298,786 $ 278,503 $ 220,484 $ 136,985
Net Income (Loss) (1,421) 3,273 (162) 3,447 4,476
Earnings (Loss) per Share:
Basic (.07) .18 (.01) .20 .26
Diluted (.07) .17 (.01) .18 .26
BALANCE SHEET DATA
Working Capital $ 67,043 $ 69,319 $ 77,315 $ 66,008 $ 63,459
Total Assets 351,698 360,526 393,784 333,656 273,298
Long-term Obligations 158,617 153,144 165,186 155,384 96,851
Shareholders' Investment 92,157 97,130 83,526 85,870 77,217
</TABLE>
(a) Reflects a $10.2 million pretax charge for restructuring costs.
(b) Reflects a pretax gain of $3.0 million from ThermoRetec's sale of its
investment in a joint venture.
(c) Reflects $7.8 million of nonrecurring costs and a loss $1.5 million
relating to the sale of the Company's J. Amerika division. Also reflects
the issuance of $115.0 million principal amount of 4 7/8% subordinated
convertible debentures, and a gain on issuance of stock by subsidiary of
$1.5 million.
(d) Reflects the acquisition of Lancaster Laboratories in May 1995, the
purchase of the businesses formerly operated by the environmental services
joint venture from Thermo Instrument Systems Inc., and the issuance of a
$35.0 million promissory note to Thermo Electron to fund the purchase.
Reflects ThermoRetec's acquisition of ReTec in December 1995, the
issuance of $38.0 million principal amount of 4 7/8% subordinated
convertible debentures by ThermoRetec, and a gain on issuance of stock
by subsidiaries of $4.1 million. Also reflects the write-off of goodwill
of $5.0 million and a loss on the sale of assets of $0.6 million.
42
<PAGE>
THERMO TERRATECH INC. 1999 FINANCIAL STATEMENTS
COMMON STOCK MARKET INFORMATION
The Company's common stock is traded on the American Stock Exchange under
the symbol TTT. The following table sets forth the high and low sales prices of
the Company's common stock for fiscal 1999 and 1998, as reported in the
consolidated transaction reporting system.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
--------------------- -------------------
Quarter High Low High Low
- ---------------------------------------------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
First $6 3/4 $4 1/2 $11 1/8 $8 1/8
Second 5 3 3/4 12 1/16 9 7/8
Third 4 3 15/16 9 15/16 8 5/8
Fourth 5 3/4 4 3/8 8 3/16 6 5/8
</TABLE>
As of April 30, 1999, the Company had 923 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
April 30, 1999, was $4 3/16 per share.
Common stock of ThermoRetec Corporation and The Randers Killam Group
Inc., the Company's majority-owned public subsidiaries, are traded on the
American Stock Exchange (symbols THN and RGI, respectively).
DIVIDEND POLICY
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements, and financial condition.
43
<PAGE>
APPENDIX D
AMENDMENT NO. 1 ON FORM 10-K/A TO
ANNUAL REPORT ON FORM 10-K OF THERMO TERRATECH
FOR THE FISCAL YEAR ENDED APRIL 3, 1999
D-1
<PAGE>
Appendix D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------------------
AMENDMENT NO. 1 ON FORM 10-K/A
TO FORM 10-K
(mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
Commission file number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its character)
Delaware 04-2925807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of April 30, 1999, was approximately $9,493,354.
As of April 30, 1999, the Registrant had 19,049,354 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended April 3, 1999, are incorporated by reference into Parts I and II.
<PAGE>
Items 10, 11, 12 & 13 of Part III of the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 3, 1999 are hereby amended and restated in their
entirety as follows:
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Set forth below are the names of the directors, their ages, their
offices in Thermo TerraTech Inc. ("Thermo TerraTech" or the "Company"), if any,
their principal occupation or employment for the past five years, the length of
their tenure as directors and the names of other public companies in which such
persons hold directorships. Information regarding their beneficial ownership of
the Company's Common Stock and of the common stock of its parent company, Thermo
Electron Corporation ("Thermo Electron"), a provider of products and services in
measurement instrumentation, biomedical devices, energy, resource recovery, and
emerging technologies, and of its majority-owned subsidiaries, ThermoRetec
Corporation ("ThermoRetec") and The Randers Killam Group Inc. ("Randers"), is
reported in Item 12 - Security Ownership of Certain Beneficial Owners and
Management.
- --------------------------------------------------------------------------------
JOHN P. APPLETON Dr. Appleton, 64, has been president, chief executive
officer and a director of the Company since September
1993. Dr. Appleton has served as a vice president of
Thermo Electron since 1975 in various managerial
capacities. He was the chief executive officer of
ThermoRetec from September 1993 until May 1997. Dr.
Appleton also serves as the chairman of the board and a
director of Randers and ThermoRetec.
- --------------------------------------------------------------------------------
JOHN N. HATSOPOULOS Mr. Hatsopoulos, 65, has been a director of the Company
since 1986. He served as a vice president of the Company
and its chief financial officer from 1988 until December
1997 and December 1998, respectively. Mr. Hatsopoulos
was the senior vice president of the Company from
December 1997 until his retirement in December 1998. Mr.
Hatsopoulos was the president of Thermo Electron from
1997 to 1998 and its chief financial officer from 1988
to 1998. Prior to his appointment as president of Thermo
Electron, he served as an executive vice president from
1986 until 1998. Mr. Hatsopoulos is also a director of
LOIS/USA Inc., Thermedics Inc., Thermo Electron, Thermo
Fibertek Inc., Thermo Instrument Systems Inc., Thermo
Power Corporation and US Liquids Inc.
- --------------------------------------------------------------------------------
BRIAN D. HOLT Mr. Holt, 50, has been a director of the Company since
1997. Mr. Holt has been the president and chief
executive officer of Thermo Ecotek Corporation, a
majority-owned subsidiary of Thermo Electron that is
involved in clean-power resources, clean fuels, and
naturally derived products for protecting crops since
February 1994. He has been the chief operating officer,
environmental and energy, of Thermo Electron since
September 1998. From March 1996 to September 1998, he
was a vice president of Thermo Electron. For more than
five years prior to his appointment as an officer of
Thermo Ecotek Corporation, he was president and chief
executive officer of Pacific Generation Company, a
financier, builder, owner and operator of independent
power facilities. Mr. Holt is also a director of KFx,
Inc., Randers, Thermo Ecotek Corporation, Thermo Power
Corporation and ThermoRetec.
- --------------------------------------------------------------------------------
DONALD E. NOBLE Mr. Noble, 84, has been a director of the Company since
1986 and served as chairman of the board from 1992 to
November 1994. For more than 20 years, from 1959 to
1980, Mr. Noble served as the chief executive officer of
Rubbermaid Incorporated, first with the title of
president and then as the chairman of the board. Mr.
Noble is also a director of Thermo Electron, Thermo
Fibertek Inc., Thermo Power Corporation and Thermo
Sentron Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WILLIAM A. RAINVILLE Mr. Rainville, 57, has been a director of the Company
since February 1993 and was chairman of the board from
November 1994 through February 1997. Mr. Rainville has
been president and chief executive officer of Thermo
Fibertek Inc., a majority-owned subsidiary of Thermo
Electron that develops and manufactures equipment and
products for the papermaking and paper-recycling
industries, since its inception in 1991 and has been the
chief operating officer, recycling and recovery, of
Thermo Electron since September 1998. Prior to that
time, Mr. Rainville was a senior vice president of
Thermo Electron from March 1993 to September 1998; and a
vice president of Thermo Electron from 1986 to 1993. Mr.
Rainville is also a director of Thermo Ecotek
Corporation, Thermo Fibergen Inc., Thermo Fibertek Inc.
and ThermoRetec.
- --------------------------------------------------------------------------------
POLYVIOS C. VINTIADIS Mr. Vintiadis, 63, has been a director of the Company
since September 1992 and chairman of the board since
February 1997. Mr. Vintiadis has been the chairman and
chief executive officer of Towermarc Corporation, a real
estate development company, since 1984. Prior to joining
Towermarc, Mr. Vintiadis was a principal of Morgens,
Waterfall & Vintiadis, Inc., a financial services firm,
with whom he remains associated. For more than 20 years
prior to that time, Mr. Vintiadis was employed by Arthur
D. Little & Company, Inc. Mr. Vintiadis is also a
director of Spectra-Physics Lasers, Inc. and Thermo
Instrument Systems Inc.
- --------------------------------------------------------------------------------
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The board of directors has established an audit committee and a human
resources committee, each consisting solely of directors who are not employees
of the Company, of Thermo Electron or of any other companies affiliated with
Thermo Electron (also referred to as "outside directors"). The present members
of the audit committee are Mr. Vintiadis (Chairman) and Mr. Noble. The audit
committee reviews the scope of the audit with the Company's independent public
accountants and meets with them for the purpose of reviewing the results of the
audit subsequent to its completion. The present members of the human resources
committee are Mr. Noble (Chairman) and Mr. Vintiadis. The human resources
committee reviews the performance of senior members of management, recommends
executive compensation and administers the Company's stock option and other
stock-based compensation plans. The Company does not have a nominating committee
of the board of directors. The board of directors met four times, the audit
committee met twice and the human resources committee met four times during
fiscal 1999. Each director attended at least 75% of all meetings of the board of
directors and committees on which he served held during fiscal 1999, except for
Mr. Rainville, who attended 50% of such meetings. Mr. Rainville is also the
president and chief executive officer of Thermo Fibertek Inc., another
majority-owned subsidiary of Thermo Electron, and is required to travel
extensively in his position. Mr. Rainville missed two meetings due to travel on
company business.
The board of directors has also established a special committee (the
"Special Committee") consisting solely of one outside director for the purpose
of evaluating the merits and negotiating the terms of the proposed transaction
with Thermo Electron pursuant to which the Company would be taken private,
considering such alternatives as the Special Committee deems appropriate and
making a recommendation to the full board of directors on whether or not to
approve any such proposed transaction. See Item 13 - Certain Relationships and
Related Transactions. The sole member of the Special Committee is Mr. Vintiadis.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Outside directors receive an annual retainer of $4,000 and a fee of
$1,000 per day for attending regular meetings of the board of directors and $500
per day for participating in meetings of the board of directors held by means of
conference telephone and for participating in certain meetings of committees of
the board of directors. The non-employee chairman of the board, Mr. Vintiadis,
receives an additional meeting fee for his services equal to $1,000 per day for
attending regular meetings of the board of directors and $500 per
<PAGE>
day for participating in meetings of the board of directors held by means of
conference telephone. Payment of directors' fees is made quarterly. Dr.
Appleton, Mr. Holt and Mr. Rainville are all employees of Thermo Electron or its
subsidiaries and do not receive any cash compensation from the Company for their
services as directors. Mr. Hatsopoulos, who is a consultant to Thermo Electron,
does not receive any cash compensation from the Company for his services as a
director during the term of his consulting agreement, which terminates December
2003. Directors are also reimbursed for out-of-pocket expenses incurred in
attending such meetings.
In addition, the member of the Special Committee receives a one-time
retainer of $20,000 and a fee of $1,000 per day for attending regular meetings
of the Special Committee and $500 per day for participating in meetings of the
Special Committee held by means of conference telephone.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Under the Company's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change in control or proposed change in
control of the Company that is not approved by the board of directors, deferred
amounts become payable immediately. Either of the following is deemed to be a
change of control: (a) the acquisition, without the prior approval of the board
of directors, directly or indirectly, by any person of 50% or more of the
outstanding Common Stock or 25% or more of the outstanding common stock of
Thermo Electron; or (b) the failure of the persons serving on the board of
directors immediately prior to any contested election of directors or any
exchange offer or tender offer for the Common Stock or the common stock of
Thermo Electron to constitute a majority of the board of directors at any time
within two years following any such event. Amounts deferred pursuant to the
Deferred Compensation Plan are valued at the end of each quarter as units of the
Company's Common Stock. When payable, amounts deferred may be disbursed solely
in shares of Common Stock accumulated under the Deferred Compensation Plan. A
total of 41,416 shares of Common Stock have been reserved for issuance under the
Deferred Compensation Plan. As of April 3, 1999, deferred units equal to
approximately 32,352 full shares of Common Stock were accumulated for current
directors under the Deferred Compensation Plan.
DIRECTORS STOCK OPTION PLAN
The Company's directors stock option plan (the "Directors Plan")
provides for the grant of stock options to purchase shares of Common Stock of
the Company and its majority-owned subsidiaries to outside directors as
additional compensation for their service as directors. Under the Directors
Plan, outside directors are automatically granted options to purchase 1,000
shares of Common Stock annually and are also automatically granted every five
years options to purchase 1,500 shares of the common stock of a majority-owned
subsidiary of the Company that is "spun out" to outside investors.
Pursuant to the Directors Plan, outside directors receive an annual
grant of options to purchase 1,000 shares of Common Stock pursuant to the
Directors Plan at the close of business on the date of each Annual Meeting of
the Stockholders of the Company. Options evidencing annual grants may be
exercised at any time from and after the six-month anniversary of the grant date
of the option and prior to the expiration of the option. Options granted under
this provision before 1995 expire after seven years; commencing in 1995, the
option term was shortened to three years. Shares acquired upon exercise of the
options are subject to repurchase by the Company at the exercise price if the
recipient ceases to serve as a director of the Company or any other Thermo
Electron company prior to the first anniversary of the grant date.
In addition, under the Directors Plan, outside directors are
automatically granted every five years options to purchase 1,500 shares of
common stock of each majority-owned subsidiary of the Company that is "spun out"
to outside investors. The grant occurs on the close of business on the date of
the first Annual Meeting of the Stockholders next following the subsidiary's
spinout, which is the first to occur of either an initial public offering of the
subsidiary's common stock or a sale of such stock to third parties in an
arms-length transaction, and also as of the close of business on the date of
every fifth Annual Meeting of the Stockholders of the Company that occurs
thereafter during the duration of the Plan. The options granted vest
<PAGE>
and become exercisable on the fourth anniversary of the date of grant, unless
prior to such date the subsidiary's common stock is registered under Section 12
of the Securities Exchange Act of 1934, as amended ("Section 12 Registration").
In the event that the effective date of Section 12 Registration occurs before
the fourth anniversary of the grant date, the option will become immediately
exercisable 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 the event of Section 12
Registration, the restrictions and repurchase rights shall lapse or be deemed to
lapse at the rate of 25% per year, starting with the first anniversary of the
grant date. These options expire after five years.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of May 31, 1999, options to purchase 27,700 shares of Common Stock had been
granted under the Director's Plan, of which 16,900 were outstanding, 5,000 had
lapsed, 5,800 had been exercised; and options to purchase 52,300 shares of
Common Stock were reserved and available for future grant.
DISCRETIONARY GRANTS OF STOCK OPTIONS TO DIRECTORS
In addition to stock options granted pursuant to the Directors Plan,
the Company may also make discretionary grants of stock options to directors.
Beginning in fiscal 1997, the non-employee chairman of the board has received
annually a discretionary grant of options to purchase an additional 1,000 shares
of Common Stock of the Company. The exercise price for discretionary option
grants is calculated in the same manner as for options granted pursuant to the
Director's Plan, and the grant is awarded at the first regular meeting of the
board of directors following the Annual Meeting of the Stockholders in
conjunction with the chairman's annual appointment as chairman of the board.
STOCK OWNERSHIP POLICIES FOR DIRECTORS
The human resources committee of the board of directors (the
"Committee") has established a stock holding policy for directors. The stock
holding policy requires each director to hold a minimum of 1,000 shares of
Common Stock. Directors are requested to achieve this ownership level within a
three-year period. The chief executive officer of the Company is required to
comply with a separate stock holding policy established by the Committee, which
is described in Item 11 - Executive Compensation - Stock Ownership Policies.
In addition, the Committee has adopted a policy requiring directors to
hold shares of the Company's Common Stock equal to one-half of their net option
exercises over a period of five years. The net option exercise is determined by
calculating the number of shares acquired upon exercise of a stock option, after
deducting the number of shares that could have been traded to exercise the
option and the number of shares that could have been surrendered to satisfy tax
withholding obligations attributable to the exercise of the option. This policy
is also applicable to executive officers and is described in Item 11 - Executive
Compensation - Stock Ownership Policies.
EXECUTIVE OFFICERS
Reference is made to Item 1(e) of this Report for information regarding
the Executive Officers of the Registrant.
ITEM 11 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<PAGE>
NOTE: All share data for the common stock of Randers has been adjusted to
reflect a one-for-five reverse stock split effected in February 1999.
The following table summarizes compensation during the last three
fiscal years for services to the Company in all capacities awarded to, earned by
or paid to the Company's chief executive officer and its two other most highly
compensated executive officers. These executive officers are together referred
to as the "named executive officers." No other executive officer of the Company
met the definition of "highly compensated" within the meaning of the Securities
and Exchange Commission's executive compensation disclosure rules.
The Company is required to appoint certain executive officers and
full-time employees of Thermo Electron as executive officers of the Company, in
accordance with the Thermo Electron Corporate Charter. The compensation for
these executive officers is determined and paid entirely by Thermo Electron. The
time and effort devoted by these individuals to the Company's affairs is
provided to the Company under the Corporate Services Agreement between the
Company and Thermo Electron. See Item 13 - Certain Relationships and Related
Transactions. Accordingly, the compensation for these individuals is not
reported in the following table.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION
-------------------
RESTRICTED SECURITIES
NAME AND FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD (1) OPTIONS (2) COMPENSATION (3)
- ------------------ ---- ------ ----- ------------ --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Appleton (4) 1999 $189,000 $103,500 -- -- -- $17,455 (6)
President and 1998 $175,500 $0 (5) -- -- 60,000 (TTT) $ 5,762 (6)
Chief Executive 120,000 (RGI)
Officer 1997 $165,375 $90,000 -- -- -- $ 6,919
- ------------------------------------------------------------------------------------------------------------------------
Emil C. Herkert 1999 $214,000 $65,000 $37,391 (7) $109,125 8,000 (TTT) $26,202
Vice President 6,100 (TMO)
10,000 (RGI)
1998 $207,000 $0 (5) $48,188 (7) -- 300 (TMO) $18,325
2,000 (MKA)
2,000 (ONX)
240,000 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $200,000 $100,000 $37,186 (7) -- 300 (TMO) $ 4,189
- ------------------------------------------------------------------------------------------------------------------------
Jeffrey L. Powell 1999 $145,000 $44,000 -- $49,500 5,000 (TTT) $ 8,237 (8)
Vice President 1,000 (TMO)
1998 $145,000 $0 (5) -- -- 700 (TMO) $60,304 (8)
2,000 (MKA)
2,000 (ONX)
24,000 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $122,000 $40,000 -- -- 600 (TMO) $ 7,023
2,000 (TFG)
6,000 (TOC)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) In fiscal 1999, Mr. Herkert and Mr. Powell were awarded 19,400 and
8,800 shares, respectively, of restricted stock of the Company with a
value of $109,125 and $49,500, respectively, on the grant date. The
restricted stock awards vest in their entirety on January 2, 2002.
Dividends are payable on restricted stock. At the end of fiscal 1999,
Mr. Herkert and Mr. Powell held 19,400 and 8,800 shares, respectively,
of restricted stock with an aggregate value of $97,000 and $44,000,
respectively.
(2) Options to purchase Common Stock granted by the Company are designated
in the table as "TTT". In addition, the named executive officers have
also been granted options to purchase the common stock of the following
Thermo Electron companies during the last three fiscal years as part of
Thermo Electron's stock option program: Thermo Electron (designated in
the table as TMO), Metrika Systems Corporation (designated in the table
as MKA), ONIX Systems Inc. (designated in the table as ONX), Randers
(designated in the table as RGI), Thermedics Detection Inc. (designated
in the table as TDX), Thermo Fibergen Inc. (designated in the table as
TFG), Thermo Information Solutions Inc. (designated in the table as
TISI), Thermo Optek Corporation (designated in the table as TOC),
Thermo Trilogy Corporation (designated in the table as TRIL), Thermo
Vision Corporation (designated in the table as VIZ) and Trex
Communications Corporation (designated in the table as TRCC).
(3) Represents the amount of matching contributions made by the
individual's employer on behalf of the named executive officers
participating in Thermo Electron's 401(k) plan or, in the case of Mr.
Herkert, the Elson T. Killam Savings and Investment Plan.
(4) Dr. Appleton has served in various management capacities for the
Company and its subsidiaries and has served as an officer of Thermo
Electron during the past three fiscal years. A portion of Dr.
Appleton's annual cash compensation (salary and bonus) has been
allocated to and paid by Thermo Electron over each of the past three
fiscal years as compensation for the services provided to Thermo
Electron. The annual cash compensation reported in the table for Dr.
Appleton represents the amounts paid by the Company and its
subsidiaries solely for Dr. Appleton's services as an officer of the
Company or its subsidiaries. Approximately 90% of Dr. Appleton's annual
cash compensation (salary and bonus) earned in all capacities
throughout the Thermo Electron organization was paid by the Company and
its subsidiaries for his services to the Company and its subsidiaries
in each of fiscal 1999, 1998 and 1997. These percentages include the
allocation to ThermoRetec of 20% of Dr. Appleton's annual cash
compensation (salary and bonus) in each of fiscal 1998 and 1997 for Dr.
Appleton's services as ThermoRetec's chief executive officer. Salary
and bonus paid to Dr. Appleton in 1997 reflect compensation decisions
based on calendar year performance, in accordance with Thermo
Electron's compensation practices for its officers. The salary and
bonuses paid to Dr. Appleton for periods after 1998 reflect
compensation decisions based on fiscal year performance. From time to
time in the past, Dr. Appleton has been, and in the future may be,
granted options to purchase common stock of Thermo Electron and certain
of its subsidiaries other than the Company. These options are not
reported in this table as they were granted as compensation for
services to other Thermo Electron companies in capacities other than in
his capacity as the president and chief executive officer of the
Company.
(5) Dr. Appleton, Mr. Herkert and Mr. Powell elected to forego their
bonuses for fiscal 1998 in light of the Company's operating and stock
price performance in fiscal 1998.
(6) In addition to the matching contribution referred to in footnote (3),
such amount includes $10,086 and $2,262, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest-free loans provided to Dr. Appleton pursuant to the stock
holding assistance plans of the Company and ThermoRetec. See Item 13 -
Certain Relationships and Related Transactions - Stock Holding
Assistance Plans.
(7) This amount includes payments of $20,000 plus an additional gross-up
amount of $17,186 to compensate for the federal and state income tax
liability attributable to such payments in fiscal 1999, 1998 and 1997
made to Mr. Herkert pursuant to the terms of a certain Deferred
Compensation Agreement with Elson T. Killam Associates.
<PAGE>
(8) In addition to the matching contribution referred to in footnote (3),
such amount includes the reimbursement by the Company of $50,000 in
expenses associated with Mr. Powell's relocation to Concord,
Massachusetts in fiscal 1998 and $3,218 and $932, which represents the
amount of compensation in fiscal 1999 and 1998, respectively,
attributable to interest-free loans provided to Mr. Powell pursuant
to the stock holding assistance plan of ThermoRetec. See Item 13 -
Certain Relationships and Related Transactions - Stock Holding
Assistance Plans.
STOCK OPTIONS GRANTED DURING FISCAL 1999
The following table sets forth information concerning individual grants
of stock options made during fiscal 1999 to the Company's named executive
officers. It has not been the Company's policy in the past to grant stock
appreciation rights, and no such rights were granted during fiscal 1999.
Dr. Appleton has served as a vice president of Thermo Electron since
1975 and from time to time has been granted options to purchase common stock of
Thermo Electron and certain of its subsidiaries other than the Company and its
majority-owned subsidiaries. These options are not reported in this table as
they were granted as compensation for services to other Thermo Electron
companies in capacities other than in his capacity as the chief executive
officer of the Company.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1999
- -------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE APPRECIATION FOR
GRANTED AND COMPANY EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM (2)
NAME (1) FISCAL YEAR SHARE DATE 5% 10%
---- --- ------------ ----- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
John P. Appleton -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Emil C. Herkert 8,000 (TTT) 1.02% $5.03 2/24/04 $11,120 $24,560
300 (TMO) 0.01% (3) $34.50 6/2/03 $2,859 $6,318
5,800 (TMO) 0.14% (3) $16.20 9/23/03 $25,984 $57,362
10,000 (RGI) 2.33% (3) $2.50 2/24/04 $6,900 $15,300
- ---------------------------------------------------------------------------------------------------------------
Jeffrey L. Powell 5,000 (TTT) 0.64% $5.03 2/24/04 $6,950 $15,350
1,000 (TMO) 0.02% (3) $34.50 6/2/03 $9,530 $21,060
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during the fiscal year are immediately
exercisable at the date of grant. In all cases, the shares acquired
upon exercise are subject to repurchase by the granting company at the
exercise price if the optionee ceases to be employed by such company or
any other Thermo Electron company. The granting company may exercise
its repurchase rights within six months after the termination of the
optionee's employment. The repurchase rights generally lapse ratably
over a one- to five-year period, depending on the option term, which
may vary from five to ten years, provided the optionee continues to be
employed by the granting company or any other Thermo Electron company.
The granting company may permit the holder of options to exercise
options and to satisfy tax withholding obligations by surrendering
shares equal in fair market value to the exercise price or withholding
obligation. Please see footnote (2) under Summary Compensation Table
above for the company abbreviations used in this table.
(2) The amounts shown on this table represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration date. The gains
shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the
future performance of the common stock of the applicable corporation,
the optionee's continued employment through the option period and the
date on which the options are exercised.
(3) These options were granted under stock option plans maintained by
Thermo Electron or its subsidiaries other than the Company as part of
Thermo Electron's compensation program and accordingly are
reported as a percentage of total options granted to employees of
Thermo Electron and its subsidiaries.
<PAGE>
STOCK OPTIONS EXERCISED DURING FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table reports certain information regarding stock option
exercises during fiscal 1999 and outstanding stock options held at the end of
fiscal 1999 by the Company's named executive officers. No stock appreciation
rights were exercised or were outstanding during fiscal 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY (1) EXERCISE REALIZED (2) UNEXERCISABLE)(1) UNEXERCISABLE)
---- ----------- -------- ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
John P. Appleton (3) TTT -- -- 275,000 /0 (4) $0 /--
RGI -- -- 120,000 /0 $0 /--
THN -- -- 63,000 /0 $0 /--
- ----------------------------------------------------------------------------------------------------------------------
Emil C. Herkert TTT -- -- 8,000 /0 $0 /--
TMO -- -- 43,900 /0 (5) $0 /--
MKA -- -- 2,000 /0 $0 /--
ONX -- -- 2,000 /0 $0 /--
RGI -- -- 250,000 /0 $3,310 /--
TDX -- -- 2,000 /0 $0 /--
TISI -- -- 0 /1,000 -- /$0 (7)
TRIL -- -- 0 /2,000 -- /$0 (7)
VIZ -- -- 1,500 /0 $0 /--
TRCC -- -- 0 /2,000 -- /$0 (7)
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey L. Powell TTT -- -- 28,000 /0 $0 /--
TMO 300 $3,101 35,112 /0 (6) $4,860 /--
MKA -- -- 2,000 /0 $0 /--
ONX -- -- 2,000 /0 $0 /--
RGI -- -- 24,000 /0 $0 /--
TDX -- -- 2,000 /0- $0 /--
TBA -- -- 2,000 /0 $17,500 /--
TFG -- -- 2,000 /0 $0 /--
TFT 4,500 $34,875 0 /0 $0 /--
TISI -- -- 0 /1,000 -- /$0 (7)
TLZ -- -- 5,000 /0 $0 /--
TLT -- -- 0 /2,000 -- /$0 (7)
TOC -- -- 6,000 /0 $0 /--
TMQ -- -- 6,000 /0 $0 /--
THN -- -- 111,000 /0 $0 /--
TSR -- -- 2,000 /0 $0 /--
TRIL -- -- 0 /2,000 -- /$0 (7)
VIZ -- -- 1,500 /0 $0 /--
TRCC -- -- 0 /2,000 -- /$0 (7)
TXM -- -- 4,000 /0 $0 /--
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options reported outstanding at the end of the fiscal year
are immediately exercisable as of fiscal year-end, except options to
purchase the common stock of Thermo Information Solutions Inc.,
<PAGE>
ThermoLyte Corporation, Thermo Trilogy Corporation and Trex
Communications Corporation, which are not exercisable until the earlier
of (i) 90 days after the effective date of the registration of that
company's common stock under Section 12 of the Exchange Act or (ii)
nine years from the grant date. In all cases, the shares acquired upon
exercise of the options reported in the table are subject to repurchase
by the granting company at the exercise price if the optionee ceases to
be employed by such company or any other Thermo Electron company. The
granting company may exercise its repurchase rights within six months
after the termination of the optionee's employment. For publicly-traded
companies, the repurchase rights generally lapse ratably over a one- to
ten-year period, depending on the option term, which may vary from five
to twelve years, provided that the optionee continues to be employed by
the granting company or 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
company may permit the holder of options to exercise options and to
satisfy tax withholding obligations by surrendering shares equal in
fair market value to the exercise price or withholding obligation
Please see footnote (2) under Summary Compensation Table above for the
company abbreviations used in this table. In addition, company
abbreviations used in this table and not defined in footnote (2) are
defined as follows: Thermo BioAnalysis Corporation (designated in the
table as TBA), Thermo Fibertek Inc. (designated in the table as TFT),
ThermoLase Corporation (designated in the table as TLZ), ThermoLyte
Corporation (designated in the table as TLT), ThermoQuest Corporation
(designated in the table as TMQ), Thermo Sentron Inc. (designated in
the table as TSR) and Trex Medical Corporation (designated in the table
as TXM)
(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the
option because in many cases the shares are not sold on exercise but
continue to be held by the executive officer exercising the option. The
amounts shown represent the difference between the option exercise
price and the market price on the date of exercise, which is the amount
that would have been realized if the shares had been sold immediately
upon exercise.
(3) Dr. Appleton has served as a vice president of Thermo Electron since
1975 and has been granted options to purchase shares of the common
stock of Thermo Electron and certain of its subsidiaries other than the
Company from time to time by Thermo Electron or such other
subsidiaries. These options are not reported here as they were granted
as compensation for service to other Thermo Electron companies in
capacities other than in his capacity as the chief executive officer of
the Company.
(4) In addition to the terms described in footnote (2) above, 60,000 of the
shares subject to option are, if acquired through exercise, restricted
from resale until Dr. Appleton's retirement.
(5) Options to purchase 22,500 shares of the common stock of Thermo
Electron granted to Mr. Herkert are subject to the same terms as
described in footnote (1), except that the repurchase rights of the
granting corporation generally do not lapse until the tenth anniversary
of the grant date. In fiscal 1997 and 1998, the human resources
committee of the board of directors of Thermo Electron accelerated the
vesting of 1,800 shares and 1,350 shares, respectively.
(6) Options to purchase 22,500 shares of the common stock of Thermo
Electron granted to Mr. Powell are subject to the same terms as
described in footnote (1), except that the repurchase rights of the
granting corporation generally do not lapse until the tenth anniversary
of the grant date. In the event of the employee's death or involuntary
termination prior to the tenth anniversary of the grant date, the
repurchase rights of the granting corporation shall be deemed to lapse
ratably over a five-year period commencing with the fifth anniversary
of the grant date.
(7) No public market existed for the shares underlying these options as of
April 3, 1999. Accordingly, no value in excess of exercise price has
been attributed to these options.
DEFINED BENEFIT RETIREMENT PLAN
Killam Associates, a subsidiary of Randers, maintains a Defined Benefit
Retirement Plan (the "Plan") for eligible U.S. employees. Accrued benefits under
the Plan were frozen as of March 31, 1995. Mr.Herkert is a participant in the
<PAGE>
Plan. The following table sets forth the estimated annual benefits payable
under the Plan upon retirement in specified
compensation and years-of-service classifications. The estimated benefits
reflect the statutory limits on compensation that can be recognized for Plan
purposes. The limit at March 31, 1995 was $150,000 per year.
<TABLE>
<CAPTION>
ANNUAL YEARS OF SERVICE
COMPENSATION ----------------
------------ 15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $20,064 $26,752 $33,440 $40,128 $46,817
125,000 25,427 33,902 42,378 50,853 59,329
150,000 20,789 41,052 51,315 61,578 71,842
</TABLE>
Each eligible employee receives a monthly retirement benefit, beginning
at normal retirement age (65, although benefits are not reduced if the employee
retires after reaching 62). Before the benefit was frozen, it provided 1.05% of
an employee's Average Final Compensation (as defined below) in excess of the
average of the Social Security wage bases, multiplied by his years of service
(up to a maximum of 35 years). Benefits are reduced for retirement before age
62. Average Final Compensation is the average total compensation for the 5
consecutive years out of the last 15 years prior to 1995 which produce the
highest average. The frozen annual accrued benefit for Mr. Herkert is $93,332
(based on the compensation limit of $235,840 that was in effect in 1993). The
Plan benefits shown are payable during the employee's lifetime unless the
employee elects another form of benefit that provides death protection.
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive
officers and key employees of Thermo Electron and its subsidiaries that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by Thermo Electron "without cause" or by the individual
for "good reason", as those terms are defined therein, within 18 months
thereafter. For purposes of these agreements, a change in control exists upon
(i) the acquisition by any person of 40% or more of the outstanding common stock
or voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement
with Dr. Appleton and Mr. Herkert. This agreement provides that in the event the
individual's employment is terminated under the circumstances described above,
the individual would be entitled to a lump sum payment equal to the sum of (a)
in the case of Dr. Appleton, two times, and in the case of Mr. Herkert, one
times his highest annual base salary in any 12 month period during the prior
five-year period, plus (b) in the case of Dr. Appleton, two times , and in the
case of Mr. Herkert, one times his highest annual bonus in any 12 month period
during the prior five-year period. In addition, the individual would be provided
benefits for a period of, in the case of Dr. Appleton, two years, and in the
case of Mr. Herkert, one year after such termination substantially equivalent to
the benefits package the individual would have been otherwise entitled to
receive if the individual was not terminated. Further, all repurchase rights of
Thermo Electron and its subsidiaries shall lapse in their entirety with respect
to all options that the individual holds in Thermo Electron and its
subsidiaries, including the Company, as of the date of the change in control.
Finally, the individual would be entitled to a cash payment equal to, in the
case of Dr. Appleton, $20,000, and in the case of Mr. Herkert, $15,000, to be
used
<PAGE>
toward outplacement services. These executive retention agreements supercede and
replace any and all prior severance arrangements which these individuals had
with Thermo Electron.
Assuming that the severance benefits would have been payable as of
April 5, 1999, the lump sum salary and bonus payment under such agreement to Dr.
Appleton and Mr. Herkert would have been approximately $680,000 and $343,000,
respectively. In the event that payments under these agreements are deemed to be
so called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individual would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by him with respect to such payment, plus the amount
of all other additional taxes imposed on him attributable to the receipt of such
gross-up payment.
STOCK OWNERSHIP POLICIES
The human resources committee of the board of directors (the
"Committee") established a stock holding policy for executive officers of the
Company that required executive officers to own a multiple of their compensation
in shares of Common Stock. For the chief executive officer, the multiple is one
times his base salary and reference incentive compensation for the fiscal year.
For all other officers, the multiple was one times the officer's base salary.
The Committee deemed it appropriate to permit officers to achieve these
ownership levels over a three-year period. The policy has been amended to apply
only to the chief executive officer.
In order to assist executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the Company
is authorized to make interest-free loans to executive officers to enable them
to purchase shares of Common Stock in the open market. This plan was also
amended to apply only to the chief executive officer. The loans are required to
be repaid upon the earlier of demand or the tenth anniversary of the date of the
loan, unless otherwise determined by the Committee.
The Committee also has a policy requiring its executive officers to
hold shares of Common Stock equal to one-half of their net option exercises over
a period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common
Stock, as well as the common stock of Thermo Electron and each majority-owned
subsidiary of the Company, as of May 31, 1999, with respect to (i) each
director, (ii) each executive officer named in the summary compensation table
set forth in Item 11 - Executive Compensation (the "named executive officers")
and (iii) all directors and current executive officers as a group. In addition,
the following table sets forth the beneficial ownership of Common Stock, as of
May 31, 1999, with respect to each person who was known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock.
While certain directors or executive officers of the Company are also
directors and executive officers of ThermoRetec, Randers, or Thermo Electron,
all such persons disclaim beneficial ownership of the shares of Common Stock
owned by Thermo Electron and of the shares of the common stock of ThermoRetec
and Randers owned by the Company.
<PAGE>
<TABLE>
<CAPTION>
THERMO
THERMO ELECTRON THERMORETEC THE RANDERS KILLAM
NAME (1) TERRATECH INC. (2) CORPORATION (3) CORPORATION (4) GROUP INC. (5)
-------- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Thermo Electron Corporation (6) 16,638,220 N/A N/A N/A
Loomis, Sayles & Company L.P. (7) 2,738,581 N/A N/A N/A
John P. Appleton 305,939 154,363 73,000 120,000
John N. Hatsopoulos 60,357 851,454 61,282 48,000
Emil C. Herkert 89,900 46,400 0 252,000
Brian D. Holt 250,000 286,943 0 4,000
Donald E. Noble 53,377 59,117 10,500 300
Jeffrey L. Powell 56,635 36,831 121,000 24,000
William A. Rainville 60,000 352,959 24,000 24,000
Polyvios C. Vintiadis 16,593 2,500 3,000 52,809
All directors and current executive
officers as a group (10 persons) 957,616 2,303,515 338,282 537,109
</TABLE>
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person
for the benefit of minor children and all share ownership includes sole
voting and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Appleton, Mr.
Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr. Powell, Mr.
Rainville, Mr. Vintiadis and all directors and current executive
officers as a group include 275,000, 40,000, 8,000, 250,000, 8,300,
28,000, 60,000, 7,300 and 734,600 shares, respectively, that such
person or group has the right to acquire within 60 days of May 31,
1999, through the exercise of stock options. Shares beneficially owned
by Dr. Appleton, Mr. Hatsopoulos and all directors and current
executive officers as a group include 305, 315 and 1,222 shares,
respectively, allocated through May 31, 1999, to their respective
accounts maintained pursuant to Thermo Electron's employee stock
ownership plan ("ESOP"), of which the trustees, who have investment
power over its assets are officers of Thermo Electron. Shares
beneficially owned by Mr. Noble, Mr. Vintiadis and all directors and
current executive officers as a group include 22,037, 9,293 and 31,330
full shares, respectively, allocated through April 3, 1999, to their
respective accounts maintained under the Deferred Compensation Plan.
Shares beneficially owned by Mr. Hatsopoulos and all directors and
current executive officers as a group include 12,500 shares that Mr.
Hatsopoulos has the right to acquire within 60 days after May 31, 1999,
through the exercise of a stock purchase warrant. Except for Dr.
Appleton, who beneficially owned 1.58% and Mr. Holt who beneficially
owned 1.3% of the Common Stock outstanding as of May 31, 1999, no
director or named executive officer beneficially owned more than 1% of
the Common Stock outstanding as of such date; all directors and current
executive officers as a group beneficially owned 4.98% of the Common
Stock outstanding as of May 31, 1999.
(3) Shares of the common stock of Thermo Electron beneficially owned by Dr.
Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr.
Powell, Mr. Rainville and all directors and current executive officers
as a group include 116,902, 805,535, 43,900, 283,950, 7,625, 30,050,
286,837, and 2,018,597 shares, respectively, that such person or
members of the group have the right to acquire within 60 days of May
31, 1999, through the exercise of stock options. Shares beneficially
owned by Dr. Appleton, Mr. Hatsopoulos and all directors and current
executive officers as a group include 1,615, 2,036 and 6,148 shares,
respectively, allocated through May 31, 1999, to their respective
accounts maintained pursuant to the ESOP. Shares beneficially owned by
Mr. Noble and all directors and current executive officers as a group
each include 45,827 shares allocated through April 3, 1999, to Mr.
Noble's account maintained pursuant to Thermo Electron's deferred
compensation plan for directors. No director or named executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
<PAGE>
outstanding as of May 31, 1999; all directors and current executive
officers as a group beneficially owned 1.45% of the common stock of
Thermo Electron outstanding as of such date.
(4) Shares of the common stock of ThermoRetec beneficially owned by Dr.
Appleton, Mr. Hatsopoulos, Mr. Noble, Mr. Powell, Mr. Rainville, Mr.
Vintiadis and all directors and current executive officers as a group
include 63,000, 22,500, 6,000, 111,000, 22,500, 1,500 and 264,000
shares, respectively, that such person or group has the right to
acquire within 60 days after May 31, 1999, through the exercise of
stock options. No director or named executive officer beneficially
owned more than 1% of the common stock of ThermoRetec outstanding as of
May 31, 1999; all directors and current executive officers as a group
beneficially owned 2.48% of the common stock of ThermoRetec outstanding
as of such date.
(5) Shares of the common stock of Randers beneficially owned by Dr.
Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr.
Powell, Mr. Rainville, Mr. Vintiadis and all directors and current
executive officers as a group include 120,000, 48,000, 250,000, 4,000,
300, 24,000, 24,000, 48,300 and 530,600 shares, respectively, that such
person or group has the right to acquire within 60 days after May 31,
1999, through the exercise of stock options. Shares beneficially owned
by Mr. Vintiadis and all directors and current executive officers as a
group each include 4,509 shares allocated through April 3, 1999 to Mr.
Vintiadis' account maintained pursuant to Randers' deferred
compensation plan for directors. No director or named executive officer
beneficially owned more than 1% of the common stock of Randers
outstanding as of May 31, 1999; all directors and current executive
officers as a group beneficially owned 2.10% of the common stock of
Randers outstanding as of such date.
(6) Shares beneficially owned by Thermo Electron include 32,389 shares of
Common Stock issuable upon the conversion of a 4 5/8% convertible
debenture due in 2003. As of May 31, 1999, Thermo Electron beneficially
owned approximately 87.2% of the outstanding Common Stock. Thermo
Electron's address is 81 Wyman Street, Waltham, Massachusetts
02454-9046. As of May 31, 1999, Thermo Electron had the power to elect
all of the members of the Company's board of directors.
(7) Information regarding the number of shares of Common Stock beneficially
owned by Loomis, Sayles & Company L.P. is based upon the most recent
Schedule 13G of Loomis, Sayles & Company L.P. received by the Company,
which reported such ownership as of March 10, 1999. The address of
Loomis, Sayles & Company L.P. is One Financial Center, Boston,
Massachusetts 02111. As of March 10, 1999, Loomis, Sayles & Company
L.P. beneficially owned approximately 12.39% of the outstanding Common
Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, such as Thermo Electron,
to file with the Securities and Exchange Commission initial reports of ownership
and periodic reports of changes in ownership of the Company's securities. Based
upon a review of such filings, all Section 16(a) filing requirements applicable
to such persons were complied with during fiscal 1999, except in the following
instances. Thermo Electron filed five Form 4s late, reporting a total of 33
transactions, including 11 open market purchases of shares of Common Stock and
22 transactions associated with the grant, exercise and lapse of options to
purchase Common Stock granted to employees under its stock option program.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thermo Electron has, from time to time, caused its subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. Thermo Electron has created the Company as a
majority-owned, publicly-held subsidiary. The Company and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo
<PAGE>
Electron and each of the Thermo Subsidiaries, including the Company, have
adopted the Thermo Electron Corporate Charter (the "Charter") to define the
relationships and delineate the nature of such cooperation among themselves. The
purpose of the Charter is to ensure that (1) all of the companies and their
stockholders are treated consistently and fairly, (2) the scope and nature of
the cooperation among the companies, and each company's responsibilities, are
adequately defined, (3) each company has access to the combined resources and
financial, managerial and technological strengths of the others, and (4) Thermo
Electron and the Thermo Subsidiaries, in the aggregate, are able to obtain the
most favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to
be followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long
as Thermo Electron and at least one Thermo Subsidiary participate. The Charter
may be amended at any time by agreement of the participants. Any Thermo
Subsidiary, including the Company, can withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a
subsidiary's participation in the Charter in the event the subsidiary ceases to
be controlled by Thermo Electron or ceases to comply with the Charter or the
policies and procedures applicable to the Thermo Group. A withdrawal from the
Charter automatically terminates the corporate services agreement and tax
allocation agreement (if any) in effect between the withdrawing company and
Thermo Electron. The withdrawal from participation does not terminate
outstanding commitments to third parties made by the withdrawing company, or by
Thermo Electron or other members of the Thermo Group, prior to the withdrawal.
In addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Company and Thermo Electron have
entered into a Corporate Services Agreement (the "Services Agreement") under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and financial and other services to the Company. The Company was
assessed an annual fee equal to 0.8% of the Company's revenues for these
services in fiscal 1999. The annual fee will remain at 0.8% of the Company's
revenues for fiscal 2000. The fee is reviewed annually and may be changed by
mutual agreement of the Company and Thermo Electron. During fiscal 1999, Thermo
Electron assessed the Company $2,480,000 in fees under the Services Agreement.
Management believes that the charges under the Services Agreement are reasonable
and that the terms of the Services Agreement are fair to the Company. In fiscal
1999, the Company was billed an additional $157,000 by Thermo Electron for
certain administrative services required by the Company that were not covered by
the Services Agreement. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services
<PAGE>
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.
The Company has entered into a Tax Allocation Agreement with Thermo
Electron that outlines the terms under which the Company will 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 Company's outstanding Common Stock. In years
in which the Company has taxable income, it will pay to Thermo Electron amounts
comparable to the taxes the Company would have paid if it had filed its own
separate company tax returns. If Thermo Electron's equity ownership of the
Company were to drop below 80%, the Company would file its own tax returns. In
fiscal 1999, the Company paid Thermo Electron $1,217,000 under the Tax
Allocation Agreement.
Thermo Electron has announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Company. Under this
plan, the Company, and its publicly traded subsidiaries, ThermoRetec and Randers
would be merged into Thermo Electron. As a result, all three companies would
become wholly owned subsidiaries of Thermo Electron. The public shareholders of
all three companies would receive common stock in Thermo Electron in exchange
for their shares. The completion of these transactions is subject to numerous
conditions, including the establishment of prices and exchange ratios;
confirmation of anticipated tax consequences; the approval of the Board of
Directors of ThermoRetec and Randers; the negotiation and execution of
definitive merger agreements; the receipt of fairness opinions from investment
banking firms that the transactions are fair to the Company's and subsidiaries'
shareholders (other than the Company and Thermo Electron) from a financial point
of view; the approval of the Company's Board of Directors, including its
independent directors; and completion of review by the Securities and Exchange
Commission of any necessary documents regarding the proposed transactions.
From time to time the Company may transact business with other
companies in the Thermo Group.
The Company leases an office and operating facility from Thermo
Electron. The total rental payments made to Thermo Electron during fiscal year
1999 under this agreement were $166,000.
The Company and Thermo Electron entered into a development agreement
under which Thermo Electron agreed to fund up to $4,000,000 of the direct and
indirect costs of the Company's development of soil-remediation centers. In
exchange for this funding, the Company granted Thermo Electron a royalty equal
to approximately 3% of net revenues from soil-remediation services performed at
the centers developed under this agreement. The royalty payments may cease if
the amounts paid by the Company yield a certain internal rate of return to
Thermo Electron on the funds advanced to the Company under this agreement. The
Company paid Thermo Electron royalties of $186,000 in fiscal 1999.
The Company purchases and sells products and services in the ordinary
course of business to Thermo Electron and Thermo Electron's other subsidiaries.
In fiscal 1999, the Company sold a total of $379,000 of products to Thermo
Electron and its other subsidiaries and purchased a total of $231,000 of
products and/or services from such companies.
Until mid-December 1998, the Company's Thermo EuroTech N.V. subsidiary,
along with certain other Thermo Subsidiaries, participated in a notional pool
arrangement with ABN AMRO, which included a $29,719,000 credit facility. The
Company had access to $9,553,000 under this credit facility. Only European-based
Thermo Subsidiaries participated in this arrangement. Under this arrangement the
Bank notionally combined the positive and negative cash balances held by the
participants to calculate the net interest
<PAGE>
yield/expense for the group. The benefit derived from this arrangement was then
allocated based on balances attributable to the respective participants. Thermo
Electron guaranteed all of the obligations of each participant in this
arrangement. For 1998, the average annual interest rate earned on NLG deposits
by participants in this credit arrangement was approximately 5.00% and the
average annual interest rate paid on overdrafts was approximately 5.00%.
As of mid-December 1998, the Company's Thermo EuroTech N.V. subsidiary,
along with certain other Thermo Subsidiaries, has entered into a modification of
the above-described arrangement with ABN AMRO. Only European-based Thermo
Subsidiaries participate in this arrangement. The new arrangement with ABN AMRO
consists of a zero balance arrangement, which includes a $22,780,000 credit
facility. The Company has access to $8,818,000 under this credit facility. Funds
borrowed by the Company under this arrangement pay interest at a rate set by
Thermo Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the
beginning of each month, based on Netherlands market rates. Funds invested by
the Company under the arrangement earn a rate set by Thermo Finance B.V. at the
beginning of each month, based on Netherlands market rates. Such invested funds
are collateralized with investments principally consisting of corporate notes,
U.S. government-agency securities, commercial paper, money market funds, and
other marketable securities, in the amount of at least 103% of such obligation.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. As of April 3, 1999, the Company had a negative cash balance of
approximately $8,186,000 based on an exchange rate of $0.4899/NLG 1.00. As of
April 3, 1999, the average annual interest rate earned on NLG deposits by
participants in this credit arrangement was approximately 3.6% and the average
annual interest rate paid on overdrafts was approximately 4.2%.
At April 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $2,522,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items, net of amounts owed to the Company by Thermo
Electron and its other subsidiaries for products, services and other
miscellaneous items. The largest amount of such net indebtedness owed by the
Company to Thermo Electron and its other subsidiaries since April 4, 1998 was
$3,128,000. These amounts do not bear interest and are expected to be paid in
the normal course of business.
As of April 3, 1999, approximately $40,625,000 of the Company's cash
equivalents was invested in a repurchase agreement with Thermo Electron. Under
this agreement, the Company in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally consisting of
corporate notes, U.S. government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. The Company's funds subject to the repurchase agreement are
readily convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points,
set at the beginning of each quarter. This agreement was terminated effective
June 1, 1999 in connection with the adoption of a new domestic cash management
agreement.
Effective June 1, 1999, the Company and Thermo Electron commenced use
of a new domestic cash management arrangement. Under the new arrangement,
amounts advanced to Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
STOCK HOLDING ASSISTANCE PLAN
The human resources committee of the board of directors (the
"Committee"), established a stock holding policy that requires the chief
executive officer to acquire and hold a minimum number of shares of Common
Stock. In order to assist the chief executive officer in complying with the
policy, the Committee also adopted a stock holding assistance plan under which
the Company may make interest-free loans to the chief
<PAGE>
executive officer, to enable him to purchase the Common Stock in the open
market. The stock holding policy and the stock holding assistance plan were both
subsequently amended to apply only to the chief executive officer. In fiscal
1998 and 1999, Dr. Appleton received loans in the principal amount of $137,607
under this plan to purchase 20,000 shares, the entire amount of which was
outstanding as of May 31, 1999. The loan is repayable upon the earlier of demand
or the tenth anniversary of the date of the loan, unless otherwise determined by
the Committee.
Each of the Company's publicly-traded, majority owned subsidiaries have
adopted similar stock holding policies and stock holding assistance plans, which
were applicable to their executive officers prior to their amendment to make
them applicable only to their chief executive officers. Certain executive
officers of the Company are also the chief executive officers of these
subsidiaries and are required to comply with the subsidiary's stock holding
policies. Dr. Appleton, the Company's president and chief executive officer, was
also the chief executive officer of ThermoRetec until May 14, 1997. Mr. Powell,
a vice president of the Company, was also the chief executive officer of
ThermoRetec until April 30, 1998. In fiscal 1998, Dr. Appleton received loans in
the principal amount of $61,867.50 under the plan to purchase 10,000 shares of
the common stock of ThermoRetec, of which the entire amount is still
outstanding. In fiscal 1998, Mr. Powell received loans in the principal amount
of $59,940.50 under the plan to purchase 10,000 shares of the common stock of
ThermoRetec, of which the entire amount is still outstanding. Each of these
loans is repayable upon the earlier of demand or the fifth anniversary of the
date of the loan, unless otherwise determined by the human resources committee
of the board of directors of ThermoRetec.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 on form 10-K/A
to be signed by the undersigned, duly authorized.
THERMO TERRATECH INC.
By: /s/ Sandra L. Lambert
-----------------------------
Sandra L. Lambert
Secretary
<PAGE>
APPENDIX E
QUARTERLY REPORT ON FORM 10-Q OF THERMO TERRATECH
FOR THE QUARTER ENDED JULY 3, 1999
E-1
<PAGE>
APPENDIX E
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925807
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
81 Wyman Street, P.O. Box 9046 02454-9046
Waltham, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
---------------------------- ----------------------------
Common Stock, $.10 par value 19,072,138
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THERMO TERRATECH INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
July 3, April 3,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes $884 and $41,667 under repurchase agreements with
parent company) $ 2,529 $ 43,013
Advance to affiliate (Note 7) 39,338 -
Accounts receivable, less allowances of $3,276 and $3,577 60,501 59,377
Unbilled contract costs and fees 17,259 19,974
Inventories 1,733 1,869
Prepaid and refundable income taxes 6,853 6,946
Prepaid expenses 3,256 3,196
---------- ----------
131,469 134,375
---------- ----------
Property, Plant, and Equipment, at Cost (Note 5) 132,055 151,219
Less: Accumulated depreciation and amortization 60,106 59,705
---------- ----------
71,949 91,514
---------- ----------
Other Assets (Note 5) 14,760 15,949
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 89,382 108,627
---------- ----------
$ 307,560 $ 350,465
---------- ----------
---------- ----------
</TABLE>
2
<PAGE>
THERMO TERRATECH INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
July 3, April 3,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Liabilities:
Notes payable and current maturities of long-term obligations (includes $8,383 and
$9,228 under overdraft facility with related party) $ 17,053 $ 17,618
Subordinated convertible debentures (includes $4,300 of related-party debt) 37,950 -
Accounts payable 16,877 17,404
Accrued payroll and employee benefits 11,863 12,771
Accrued restructuring costs (Note 5) 9,139 1,719
Deferred revenue 2,854 2,675
Other accrued expenses 12,165 12,623
Due to parent company and affiliated companies 2,405 2,522
---------- ----------
110,306 67,332
---------- ----------
Deferred Income Taxes 3,026 3,538
---------- ----------
Other Deferred Items 1,076 1,076
---------- ----------
Long-term Obligations:
Subordinated convertible debentures (includes $515 and $4,695 of related-party debt) 118,849 156,799
Other 1,769 1,818
---------- ----------
120,618 158,617
---------- ----------
Minority Interest 23,598 27,745
---------- ----------
Shareholders' Investment:
Common stock, $.10 par value, 75,000,000 shares authorized; 19,583,773 shares issued 1,958 1,958
Capital in excess of par value 70,837 70,633
Retained earnings (accumulated deficit) (19,196) 25,898
Treasury stock at cost, 533,169 and 543,319 shares (4,053) (4,130)
Deferred compensation (270) (252)
Accumulated other comprehensive items (Note 2) (340) (1,950)
---------- ----------
48,936 92,157
---------- ----------
$ 307,560 $ 350,465
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Revenues $ 75,908 $ 76,693
---------- ----------
Costs and Operating Expenses:
Cost of revenues (Note 5) 60,214 61,045
Selling, general, and administrative expenses 11,241 11,575
Restructuring costs (Note 5) 54,197 -
---------- ----------
125,652 72,620
---------- ----------
Operating Income (Loss) (49,744) 4,073
Interest Income 591 644
Interest Expense (includes $58 and $36 to related party) (2,139) (2,257)
---------- ----------
Income (Loss) Before Income Taxes and Minority Interest (51,292) 2,460
Income Tax (Provision) Benefit (Note 5) 1,985 (1,299)
Minority Interest Income (Expense) 4,213 (160)
---------- ----------
Net Income (Loss) $ (45,094) $ 1,001
---------- ----------
---------- ----------
Basic and Diluted Earnings (Loss) per Share (Note 3) $ (2.37) $ .05
---------- ----------
---------- ----------
Basic and Diluted Weighted Average Shares (Note 3) 19,050 19,514
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (45,094) $ 1,001
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Noncash restructuring costs (Note 5) 46,567 -
Change in deferred income taxes (2,841) -
Depreciation and amortization 3,484 4,068
Minority interest (income) expense (4,213) 160
Provision for losses on accounts receivable 8 363
Other noncash items 1,850 194
Changes in current accounts:
Accounts receivable (1,215) (466)
Inventories and unbilled contract costs and fees 2,108 (3,967)
Other current assets (193) (220)
Accounts payable (459) 661
Other current liabilities 3,067 (3,193)
---------- ----------
Net cash provided by (used in) operating activities 3,069 (1,399)
---------- ----------
Investing Activities:
Advances to affiliate, net (Note 7) (39,338) -
Proceeds from sale and maturities of available-for-sale investments - 14,065
Purchases of property, plant, and equipment (3,969) (5,814)
Proceeds from sale of property, plant, and equipment 206 181
Other (121) (262)
---------- ----------
Net cash provided by (used in) investing activities (43,222) 8,170
---------- ----------
Financing Activities:
Repayment of notes payable and long-term obligations (126) (14,194)
Proceeds from issuance of Company and subsidiary's common stock 57 36
Repurchase of Company common stock - (150)
Repayment of long-term notes receivable 43 487
Other 98 12
---------- ----------
Net cash provided by (used in) financing activities 72 (13,809)
---------- ----------
Exchange Rate Effect on Cash (403) (77)
---------- ----------
Decrease in Cash and Cash Equivalents (40,484) (7,115)
Cash and Cash Equivalents at Beginning of Period 43,013 34,711
---------- ----------
Cash and Cash Equivalents at End of Period $ 2,529 $ 27,596
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO TERRATECH INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo TerraTech Inc. (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at July 3, 1999, and
the results of operations and cash flows for the three-month periods ended July
3, 1999, and July 4, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of April 3, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. Certain amounts in fiscal 1999 have
been reclassified to conform to the presentation in the fiscal 2000 financial
statements. The consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the fiscal year ended April 3, 1999, filed with the Securities and
Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income (loss) and "other comprehensive
items," which represents certain items that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains or losses from
available-for-sale investments. During the first quarter of fiscal 2000 and
1999, the Company had a comprehensive loss of $43,832,000 and comprehensive
income of $1,079,000, respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ------------------------------------------------------------------------------------------------------ -------------- -----------
<S> <C> <C>
Net Income (Loss) $ (45,094) $ 1,001
---------- ----------
Weighted Average Shares 19,050 19,514
---------- ----------
Basic and Diluted Earnings (Loss) per Share $ (2.37) $ .05
---------- ----------
---------- ----------
</TABLE>
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of outstanding stock options,
warrants, and put rights because the effect would be antidilutive. As of July 3,
1999, there were 2,379,075 of such options and warrants outstanding, with
exercise prices ranging from $4.16 to $11.34 per share. As of July 3, 1999, put
rights with respect to an aggregate of 423,854 shares were outstanding. The put
rights obligate the Company, at the holders' option, to purchase shares of the
Company's common stock for $8.00 per share.
In addition, the computation of diluted earnings (loss) per share for
each period excludes the effect of assuming the conversion of $111,850,000
principal amount of 4 5/8% subordinated convertible debentures, convertible at
$15.90 per share, because the effect would be antidilutive.
6
<PAGE>
THERMO TERRATECH INC.
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 3, July 4,
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------ -------------- ------------
<S> <C> <C>
Revenues:
Environmental-liability Management $ 38,865 $ 39,716
Engineering and Design 21,905 22,775
Laboratory Testing 10,984 9,671
Metal Treating 4,358 4,707
Intersegment sales elimination (a) (204) (176)
----------- -----------
$ 75,908 $ 76,693
----------- -----------
----------- -----------
Income (Loss) Before Income Taxes and Minority Interest:
Environmental-liability Management (b) $ (37,088) $ 1,413
Engineering and Design (c) (13,957) 1,433
Laboratory Testing 1,624 1,261
Metal Treating 441 612
Corporate (d) (764) (646)
----------- ----------
Total operating income (loss) (49,744) 4,073
Interest expense, net (1,548) (1,613)
----------- ----------
$ (51,292) $ 2,460
----------- -----------
----------- -----------
</TABLE>
(a) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(b) Includes restructuring and related costs of $39,187,000 in the first quarter
of fiscal 2000 (Note 5).
(c) Includes restructuring costs of $15,668,000 in the first quarter of fiscal
2000 (Note 5).
(d) Primarily general and administrative expenses.
5. Restructuring and Related Costs
In May 1999, the Company announced that its majority-owned subsidiaries
plan to sell several businesses. The businesses proposed to be sold include the
used-oil processing operation of Thermo EuroTech, N.V.; three soil-recycling
facilities of ThermoRetec Corporation, in addition to the sites previously
announced; and the Randers division, BAC Killam Inc., and E3-Killam Inc.
businesses of The Randers Killam Group Inc. In connection with these actions,
the Company recorded $55,910,000 of restructuring and related costs, including
restructuring costs of $54,197,000, a tax asset write-off of $1,055,000, and an
inventory provision of $658,000. In the accompanying statement of operations,
the tax write-off is included in income tax (provision) benefit and the
inventory provision is included in cost of revenues. Restructuring costs include
a $22,192,000 write-down of cost in excess of net assets of acquired companies
to reduce the carrying value of the businesses proposed to be sold to the
estimated proceeds from their sale; a $20,239,000 write-down of fixed assets to
their estimated disposal value; $4,555,000 for ongoing lease costs for
facilities that will be exited in connection with the sale of certain
businesses; $2,494,000 for estimated land reclamation costs; a $1,905,000 charge
for the cumulative foreign translation adjustment related to Thermo EuroTech's
used-oil processing business; a $1,788,000 write-off of intangible assets
related to license acquisition costs at the used-oil processing business;
$581,000 for severance costs for 42 employees across all functions, 9 of whom
were terminated in the first quarter of fiscal 2000; and a $443,000 write-off of
other current assets associated with the businesses. The tax write-off
represents a deferred tax asset that will not be realized as a result of selling
Thermo EuroTech's used-oil processing business. The inventory provision also
relates to exiting this business. The write- down of fixed assets principally
relates to special purpose equipment in the used-oil processing and
soil-recycling businesses. The effects of these charges reduced depreciation and
amortization expense, thereby reducing the pretax operating loss by
approximately $1,000,000 during the first quarter of fiscal 2000.
7
<PAGE>
THERMO TERRATECH INC.
5. Restructuring and Related Costs (continued)
The businesses that are proposed to be sold reported unaudited aggregate
revenues and operating income, prior to restructuring and related costs, of
$9,402,000 and $385,000, respectively, in the first quarter of fiscal 2000 and
aggregate revenues and operating loss of $49,627,000 and $112,000, respectively,
in fiscal 1999.
During fiscal 1999, the Company recorded restructuring costs, primarily
related to the closure or sale of two soil-recycling facilities by ThermoRetec.
The Company closed one soil-recycling facility in March 1999 and is actively
seeking a buyer for the second soil-recycling facility. If no buyer is found,
ThermoRetec will close the facility. In addition, the Company recorded
restructuring costs for abandoned-facility payments relating to the
consolidation of the facilities of another business. In connection with these
restructuring activities, the Company established reserves, primarily for
ongoing lease costs and severance for 13 employees, 6 of whom were terminated as
of April 3, 1999. During the first quarter of fiscal 2000, the Company did not
terminate any additional employees related to this restructuring action.
A summary of the changes in accrued restructuring costs, which the
Company expects to pay primarily during the remainder of fiscal 2000, is as
follows:
<TABLE>
<CAPTION>
Facility-closing Land
(In thousands) Severance Costs Reclamation Total
- ------------------------------------------------------------- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT APRIL 3, 1999 $ 112 $ 1,607 $ - $ 1,719
Provision charged to expense 581 4,555 2,494 7,630
Usage (49) (54) - (103)
Currency translation - (47) (60) (107)
-------- --------- -------- --------
BALANCE AT JULY 3, 1999 $ 644 $ 6,061 $ 2,434 $ 9,139
-------- --------- -------- --------
-------- --------- -------- --------
</TABLE>
The Company expects to incur additional restructuring costs of
$3,000,000, primarily during the remainder of fiscal 2000, for severance,
employee retention, and relocation expenses. Pursuant to the requirements of
Emerging Issues Task Force Pronouncement 94-3, these costs are not permitted as
charges until they are incurred.
6. Proposed Reorganization
Thermo Electron Corporation has announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company.
Under this plan, the Company, ThermoRetec, and Randers Killam would be merged
into Thermo Electron. As a result, all three companies would become wholly owned
subsidiaries of Thermo Electron. The public shareholders of all three companies
would receive common stock in Thermo Electron in exchange for their shares. The
completion of these transactions is subject to numerous conditions, including
the establishment of prices and exchange ratios; confirmation of anticipated tax
consequences; the approval of the Board of Directors of ThermoRetec and Randers
Killam; the negotiation and execution of definitive merger agreements; the
receipt of fairness opinions from investment banking firms that the transactions
are fair to the Company's and subsidiaries' shareholders (other than the Company
and Thermo Electron) from a financial point of view; the approval of the
Company's Board of Directors, including its independent directors; and
completion of review by the Securities and Exchange Commission of any necessary
documents regarding the proposed transactions.
7. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron commenced use of
a new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
8
<PAGE>
THERMO TERRATECH INC.
7. Cash Management Arrangement (continued)
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
In addition, under the new domestic cash management arrangement, amounts
borrowed from Thermo Electron for domestic cash management purposes bear
interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set
at the beginning of each month. The Company has no borrowings under this
arrangement at July 3, 1999.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 3, 1999, filed with the Securities and Exchange
Commission.
OVERVIEW
The Company provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations. The Company operates in
four segments: environmental-liability management, engineering and design,
laboratory testing, and metal treating.
ENVIRONMENTAL-LIABILITY MANAGEMENT
The Company's majority-owned ThermoRetec Corporation subsidiary is a
national provider of environmental-liability and resource-management services.
ThermoRetec offers these and related consulting services in four areas:
consulting and engineering, nuclear remediation, soil remediation, and fluids
recycling. The Company's majority-owned Thermo EuroTech N.V. subsidiary, located
in the Netherlands, specializes in converting "off-spec" and contaminated
petroleum fluids into useable oil products. The Company intends to exit this
business, as discussed in the results of operations. Thermo EuroTech also
provides in-plant waste management and recycling services through its
Ireland-based Green Sunrise Holdings Ltd. subsidiary.
ENGINEERING AND DESIGN
The Company's majority-owned The Randers Killam Group Inc. subsidiary
provides comprehensive engineering and outsourcing services such as water and
wastewater treatment, process engineering and construction, highway and bridge
engineering, and infrastructure engineering. The Company intends to exit the
Process Engineering and Construction segment and Highway and Bridge Engineering
segment of this business, as discussed in the results of operations. The
Company's wholly owned Normandeau Associates Inc. subsidiary provides consulting
services that address natural resource management issues.
LABORATORY TESTING
The Company's wholly owned Thermo Analytical Inc. subsidiary operates
analytical laboratories that provide environmental- and pharmaceutical-testing
services, primarily to commercial clients throughout the U.S.
9
<PAGE>
THERMO TERRATECH INC.
OVERVIEW (CONTINUED)
METAL TREATING
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin.
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 2000 COMPARED WITH FIRST QUARTER FISCAL 1999
Total revenues were $75.9 million in the first quarter of fiscal 2000,
compared with $76.7 million in the first quarter of fiscal 1999. Revenues from
the Environmental-liability Management segment decreased slightly to $38.9
million in fiscal 2000 from $39.7 million in fiscal 1999. Excluding intrasegment
sales, revenues at ThermoRetec increased to $35.8 million in fiscal 2000 from
$34.2 million in fiscal 1999, due to an increase of $1.6 million from consulting
and engineering services. Revenues from Thermo EuroTech decreased $2.5 million
to $3.0 million due to a decrease in sales of useable oil products and, to a
lesser extent, a decrease in revenues relating to contracts to process oil-based
muds and perform soil-remediation services overseas. Revenues from the
Engineering and Design segment decreased slightly to $21.9 million in fiscal
2000 from $22.8 million in fiscal 1999, primarily due to decreased contract
revenue. Revenues from the Laboratory Testing segment increased to $11.0 million
in fiscal 2000 from $9.7 million in fiscal 1999 due to higher demand. Revenues
from the Metal Treating segment decreased slightly to $4.4 million in fiscal
2000 from $4.7 million in fiscal 1999.
The gross profit margin increased to 22% in the first quarter of fiscal
2000 from 20% in the first quarter of fiscal 1999, excluding a $0.7 million
write-off of inventory at the Environmental-liability Management segment (Note
5). The increase was primarily due to the reduction of depreciation expenses in
fiscal 2000 at the Environmental-liability Management and Engineering and Design
segments (Note 5), which reduced the pretax operating loss by $0.9 million. The
gross profit margin also increased at the Laboratory Testing segment, due to an
increase in revenues without a significant increase in overhead costs.
Selling, general, and administrative expenses as a percentage of revenues
remained constant at 15% in the first quarters of both fiscal 2000 and fiscal
1999.
In May 1999, the Company announced that its majority-owned subsidiaries
plan to sell several businesses. The businesses proposed to be sold include the
used-oil processing operation of Thermo EuroTech; three soil-recycling
facilities of ThermoRetec; and the Randers division, BAC Killam Inc., and
E3-Killam Inc. businesses of Randers Killam. In connection with these actions,
the Company recorded $54.2 million of restructuring costs in the first quarter
of fiscal 2000. Of these restructuring costs, $38.5 million was recorded by the
Environmental-liability Management segment and $15.7 million was recorded by the
Engineering and Design segment. These charges represent the excess of book value
of the businesses proposed to be sold over the estimated proceeds from their
sale, a write-down of fixed assets to their estimated disposal value, ongoing
lease obligations, land reclamation costs, a charge for a cumulative translation
adjustment, write-offs of intangible and other assets, and severance costs (Note
5). These businesses reported aggregate revenues and operating income, prior to
restructuring, of $9.4 million and $0.4 million, respectively, in the first
quarter of fiscal 2000 and aggregate revenues and operating loss of $49.6
million and $0.1 million, respectively, in fiscal 1999.
Interest income remained constant at $0.6 million in the first quarter of
fiscal 2000 and fiscal 1999. Interest expense remained relatively constant at
$2.1 million in the first quarter of fiscal 2000, compared with $2.3 million in
the first quarter of fiscal 1999.
The Company recorded a tax benefit in the first quarter of fiscal 2000 at
an effective rate below the statutory federal income tax rate, primarily due to
the write-off of nondeductible cost in excess of net assets of acquired
companies. In addition, the net tax benefit recorded in fiscal 2000 includes a
$1,055,000 write-off of deferred tax
10
<PAGE>
THERMO TERRATECH INC.
FIRST QUARTER FISCAL 2000 COMPARED WITH FIRST QUARTER FISCAL 1999 (continued)
assets (Note 5). The effective tax rate in the first quarter of fiscal 1999 was
53% and exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes and the nondeductible amortization of cost in
excess of net assets of acquired companies.
The Company recorded minority interest income of $4.2 million in the
first quarter of fiscal 2000, compared with minority interest expense of $0.2
million in the first quarter of fiscal 1999, primarily due to losses incurred in
fiscal 2000 by the Company's majority-owned subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $21.2 million at July 3, 1999, compared
with $67.0 million at April 3, 1999. Working capital decreased $38.0 million due
to the reclassification of subordinated convertible debentures due May 2000 to
current liabilities. Cash and cash equivalents were $2.5 million at July 3,
1999, compared with $43.0 million at April 3, 1999. In addition, as of July 3,
1999, the Company had $39.3 million invested in an advance to affiliate. Prior
to the use of a new domestic cash management arrangement between the Company and
Thermo Electron Corporation (Note 7), which became effective June 1, 1999,
amounts invested with Thermo Electron were included in cash and cash
equivalents. Of the total cash and cash equivalents, $2.2 million was held by
the Company's majority-owned subsidiaries and the balance was held by the
Company and its wholly owned subsidiaries. Of the total advance to affiliate,
$38.9 million was advanced by the Company's majority-owned subsidiaries and the
balance was advanced by the Company and its wholly owned subsidiaries.
During the first quarter of fiscal 2000, $3.1 million of cash was
provided by operating activities. During this period, $2.1 million of cash was
provided by a decrease in inventories and unbilled contract costs and fees,
primarily due to the timing of billings at ThermoRetec and Randers Killam. In
addition, an increase in other current liabilities provided $3.1 million of
cash, primarily due to a $7.4 million increase in accrued restructuring costs,
which the Company expects to pay primarily over the next 12 months. This
increase was offset in part by decreases in accrued interest and billings in
excess of costs and fees, due to the timing of payments and billings.
Excluding advances to affiliate activity (Note 7), the Company's
investing activities in the first quarter of fiscal 2000 primarily consisted of
capital additions. The Company expended $4.0 million for purchases of property,
plant, and equipment in the first quarter of fiscal 2000 and expects to spend
approximately $9.0 million for capital additions during the remainder of fiscal
2000.
The Company's financing activities provided cash of $0.1 million in the
first quarter of fiscal 2000. Pursuant to certain put rights on shares issued in
connection with an acquisition, the Company has cash obligations aggregating
$3.4 million to purchase its common stock through fiscal 2002.
The Company generally expects to have positive cash flow from its
existing operations. Although the Company does not presently intend to actively
seek to acquire additional businesses in the near future, it may acquire one or
more complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. In addition, ThermoRetec's $38.0 million principal amount 4
7/8% subordinated convertible debentures mature on May 1, 2000. The maturity of
ThermoRetec's debentures could adversely affect the Company's liquidity in the
first quarter of fiscal 2001. The Company expects that it will finance any such
acquisitions and the redemption of such debentures through a combination of
internal funds and/or short-term borrowings from Thermo Electron, although it
has no agreement with Thermo Electron to ensure that funds will be available on
acceptable terms or at all. Thermo Electron has expressed its willingness to
advance up to $5 million to the Company for short-term liquidity in the event
that the need arises. Except as described in this paragraph with respect to
ThermoRetec's debentures, the Company believes that its existing resources are
sufficient to meet the capital requirements of its existing businesses for the
foreseeable future.
11
<PAGE>
THERMO TERRATECH INC.
YEAR 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, services, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) assessing the year 2000
readiness of its key suppliers and vendors; and (iii) developing a contingency
plan.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical non-information technology systems. The Company's efforts included
testing the year 2000 readiness of the utility and telecommunications systems at
its critical facilities. The Company is currently in phase two of its program,
during which any material noncompliant information technology systems or
non-information technology systems that were identified during phase one are
prioritized and remediated. Based on its evaluations, the Company does not
believe that any material upgrades or modifications to its critical
non-information technology systems are required. The Company is currently
upgrading or replacing its material noncompliant information technology systems,
and this process was approximately 85% complete as of July 3, 1999. In many
cases, such upgrades or replacements are being made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
The Company expects that all of its material information technology systems and
critical non-information technology systems will be year 2000 compliant by the
end of October 1999.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has started to follow up with
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has not completed the majority of its assessment of
third-party risk, but expects to be substantially completed by the end of
October 1999.
CONTINGENCY PLAN
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required. The Company expects to complete its
contingency plan by the end of October 1999.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $350,000 as of July 3, 1999, and the total
external costs of year 2000 remediation are expected to be approximately
$400,000. All of the external costs incurred as of July 3, 1999, were spent on
testing and upgrading information technology systems. In fiscal 1999 and in the
first quarter of fiscal 2000, an immaterial amount of the Company's total
information technology budget was spent on year 2000 issues. All internal costs
and related external costs, other than capital additions, related to year 2000
remediation have been and will continue to be expensed as incurred. The Company
does not track the internal costs incurred for its year 2000 compliance project.
Such costs are principally the related payroll costs for its information systems
group.
12
<PAGE>
THERMO TERRATECH INC.
YEAR 2000 (CONTINUED)
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
problems in its material information technology systems that cause the Company
to be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations, and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk from changes in foreign exchange
rates, equity prices, and interest rates has not changed materially from its
exposure at fiscal year-end 1999.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On May 12, 1999, the Company filed a Current Report on Form 8-K, dated as
of May 5, 1999, with respect to modifications to the previously announced
reorganization plan of the Company's parent, Thermo Electron Corporation,
involving certain of Thermo Electron's subsidiaries, including the Company.
On May 25, 1999, the Company filed a Current Report on Form 8-K, dated as
of May 24, 1999, with respect to certain pretax restructuring and other charges
that will be taken by the Company.
13
<PAGE>
THERMO TERRATECH INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 10th day of August 1999.
THERMO TERRATECH INC.
/s/ Paul F. Kelleher
-----------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-----------------------------
Theo Melas-Kyriazi
Chief Financial Officer
14
<PAGE>
THERMO TERRATECH INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- -------- ----------------------
<S> <C>
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule for the fiscal year ended April 3, 1999.
</TABLE>
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and Thermo Electron's Certificate of
Incorporation and Bylaws limit the monetary liability of directors to Thermo
Electron and to its stockholders and provide for indemnification of Thermo
Electron's 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 Thermo Electron and, with
respect to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Thermo Electron also has
indemnification agreements with its directors and officers that provide for the
maximum indemnification allowed by law.
Thermo Electron has an insurance policy which insures its directors and
officers against certain liabilities which might be incurred in connection with
the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of October 19, 1999,
by and among Thermo Electron, Thermo TerraTech and TTT
Acquisition Corporation (included as Appendix A to the Proxy
Statement-Prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation of Thermo
Electron (filed as Exhibit 1 to Thermo Electron's Amendment
No. 3 to Registration Statement on Form 8-A/A [File
No. 1-8002] and incorporated herein by reference).
3.2 Bylaws of Thermo Electron (filed as Exhibit 3 to Thermo
Electron's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 [File No. 1-8002] and incorporated herein
by reference).
4.1 Fiscal Agency Agreement dated as of January 3, 1996, between
the Registrant and Chemical Bank pertaining to the
Registrant's 4 1/4% Subordinated Convertible Debentures due
2003 (filed as Exhibit 4.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995
[File No. 1-8002] and incorporated herein by reference).
The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to
furnish to the Commission upon request, a copy of each instrument with respect to
other long-term debt of the Registrant or its consolidated subsidiaries.
4.2 Rights Agreement, dated as of January 19, 1996, between
Thermo Electron Corporation and the First National Bank of
Boston, as Rights Agent, which includes as Exhibit A the
Form of Certificate of Designations, as Exhibit B the Form
of Rights Certificate, and as Exhibit C the Summary of
Rights to Purchase Preferred Stock (filed as Exhibit 1 to
the Registrant's Registration Statement on Form 8-A filed on
January 26, 1996, as amended by Amendment No. 1 to
Registration Statement on Form 8-A/A filed on May 30, 1997
and incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<S> <C>
4.3 Amendment No. 1 to Rights Agreement, dated as of June 11,
1999, between Thermo Electron Corporation and BankBoston,
N.A. (formerly, The First National Bank of Boston), as
Rights Agent, which includes as Exhibit B the amended and
restated Form of Rights Certificate and as Exhibit C the
amended and restated Summary of Rights to Purchase Preferred
Stock (filed as Exhibit 2 to the Registrant's Amendment
No. 2 to Registration Statement on Form 8-A/A filed on
June 21, 1999 and incorporated herein by reference).
4.4 Indenture dated as of October 29, 1998, by and between the
Registrant and Bankers Trust Company, as Trustee, relating
to the issuance of senior debt securities by the Registrant
(filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K dated October 29, 1998, filed with the Securities
and Exchange Commission on October 30, 1998, and
incorporated herein by reference).
4.5 First Supplemental Indenture dated as of October 29, 1998,
by and between the Registrant and Bankers Trust Company, as
Trustee, relating to the issuance by the Registrant of
$150,000,000 aggregate principal amount of its 7.625% Notes
due 2008 (filed as Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated October 29, 1998, filed with the
Securities and Exchange Commission on October 30, 1998, and
incorporated herein by reference).
5.1 Opinion and consent of Seth H. Hoogasian, Esq. as to the
validity of the Securities.
8.1 Opinion and consent of Hale and Dorr LLP as to tax matters.
10.1 Form of Indemnification Agreement between the Registrant and
the directors and officers of its majority-owned
subsidiaries.
10.2 Form of Amended and Restated Indemnification Agreement
between the Registrant and its directors and officers.
23.1 Consent of Arthur Andersen LLP to the Registrant.
23.2 Consent of Arthur Andersen LLP to Thermo TerraTech Inc.
23.3 Consent of Seth H. Hoogasian, Esq. (included as part of
Exhibit 5.1).
23.4 Power of Attorney (see signature pages to this Registration
Statement).
23.5 Consent of Hale and Dorr LLP (included as part of
Exhibit 8.1).
99.1 Form of Proxy of Thermo TerraTech Inc.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement 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;
(2) that before any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may
II-2
<PAGE>
be deemed underwriters, in addition to the information called for by the other
items of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment 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;
(4) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means, including
information contained in documents filed after the effective date of this
registration statement through the date of responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this registration statement when it
became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has 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. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on November 9, 1999.
<TABLE>
<S> <C> <C>
THERMO ELECTRON CORPORATION
By: /s/ RICHARD F. SYRON
-----------------------------------------
Richard F. Syron
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY AND SIGNATURES
Each of the undersigned Directors and Officers of Thermo Electron
Corporation hereby appoints Theo Melas-Kyriazi, Paul F. Kelleher, Kenneth J.
Apicerno, Seth H. Hoogasian and Sandra L. Lambert, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD F. SYRON
------------------------------------------- President, Chief Executive November 9, 1999
Richard F. Syron Officer and Director
/s/ THEO MELAS-KYRIAZI
------------------------------------------- Chief Financial Officer November 9, 1999
Theo Melas-Kyriazi
/s/ PAUL F. KELLEHER
------------------------------------------- Chief Accounting Officer November 9, 1999
Paul F. Kelleher
/s/ GEORGE N. HATSOPOULOS
------------------------------------------- Chairman of the Board November 9, 1999
George N. Hatsopoulos
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. ALBERTINE
------------------------------------------- Director November 9, 1999
John M. Albertine
/s/ SAMUEL W. BODMAN
------------------------------------------- Director November 9, 1999
Samuel W. Bodman
/s/ PETER O. CRISP
------------------------------------------- Director November 9, 1999
Peter O. Crisp
/s/ ELIAS P. GYFTOPOULOS
------------------------------------------- Director November 9, 1999
Elias P. Gyftopoulos
/s/ JOHN N. HATSOPOULOS
------------------------------------------- Director November 9, 1999
John N. Hatsopoulos
/s/ FRANK JUNGERS
------------------------------------------- Director November 9, 1999
Frank Jungers
/s/ ROBERT A. MCCABE
------------------------------------------- Director November 9, 1999
Robert A. McCabe
/s/ HUTHAM S. OLAYAN
------------------------------------------- Director November 9, 1999
Hutham S. Olayan
/s/ ROBERT W. O'LEARY
------------------------------------------- Director November 9, 1999
Robert W. O'Leary
/s/ ROGER D. WELLINGTON
------------------------------------------- Director November 9, 1999
Roger D. Wellington
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 19, 1999,
by and among Thermo Electron, Thermo TerraTech and TTT
Acquisition Corporation (included as Appendix A to the Proxy
Statement-Prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation of Thermo
Electron (filed as Exhibit 1 to Thermo Electron's Amendment
No. 3 to Registration Statement on Form 8-A/A [File
No. 1-8002] and incorporated herein by reference).
3.2 Bylaws of Thermo Electron (filed as Exhibit 3 to Thermo
Electron's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 [File No. 1-8002] and incorporated herein
by reference).
4.1 Fiscal Agency Agreement dated as of January 3, 1996, between
the Registrant and Chemical Bank pertaining to the
Registrant's 4 1/4% Subordinated Convertible Debentures due
2003 (filed as Exhibit 4.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995
[File No. 1-8002] and incorporated herein by reference).
</TABLE>
The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K, to furnish to the Commission upon request, a copy of each
instrument with respect to other long-term debt of the Registrant or its
consolidated subsidiaries.
<TABLE>
<C> <S>
4.2 Rights Agreement, dated as of January 19, 1996, between
Thermo Electron Corporation and the First National Bank of
Boston, as Rights Agent, which includes as Exhibit A the
Form of Certificate of Designations, as Exhibit B the Form
of Rights Certificate, and as Exhibit C the Summary of
Rights to Purchase Preferred Stock (filed as Exhibit 1 to
the Registrant's Registration Statement on Form 8-A filed on
January 26, 1996, as amended by Amendment No. 1 to
Registration Statement on Form 8-A/A filed on May 30, 1997
and incorporated herein by reference).
4.3 Amendment No. 1 to Rights Agreement, dated as of June 11,
1999, between Thermo Electron Corporation and BankBoston,
N.A. (formerly, The First National Bank of Boston), as
Rights Agent, which includes as Exhibit B the amended and
restated Form of Rights Certificate and as Exhibit C the
amended and restated Summary of Rights to Purchase Preferred
Stock (filed as Exhibit 2 to the Registrant's Amendment
No. 2 to Registration Statement on Form 8-A/A filed on
June 21, 1999 and incorporated herein by reference).
4.4 Indenture dated as of October 29, 1998, by and between the
Registrant and Bankers Trust Company, as Trustee, relating
to the issuance of senior debt securities by the Registrant
(filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K dated October 29, 1998, filed with the Securities
and Exchange Commission on October 30, 1998, and
incorporated herein by reference).
4.5 First Supplemental Indenture dated as of October 29, 1998,
by and between the Registrant and Bankers Trust Company, as
Trustee, relating to the issuance by the Registrant of
$150,000,000 aggregate principal amount of its 7.625% Notes
due 2008 (filed as Exhibit 4.2 to the Registrant's Current
Report on Form 8-K dated October 29, 1998, filed with the
Securities and Exchange Commission on October 30, 1998, and
incorporated herein by reference).
5.1 Opinion and consent of Seth H. Hoogasian, Esq. as to the
validity of the Securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
8.1 Opinion and consent of Hale and Dorr LLP as to tax matters.
10.1 Form of Indemnification Agreement between the Registrant and
the directors and officers of its majority-owned
subsidiaries.
10.2 Form of Amended and Restated Indemnification Agreement
between the Registrant and its directors and officers.
23.1 Consent of Arthur Andersen LLP to the registrant.
23.2 Consent of Arthur Andersen LLP to Thermo TerraTech Inc.
23.3 Consent of Seth H. Hoogasian, Esq. (included as part of
Exhibit 5.1).
23.4 Power of Attorney (see signature pages to this Registration
Statement).
23.5 Consent of Hale and Dorr LLP (included as part of
Exhibit 8.1).
99.1 Form of Proxy of Thermo TerraTech Inc.
</TABLE>
<PAGE>
EXHIBIT 5.1
Thermo Electron Corporation
81 Wyman Street
Waltham, Massachusetts 02454-9046
November 9, 1999
Thermo Electron Corporation
81 Wyman Street
Waltham, Massachusetts 02454-9046
Re: Registration Statement on Form S-4
RELATING TO COMMON STOCK, $1.00 PAR VALUE, OF THERMO ELECTRON CORPORATION
Dear Sirs:
I am General Counsel to Thermo Electron Corporation, a Delaware
corporation (the "Company"), and have acted as its counsel in connection with
the registration under the Securities Act of 1933, as amended, on Form S-4 (the
"Registration Statement"), of up to 1,800,000 shares of the Company's Common
Stock, $1.00 par value per share (the "Shares"), pursuant to an Agreement and
Plan of Merger by and among the Company, Thermo TerraTech Inc. and TTT
Acquisition Corporation, dated as of October 19, 1999, which provides for the
merger of TTT Acquisition Corporation with and into Thermo TerraTech Inc., with
Thermo TerraTech Inc. surviving the merger as a wholly owned subsidiary of the
Company.
I or a member of my legal staff have reviewed the corporate proceedings
taken by the Company with respect to the authorization of the issuance of the
Shares. 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 have made all investigations of law and have discussed with the Company's
representatives 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 is a corporation validly existing and in corporate good
standing under the laws of the State of Delaware.
2. The issuance of the Shares as contemplated in the Registration
Statement
<PAGE>
has been duly authorized by the Company.
3. The Shares, when issued in accordance with the provisions of the
Merger Agreement, will be validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
/s/ Seth H. Hoogasian
----------------------
Seth H. Hoogasian
General Counsel
<PAGE>
EXHIBIT 8.1
[Hale and Dorr LLP letterhead]
November 9, 1999
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Thermo TerraTech Inc.
85 First Avenue
Waltham, MA 02451
Re: Merger Pursuant to Agreement and Plan of Merger by and Among
Thermo Electron Corporation, TTT Acquisition Corporation, and
Thermo TerraTech Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of
a registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of October 19, 1999 (the "Merger Agreement"), by and
among Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"),
TTT Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of Thermo Electron ("Merger Sub"), and Thermo TerraTech Inc., a Delaware
corporation ("TerraTech"). Pursuant to the Merger Agreement, Merger Sub will
merge with and into TerraTech (the "Merger"). Except as otherwise provided,
capitalized terms not defined herein have the meanings set forth in the Merger
Agreement and the exhibits thereto or in the letters delivered to Hale and Dorr
LLP by Thermo Electron and TerraTech containing certain representations of
Thermo Electron and TerraTech relevant to this opinion (the "Representation
Letters"). All section references, unless otherwise indicated, are to the United
States Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
Thermo Electron Corporation
Thermo TerraTech Inc.
November 9, 1999
Page 2
In our capacity as counsel to Thermo Electron in the Merger, and for
purposes of rendering this opinion, we have examined and relied upon the
Registration Statement, the Merger Agreement and the exhibits thereto, the
Representation Letters, and such other documents as we considered relevant to
our analysis. In our examination of documents, we have assumed the authenticity
of original documents, the accuracy of copies, the genuineness of signatures,
and the legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any
other documents examined by us have acted, and will act, in accordance with the
terms of such Merger Agreement and documents and that the Merger will be
consummated at the Effective Time pursuant to the terms and conditions set forth
in the Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the
proper treatment of certain aspects of the Merger under the income tax laws of
the United States based upon the Code, Treasury Regulations, case law, and
rulings and other pronouncements of the Internal Revenue Service (the "IRS") as
in effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you or your
shareholders of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or
<PAGE>
Thermo Electron Corporation
Thermo TerraTech Inc.
November 9, 1999
Page 3
any court. Thus, no assurances can be given that a position taken in reliance on
our opinion will not be challenged by the IRS or rejected by a court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
TerraTech that are subject to special tax rules (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who own their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction, stockholders who do not
own their stock as a capital asset and stockholders who have acquired their
stock upon the exercise of employee options or otherwise as compensation), and
we express no opinion regarding the tax consequences of the Merger arising in
connection with the ownership of options or warrants for TerraTech stock.
On the basis of, and subject to, the foregoing, and in reliance upon
the representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Thermo Electron, Merger Sub,
or TerraTech as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of TerraTech
upon the exchange of TerraTech stock solely for shares of Thermo Electron stock
in the Merger;
4. Cash received by the shareholders of TerraTech in lieu of fractional
shares of Thermo Electron stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Thermo Electron;
5. The tax basis of the shares of Thermo Electron stock received by the
shareholders of TerraTech in the Merger will be equal to the tax basis of the
shares of TerraTech stock exchanged therefor in the Merger, reduced by any basis
allocable to a
<PAGE>
Thermo Electron Corporation
Thermo TerraTech Inc.
November 9, 1999
Page 4
fractional share of Thermo Electron stock treated as sold or exchanged under
Section 302; and
6. The holding period for the shares of Thermo Electron stock received
by the shareholders of TerraTech will include the holding period for the shares
of TerraTech stock exchanged therefor in the Merger, provided that the shares of
TerraTech stock are held as capital assets at the Effective Time.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity, other than you and your shareholders,
and may not be made available to any other person or entity without our prior
written consent. We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and further consent to the use of our name in the
Registration Statement in connection with references to this opinion and the tax
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
------------------------------
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.1
THERMO ELECTRON CORPORATION
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this *** day of ***, 1999
("Agreement"), by and between Thermo Electron Corporation, a Delaware
corporation (the "Company"), and *** ("Indemnitee"):
WHEREAS, the Company acknowledges and confirms that the directors and
officers of the Company's majority-owned subsidiaries have served and will
continue to serve at the request of the Company;
WHEREAS, the Board of Directors (the "Board") of the Company has
determined that it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify the directors and officers of its
majority-owned subsidiaries so that such persons will serve or continue to serve
the Company's majority-owned subsidiaries free from undue concern that the
indemnification rights provided them by such subsidiaries will be insufficient;
WHEREAS, it is the intent of the Board that the rights of a director or
officer of a majority-owned subsidiary under this agreement are supplemental to
the indemnification rights that such person is entitled to from such
majority-owned subsidiary;
WHEREAS, Indemnitee is willing to serve, continue to serve and/or take
on additional service for or on behalf of one or more of the Company's
majority-owned subsidiaries on the condition that in addition to being
indemnified by the subsidiary, he or she also be indemnified by the Company;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to
serve as a director or officer of one or more majority-owned subsidiaries
(hereinafter the "Subsidiary" or the "Subsidiaries" as the case may be) of the
Company. This Agreement shall not impose any obligation on Indemnitee or the
Company to continue Indemnitee's position with any Subsidiary beyond any period
otherwise applicable.
2. INDEMNITY. The Company shall indemnify, and shall advance Expenses
(as hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. GENERAL. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 3 if, by reason of his or her Corporate
Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative
(other than an action, suit or proceeding covered by Section 4 hereof). Pursuant
to this Section 3, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and/or amounts paid in settlement incurred by Indemnitee or on
his or her behalf in connection with such action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or other
proceeding whether civil, criminal, administrative or investigative or any
claim, issue or matter therein and whether or not Indemnitee is made a party
thereto, if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company , and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
<PAGE>
4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. In the case of any
threatened, pending or completed action, suit or proceeding by or in the right
of the Company, indemnification shall be made to the maximum extent permitted
under Delaware law.
5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his or her Corporate Status, a party to and is
successful, on the merits or otherwise, in any action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee or
on his or her behalf in connection therewith. If Indemnitee is not wholly
successful but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative,
the Company shall indemnify Indemnitee against all Expenses incurred by
Indemnitee or on his or her behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter by dismissal, or withdrawal with or
without prejudice, shall be deemed to be a successful result as to such claim,
issue or matter.
6. ADVANCE OF EXPENSES. The Company shall advance all Expenses incurred
by or on behalf of Indemnitee in connection with any action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding involving his or her Corporate Status whether civil,
criminal, administrative or investigative within twenty (20) days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such action, suit, arbitration, alternative dispute resolution
proceeding, investigation, administrative hearing or other proceeding whether
civil, criminal, administrative or investigative. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it shall ultimately be determined that Indemnitee
is not entitled to be indemnified against such Expenses, which undertaking shall
be accepted by or on behalf of the Company without reference to the financial
ability of Indemnitee to make repayment.
7. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 7(a) hereof, a determination, if required (but only to the extent
required) by applicable law as a precondition to payment, with respect to
Indemnitee's entitlement thereto shall be made in the specific case: (i) if a
Change in Control (as hereinafter defined) shall have occurred, by Independent
Counsel (as hereinafter defined) in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee (unless Indemnitee shall request that
such determination be made by the Board or the stockholders, in which case the
determination shall be made in the manner provided below in clauses (ii) or
(iii)); (ii) if a Change of Control shall not have occurred, (A) by the Board by
a majority vote of Disinterested Directors (as hereinafter defined), even if
less than a quorum, or (B) by a committee of Disinterested Directors designated
by a majority vote of Disinterested Directors, even if less than a quorum, or
(C) if the Disinterested Directors so direct, by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee
or (D) by the stockholders of the Company; or (iii) as provided in Section 8(b)
of this Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which
<PAGE>
is not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorney's fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 7(b) of this Agreement,
the Independent Counsel shall be selected as provided in this Section 7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee
advising him or her of the identity of the Independent Counsel so selected. If a
Change of Control shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless Indemnitee shall request that such selection be made by
the Board, in which event the preceding sentence shall apply), and Indemnitee
shall give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within seven (7) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 14 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within twenty
(20) days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall
have been selected or if selected, shall have been objected to, in accordance
with this Section 7(c), either the Company or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
for resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Section 7(b) hereof. The Company shall pay reasonable
fees and expenses of Independent Counsel incurred in connection with its acting
in such capacity pursuant to Section 7(b) hereof. The Company shall pay any and
all reasonable fees and expenses incident to the procedures of this Section
7(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 9(a) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
8. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
8(b) shall
<PAGE>
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 7(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within one hundred twenty (120) days after such receipt and such determination
is made thereat, or (B) a special meeting of stockholders is called within
fifteen (15) days after such receipt for the purpose of making such
determination, such meeting is held for such purpose within one hundred five
(105) days after having been so called and such determination is made thereat,
or (ii) if the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or other
proceeding whether civil, criminal, administrative or investigative or of any
claim, issue or matter therein by judgment, order, settlement or conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this A greement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company or, with respect to any
criminal action or proceeding, that Indemnitee had reasonable cause to believe
that his or her conduct was unlawful.
9. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 7
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6
of this Agreement, (iii) the determination of entitlement to indemnification is
to be by Independent Counsel pursuant to Section 7(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
ninety (90) days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of Indemnitee's entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his or her option, may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the rules of the American Arbitration Association. Indemnitee shall commence
such proceeding seeking an adjudication or an award in arbitration within one
hundred eighty (180) days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 9(a). The Company
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a DE NOVO trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 9 the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not
<PAGE>
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9, seeks a
judicial adjudication of or an award in arbitration to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him or her in such judicial adjudication or arbitration, but only if Indemnitee
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
10. SECURITY. To the extent requested by Indemnitee and approved
by the Board, the Company shall at any time and from time to time provide
security to Indemnitee for the Company's obligations hereunder through an
irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to Indemnitee, may not be revoked or released without
the prior written consent of Indemnitee.
11. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement are in addition to and shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Company's certificate of incorporation or
by-laws, any other agreement, a vote of stockholders or a resolution of
directors, or otherwise. Without limiting the foregoing, the Company shall
indemnify Indemnitee to the fullest extent permitted under Delaware law. This
Agreement shall continue until and terminate upon the later of (a) ten (10)
years after the date that Indemnitee shall have ceased to serve as a director or
officer of any Subsidiary or director, officer or other fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which Indemnitee served at the request of the Company; or (b) the
final termination of all pending actions, suits, arbitrations, alternative
dispute resolution proceedings, investigations, administrative hearings or other
proceedings whether civil, criminal, administrative or investigative in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 9 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his or her heirs, executors and administrators.
(b) To the extent that the Company maintains directors and officers
liability insurance, Indemnitee shall be covered by such insurance in accordance
with its terms to the maximum extent of the coverage available for any director
or officer under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise and if and to the extent that
Indemnitee has not made reasonable efforts to pursue all indemnification rights
from the Subsidiary.
12. SEVERABILITY; REFORMATION. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
<PAGE>
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
13. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any action, suit or proceeding, or any claim therein,
initiated, brought or made by Indemnitee (i) against the Company, unless a
Change in Control shall have occurred, or (ii) against any person other than the
Company, unless approved in advance by the Board.
14. DEFINITIONS. For purposes of this Agreement:
(a) "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of subsection (i) through (iv) below (including an event or
occurrence that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such subsection):
(i) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the meaning of Rule
13d-3 promulgated under the Exchange Act) 40% or more of either (A) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of
the then-outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); PROVIDED, HOWEVER, that for purposes of this subsection
(i), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition by the Company, (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (C) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (A) and (B) of subsection (iii) of this Section 14(a); or
(ii) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if applicable, the Board
of Directors of a successor corporation to the Company), where the term
"Continuing Director" means at any date a member of the Board (A) who
was a member of the Board on September 23, 1999 or (B) who was
nominated or elected subsequent to such date by at least a majority of
the directors who were Continuing Directors at the time of such
nomination or election; PROVIDED, HOWEVER, that there shall be excluded
form this clause (B) any individual whose initial assumption of office
occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving
the Company or a sale or other disposition of all or substantially all
of the assets of the Company in one or a series of transactions (a
"Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (A) all
or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors, respectively, of the
resulting or acquiring corporation in such Business Combination (which
shall include, without limitation, a corporation which as a result of
such transaction owns the Company or substantially all of the Company's
assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the
"Acquiring Corporation") in substantially the same proportions as their
ownership, immediately prior to such
<PAGE>
Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively; and (B) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the
Acquiring Corporation) beneficially owns, directly or indirectly, 40%
or more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding
securities of such corporation entitled to vote generally in the
election of directors; or
(iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(b) "Corporate Status" describes the status of a person who is or was
or has agreed to become a director of the Subsidiary, or is or was an officer or
fiduciary of the Subsidiary or a director, officer or fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
and was not a party to the action, suit, arbitration, alternative dispute
resolution proceeding, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative in respect
of which indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees and expenses of experts, including but not
limited to fees and expenses of investment bankers and/or consultants which the
Company has authorized Indemnitee to hire and attorneys for such experts, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, deliver service fees, a reasonable per diem fee to compensate
Indemnitee for his or her professional time and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend or investigating an action, suit,
arbitration, alternative dispute resolution proceeding, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative.
(e) "Independent Counsel" means a law firm, with over 100 lawyers, that
is experienced in matters of corporation law and neither currently is, nor in
the past five years has been, retained to represent: (i) the Company (including
any subsidiary thereof), or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
15. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. MODIFICATION AND WAIVER. This Agreement may be amended from
time to time to reflect changes in Delaware law or for other reasons. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any matter
which may be subject to indemnification or advancement of Expenses covered
hereunder; provided, however, that the failure to give any such notice shall not
disqualify Indemnitee from indemnification hereunder.
<PAGE>
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to: The address shown beneath
his or her signature on
the last page hereof
(b) If to the Company to: Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
Attn: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
20. ENTIRE AGREEMENT. This agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein; and any prior agreement of the parties hereto
in respect of the subject matter contained herein is hereby terminated and
cancelled. Nothing in the foregoing sentence shall affect any indemnification
arrangements between Indemnitee and any Subsidiary, which shall remain in full
force and effect.
21. TERMINATION. The right of Indemnitee to seek indemnification
under this Agreement shall terminate effective upon the sale, exchange or other
transfer of all or substantially all of the assets or stock of the Subsidiary to
a party not controlled by the Company, except with respect to decisions or
actions of Indemnitee made prior to such sale, exchange or other transfer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Attest: THERMO ELECTRON CORPORATION
By: By:
------------------------------- -------------------------------------
Sandra L. Lambert Richard F. Syron
Secretary President and Chief Executive Officer
INDEMNITEE
------------------------------------------
Address:
<PAGE>
EXHIBIT 10.2
THERMO ELECTRON CORPORATION
AMENDED AND RESTATED
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this *** day of ***, 1999
("Agreement"), by and between Thermo Electron Corporation, a Delaware
corporation (the "Company"), and *** ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to, and activities on behalf of, the corporation;
WHEREAS, uncertainties relating to the continued availability of
adequate directors and officers liability insurance ("D&O Insurance") and
uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify such persons so that they will serve
or continue to serve the Company free from undue concern that they will not be
so indemnified;
WHEREAS, Indemnitee is willing to serve, continue to serve and/or take
on additional service for or on behalf of the Company on the condition that he
or she be so indemnified and that such indemnification be so guaranteed;
WHEREAS, the Company and Indemnitee have previously entered into an
Indemnification Agreement and wish to amend and restate such Indemnification
Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to
serve as a director or officer of the Company. This Agreement shall not impose
any obligation on Indemnitee or the Company to continue Indemnitee's position
with the Company beyond any period otherwise applicable.
2. INDEMNITY. The Company shall indemnify, and shall advance Expenses
(as hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. GENERAL. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 3 if, by reason of his or her Corporate
Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative
(other than an action, suit or proceeding covered by Section 4 hereof). Pursuant
to this Section 3, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and/or amounts paid in settlement incurred by Indemnitee or on
his or her behalf in connection with such action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or
<PAGE>
other proceeding whether civil, criminal, administrative or investigative or any
claim, issue or matter therein and whether or not Indemnitee is made a party
thereto, if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful.
4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. In the case of any
threatened, pending or completed action, suit or proceeding by or in the right
of the Company, indemnification shall be made to the maximum extent permitted
under Delaware law.
5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his or her Corporate Status, a party to and is
successful, on the merits or otherwise, in any action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee or
on his or her behalf in connection therewith. If Indemnitee is not wholly
successful but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding whether civil, criminal, administrative or investigative,
the Company shall indemnify Indemnitee against all Expenses incurred by
Indemnitee or on his or her behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter by dismissal, or withdrawal with or
without prejudice, shall be deemed to be a successful result as to such claim,
issue or matter.
6. ADVANCE OF EXPENSES. The Company shall advance all Expenses incurred
by or on behalf of Indemnitee in connection with any action, suit, arbitration,
alternative dispute resolution proceeding, investigation, administrative hearing
or other proceeding involving his or her Corporate Status whether civil,
criminal, administrative or investigative within twenty (20) days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such action, suit, arbitration, alternative dispute resolution
proceeding, investigation, administrative hearing or other proceeding whether
civil, criminal, administrative or investigative. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it shall ultimately be determined that Indemnitee
is not entitled to be indemnified against such Expenses, which undertaking shall
be accepted by or on behalf of the Company without reference to the financial
ability of Indemnitee to make repayment.
7. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 7(a) hereof, a determination, if required (but only to the extent
required) by applicable law as a precondition to payment, with respect to
Indemnitee's entitlement thereto shall be made in the specific case: (i) if a
Change in Control (as hereinafter defined) shall have occurred, by Independent
Counsel (as hereinafter defined) in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee (unless Indemnitee shall request that
such determination be made by the Board or the stockholders, in which case the
determination shall be made in the manner provided below in clauses (ii) or
(iii)); (ii) if a Change of Control shall not have occurred, (A) by the Board by
a majority vote of Disinterested Directors (as hereinafter defined), even if
less than a quorum, or (B) by a committee of Disinterested Directors designated
by a majority vote of Disinterested Directors, even if less than a quorum, or
(C) if the Disinterested Directors so direct, by
<PAGE>
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (D) by the stockholders of the Company; or (iii) as
provided in Section 8(b) of this Agreement; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten (10) days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorney's fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 7(b) of this Agreement,
the Independent Counsel shall be selected as provided in this Section 7(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board, and the Company shall give written notice to Indemnitee
advising him or her of the identity of the Independent Counsel so selected. If a
Change of Control shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless Indemnitee shall request that such selection be made by
the Board, in which event the preceding sentence shall apply), and Indemnitee
shall give written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within seven (7) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 14 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within twenty
(20) days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall
have been selected or if selected, shall have been objected to, in accordance
with this Section 7(c), either the Company or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
for resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Section 7(b) hereof. The Company shall pay reasonable
fees and expenses of Independent Counsel incurred in connection with its acting
in such capacity pursuant to Section 7(b) hereof. The Company shall pay any and
all reasonable fees and expenses incident to the procedures of this Section
7(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 9(a) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
8. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
<PAGE>
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
8(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 7(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company of the request for
such determination the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within one hundred twenty (120) days after such receipt and such determination
is made thereat, or (B) a special meeting of stockholders is called within
fifteen (15) days after such receipt for the purpose of making such
determination, such meeting is held for such purpose within one hundred five
(105) days after having been so called and such determination is made thereat,
or (ii) if the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or other
proceeding whether civil, criminal, administrative or investigative or of any
claim, issue or matter therein by judgment, order, settlement or conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company or, with respect to any
criminal action or proceeding, that Indemnitee had reasonable cause to believe
that his or her conduct was unlawful.
9. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 7
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6
of this Agreement, (iii) the determination of entitlement to indemnification is
to be by Independent Counsel pursuant to Section 7(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
ninety (90) days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of Indemnitee's entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his or her option, may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the rules of the American Arbitration Association. Indemnitee shall commence
such proceeding seeking an adjudication or an award in arbitration within one
hundred eighty (180) days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 9(a). The Company
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a DE NOVO trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 9 the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section
<PAGE>
9, absent (i) a misstatement by Indemnitee of a material fact, or an omission of
a material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9, seeks a
judicial adjudication of or an award in arbitration to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him or her in such judicial adjudication or arbitration, but only if Indemnitee
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
10. SECURITY. To the extent requested by Indemnitee and approved by the
Board, the Company shall at any time and from time to time provide security to
Indemnitee for the Company's obligations hereunder through an irrevocable bank
line of credit, funded trust or other collateral. Any such security, once
provided to Indemnitee, may not be revoked or released without the prior written
consent of Indemnitee.
11. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement are in addition to and shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Company's certificate of incorporation or
by-laws, any other agreement, a vote of stockholders or a resolution of
directors, or otherwise. Without limiting the foregoing, the Company shall
indemnify Indemnitee to the fullest extent permitted under Delaware law. This
Agreement shall continue until and terminate upon the later of (a) ten (10)
years after the date that Indemnitee shall have ceased to serve as a director or
officer of the Company or director, officer or other fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which Indemnitee served at the request of the Company; or (b) the
final termination of all pending actions, suits, arbitrations, alternative
dispute resolution proceedings, investigations, administrative hearings or other
proceedings whether civil, criminal, administrative or investigative in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 9 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his or her heirs, executors and administrators.
(b) To the extent that the Company maintains D&O Insurance, Indemnitee
shall be covered by such D&O Insurance in accordance with its terms to the
maximum extent of the coverage available for any director or officer under such
policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
<PAGE>
12. SEVERABILITY; REFORMATION. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
13. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any action, suit or proceeding, or any claim therein, initiated,
brought or made by Indemnitee (i) against the Company, unless a Change in
Control shall have occurred, or (ii) against any person other than the Company,
unless approved in advance by the Board.
14. DEFINITIONS. For purposes of this Agreement:
(a) "CHANGE IN CONTROL" means an event or occurrence set forth in any
one or more of subsection (i) through (iv) below (including an event or
occurrence that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such subsection):
(i) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the meaning of Rule
13d-3 promulgated under the Exchange Act) 40% or more of either (A) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of
the then-outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); PROVIDED, HOWEVER, that for purposes of this subsection
(i), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition by the Company, (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (C) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (A) and (B) of subsection (iii) of this Section 14(a); or
(ii) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if applicable, the Board
of Directors of a successor corporation to the Company), where the term
"Continuing Director" means at any date a member of the Board (A) who
was a member of the Board on September 23, 1999 or (B) who was
nominated or elected subsequent to such date by at least a majority of
the directors who were Continuing Directors at the time of such
nomination or election; PROVIDED, HOWEVER, that there shall be excluded
form this clause (B) any individual whose initial assumption of office
occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving
the Company or a sale or other disposition of all or substantially all
of the assets of the Company in one or a series of transactions (a
"Business Combination"), unless, immediately following such Business
Combination, each of the following two conditions is satisfied: (A) all
or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding securities entitled to
vote generally in the election of
<PAGE>
directors, respectively, of the resulting or acquiring corporation in
such Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or
substantially all of the Company's assets either directly or through
one or more subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in substantially the
same proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively; and (B) no Person (excluding
the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of
the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding
securities of such corporation entitled to vote generally in the
election of directors; or
(iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(b) "Corporate Status" describes the status of a person who is or was
or has agreed to become a director of the Company, or is or was an officer or
fiduciary of the Company or a director, officer or fiduciary of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
and was not a party to the action, suit, arbitration, alternative dispute
resolution proceeding, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative in respect
of which indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees and expenses of experts, including but not
limited to fees and expenses of investment bankers and/or consultants which the
Company has authorized Indemnitee to hire and attorneys for such experts, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, deliver service fees, a reasonable per diem fee to compensate
Indemnitee for his or her professional time and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend or investigating an action, suit,
arbitration, alternative dispute resolution proceeding, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative.
(e) "Independent Counsel" means a law firm, with over 100 lawyers, that
is experienced in matters of corporation law and neither currently is, nor in
the past five years has been, retained to represent: (i) the Company (including
any subsidiary thereof) or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, arbitration, alternative
dispute resolution proceeding, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
15. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. MODIFICATION AND WAIVER. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
<PAGE>
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any matter
which may be subject to indemnification or advancement of Expenses covered
hereunder; provided, however, that the failure to give any such notice shall not
disqualify Indemnitee from indemnification hereunder.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to: The address shown beneath
his or her signature on
the last page hereof
(b) If to the Company to: Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
Attn: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
20. ENTIRE AGREEMENT. This agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of the
subject matter contained herein; and any prior agreement of the parties hereto
in respect of the subject matter contained herein is hereby terminated and
cancelled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Attest: THERMO ELECTRON CORPORATION
By: By:
----------------------------------- --------------------------------------
Sandra L. Lambert Richard F. Syron
Secretary President and Chief Executive Officer
INDEMNITEE
--------------------------------------
Address:
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo Electron Corporation:
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement and related Prospectus of Thermo
Electron Corporation on Form S-4 of our reports dated February 16, 1999
(except with respect to the matter discussed in Note 19, as to which the date
is March 1, 1999) included or incorporated by reference in Thermo Electron
Corporation's Annual Report on Form 10-K for the year ended January 2, 1999
and to all references to our Firm included in this Registration Statement and
related Prospectus.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 8, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Thermo TerraTech Inc.:
As independent public accountants, we hereby consent to the inclusion and
incorporation by reference in this Registration Statement and related
Prospectus of Thermo Electron Corporation on Form S-4 of our reports dated
May 11, 1999 (except with respect to the matters discussed in Note 19, as to
which the date is June 1, 1999) included or incorporated by reference in
Thermo TerraTech Inc.'s Annual Report on Form 10-K for the fiscal year ended
April 3, 1999, and to all references to our Firm included in this
Registration Statement and related Prospectus.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 8, 1999
<PAGE>
[ATTACHMENT A TO PROXY STATEMENT]
Ex. 99.2
FORM OF PROXY
THERMO TERRATECH INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD , 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. Appleton, Theo Melas-Kyriazi
and Kenneth J. Apicerno, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Special
Meeting of the stockholders of Thermo TerraTech Inc., a Delaware corporation
(the "Company"), to be held on ________, _______, 2000, at 10:00 a.m., at the
offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts
02454-9046, and at any adjournment or adjournments thereof, and to vote all
shares of common stock of the Company standing in the name of the undersigned on
_________, 1999, with all of the powers the undersigned would possess if
personally present at such meeting.
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
THERMO TERRATECH INC.
______________, 2000
1. To consider and vote on a proposal to approve an Agreement and Plan
of Merger dated as of October 19, 1999 (the "Merger Agreement") pursuant to
which TTT Acquisition Corporation, a newly-formed company and wholly owned
subsidiary of Thermo Electron Corporation, will be merged (the "Merger") with
and into the Company and each stockholder of the Company (other than shares held
by the Company in treasury and shares held by Thermo Electron Corporation) will
become entitled to receive 0.4 share of Thermo Electron Corporation (assuming no
adjustment in the exchange ratio, as described in the Merger Agreement) for each
outstanding share of common stock, $.10 par value, of the Company owned by such
stockholder immediately prior to the effective time of the Merger. A copy of the
Merger Agreement is attached as Appendix A to and is described in the
accompanying Proxy Statement.
[ ] For [ ] Against [ ] Abstain
2. To consider and act in their discretion upon such other matters as
may properly come before the Special Meeting or any adjournment or adjournments
thereof.
[ ] For [ ] Against [ ] Abstain
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS
SET FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO
INSTRUCTION IS GIVEN.
Copies of the Notice of Special Meeting and of the Proxy Statement have
been received by the undersigned.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
Signature(s)
-----------------------------------
Date
-------------------------------------------
Note: This proxy should be dated, signed by the
stockholder(s) exactly as his or her name appears
hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint
tenants or as community property, both should sign.
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
