<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 2000
REGISTRATION NO. 333-90661
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THERMO ELECTRON CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<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., 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. / /
--------------------------
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.
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<PAGE>
[THERMO TERRATECH LOGO]
Dear Stockholder:
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The board of directors of Thermo TerraTech Inc. and a special committee of
the board have approved a merger agreement with Thermo Electron Corporation, its
parent corporation.
We will hold a special stockholders' meeting on , 2000 at
10:00 a.m. local time at the offices of Thermo Electron, 81 Wyman Street,
Waltham, Massachusetts at which we will ask you to adopt the merger agreement.
If the merger agreement is adopted:
- Thermo TerraTech will become a wholly owned subsidiary of Thermo Electron;
and
- You will receive a fraction of a share of Thermo Electron common stock
worth between $7.50 and $9.25 in exchange for each of your shares of
TerraTech common stock.
The number of shares that you will receive will be calculated using the
formula set forth in this proxy statement-prospectus. You may not know at the
time of the stockholders' meeting exactly how many shares of Thermo Electron
common stock you will receive. The maximum number of shares that may be offered
under this proxy statement-prospectus is 1.8 million.
Thermo Electron's common stock is listed on the New York Stock Exchange
under the symbol "TMO", and on , 2000, Thermo Electron common stock
closed at $ per share.
PLEASE CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS PROXY
STATEMENT-PROSPECTUS REGARDING THERMO TERRATECH, THERMO ELECTRON AND THE MERGER,
INCLUDING IN PARTICULAR THE DISCUSSION IN THE SECTION CALLED "RISK FACTORS" ON
PAGE .
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED THE THERMO ELECTRON COMMON STOCK TO BE ISSUED UNDER THIS PROXY
STATEMENT-PROSPECTUS 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 and was first mailed
to stockholders on or about .
Sincerely,
John P. Appleton
Chairman of the Board of Directors
<PAGE>
[Thermo TerraTech logo]
NOTICE OF SPECIAL MEETING
, 2000
TO THE STOCKHOLDERS OF
THERMO TERRATECH INC.
I am pleased to give you notice of and cordially invite you to attend,
either in person or by proxy, the special meeting of the stockholders of Thermo
TerraTech Inc., 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 purposes of the special meeting are:
1. To consider and vote on a proposal to adopt a merger agreement dated as
of October 19, 1999, as amended, among Thermo TerraTech, Thermo Electron
Corporation and TTT Acquisition Corporation, a wholly owned subsidiary of
Thermo Electron. The merger agreement provides that TTT Acquisition will
be merged with and into Thermo TerraTech. In the merger, each stockholder
of Thermo TerraTech, other than Thermo Electron, will receive 0.4 share,
subject to adjustment as described in the enclosed proxy
statement-prospectus, of the common stock of Thermo Electron for each
outstanding share of common stock of Thermo TerraTech owned by each
public stockholder prior to the effective time of the merger. The merger
agreement is attached as Appendix A to and is described in the enclosed
proxy statement-prospectus.
2. To transact any other business which properly comes before the special
meeting.
Only stockholders of record at the close of business on , 2000
will receive notice of and be able to vote at the special meeting.
The enclosed proxy statement-prospectus describes the merger agreement, the
proposed merger and the actions to be taken in connection with the merger. The
holders of a majority of the outstanding shares of TerraTech common stock
entitled to vote must 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 are represented at the special meeting regardless of the number
of shares you hold. Whether or not you are able to be at the special meeting in
person, please sign and return promptly the enclosed proxy card in the enclosed,
postage-paid envelope. You may revoke your proxy in the manner described in the
enclosed proxy statement-prospectus at any time before it is voted at the
special meeting.
This notice, and the enclosed proxy card and proxy statement-prospectus are
sent to you by order of Thermo TerraTech's board of directors.
SANDRA L. LAMBERT
Secretary
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 5
SUMMARY..................................................... 7
RISK FACTORS................................................ 17
THE MERGER.................................................. 23
General................................................... 23
Background: Thermo Electron Spin-Outs and Reorganization
Plans................................................... 23
Background: The Merger.................................... 24
Thermo Electron Reorganization............................ 34
The Special Committee's and the Board's Recommendation.... 34
Opinion of Adams, Harkness & Hill......................... 38
Purpose and Reasons of Thermo Electron for the Merger..... 48
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
Effects of the Merger..................................... 52
Conduct of Thermo TerraTech's Business After the Merger... 53
Conduct of the Business of Thermo TerraTech if the Merger
is Not Consummated...................................... 53
Conversion of Securities.................................. 53
Effect of the Merger on Thermo TerraTech Stock Options,
Warrants and Debentures................................. 55
Deferred Compensation Plan for Directors.................. 55
Transfer of Shares........................................ 56
Representations and Warranties............................ 56
Covenants................................................. 57
Conditions................................................ 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 Electron
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
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Effective Time............................................ 64
SELECTED FINANCIAL INFORMATION--THERMO ELECTRON............. 65
SELECTED FINANCIAL INFORMATION--THERMO TERRATECH............ 66
FEDERAL INCOME TAX CONSEQUENCES............................. 67
CERTAIN PROJECTED FINANCIAL DATA............................ 69
INFORMATION ABOUT THERMO TERRATECH, THERMO ELECTRON AND TTT
ACQUISITION................................................. 71
COMPARISON OF RIGHTS OF HOLDERS OF THERMO TERRATECH AND
THERMO ELECTRON COMMON STOCK................................ 73
TRANSACTIONS WITH RELATED PARTIES........................... 81
RECENT DEVELOPMENTS......................................... 84
LEGAL OPINION............................................... 84
EXPERTS..................................................... 84
STOCKHOLDER PROPOSALS....................................... 84
WHERE YOU CAN FIND MORE INFORMATION......................... 85
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............ 87
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS........ F-1
APPENDIX A--Agreement and Plan of Merger.................... A-1
APPENDIX A-1--Amendment No. 1 to Agreement and Plan of
Merger.................................................... A1-1
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/A to Annual Report
on Form 10-K 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 January 1, 2000...... E-1
APPENDIX F--Current Report on Form 8-K dated January 28,
2000...................................................... F-1
APPENDIX G--Current Report on Form 8-K dated March 6,
2000...................................................... G-1
</TABLE>
4
<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 Thermo TerraTech will become a wholly owned
subsidiary of Thermo Electron.
3. WHAT WILL THERMO TERRATECH STOCKHOLDERS RECEIVE IN THE MERGER?
In the merger, Thermo TerraTech stockholders will receive 0.4 share of
Thermo Electron common stock for each share of TerraTech common stock owned by
them. We refer to this fraction of a share of Thermo Electron common stock, as
adjusted as described in the rest of this section, as the exchange ratio. The
exchange ratio may be adjusted, as follows.
If the average of the closing prices of the Thermo Electron common stock
during the 20 trading days ending five trading days before the merger is less
than $18.75, you will receive a fraction of a share of Thermo Electron common
stock worth $7.50 for each of your shares of TerraTech common stock. If the
average Thermo Electron closing price for the 20 trading day period before the
merger is between $18.75 and $23.125, you will receive 0.4 share of Thermo
Electron common stock for each of your shares of TerraTech common stock. If the
average Thermo Electron closing price for the 20 trading day period before the
merger is more than $23.125, you will receive a fraction of a share of Thermo
Electron common stock worth $9.25 for each of your shares of TerraTech common
stock.
4. WHY IS THERMO TERRATECH'S BOARD OF DIRECTORS RECOMMENDING ADOPTION OF THE
MERGER?
Thermo TerraTech's board of directors believes, based on the recommendation
of its special committee, that the merger 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.
5. WHO IS ENTITLED TO VOTE?
Holders of record of TerraTech common stock at the close of business on
, 2000, the record date for the special meeting, are entitled to vote at
the special meeting.
6. WHEN DO THERMO ELECTRON AND THERMO TERRATECH EXPECT TO COMPLETE THE MERGER?
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.
7. 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 postage-prepaid 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 person in order for their votes
to be counted at the special meeting.
5
<PAGE>
8. 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.
9. 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
Electron common stock.
10. WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?
You should call the Thermo TerraTech Investor Relations department at
(781) 622-1111.
11. 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 use their discretion to vote upon any
other matters that may come before the special meeting.
6
<PAGE>
SUMMARY
This summary highlights selected information from the proxy
statement-prospectus and 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 that are attached to this proxy
statement-prospectus, including the merger agreement, as amended, which is
attached as Appendix A and incorporated by reference into this 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 can obtain that information without
charge by following the instructions in the section entitled "Where You Can Find
More Information" on page of this proxy statement-prospectus. We have included
page references in parentheses to direct you to a more complete description of
the topics presented in this summary.
DATE, TIME AND PLACE OF THE SPECIAL MEETING (SEE PAGE )
The special meeting 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 (SEE PAGE )
At the special meeting, the stockholders of Thermo TerraTech will consider
and vote on a proposal to adopt the merger agreement. The merger agreement
provides that a subsidiary of Thermo Electron would merge with and into Thermo
TerraTech. Thermo TerraTech would be the surviving corporation in the merger and
would then be a wholly owned subsidiary of Thermo Electron. Each outstanding
share of common stock of Thermo TerraTech, 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 of Thermo
Electron, subject to adjustment as described below.
RECORD DATE AND QUORUM (SEE PAGE )
You can vote at the special meeting if you owned TerraTech common stock at
the close of business on , 2000, which is the record date for the special
meeting. You are entitled to one vote for each share of TerraTech common stock
held by you on the record date. At the close of business on the record date,
there were shares of TerraTech common stock outstanding. 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.
VOTE REQUIRED AND REVOCATION OF PROXIES (SEE PAGES )
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. 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. Thermo Electron has agreed to vote its shares of TerraTech common
stock in favor of the merger agreement. See "THE SPECIAL MEETING--Voting
Procedures."
You may revoke your proxy at any time before your shares are voted at the
special meeting by sending a written notice to the Secretary of Thermo
TerraTech, that is 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 you send in your proxy card without instructions on to how to vote, your
shares will be voted "FOR" the adoption of the proposed merger agreement.
7
<PAGE>
The board of directors of Thermo TerraTech does not expect any other matters
to be voted on at the special meeting. If any other matters do properly come
before the special meeting, the people named on the accompanying proxy card will
vote the shares represented by all properly executed proxies in their
discretion. However, 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 to allow more time to solicit additional
votes "FOR" adoption of the merger agreement. See "THE SPECIAL MEETING--Voting
Procedures."
PARTIES TO THE MERGER (SEE PAGE )
THERMO ELECTRON
Thermo Electron develops, manufactures and sells measurement and detection
instruments that its customers use to monitor, collect, and analyze data. On
January 31, 2000, Thermo Electron announced that its board of directors had
authorized management to proceed with a major reorganization of the operations
of Thermo Electron and its subsidiaries, including Thermo TerraTech. As part of
this reorganization, Thermo Electron plans to:
- acquire the minority interests in most of its public subsidiaries;
- spin off its business that serves the healthcare industry with a range of
medical products for diagnosis and monitoring, and its paper recycling and
papermaking equipment business; and
- sell various non-core businesses.
Thermo Electron plans to take Thermo Ecotek Corporation, its electric power
generation business, private. Although Thermo Electron no longer considers
Thermo Ecotek a core business under its new strategy, Thermo Electron expects to
retain Thermo Ecotek after it is taken private while Thermo Electron continues
to evaluate how to best exit that business and create maximum value for Thermo
Electron stockholders.
The primary goal of the reorganization plan is for Thermo Electron and each
of its spun-off subsidiaries to focus on their core businesses.
Thermo Electron's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000.
THERMO TERRATECH
Thermo TerraTech provides a broad, specialized range of industrial
outsourcing services and manufacturing support. Thermo TerraTech operates in
four segments: environmental-liability management, engineering and design,
laboratory testing, and metal treating.
Thermo Electron has proposed to sell Thermo TerraTech's remaining
businesses, as part of Thermo Electron's corporate reorganization, announced on
January 31, 2000.
Thermo TerraTech's principal executive offices are located at 85 First
Avenue, Waltham, Massachusetts 02451, and its telephone number is
(781) 370-1640.
TTT ACQUISITION
TTT Acquisition is a newly-formed Delaware corporation organized by Thermo
Electron for the sole purpose of effecting the merger. TTT Acquisition has not
conducted any prior business.
TTT Acquisition's principal executive offices are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.
8
<PAGE>
THE MERGER (SEE PAGE )
At the effective time of the merger, each share of TerraTech common stock,
other than shares held by Thermo TerraTech in treasury and shares held by Thermo
Electron, will be canceled and converted into the right to receive 0.4 share of
Thermo Electron common stock, subject to adjustment as described below. After
the merger, Thermo TerraTech will cease to be a publicly traded company. See
"THE MERGER."
The exchange ratio may be adjusted, as follows.
If the average of the closing prices of the Thermo Electron common stock
during the 20 trading days ending five trading days before the merger is less
than $18.75, you will receive a fraction of a share of Thermo Electron common
stock worth $7.50 for each of your shares of TerraTech common stock. If the
average Thermo Electron closing price for the 20 trading day period before the
merger is between $18.75 and $23.125, you will receive 0.4 share of Thermo
Electron common stock for each of your shares of TerraTech common stock. If the
average Thermo Electron closing price for the 20 trading day period before the
merger is more than $23.125, you will receive a fraction of a share of Thermo
Electron common stock worth $9.25 for each of your shares of TerraTech common
stock.
The lowest equivalent value of TerraTech common stock to be received in the
merger ($7.50 per share) is (1) approximately 73% over the closing price of the
TerraTech common stock on April 30, 1999, which was the last day on which
trading in the TerraTech common stock occurred before Thermo Electron's first
announcement of a proposal to take Thermo TerraTech private, with no financial
terms announced in the proposal, and (2) approximately 35% over the closing
price of the TerraTech common stock on October 19, 1999, which was the last
trading day immediately prior to the public announcement of the financial terms
of Thermo Electron's proposal.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE )
Thermo Electron intends to sell or dispose of Thermo TerraTech's assets
after the merger. Accordingly, Thermo Electron expects that the merger would
fail to satisfy one of the tests for a tax-free reorganization, namely, that the
business of the acquired company continue to be operated by the buyer, or that a
substantial portion of the acquired company's assets be used by the buyer.
Therefore, Thermo Electron expects that the merger will be treated as a taxable
exchange by the Thermo TerraTech stockholders of their shares of TerraTech
common stock for shares of Thermo Electron common stock. Each Thermo TerraTech
stockholder would realize taxable gain, or loss, to the extent that the fair
market value of the Thermo Electron common stock received by the stockholder in
the merger exceeds, or is less than, the stockholder's basis in the TerraTech
common stock exchanged in the merger. It is possible, although Thermo Electron
believes it is unlikely, that the merger would still qualify as a tax-free
reorganization depending on the timing of Thermo Electron's sales of Thermo
TerraTech's businesses after the merger. You should consult your own tax advisor
for a full understanding of the merger's tax consequences. Additionally, no gain
or loss will generally be recognized by Thermo TerraTech, Thermo Electron or TTT
Acquisition as a result of the merger. Please read the section called "FEDERAL
INCOME TAX CONSEQUENCES" for a fuller discussion of the tax consequences of the
merger.
PAYMENT FOR SHARES (SEE PAGE )
You will receive detailed instructions regarding the surrender of your stock
certificates from Thermo TerraTech's transfer agent, American Stock Transfer and
Trust Company, promptly following the effective time of the merger. You will
receive certificates for Thermo Electron common stock as soon as practicable
after the transfer agent receives your Thermo TerraTech stock certificates and
other required documents. Please do not send any stock certificates to Thermo
Electron, Thermo TerraTech or the exchange agent until you receive these
instructions.
9
<PAGE>
EFFECT OF THE MERGER ON THERMO TERRATECH STOCK OPTIONS, WARRANTS AND DEBENTURES
(SEE PAGES )
Thermo Electron will assume options and warrants to purchase shares of
TerraTech common stock under Thermo TerraTech's stock option plans and warrants,
respectively, at the effective time of the merger. The Thermo TerraTech options
and warrants will be exercisable for Thermo Electron common stock after the
merger. The number of shares of Thermo Electron common stock underlying each
option will equal the number of shares of TerraTech common stock underlying the
option before the merger, multiplied by the exchange ratio. The exercise price
for each assumed option will be calculated by dividing the exercise price of the
TerraTech stock option before the merger by the exchange ratio, rounded up to
the nearest whole cent. The number of whole shares of Thermo Electron common
stock for which each warrant will be exercisable and the per share exercise
price of the TerraTech warrants will be determined under the terms of the
warrants.
After the merger, Thermo TerraTech's 4 5/8% convertible subordinated
debentures due May 1, 2003 will be convertible into shares of Thermo Electron
common stock, instead of TerraTech common stock. The debentures are now
convertible into TerraTech common stock at a price of $15.90 per share. A total
of $111,850,000 principal amount of the debentures was outstanding as of
January 1, 2000. Holders of the debentures will not have the right to require
Thermo TerraTech to redeem the debentures as a result of the merger. Assuming an
exchange ratio of 0.4, the debentures would be convertible into Thermo Electron
common stock at a conversion price of $39.75 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 (SEE PAGES )
The board of directors of Thermo TerraTech appointed a special committee of
Mr. Polyvios Vintiadis, the sole director of Thermo TerraTech who is not an
officer or employee of Thermo TerraTech, TTT Acquisition, or Thermo Electron,
and who is not a director of TTT Acquisition or Thermo Electron, to review the
proposed merger on behalf of the Thermo TerraTech stockholders other than Thermo
Electron and the officers and directors of Thermo Electron and Thermo TerraTech.
The special committee considered the opinion of Adams, Harkness & Hill, Inc.
that the exchange ratio of 0.4 share of Thermo Electron common stock for each
share of TerraTech common stock, subject to adjustment, was fair, from a
financial point of view as of the date of its opinion, to the public
stockholders. Throughout this proxy statement-prospectus, the term "public
stockholders" refers to all Thermo TerraTech stockholders other than Thermo
Electron and the officers and directors of Thermo Electron and Thermo TerraTech.
After careful consideration, the special committee determined that the merger is
fair to the public stockholders. The special committee also recommended that the
board of directors approve the merger agreement and recommend the merger
agreement to the Thermo TerraTech stockholders for adoption.
The board of directors has approved the merger agreement, declared it to be
advisable and recommends that the Thermo TerraTech stockholders adopt the merger
agreement.
OPINION OF ADAMS, HARKNESS & HILL (SEE PAGE )
Adams, Harkness & Hill provided its opinion to the special committee on
October 19, 1999, that, as of the date of its opinion, the consideration to be
received in the merger was fair, from a financial point of view, to the public
stockholders of Thermo TerraTech. The full text of the written opinion of Adams,
Harkness & Hill dated October 19, 1999 is attached to this proxy
statement-prospectus as Appendix B. The opinion of Adams, Harkness & Hill does
not constitute a recommendation as to how any stockholder should vote on the
merger. We urge you to read the opinion in its entirety. On April 11, 2000,
Adams, Harkness & Hill affirmed its opinion in a meeting with the Special
Committee.
10
<PAGE>
Before affirming its opinion, Adams, Harkness & Hill considered the announcement
on January 31, 2000 of Thermo Electron's intention to sell Thermo TerraTech's
remaining businesses and additional financial information provided by Thermo
TerraTech's management.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER (SEE PAGE )
Thermo Electron intends to undertake the merger in order to acquire all of
the outstanding shares of TerraTech common stock. In deciding to undertake the
merger, Thermo Electron considered the following factors, among others:
- recent public capital market trends affecting small companies;
- the latest trends in Thermo TerraTech's markets, primarily the
environmental-liability and resource-management services industry;
- Thermo TerraTech's debt, including debt owed to Thermo Electron; and
- reducing the public information available to competitors about Thermo
TerraTech's business, which would result from Thermo TerraTech no longer
having to file reports with the Securities and Exchange Commission.
Thermo Electron also considered the advantages and disadvantages of some
alternatives to taking Thermo TerraTech private, including leaving Thermo
TerraTech as a public majority-owned subsidiary. Thermo Electron considered the
following factors, among others:
- the relative lack of liquidity for the TerraTech common stock;
- the impact on its own common stock of the issuance of shares to the Thermo
TerraTech stockholders; and
- the advancement of Thermo Electron's proposed corporate reorganization, in
the form in which it was originally proposed, to reduce the number of its
public subsidiaries. Thermo Electron announced a revised reorganization
plan on January 31, 2000.
PURPOSE AND REASONS OF THERMO TERRATECH FOR THE MERGER (SEE PAGE )
The purpose of Thermo TerraTech for engaging in the transactions
contemplated by the merger agreement, at the time the agreement was entered
into, was 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 substantially the same factors that Thermo
Electron did, as described above, in deciding to undertake the merger at the
time the merger agreement was signed.
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER (SEE PAGE )
As of the date of the merger agreement, Thermo Electron adopted the
findings, analysis and recommendation of Thermo TerraTech's special committee
and board on the fairness of the merger. Based solely on the findings, analysis
and recommendation of the special committee and board and its own 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 is not making any recommendation as to how the public
stockholders should vote on the merger agreement.
11
<PAGE>
CONFLICTS OF INTEREST (SEE PAGE )
When you consider the recommendation of the special committee and the board
regarding the merger, you should be aware that some officers and directors of
Thermo TerraTech have interests in the merger that are different from, or in
addition to, yours. These interests include ownership of TerraTech common stock,
options and warrants to purchase TerraTech common stock, compensation for
serving on committees of the Thermo TerraTech board of directors, ownership of
Thermo Electron common stock, and indemnification arrangements between the
directors and Thermo TerraTech and Thermo Electron.
In addition, some of Thermo Electron's officers and directors are also
officers and directors of Thermo TerraTech and have interests that are in
addition to, or different from, your interests. 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.
CONDITIONS TO THE MERGER (SEE PAGE )
The completion of the merger depends upon meeting a number of conditions,
including the adoption of the merger agreement by the holders of a majority of
the outstanding shares of TerraTech common stock.
Thermo TerraTech's obligation to complete the merger is also subject to the
condition, among others, that at the time this proxy statement-prospectus is
mailed to you and at the effective time, Adams, Harkness & Hill shall have
reaffirmed orally and not withdrawn its fairness opinion. This condition may be
waived in writing by Thermo TerraTech if the special committee approves.
The obligations of TTT Acquisition and Thermo Electron to effect the merger
are subject to the condition, which may be waived in writing by Thermo Electron,
that the special committee shall not have withdrawn its recommendation that the
merger agreement, including the exchange ratio, is fair to, and in the best
interests of, the public stockholders of Thermo TerraTech.
TERMINATION AND EXPENSES (SEE PAGE )
The merger agreement may be terminated by the parties if their boards of
directors consent (in Thermo TerraTech's case, upon approval of the special
committee).
In addition, each of Thermo TerraTech, upon approval of the special
committee, and TTT Acquisition can terminate the merger agreement if the merger
has not been completed by July 31, 2000. TTT Acquisition can also terminate the
merger agreement if Thermo Electron would have to issue more than 1,800,000
shares of its common stock as a result of adjustments to the exchange ratio.
Thermo TerraTech can terminate the merger agreement if the special committee
decides that not terminating the agreement would be inconsistent with the
board's or special committee's fiduciary duties.
In the event that Thermo Electron would be required to issue more than
1,800,000 shares of its common stock, Thermo Electron would have to decide
whether to exercise its right to terminate the merger agreement. The factors
that Thermo Electron would consider in making this decision include the exact
number of shares it would be required to issue and the level of dilution to
Thermo Electron stockholders from that issuance; the market conditions existing
at the time the decision is made, including trends in the price of the Thermo
Electron common stock; and the financial condition of the business of Thermo
TerraTech.
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<PAGE>
Neither party will have to pay a termination fee if the merger agreement is
terminated.
Each of the parties will pay its own costs and expenses in connection with
the merger agreement, whether or not the merger is consummated.
ACCOUNTING TREATMENT (SEE PAGE )
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 (SEE PAGE )
There are no federal or state regulatory approvals required that have not
already been obtained in order for us to complete the merger, except for
(1) the requirements of the Delaware General Corporation Law relating to
stockholder approval and completion of the merger and (2) the requirements of
the federal and state securities laws.
RESTRICTIONS ON THE ABILITY TO SELL THERMO STOCK (SEE PAGE )
All shares of Thermo Electron common stock you receive in the merger will be
freely transferable unless you are considered an "affiliate" of Thermo Electron
under the Securities Act of 1933. Shares of Thermo Electron common stock held by
its affiliates may only be sold under 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 the merger.
DIFFERENCES BETWEEN YOUR RIGHTS AS A THERMO TERRATECH STOCKHOLDER AND AS A
THERMO ELECTRON STOCKHOLDER (SEE PAGE )
There are differences between the rights you have as a holder of TerraTech
common stock and the rights you will have as a holder of Thermo Electron common
stock. For a description of these differences, please read the section called
"Comparison of Rights of Holders of Thermo TerraTech and Thermo Electron 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 pages .
COMPARATIVE PER SHARE MARKET PRICE DATA
The Thermo Electron 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 presents the closing prices per share of the TerraTech
common stock and the closing prices per share of the Thermo Electron common
stock on the following dates:
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- 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 before the May 5 announcement;
- October 19, 1999, the last trading day before the public announcement that
Thermo Electron and Thermo TerraTech had entered into the merger
agreement; and
- April , 2000.
The chart also presents, in the line entitled "Equivalent Per Share Price,"
the price per share of TerraTech common stock you would have received if the
exchange ratio had been set under the terms of the merger agreement on each of
May 4, 1999, October 19, 1999 and April , 2000.
<TABLE>
<CAPTION>
APRIL 30, 1999/
STOCK/DATE MAY 4, 1999 OCTOBER 19, 1999 APRIL , 2000
- ---------- --------------- ---------------- --------------
<S> <C> <C> <C>
Thermo TerraTech.................................... $4.1875 $ 5.375
Thermo Electron..................................... 16.25 13.0625
Equivalent Per Share Price.......................... 7.25 7.25
</TABLE>
You should obtain current stock price quotations for the Thermo Electron
common stock and the TerraTech common stock.
14
<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
statement of operations data sets forth the results of operations for the fiscal
year ended January 1, 2000, as if the merger had become effective at the
beginning of 1999. The unaudited pro forma consolidated condensed balance sheet
data sets forth the financial position as of January 1, 2000, as if the merger
had become effective on January 1, 2000.
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>
FISCAL YEAR ENDED
JANUARY 1, 2000
-----------------
(IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
PRO FORMA COMBINED:
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $2,471,193
Loss from Continuing Operations Before Extraordinary
Items..................................................... (14,580)
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital........................................... $1,450,858
Total Assets.............................................. 5,208,298
Long-term Obligations..................................... 1,565,974
Minority Interest......................................... 364,278
Common Stock of Subsidiaries Subject to Redemption........ 7,692
Shareholders' Investment.................................. 2,040,942
PER SHARE DATA:
THERMO ELECTRON (HISTORICAL):
Book Value per Common Share............................... $ 12.87
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................... $ (.09)
Diluted................................................. $ (.11)
PRO FORMA:
COMBINED PER SHARE OF THERMO ELECTRON STOCK:
Book Value per Common Share............................... $ 12.96
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................... $ (.09)
Diluted................................................. $ (.11)
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 1, 2000
-----------------
(IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
COMBINED PER THERMO ELECTRON SHARE EQUIVALENT (1):
ASSUMING EXCHANGE RATIO OF .40 (2):
Book Value per Common Share............................. $5.18
Cash Dividends Declared per Share....................... --
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................. $(.04)
Diluted............................................... $(.04)
ASSUMING EXCHANGE RATIO OF .73 (3):
Book Value per Common Share............................. $9.46
Cash Dividends Declared per Share....................... --
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................. $(.07)
Diluted............................................... $(.08)
ASSUMING EXCHANGE RATIO OF .34 (4):
Book Value per Common Share............................. $4.41
Cash Dividends Declared per Share....................... --
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................. $(.03)
Diluted............................................... $(.04)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
JANUARY 1, 2000 APRIL 3, 1999
----------------- -----------------
<S> <C> <C>
THERMO TERRATECH (HISTORICAL):
Book Value per Common Share............................... $ 2.70 $ 4.84
Loss per Share:
Basic................................................... $(2.29) $ (.07)
Diluted................................................. $(2.29) $ (.07)
</TABLE>
- --------------------------
(1) Pro forma combined per Thermo Electron share equivalent data has been
calculated based on the pro forma combined data for Thermo Electron common
stock, multiplied by assumed exchange ratios. See "--Questions and Answers
About the Merger, Question 3" for a description of the exchange ratio. The
exchange ratio is the fraction of one Thermo Electron share which you would
have received for each share of TerraTech common stock in the merger.
(2) This pro forma combined per Thermo Electron share equivalent data applies
the unadjusted exchange ratio set forth in the merger agreement of .40 to
the pro forma combined condensed financial information, which is included
elsewhere in this proxy statement-prospectus, based on an average Thermo
Electron common stock price of $18.8125 (the closing price of Thermo
Electron common stock on April 24, 2000).
(3) This pro forma combined per Thermo Electron share equivalent data applies
the assumed exchange ratio of .73 to the pro forma combined condensed
financial information included elsewhere in this proxy statement-prospectus.
This pro forma combined per Thermo Electron share equivalent data assumes
Thermo Electron issues the maximum number of shares of its common stock
(1.8 million shares). Thermo Electron can elect to terminate the merger
agreement if the adjusted exchange ratio would require Thermo Electron to
issue more than 1.8 million shares of its common stock.
(4) This pro forma combined per Thermo Electron share equivalent data applies
the assumed exchange ratio of .34 to the pro forma combined condensed
financial information included elsewhere in this proxy statement-prospectus.
The exchange ratio of .34 is based on an average Thermo Electron common
stock price of $26.875 (the highest price for Thermo Electron common stock
for the 52-week period ended April 24, 2000).
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<PAGE>
RISK FACTORS
If you hold your shares of TerraTech common stock until the merger, you will
be investing in Thermo Electron 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 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.
RISKS RELATED TO THERMO ELECTRON'S REORGANIZATION
BECAUSE THERMO ELECTRON'S REORGANIZATION IS VERY COMPLEX AND WILL REQUIRE THIRD
PARTY AND GOVERNMENTAL CONSENTS AND APPROVALS, IT MAY NOT BE ABLE TO
SUCCESSFULLY COMPLETE THIS REORGANIZATION OR TO DO SO ON THE TIME SCHEDULE IT
CONTEMPLATES.
Thermo Electron's reorganization consists of:
- the acquisition of the public minority interest in most of its
subsidiaries that have minority investors;
- the spin off to shareholders of two of its businesses; and
- the sale of a variety of non-core businesses.
In order to accomplish these objectives, Thermo Electron will need to obtain a
variety of third party and governmental consents and approvals. In particular,
in addition to the Internal Revenue Service ruling discussed below, Thermo
Electron will need to obtain:
- approval of the spin-offs and some of the other transactions by its board
of directors;
- when Thermo Electron makes a tender or exchange offer, the tender by
minority stockholders of enough shares to allow it to own at least 90% of
the target subsidiary's outstanding shares;
- the satisfactory resolution of any comments raised by the SEC on various
registration statements, tender offer documents and other filings; and
- the receipt of any necessary third party contractual consents.
If Thermo Electron does not receive these consents and approvals, it may not
be able to achieve some or all of the anticipated benefits of the
reorganization. If we are not able to effect all aspects of the reorganization,
we may not achieve some or all of the anticipated benefits of our
reorganization. Until Thermo Electron completes the entire reorganization, it
will continue to own and operate a diverse group of businesses, some of which
may continue to have minority stockholders.
Thermo Electron's reorganization is time-consuming and expensive, and
consumes management resources. The failure of Thermo Electron's management to
complete the proposed reorganization in a timely manner could negatively affect
the public market's confidence in its management, which in turn may adversely
affect the market price of Thermo Electron common stock.
THERMO ELECTRON DOES NOT EXPECT TO PROCEED WITH ITS TWO PLANNED SPIN-OFFS UNTIL
IT RECEIVES A FAVORABLE RULING FROM THE INTERNAL REVENUE SERVICE, WHICH THE
INTERNAL REVENUE SERVICE MAY NOT ISSUE AND MAY TAKE A SUBSTANTIAL PERIOD OF TIME
TO ISSUE.
Thermo Electron does not expect to spin-off its separation technologies and
fiber-based products business and its business that serves the healthcare
industry with a range of medical products for diagnostic and monitoring unless
it obtains a favorable ruling from the Internal Revenue Service. The Internal
Revenue Service may not grant the necessary ruling or may seek to impose
conditions to the
17
<PAGE>
granting of the ruling that are not acceptable to Thermo Electron. Thermo
Electron does not expect the Internal Revenue Service to issue a tax ruling
before the end of 2000, and additional delays are possible.
AS PART OF THERMO ELECTRON'S REORGANIZATION, IT SEEKS TO DIVEST A SIGNIFICANT
NUMBER OF BUSINESSES; THERMO ELECTRON MAY NOT SUCCEED IN SELLING ALL OF THESE
BUSINESSES IN A TIMELY MANNER OR AT PRICES IT CONSIDERS APPROPRIATE.
Thermo Electron plans to sell a significant number of businesses as part of
its reorganization. This process will entail a number of risks:
- Thermo Electron may not find buyers for all of these businesses.
- The timing of these dispositions is uncertain.
- Thermo Electron cannot be certain that the terms, including price, for the
sale of these businesses will be acceptable to it.
- Each of these sales will be subject to various conditions, including
conditions in the agreements governing the transaction and the receipt of
necessary governmental approvals.
EVEN IF THERMO ELECTRON SUCCEEDS IN COMPLETING ITS REORGANIZATION, IT WILL FACE
A NUMBER OF CHALLENGES IN INTEGRATING ITS INSTRUMENT BUSINESS.
Currently Thermo Electron operates its instrument business directly and
through a number of majority-owned subsidiaries, including Thermo Instrument and
Thermedics Inc. Thermo Electron has conducted these operations largely as
autonomous, unaffiliated businesses. As part of its reorganization, Thermo
Electron plans to manage these operations in a more coordinated manner. The
following factors may make it difficult to successfully integrate and
consolidate Thermo Electron's instrument operations:
- Thermo Electron's success in integrating these businesses will depend on
its ability to coordinate geographically separate organizations and
integrate personnel with different business backgrounds and corporate
cultures.
- Thermo Electron's ability to combine these businesses will require
coordination of administrative, sales and marketing, distribution and
accounting and finance functions and expansion of information and
management systems.
- The integration process could disrupt Thermo Electron's instrument
business.
- Retaining key employees of these businesses may be difficult.
THERMO ELECTRON'S REORGANIZATION CONTEMPLATES THE ISSUANCE OF A SIGNIFICANT
NUMBER OF ADDITIONAL SHARES OF ITS COMMON STOCK, WHICH MAY DEPRESS THE MARKET
PRICE OF ITS SHARES.
Thermo Electron expects to issue a substantial number of shares of its
common stock or securities exercisable for shares of its common stock in
connection with its reorganization. At March 31, 2000, 156,904,025 shares of
Thermo Electron common stock were outstanding. The number of shares of Thermo
Electron common stock outstanding may increase by as many as 58.1 million shares
because, as part of Thermo Electron's reorganization:
- Thermo Electron plans to exchange shares of its common stock for the
common stock held by minority stockholders in a number of its public
subsidiaries, including Thermo TerraTech. Thermo Electron expects to issue
a total of approximately 22.3 million shares of its common stock in these
transactions.
- Thermo Electron plans to assume employee stock options in these
transactions, including the merger with Thermo TerraTech, that would be
exercisable for approximately 17.9 million shares
18
<PAGE>
of its common stock. In addition, Thermo Electron may be required to issue
additional stock options to retain its key employees.
- The debentures issued by some of Thermo Electron's subsidiaries, including
Thermo TerraTech, will become convertible into shares of Thermo Electron
common stock. Based on the total principal amounts outstanding of these
debentures and the conversion rates at March 31, 2000, Thermo Electron
expects these debentures would be convertible into approximately
17.9 million shares of its common stock.
The increase in the number of outstanding shares of Thermo Electron common
stock, as well as the potential future issuance of shares of Thermo Electron
common stock upon conversion of debentures or exercise of employee stock
options, may depress the market price of Thermo Electron common stock.
AS A RESULT OF THE SPIN-OFF OF THERMO FIBERTEK AND ITS SUBSIDIARIES, THERMO
ELECTRON WILL REMAIN AS THE GUARANTOR OF INDEBTEDNESS AND STOCK REDEMPTION
RIGHTS OF THESE COMPANIES EVEN THOUGH IT WILL NO LONGER CONTROL THEIR BUSINESS
OR OPERATIONS.
Thermo Electron has guaranteed the payment of principal and interest on
$153 million principal amount of debentures issued by Thermo Fibertek Inc. These
debentures mature in July 2004. Thermo Electron has also guaranteed the
financial obligations of Thermo Fibergen Inc., a subsidiary of Thermo Fibertek,
under stock redemption rights granted by Thermo Fibergen. Thermo Electron may
have to pay up to $60.1 million under these stock redemption rights, which
terminate in September 2000 or September 2001. Thermo Electron will remain
liable as a guarantor for these obligations following the spin-offs, although it
will no longer control the business or operations of Thermo Fibertek.
THERMO ELECTRON IS UNABLE TO PREDICT THE LIQUIDITY OR PROSPECTIVE PERFORMANCE OF
THE COMMON STOCK OF THE COMPANIES THAT IT INTENDS TO SPIN OFF.
Thermo Electron is unable to predict the liquidity or market performance of
the shares of the businesses it plans to spin off. Although Thermo Fibertek, the
company that conducts its separation technologies and fiber-based product
business, has publicly traded shares, the historic prices of these shares may
not be representative of the trading price of Thermo Fibertek's common stock
after the number of shares held by its stockholders other than Thermo Electron
increases as a result of the spin-off. Thermo Electron currently conducts its
business that serves the healthcare industry with a range of medical products
for diagnosis and monitoring both directly and through some of its subsidiaries.
There is currently no public trading market for the shares of the company that
will conduct this business following the proposed spin-off. The businesses that
Thermo Electron is spinning off may not have the financial resources and
management skills necessary to succeed as independent entities.
RISKS RELATED TO THERMO ELECTRON'S BUSINESS AND FINANCIAL CONDITION
THERMO ELECTRON'S STOCK PRICE MAY BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE
PART OR ALL OF YOUR INVESTMENT.
The market price for Thermo Electron common stock can be very volatile. The
market price for Thermo Electron common stock may be affected by a number of
factors, including:
- the risks described in this proxy statement-prospectus;
- Thermo Electron's financial results; and
- general market conditions.
In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities for reasons frequently unrelated to or
19
<PAGE>
disproportionate to the operating performance of the specific companies. These
broad market fluctuations may adversely affect the market price of Thermo
Electron common stock.
THERMO ELECTRON MAY NOT BE ABLE TO COMPLETE PENDING OR FUTURE ACQUISITIONS, AND
IT MAY NOT BE ABLE TO INTEGRATE ANY ACQUIRED BUSINESSES INTO ITS EXISTING
BUSINESS OR MAKE THE ACQUIRED BUSINESSES PROFITABLE.
One of Thermo Electron's strategies is to supplement its internal growth by
acquiring businesses and technologies that complement or augment Thermo
Electron's existing product lines. Some of the businesses acquired by Thermo
Electron have had low levels of profitability. In addition, businesses Thermo
Electron may seek to acquire may be marginally profitable or unprofitable. For
these acquired businesses to achieve acceptable levels of profitability, Thermo
Electron must change their operations and improve their market penetration.
Thermo Electron may not be successful in this regard.
Promising acquisitions are difficult to identify and complete for many
reasons, including:
- competition among buyers,
- the need for regulatory approvals, including antitrust approvals, and
- the high valuations of businesses resulting from historically high stock
prices.
Thermo Electron may have to pay, and has paid, substantial premiums over the
fair value of the net assets of the companies it acquires. Thermo Electron has
acquired significant intangible assets, including approximately $1.2 billion of
cost in excess of net assets of acquired companies, or goodwill, currently
recorded on its balance sheet. The realization of the value of this asset will
depend on the future cash flows of the acquired businesses. These cash flows in
turn depend on how well Thermo Electron has identified these acquired businesses
as desirable acquisition candidates and how well Thermo Electron can integrate
these acquired businesses. Additional goodwill will be recorded in 2000 as a
result of Thermo Electron's plans to acquire the minority interests in most of
its publicly traded subsidiaries.
In order to finance its acquisitions, Thermo Electron may have to raise
additional funds, either through public or private financings. Any financing, if
available at all, may be on unfavorable terms.
IT MAY BE DIFFICULT FOR THERMO ELECTRON TO EXPAND BECAUSE SOME OF THE MARKETS
FOR ITS PRODUCTS ARE NOT GROWING.
Some of the markets in which Thermo Electron competes have been flat or
declining over the past several years. To address this issue, Thermo Electron
has pursued a number of potential growth strategies, including:
- acquiring complementary businesses;
- developing new applications for its technologies; and
- strengthening its presence in selected geographic markets.
Thermo Electron may not be able to successfully implement these strategies,
and these strategies may not result in growth of Thermo Electron's business.
THERMO ELECTRON'S SIGNIFICANT INTERNATIONAL OPERATIONS CAN ENTAIL ADDITIONAL
RISKS.
International revenues account for a substantial portion of Thermo
Electron's revenues, and Thermo Electron intends to continue expanding its
presence in international markets. In 1999, Thermo Electron's international
revenues from continuing operations (including export revenues from the U.S.)
accounted for approximately 63% of its total revenues. International revenues
are subject to many risks, including the following:
20
<PAGE>
- changes in exchange rates may adversely affect product demand and 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;
- intellectual property rights may be harder to enforce in foreign
countries;
- foreign countries may have unexpected changes in regulatory requirements;
- Thermo Electron may have difficulty managing and staffing its foreign
operations because of, among other factors, language and cultural
differences;
- foreign countries in which Thermo Electron operates may be characterized
by unpredictable political instability; and
- Thermo Electron's revenues could be affected by seasonal reductions in
business activity in some foreign countries.
Of these factors, exchange rate fluctuations, in particular, have had and may in
the future have an adverse impact on Thermo Electron's business and results of
operations.
A portion of Thermo Electron's revenues comes from exports to Asia. Some
Asian countries experienced a severe economic crisis in the late 1990s,
involving sharply reduced economic activity and liquidity, volatile
foreign-currency-exchange and interest rates, and unstable stock markets.
Unstable economic conditions in Asia depressed our export sales to Asia in 1998
and early 1999. Unstable economic conditions in this region and other parts of
the world may adversely affect our future export sales.
THERMO ELECTRON MUST DEVELOP NEW PRODUCTS, ADAPT TO RAPID AND SIGNIFICANT
TECHNOLOGICAL CHANGE, AND RESPOND TO INTRODUCTIONS OF NEW PRODUCTS IN ORDER TO
REMAIN COMPETITIVE.
Thermo Electron's growth strategy includes significant investment in product
development, and it intends to increase spending in the area of research and
development. In addition, the markets for Thermo Electron's products are
characterized by 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 investment by Thermo Electron. In addition, products in
Thermo Electron's markets undergo rapid and significant technological change due
to quickly changing industry standards and the introduction of new products and
technologies that make existing products and technologies uncompetitive or
obsolete. Some competitors may adapt more quickly to new technologies and
changes in customer requirements than Thermo Electron can. 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 technologies could become uncompetitive or
obsolete. Failure of Thermo Electron to successfully develop new products could
have an adverse effect on its business and results of operations.
21
<PAGE>
CHANGES IN GOVERNMENTAL REGULATIONS MAY REDUCE DEMAND FOR THERMO ELECTRON'S
PRODUCTS OR INCREASE ITS EXPENSES.
Thermo Electron competes in many markets in which it and its customers must
comply with federal, state, local, and foreign regulations, such as
environmental, health and safety, and food and drug regulations. Thermo Electron
develops, configures, and markets its products to meet customer needs created by
those regulations. These regulations may change in response to new scientific
evidence or political or economic considerations. Any significant change in
regulations could reduce demand for Thermo Electron's products. For example,
demand for Thermo Electron's Thermo Voltek Corp. subsidiary's electromagnetic
compatibility test products decreased because of the declining influence of IEC
801, the European Union directive on electromagnetic compatibility.
DEMAND FOR SOME OF THERMO ELECTRON'S 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, government agencies, and
public and private research institutions. Many factors, including public policy
spending priorities, available resources, and economic cycles, have a
significant effect on the capital spending policies of these entities. These
policies in turn can have a significant effect on the demand for our products.
For example, a reduction in discretionary capital spending by petrochemical, oil
and gas, and mining companies, due to difficult market conditions, has adversely
affected Thermo Electron's businesses operating in the process control industry.
Similarly, softness in the semiconductor industry has resulted in lower revenues
at some Thermo Electron businesses. Also, Thermo Electron's Thermedics Detection
Inc. subsidiary has experienced lower demand for its detection instruments as a
result a shift in the process of recycling plastic containers in Europe, from
sanitizing and reusing recyclables, to melting and re-forming plastic
containers.
OBTAINING AND ENFORCING PATENT PROTECTION FOR THERMO ELECTRON'S PROPRIETARY
PRODUCTS, PROCESSES AND TECHNOLOGIES MAY BE DIFFICULT AND EXPENSIVE.
Patent and trade secret protection is crucial to Thermo Electron because
developing and marketing new technologies and products is time-consuming and
expensive. Thermo Electron owns many U.S. and foreign patents, and intends to
apply for additional patents as appropriate to cover its products. Thermo
Electron may not obtain issued patents from any pending or future patent
applications owned by or licensed to Thermo Electron. The claims allowed under
any issued patents may not be broad enough to protect Thermo Electron's
technology.
Thermo Electron may incur significant expense in any legal proceedings to
protect its proprietary rights. In addition, third parties may seek to
challenge, invalidate, or circumvent any issued patents owned by or licensed to
us, and the rights granted under those patents may not provide competitive
advantages to Thermo Electron. Defending infringement and/or invalidity claims
would be expensive and divert management's attention. In addition, those claims
could result in awards of substantial damages, which could have a significant
adverse impact on Thermo Electron's results of operations, or court orders that
could effectively prevent Thermo Electron from making, using or selling its
products and services in the United States or abroad.
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THE MERGER
GENERAL
The Thermo TerraTech board of directors is using this proxy
statement-prospectus to solicit proxies from the holders of TerraTech common
stock for use at the TerraTech special meeting. At the special meeting, we will
ask holders of TerraTech common stock to adopt the merger agreement. You are
encouraged to read the merger agreement, as amended, which is attached as
Appendices A and A-1 to this proxy statement-prospectus, in its entirety.
BACKGROUND: THERMO ELECTRON SPIN-OUTS AND REORGANIZATION PLANS
Thermo Electron initially began the process of "spinning out" subsidiaries,
or selling a minority interest in its wholly-owned subsidiaries to the public,
with the spinout of Thermedics Inc. in 1983. Over the next fifteen years, Thermo
Electron spun out 20 additional subsidiaries and acquired the majority interest
in two subsidiaries that were already publicly traded when they were acquired.
The purposes of the spinout process included incentivizing management and
employees of the subsidiary with subsidiary-level stock options and other
stock-based compensation, and allowing greater access to the capital markets at
the subsidiary level. However, Thermo Electron ultimately determined that the
creation of its many subsidiaries had generated confusion among the public as to
its structure and the relationship among the various companies involved.
In August 1998, Thermo Electron announced a comprehensive reorganization
plan, the goals of which included the following:
- reducing the complexity of Thermo Electron's corporate structure by taking
private certain of its publicly traded subsidiaries;
- improving competitiveness and improving management coordination;
- retaining and growing businesses that Thermo Electron believed had the
most growth and profitability potential.
In May 1999, Thermo Electron announced its plan to expand its reorganization
plan by taking private four additional public subsidiaries, including Thermo
TerraTech. The announcement indicated that the transaction involving Thermo
TerraTech would be effected through an exchange of Thermo Electron common stock
for the common stock of Thermo TerraTech.
On January 31, 2000, Thermo Electron announced a revised reorganization
plan, which was the result of a thorough re-evaluation of Thermo Electron's
businesses and corporate structure. The reorganization plan calls for Thermo
Electron to take the following steps:
- acquire the public minority interest in most of its subsidiaries that have
minority investors,
- spin off its separation technologies and fiber-based products business and
its business that serves the healthcare industry with a range of medical
products for diagnosis and monitoring as dividends to Thermo Electron
stockholders, and
- sell several non-core businesses.
The primary goal of the reorganization is for Thermo Electron and each of
its spun-off subsidiaries to focus on their core businesses. The revised
reorganization plan also includes the proposed sale of each of Thermo
TerraTech's businesses. Thermo Electron intends to sell Thermo TerraTech's
businesses because Thermo Electron has decided to focus exclusively on
instrument businesses.
The component of the reorganization plan that involves taking some
subsidiaries private will reduce Thermo Electron's working capital by
approximately $325 million (of $1.45 billion in working capital at January 1,
2000). The results of operations of the businesses to be sold or spun off as
part of
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the reorganization are classified as discontinued operations in Thermo
Electron's financial statements included in its Annual Report on Form 10-K for
the year ended January 1, 2000. Revenues and loss from discontinued operations
were $1.83 billion and $111.5 million, respectively, in 1999.
BACKGROUND: THE MERGER
As part of the ongoing review of Thermo Electron's entire corporate
structure in April, 1999, Thermo Electron's management began to examine Thermo
TerraTech's status as a public subsidiary. Thermo Electron examined the
following factors:
- the financial performance and profitability of Thermo TerraTech;
- uncertainty regarding Thermo TerraTech's future growth prospects;
- the potential benefits to Thermo TerraTech if it were to become part of a
larger business unit;
- recent public capital market trends affecting small companies, and how
those trends had affected Thermo TerraTech, including the low liquidity
for the public stockholders and the absence of significant analyst
coverage of the TerraTech common stock;
- the latest trends in Thermo TerraTech's markets;
- Thermo TerraTech's debt, including $111,850,000 under its 4 5/8%
convertible subordinated debentures due May 2003, of which $515,000 is
owed to Thermo Electron, together with the $37,950,000 owed by ThermoRetec
under its 4 7/8% convertible subordinated debentures due May 2000, of
which $4,300,000 is owed to Thermo Electron;
- reducing the public information available to competitors about Thermo
TerraTech's business, which would result from Thermo TerraTech no longer
having to file reports with the SEC;
- eliminating other burdens on management from public reporting and other
tasks required of public companies, including, for example, time and
resources of management given to stockholder and analyst inquiries, and
investor and public relations;
- the costs associated with being a public company. For example, as a
private company Thermo TerraTech would no longer be required to file
quarterly, annual or other periodic reports with the SEC or publish and
distribute to its stockholders annual reports and proxy statements. Thermo
Electron anticipates that eliminating these requirements could result in
savings of approximately $450,000 per year, including fees for an audit by
an independent accounting firm and legal fees; and
- the ability of Thermo TerraTech's management to focus on long-term
business goals, as opposed to quarterly earnings, as a private company.
The uncertainty of Thermo Electron's management regarding Thermo TerraTech's
future growth prospects stemmed in large part from Thermo Electron's
observations of the unpredictability of consistent revenues from Thermo
TerraTech's service-based subsidiaries that are subject to seasonal influences,
such as Randers/Killam and ThermoRetec. Thermo Electron believed that it was
better able overall to absorb any fluctuations in Thermo TerraTech's business,
and that any uncertainties could be more closely managed by Thermo Electron if
Thermo TerraTech were no longer a public company.
Thermo Electron management 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 Electron 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 corporate
reorganization, in the form in which it was then proposed, to reduce the number
of majority-owned, public subsidiaries of Thermo
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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 pursue the merger.
Thermo Electron also considered the advantages and disadvantages of some
alternatives to acquiring the minority stockholder interest in Thermo TerraTech,
including (1) selling its ownership of Thermo TerraTech and (2) leaving Thermo
TerraTech as a majority-owned, public subsidiary.
The first alternative, of selling Thermo Electron's equity interest in
Thermo TerraTech, was briefly considered by Thermo Electron management. However,
Thermo Electron at the time did not want to sell its ownership of Thermo
TerraTech, but rather intended to retain Thermo TerraTech as a part of Thermo
Electron. Thermo Electron believed that it was better able to absorb the
fluctuations in Thermo TerraTech's value than were the individual public
stockholders. Thermo Electron acknowledged that, while there were certain
characteristics of the TerraTech common stock that made Thermo TerraTech less
attractive as a public company, such as the overall downward trend of the price
of the common stock since the middle of 1997, the small public float which
resulted in limited liquidity for the public stockholders, and the absence of
significant analyst coverage, Thermo Electron still wanted to keep Thermo
TerraTech's operating businesses as part of its offerings to customers.
Accordingly, Thermo Electron determined that, while at that time it did not want
to sell Thermo TerraTech and wanted instead to maintain Thermo TerraTech's
business substantially as it was being operated, with the exception of certain
businesses to be sold, it also did not want to keep Thermo TerraTech as a public
subsidiary. Thermo Electron did not consider any other strategic alternatives at
the time for Thermo TerraTech because it was satisfied, based on its review of
Thermo TerraTech and its fit within the Thermo Electron organization, that the
option of retaining its ownership of Thermo TerraTech was preferable to any
other option.
Thermo Electron has since determined that it will sell Thermo TerraTech's
businesses, as part of a comprehensive reorganization of Thermo Electron. Thermo
Electron decided to sell Thermo TerraTech's businesses as a result of a thorough
review of its corporate structure, in which Thermo Electron decided that it
would focus exclusively on its instrument businesses. Thermo TerraTech's
businesses consequently do not fit within Thermo Electron's future focus.
The advantages to leaving Thermo TerraTech as a majority-owned, public
subsidiary of Thermo Electron which were considered by Thermo Electron at the
time included the following:
- not having to issue additional shares of Thermo Electron common stock at a
time when the price of the shares was relatively low; and
- maintaining Thermo TerraTech's access 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 at the time included the
following:
- the burden on Thermo TerraTech of its debt, including debt owed to Thermo
Electron;
- the costs of being a public company, including costs of SEC reporting
obligations and public and investor relations functions; and
- the public information available to competitors about Thermo TerraTech's
business through its SEC filings.
Thermo Electron concluded that the advantages of leaving Thermo TerraTech as
a majority-owned, public subsidiary were outweighed by the disadvantages, and
accordingly that alternative was rejected. Thermo TerraTech as a private company
would no longer have the pressures of public company reporting and close
scrutiny by competitors to interfere with its exclusive focus on managing and
operating its business. In addition, at the time the merger was originally
considered, the former public
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stockholders of Thermo TerraTech would transfer their ownership of Thermo
TerraTech to a company of which Thermo TerraTech was still a part, which would
mean that future strong financial performance by Thermo TerraTech could
potentially be reflected in the form of a potential increase in the Thermo
Electron stock price.
In April 1999, management of Thermo Electron decided to propose to the board
of directors of Thermo Electron that it include Thermo 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 Electron 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 of Thermo TerraTech. At that meeting, the Thermo Electron board of
directors discussed several factors presented by management regarding the
proposal, including the factors described in the preceding paragraphs.
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, in the form in
which it was then proposed. After consideration of these factors, Thermo
Electron's board of directors authorized revisions to its corporate
reorganization plan to include taking Thermo TerraTech private.
On May 5, 1999, Thermo Electron issued a press release announcing that
Thermo TerraTech would be included in the reorganization of Thermo Electron and
its subsidiaries. Accordingly, under the revised reorganization, Thermo Electron
would acquire the minority interests in both Thermo TerraTech and in Thermo
TerraTech's majority-owned subsidiaries, ThermoRetec Corporation and The Randers
Killam Group Inc., as had been previously announced. The board of directors of
Thermo TerraTech met on May 6, 1999 and decided that, because Thermo Electron
controlled approximately 87% of the outstanding common stock of Thermo
TerraTech, it wanted to appoint a special committee to act on behalf of and in
the interests of its public stockholders to evaluate the merits of and negotiate
the proposed transaction. The special committee would also make a recommendation
to the full board of directors of Thermo TerraTech on whether or not to approve
the 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 decided were necessary or
appropriate to assist it in carrying out its duties. The board also gave 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,
and their books, records, projections and financial statements that the special
committee and its advisors believed were needed 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.
Mr. Vintiadis elected to resign from the board of directors of Randers/Killam
effective July 26, 1999, because Randers/Killam was proposed to be taken private
as part of Thermo Electron's corporate reorganization. Mr. Vintiadis did not
resign from the Thermo Instrument board because Thermo Instrument is not part of
the Thermo TerraTech group of Thermo Electron subsidiaries, and thus the Thermo
TerraTech board of directors believed that Mr. Vintiadis' continued service as a
member of the Thermo Instrument board would not interfere with his obligations
as part of the Thermo TerraTech special committee.
In May 1999, the special committee considered several law firms to act as
its legal advisor, and elected to retain Choate, Hall & Stewart as counsel to
the special committee. The special committee considered that Choate Hall had
already been selected to represent the special committee of the board
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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 that Choate Hall was already familiar with the
companies involved in the transaction and that it had already started its due
diligence review. The special committee also determined that the interests of
the special committees of Thermo TerraTech and Randers/Killam 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
duties of special committees in situations such as this one. 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 requested proposals from and conducted telephone
interviews with two investment banking firms, including Adams, Harkness & Hill,
Inc.
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 due diligence review 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 about rendering its opinions as to the fairness of the consideration
to be issued to the respective public stockholders of ThermoRetec and
Randers/Killam in connection with the proposed mergers. The special committee
determined that the interests of the special committees of Thermo TerraTech,
Randers/Killam and ThermoRetec were adverse to Thermo Electron and not adverse
to each other in the proposed transactions and that retention of Adams, Harkness
& Hill by the special committee was appropriate. The special committee decided
that, given the corporate structure of Thermo Electron, Thermo TerraTech, which
is a first tier subsidiary of Thermo Electron, and Randers/Killam and
ThermoRetec, which are 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 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 visiting the facilities and interviewing the
management of Thermo TerraTech, Randers/Killam, ThermoRetec and Thermo
Electron;
- reviewing Thermo TerraTech and Thermo Electron's operating results and
financial position, in the context of the business condition in the
industry segments in which Thermo TerraTech and Thermo Electron compete
and reviewing similar information for a peer group of companies comparable
to Thermo TerraTech and Thermo Electron;
- evaluating the historical stock prices of Thermo TerraTech, Thermo
Electron and their peer group;
- identifying comparable business combinations and assessing the terms of
these precedent business combinations;
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- 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 due 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 May 24, 1999, Thermo TerraTech announced its plan to sell some operating
units of its majority-owned subsidiary, Randers/Killam, including its Randers
division, BAC Killam and E3-Killam. In addition, Thermo TerraTech announced that
its majority-owned private subsidiary, Thermo EuroTech N.V., would sell its
used-oil processing operations and that ThermoRetec would sell some of its
soil-recycling facilities. As of the date of mailing this proxy
statement-prospectus to stockholders, Thermo TerraTech has not entered into a
definitive agreement to sell any of these operating units, except as set forth
in "INFORMATION ABOUT THERMO TERRATECH, THERMO ELECTRON AND TTT
ACQUISITION--Thermo TerraTech". Under the merger agreement, Thermo Electron must
notify the special committee of any offers it receives for these businesses
which contain 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.
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 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. The special committee, Adams, Harkness & Hill and Choate
Hall discussed the appropriateness of the assumptions and analyses used by
Adams, Harkness & Hill 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 in Adams, Harkness & Hill's preliminary valuation. See
"--Opinion of Adams, Harkness & Hill." Choate Hall again discussed with the
special committee the duties and responsibilities of the independent committee
of the board of directors in evaluating and negotiating the terms of the offer.
Although the Thermo TerraTech board did not believe that Mr. Vintiadis' service
on the boards of Thermo TerraTech and Randers/Killam created an actual conflict
of interest, in order to avoid the appearance of a potential conflict,
Mr. Vintiadis resigned as a director of Randers/ Killam effective on July 26,
1999, prior to the beginning of negotiations with Thermo Electron.
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On July 23, 1999, Thermo Electron provided the special committee and Choate
Hall with an initial draft of the merger agreement, which did not contain
proposed financial terms. 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 TerraTech common stock held by the public
shareholders would be exchanged for 0.26 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
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 then 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 telephone meeting with
Adams, Harkness & Hill and Choate Hall to review the proposed exchange ratio.
After detailed discussion, the special committee determined that Thermo Electron
would have to propose a more acceptable alternative. The special committee
decided that no proposed exchange ratio would be considered that valued
TerraTech common stock at less than its current market value or that valued
Thermo Electron stock at a premium to its then market value. The special
committee also discussed possible ways to protect the public stockholders from
fluctuations in the price of 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 the proxy statement-prospectus
is sent to Thermo TerraTech stockholders and/or immediately prior to closing the
transaction, to ensure that the transaction remained fair. The special committee
also discussed the possibility of requiring that the merger agreement be adopted
by a majority of the public stockholders. The special committee subsequently
determined that this requirement, which Thermo Electron indicated it would not
agree to, was unnecessary in light of other procedural safeguards in the merger
agreement. See "--The Special Committee's and the Board's Recommendation". The
special committee discussed requiring a "collar" on the proposed value of the
deal, including a minimum dollar value, or "floor", for each share of Thermo
TerraTech common stock held by the public stockholders. In such a floor, if the
market value of Thermo Electron common stock to be issued in the merger went
below the proposed floor, the exchange ratio would be adjusted so that each
outstanding share of TerraTech common stock would be worth the number of shares
of Thermo Electron common stock equal to a fixed dollar amount. For this
purpose, the Thermo Electron common stock would be valued based on the average
closing price of the stock during a specified period before the effective date
of the merger. Similarly, since the use of a collar on the value of a deal
typically involves both a floor value and a "ceiling" value, Mr. Vintiadis
suggested that, as a matter of negotiating parity between the two sides, a
maximum dollar value, or ceiling, could be placed on each share of the TerraTech
common stock held by the public stockholders if the Thermo Electron common stock
exceeded a set price. The special committee asked Adams, Harkness & Hill and
Choate Hall to consider a two-way collar on the price of Thermo Electron common
stock. The special committee also asked Choate Hall to continue negotiations on
the merger agreement along the lines discussed at the meeting.
On August 24, 1999, Adams, Harkness & Hill formally communicated to
Mr. Theo Melas-Kyriazi, the chief financial officer of Thermo Electron, that the
exchange ratio which Thermo Electron had proposed 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 0.4 share of
Thermo Electron common stock for each outstanding share of TerraTech common
stock held by the public stockholders.
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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
TerraTech common stock. The 0.4 proposed exchange ratio was the equivalent of
$6.425 per share of TerraTech common stock, based on the $16.0625 closing price
of Thermo Electron common stock on August 24, 1999.
Later, on August 26, 1999, the special committee held a telephone 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 what was 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 some cases Thermo Electron had used
different assumptions in its valuation of Thermo TerraTech than those used in
Adams, Harkness & Hill's preliminary projections. The special committee
instructed Adams, Harkness & Hill to ask for an increase in both the proposed
minimum value and maximum value per share. The closing price of Thermo Electron
common stock on August 26, 1999 was $16.3125. On August 23, 1999, the last day
on which the TerraTech common stock traded prior to August 26, 1999, the closing
price of the TerraTech common stock was $5.5625.
Several days later, Thermo Electron revised its proposal. On August 31,
1999, the special committee held a telephone meeting with Adams, Harkness & Hill
and Choate Hall to discuss Thermo Electron's most recent proposal, which
contained an implied exchange ratio of 0.4 share of Thermo Electron common stock
for each share of outstanding 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 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 to seek 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 that the exchange
ratio remain at 0.4, subject to a minimum value of $7.00 and a maximum value of
$8.50 for each outstanding share of TerraTech common stock. On September 2,
1999, the special committee indicated that it was prepared to recommend this
transaction as fair from a financial point of view to the public stockholders,
subject to negotiation of the other terms of the merger agreement and delivery
by Adams, Harkness & Hill of a fairness opinion. The closing prices for Thermo
Electron common stock and 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 with
representatives of Thermo Electron.
On September 7, 1999, the special committee was told that Thermo TerraTech's
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 the impact, if any, of the new ThermoRetec contract, if awarded, on
the price of the TerraTech common stock could be quantified and until
negotiations between Thermo Electron and the ThermoRetec special committee were
completed. These activities occurred throughout September and the beginning of
October. On October 7, 1999, Thermo Electron made a new proposal to the special
committee, subject to approval of a final merger agreement. After discussions
with Adams, Harkness & Hill and Choate Hall, the special committee accepted
Thermo Electron's offer of
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an exchange ratio of 0.4, 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.
The negotiations with the Thermo TerraTech special committee relating to the
proposed merger were not affected by Thermo Electron's ongoing reorganization
plan, except in the following manner. Although the price of the Thermo Electron
common stock during the latter part of negotiations relating to the merger
agreement was below the range set forth in the collar, Thermo Electron expected
that its stock price would increase as progress was made on its reorganization
plan, in the form in which it was then proposed, and that by the time the merger
was completed, the Thermo Electron stock price would have increased to be within
the range set forth in the collar. At the time the merger agreement was entered
into, Thermo Electron had not yet formulated its reorganization plan in its
current form, and accordingly had no plan at the time to sell Thermo TerraTech's
businesses.
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 exchange ratio of 0.4 share of Thermo Electron common stock for
each share of TerraTech common stock, subject to adjustment but having a minimum
value of $7.25 and a maximum value of $8.50 per share 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 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
& Hill 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 the 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 substantial drop. In other words, Thermo Electron was
concerned that the adjustments to the exchange ratio did not, as currently
proposed, have any limit on the number of shares of Thermo Electron common stock
that could be issued. 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 Electron common stock for each share of TerraTech common
stock. In other words, the exchange ratio would be capped at 0.65 even if the
price of Thermo Electron common stock fell to a level which would otherwise have
required a higher ratio. Mr. Melas-Kyriazi then left the room and the special
committee 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 total number of shares
issuable in the merger. However, the special committee rejected Thermo
Electron's proposal as presented because it did not leave sufficient room for a
potential decline in Thermo Electron's common stock and would have required that
Thermo TerraTech proceed with the transaction even if the Thermo Electron common
stock suffered a material decline not protected by the collar. The special
committee advised Thermo Electron that it believed Thermo Electron should only
be in a position to not proceed with the transaction if there were a substantial
drop in Thermo Electron's stock price. Thermo Electron then proposed to change
the terms of the merger agreement so that either party would be allowed to
terminate the agreement if the average of the closing prices of Thermo Electron
common stock for a specified period prior to the
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closing fell below a set number. After discussion and several private meetings
with its advisors, the special committee agreed that, if Thermo Electron would
be required to issue, as a result of adjustments to the exchange ratio, more
than 1.8 million shares of Thermo Electron common stock to the public
stockholders, Thermo Electron could terminate the agreement. If Thermo Electron
did not 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 connection with,
and as a condition to, the addition of this provision limiting the number of
shares Thermo Electron would be required to issue, the special committee
requested, and Thermo Electron agreed to, an increase in the maximum value of
the collar from $8.50 per share to $9.25 per share. 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 TerraTech merger if either of
the proposed mergers of Thermo Electron with Randers/Killam or ThermoRetec did
not close.
Adams, Harkness & Hill again met with the special committee and rendered its
oral opinion to the special committee that the revised proposal by Thermo
Electron, of an exchange ratio of 0.4 share of Thermo Electron common stock for
each share of TerraTech common stock, subject to adjustment but having a minimum
value of $7.25 and a maximum value of $9.25 was fair, from a financial point of
view, to the public stockholders. The meeting of the full board then resumed,
Adams Harkness & Hill made its presentation and the special committee then
recommended to the full board 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,
that, as of that date, the per share consideration to be received in 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. The 0.4 proposed exchange ratio was the equivalent of
$5.225 per share of TerraTech common stock, based on the $13.0675 closing price
of Thermo Electron common stock on October 19, 1999.
Later on October 19, 1999, the merger agreement was presented to the board
of directors of Thermo Electron at a special meeting. 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.
On January 31, 2000, Thermo Electron announced its revised reorganization
plan, under which it intends to sell each of Thermo TerraTech's businesses. As a
result of this announcement, Thermo Electron's financial statements had to be
restated to take into account the effect of several dispositions and the
spinoffs of its separation technologies and fiber-based products business and
its medical products business. Because Thermo Electron did not expect the
restatement of its financial statements to be complete until mid-March 2000, on
March 29, 2000, Thermo Electron approached the special committee to request that
it consider extending the deadline under the merger agreement for completion of
the merger from March 31, 2000 until July 31, 2000.
During March 2000, the special committee had also instructed Adams,
Harkness & Hill to consider the impact of the January 31, 2000 announcement on
its opinion as to the fairness of the merger. Adams, Harkness & Hill held
several discussions with members of Thermo TerraTech's and Thermo Electron's
management in order to obtain updated information as to the status of Thermo
TerraTech's businesses and was given updated projections for Thermo TerraTech.
Adams, Harkness & Hill also examined Thermo TerraTech's latest Quarterly Report
on Form 10-Q for the quarter ended January 1, 2000. See "CERTAIN PROJECTED
FINANCIAL DATA", "--Opinion of Adams, Harkness & Hill" and Appendix E.
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On March 31, 2000, Thermo Electron was informed by its tax counsel, Hale and
Dorr LLP, that a result of Thermo Electron's January 31, 2000 announcement that
it intends to sell Thermo TerraTech's businesses was that the merger, which the
parties had previously believed would be a tax-free reorganization under federal
income tax laws, would instead likely be treated as taxable to the public
stockholders of Thermo TerraTech at the time of the merger. Consequently, Hale
and Dorr would be unable to provide the parties to the merger agreement with an
opinion that the merger would be treated as a tax-free reorganization for
federal income tax purposes. The delivery of this opinion was a condition to
Thermo TerraTech's obligations under the merger agreement, which also included a
covenant that Thermo Electron would not take any action that would affect the
tax-free treatment of the merger. Mr. Melas-Kyriazi contacted the special
committee and its advisors on April 1, 2000 to inform them of this development.
From April 3 until April 7, 2000, the special committee held numerous
telephonic meetings with each of Adams, Harkness & Hill and Choate Hall to
review in detail the impact of these developments on its decision as to the
fairness of the merger. The special committee and its advisors also considered
Thermo Electron's request for an extension of the deadline for termination of
the merger agreement from March 31, 2000 to July 31, 2000.
The special committee and its advisors reviewed in detail the impact of the
change in the terms of the merger to a structure in which the public
stockholders would realize a taxable gain or loss in the TerraTech common stock
at the time of the merger. This was a change from the treatment to the
stockholders in a tax-free reorganization, in which the stockholders would have
been able to defer realizing gain or loss on the Thermo Electron shares they
received in the merger until the time they subsequently disposed of their
shares.
The special committee and its advisors considered that the stockholders of
Thermo TerraTech who would recognize a loss on their shares in the merger would
potentially benefit from being able to recognize that loss at the time of the
merger, which would likely be sooner than they could have recognized that gain
in a tax-free reorganization. However, the special committee and its advisors
also recognized that the stockholders who would recognize a gain on their shares
would be adversely affected in that they would have to recognize the gain, and
be taxed on that gain, sooner than they otherwise would have under a tax-free
reorganization. Moreover, the advisors to the special committee pointed out that
the stockholders would be taxed based on the value of the Thermo Electron common
stock as of the merger date. Accordingly, stockholders who recognized a gain
would have to pay tax based on that value even if the price of the Thermo
Electron common stock declined after the merger. In addition, a stockholder who
was to recognize gain on his Thermo TerraTech shares might have to sell some of
the Thermo Electron shares he acquired in the merger in order to pay the tax on
the gain on his Thermo TerraTech shares. The special committee noted that if the
financial performance of the Thermo Electron common stock were to decline and
approach the minimum value of the collar, which was then set at $7.25, a public
stockholder might be required to sell a greater number of the Thermo Electron
shares acquired by the public stockholder in the merger to pay that tax.
The special committee also considered whether the public stockholders would
be better off if the proposed merger did not proceed and Thermo TerraTech
remained a public company. The special committee also considered Thermo
Electron's announced plan to sell off the individual businesses of Thermo
TerraTech. Adams, Harkness & Hill had advised the special committee that the
individual businesses of Thermo TerraTech were not expected to be sold at prices
higher than the value estimates that Adams, Harkness & Hill had used in its
original analysis. Based on that and the fact that stockholders would be taxed
on any distributions when received, the special committee believed that
terminating the merger agreement was not in the best interests of the public
stockholders. Moreover, the special committee noted that Thermo Electron's
common stock price had improved from $13.065 on October 19, 1999, the day on
which the merger agreement was signed, to $20.125 on April 6, 2000.
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The special committee contacted Mr. Melas-Kyriazi on April 7, 2000 and
proposed that, in light of the potential adverse tax consequences to Thermo
TerraTech stockholders who would recognize gain on their shares at the time of
the merger, the minimum value of the collar be increased from $7.25 to $7.50 per
share. The special committee, its advisors, and Mr. Melas-Kyriazi held numerous
discussions regarding this proposal, during which the parties each presented
their positions on the matter as described above. Mr. Melas-Kyriazi subsequently
contacted the special committee and agreed to amend the merger agreement to
provide for the increase in the minimum value of the collar to $7.50 per share,
subject to the approval of the Thermo Electron board of directors or a committee
of the board.
On April 7, 2000, the special committee, Adams, Harkness & Hill and Choate
Hall met telephonically to discuss Adams, Harkness & Hill's findings in light of
the January 31, 2000 announcement and the increase in the minimum value of the
collar to $7.50 per share.
The full board of directors of Thermo TerraTech met telephonically on
April 11, 2000 to review the special committee's findings and the proposed
amendments to the merger agreement. The special committee described in detail
for the board the discussions it had with Thermo Electron, Adams, Harkness &
Hill and Choate Hall. The members of the board asked several questions regarding
the effect of the January 31, 2000 announcement on the tax treatment of the
merger. Adams, Harkness & Hill described for the board its review of the revised
terms of the merger agreement, and reaffirmed its opinion that the proposed
exchange ratio, as revised, was fair to the public stockholders from a financial
point of view. The board also reviewed and reaffirmed the independence of the
member of the special committee in light of his service as a member of a special
committee of the board of directors of Thermo Instrument, which had been formed
to evaluate the terms of other proposed going-private transactions involving
some of the public subsidiaries of Thermo Instrument. The Thermo TerraTech
special committee then recommended to the board that it approve the proposed
amendment to the merger agreement, (1) removing the requirement that the merger
be tax-free, (2) increasing the minimum value to $7.50 per share and
(3) extending the termination date under the merger agreement to July 31, 2000.
The board then unanimously voted to approve the proposed amendment.
On April 12, 2000, the executive committee of the Thermo Electron board of
directors met to discuss the proposed amendment to the merger agreement. The
amendment was approved and then duly executed by the parties.
THERMO ELECTRON REORGANIZATION
On January 31, 2000, Thermo Electron announced that its board of directors
had authorized its management to proceed with a major reorganization of the
operations of Thermo Electron and its subsidiaries, including Thermo TerraTech.
As part of this reorganization, Thermo Electron plans to acquire the public
minority interest in most of its subsidiaries that have minority investors, spin
off its separation technologies and fiber-based products business and its
business that serves the healthcare industry with a range of medical products
for diagnosis and monitoring and sell several non-core businesses. The primary
goal of the reorganization is for Thermo Electron and each of its spun-off
subsidiaries to focus on their respective core businesses. The reorganization
plan includes the proposed sale of each of Thermo TerraTech's businesses. Thermo
Electron intends to sell Thermo TerraTech's businesses because it has
determined, based on a comprehensive review of its corporate structure during
the months following the announcement of the proposed merger in October 1999,
that Thermo TerraTech's businesses do not fit within Thermo Electron's plans to
focus exclusively on instrument businesses.
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
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determined that the merger is both substantively and procedurally fair, and is
therefore entirely fair, to the public stockholders. The special committee
adopted the analysis of Adams, Harkness & Hill relating to the fairness, from a
financial point of view, of the proposed exchange ratio to the public
stockholders, in addition to the various other factors it considered, as
described below. See "--Opinion of Adams, Harkness & Hill." The board has
adopted the findings, analysis and recommendation of the special committee on
both the substantive and procedural fairness of the merger. Accordingly, the
board has unanimously approved the merger agreement and unanimously recommends
that you vote to adopt it.
In reaching their decisions to approve the merger agreement, and recommend
its approval to the public stockholders, the special committee and the board
considered the following factors, each of which they believed to be favorable:
--THE PREMIUM REFLECTED IN THE EXCHANGE RATIO. The special committee and the
board considered the exchange ratio in light of the course of negotiations with
Thermo Electron and the historical market price of the common stock, in making
their respective decisions to approve the merger agreement.
- COURSE OF NEGOTIATIONS. The special committee and the board considered the
history of negotiations concerning the merger agreement. Thermo Electron
had increased its initial proposal of 0.26 of a share of Thermo Electron
common stock per share of TerraTech common stock on August 16, 1999, to an
exchange ratio of 0.4 of a share of Thermo Electron 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 Electron 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 Electron 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 Electron 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 Electron
common stock with a value range of $7.25 to $9.25 per share offered on
October 19, 1999. As indicated above, the minimum value was increased to
$7.50 per share in connection with the amendment to the merger agreement.
- 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
prevailing trading 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
TerraTech 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 special committee further believed that the prevailing
trading price in October 1999, prior to the announcement of the terms of
the merger, reflected, in part, Thermo Electron's previously announced
intent to take Thermo TerraTech private. 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 TerraTech common stock.
--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 exchange ratio
offered by Thermo Electron was attractive in light of Thermo TerraTech's current
performance, declining sales and profitability, and the uncertainty of its
growth prospects. In addition, the special committee and the board determined
that the merger would shift the risk of the future financial
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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 the following:
- the amount and form of the consideration;
- the limited number of conditions to Thermo Electron's obligations;
- the special committee's right to modify, amend or withdraw its
recommendation and terminate the merger agreement if it 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
- the absence of a termination fee if Thermo TerraTech terminates the merger
agreement.
The special committee and the board believed that these factors made the
consummation of the transaction more likely than it would be 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 with 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 ELECTRON COMMON STOCK. The
special committee and the board believed that the public stockholders would
benefit from an improved trading market and liquidity in their investment since
Thermo Electron's significant ownership of the TerraTech common stock had the
following effects:
- resulted in a relatively small public float that limited the amount of
trading in the TerraTech common stock, and
- 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. Furthermore, Thermo Electron had stated its intention at the
time to retain its majority holding in Thermo TerraTech, which foreclosed
the opportunity to consider an alternative transaction with a third party
purchaser of Thermo TerraTech, or otherwise provide liquidity to the
public stockholders. Thermo Electron has since announced, on January 31,
2000, that it intends to sell Thermo TerraTech's remaining businesses.
However, Thermo Electron management believes it is unlikely that Thermo
TerraTech will be sold as a whole to one buyer in one transaction.
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--THE OPINION OF ADAMS, HARKNESS & HILL THAT THE CONSIDERATION OFFERED BY
THERMO ELECTRON OF 0.4 SHARE OF THERMO ELECTRON COMMON STOCK, 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,
and found them to be reasonable. It believed that Adams, Harkness & Hill's
conclusion that the consideration 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, and accordingly the special committee also
adopted Adams, Harkness & Hill's analysis. See "--Opinion of Adams, Harkness &
Hill."
The special committee and the board also considered the following factors,
each of which they considered to be negative factors in their deliberations
concerning their decisions to approve the merger agreement:
- FOLLOWING THE MERGER, THE PUBLIC STOCKHOLDERS WILL NO LONGER 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.
- THE POSITIVE ASPECTS OF THERMO TERRATECH, 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 factors
could contribute 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 members of the board, including the member of the special committee,
evaluated the various factors considered in light of their knowledge of the
business, financial condition and prospects of Thermo TerraTech, and sought and
considered the advice of financial and legal advisors. 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 are 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 the following factors:
- 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;
- the special committee retained and was advised by independent legal
counsel;
- the special committee retained Adams, Harkness & Hill to assist in
evaluating the proposed transaction and received advice from Adams,
Harkness & Hill; and
- the detailed review by the special committee and its advisors of the
business and financial condition of Thermo TerraTech.
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- 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 on the one hand and
representatives of management of Thermo Electron on the other. 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 had also discussed, with its advisors and with Thermo
Electron's representatives, the possibility of requiring the merger agreement to
be adopted by a majority of the public stockholders. However, the special
committee and the board ultimately decided that, following extensive negotiation
of the terms of the merger agreement, ample procedural safeguards had been added
at the special committee's request to the merger agreement, including, among
others:
- the right of the special committee to withdraw, modify or amend its
recommendation and terminate the merger agreement if it decides that
failure to do so would be inconsistent with its fiduciary duties;
- the condition that Adams, Harkness & Hill update its opinion prior to the
mailing of this proxy statement-prospectus and the effective time of the
merger; and
- the requirement that Thermo Electron notify the special committee of
offers to purchase Thermo TerraTech's businesses. See "THE MERGER."
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 YOU VOTE TO ADOPT THE MERGER AGREEMENT.
In considering the recommendation of the special committee and the board on
the merger agreement, you should be aware that some members of the special
committee and the board have interests in the merger that are different from, or
in addition to, your interests 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 Thermo TerraTech 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 payable to the
public stockholders pursuant to the merger agreement, Thermo TerraTech gave the
special committee and Adams, Harkness & Hill projected financial data prepared
by Thermo TerraTech management. See "CERTAIN PROJECTED FINANCIAL DATA."
OPINION OF ADAMS, HARKNESS & HILL
Pursuant to a letter agreement dated as of May 13, 1999, Adams, Harkness &
Hill was retained by the special committee to render an opinion as to the
fairness, from a financial point of view, to the public stockholders, of the
consideration to be received by the public stockholders in 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, 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 those stockholders in separate transactions
involving Thermo Electron. Adams, Harkness & Hill received customary fees for
those engagements. 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
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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.
Under Adams, Harkness & Hill's engagement letter with the special committee,
Thermo TerraTech paid Adams, Harkness & Hill a retainer fee of $50,000 and a fee
of $87,500 upon the delivery of the written fairness opinion. The latter fee was
payable regardless of the opinion expressed in the letter. Thermo TerraTech has
also agreed to reimburse Adams, Harkness & Hill for all reasonable fees of its
legal advisors and all of its reasonable travel and other expenses relating to
its engagement. In addition, Thermo TerraTech has agreed to indemnify Adams,
Harkness & Hill and its affiliates against liabilities relating to its
engagement, except liabilities resulting from Adams, Harkness & Hill's bad
faith, willful misconduct or gross negligence.
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 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 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 SEC;
- Reviewed the merger agreement in the form presented to the special
committee;
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- Compared the historical market prices and trading activity of the
TerraTech 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. Specifically,
Adams, Harkness & Hill reviewed analyses of and held discussions with
representatives of Environmental Business International, Inc., a leading
independent strategic consulting firm serving the environmental services
industry. Adams, Harkness & Hill had engaged Environmental Business
International, with Thermo TerraTech's consent, in order to have access to its
expertise in assessing the historical and projected operating performance of
Thermo TerraTech, ThermoRetec and Randers/Killam and the respective business
units of these companies that compete in the environmental services industry.
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 Thermo TerraTech's senior management as to the future performance
of Thermo 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 Thermo TerraTech. Adams, Harkness &
Hill's opinion did not predict or take into account any possible economic,
monetary or other changes which may occur, or information which may come
available, after the date of its written opinion.
PUBLIC COMPANY PEER ANALYSIS--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
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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 three areas:
water and wastewater treatment, highway and bridge engineering, and
infrastructure engineering. Randers/Killam's fourth line of business, process
engineering and construction, was sold on January 28, 2000. 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.)
- METAL TREATMENT COMPANIES
1) Bodycote International;
2) Gibraltar Steel Corp.; and
3) Lindberg Corp.
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<PAGE>
- COMMERCIAL LABORATORIES
1) Applied Analytical Ind.;
2) BioReliance Corp.;
3) Covance Inc.;
4) Parexel International Corp.; and
5) Quintiles Transnational Corp.
Adams, Harkness & Hill selected these companies based on its review of their
respective businesses, assessment of their relative financial performance and
competitive position, and, in the case of companies competing in the
environmental services industry, consultation with Environmental Business
International. In some circumstances, companies which met most quantitative and
qualitative criteria for selection were excluded from the peer group analysis
because Adams, Harkness & Hill determined that a particular characteristic, such
as diversification of business operations, of one or more companies made them
less relevant for comparative purposes.
Adams, Harkness & Hill compared certain financial measures and metrics of
Thermo TerraTech with those of the peer group companies. Such information
included: market capitalization; enterprise value; price/projected calendar
1999 & 2000 earnings ratios; enterprise value/last twelve months' revenue; last
twelve months' operating margin; market capitalization/book value; and year/year
quarterly revenue growth.
Enterprise value/last twelve months' revenue and price/earnings multiples
imply the range of value public markets place on companies in a particular
market segment. Adams, Harkness & Hill employed an enterprise value 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 enterprise value, market capitalization is calculated as the product
of a company's common stock price per share multiplied by the number of diluted
shares outstanding. Adams, Harkness & Hill used the closing price per share on
October 8, 1999, for all public company comparable analyses. The market
capitalization 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
enterprise value. Unlike enterprise value-based valuation methodologies,
price/earnings-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
enterprise value has been calculated:
((market value of equity) + (debt))-(cash, cash equivalents and short-term
investments)
In order of descending enterprise value/last twelve months' 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
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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) 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/last twelve months' 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/last twelve months' 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/last twelve months' 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 Thermo TerraTech's price/earnings multiples for calendar
year 1999 and calendar year 2000, Adams, Harkness & Hill used Thermo 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/last twelve months' revenue:............. 0.9
- - Calendar year 1999 price/earnings:........................ 24.3
- - Calendar year 2000 price/earnings:........................ 12.0
</TABLE>
Based on this comparison and on its assessment of these financial measures
and metrics for Thermo TerraTech and the peer group companies, Adams,
Harkness & Hill noted that the value implied by the proposed consideration
compared favorably to the ranges calculated using peer group data.
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 Adams, Harkness & Hill is aware of
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<PAGE>
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 & Moore 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 purpose 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 that price would be paid, and the closing price of the Thermo TerraTech
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
that price would be paid, and the closing price of the Thermo TerraTech common
stock on the dates noted below:
Prior to Thermo Electron 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>
Based on its assessment of the premiums paid in the selected precedent
transactions described above, Adams, Harkness & Hill noted that the ranges of
premiums implied by the proposed consideration of $7.25 compared favorably to
the range of premiums associated with the precedent transactions.
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<PAGE>
STOCK PRICE PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following for Thermo TerraTech and
Thermo Electron:
1) 200-day stock price performance;
2) Stock price performance since initial public offering;
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 peers.
In addition, in assessing the value of the Thermo Electron common stock,
Adams, Harkness & Hill examined selected institutional research reports on the
Thermo Electron common stock, produced between February 25, 1999 and June 1,
1999, by a number of institutional research analysts.
Based on its assessment of stock price performance for Thermo TerraTech and
Thermo Electron, relative to the performance of major market indices and the
stock prices of public company peers, and its review of the selected
institutional research reports referenced above, Adams, Harkness & Hill noted
that the value implied by the proposed consideration compared favorably to the
range of value within which Thermo TerraTech had traded over relevant
comparative periods.
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:
- Thermo TerraTech's 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, such as 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 for the year ended December 31, 2003, times earnings
before interest and taxes multiples that ranged from 7.0x to 12.0x for the
Environmental Services and Metal Treatment Companies, excluding EuroTech,
whose earnings before interest and taxes 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%
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- 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 enterprise value/earnings before interest and
taxes 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
For each of the above listed Thermo 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
terminal values to arrive at a range of enterprise values based on the above
assumptions.
The enterprise values of ThermoRetec, Randers/Killam and EuroTech were then
multiplied by Thermo TerraTech's percent ownership of each entity and combined
with the enterprise values for the remaining businesses to arrive at a range of
total enterprise values for Thermo TerraTech. These enterprise values were
adjusted by adding Thermo TerraTech's cash balance and subtracting its debt
balance to arrive at implied market capitalizations, i.e., equity values. Adams,
Harkness & Hill divided the computed equity values by Thermo 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.
Based on its assessment of discounted cash flow values for Thermo TerraTech,
Adams, Harkness & Hill noted that the value implied by the proposed
consideration compared favorably to these values.
BREAK-UP ANALYSIS OF THERMO TERRATECH
Adams, Harkness & Hill performed a break-up analysis of Thermo TerraTech. A
break-up analysis is an assessment of the cumulative going concern 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. This break-up analysis
represents an assessment of the cumulative pre-tax value of Thermo TerraTech's
individual operations and/or assets, without regard to capital gains taxes and
transaction costs that would be associated with the sale of the operations
and/or assets.
Adams, Harkness & Hill derived an implied value for each of Thermo
TerraTech's businesses based on the high, low and median enterprise value/last
twelve months' revenue multiples from the businesses' respective public company
peers analyses.
ENTERPRISE VALUE/LAST TWELVE MONTHS' 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>
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<PAGE>
To arrive at a range of overall implied value for Thermo TerraTech, Adams,
Harkness & Hill undertook the following:
- Multiplied the respective businesses' last twelve months' 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 enterprise values
for Thermo TerraTech.
- The high, low and median enterprise values 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.
Based on its assessment of this implied cumulative break-up value, Adams,
Harkness & Hill noted that the value implied by the proposed consideration
compared favorably to the value implied by the cumulative break-up value.
However, Adams, Harkness & Hill noted that the relevance of its break-up
analysis was limited, given that it represents an assessment of the cumulative
pre-tax value of Thermo TerraTech's individual operations and/or assets, without
regard to capital gains taxes and transaction costs that would be associated
with the sale of the operations and/or assets.
SUMMARY OF VALUATION ANALYSES
The foregoing summary describes all material analyses performed by Adams,
Harkness & Hill. However, the preparation of a fairness opinion is a complex
process and is not susceptible 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.
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 public
stockholders.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
Thermo Electron intends to undertake the merger agreement at this time in
order to acquire all of the outstanding shares of TerraTech common stock. In
deciding to acquire all of the outstanding shares of TerraTech common stock at
this time, Thermo Electron considered the following factors:
- recent public capital market trends affecting small companies;
- the latest trends in Thermo TerraTech's markets, primarily the
environmental-liability and resource-management services industry;
- Thermo TerraTech's debt, including debt owed to Thermo Electron;
- reducing the public information available to competitors about Thermo
TerraTech's business, which would result from Thermo TerraTech no longer
having to file reports with the SEC;
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<PAGE>
- eliminating other burdens on management from public reporting and other
tasks required of public companies, including, for example, the dedication
of time and resources of management to stockholder and analyst inquiries,
and investor and public relations;
- the costs of being a private company, including elimination of fees
associated with SEC reporting and the related legal and accounting fees,
that Thermo Electron anticipates could result in savings of approximately
$450,000 per year, and
- the ability of Thermo TerraTech's management to focus on long-term
business goals, as opposed to quarterly earnings, as a private company.
In addition, the Thermo Electron board of directors considered the
advantages and disadvantages of some alternatives to acquiring the public
stockholder interest in Thermo TerraTech, including (1) selling its ownership of
Thermo TerraTech and (2) leaving Thermo TerraTech as a majority-owned, public
subsidiary. The first alternative, of selling its equity interest in Thermo
TerraTech, was briefly considered by Thermo Electron management, but it was not
an alternative that was pursued as reasonable, given that, at the time, Thermo
Electron did not want to sell its ownership of Thermo TerraTech. The advantages
to leaving Thermo TerraTech as a majority-owned, public subsidiary that Thermo
Electron considered included (1) 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 (2) maintaining Thermo
TerraTech's access 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 the following:
- the burden on Thermo TerraTech of its debt, including debt owed to Thermo
Electron;
- the costs of being a public company; and
- the public information available to competitors about Thermo TerraTech's
business as result of its filing obligations with the SEC.
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 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,
in the form in which it was then proposed, 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 Electron common stock for every share of TerraTech common stock,
subject to adjustment. The floor price, $7.25 per share, represents a premium of
(1) approximately 73% over the closing price of the TerraTech common stock 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, with no financial terms announced as of that
date, and (2) approximately 35% over the closing price of the TerraTech common
stock 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.
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PURPOSE AND REASONS OF THERMO TERRATECH FOR THE MERGER
The purpose of Thermo TerraTech for engaging in the transactions
contemplated by the merger agreement, at the time the merger agreement was
entered into, was 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:
- the benefits to be gained from becoming part of a larger operating entity;
- recent public capital market trends affecting small companies;
- the latest trends in Thermo TerraTech's markets, primarily the
environmental-liability and resource-management services industry;
- the debt owed by Thermo TerraTech, including the debt owed to Thermo
Electron;
- reducing the public information available to competitors about Thermo
TerraTech's business, which would result from Thermo TerraTech no longer
having to file reports with the SEC;
- eliminating other burdens on management from public reporting and other
tasks required of public companies, including, for example, the dedication
of time and resources of management to stockholder and analyst inquiries,
and investor and public relations;
- the costs of being a private company. For example, as a private company,
Thermo TerraTech would not be required to file quarterly, annual or other
periodic reports with the SEC or publish and distribute to its
stockholders annual reports and proxy statements. Thermo Electron
anticipates that eliminating these requirements could result in savings of
approximately $450,000 per year, including the approximate cost of
associated legal and accounting fees; and
- the ability of Thermo TerraTech management to focus on long-term business
goals, as opposed to quarterly earnings, as a private company.
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings, analysis and recommendation of
TerraTech's special committee and board with respect to the fairness of the
merger to the public stockholders. As of the date of the merger agreement,
Thermo Electron adopted the findings, analysis and recommendation of the special
committee and the board with respect to the fairness of the merger. Based solely
on the findings, analysis 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 you should vote on the merger agreement.
Some officers and directors of Thermo Electron are also officers and
directors of Thermo TerraTech and have interests that are in addition to, or
different from, your interests. 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 TerraTech's special committee and the receipt by the
special committee of a fairness opinion from an investment banking firm.
CONFLICTS OF INTEREST
When you consider the recommendation of the board with respect to the
merger, you should be aware that some officers and directors of Thermo TerraTech
have interests in connection with the
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Merger that are different from, or in addition to yours, 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."
After the merger takes place, the current officers and directors of Thermo
TerraTech will continue as the officers and directors of Thermo TerraTech;
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 Electron 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 by
telephone, 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 by telephone.
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 per share. Under the terms of the merger agreement,
these options 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 be converted into options to acquire shares of Thermo Electron common stock.
See "--Effect of the Merger on Thermo TerraTech Stock Options, Warrants and
Debentures." Mr. Vintiadis owns no shares of TerraTech common stock, and
accordingly will receive no shares of Thermo Electron common stock in the
merger. Mr. Vintiadis has deferred units equal to 10,716 shares of TerraTech
common stock under Thermo TerraTech's deferred compensation plan for directors,
which units will be converted into the right to receive 4,286 shares of Thermo
Electron common stock, assuming an exchange ratio of .4. See "--Deferred
Compensation Plan for Directors." The options and deferred units were issued to
Mr. Vintiadis under benefit plans approved by Thermo TerraTech'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. 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 meetings of the audit and human resources
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 owned 2,500 shares of Thermo Electron
common stock as of October 2, 1999.
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
177,645 shares of TerraTech common stock and will receive 71,058 shares of
Thermo Electron common stock in the merger, assuming an exchange ratio of .4. In
addition, these board members and executive officers hold options to acquire
673,000 shares of TerraTech common stock, with exercise prices ranging from
$4.16 to $10.03 per share, which will be assumed by Thermo Electron and be
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 TerraTech common stock
have accumulated under Thermo
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TerraTech's deferred compensation plan for directors, which units will be
converted into the right to receive 13,492 shares of Thermo Electron common
stock (assuming an exchange ratio of .4), if the directors elect to do so. See
"--Deferred Compensation Plan for Directors." One member of the Thermo TerraTech
board of directors owns a warrant to purchase 12,500 shares of TerraTech common
stock, which will be converted into a warrant to purchase Thermo Electron 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." These board members and executive officers
also beneficially owned 2,312,349 shares of common stock of Thermo Electron as
of October 2, 1999.
Further, some members of the board and some executive officers hold director
or officer positions with Thermo Electron. Mr. Theo Melas-Kyriazi, the chief
financial officer of Thermo TerraTech, is also a vice president and the chief
financial officer of Thermo Electron. Mr. Brian D. Holt, a director of Thermo
TerraTech, is also the chief operating officer, energy and environment, of
Thermo Electron. Mr. William A. Rainville, a director of Thermo TerraTech, is
also the chief operating officer, recycling and resource recovery, of Thermo
Electron.
INDEMNIFICATION AND INSURANCE
The officers and directors of Thermo TerraTech are also covered under
various indemnification arrangements with Thermo Electron. See
"--Indemnification and Insurance."
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 merger was approximately 87%. Upon completion of the
merger, Thermo Electron's interest in Thermo TerraTech's net book value of
$51.5 million on January 1, 2000, net loss of $1.4 million for the fiscal year
ended April 3, 1999, and net loss of $43.7 million for the nine months ended
January 1, 2000, respectively, would increase from approximately 87% of such
amounts to 100% of such amounts. You will no longer have any interest in, and
will not be a stockholder of, Thermo TerraTech and therefore will not directly
participate in Thermo TerraTech's future earnings and potential growth. In
addition, you will no longer bear the risk of any decreases in the value of
Thermo TerraTech. Instead, the stockholders of Thermo TerraTech other than
Thermo Electron will have the right to receive 0.4 share of Thermo Electron
common stock for each share held, subject to adjustment.
In addition, after the merger, the TerraTech common stock will no longer be
traded on the American Stock Exchange, price quotations for 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 Thermo TerraTech's obligation to file periodic financial and
other information with the SEC and will make most of the provisions of the
Exchange Act, such as the short-swing profit recovery provisions of
Section 16(b) and the requirement of furnishing a proxy or information statement
in connection with stockholders' meetings, no longer applicable.
Because Thermo Electron expects that it will sell or otherwise dispose of
the assets of Thermo TerraTech following the merger, it expects the merger to be
treated as a taxable exchange by the Thermo TerraTech shareholders of their
shares of TerraTech common stock for shares of Thermo
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Electron common stock. As a result, each Thermo TerraTech shareholder will
realize taxable gain, or loss, to the extent that the fair market value of the
Thermo Electron common stock, plus any cash in lieu of fractional shares,
received by the shareholder in the merger exceeds, or is less than, the
shareholder's basis in the Thermo TerraTech stock that is surrendered. If Thermo
Electron does not dispose of substantially all of the assets of Thermo TerraTech
shortly after the merger, it is possible that the merger would qualify for
treatment as a "reorganization" under the Internal Revenue Code. This would mean
that shareholders of Thermo TerraTech would not recognize gain or loss upon
their exchange of TerraTech common stock for Thermo Electron common stock.
Although Thermo Electron currently believes that it is unlikely that the merger
will qualify as a reorganization, market conditions at the time that Thermo
Electron attempts to sell the Thermo TerraTech businesses might not be
favorable, and thus Thermo Electron would choose not to sell at that time, which
could delay the sales for a sufficient amount of time to allow the merger to
qualify as a reorganization. IN VIEW OF THE COMPLEXITIES OF FEDERAL INCOME AND
OTHER TAX LAWS, YOU SHOULD CONSULT WITH A TAX ADVISOR REGARDING, AMONG OTHER
THINGS, THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF THE
MERGER APPLICABLE TO YOUR SPECIFIC CIRCUMSTANCES.
CONDUCT OF THERMO TERRATECH'S BUSINESS AFTER THE MERGER
Subject to the balance of this section, Thermo Electron expects that the
day-to-day business and operations of Thermo TerraTech will be conducted, for
the foreseeable future, substantially as they are currently being conducted by
Thermo TerraTech. Additionally, Thermo Electron does not currently contemplate
any material change in the composition of Thermo TerraTech's management except
that Thermo Electron intends to appoint a board of directors comprised of the
surviving corporation's management after the merger.
Pursuant to its announcement on May 24, 1999 of its decision to sell various
businesses at its Thermo EuroTech N.V., ThermoRetec and Randers/Killam
subsidiaries, Randers/Killam sold substantially all of its Randers division's
assets and liabilities on January 28, 2000. ThermoRetec entered into a
non-binding letter of intent with respect to the sale of five of its six
soil-recycling facilities on February 4, 2000, and sold the sixth facility on
March 6, 2000. On March 24, 2000, Thermo TerraTech entered into a non-binding
letter of intent with respect to the sale of the assets and the assumption of
some liabilities of Thermo TerraTech's Metallurgical, Inc., Cal-Doran
Metallurgical Services, Inc., and Metal Treating Inc. subsidiaries. In addition,
on April 14, 2000, Randers/Killam sold its BAC Killam business. Thermo Electron
announced on January 31, 2000 that it intends to focus solely on its instrument
businesses and, as a result, intends to sell all of Thermo TerraTech's remaining
businesses.
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 Thermo
TerraTech's current management will continue to operate Thermo TerraTech's
business substantially as currently operated, until its businesses are sold. See
"--Conduct of Thermo TerraTech's Business After the Merger." No other
alternatives are currently being considered.
CONVERSION OF SECURITIES
At the effective time of the merger, each share of TerraTech common stock,
other than shares held in treasury by Thermo TerraTech and shares held by Thermo
Electron, will be automatically 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 TerraTech common stock will no longer be
outstanding and will be canceled and retired and will cease to exist. Each
holder of a stock certificate formerly representing shares of TerraTech common
stock will after the effective time cease to have any rights with respect to the
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shares, other than the right to receive shares of Thermo Electron common stock
for their shares of 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 TerraTech common stock owned by
them, rounded down to the nearest whole share, without interest, plus a check
for any fractional share of Thermo Electron common stock. Holders of what would
have been a fractional share of Thermo Electron common stock will receive cash
equal to the closing price of the Thermo Electron common stock on the trading
day preceding the closing date, multiplied by the fraction of the share of
Thermo Electron common stock they would have received, rounded to the nearest
whole cent. The exchange ratio may be adjusted, as follows:
<TABLE>
<S> <C>
IF: THEN:
the average of the closing prices of Thermo the exchange ratio will change to be $7.50
Electron common stock during the 20 trading divided by the average of the closing prices
days ending five trading days before the of Thermo Electron common stock during the 20
merger times the exchange ratio (0.4)=less trading days ending five trading days before
than $7.50 the merger.
</TABLE>
EXAMPLE: If the average of the closing prices of Thermo Electron common stock
before the merger is $14.00, then using the formula set forth above:
$14.00 x 0.4=$5.60, which is less than $7.50. The exchange ratio would be
adjusted to be $7.50 divided by $14.00, or 0.53.
This would mean that, instead of receiving 0.4 share of Thermo Electron
common stock for every share of TerraTech common stock, you would receive 0.53
share of Thermo Electron common stock. However, Thermo Electron can elect to
terminate the merger agreement if the adjustment would require Thermo Electron
to issue more than 1.8 million shares of its common stock in the merger.
<TABLE>
<S> <C>
IF: THEN:
the average of the closing prices of Thermo the exchange ratio will change to be $9.25
Electron common stock during the 20 trading divided by the average of the closing prices
days ending five trading days before the of Thermo Electron common stock during the 20
merger times the exchange ratio (0.4)=more trading days ending five trading days before
than $9.25 the merger.
</TABLE>
EXAMPLE: If the average of the closing prices of Thermo Electron common stock
before the merger is $25.00, then using the formula set forth above:
$25.00 x 0.4=$10.00, which is more than $9.25. The exchange ratio would be
adjusted to be $9.25 divided by $25.00, or 0.37.
This would mean that, instead of receiving 0.4 share of Thermo Electron
common stock for every share of TerraTech common stock, you would receive
0.37 share of Thermo Electron common stock.
Assuming an exchange ratio of 0.4 share of Thermo Electron common stock for
every share of TerraTech common stock, Thermo TerraTech public stockholders
would hold approximately 0.6% of the outstanding Thermo Electron common stock
following the merger. Assuming both an exchange ratio of 0.4 and the exercise or
conversion of all outstanding Thermo TerraTech stock options, warrants and
debentures, which will, after the merger, be exercisable for or convertible into
Thermo Electron common stock, Thermo TerraTech public stockholders would hold
approximately 2.9% of the outstanding Thermo Electron common stock following the
merger.
You will not receive interest on the consideration payable upon the
surrender of your stock certificates. Payment of the exchange ratio to a person
who is not the registered holder of a stock
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certificate is conditioned upon the surrendered certificate being properly
endorsed and otherwise in proper form for transfer, as determined by the
exchange agent. Further, the person requesting payment will be required to pay
any transfer or other taxes required because of the payment to a person other
than the registered holder of the stock certificate, or establish to the
satisfaction of the exchange agent that any necessary tax has been paid or is
not payable. Six months after 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 made available to the exchange agent
which have not been disbursed to Thermo TerraTech common stockholders. 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
pursuant to any applicable abandoned property, escheat or similar law.
At the effective time, each share of common stock of TTT Acquisition will
automatically be converted into one share of common stock of the surviving
corporation. All shares held in treasury by Thermo TerraTech will, at the
effective time, cease to exist.
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 under its incentive and nonqualified stock option plans, its equity
incentive plan, and its directors stock option plan, each as amended. At the
effective time of the merger, 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 will continue to
have, and be subject to, the same terms and conditions that it had immediately
prior to the effective time, except that:
- each Thermo TerraTech stock option will be exercisable for a number of
shares of Thermo Electron common stock determined by multiplying the
number of shares of TerraTech common stock issuable upon exercise of the
option immediately prior to the effective time by the exchange ratio; and
- the exercise price for the shares of Thermo Electron common stock issuable
upon exercise of the option will be determined by dividing the exercise
price per share of TerraTech common stock at which the 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 into warrants to purchase
Thermo Electron common stock. The number of whole shares of Thermo Electron
common stock for which each warrant will be exercisable and the per share
exercise price of the warrant will be determined in accordance with the terms of
the warrants.
After the merger, Thermo TerraTech's debentures will be convertible into
shares of Thermo Electron common stock, rather than into TerraTech common stock.
The 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
debentures was outstanding as of October 2, 1999. Holders of the 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 0.4, following the merger
the debentures will be convertible into Thermo Electron common stock at a
conversion price of $39.75 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 outside
directors will terminate, and Thermo TerraTech will distribute to each
participant either Thermo Electron common stock in an amount equal to the
balance of stock units credited as of the effective time multiplied by the
exchange ratio or the equivalent value
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of the Thermo Electron common stock in cash. Two directors, Mr. Vintiadis, the
member of the special committee, and Mr. Donald E. Noble currently have deferred
units equal to 10,716 and 23,015 shares of TerraTech common stock under the
deferred compensation plan. If the directors elect to receive stock, assuming an
exchange ratio of 0.4, they will receive 4,286 and 9,206 shares of Thermo
Electron common stock, respectively, at the effective time of the merger. If the
directors elect to receive cash, at the effective time of the merger they will
receive cash equal to the closing price of the Thermo Electron common stock on
the trading day preceding the closing date, multiplied by the number of shares
of Thermo Electron common stock they would have received, rounded to the nearest
whole cent.
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, the shares
will be canceled and exchanged for shares of Thermo Electron common stock and
cash in lieu of fractional shares.
REPRESENTATIONS AND WARRANTIES
Thermo TerraTech made representations and warranties in the merger agreement
regarding, among other things, the following;
- its organization and good standing;
- its authority to enter into the merger agreement and consummate the
transactions contemplated in the agreement;
- 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;
- required governmental and other consents and approvals; and
- its receipt of a fairness opinion from Adams, Harkness & Hill.
Thermo Electron and the Merger Sub made representations and warranties in
the merger agreement regarding, among other things, the following:
- their organization and good standing;
- their authority to enter into the merger agreement and consummate the
transactions contemplated in the agreement;
- Thermo Electron's capitalization;
- the accuracy of information supplied by Thermo Electron for inclusion in
forms and reports required to be filed with the SEC and supplied to Adams,
Harkness & Hill; and
- required governmental and other consents and approvals.
The representations and warranties of the parties in the merger agreement
will terminate at the completion of the merger.
Representations and warranties like these are made by parties to merger
agreements in order to assure the other parties involved that important facts
about a company and prerequisites to a merger transaction are true. For example,
it is important for a party to a merger agreement to know that the other party
has been authorized by its board of directors or other governing body to take
part in the transaction. If it turned out after the transaction that a company
was not really authorized to take part
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in the transaction, the merger could be undone on the grounds that it was not
entered into by two validly contracting parties. That would be very disruptive
for the parties concerned and their stockholders. The merger agreement can be
terminated, and the merger would not happen, if one of our representations or
warranties is materially untrue as of the effective time of the merger, and we
cannot make them true after we have been notified by the other party that they
are not true. The termination of the merger agreement would affect you in that
you would remain a stockholder of Thermo TerraTech, and you would not become a
stockholder of Thermo Electron.
COVENANTS
In the merger agreement, Thermo TerraTech agreed that from the date of the
merger agreement until the earlier of termination of the merger agreement or the
effective time, it will:
- carry on its business in the usual, regular and ordinary course,
substantially consistent with past practice, except as consented to by
Thermo Electron;
- pay its debts and taxes when due subject to good faith disputes over its
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 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 agreed that from the date of the
merger agreement until the earlier of the termination of the merger agreement or
the effective time, it will, except for actions contemplated by the merger
agreement or some 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 its
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 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.
Covenants like these are included in merger agreements in order to create
obligations on a party to a merger agreement to do, or not to do, things that
are important to the other party before the merger happens. For example, it is
important to Thermo Electron that Thermo TerraTech continue to pay its bills and
maintain its current business until the merger, because Thermo Electron wants
Thermo TerraTech's business to have basically the same qualities when it merges
with Thermo Electron as it had when Thermo Electron decided it wanted to merge
with Thermo TerraTech. The merger agreement
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<PAGE>
can be terminated, and the merger would not happen, if we have not materially
performed or complied with one of our covenants as of the effective time of the
merger, and we still cannot materially perform or comply with the covenant after
we have been notified by the other party that we need to do so. The termination
of the merger agreement would affect you in that you would remain a stockholder
of Thermo TerraTech, and you would not become a stockholder of Thermo Electron.
CONDITIONS
The completion of the merger depends upon our meeting a number of
conditions, including the following:
- adoption of the merger agreement by the holders of a majority of the
outstanding shares of TerraTech common stock;
- the absence of any statute, injunction or other order that has the effect
of making the merger illegal or otherwise prohibits consummation of the
merger;
- the effectiveness of the registration statement of which this proxy
statement-prospectus forms a part and a resale registration statement
covering the sale of Thermo Electron common stock issuable upon exercise
of the TerraTech warrants assumed by Thermo Electron in the merger and the
absence of an order suspending the effectiveness of the registration
statements;
- the authorization for listing on the New York Stock Exchange of all shares
of Thermo Electron common stock issuable under the merger agreement;
- no event that would result in the issuance of the rights to purchase
Thermo Electron's Series B Junior Participating Preferred Stock shall have
occurred;
- each of Thermo Electron's, Thermo TerraTech's and TTT Acquisition's
representations and warranties in the merger agreement must be materially
true and correct on and as of the effective time of the merger; and
- each of Thermo Electron, Thermo TerraTech and TTT Acquisition shall have
materially performed or complied with the obligations that the merger
agreement requires each of them to perform or comply with at or prior to
the effective time of the merger.
In addition, Thermo TerraTech's obligation to complete the merger is subject
to these conditions, which may be waived in writing by Thermo TerraTech if the
special committee approves:
- at the time this proxy statement-prospectus is mailed to you and at the
effective time of the merger, Adams, Harkness & Hill shall have reaffirmed
orally and not withdrawn its fairness opinion; and
- Thermo Electron shall have received any necessary state securities
approvals for the issuance of its common stock under the merger agreement.
The obligations of TTT Acquisition and Thermo Electron to effect the merger
are subject to the following condition, which may be waived in writing by Thermo
Electron:
- 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
of Thermo TerraTech.
Conditions like these are put in merger agreements in order to make sure
that things that each party wants to have happen before the merger have in fact
occurred before the parties go through with the merger. For example, it is very
important to Thermo TerraTech that the Thermo Electron common stock which you
will receive in the merger is registered with the Securities and Exchange
Commission before the merger happens, so that you can freely resell it if you
are not an affiliate. If any of the
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<PAGE>
conditions to the completion of the merger is not met, and the failure by one
party to meet the condition is not waived by the other party, the merger
agreement may be terminated, and the merger would not happen. This would affect
you in that you would remain a stockholder of Thermo TerraTech and you would not
become a stockholder of Thermo Electron.
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, under Thermo TerraTech's Certificate of
Incorporation and Bylaws, each as in effect on the date of the merger agreement.
The surviving corporation's Certificate of Incorporation and Bylaws will contain
the indemnification and elimination of liability for monetary damages provisions
that are currently set forth in Thermo TerraTech's Certificate of Incorporation
and Bylaws. Those provisions will not be amended, repealed or otherwise modified
for six years from the effective time in a manner that would adversely affect
the rights of those people 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 executive officers of Thermo TerraTech, unless modifications are
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 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. The coverage of that policy will be no
less favorable in amount and scope than the directors' and officers' existing
coverage. However, the surviving corporation will not be required to pay
premiums for that insurance if they would be more than 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 for any claim or action arising out of or pertaining to any
action or omission in his capacity as a director or fiduciary of Thermo
TerraTech, including as a member of the special committee or in connection with
the merger, that occurs on, before or after the effective time, until the
statute of limitations relating to the action or omission expires. 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 the payment. If the
merger becomes effective, Thermo Electron will be jointly and severally
responsible for the indemnification and expenses advancement obligations
described above. If the merger does not become effective, Thermo Electron will
only be responsible for indemnifying or advancing expenses for matters that
relate 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. These agreements provide for indemnification of
and advancement of expenses to the Thermo TerraTech directors directly by Thermo
Electron in the event that a director, because of his or her status as a
director or officer of Thermo TerraTech, or service as a director, officer or
fiduciary of another company at the request of Thermo Electron, is made or
threatened to be made a party to any action, suit or other proceeding, 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. In addition, with
respect to any criminal action or proceeding, indemnification shall be made only
if the director also 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.
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<PAGE>
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 TTT Acquisition and the board of directors of Thermo TerraTech,
upon approval of the special committee.
In addition, either TTT Acquisition or Thermo TerraTech, upon approval of
the special committee, 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, in the following circumstances:
- the merger has not been completed by July 31, 2000, in which case the
right of Thermo TerraTech to terminate shall be exercised as directed by
the special committee, unless the party seeking to terminate has breached
the merger agreement and that breach has been a principal cause of the
failure of the merger to be completed;
- 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 the order, decree, ruling or action is final and nonappealable;
or
- the stockholders of Thermo TerraTech have not adopted the merger
agreement, unless the party seeking to terminate has breached the merger
agreement and that breach has been the principal cause of or resulted in
the failure to obtain stockholder adoption of the merger agreement. Thermo
Electron has agreed to vote, or cause to be voted, all of the TerraTech
common stock owned by it and any of its subsidiaries in favor of the
merger.
In addition, TTT Acquisition 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 (1) Thermo TerraTech breaches any
representation, warranty, covenant or agreement in any material respect and
fails to cure the breach within 10 business days after written notice of the
breach from TTT Acquisition or (2) Thermo Electron would be required to issue
more than 1,800,000 shares of its common stock as a result of an adjustment to
the exchange ratio.
In the event that Thermo Electron would be required to issue more than
1,800,000 shares of its common stock, Thermo Electron would have to decide
whether to exercise its right to terminate the merger agreement. The factors
that Thermo Electron would consider in making this decision include the exact
number of shares it would be required to issue and the level of dilution to
Thermo Electron stockholders from that issuance; the market conditions existing
at the time the decision is made, including trends in the price of the Thermo
Electron common stock; and the financial condition of the business of Thermo
TerraTech.
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:
- 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
- Thermo Electron or TTT Acquisition breaches any representation, warranty,
covenant or agreement in any material respect and fails to cure the breach
within 10 business days after written notice of the breach from Thermo
TerraTech.
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<PAGE>
Subject to applicable law, the merger agreement may be amended by the
parties at any time by written agreement; provided, however, that Thermo
TerraTech may not amend the merger agreement without the approval of the special
committee.
Neither party will have to pay a termination fee if the merger agreement is
terminated.
EXPENSES
The parties will to pay their own costs and expenses in connection with the
merger agreement. Assuming the merger is consummated, the estimated costs and
fees 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
There are no federal or state regulatory approvals required 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 (1) the requirements of the Delaware General Corporation
Law relating to stockholder approval and completion of the merger and (2) the
requirements of the federal and state securities laws.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF THERMO TERRATECH AND THERMO
ELECTRON
The shares of Thermo Electron common stock to be issued in 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 Electron
common stock issued to any person who is deemed to be an "affiliate" of either
of us 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 of us and may include some of our
respective officers and directors, as well as the principal stockholders of each
of us. Affiliates may not sell their shares of Thermo Electron common stock
acquired in the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
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- 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
Electron common stock to be received by affiliates in the merger.
LISTING ON THE NEW YORK STOCK EXCHANGE OF THERMO ELECTRON 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 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 Electron 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 and the closing prices per share of Thermo Electron common stock on
the following dates:
- 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 before the May 5 announcement; and
- 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 presents, in the line entitled "Equivalent Per Share Price,"
the price per share of TerraTech common stock you would have received if the
exchange ratio had been set under the terms of the merger agreement on each of
May 4, 1999, October 19, 1999 and April , 2000.
<TABLE>
<CAPTION>
APRIL 30, 1999/
STOCK/DATE MAY 4, 1999 OCTOBER 19, 1999 APRIL , 2000
- ---------- --------------- ---------------- -------------
<S> <C> <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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<PAGE>
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 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 asked
brokers and nominees who hold stock in their names to give the proxy statement-
prospectus to their customers. This proxy statement-prospectus is first being
mailed on or about , 2000.
RECORD DATE AND QUORUM REQUIREMENT
Stockholders of record at the close of business on , 2000 are
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. If you hold your shares of TerraTech
common stock through a broker, bank or other nominee, generally the nominee may
only vote your TerraTech common stock in accordance with your instructions.
However, if it has not timely received your instructions, the nominee may vote
on matters for which it has discretionary voting authority. Brokers generally
will not have discretionary voting authority to vote on the proposal to adopt
the merger agreement. If a nominee cannot vote on a 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. For 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 against adoption of the merger agreement. Thermo
Electron, which owns approximately 87% of the outstanding TerraTech common
stock, owns enough shares to adopt the merger agreement without the vote of the
public stockholders and has agreed to vote in favor of the merger agreement. In
addition, Thermo TerraTech's directors and executive officers have expressed
their intention to vote to adopt the merger agreement.
If you execute a proxy card without giving instructions, 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 in order to solicit additional
proxies, the persons named on the proxy card will vote the shares represented by
all properly executed proxies on those matters in their discretion, except that
shares represented by proxies that have been voted "AGAINST" adoption of the
merger agreement will not be
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<PAGE>
used to vote "FOR" adjournment of the special meeting to allow additional time
to solicit additional votes "FOR" the merger agreement.
VOTING AND REVOCATION OF PROXIES
You may revoke your proxy at any time before it is exercised by one of the
following means:
- sending the secretary of Thermo TerraTech a notice revoking it;
- submitting a duly executed proxy with a later date; or
- voting in person at the special meeting.
All shares represented by each properly executed and not revoked proxy
received by the secretary of Thermo TerraTech prior to the special meeting will
be voted in accordance with the instructions given on the proxy. If no
instructions are indicated, the proxy will be voted to adopt the merger
agreement.
EFFECTIVE TIME
The merger will be effective as soon as practicable following stockholder
adoption of the merger agreement and the 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 1, 2000, and January 2, 1999, and for the fiscal year ended
January 3, 1998, 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 January 3, 1998, and as of and for the fiscal years ended December 28,
1996, and December 30, 1995, 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.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
---------------------------------------------------------------
1999 (2) 1998 (3) 1997 1996 (4) 1995
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 2,471,193 $2,055,805 $1,979,602 $1,573,005 $1,059,064
Income (Loss) from Continuing Operations Before
Extraordinary Items............................ (14,580) 114,676 174,665 164,172 76,167
Net Income (Loss)................................ (174,573) 181,901 239,328 190,816 139,582
Earnings (Loss) per Share from Continuing
Operations Before Extraordinary Items:
Basic.......................................... (.09) .71 1.15 1.16 .60
Diluted........................................ (.11) .67 1.05 1.03 .55
Earnings (Loss) per Share:
Basic.......................................... (1.10) 1.12 1.57 1.35 1.10
Diluted........................................ (1.13) 1.08 1.41 1.17 .95
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital.................................. $ 1,450,858 $2,163,010 $2,001,963 $2,218,617 $1,317,146
Total Assets..................................... 5,181,842 5,421,060 4,961,046 4,546,942 3,247,952
Long-term Obligations............................ 1,565,974 1,808,582 1,518,687 1,531,668 1,079,761
Minority Interest................................ 364,278 399,512 464,191 364,163 200,868
Common Stock of Subsidiaries Subject to
Redemption..................................... 7,692 40,500 40,500 2,613 --
Shareholders' Investment......................... 2,014,486 2,254,802 2,007,862 1,755,576 1,311,311
OTHER DATA (UNAUDITED):
Book Value per Share............................. $ 12.87 $ 14.23 $ 12.62 $ 11.71 $ 9.82
Cash Dividends
Declared per Share............................. -- -- -- -- --
</TABLE>
- --------------------------
(1) Thermo Electron's 1999, 1998, 1997, 1996, and 1995 fiscal years ended
January 1, 2000, January 2, 1999, January 3, 1998, December 28, 1996, and
December 30, 1995, respectively.
(2) Reflects a $182.4 million pretax charge for restructuring and related costs
(3) Reflects a $32.5 million pretax charge for restructuring and related costs,
the issuance of $150.0 million principal amount of Thermo Electron's 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.
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<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 nine months ended January 1, 2000, and January 2, 1999, 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 nine
months ended January 1, 2000, are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------- FISCAL YEAR (1)
JANUARY 1, JANUARY 2, ----------------------------------------------------
2000 (2) 1999 (3) 1999 (3) 1998 (4) 1997 (5) 1996 (6) 1995
----------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $234,790 $234,270 $310,039 $298,786 $278,503 $220,484 $136,985
Net Income (Loss).............................. (43,705) (1,924) (1,421) 3,273 (162) 3,447 4,476
Earnings (Loss) per Share:
Basic........................................ (2.29) (.10) (.07) .18 (.01) .20 .26
Diluted...................................... (2.29) (.10) (.07) .17 (.01) .18 .26
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital................................ $ 27,449 $ 64,281 $ 67,043 $ 69,319 $ 77,315 $ 66,008 $ 63,459
Total Assets................................... 315,271 354,152 351,698 360,526 393,784 333,656 273,298
Long-term Obligations.......................... 118,241 169,679 158,617 153,144 165,186 155,384 96,851
Shareholders' Investment....................... 51,486 92,633 92,157 97,130 83,526 85,870 77,217
OTHER DATA (UNAUDITED):
Book Value per Share........................... $ 2.70 $ 4.79 $ 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 $58.2 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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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 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, this discussion does
not address the following topics:
- the tax consequences of the merger under foreign, state or local tax laws,
- the tax consequences of transactions effectuated by a stockholder before
or after, 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 Electron common stock are disposed
of,
- the tax consequences of the assumption by Thermo Electron of outstanding
options and warrants to acquire TerraTech common stock, or
- the tax consequences to holders of the 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.
Because Thermo Electron expects to sell or otherwise dispose of the assets
of Thermo TerraTech following the merger, it expects the merger to be treated as
a taxable exchange by the Thermo TerraTech shareholders of their shares of
TerraTech common stock for shares of Thermo Electron common stock. As a result,
each TerraTech shareholder will realize taxable gain, or loss, to the extent
that the fair market value of the Thermo Electron common stock, plus any cash in
lieu of fractional shares, received by the shareholder in the merger exceeds, or
is less than, the shareholder's basis in the TerraTech stock surrendered. If the
exchange is taxable, the stockholder's basis in the Thermo Electron stock
received in the merger will equal its fair market value at the time of the
merger, and its holding period will commence on the day following the merger.
If Thermo Electron does not dispose of substantially all of the assets of
Thermo TerraTech shortly after the merger, the merger may qualify for treatment
as a "reorganization" under the Internal Revenue Code. Although Thermo Electron
currently believes that result is unlikely, market conditions at the time that
Thermo Electron attempts to dispose of the Thermo TerraTech businesses could be
such that Thermo Electron would conclude that a current sale of the business
would not be advantageous, which could delay the sales for a sufficient amount
of time to allow the merger to qualify as a reorganization. If Thermo Electron
did retain a significant portion of the Thermo TerraTech businesses, and
assuming that the other requirements for a reorganization were met, the
following tax consequences would result:
- No gain or loss would be recognized by Thermo Electron, TTT Acquisition or
Thermo TerraTech as a result of the merger;
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<PAGE>
- No gain or loss would be recognized by Thermo TerraTech stockholders upon
the exchange of TerraTech common stock solely for Thermo Electron common
stock in the merger, except to the extent of cash received in lieu of a
fractional share of Thermo Electron common stock;
- Cash received by the Thermo TerraTech stockholders in lieu of a fractional
share of Thermo Electron common stock would be treated as received as a
distribution in redemption of the fractional share, subject to the
provisions of Section 302 of the Internal Revenue Code, as if the
fractional share had been issued in the merger and then redeemed by Thermo
Electron. A Thermo TerraTech stockholder receiving such cash would
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;
- The tax basis of the Thermo Electron common stock received by Thermo
TerraTech stockholders in the merger would 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 Electron common stock
treated as sold or exchanged under Section 302 of the Internal Revenue
Code; and
- The holding period for the shares of Thermo Electron common stock received
by each Thermo TerraTech stockholder in the merger would include the
holding period for the shares of TerraTech common stock exchanged therefor
in the merger, provided that the shares of TerraTech common stock were
held as capital assets at the effective time.
As discussed above, Thermo Electron expects that it will dispose of the
assets of Thermo TerraTech after the merger so that the merger will not qualify
as a "reorganization" for federal income tax purposes. Thermo Electron will
reassess this position as of the end of 2000 in light of the amount, if any, of
the assets of Thermo TerraTech then held by it. If Thermo Electron, in
consultation with its tax advisors, concludes that the merger should be
characterized as a "reorganization," it will notify the shareholders of
TerraTech common stock who surrendered their shares in the merger.
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CERTAIN PROJECTED FINANCIAL DATA
Thermo TerraTech 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 TerraTech special committee and Adams, Harkness & Hill in their
evaluation of Thermo TerraTech and to aid Adams, Harkness & Hill in its
assessment of the fairness, from a financial point of view, of the consideration
of 0.4 shares of Thermo Electron common stock per share of TerraTech common
stock payable to the public stockholders in the merger agreement, Thermo
TerraTech, in July 1999, gave the special committee and Adams, Harkness & Hill
certain projections prepared by Thermo TerraTech's management. The following
summary of the projections is included in this proxy statement-prospectus solely
because the projections were given to Adams, Harkness & Hill and the special
committee. The projections do not reflect any of the effects of the merger or
other changes that may in the future be deemed appropriate concerning Thermo
TerraTech and its assets, business, operations, properties, policies, corporate
structure, capitalization and management in light of future circumstances.
Except as set forth in the last paragraph, the projections have not been updated
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 SEC or the American Institute of
Certified Public Accountants regarding forward-looking information or generally
accepted accounting principles. Neither Thermo TerraTech's independent
accountants, 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 that information or its achievability, and assume no
responsibility for, and disclaim any association with, such prospective
financial information. Furthermore, the projections necessarily make many
assumptions, of which the material assumptions are set forth in the last
paragraph on this page. Many of these assumptions are beyond Thermo TerraTech's
control 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 Thermo TerraTech'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 the information was
prepared. Accordingly, the information presented may not be indicative of
current values or future performance, which may be significantly more favorable
or less favorable than as set forth in the projections, 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
THERMO TERRATECH MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS.
MANY OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND
THERMO TERRATECH'S ABILITY TO CONTROL OR PREDICT. YOU SHOULD NOT PLACE UNDUE
RELIANCE ON THE PROJECTIONS. THE PROJECTIONS MAY NOT BE REALIZED, AND THERMO
TERRATECH'S FUTURE FINANCIAL RESULTS MAY MATERIALLY VARY FROM THE PROJECTIONS.
THERMO TERRATECH DOES NOT INTEND TO UPDATE OR REVISE THE PROJECTIONS.
The July 1999 projections were prepared by Thermo TerraTech based upon
management's estimates of the total market for its services and Thermo
TerraTech's own performance through 2003. In March 2000, as part of Adams,
Harkness & Hill's review of its fairness opinion in light of the announcement by
Thermo Electron of the proposed sales of Thermo TerraTech's businesses, Thermo
TerraTech provided Adams, Harkness & Hill with an update to the projections for
calendar year 2000. This update revised the information for calendar year 2000
to include the results of three of ThermoRetec's soil-recycling facilities for
the entire year, whereas the projections provided in July 1999 had only included
the results of such facilities for six months of calendar year 2000. At the time
the projections provided in July 1999 were prepared, it was assumed that such
facilities would be sold by mid-2000. ThermoRetec has entered into a non-binding
letter of intent with respect to the sales of its soil-recycling facilities. In
addition, the revised projections include the results of a refinery owned by
Thermo EuroTech for all of calendar year 2000, whereas the July 1999 projections
included the results of the refinery for only six months of calendar year 2000.
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PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR YEAR
-----------------------------------------
2000 (P) 2001 (P) 2002 (P) 2003 (P)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues............................................ $310,543 $305,615 $330,711 $358,342
Costs and Operating Expenses:
Cost of revenues.................................. 240,306 234,378 253,855 274,594
Selling, general, and administrative expenses..... 43,532 39,304 41,031 43,516
Restructuring costs............................... 404 -- -- --
-------- -------- -------- --------
284,242 273,682 294,886 318,110
-------- -------- -------- --------
Operating Income (Loss)............................. 26,301 31,933 35,825 40,232
Interest Income..................................... 1,837 3,146 3,682 4,164
Interest Expense.................................... (7,568) (8,307) (8,042) (7,792)
-------- -------- -------- --------
Income (Loss) Before Provision for Income Taxes..... 20,570 26,772 31,465 36,604
Provision for Income Taxes.......................... 9,913 12,037 14,363 16,788
Minority Interest Expense........................... 702 275 275 275
Extraordinary Item, net of taxes and minority
interest.......................................... 250 0 0 0
-------- -------- -------- --------
Net Income (Loss)................................... $ 10,205 $ 14,460 $ 16,827 $ 19,541
======== ======== ======== ========
SELECTED BALANCE SHEET DATA:
Accounts Receivable, Net............................ $ 51,667 $ 53,205 $ 55,591 $ 59,188
Unbilled Contract Costs and Fees.................... 18,614 14,535 15,839 16,938
Inventories......................................... 2,188 122 122 122
Prepaid Income Taxes and Other Current Assets....... 9,542 11,564 11,689 11,809
-------- -------- -------- --------
Total Current Assets Excluding Cash and
Investments....................................... 82,011 79,426 83,241 88,057
Property, Plant, and Equipment:
Balance, beginning of year........................ 70,357 71,112 70,048 69,655
Additions......................................... 10,263 9,869 10,965 11,450
Depreciation expense.............................. (11,144) (10,933) (11,358) (11,388)
Sales and retirements............................. 0 -- -- --
-------- -------- -------- --------
Balance, end of year................................ 69,476 70,048 69,655 69,717
Cost in Excess of Net Assets of Acquired
Companies......................................... 86,194 84,242 81,636 79,030
</TABLE>
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INFORMATION ABOUT THERMO TERRATECH, THERMO ELECTRON AND TTT ACQUISITION
THERMO ELECTRON
Thermo Electron develops, manufactures and sells measurement and detection
instruments that its customers use to monitor, collect, and analyze data. On
January 31, 2000, Thermo Electron announced that its board of directors had
authorized management to proceed with a major reorganization of the operations
of Thermo Electron and its subsidiaries, including Thermo TerraTech. As part of
this reorganization, Thermo Electron plans to:
- acquire the minority interests in most of its public subsidiaries;
- spin off its business that serves the healthcare industry with a range of
medical products for diagnosis and monitoring, and its paper recycling and
papermaking equipment business; and
- sell various non-core businesses.
Thermo Electron plans to take Thermo Ecotek Corporation, its electric power
generation business, private. Although Thermo Electron no longer considers
Thermo Ecotek a core business under its new strategy, Thermo Electron expects to
retain Thermo Ecotek after it is taken private while Thermo Electron continues
to evaluate how to best exit that business and create maximum value for Thermo
Electron stockholders.
The primary goal of the reorganization plan is for Thermo Electron and each
of its spun-off subsidiaries to focus on their core businesses.
Thermo Electron's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is (781)
622-1000.
THERMO TERRATECH
Thermo TerraTech provides a broad, specialized range of industrial
outsourcing services and manufacturing support. 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 ThermoRetec 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 , 2000, Thermo TerraTech owned
% of ThermoRetec's outstanding common stock. ThermoRetec and Thermo Electron
have entered into a merger agreement, dated as of October 19, 1999, under which
ThermoRetec would become a wholly owned subsidiary of Thermo Electron.
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 , 2000, Thermo
TerraTech owned % of Thermo EuroTech's outstanding common stock.
The engineering and design segment includes Thermo TerraTech's
Randers/Killam subsidiary, which provides comprehensive engineering and
outsourcing services in three areas: water and wastewater treatment, highway and
bridge engineering, and infrastructure engineering. As of , 2000, Thermo
TerraTech owned approximately 95% of Randers/Killam's outstanding common stock.
Randers/Killam and Thermo Electron have entered into a merger agreement, dated
as of October 19, 1999, under which Randers/Killam would become a wholly owned
subsidiary of Thermo Electron. This segment also includes Thermo TerraTech's
wholly owned Normandeau Associates Inc. subsidiary, which provides consulting
services that address natural resource management issues.
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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 described under "THE MERGER--Background of the Merger", on May 24, 1999
Thermo TerraTech announced plans to sell some operating units of Randers/Killam,
used oil-processing operations at Thermo EuroTech, and soil-recycling facilities
at ThermoRetec. These businesses together reported unaudited aggregate revenues,
of $28,286,000 and $54,015,000 in the first nine months of fiscal 2000 and in
fiscal 1999, respectively, or approximately 12.0% and 17.4%, respectively, of
Thermo TerraTech's total revenues in such periods. The sales of these businesses
would affect the value of Thermo TerraTech in that Thermo TerraTech would get
cash in exchange for the businesses sold, and therefore the amount of cash
Thermo TerraTech has would increase. On January 28, 2000, Randers/ Killam sold
its Randers division for $538,000, represented by a promissory note payable over
three years at a rate of 8% per year. On February 4, 2000, ThermoRetec entered
into a non-binding letter of intent for the sale of five of its six
soil-recycling facilities for $15 million in cash, together with up to two
additional payments of $750,000 in cash if the facilities generate earnings
before income taxes, depreciation and amortization in excess of $5 million
during each of the two years after the closing. On March 6, 2000, ThermoRetec
sold the sixth soil-recycling facility for $400,000 in cash, of which $250,000
was placed in escrow pending potential post-closing adjustments. On March 24,
2000, Thermo TerraTech entered into a non-binding letter of intent with respect
to the sale of the assets and the assumption of some liabilities of Thermo
TerraTech's Metallurgical, Inc., Cal-Doran Metallurgical Services, Inc., and
Metal Treating Inc. subsidiaries. The proposed purchase price is $16.9 million
in cash, subject to adjustment for changes in the net book value of the assets
to be purchased as of the closing date of the sale. The sale is subject to the
buyer's completion of its due diligence review and the negotiation and execution
of a mutually acceptable asset purchase agreement. On April 14, 2000,
Randers/Killam sold its BAC Killam business. The purchase price for the assets
of that business was approximately $3 million in cash, of which approximately
$1.4 million was paid in cash at closing and of which the balance represents
accounts receivable that would be paid to Randers/Killam upon collection (less a
five percent collection fee).
Thermo TerraTech's principal executive offices are located at 85 First
Avenue, Waltham, Massachusetts 02451, and its telephone number is
(781) 370-1640.
TTT ACQUISITION
TTT Acquisition is a newly-formed Delaware corporation organized by Thermo
Electron for the sole purpose of effecting the merger. TTT Acquisition has not
conducted any prior business.
TTT Acquisition's principal executive offices are located at 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone
number is (781) 622-1000.
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COMPARISON OF RIGHTS OF HOLDERS OF TERRATECH AND THERMO ELECTRON COMMON STOCK
This section of the proxy statement-prospectus describes certain differences
between the rights of holders of TerraTech common stock and Thermo Electron
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
Thermo Electron and Thermo TerraTech each has only one class of common stock
issued and outstanding. There are 350,000,000 shares of Thermo Electron common
stock authorized, and Thermo TerraTech currently has 75,000,000 shares of
TerraTech common stock authorized. As of March 31, 2000, there were 156,904,025
outstanding shares of Thermo Electron common stock, and an aggregate of
28,330,580 shares reserved for issuance upon conversion of convertible
debentures and exercise of options. As of March 31, 2000, there were 18,947,905
outstanding shares of TerraTech common stock, and an aggregate of
9,204,456 shares reserved for issuance upon conversion of convertible debentures
and exercise of options and warrants.
Each of us has a large number of shares available for issuance that has been
authorized but not yet issued. We can issue up to our authorized number of
shares of common stock without going to stockholders to ask for approval of an
increase in our authorized shares, except in the following circumstances. We are
each subject to the stockholder approval requirements of the stock exchanges on
which our common stock is traded relating to issuance of common stock. The New
York Stock Exchange, on which the Thermo Electron common stock is listed,
requires that Thermo Electron obtain shareholder approval for the listing of
shares in the following cases:
- issuing more than 20% of its outstanding common stock in a transaction or
series of related transactions, other than a public offering for cash, or
a private financing involving the sale of common stock for cash at a price
at least equal to the greater of book or market value of the common stock;
or
- issuing more than one percent of its common stock to a director, officer
or substantial securityholder of Thermo Electron, or any of their
affiliates, except that in the case of substantial securityholders only,
the limit is increased to five percent if the sale of stock is for cash at
a price at least equal to the greater of book or market value of the
common stock.
The American Stock Exchange, on which the TerraTech common stock is listed,
requires that Thermo TerraTech obtain stockholder approval for the listing of
shares in the following cases:
- issuing more than 20% of its common stock for cash for less than the
greater of book or market value of the common stock;
- issuing more than five percent of its common stock in an acquisition if
any director, officer or substantial securityholder of Thermo TerraTech
individually has a five percent, or, collectively, a
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ten percent interest in the company or assets being acquired or the
consideration to be paid in the acquisition; or
- issuing more than 20% of its common stock in an acquisition.
In addition, the Delaware General Corporation Law would require us to obtain
stockholder approval to authorize a merger in which we were (1) the surviving
corporation and (2) obligated under the merger agreement to issue more than 20%
of our shares outstanding immediately before the effective date of the merger.
Accordingly, there are restrictions on the number of shares we can issue
without stockholder approval in these circumstances.
Thermo Electron has authorized a class of 50,000 shares of preferred stock,
of which Thermo Electron currently has 40,000 shares designated as Series B
junior participating preferred stock. The preferred stock is described 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 elected annually. Thermo Electron directors are elected for a
term of three years. The term of each director is subject to the election and
qualification of the director's successor and to the 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.
The classified structure of Thermo Electron's board of directors serves to
ensure continuity and stability in a corporation's leadership in part because,
at any time, at least two-thirds of the board has had prior experience on the
board. The structure also would moderate the pace of any change in control of
Thermo Electron because all directors' terms do not expire at the same time,
which extends the time required to elect a majority of the board.
NUMBER OF DIRECTORS
Thermo Electron's board of directors currently consists of nine directors.
The number of directors on Thermo Electron's board is determined by resolution
of the board, but can not be less than three.
Thermo TerraTech's board of directors currently consists of six directors.
The number of directors on Thermo TerraTech's board can not be less than three
nor more than thirteen. The exact number of directors is fixed from time to time
by the board of directors or by the stockholders at an annual meeting.
Because there are more directors on Thermo Electron's board than there are
on Thermo TerraTech's board, more votes must be obtained in order for a vote to
be approved or denied by Thermo Electron's board.
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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 nor the Bylaws of Thermo Electron
contain 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.
This means that, unlike for removal of a member of Thermo TerraTech's board,
there must be a good reason for removing a member of the Thermo Electron board,
and that members of the Thermo Electron board cannot simply be removed for any
reason. This may make it harder to remove a member of the Thermo Electron board
than it would be to remove a member of the Thermo TerraTech board.
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 will 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 no 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 on the matter 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 on 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. This means that more
people are allowed to call a special stockholders' meeting for Thermo TerraTech
stockholders than are allowed to call a special stockholders' meeting for Thermo
Electron stockholders. This could mean that it would be easier to call a special
stockholders' meeting at Thermo TerraTech than at Thermo Electron, since more
people have the ability to make the decision to call the meeting.
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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.
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 moved ahead 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 (1) the 90(th)
day prior to such annual meeting or (2) 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 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 that 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 that 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
two-thirds 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. Thermo TerraTech's
Bylaws may also be altered, amended and repealed, or new Bylaws may be made, by
the affirmative vote of the holders of a
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majority of the shares of capital stock of Thermo TerraTech issued and
outstanding and entitled to vote, voting together as a single class. Thermo
TerraTech's Bylaws do not contain any supermajority voting requirements for
amendments by shareholders. This means that a lower shareholder vote is required
to change Thermo TerraTech's Bylaws than is required to change Thermo Electron's
Bylaws relating to directors and amendments to the Bylaws. However, since Thermo
Electron controls the stockholder vote at Thermo TerraTech because of its
ownership of more than 50% of Thermo TerraTech's outstanding common stock, the
fact that a lower stockholder vote is required to change the Bylaws at Thermo
TerraTech than at Thermo Electron does not have any practical effect as far as
unaffiliated stockholders are concerned.
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 each of our
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 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
Delaware 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 for the indemnification of their respective officers and directors.
The indemnification provisions state that any person who was or is a party or is
threatened to be made a party to any action, suit, or proceeding, whether civil,
criminal, administrative or investigative, other than an action or suit brought
by Thermo Electron or Thermo TerraTech, because that person either:
- is or was a director or officer of Thermo Electron or Thermo TerraTech, or
an employee or agent of Thermo TerraTech, or
- is or was serving at the request of Thermo Electron or Thermo TerraTech,
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 the action, suit or proceeding, to the fullest extent
permitted by Delaware law. These indemnification rights 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 to
procure a judgment in its favor, no indemnification will 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, unless and only to the extent that the
court 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 finds proper.
Additionally, we may each pay expenses incurred by our 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.
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However, those payments will be made only if we receive 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 us.
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 in any class or
series. In a certificate of designation filed on January 31, 1996, 40,000 shares
of the preferred stock were designated as Series B junior participating
preferred stock. 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 Electron 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. Also, any issuance of preferred stock could make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the outstanding voting stock of Thermo Electron.
Thermo TerraTech does not have any shares of preferred stock authorized.
This means that, if Thermo TerraTech ever wanted to issue any shares of
preferred stock, it would have to hold a stockholder meeting in order to obtain
approval for the amendment to its certificate of incorporation that would be
required in order to create a class of preferred stock.
STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of the 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 the 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 dated as of January 19,
1996 between Thermo Electron and BankBoston, N.A. 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. The purpose
of Thermo Electron's stockholder rights agreement is to encourage potential
acquirors of a large percentage of Thermo Electron's common stock to initiate
negotiations with the board of directors relating to the acquisition, rather
than to proceed without the approval of the board. As described in more detail
below, the rights would cause substantial dilution to any party attempting to
acquire Thermo Electron unless the board of directors has found the transaction
to be fair and in the best interests of stockholders.
On January 19, 1996, Thermo Electron's board declared a dividend
distribution of one right for each outstanding share of Thermo Electron 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 of Series B junior
participating preferred stock at a purchase price of $250.00 in cash per unit,
subject to adjustment. The following is a summary description of the terms of
the rights. Please read the rights agreement for the complete description of the
terms of the rights.
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Initially, the rights attach to all outstanding Thermo Electron common stock
certificates and no separate rights certificates will be distributed. The rights
will separate from the Thermo Electron common stock, and a distribution date
will occur, upon the earlier of the following events:
- 10 days after a public announcement that a person or group of affiliated
or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Thermo
Electron common stock; or
- 10 business days following the start of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of
the outstanding shares of Thermo Electron common stock.
Until the distribution date:
- the rights will be evidenced by the Thermo Electron common stock
certificates and will be transferred only with the Thermo Electron common
stock certificates;
- new Thermo Electron common stock certificates will incorporate the rights
agreement by reference; and
- the surrender for transfer of any certificates of Thermo Electron common
stock will also transfer the rights associated with the Thermo Electron
common stock represented by the 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.
If a person acquires 15% or more of the shares of Thermo Electron common
stock, except as part of an offer for all of the outstanding shares of Thermo
Electron common stock that the board of directors has approved, if, each holder
of a right will thereafter have the right to exercise the right for a number of
shares of Thermo Electron common stock or, in some circumstances, cash, property
or other securities of Thermo Electron, equal to the exercise price of the right
divided by one-half of the current market price of the Thermo Electron common
stock on the date of the acquisition. However, rights are not exercisable
following the acquisition until the rights are no longer redeemable by Thermo
Electron as described below. Notwithstanding any of the foregoing, after the
acquisition, all rights that are, or, as described 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."
For example, at an exercise price of $250.00 per right, each holder of
rights, other than acquiring persons or parties related to them, would be able
to purchase, for $250.00, a number of shares of Thermo Electron common stock, or
other consideration, as noted above, equal to $250.00 divided by one-half of the
current market price of the Thermo Electron common stock. Assuming that the
Thermo Electron common stock had a per share value of $50.00 at that time,
holders of each valid right would be entitled to purchase ten shares of Thermo
Electron common stock for $250.00.
If, at any time after a person has become an acquiring person:
- Thermo Electron is acquired in a merger or other 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 that is
approved by the board of directors, or
- 50% or more of Thermo Electron's assets or earning power is sold or
transferred,
each holder of a valid right shall thereafter have the right to receive,
upon exercise, a number of shares of common stock of the acquiring company equal
to the exercise price of the right divided by one-half of the current market
price of that company's common stock at the date the event occurs.
For example, at an exercise price of $250.00 per right, each holder of
rights, following an event described in the last paragraph, would be able to
purchase, for $250.00, a number of shares of common
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stock of the acquiring company equal to $250.00 divided by one-half of the
current market price of that company's common stock. Assuming that the common
stock had a per share value of $100.00 at that time, holders 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 a section 11(a)(ii) event, Thermo Electron's board may
exchange all or a part of the rights, other than rights owned by the acquiring
person that have become void, at an exchange ratio of one share of Thermo
Electron common stock, or one ten-thousandth of a share of preferred stock, per
right, subject to adjustment.
The preferred stock purchasable upon exercise of the rights will not be
redeemable. The rights of the preferred stock are protected by customary
antidilution provisions and, in light of Thermo Electron's stock dividend in
1996, currently provide for the following:
- a minimum preferential quarterly dividend payment of $100 per share and an
aggregate dividend per share of preferred stock of 15,000 times the
dividend declared per share of Thermo Electron common stock;
- an aggregate payment per share of preferred stock, in the event of
liquidation, of 15,000 times the payment made per share of Thermo Electron
common stock, with a minimum preferential liquidating payment of $100 per
share;
- 15,000 votes per share of preferred stock, voting together with the Thermo
Electron common stock; and
- in the event of any merger, consolidation or other transaction in which
the Thermo Electron common stock is changed or exchanged, each share of
preferred stock will be entitled to 15,000 times the amount received per
share of Thermo Electron 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 Electron common stock.
At any time until ten days after 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 decision of the board of
directors to redeem the rights, the rights will terminate and the only right of
the holders of rights will be to receive the $.01 redemption price.
Until a right is exercised, holders of rights, as such, will have no rights
as a stockholder of Thermo Electron, including 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 Electron common stock or other consideration 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 that is approved by the board of directors of Thermo Electron since
the board of directors can decide, at any time prior to the close of business on
the earlier of (1) the tenth day following the stock acquisition date or
(2) January 29, 2006, and in certain other circumstances, redeem all of the then
outstanding rights at the redemption price.
Thermo TerraTech has not entered into a stockholder rights agreement.
Accordingly, it does not have the protections against takeovers that are given
by stockholder rights agreements. However, as
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noted above in this section under "--Delaware Anti-Takeover Statute", Thermo
TerraTech is subject to Section 203 of the Delaware General Corporation Law,
which may inhibit unsolicited takeover attempts.
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TRANSACTIONS WITH RELATED PARTIES
Thermo Electron and each of the Thermo subsidiaries recognize that the
benefits and support that come from their affiliation are essential elements of
their individual performance. Accordingly, Thermo Electron and each of the
Thermo subsidiaries, including Thermo TerraTech, have adopted the Thermo
Electron corporate charter to define the relationships and set forth the nature
of the cooperation among themselves. The purpose of the charter is to ensure the
following:
- all of the companies and their stockholders are treated consistently and
fairly,
- the scope and nature of the cooperation among the companies, and each
company's responsibilities, are adequately defined,
- each company has access to the combined resources and financial,
managerial and technological strengths of the others, and
- Thermo Electron and the Thermo subsidiaries together 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 to external financing
sources, ensuring compliance with external financial covenants and internal
financial policies, helping formulate long-range planning and providing other
banking and credit services. Under the charter, Thermo Electron may also
guarantee 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 some 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
must determine that the group of companies complies with all covenants imposed
by external financing sources, including covenants related to borrowings of
Thermo Electron or other members of the group, and for apportioning those
constraints within the group. In addition, Thermo Electron establishes some
internal policies and procedures applicable to members of the 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 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 Thermo TerraTech, 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 if the subsidiary is no longer controlled by Thermo
Electron or does not 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 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 must continue
to comply with all policies and procedures applicable to the Thermo group and
provide some administrative functions required by Thermo Electron so long as the
withdrawing company is controlled by or affiliated with Thermo Electron.
As provided in the charter, Thermo TerraTech and Thermo Electron have
entered into a corporate services agreement under which Thermo Electron's
corporate staff provides various administrative
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services, including general 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 Thermo TerraTech. Thermo
TerraTech is assessed for these services an annual fee equal to 0.8% of Thermo
TerraTech's revenues. The fee is reviewed annually and may be changed by mutual
agreement of Thermo TerraTech and Thermo Electron. During fiscal 1998, 1999 and
the nine months ended January 1, 2000, Thermo Electron assessed Thermo TerraTech
$2,845,000, $2,480,000 and $1,878,000 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 Thermo
TerraTech. In fiscal 1998, 1999 and the nine months ended January 1, 2000,
Thermo TerraTech paid Thermo Electron an additional $160,000, $765,000 and
$10,000 for administrative services required by Thermo TerraTech that were not
covered by the services agreement. The services agreement automatically renews
for successive one-year terms, unless canceled by Thermo TerraTech upon
30 days' prior notice. In addition, the services agreement terminates
automatically in the event Thermo TerraTech is no longer a member of the Thermo
group or ceases to participate in the charter. If the services agreement is
terminated, Thermo TerraTech will pay a termination fee equal to the fee that
was paid by Thermo TerraTech for services under the services agreement for the
nine-month period prior to termination. Following termination, Thermo Electron
may provide administrative services as requested by Thermo TerraTech or as
required in order to meet Thermo TerraTech's obligations under Thermo Electron's
policies and procedures. Thermo Electron will charge Thermo TerraTech a fee
equal to the market rate for comparable services if those services are provided
to Thermo TerraTech following termination.
Thermo TerraTech has entered into a tax allocation agreement with Thermo
Electron that outlines the terms under which Thermo TerraTech and some of its
subsidiaries will be included in Thermo Electron's consolidated federal and
state income tax returns. Under current law, Thermo TerraTech will be included
in Thermo Electron's tax returns as long as Thermo Electron owns at least 80% of
the outstanding TerraTech common stock. In years in which Thermo TerraTech has
taxable income, it will pay to Thermo Electron amounts comparable to the taxes
Thermo TerraTech would have paid if it had filed its own separate company tax
returns. If Thermo Electron's equity ownership of Thermo TerraTech were to drop
below 80%, Thermo TerraTech would file its own tax returns. In fiscal 1998 and
1999, Thermo TerraTech paid Thermo Electron $669,000 and $1,217,000 under the
tax allocation agreement. Thermo TerraTech paid no amounts to Thermo Electron
under the tax allocation agreement during the nine months ended January 1, 2000.
Thermo TerraTech leases an office and operating facility from Thermo
Electron. The total rental payments made to Thermo Electron during fiscal 1998,
1999 and the nine months ended January 1, 2000 under these agreements was
$166,000, $166,000 and $125,000. The future minimum payments due under the lease
as of April 3, 1999, are $166,000 per year in fiscal 2000 through 2005.
Thermo TerraTech 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 Thermo TerraTech's development of soil-remediation centers. In
exchange for this funding, Thermo TerraTech 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 Thermo TerraTech yield a pre-tax internal rate
of return of approximately 30% to Thermo Electron on the funds advanced to
Thermo TerraTech under this agreement. Thermo TerraTech paid Thermo Electron
royalties under this agreement of $115,000, $186,000 and $143,000 in fiscal
1998, 1999 and the nine months ended January 1, 2000, respectively.
As of January 1, 2000, Thermo TerraTech owed Thermo Electron and its other
subsidiaries an aggregate of $2,140,000 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 Thermo TerraTech by Thermo
Electron and its other subsidiaries for miscellaneous items. The largest amount
of
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net indebtedness owed by Thermo TerraTech 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.
Thermo TerraTech's Thermo EuroTech N.V. subsidiary, along with certain other
European-based Thermo subsidiaries, participates in a zero balance arrangement
with ABN AMRO, which includes a $25,400,000 credit facility. Thermo TerraTech
has access to $9,118,000 under this credit facility. Funds borrowed by Thermo
TerraTech 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 Euro market rates. Funds invested by Thermo TerraTech under the
arrangement earn a rate set by Thermo Finance B.V. at the beginning of each
month, based on Euro market rates. Thermo Electron guarantees all of the
obligations of each participant in this arrangement. As of January 1, 2000,
Thermo TerraTech had a negative cash balance of approximately $7,245,000 based
on an exchange rate of $0.4559/NLG 1.00. As of January 1, 2000, the average
annual interest rate earned on NLG deposits by participants in this credit
arrangement was approximately 3.1858% and the average annual interest rate paid
on overdrafts was approximately 3.7417%.
As of January 1, 2000, $49,436,000 of Thermo TerraTech's cash equivalents
were invested in a cash management arrangement with Thermo Electron. Under the
cash management arrangement, Thermo TerraTech 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. Thermo TerraTech'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.
Thermo TerraTech 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 nine months ended January 1, 2000, purchases from
these companies totaled $938,000, $231,000 and $609,000, respectively, and sales
to these companies totaled $320,000, $379,000 and $167,000, respectively.
The human resources committee of Thermo TerraTech'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, Thermo TerraTech
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 have both been
amended to apply only to the chief executive officer. During fiscal 1998 and
1999, Dr. John P. Appleton, who retired as Thermo TerraTech's president and
chief executive officer as of March 31, 2000 and remains as an employee and as
chairman of Thermo TerraTech's board of directors, received loans in the
principal amount of $137,607 under this plan to purchase 20,000 shares, all of
which was outstanding as of January 1, 2000. 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 Thermo TerraTech's
board of directors.
On November 17, 1999, Thermo Electron entered into a retention agreement
with Dr. Appleton. The retention agreement provides that Dr. Appleton will
remain employed with Thermo TerraTech until March 31, 2002, and will work
part-time, on average, 20 hours per week, from April 1, 2000 until that date.
During the term of the agreement, Dr. Appleton will perform his normal
managerial work duties and use his best efforts to achieve the closings of sales
of certain Thermo TerraTech businesses as part of the Thermo Electron corporate
reorganization. The agreement provides for an annualized base salary of $112,500
from April 1, 2000 through March 31, 2001, and $112,500 from April 1, 2001
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through March 31, 2002. Dr. Appleton is entitled to receive, for the period from
April 1, 2000 through the end of the agreement's term, a minimum bonus of
$100,000 and a maximum bonus of $300,000 for the completion of specific tasks
assigned to him, including efforts to sell certain Thermo TerraTech businesses.
Also, Thermo Electron agreed that, effective April 1, 2000, it would use its
best efforts to cause Dr. Appleton to be non-executive chairman of the board of
directors of Thermo TerraTech, as long as Thermo TerraTech remains a public
company. The agreement may be terminated by Thermo Electron at any time, with or
without cause, or by Dr. Appleton upon thirty days' prior written notice. The
agreement will also be terminated upon Dr. Appleton's death or disability. If
the agreement is terminated by Thermo Electron or at Dr. Appleton's election,
Thermo Electron will pay Dr. Appleton the compensation and benefits which would
otherwise have been payable through the termination date of the agreement. If
the agreement is terminated by Thermo Electron without cause, Thermo Electron
will also pay Dr. Appleton a severance payment equal to the balance of the base
salary payable through March 31, 2002, plus any unpaid minimum guaranteed bonus.
RECENT DEVELOPMENTS
On November 22, 1999, a complaint was filed in the Court of Chancery of the
State of Delaware in and for New Castle County by a stockholder of ThermoRetec.
The complaint names ThermoRetec, Thermo Electron and certain directors of
ThermoRetec as defendants and alleges, among other things, that the proposed
merger, if consummated, would force the minority shareholders of ThermoRetec to
sell their shares for an inadequate price, due to the defendants' alleged
failure to deal fairly with the interests of ThermoRetec's minority
shareholders. The complaint also alleges that:
- the merger does not meet the standard of entire fairness under Delaware
law and is not fair to ThermoRetec's public stockholders;
- the member of ThermoRetec's special committee is not independent because
of his ownership of the common stock of Thermo Electron, ThermoRetec and
Thermo TerraTech; and
- Adams, Harkness & Hill is "conflicted" because it is also representing the
special committees of Thermo TerraTech and Randers/Killam. The plaintiff
seeks damages and other relief. The defendants have not yet filed an
answer to the complaint.
LEGAL OPINION
The validity of the shares of Thermo Electron 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 386,647 shares of Thermo Electron common stock, and 132,700 shares of
the common stock of Thermo Electron's subsidiaries.
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 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. Pursuant to Rule 14a-8 under the Exchange
Act, Thermo TerraTech stockholders may
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present proper proposals for inclusion in Thermo TerraTech's proxy statement and
for consideration at its 2000 annual meeting of stockholders, in the event the
merger is not completed, by submitting the proposals to Thermo TerraTech in a
timely manner. In order to be included for the 2000 annual meeting, stockholder
proposals must be received by Thermo TerraTech within a reasonable time before
the meeting, and must otherwise comply with the requirements of Rule 14a-8.
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 INFORMATION THAT IS DIFFERENT.
THERMO TERRATECH
The following documents, filed by Thermo TerraTech (File No. 1-9549) with
the SEC, 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;
- 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;
- Current Report on Form 8-K filed on October 21, 1999 regarding the
execution of the merger agreement;
- Quarterly Report on Form 10-Q for the fiscal quarter ended October 2,
1999;
- Quarterly Report on Form 10-Q for the fiscal quarter ended January 1,
2000;
- Current Report on Form 8-K filed on February 11, 2000 regarding the sale
by Randers/Killam of its Randers division;
- Current Report on Form 8-K filed on March 21, 2000 regarding the sale by
ThermoRetec of one of its soil-recycling facilities.
THERMO ELECTRON
The following documents, filed by Thermo Electron (File No. 1-8002) with the
SEC, are hereby incorporated by reference into this proxy statement-prospectus:
- Annual Report on Form 10-K for the fiscal year ended January 1, 2000;
- Current Report on Form 8-K filed on February 1, 2000 regarding Thermo
Electron's proposed reorganization plan;
- Proxy Statement dated April 19, 2000;
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- The description of the Thermo Electron common stock which is contained in
Thermo Electron's Registration Statement on Form 8-A filed under the
Exchange Act on September 9, 1999; 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 on June 21, 1999.
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 , 2000 TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS.
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.
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Thermo Electron has filed a registration statement on Form S-4 under the
Securities Act with the SEC with respect to the Thermo Electron 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, its Quarterly Report on Form 10-Q for the quarter ended
January 1, 2000, its Current Report on Form 8-K dated January 28, 2000, and its
Current Report on Form 8-K dated March 6, 2000 are attached to this proxy
statement-prospectus as Appendices C, D, E, F and G, 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.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus (see "Where You Can Find More Information")
include forward-looking statements about Thermo Electron and Thermo TerraTech
within the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. These statements relate to expectations concerning matters that are
not historical facts, such as future financial performance, anticipated
developments, business strategy, projected costs and plans and objectives of
Thermo Electron and Thermo TerraTech. Many of these statements are preceded by,
followed by or otherwise include the words "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" or similar expressions. These
statements may be made expressly in this document or may be incorporated by
reference to other documents Thermo Electron and Thermo TerraTech have filed
with the SEC.
Although each of Thermo Electron and Thermo TerraTech believes that such
forward-looking statements are reasonable, neither can assure you that such
expectations will prove to be correct. Forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
may cause actual results of Thermo Electron or Thermo TerraTech to be materially
different from any future results expressed or implied by either Thermo Electron
or Thermo TerraTech. The risks and uncertainties include those risks,
uncertainties and risk factors identified, among other places, under "Risk
Factors" in this document, and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Thermo Electron's Annual
Report on Form 10-K for the year ended January 1, 2000.
The most important facts that could prevent Thermo Electron from achieving
its stated goals include, but are not limited to, the following:
88
<PAGE>
- Thermo Electron's corporate reorganization, which includes taking several
subsidiaries private, spinning off some subsidiaries and selling several
businesses, is very complex, expensive and time-consuming.
- Thermo Electron may not be able to complete pending or future
acquisitions, and it may not be able to integrate any acquired businesses
into its existing business or make the acquired businesses profitable.
- Thermo Electron has significant international operations, which involve
many risks.
- Thermo Electron may not be able to develop new products, adapt to rapid
technological change, and introduce new products in order to remain
competitive.
- Changes in governmental regulations may adversely affect demand for Thermo
Electron's products.
- Demand for some Thermo Electron products depends on capital spending
policies of its customers and on government funding policies.
- Obtaining and enforcing patent protection for Thermo Electron's
proprietary products, processes and technologies can be difficult and
expensive.
These cautionary statements should not be construed by you as an exhaustive
list or as any admission by Thermo Electron or Thermo TerraTech regarding the
adequacy of disclosures made by either company. We cannot always predict or
determine after the fact what factors would cause actual results to differ
materially from those indicated by the forward-looking statements or other
statements. All cautionary statements should be read as being applicable to all
forward-looking statements wherever they appear. Thermo Electron and Thermo
TerraTech do not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed herein might not occur.
89
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION OF
THERMO ELECTRON CORPORATION (UNAUDITED)................... F-2
Pro Forma Consolidated Condensed Statement of Operations
for the
year ended January 1, 2000.............................. F-3
Pro Forma Consolidated Condensed Balance Sheet as of
January 1, 2000......................................... F-4
Notes to Pro Forma Consolidated Condensed Financial
Statements.............................................. F-5
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION OF
THERMO TERRATECH INC. (UNAUDITED)......................... F-6
Pro Forma Consolidated Condensed Statement of Operations
for the
fiscal year ended April 3, 1999......................... F-8
Pro Forma Consolidated Condensed Statement of Operations
for the
nine months ended January 1, 2000....................... F-9
Pro Forma Consolidated Condensed Balance Sheet as of
January 1, 2000......................................... F-10
Notes to Pro Forma Consolidated Condensed Financial
Statements.............................................. F-12
</TABLE>
F-1
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated condensed statement of
operations sets forth the results of operations for the year ended January 1,
2000, as if the merger had become effective at the beginning of 1999. The
results of Thermo TerraTech are reported as discontinued operations in the
financial statements of Thermo Electron. The only pro forma adjustment to the
Pro Forma Consolidated Condensed Statement of Operations is an increase in
Thermo Electron's outstanding shares. The following unaudited pro forma
consolidated condensed balance sheet sets forth the financial position as of
January 1, 2000, as if the merger had become effective on January 1, 2000. For
purposes of determining the number of shares of Thermo Electron that will be
issued under the merger agreement, an exchange ratio of .40 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 the merger
become effective at the beginning of 1999.
F-2
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues $2,471,193 $ -- $2,471,193
---------- ------- ----------
Costs and Operating Expenses:
Cost of revenues........................................ 1,378,494 -- 1,378,494
Selling, general, and administrative expenses........... 673,004 -- 673,004
Research and development expenses....................... 171,100 -- 171,100
Restructuring and other unusual costs, net.............. 149,589 -- 149,589
---------- ------- ----------
2,372,187 -- 2,372,187
---------- ------- ----------
Operating Income.......................................... 99,006 -- 99,006
Other Expense, Net........................................ (61,520) -- (61,520)
---------- ------- ----------
Income from Continuing Operations Before Income Taxes,
Minority Interest, and Extraordinary Items.............. 37,486 -- 37,486
Income Tax Provision...................................... 33,073 -- 33,073
Minority Interest Expense................................. 18,993 -- 18,993
---------- ------- ----------
Loss from Continuing Operations Before Extraordinary
Items................................................... $ (14,580) $ -- $ (14,580)
========== ======= ==========
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................... $ (.09) $ -- $ (.09)
========== ======= ==========
Diluted................................................. $ (.11) $ -- $ (.11)
========== ======= ==========
Basic and Diluted Weighted Average Shares................. 157,987 993 158,980
========== ======= ==========
</TABLE>
F-3
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 281,760 $ -- $ 281,760
Short-term available-for-sale investments, at quoted
market value.......................................... 555,501 -- 555,501
Accounts receivable, net................................ 574,126 -- 574,126
Other current assets.................................... 588,470 -- 588,470
Net assets of discontinued operations................... 517,350 -- 517,350
---------- -------- ----------
2,517,207 -- 2,517,207
---------- -------- ----------
Property, Plant, and Equipment, at Cost, Net.............. 510,647 -- 510,647
---------- -------- ----------
Other Assets.............................................. 247,897 -- 247,897
---------- -------- ----------
Cost in Excess of Net Assets of Acquired Companies........ 1,227,335 -- 1,227,335
---------- -------- ----------
Long-term Net Assets of Discontinued Operations........... 678,756 26,456 705,212
---------- -------- ----------
$5,181,842 $ 26,456 $5,208,298
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities....................................... $1,066,349 $ -- $1,066,349
---------- -------- ----------
Deferred Income Taxes and Other Deferred Items............ 163,063 -- 163,063
---------- -------- ----------
Long-term Obligations:
Subordinated convertible obligations.................... 1,209,305 -- 1,209,305
Other................................................... 356,669 -- 356,669
---------- -------- ----------
1,565,974 -- 1,565,974
---------- -------- ----------
Minority Interest......................................... 364,278 -- 364,278
---------- -------- ----------
Common Stock of Subsidiary Subject to Redemption.......... 7,692 -- 7,692
---------- -------- ----------
Shareholders' Investment:
Common stock............................................ 167,433 993 168,426
Capital in excess of par value.......................... 1,052,837 25,463 1,078,300
Retained earnings....................................... 1,041,968 -- 1,041,968
Treasury stock at cost.................................. (189,646) -- (189,646)
Deferred compensation................................... (3,190) -- (3,190)
Accumulated other comprehensive items................... (54,916) -- (54,916)
---------- -------- ----------
2,014,486 26,456 2,040,942
---------- -------- ----------
$5,181,842 $ 26,456 $5,208,298
========== ======== ==========
</TABLE>
F-4
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-- PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENT
OF OPERATIONS (IN THOUSANDS EXCEPT IN TEXT)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 1, 2000
---------------
<S> <C>
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance of 992,534 shares of Thermo Electron's
common stock for the acquisition of additional shares of
Thermo TerraTech as of the beginning of 1999.............. 993
-----
</TABLE>
NOTE 2-- PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE
SHEET (IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 2000
----------------
DEBIT (CREDIT)
<S> <C>
LONG-TERM NET ASSETS OF DISCONTINUED OPERATIONS
Increase in long-term net assets of discontinued operations
as a result of Thermo Electron's increased ownership of
Thermo TerraTech.......................................... $ 26,456
--------
COMMON STOCK
Increase in common stock due to the assumed issuance of
992,534 shares of Thermo Electron's common stock for the
acquisition of additional shares of Thermo TerraTech...... (993)
--------
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 into stock options of Thermo Electron........... (25,463)
--------
</TABLE>
F-5
<PAGE>
THERMO TERRATECH INC.
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
SALE OF RANDERS DIVISION
On January 28, 2000, Thermo TerraTech, through its The Randers Killam
Group Inc. majority-owned subsidiary ("Randers/Killam"), sold substantially all
of the assets and liabilities of its Randers division, exclusive of certain real
estate and certain ongoing litigation, to RGI Muskegon, Inc. The Randers
division provides engineering and construction services. The assets sold include
all of the Randers division's operating assets, active contracts and projects,
and real property. The liabilities assumed by the purchaser include all balance
sheet liabilities, all lease obligations, and all liabilities and obligations
under the active contracts and projects.
The selling price for the assets of the Randers division consisted of a
promissory note in the principal amount of $538,000 bearing interest at the rate
of 8.0% per annum and payable in 36 equal monthly installments of principal and
interest commencing March 1, 2000.
Thermo TerraTech incurred a loss on the sale of approximately $2.2 million,
which was included in restructuring costs for the nine months ended January 1,
2000.
SALE AND PROPOSED SALE OF SOIL-REMEDIATION FACILITIES
On February 4, 2000, ThermoRetec Corporation ("ThermoRetec"), a
majority-owned subsidiary of Thermo TerraTech, entered into a non-binding letter
of intent with Remediation Technologies, Inc. ("RTI") regarding a proposed
acquisition by RTI of five of ThermoRetec's six remaining soil-remediation
facilities. The proposed purchase price for the facilities is $15 million in
cash, together with up to two additional payments of $750,000 in cash on each of
the first two anniversaries of the closing if the facilities generate earnings
before income taxes, depreciation and amortization in excess of $5 million
during each of the two years following the closing. The sale is subject to RTI's
completion of a due diligence review and the negotiation and completion of a
mutually satisfactory stock purchase agreement.
On March 6, 2000, TPST Soil Recyclers of California, Inc. ("TPST"), an
indirect, wholly owned subsidiary of ThermoRetec, sold all of the assets of
ThermoRetec's sixth soil-remediation facility, located at the West Contra Costa
Sanitary Landfill in Contra Costa County, California (the "Facility"), to Nove
Investments I, LLC, a California limited liability company ("Nove"). The
Facility is in the business of providing soil-remediation services. The assets
sold in the transaction include all rights under certain contracts, the permits
possessed by the Facility and fixed assets and equipment used at the Facility.
Nove assumed all liabilities and obligations under the assumed contracts and all
liabilities and obligations relating to the land and building where the Facility
operates, including all environmental liabilities.
The selling price for the assets was $400,000 in cash, of which $250,000 was
placed in escrow. The release of the escrowed funds to TPST is contingent upon
the satisfaction of certain post-closing conditions, primarily the achievement
of fuel efficiency targets for certain equipment. If certain of the post-closing
conditions are not satisfied, some or all of the escrowed funds will be returned
to Nove.
SALE OF BAC KILLAM INC. SUBSIDIARY
On April 14, 2000, Randers/Killam sold its BAC Killam Inc. subsidiary to
Hatch Mott MacDonald, Inc. ("HMM") for approximately $3.0 million in cash, of
which approximately $1.4 million
F-6
<PAGE>
was paid in cash at closing and of which the balance represents accounts
receivable that would be paid to Randers/Killam upon collection (less a five
percent collection fee).
PROPOSED SALE OF METAL TREATING BUSINESS
On March 24, 2000, Thermo TerraTech entered into a non-binding letter of
intent with respect to the sale of the assets and the assumption of certain
liabilities of Thermo TerraTech's Metallurgical, Inc., Cal-Doran Metallurgical
Services, Inc., and Metal Treating Inc. subsidiaries (collectively, "Metal
Treating"). The proposed purchase price is $16.9 million in cash, subject to
adjustment for changes in the net book value of the assets to be purchased as of
the closing date of the sale. The sale is subject to the buyer's completion of
its due diligence review and the negotiation and execution of a mutually
acceptable asset purchase agreement.
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed statements of
operations set forth the results of operations for the fiscal year ended
April 3, 1999, and the nine months ended January 1, 2000, as if the disposition
and planned disposition of the Randers division, the Soil-remediation
facilities, BAC Killam, and Metal Treating (the "Dispositions") had occurred at
the beginning of fiscal 1999. The unaudited pro forma condensed balance sheet
sets forth the financial position as of January 1, 2000, as if the Dispositions
had occurred as of that date.
The pro forma results of operations are not necessarily indicative of future
operations or the actual results that would have occurred had the Dispositions
been consummated at the beginning of fiscal 1999. These statements should be
read in conjunction with the accompanying notes herein and the historical
consolidated financial statements and related notes of Thermo TerraTech included
in its Annual Report on Form 10-K, as amended, for the fiscal year ended April
3, 1999, and Quarterly Report on Form 10-Q for the nine months ended January 1,
2000.
F-7
<PAGE>
THERMO TERRATECH INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED APRIL 3, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
LESS:
--------------------------------------------
SOIL-
THERMO RANDERS REMEDIATION BAC METAL PRO FORMA
TERRATECH DIVISION FACILITIES KILLAM TREATING ADJUSTMENTS PRO FORMA
--------- -------- ----------- -------- -------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $310,039 $18,342 $24,183 $12,158 $19,274 $ -- $236,082
-------- ------- ------- ------- ------- ------- --------
Costs and Operating Expenses:
Cost of revenues.............. 247,610 15,558 17,621 10,474 14,586 -- 189,371
Selling, general, and
administrative expenses..... 46,224 2,201 4,645 2,890 2,349 -- 34,139
Restructuring costs........... 10,217 -- 9,176 -- -- -- 1,041
-------- ------- ------- ------- ------- ------- --------
304,051 17,759 31,442 13,364 16,935 -- 224,551
-------- ------- ------- ------- ------- ------- --------
Operating Income (Loss)......... 5,988 583 (7,259) (1,206) 2,339 -- 11,531
Interest Income................. 2,185 9 177 9 -- 1,859 3,849
Interest Expense................ (8,981) (77) -- -- -- -- (8,904)
-------- ------- ------- ------- ------- ------- --------
Income (Loss) Before Income
Taxes and Minority Interest... (808) 515 (7,082) (1,197) 2,339 1,859 6,476
Income Tax (Provision)
Benefit....................... (1,786) (225) 2,301 440 (902) (704) (4,104)
Minority Interest Income
(Expense)..................... 1,173 -- -- -- -- (1,659) (486)
-------- ------- ------- ------- ------- ------- --------
Net Income (Loss)............... $ (1,421) $ 290 $(4,781) $ (757) $ 1,437 $ (504) $ 1,886
======== ======= ======= ======= ======= ======= ========
Earnings (Loss) per Share:
Basic......................... $ (.07) $ .10
======== ========
Diluted....................... $ (.07) $ .09
======== ========
Weighted Average Shares:
Basic......................... 19,402 19,402
======== ========
Diluted....................... 19,402 1,122 20,524
======== ======= ========
</TABLE>
F-8
<PAGE>
THERMO TERRATECH INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
LESS:
--------------------------------------------
SOIL-
THERMO RANDERS REMEDIATION BAC METAL PRO FORMA
TERRATECH DIVISION FACILITIES KILLAM TREATING ADJUSTMENTS PRO FORMA
--------- -------- ----------- -------- -------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $234,790 $ 6,844 $18,793 $ 8,598 $12,551 $ -- $188,004
-------- ------- ------- ------- ------- ------- --------
Costs and Operating Expenses:
Cost of revenues.............. 185,059 6,468 12,867 6,679 9,858 -- 149,187
Selling, general, and
administrative expenses..... 34,439 1,284 3,309 1,368 1,700 -- 26,778
Restructuring costs........... 56,524 5,777 9,625 9,569 -- -- 31,553
-------- ------- ------- ------- ------- ------- --------
276,022 13,529 25,801 17,616 11,558 -- 207,518
-------- ------- ------- ------- ------- ------- --------
Operating Income (Loss)......... (41,232) (6,685) (7,008) (9,018) 993 -- (19,514)
Interest Income................. 2,037 2 75 3 -- 1,425 3,382
Interest Expense................ (6,678) (50) -- -- -- -- (6,628)
-------- ------- ------- ------- ------- ------- --------
Income (Loss) Before Income
Taxes, Minority Interest, and
Extraordinary Item............ (45,873) (6,733) (6,933) (9,015) 993 1,425 (22,760)
Income Tax (Provision)
Benefit....................... (1,244) 750 2,496 443 (398) (539) (5,074)
Minority Interest Income........ 3,316 -- -- -- -- (2,220) 1,096
-------- ------- ------- ------- ------- ------- --------
Loss Before Extraordinary
Item.......................... $(43,801) $(5,983) $(4,437) $(8,572) $ 595 $(1,334) $ 26,738
======== ======= ======= ======= ======= ======= ========
Basic and Diluted Loss per Share
Before Extraordinary Item..... $ (2.29) $ (1.40)
======== ========
Basic and Diluted Weighted
Average Shares................ 19,066 19,066
======== ========
</TABLE>
F-9
<PAGE>
THERMO TERRATECH INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
LESS:
--------------------------------------------
SOIL-
THERMO RANDERS REMEDIATION BAC METAL PRO FORMA
TERRATECH DIVISION FACILITIES KILLAM TREATING ADJUSTMENTS PRO FORMA
--------- -------- ----------- -------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 4,905 $1,180 $ -- $ 200 $ -- $33,274 $ 36,799
Advance to affiliate............. 49,436 -- -- -- -- -- 49,436
Accounts receivable, net......... 52,330 1,283 5,598 1,598 2,296 -- 41,555
Unbilled contract costs and
fees........................... 26,950 378 633 1,091 -- -- 24,848
Inventories...................... 2,452 -- -- -- 15 -- 2,437
Deferred tax asset............... 6,668 -- 367 -- -- -- 6,301
Other current assets............. 3,685 -- 279 9 568 -- 2,829
-------- ------ ------- ------ ------ ------- --------
146,426 2,841 6,877 2,898 2,879 33,274 164,205
-------- ------ ------- ------ ------ ------- --------
Property, Plant, and Equipment, at
Cost, Net........................ 70,357 -- 7,846 443 6,055 -- 56,013
-------- ------ ------- ------ ------ ------- --------
Other Assets....................... 9,623 -- 1,711 -- -- -- 7,912
-------- ------ ------- ------ ------ ------- --------
Cost in Excess of Net Assets of
Acquired Companies............... 88,865 -- 1,289 -- -- -- 87,576
-------- ------ ------- ------ ------ ------- --------
$315,271 $2,841 $17,723 $3,341 $8,934 $33,274 $315,706
======== ====== ======= ====== ====== ======= ========
</TABLE>
F-10
<PAGE>
THERMO TERRATECH INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (CONTINUED)
JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
LESS:
--------------------------------------------
SOIL-
THERMO RANDERS REMEDIATION BAC METAL PRO FORMA
TERRATECH DIVISION FACILITIES KILLAM TREATING ADJUSTMENTS PRO FORMA
--------- -------- ----------- -------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Current Liabilities:
Short-term obligations and
current maturities of long-term
obligations.................... $ 19,549 $ -- $ -- $ -- $ -- $ -- $ 19,549
Subordinated convertible
debentures..................... 37,950 -- -- -- -- -- 37,950
Accounts payable................. 20,939 650 3,198 -- 300 -- 16,791
Accrued payroll and employee
benefits....................... 12,223 168 669 -- 602 -- 10,784
Accrued restructuring costs...... 8,660 986 -- -- -- -- 7,674
Deferred revenue................. 4,169 -- 2,160 -- -- -- 2,009
Other accrued expenses........... 13,347 1,037 4,177 -- 298 1,000 8,835
Due to parent company and
affiliated companies........... 2,140 -- -- -- -- -- 2,140
-------- ------ ------- ------ ------ ------- --------
118,977 2,841 10,204 -- 1,200 1,000 105,732
-------- ------ ------- ------ ------ ------- --------
Deferred Income Taxes.............. 685 -- -- -- -- -- 685
-------- ------ ------- ------ ------ ------- --------
Other Deferred Items............... 1,097 -- -- -- -- -- 1,097
-------- ------ ------- ------ ------ ------- --------
Long-term Obligations.............. 118,241 -- -- -- -- -- 118,241
-------- ------ ------- ------ ------ ------- --------
Minority Interest.................. 24,785 -- -- -- -- 1,976 26,761
-------- ------ ------- ------ ------ ------- --------
Shareholders' Investment:
Common stock..................... 1,959 -- -- -- -- -- 1,959
Capital in excess of par value... 70,993 -- -- -- -- -- 70,993
Accumulated deficit.............. (17,807) -- -- -- -- 11,704 (6,103)
Treasury stock, at cost.......... (3,846) -- -- -- -- -- (3,846)
Deferred compensation............ (216) -- -- -- -- -- (216)
Accumulated other comprehensive
items.......................... 403 -- -- -- -- -- 403
Parent company investment........ -- -- 7,519 3,341 7,734 18,594 --
-------- ------ ------- ------ ------ ------- --------
51,486 -- 7,519 3,341 7,734 30,298 63,190
-------- ------ ------- ------ ------ ------- --------
$315,271 $2,841 $17,723 $3,341 $8,934 $33,274 $315,706
======== ====== ======= ====== ====== ======= ========
</TABLE>
F-11
<PAGE>
THERMO TERRATECH INC.
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 YEAR ENDED NINE MONTHS ENDED
APRIL 3, 1999 JANUARY 1, 2000
----------------- -----------------
DEBIT (CREDIT)
<S> <C> <C>
INTEREST INCOME
Increase in interest income earned on the $15,000,000 of
cash paid to Thermo TerraTech by RTI and Nove for the
soil-remediation facilities, calculated using the 30-day
Commercial Paper Composite Rate plus 50 basis points, or
5.46% in fiscal 1999 and 5.58% in the first nine months of
fiscal 2000............................................... $ (818) $ (628)
Increase in interest income earned on the $538,000 note
receivable issued to Thermo TerraTech by RGI Muskegon,
Inc. for the Randers division, calculated at an interest
rate of 8%................................................ (43) (32)
Increase in interest income earned on the $1,374,000 of cash
paid to Thermo TerraTech by HMM for BAC Killam, calculated
using the 30-day Commercial Paper Composite Rate plus 50
basis points, as described above.......................... (75) (58)
Increase in interest income earned on the $16,900,000 of
cash paid to Thermo TerraTech for Metal Treating,
calculated using the 30-day Commercial Paper Composite
Rate plus 50 basis points, as described above............. (923) (707)
------- -------
$(1,859) $(1,425)
------- -------
INCOME TAX PROVISION
Increase in the income tax provision as a result of an
increase in interest income for:
Soil-remediation facilities, calculated at an effective
income tax rate of 37%................................ $ 303 $ 232
The Randers division, calculated at the federal income
tax rate of 34%....................................... 15 11
BAC Killam, calculated at an effective income tax rate
of 34%................................................ 26 20
Metal Treating, calculated at an effective income tax
rate of 39%........................................... 360 276
------- -------
$ 704 $ 539
------- -------
MINORITY INTEREST INCOME
Decrease in minority interest income as a result of the sale
of:
Soil-remediation facilities............................... $ 1,631 $ 1,461
The Randers division and BAC Killam....................... 28 759
------- -------
$ 1,659 $ 2,220
------- -------
</TABLE>
F-12
<PAGE>
THERMO TERRATECH INC.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
APRIL 3, 1999 JANUARY 1, 2000
----------------- -----------------
DEBIT (CREDIT)
<S> <C> <C>
DILUTED WEIGHTED AVERAGE SHARES
Increase in weighted average shares for the dilutive effect
of stock options, which were previously antidilutive, as a
result of the pro forma adjustments....................... 1,122 --
======= =======
</TABLE>
NOTE 2--PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 2000
---------------
DEBIT (CREDIT)
<S> <C>
CASH AND CASH EQUIVALENTS
Cash received for sale of:
Soil-remediation facilities............................... $ 15,000
BAC Killam................................................ 1,374
Metal Treating............................................ 16,900
--------
$ 33,274
--------
OTHER ACCRUED EXPENSES
Estimated accrued transaction costs, including legal fees,
incentive payments, and severance payable following the
sale of:
Soil-remediation facilities............................. $ (600)
BAC Killam.............................................. (100)
Metal Treating.......................................... (300)
--------
$ (1,000)
--------
MINORITY INTEREST
(Increase) decrease in minority interest related to
(deficit) excess of parent company investment over
proceeds from sale of:
Soil-remediation facilities............................. $ (2,084)
BAC Killam.............................................. 108
--------
$ (1,976)
--------
SHAREHOLDERS' INVESTMENT
Elimination of equity account and excess of proceeds from
sale over parent company investment in:
Soil-remediation facilities............................. $(12,316)
BAC Killam.............................................. (1,382)
Metal Treating.......................................... (16,600)
--------
$(30,298)
--------
</TABLE>
The sales price of the Randers division consisted of a $538,000 promissory
note, secured by certain real estate. In addition, the acquirer assumed $776,000
of mortgage debt. Due to the fact that Thermo
F-13
<PAGE>
THERMO TERRATECH INC.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
TerraTech received no consideration at the time of sale, the sale of the real
estate is being accounted for under the deposit method. Under the deposit
method, Thermo TerraTech did not record the note receivable and continues to
report the property that was sold as well as the existing mortgage debt in the
accompanying pro forma condensed balance sheet. Cash received from the acquirer
will be reported as a deposit on the contract. As a result, there are no pro
forma adjustments to the pro forma consolidated condensed balance sheet as of
January 1, 2000, for this sale.
F-14
<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............................................. A-2
1.1 The Merger.................................................. A-2
1.2 Effective Time; Closing..................................... A-2
1.3 Effect of the Merger........................................ A-2
1.4 Certificate of Incorporation; Bylaws........................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-2
1.7 Surrender of Certificates................................... A-4
1.8 No Further Ownership Rights in TerraTech Common Stock....... A-5
1.9 Lost, Stolen or Destroyed Certificates...................... A-5
1.10 Dividends................................................... A-5
1.11 Fractional Shares........................................... A-5
1.12 Closing of Transfer Books................................... A-6
1.13 Taking of Necessary Action; Further Action.................. A-6
1.14 Tax Treatment............................................... A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TERRATECH........... A-6
2.1 Organization of TerraTech................................... A-6
2.2 TerraTech Capital Structure................................. A-6
2.3 Authority................................................... A-7
2.4 Board Approval.............................................. A-7
2.5 Fairness Opinion............................................ A-7
2.6 Registration Statement; Proxy Statement/Prospectus.......... A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND
MERGER SUB........................................... A-8
3.1 Organization................................................ A-8
3.2 Authority................................................... A-8
3.3 Capitalization.............................................. A-9
3.4 Reports and Financial Statements............................ A-10
3.5 Merger Sub.................................................. A-10
3.6 Tax Treatment............................................... A-10
3.7 Information Provided to Investment Bankers.................. A-10
3.8 Litigation.................................................. A-10
3.9 Compliance with Agreements.................................. A-11
3.10 Registration Statement; Proxy Statement/Prospectus.......... A-11
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................... A-11
4.1 Conduct of Business by TerraTech............................ A-11
4.2 Conduct of Business by Thermo Electron...................... A-11
ARTICLE V ADDITIONAL AGREEMENTS.................................. A-12
5.1 Registration Statement; Other Filings....................... A-12
5.2 Meeting of TerraTech Stockholders........................... A-13
5.3 Access to Information....................................... A-13
5.4 Public Disclosure........................................... A-13
5.5 Legal Requirements.......................................... A-14
5.6 Notification of Certain Matters............................. A-14
5.7 Best Efforts and Further Assurances......................... A-14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Stock Option and Employee Stock Purchase Plans; Reservation
5.8 of Shares................................................... A-14
5.9 Thermo Electron Form S-8.................................... A-15
5.10 Thermo Electron Form S-3.................................... A-15
5.11 Indemnification; Insurance.................................. A-15
5.12 Deferred Compensation Plan.................................. A-17
5.13 Compliance by Merger Sub.................................... A-17
5.14 Tax Treatment............................................... A-17
5.15 NYSE Listing................................................ A-17
ARTICLE VI CONDITIONS TO THE MERGER.............................. A-17
Conditions to Obligations of Each Party to Effect the
6.1 Merger...................................................... A-17
6.2 Additional Conditions to Obligations of TerraTech........... A-18
Additional Conditions to the Obligations of Thermo Electron
6.3 and Merger Sub.............................................. A-18
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................... A-19
7.1 Termination................................................. A-19
7.2 Notice of Termination; Effect of Termination................ A-20
7.3 Fees and Expenses........................................... A-20
7.4 Amendment................................................... A-20
7.5 Extension; Waiver........................................... A-20
ARTICLE VIII GENERAL PROVISIONS.................................. A-21
8.1 Non-Survival of Representations and Warranties.............. A-21
8.2 Notices..................................................... A-21
8.3 Counterparts................................................ A-21
8.4 Entire Agreement............................................ A-22
8.5 Severability................................................ A-22
8.6 Other Remedies; Specific Performance........................ A-22
8.7 Governing Law............................................... A-22
8.8 Assignment.................................................. A-22
8.9 Headings.................................................... A-22
</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)
hereof, the "Exchange Ratio") of the common stock, $1.00 par value, of Thermo
A-2
<PAGE>
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
A-3
<PAGE>
respect to 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-4
<PAGE>
a condition of such payment that the Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such payment will have paid to Thermo Electron or any agent
designated by it any transfer or other taxes required by reason of payment to a
person other than the registered holder of the Certificate surrendered, or
established to the satisfaction of Thermo Electron or any agent designated by it
that such tax has been paid or is not payable.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the 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
A-5
<PAGE>
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 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
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading. The Proxy Statement will comply (other than with respect to
information relating to Thermo Electron and/or Merger Sub) as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB
Thermo Electron and Merger Sub, jointly and severally, represent and warrant
to 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
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bound or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on Thermo Electron.
(b) All shares of Thermo Common Stock 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.
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(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 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.
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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.
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
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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.
(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
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Agreement and will not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement with a national securities exchange. Promptly upon the
execution hereof, the parties shall jointly make a press release with respect to
the transactions contemplated by this Agreement, in form reasonably satisfactory
to the Special Committee, and 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
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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 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
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Corporation, Thermo Electron or any of their respective affiliates with respect
to the underlying subject matter of, and to the extent of, such payment or
advance.
(d) In the event 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
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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.
(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.
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6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Thermo Electron:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
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
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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);
(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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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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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>
[Note: This document included for historic purposes only; the tax opinion has
been deleted from the merger agreement as a result of Amendment No. 1 to the
merger agreement, which is attached as Appendix A-1.]
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
A-24
<PAGE>
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 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.
A-25
<PAGE>
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,
HALE AND DORR LLP
A-26
<PAGE>
APPENDIX A-1
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
hereby amends the Agreement and Plan of Merger dated as of October 19, 1999 (the
"Merger Agreement"), as set forth below. This Amendment is dated as of
April 12, 2000, and 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. On November 9, 1999, Thermo Electron filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission (as amended, the
"Registration Statement") in order to register the shares of its common stock,
$1.00 par value per share, to be issued to the public stockholders of TerraTech
in the proposed merger with Merger Sub (the "Merger"), as contemplated by
Section 5.1 of the Merger Agreement.
B. Thermo Electron made, on January 31, 2000, a public announcement
concerning its reorganization plan, including plans for dispositions of several
businesses, including TerraTech, which has resulted in Thermo Electron restating
its previously issued financial statements for the 1997 and 1998 fiscal years to
reflect the effect of discontinued operations on such financial statements.
C. Thermo Electron completed the restatement of its financial statements in
connection with the filing of its Annual Report on Form 10-K with the Securities
and Exchange Commission, on March 22, 2000.
D. As a result of the restatement of Thermo Electron's financial statements,
the Registration Statement must be amended to incorporate by reference the
restated financial statements contained in the Annual Report on Form 10-K for
the year ended January 1, 2000.
E. As a result of the January 31, 2000 announcement concerning the
reorganization plan, Thermo Electron has been advised by its tax counsel that
the Merger may be a taxable transaction, rather than a tax-free reorganization
as originally contemplated by the parties to the Merger Agreement.
F. Thermo Electron, TerraTech and Merger Sub each desire, in light of the
foregoing, to amend the Merger Agreement as set forth below.
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:
1. Section 1.6(g)(i) of the Merger Agreement is hereby amended and restated
in its entirety to read 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 $7.50, then the Exchange Ratio shall be adjusted to be equal
to $7.50 divided by the Pre-Closing Average Price, subject to the provisions of
Section 7.1(h)."
A-1-1
<PAGE>
2. Section 1.14 of the Merger Agreement is hereby amended and restated in
its entirety to read as follows:
"1.14. Plan of Reorganization. The Merger is intended to constitute a
tax-free reorganization under Section 368(a) of the Code. To the extent
applicable, 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."
3. The words "Intentionally Deleted" are inserted in place of the current
text of Section 3.6 of the Merger Agreement.
4. The words "Intentionally Deleted" are inserted in place of the current
text of Section 5.14 of the Merger Agreement.
5. The words "Intentionally Deleted" are inserted in place of the current
text of Section 6.1(d) of the Merger Agreement.
6. Section 7.1(b) of the Merger Agreement is hereby amended and restated in
its entirety to read as follows:
"(b) by either TerraTech (at the direction of the Special Committee) or
Merger Sub if the Merger shall not have been consummated by July 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."
A-1-2
<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub and TerraTech have caused
this Amendment 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/ JOHN P. APPLETON
-----------------------------------------
Name: John P. Appleton
Title: Chairman of the Board of Directors
</TABLE>
A-1-3
<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
B-1
<PAGE>
April 3, 1999 and July 3, 1999; (iii) analyzed certain internal financial
statements and other internal financial and operating data and business plans
prepared by the management of the Company, including five-year financial budgets
(the "Budgets"); (iv) conducted due diligence discussions with members of senior
management of the Company and Thermo Electron, and discussed with members of
senior management of the Company and Thermo Electron their views regarding 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
B-2
<PAGE>
with the Securities and Exchange Commission with respect to the transactions
contemplated by the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration to be received in the Transaction by the
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
C-1
<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 JANUARY 1, 2000
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 January 1, 2000
[ ] 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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 JANUARY 28, 2000
---------------------------- -------------------------------
Common Stock, $.10 par value 18,900,667
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THERMO TERRATECH INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
January 1, April 3,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes $41,667 under repurchase agreements with
parent company in fiscal 1999) $ 4,905 $ 43,013
Advance to affiliate (Note 8) 49,436 -
Accounts receivable, less allowances of $3,399 and $3,577 52,330 58,933
Unbilled contract costs and fees 26,950 19,974
Inventories 2,452 1,869
Deferred tax asset 6,668 6,946
Other current assets 3,685 3,640
---------- ----------
146,426 134,375
---------- ----------
Property, Plant, and Equipment, at Cost (Note 5) 135,302 151,219
Less: Accumulated depreciation and amortization 64,945 59,705
---------- ----------
70,357 91,514
---------- ----------
Other Assets (Note 5) 9,623 15,949
---------- ----------
Cost in Excess of Net Assets of Acquired Companies (Notes 5 and 6) 88,865 108,627
---------- ----------
$ 315,271 $ 350,465
========== ==========
</TABLE>
2
<PAGE>
THERMO TERRATECH INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
January 1, April 3,
(In thousands except share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Short-term obligations and current maturities of long-term obligations
(includes $9,228 under overdraft facility with related party in
fiscal 1999) $ 19,549 $ 17,618
Subordinated convertible debentures (includes $4,300 of
related-party debt) 37,950 -
Accounts payable 20,939 17,404
Accrued payroll and employee benefits 12,223 12,771
Accrued restructuring costs (Note 5) 8,660 1,719
Deferred revenue 4,169 2,675
Other accrued expenses 13,347 12,623
Due to parent company and affiliated companies 2,140 2,522
---------- ----------
118,977 67,332
---------- ----------
Deferred Income Taxes 685 3,538
---------- ----------
Other Deferred Items 1,097 1,076
---------- ----------
Long-term Obligations:
Subordinated convertible debentures (includes $515 and $4,695 of
related-party debt) 116,892 156,799
Other 1,349 1,818
---------- ----------
118,241 158,617
---------- ----------
Minority Interest 24,785 27,745
---------- ----------
Shareholders' Investment:
Common stock, $.10 par value, 75,000,000 shares authorized; 19,592,562
and 19,583,773 shares issued 1,959 1,958
Capital in excess of par value 70,993 70,633
Retained earnings (accumulated deficit) (17,807) 25,898
Treasury stock at cost, 505,940 and 543,319 shares (3,846) (4,130)
Deferred compensation (216) (252)
Accumulated other comprehensive items (Note 2) 403 (1,950)
---------- ----------
51,486 92,157
---------- ----------
$ 315,271 $ 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
------------------------
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 80,846 $ 80,400
--------- ---------
Costs and Operating Expenses:
Cost of revenues (Note 5) 63,229 64,549
Selling, general, and administrative expenses 12,461 11,834
Restructuring costs (Note 5) 2,207 -
--------- ---------
77,897 76,383
--------- ---------
Operating Income 2,949 4,017
Interest Income 723 497
Interest Expense (includes $58 and $42 to related party) (2,213) (2,307)
--------- ---------
Income Before Income Taxes, Minority Interest, and Extraordinary Item 1,459 2,207
Provision for Income Taxes (Note 5) 1,003 1,343
Minority Interest Expense 370 93
--------- ---------
Income Before Extraordinary Item 86 771
Extraordinary Item, Net of Provision for Income Taxes of $64 (Note 7) 96 -
--------- ---------
Net Income $ 182 $ 771
========= =========
Basic and Diluted Earnings per Share (Note 3) $ .01 $ .04
========= =========
Weighted Average Shares (Note 3):
Basic 19,079 19,421
========= =========
Diluted 19,279 19,935
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 234,790 $ 234,270
---------- ----------
Costs and Operating Expenses:
Cost of revenues (Note 5) 185,059 187,628
Selling, general, and administrative expenses 34,439 34,132
Restructuring costs (Note 5) 56,524 10,217
---------- ----------
276,022 231,977
---------- ----------
Operating Income (Loss) (41,232) 2,293
Interest Income 2,037 1,652
Interest Expense (includes $174 and $118 to related party) (6,678) (6,769)
---------- ----------
Loss Before Income Taxes, Minority Interest, and Extraordinary Item (45,873) (2,824)
Provision for Income Taxes (Note 5) 1,244 534
Minority Interest Income (3,316) (1,434)
---------- ----------
Loss Before Extraordinary Item (43,801) (1,924)
Extraordinary Item, Net of Provision for Income Taxes of $64 (Note 7) 96 -
---------- ----------
Net Loss $ (43,705) $ (1,924)
========== ==========
Basic and Diluted Loss per Share (Note 3) $ (2.29) $ (.10)
========= =========
Basic and Diluted Weighted Average Shares (Note 3) 19,066 19,483
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
January 1, January 2,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss $ (43,705) $ (1,924)
Adjustments to reconcile net loss to net cash provided by operating activities:
Noncash restructuring costs (Note 5) 48,776 8,105
Change in deferred income taxes (2,841) -
Depreciation and amortization 10,589 12,356
Minority interest income (3,316) (1,434)
Provision for losses on accounts receivable 411 963
Gain on purchase of subordinated convertible debentures (Note 7) (96) -
Other noncash items 2,361 225
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 6,741 (4,362)
Inventories and unbilled contract costs and fees (8,660) (450)
Other current assets 43 (3,118)
Accounts payable 2,888 2,737
Other current liabilities 6,799 3,220
---------- ----------
Net cash provided by operating activities 19,990 16,318
---------- ----------
Investing Activities:
Acquisitions, net of cash acquired (Note 6) (2,016) (643)
Advances to affiliate, net (Note 8) (49,436) -
Proceeds from maturities of available-for-sale investments - 2,006
Proceeds from maturity of held-to-maturity investments - 14,065
Purchases of property, plant, and equipment (9,384) (12,656)
Proceeds from sale of property, plant, and equipment 1,308 371
Purchase of other assets (590) (2,680)
Other - 60
---------- ----------
Net cash provided by (used in) investing activities (60,118) 523
---------- ----------
Financing Activities:
Increase in short-term obligations to fund an acquisition (Note 6) 2,286 -
Repayment and repurchase of notes payable and long-term obligations (Note 7) (3,353) (14,761)
Issuance of long-term notes receivable - (237)
Collection of long-term notes receivable 2,554 596
Proceeds from issuance of Company and subsidiary's common stock 546 55
Purchase of Company common stock - (1,705)
Dividends paid by subsidiary to minority shareholders (409) (402)
Other 96 11
---------- ----------
Net cash provided by (used in) financing activities $ 1,720 $ (16,443)
---------- ----------
</TABLE>
6
<PAGE>
THERMO TERRATECH INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
January 1, January 2,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Exchange Rate Effect on Cash $ 300 $ (264)
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (38,108) 134
Cash and Cash Equivalents at Beginning of Period 43,013 34,711
---------- ----------
Cash and Cash Equivalents at End of Period $ 4,905 $ 34,845
========== ==========
Noncash Activities:
Fair value of assets of acquired companies $ 3,328 $ 643
Cash paid for acquired companies (2,286) (643)
Issuance of subsidiary common stock for acquired company (384) -
---------- ----------
Liabilities assumed of acquired companies $ 658 $ -
========== ==========
Issuance of subordinated convertible debentures in exchange for
subsidiary common stock $ - $ 6,999
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<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 January 1, 2000, the
results of operations for the three- and nine-month periods ended January 1,
2000, and January 2, 1999, and the cash flows for the nine-month periods ended
January 1, 2000, and January 2, 1999. 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 third quarter of fiscal 2000 and
1999, the Company had comprehensive income of $1,013,000 and $741,000,
respectively. During the first nine months of fiscal 2000 and 1999, the Company
had comprehensive losses of $41,841,000 and $1,488,000, respectively.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 1, January 2, January 1, January 2,
(In thousands except per share amounts) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC
Net Income (Loss) $ 182 $ 771 $ (43,705) $ (1,924)
---------- ---------- ---------- ----------
Weighted Average Shares 19,079 19,421 19,066 19,483
---------- ---------- ---------- ----------
Basic Earnings (Loss) per Share $ .01 $ .04 $ (2.29) $ (.10)
========== ========== ========= =========
</TABLE>
8
<PAGE>
THERMO TERRATECH INC.
3. Earnings (Loss) per Share (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 1, January 2, January 1, January 2,
(In thousands except per share amounts) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DILUTED
Net Income (Loss) $ 182 $ 771 $ (43,705) $ (1,924)
Effect of majority-owned subsidiaries' dilutive securities (18) - - -
---------- ---------- ---------- ----------
Income (Loss) Available to Common Shareholders, as Adjusted $ 164 $ 771 $ (43,705) $ (1,924)
---------- ---------- ---------- ----------
Weighted Average Shares 19,079 19,421 19,066 19,483
Effect of:
Stock options 149 - - -
Put rights 51 514 - -
---------- ---------- ---------- ----------
Weighted Average Shares, as Adjusted 19,279 19,935 19,066 19,483
---------- ---------- ---------- ----------
Diluted Earnings (Loss) per Share $ .01 $ .04 $ (2.29) $ (.10)
========== ========== ========= =========
</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 January 1, 2000, there were 593,000 of such options outstanding, with
exercise prices ranging from $6.96 to $10.40 per share. As of January 1, 2000,
put rights with respect to an aggregate of 195,675 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 January 2000, the Company
purchased the applicable shares for $1,565,000 and settled the put right
obligation.
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.
An extraordinary gain recorded by the Company increased basic and diluted
earnings per share by $.01 in the three- and nine-month periods ended January 1,
2000 (Note 7).
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 1, January 2, January 1, January 2,
(In thousands) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Environmental-liability Management $ 45,946 $ 41,321 $ 127,303 $ 120,006
Engineering and Design 18,891 23,566 61,814 70,106
Laboratory Testing 11,963 11,001 33,541 30,573
Metal Treating 4,172 4,654 12,551 14,158
Intersegment sales elimination (a) (126) (142) (419) (573)
---------- ----------- ----------- -----------
$ 80,846 $ 80,400 $ 234,790 $ 234,270
========== =========== =========== ==========
</TABLE>
9
<PAGE>
THERMO TERRATECH INC.
4. Business Segment Information (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
January 1, January 2, January 1, January 2,
(In thousands) 2000 1999 2000 1999
- ----------------------------------------------------------------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Income (Loss) Before Income Taxes, Minority Interest, and
Extraordinary Item:
Environmental-liability Management (b) $ 2,175 $ 1,237 $ (32,184) $ (4,757)
Engineering and Design (c) (724) 1,410 (12,943) 3,213
Laboratory Testing 1,704 1,509 4,957 4,000
Metal Treating 453 582 1,092 1,764
Corporate (d) (659) (721) (2,154) (1,927)
---------- ---------- ---------- ----------
Total operating income (loss) 2,949 4,017 (41,232) 2,293
Interest expense, net (1,490) (1,810) (4,641) (5,117)
---------- ---------- ---------- ----------
$ 1,459 $ 2,207 $ (45,873) $ (2,824)
========== ========== ========== ==========
</TABLE>
(a) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(b) Includes restructuring and related costs of $38.6 million and $9.2 million
in the first nine months of fiscal 2000 and fiscal 1999, respectively.
(c) Includes restructuring costs of $17.9 million and $1.0 million in the
first nine months of fiscal 2000 and fiscal 1999.
(d) Primarily general and administrative expenses.
5. Restructuring and Related Costs
FISCAL 2000 PLAN
In May 1999, the Company announced that its majority-owned subsidiaries
plan to sell several businesses. At the time of the decision, the businesses
that will be sold were considered outside the future focus of the Company and
its subsidiaries because of low growth prospects, marginal profitability, or the
need to invest significant capital to achieve desired returns. 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. The Randers
Killam businesses provide engineering and construction services, including
transportation planning and design. In connection with these actions, the
Company recorded $58,237,000 of restructuring and related costs during the first
nine months of fiscal 2000, including restructuring costs of $56,524,000, 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 provision
for income taxes 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 $20,234,000
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;
$2,214,000 for a loss on the sale of the Randers division (Note 10); 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; $638,000 for severance costs for 42 employees across all
functions, 12 of whom were terminated in the first nine months of fiscal 2000; a
$443,000 write-off of other current assets associated with the businesses; and
$61,000 for retention bonuses paid. 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
10
<PAGE>
THERMO TERRATECH INC.
5. Restructuring and Related Costs (continued)
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 increasing the Company's pretax operating income by
approximately $700,000 in the third quarter of fiscal 2000 and reducing the
Company's pretax operating loss by approximately $2,100,000 during the first
nine months of fiscal 2000.
FISCAL 1999 PLAN
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. Negotiations are ongoing
with a potential buyer. However, there can be no assurance that ThermoRetec will
complete the sale. If negotiations are not successful and the Company cannot
identify another buyer, ThermoRetec expects to close the facility in the first
half of calendar 2000. 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 January 1, 2000.
All businesses proposed to be sold, including those announced in fiscal
1999, reported unaudited aggregate revenues and operating income, prior to
restructuring and related costs, of $28,286,000 and $1,136,000, respectively, in
the first nine months of fiscal 2000 and $54,015,000 and $225,000, respectively,
in fiscal 1999. The aggregate net assets to be sold of $6,301,000 at January 1,
2000, include net assets of $5,113,000 in the Engineering and Design segment and
$1,188,000 in the Environmental-liability Management segment. Although there can
be no assurance concerning the timing of the completion of the sale of any of
these businesses, the Company expects that the sales will primarily occur in the
first half of calendar 2000.
Substantially all of the restructuring and related costs to date have
been noncash charges except for amounts recorded as accrued restructuring costs.
A summary of the changes in accrued restructuring costs, which the Company
expects to pay primarily during the remainder of calendar 2000, is as follows:
<TABLE>
<CAPTION>
Facility-
closing Land
(In thousands) Severance Costs Reclamation Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1999 PLAN
BALANCE AT APRIL 3, 1999 $ 112 $ 1,607 $ - $ - $ 1,719
Usage (71) (141) - - (212)
-------- -------- -------- -------- --------
BALANCE AT JANUARY 1, 2000 $ 41 $ 1,466 $ - $ - $ 1,507
======== ======== ======== ======== ========
FISCAL 2000 PLAN
BALANCE AT APRIL 3, 1999 $ - $ - $ - $ - $ -
Provision charged to expense 638 4,555 2,494 61 7,748
Usage (167) (149) - (61) (377)
Currency translation - (95) (123) - (218)
-------- -------- -------- -------- --------
BALANCE AT JANUARY 1, 2000 $ 471 $ 4,311 $ 2,371 $ - $ 7,153
======== ======== ======== ======== ========
</TABLE>
The Company expects to incur additional restructuring costs of
approximately $2,500,000, primarily during the remainder of calendar 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.
11
<PAGE>
THERMO TERRATECH INC.
6. Acquisition
In August 1999, a subsidiary of the Company acquired the outstanding
stock of Dempsey Drums Limited for $2,286,000 in cash and 1,605 shares of the
subsidiary's common stock valued at $384,000. Dempsey Drums is an Ireland-based
service provider in the supply, disposal, and reconditioning of steel and
plastic drums and the supply of specialized packaging. This acquisition has been
accounted for using the purchase method of accounting and its results have been
included in the Company's results from the date of acquisition. The cost of this
acquisition exceeded the estimated fair value of the acquired net assets by
$1,538,000, which is being amortized over 20 years. Allocation of the purchase
price for this acquisition was based on an estimate of the fair value of the net
assets acquired and is subject to adjustment upon finalization of the purchase
price allocation. The Company has gathered no information that indicates the
final allocation will differ materially from the preliminary estimates. Pro
forma results have not been presented, as the results of the acquired business
were not material to the Company's results of operations.
7. Purchase of Subordinated Convertible Debentures
During the third quarter of fiscal 2000, the Company purchased $1,957,000
principal amount of the 2 1/2% subordinated convertible debentures, convertible
into shares of Thermo EuroTech (Delaware) Inc., for $1,797,000 in cash,
resulting in an extraordinary gain of $96,000, net of taxes of $64,000.
8. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
commenced use of a new domestic cash management arrangement. Under the new
arrangement, amounts advanced to Thermo Electron by the Company for domestic
cash management purposes bear interest at the 30-day Dealer Commercial Paper
Rate plus 50 basis points, set at the beginning of each month. Thermo Electron
is contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
this cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The Company has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
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 January 1, 2000.
9. Proposed Merger
On October 19, 1999, the Company entered into a definitive agreement and
plan of merger with Thermo Electron, pursuant to which Thermo Electron would
acquire all of the outstanding shares of Company common stock held by
shareholders other than Thermo Electron in exchange for Thermo Electron Common
Stock worth between $7.25 and $9.25 per share of Company Common Stock. At the
same time, the Company's two publicly traded subsidiaries, ThermoRetec and
Randers Killam, also entered into merger agreements with Thermo Electron,
pursuant to which all of the shares of common stock of those companies held by
stockholders other than the Company and Thermo Electron would be acquired for
cash. The Board of Directors of the Company approved the merger agreement based
on a recommendation by a special committee of the Board of Directors, consisting
of an independent director of the Company. The completion of this merger is
subject to certain conditions, including shareholder approval of the merger
agreement and the completion of review by the Securities and Exchange Commission
of certain required filings. Thermo Electron intends to vote all of its shares
of common stock of the Company in favor of approval of the merger agreement and,
therefore, approval of the merger agreement is assured. This merger is expected
to be completed in the first quarter of fiscal 2001. Following the merger, the
Company's common stock would cease to be publicly traded.
12
<PAGE>
THERMO TERRATECH INC.
10. Subsequent Events
SALE OF THE RANDERS DIVISION
On January 28, 2000, the Company sold substantially all of the assets and
liabilities of the Randers division, exclusive of certain real estate, to a new
corporation formed by a former vice president and director of Randers Killam.
The aggregate sales price of $538,000 consists of a promissory note secured by
certain real estate. The promissory note is payable in monthly installments with
a final maturity in 2003 and bears interest at 8.0%. The Company incurred a
$2,214,000 loss on the sale, which has been included in restructuring costs in
the accompanying statement of operations for the third quarter of fiscal 2000.
PROPOSED SALE OF THE COMPANY
On January 31, 2000, Thermo Electron announced that it plans to sell all
of the businesses of the Company. This action is part of a major reorganization
plan under which Thermo Electron will spin in, spin off, and sell various
businesses to focus solely on its core measurement and detection instruments
business.
PROPOSED SALE OF SOIL-REMEDIATION FACILITIES
In February 2000, ThermoRetec signed a letter of intent to sell five of
its six remaining soil-remediation facilities, including three facilities
announced for sale earlier in fiscal 2000 (Note 5). The transaction is expected
to be completed before the end of the second quarter of calendar 2000, although
there can be no assurance that ThermoRetec will complete this sale. Unaudited
revenues and operating income before restructuring charges of the five
soil-remediation facilities that will be sold aggregated $16,425,000 and
$4,351,000, respectively, in the first nine months of fiscal 2000, and
$19,439,000 and $3,445,000, respectively, in fiscal 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. In February 2000, ThermoRetec signed a letter of intent to sell five
of its six remaining soil-recycling facilities. The transaction is expected to
be completed before the end of the second quarter of calendar 2000, although
there can be no assurance
13
<PAGE>
THERMO TERRATECH INC.
OVERVIEW (CONTINUED)
that ThermoRetec will complete this sale (Note 10). The Company's majority-owned
Thermo EuroTech N.V. subsidiary, located in the Netherlands, specializes in
converting "off-spec" and contaminated petroleum fluids into usable 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. In August 1999, Green Sunrise acquired the outstanding stock of
Dempsey Drums Limited, an Ireland-based service provider in the supply,
disposal, and reconditioning of steel and plastic drums and the supply of
specialized packaging (Note 6).
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. In January 2000, Randers Killam
sold its Randers division, a process engineering and construction business (Note
10), and intends to exit the highway and bridge engineering 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.
METAL TREATING
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin.
RESULTS OF OPERATIONS
THIRD QUARTER FISCAL 2000 COMPARED WITH THIRD QUARTER FISCAL 1999
Total revenues were $80.8 million in the third quarter of fiscal 2000,
compared with $80.4 million in the third quarter of fiscal 1999. Revenues from
the Environmental-liability Management segment increased to $45.9 million in
fiscal 2000 from $41.3 million in fiscal 1999. Excluding intrasegment sales,
revenues at ThermoRetec increased to $42.6 million in fiscal 2000 from $36.9
million in fiscal 1999, primarily due to higher revenues in its Consulting and
Engineering Services group as a result of a large remedial-construction contract
that is expected to continue through fiscal 2001. Revenues from Thermo EuroTech
decreased to $3.4 million in fiscal 2000 from $4.4 million in fiscal 1999 due to
a decrease in sales of usable oil products and a decrease in revenues relating
to a contract to process oil-based muds. The Company intends to exit this
business. These decreases were offset in part by $0.5 million of revenues from
Dempsey Drums, which was acquired in August 1999 (Note 6). Revenues from the
Engineering and Design segment decreased to $18.9 million in fiscal 2000 from
$23.6 million in fiscal 1999, primarily due to lower contract revenue resulting
in part from a recession in the chemical industry and, to a lesser extent, from
the announced sale of certain of its businesses. Revenues from the Laboratory
Testing segment increased to $12.0 million in fiscal 2000 from $11.0 million in
fiscal 1999, due to higher demand resulting from new industrial customers.
Revenues from the Metal Treating segment decreased to $4.2 million in fiscal
2000 from $4.7 million in fiscal 1999, due to weakness in the agricultural
equipment and commercial aerospace industries.
14
<PAGE>
THERMO TERRATECH INC.
THIRD QUARTER FISCAL 2000 COMPARED WITH THIRD QUARTER FISCAL 1999 (continued)
The gross profit margin increased to 22% in the third quarter of fiscal
2000 from 20% in the third quarter of fiscal 1999. The gross profit margin from
the Environmental-liability Management segment increased to 18% in fiscal 2000
from 16% in fiscal 1999, primarily due to a $1.1 million increase in gross
profit in ThermoRetec's Consulting and Engineering Services group for the reason
discussed above and a $0.4 million reduction of depreciation expense in fiscal
2000 as a result of certain write-offs (Note 5). The gross profit margin from
the Engineering and Design segment increased to 27% in fiscal 2000 from 22% in
fiscal 1999, primarily due to a decrease in low-margin contract revenue.
Selling, general, and administrative expenses as a percentage of revenues
remained constant at 15% in the third quarters of fiscal 2000 and 1999.
In May 1999, the Company announced that its majority-owned subsidiaries
plan to sell several businesses (Note 5). At the time of the decision, the
businesses that will be sold were considered outside the future focus of the
Company and its subsidiaries because of low growth prospects, marginal
profitability, or the need to invest significant capital to achieve desired
returns. The businesses proposed to be sold include the used-oil processing
operation of Thermo EuroTech; three soil-recycling facilities of ThermoRetec, in
addition to those proposed to be closed in fiscal 1999 discussed below; and the
Randers division, BAC Killam Inc., and E3-Killam Inc. businesses of Randers
Killam. The Randers Killam businesses provide engineering and construction
services, including transportation planning and design. In January 2000, the
Company sold substantially all of the assets and liabilities of the Randers
division for $538,000, resulting in a loss of $2,214,000 (Note 10).
The businesses the Company announced it would sell reported unaudited
aggregate revenues and operating income, prior to restructuring and related
costs, of $28.3 million and $1.1 million, respectively, in the first nine months
of fiscal 2000 and $54.0 million and $0.2 million, respectively, in fiscal 1999.
These businesses had aggregate net assets of $6.3 million at January 1, 2000,
including net assets of $5.1 million in the Engineering and Design segment and
$1.2 million in the Environmental-liability Management segment. Although there
can be no assurance concerning the timing of the completion of the sale of these
businesses, the Company expects that the sales will primarily occur in the first
half of calendar 2000.
Interest income increased to $0.7 million in the third quarter of fiscal
2000 from $0.5 million in the third quarter of fiscal 1999, primarily as a
result of higher average invested balances. Interest expense remained relatively
constant at $2.2 million in the third quarter of fiscal 2000, compared with $2.3
million in the third quarter of fiscal 1999.
The effective tax rates of 69% and 61% in the third quarter of fiscal
2000 and 1999, respectively, exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, the nondeductible
amortization of cost in excess of net assets of acquired companies, and certain
losses for which state tax benefits could not be utilized. The effective tax
rate was higher in fiscal 2000 primarily due to higher relative nondeductible
expenses.
Minority interest expense increased to $0.4 million in the third quarter
of fiscal 2000 from $0.1 million in the second quarter of fiscal 1999, due to
increased earnings from the Company's majority-owned subsidiaries in fiscal
2000.
During the third quarter of fiscal 2000, the Company purchased $2.0
million principal amount of 2 1/2% subordinated convertible debentures,
convertible into shares of Thermo EuroTech (Delaware) Inc., for $1.8 million in
cash, resulting in an extraordinary gain of $96,000, net of taxes of $64,000
(Note 7).
15
<PAGE>
THERMO TERRATECH INC.
FIRST NINE MONTHS FISCAL 2000 COMPARED WITH FIRST NINE MONTHS FISCAL 1999
Total revenues were $234.8 million in the first nine months of fiscal
2000, compared with $234.3 million in the first nine months of fiscal 1999.
Revenues from the Environmental-liability Management segment increased to $127.3
million in fiscal 2000 from $120.0 million in fiscal 1999. Excluding
intrasegment sales, revenues at ThermoRetec increased to $117.0 million in
fiscal 2000 from $106.5 million in fiscal 1999, primarily due to higher revenues
from a large remedial-construction contract that is expected to continue through
fiscal 2001. Revenues from Thermo EuroTech decreased $3.6 million to $10.3
million due to a decrease in sales of usable oil products and a decrease in
revenues relating to contracts to perform soil-remediation services overseas and
to process oil-based muds. The Company intends to exit this business. These
decreases were offset in part by $1.1 million of revenues from Dempsey Drums,
which was acquired in August 1999 (Note 6). Revenues from the Engineering and
Design segment decreased to $61.8 million in fiscal 2000 from $70.1 million in
fiscal 1999, primarily due to lower contract revenue resulting in part from a
recession in the chemical industry. Revenues from the Laboratory Testing segment
increased to $33.5 million in fiscal 2000 from $30.6 million in fiscal 1999, due
to higher demand for the reason discussed in the results of operations for third
quarter. Revenues from the Metal Treating segment decreased to $12.6 million in
fiscal 2000 from $14.2 million in fiscal 1999, due to weakness in the
agricultural equipment and commercial aerospace industries.
The gross profit margin increased to 21% in the first nine months of
fiscal 2000 from 20% in the first nine months of fiscal 1999. Excluding the
effect of a $0.7 million write-off of inventory in the Environmental-liability
Management segment in fiscal 2000 (Note 5), the gross profit margin increased
primarily due to a $1.9 million reduction of depreciation expense in fiscal 2000
as a result of certain write-offs in the Environmental-liability Management and
Engineering and Design segments (Note 5). The gross profit margin from the
Engineering and Design segment increased to 25% in fiscal 2000 from 23% in
fiscal 1999, due to a decrease in low-margin contract revenue.
Selling, general, and administrative expenses as a percentage of revenues
remained constant at 15% in the first nine months of fiscal 2000 and 1999.
In connection with the proposed sale of businesses discussed in Note 5,
the Company recorded $56.5 million of restructuring costs in the first nine
months of fiscal 2000. Of these restructuring costs, $38.6 million was recorded
by the Environmental-liability Management segment and $17.9 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.
During the first nine months of 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. ThermoRetec took this action after a period of operating losses at
the facilities, which it believes arose from relaxed enforcement of state rules
concerning disposal of contaminated soils and the availability of alternative
disposal options to customers. 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. 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.
Interest income increased to $2.0 million in the first nine months of
fiscal 2000 from $1.7 million in the first nine months of fiscal 1999, primarily
as the result of higher average invested balances. Interest expense remained
relatively constant at $6.7 million in the first nine months of fiscal 2000,
compared with $6.8 million in the first nine months of fiscal 1999.
16
<PAGE>
THERMO TERRATECH INC.
FIRST NINE MONTHS FISCAL 2000 COMPARED WITH FIRST NINE MONTHS FISCAL 1999
(continued)
The Company recorded tax provisions of $1.2 million and $0.5 million on
pretax losses in the first nine months of fiscal 2000 and 1999, respectively,
primarily due to the effect of nondeductible amortization and write-off of cost
in excess of net assets of acquired companies. In addition, the tax provision
recorded in fiscal 2000 includes a $1.1 million write-off of deferred tax assets
(Note 5).
The Company recorded minority interest income of $3.3 million and $1.4
million in the first nine months of fiscal 2000 and 1999, respectively,
primarily due to losses incurred by the Company's majority-owned subsidiaries.
During the third quarter of fiscal 2000, the Company purchased $2.0
million principal amount of 2 1/2% subordinated convertible debentures,
convertible into shares of Thermo EuroTech (Delaware) Inc., for $1.8 million in
cash, resulting in an extraordinary gain of $96,000, net of taxes of $64,000
(Note 7).
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $27.4 million at January 1, 2000,
compared with $67.0 million at April 3, 1999. Working capital decreased $38.0
million as a result of the reclassification of subordinated convertible
debentures due May 2000 to current liabilities. Cash and cash equivalents were
$4.9 million at January 1, 2000, compared with $43.0 million at April 3, 1999.
In addition, as of January 1, 2000, the Company had $49.4 million invested in an
advance to affiliate. Prior to the use of a new domestic cash management
arrangement between the Company and Thermo Electron Corporation (Note 8), 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,
$2.1 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, $48.3 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 nine months of fiscal 2000, $20.0 million of cash was
provided by operating activities. During this period, $6.8 million of cash was
provided by an increase in other current liabilities, primarily due to an
increase in accrued restructuring costs. The Company expects to pay the $8.7
million balance of accrued restructuring costs primarily over the next 12
months. A decrease in accounts receivable provided $6.7 million of cash,
primarily at ThermoRetec due to the timing of billings and, to a lesser extent,
at the Engineering and Design segment due to a decrease in revenues. These
decreases were offset in part by increased accounts receivable at the Laboratory
Testing and Engineering and Design segments, primarily as a result of the timing
of billings and customer payments and increased laboratory testing revenues. An
increase in inventories and unbilled contract costs and fees used $8.7 million
of cash, primarily at ThermoRetec, due to increased revenues in the third
quarter of fiscal 1999, compared with the fourth quarter of fiscal 2000 and, to
a lesser extent, the timing of billings.
Excluding advance to affiliate activity (Note 8), the Company's investing
activities in the first nine months of fiscal 2000 primarily consisted of an
acquisition and capital additions. In August 1999, a subsidiary of the Company
acquired Dempsey Drums Limited for $2.0 million in cash, net of cash acquired,
and the issuance of shares of the subsidiary's common stock valued at $0.4
million (Note 6). The Company expended $9.4 million for purchases of property,
plant, and equipment in the first nine months of fiscal 2000 and expects to
spend approximately $3.0 million for capital additions during the remainder of
fiscal 2000.
In January 2000, the Company sold substantially all of the assets and
liabilities of the Randers division (Note 10).
The Company's financing activities provided cash of $1.7 million in the
first nine months of fiscal 2000, consisting primarily of $2.6 million received
from the collection of long-term notes receivable and $2.3 million borrowed to
finance an acquisition (Note 6), offset in part by $1.8 million to purchase
subordinated convertible debentures (Note 7). In January 2000, the Company
purchased $1.6 million of its common stock pursuant to certain put rights on
shares issued in connection with an acquisition. As of January 31, 2000, the
Company has no further cash obligations pursuant to put rights.
17
<PAGE>
THERMO TERRATECH INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has commenced an offer to repurchase all of the outstanding
shares of Thermo EuroTech N.V. stock that are held by shareholders other than
the Company, at a price of $3.00 per share in cash. If such efforts are
successful, the Company will pay approximately $2.9 million in cash. The offer
expires February 14, 2000.
The Company generally expects to have positive cash flow from its
existing operations. 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. In addition, ThermoRetec's $38.0 million principal amount 4 7/8%
subordinated convertible debentures are due to mature on May 1, 2000. These
debentures may be repaid prior to the maturity date if the merger of ThermoRetec
with Thermo Electron (Note 9) is completed prior to that time. The merger of
ThermoRetec with Thermo Electron is considered a redemption event causing the
acceleration of the repayment of the debentures. The maturity of ThermoRetec's
debentures could adversely affect the Company's liquidity in the first quarter
of fiscal 2001.
YEAR 2000
As of the date of this report, the Company has completed its year 2000
initiatives which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers, vendors, and customers; and (iii) developing contingency plans.
As a result of completing these initiatives, the Company believes that
all of its material information technology systems and critical non-information
technology systems are year 2000 compliant. In addition, the Company is not
aware of any significant supplier or vendor that has experienced material
disruption due to year 2000 issues. The Company has also developed a contingency
plan to allow its primary business operations to continue despite disruptions
due to year 2000 problems, if any, that might yet arise in the future. The costs
incurred to date by the Company in connection with the year 2000 issue have not
been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
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 October 21, 1999, the Company filed a Current Report on Form 8-K dated
as of October 19, 1999, with respect to the execution of an Agreement and Plan
of Merger by and among the Company, TTT Acquisition Corporation, and Thermo
Electron Corporation.
18
<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 11th day of February 2000.
THERMO TERRATECH INC.
/s/ PAUL F. KELLEHER
----------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ THEO MELAS-KYRIAZI
----------------------------
Theo Melas-Kyriazi
Chief Financial Officer
19
<PAGE>
THERMO TERRATECH INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
- ----------------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
20
<PAGE>
APPENDIX F
CURRENT REPORT ON FORM 8-K DATED JANUARY 28, 2000
RELATING TO THE SALE OF THE RANDERS BUSINESS BY RANDERS/KILLAM
F-1
<PAGE>
Appendix F
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
January 28, 2000
----------------------------------------------------
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-9549 04-2925807
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
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
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 2. DISPOSITION OF ASSETS
On January 28, 2000, Thermo TerraTech Inc., through its The Randers
Killam Group Inc. majority-owned subsidiary, (collectively referred to as the
"Company") sold substantially all of the assets and liabilities of its Randers
division, exclusive of certain real estate and certain ongoing litigation, to
RGI Muskegon, Inc. The purchaser is a newly formed Michigan corporation that is
owned and managed by the former management team of the Randers division, which
includes Thomas Eurich, a Vice President and a Director of the Company until the
closing of the transaction. The Randers division provides engineering and
construction services.
The purchase price for the assets of the Randers Division consisted of a
promissory note in the principal amount of $538,000 bearing interest at the rate
of 8.0% per annum and payable in 36 equal monthly installments of principal and
interest commencing March 1, 2000. The assets sold include all of the Randers
division's operating assets, active contracts and projects, and the real
property located at 570 Seminole Road in Muskegon, Michigan. The liabilities
assumed by the purchaser include all balance sheet liabilities, all lease
obligations, and all liabilities and obligations under the active contracts and
projects. Title to the real estate will be transferred to the purchaser as soon
as practicable after the closing. Upon delivery of the deed by the Company, the
purchaser will deliver to the Company a second mortgage on the real estate to
secure the promissory note.
The purchase price of the assets was determined by the parties in
arms-length negotiations. In agreeing to the purchase price, the Company
considered the additional costs that would be incurred by the Company if the
Randers division were shut down instead of sold.
The Company incurred a loss on the sale of approximately $2.2 million,
which was included in restructuring costs for the third quarter ended January 1,
2000.
2
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 7. FINANCIAL STATEMENTS, PRO FORMA CONDENSED FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements
Not applicable.
(b) Pro Forma Condensed Financial Statements
The following unaudited pro forma condensed statements of operations set
forth the results of operations for the fiscal year ended April 3, 1999, and the
nine months ended January 1, 2000, as if the disposition of the Randers division
had occurred at the beginning of fiscal 1999. The unaudited pro forma condensed
balance sheet sets forth the financial position as of January 1, 2000, as if the
disposition had occurred as of that date.
The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the sale of
the Randers division been consummated at the beginning of fiscal 1999. These
statements should be read in conjunction with the accompanying notes herein and
the historical consolidated financial statements and related notes of the
Company included in its Annual Report on Form 10-K, as amended, for the fiscal
year ended April 3, 1999, and Quarterly Report on Form 10-Q for the nine months
ended January 1, 2000.
3
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED APRIL 3, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Less:
Thermo Randers Pro Forma
Terratech Division Adjustments Pro Forma
--------- -------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 310,039 $ 18,342 $ - $ 291,697
---------- ---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 247,610 15,558 - 232,052
Selling, general, and administrative expenses 46,224 2,201 - 44,023
Restructuring costs 10,217 - - 10,217
---------- ---------- ---------- ----------
304,051 17,759 - 286,292
---------- ---------- ---------- ----------
Operating Income 5,988 583 - 5,405
Interest Income 2,185 9 43 2,219
Interest Expense (8,981) (77) - (8,904)
---------- ---------- ---------- ----------
Loss Before Provision for Income Taxes and Minority
Interest (808) 515 43 (1,280)
Provision for Income Taxes 1,786 225 15 1,576
Minority Interest Income (1,173) - (14) (1,187)
---------- ---------- ---------- ----------
Net Loss $ (1,421) $ 290 $ 42 $ (1,669)
========== ========== ========== ==========
Basic and Diluted Loss per Share $ (.07) $ (.09)
========= ==========
Basic and Diluted Weighted Average Shares 19,402 19,402
========== ==========
</TABLE>
4
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Less:
Thermo Randers Pro Forma
Terratech Division Adjustments Pro Forma
--------- -------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 234,790 $ 6,844 $ - $ 227,946
---------- ---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 185,059 6,468 - 178,591
Selling, general, and administrative expenses 34,439 1,284 - 33,155
Restructuring costs 56,524 5,777 - 50,747
---------- ---------- ---------- ----------
276,022 13,529 - 262,493
---------- ---------- ---------- ----------
Operating Loss (41,232) (6,685) - (34,547)
Interest Income 2,037 2 32 2,067
Interest Expense (6,678) (50) - (6,628)
---------- ---------- ---------- ----------
Loss Before Income Taxes, Minority Interest, and
Extraordinary Item (45,873) (6,733) 32 (39,108)
Provision for Income Taxes 1,244 (750) 11 2,005
Minority Interest Income (3,316) - 312 (3,004)
---------- ---------- ---------- ----------
Loss Before Extraordinary Item (43,801) (5,983) (291) (38,109)
Extraordinary Item, Net of Provision for
Income Taxes of $64 96 - - 96
---------- ---------- ---------- ----------
Net Loss $ (43,705) $ (5,983) $ (291) $ (38,013)
========== ========== ========== ==========
Basic and Diluted Loss per Share $ (2.29) $ (1.99)
========== ==========
Basic and Diluted Weighted Average Shares 19,066 19,066
========== ==========
</TABLE>
5
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED BALANCE SHEET
AS OF JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Less:
Thermo Randers
Terratech Division Pro Forma
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,905 $ 1,180 $ 3,725
Advance to affiliate 49,436 - 49,436
Accounts receivable, net 52,330 1,283 51,047
Unbilled contract costs and fees 26,950 378 26,572
Inventories 2,452 - 2,452
Deferred tax assets 6,668 - 6,668
Other current assets 3,685 - 3,685
---------- ---------- ----------
146,426 2,841 143,585
---------- ---------- ----------
Property, Plant, and Equipment, at Cost, Net 70,357 - 70,357
---------- ---------- ----------
Other Assets 9,623 - 9,623
---------- ---------- ----------
Cost in Excess of Net Assets of Acquired Companies 88,865 - 88,865
---------- ---------- ----------
$ 315,271 $ 2,841 $ 312,430
========== ========== ==========
</TABLE>
6
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
AS OF JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Less:
Thermo Randers
Terratech Division Pro Forma
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term obligations and current maturities of long-term obligations $ 19,549 $ - $ 19,549
Subordinated convertible debentures 37,950 - 37,950
Accounts payable 20,939 650 20,289
Accrued payroll and employee benefits 12,223 168 12,055
Accrued restructuring costs 8,660 986 7,674
Deferred revenue 4,169 - 4,169
Other accrued expenses 13,347 1,037 12,310
Due to parent company and affiliated companies 2,140 - 2,140
---------- ---------- ----------
118,977 2,841 116,136
---------- ---------- ----------
Deferred Income Taxes 685 - 685
---------- ---------- ----------
Other Deferred Items 1,097 - 1,097
---------- ---------- ----------
Long-term Obligations 118,241 - 118,241
---------- ---------- ----------
Minority Interest 24,785 - 24,785
---------- ---------- ----------
Shareholders' Investment:
Common stock 1,959 - 1,959
Capital in excess of par value 70,993 - 70,993
Accumulated deficit (17,807) - (17,807)
Treasury stock, at cost (3,846) - (3,846)
Deferred compensation (216) - (216)
Accumulated other comprehensive items 403 - 403
---------- ---------- ----------
51,486 - 51,486
---------- ---------- ----------
$ 315,271 $ 2,841 $ 312,430
========== ========== ==========
</TABLE>
7
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRO FORMA ADJUSTMENTS TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 3, 1999 January 1, 2000
------------- ---------------
Debit (Credit)
<S> <C> <C>
INTEREST INCOME
Increase in interest income earned on the $538,000 note
receivable issued to the Company by the acquirer at an interest
rate of 8% $ 43 $ 32
----- -----
PROVISION FOR INCOME TAXES
Increase in the income tax provision as a result of an increase
in interest income calculated at the federal income tax rate of
34% $ 15 $ 11
----- -----
MINORITY INTEREST INCOME
(Increase) decrease in minority interest income as a result of
the sale of the Randers division $ (14) $ 312
----- -----
</TABLE>
NOTE 2 - PRO FORMA ADJUSTMENTS TO PRO FORMA CONDENSED BALANCE SHEET
The sales price of the Randers division consisted of a $538,000
promissory note issued to the Company, secured by certain real estate. In
addition, the acquirer assumed $776,000 of mortgage debt. Due to the fact that
the Company received no consideration at the time of sale, the sale of the real
estate is being accounted for under the deposit method. Under the deposit
method, the Company did not record the note receivable and continues to report
the property that was sold as well as the existing mortgage debt in the
accompanying pro forma condensed balance sheet. Cash received from the acquirer
will be reported as a deposit on the contract. As a result, there are no pro
forma adjustments to the pro forma condensed balance sheet as of January 1,
2000.
8
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 7. FINANCIAL STATEMENTS, PRO FORMA CONDENSED FINANCIAL INFORMATION AND
EXHIBITS (continued)
(c) Exhibits
2.1 Asset Purchase Agreement by and among RGI Muskegon, Inc. (as Buyer),
Randers Engineering, Inc., Redeco, Inc., Viridian Technology, Inc.,
and Randers Group Property Corporation (as Sellers), and The Randers
Killam Group Inc. (as Sellers' Parent) dated January 28, 2000
(incorporated by reference to Exhibit 2.1 to The Randers Killam Group
Inc.'s Current Report on Form 8-K filed February 11, 2000).
9
<PAGE>
FORM 8-K
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, on this 11th day of February 2000.
THERMO TERRATECH INC.
By: /s/ PAUL F. KELLEHER
------------------------
Paul F. Kelleher
Chief Accounting Officer
10
<PAGE>
APPENDIX G
CURRENT REPORT ON FORM 8-K DATED MARCH 6, 2000
RELATING TO THE SALE OF A SOIL-RECYCLING FACILITY BY THERMORETEC
G-1
<PAGE>
Appendix G
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
March 6, 2000
----------------------------------------------------
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-9549 04-2925807
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
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
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 2. DISPOSITION OF ASSETS
On March 6, 2000, TPST Soil Recyclers of California, Inc. ("TPST"), an
indirect, wholly owned subsidiary of ThermoRetec Corporation, a majority-owned
subsidiary of Thermo TerraTech Inc. (the "Company"), sold all of the assets of
its soil-remediation facility located at the West Contra Costa Sanitary Landfill
in Contra Costa County, California (the "Facility") to Nove Investments I, LLC,
a California limited liability company (the "Buyer"). The Facility is in the
business of providing soil-remediation services.
The assets sold in the transaction include all rights under certain
contracts, the permits possessed by the Facility and fixed assets and equipment
used at the Facility. The Buyer assumed all liabilities and obligations under
the assumed contracts and all liabilities and obligations relating to the land
and building where the Facility operates, including all environmental
liabilities.
The purchase price for the assets was $400,000 in cash, of which $250,000
was placed in escrow. The release of the escrowed funds to TPST is contingent
upon the satisfaction of certain post-closing conditions, primarily the
achievement of fuel efficiency targets for certain equipment. If certain of the
post-closing conditions are not satisfied, some or all of the escrowed funds
will be returned to the Buyer. The purchase price of the assets was determined
by the parties in arms-length negotiations.
In connection with the transaction, the Operating Agreement by and among
TPST, West County Landfill and West Contra Costa County Sanitary Landfill
relating to the operation of the Facility was terminated and the Company was
released from its guaranty of TPST's performance obligations under the Operating
Agreement. TPST will, however, continue to operate the Facility on the Buyer's
behalf for a period not to exceed three months after the closing under a
management agreement pursuant to which TPST will be reimbursed by the Buyer for
its "Allowable Costs" as that term is defined in the agreement.
2
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 7. FINANCIAL STATEMENTS, PRO FORMA CONDENSED FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements
Not applicable.
(b) Pro Forma Condensed Financial Statements
The following unaudited pro forma condensed statements of operations set
forth the results of operations for the fiscal year ended April 3, 1999, and the
nine months ended January 1, 2000, as if the disposition by the Company of the
Facility had occurred at the beginning of fiscal 1999. The unaudited pro forma
condensed balance sheet sets forth the financial position as of January 1, 2000,
as if the disposition had occurred as of that date.
The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the sale of
the Facility been consummated at the beginning of fiscal 1999. These statements
should be read in conjunction with the accompanying notes herein and the
historical consolidated financial statements and related notes of the Company
included in its Annual Report on Form 10-K, as amended, for the fiscal year
ended April 3, 1999, and Quarterly Report on Form 10-Q for the nine months ended
January 1, 2000.
3
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED APRIL 3, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Thermo Pro Forma
Terratech Less: Facility Adjustments Pro Forma
--------- ----- -------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 310,039 $ 3,358 $ - $ 306,681
---------- ---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 247,610 2,720 - 244,890
Selling, general, and administrative expenses 46,224 395 - 45,829
Restructuring costs 10,217 6,846 - 3,371
---------- ---------- ---------- ----------
304,051 9,961 - 294,090
---------- ---------- ---------- ----------
Operating Income (Loss) 5,988 (6,603) - 12,591
Interest Income 2,185 - 18 2,203
Interest Expense (8,981) - - (8,981)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes and Minority Interest (808) (6,603) 18 5,813
Income Tax (Provision) Benefit (1,786) 2,311 (7) (4,104)
Minority Interest Income (Expense) 1,173 - (1,325) (152)
---------- ---------- ---------- ----------
Net Income (Loss) $ (1,421) $ (4,292) $ (1,314) $ 1,557
========== ========== ========== ==========
Basic and Diluted Earnings (Loss) per Share $ (.07) $ .08
========== ==========
Weighted Average Shares:
Basic 19,402 19,402
========== ==========
Diluted 19,402 455 19,857
========== ========== ==========
</TABLE>
4
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Thermo Pro Forma
Terratech Less: Facility Adjustments Pro Forma
--------- ----- -------- ----------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 234,790 $ 1,499 $ - $ 233,291
---------- ---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues 185,059 1,489 - 183,570
Selling, general, and administrative expenses 34,439 222 - 34,217
Restructuring costs 56,524 9 - 56,515
---------- ---------- ---------- ----------
276,022 1,720 - 274,302
---------- ---------- ---------- ----------
Operating Loss (41,232) (221) - (41,011)
Interest Income 2,037 - 14 2,051
Interest Expense (6,678) - - (6,678)
---------- ---------- ---------- ----------
Loss Before Income Taxes, Minority Interest, and
Extraordinary Item (45,873) (221) 14 (45,638)
Income Tax (Provision) Benefit (1,244) 80 (5) (1,329)
Minority Interest Income 3,316 - (45) 3,271
---------- ---------- ---------- ----------
Loss Before Extraordinary Item (43,801) (141) (36) (43,696)
Extraordinary Item, Net of Income Tax
Provision of $64 96 - - 96
---------- ---------- ---------- ----------
Net Loss $ (43,705) $ (141) $ (36) $ (43,600)
========== ========== ========== ==========
Basic and Diluted Loss per Share $ (2.29) $ (2.29)
========== =========
Basic and Diluted Weighted Average Shares 19,066 19,066
========== ==========
</TABLE>
5
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED BALANCE SHEET
AS OF JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Thermo Pro Forma
Terratech Less: Facility Adjustments Pro Forma
--------- ----- -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,905 $ - $ 400 $ 5,305
Advance to affiliate 49,436 - - 49,436
Accounts receivable, net 52,330 613 - 51,717
Unbilled contract costs and fees 26,950 33 - 26,917
Inventory 2,452 - - 2,452
Deferred tax asset 6,668 - - 6,668
Other current assets 3,685 61 - 3,624
---------- ---------- ---------- ----------
146,426 707 400 146,119
---------- ---------- ---------- ----------
Property, Plant, and Equipment, at Cost, Net 70,357 775 - 69,582
---------- ---------- ---------- ----------
Other Assets 9,623 (620) - 10,243
---------- ---------- ---------- ----------
Cost in Excess of Net Assets of Acquired Companies 88,865 - - 88,865
---------- ---------- ---------- ----------
$ 315,271 $ 862 $ 400 $ 314,809
========== ========== ========== ==========
</TABLE>
6
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
AS OF JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Thermo Pro Forma
Terratech Less: Facility Adjustments Pro Forma
--------- ----- -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities:
Short-term obligations and current maturities
of long-term obligations $ 19,549 $ - $ - $ 19,549
Subordinated convertible debentures 37,950 - - 37,950
Accounts payable 20,939 115 - 20,824
Accrued payroll and employee benefits 12,223 117 - 12,106
Accrued restructuring costs 8,660 697 - 7,963
Deferred revenue 4,169 23 - 4,146
Other accrued expenses 13,347 (620) 75 14,042
Due to parent company and affiliated companies 2,140 - - 2,140
----------- ----------- ----------- -----------
118,977 332 75 118,720
----------- ----------- ----------- -----------
Deferred Income Taxes 685 - - 685
----------- ----------- ----------- -----------
Other Deferred Items 1,097 - - 1,097
----------- ----------- ----------- -----------
Long-term Obligations 118,241 - - 118,241
----------- ----------- ----------- -----------
Minority Interest 24,785 - (62) 24,723
----------- ----------- ----------- -----------
Shareholders' Investment:
Common stock 1,959 - - 1,959
Capital in excess of par value 70,993 - - 70,993
Accumulated deficit (17,807) - (143) (17,950)
Treasury stock at cost (3,846) - - (3,846)
Deferred compensation (216) - - (216)
Accumulated other comprehensive items 403 - - 403
Parent company investment - 530 530 -
----------- ----------- ----------- -----------
51,486 530 387 51,343
----------- ----------- ----------- -----------
$ 315,271 $ 862 $ 400 $ 314,809
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - PRO FORMA ADJUSTMENTS TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except in text)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 3, 1999 January 1, 2000
------------- ---------------
Debit (Credit)
<S> <C> <C>
INTEREST INCOME
Increase in interest income earned on the $325,000 of net cash
paid to the Company by the acquirer, which includes $250,000 of
cash in escrow, calculated using the 30-day Commercial Paper
Composite Rate plus 50 basis points, or 5.46% in fiscal 1999
and 5.58% in the first nine months of fiscal 2000 $ (18) $ (14)
------- -------
INCOME TAX PROVISION
Increase in the income tax provision as a result of an increase
in interest income calculated at an effective income tax rate
of 37% $ 7 $ 5
------- -------
MINORITY INTEREST INCOME
Decrease in minority interest income as a result of the sale of the
Facility $ 1,325 $ 45
------- -------
DILUTED WEIGHTED AVERAGE SHARES
Increase in weighted average shares for the dilutive effect of
stock options, which were previously antidilutive, as a result of
the pro forma adjustments 455 -
------- -------
</TABLE>
NOTE 2 - PRO FORMA ADJUSTMENTS TO PRO FORMA CONDENSED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
January 1, 2000
Debit (Credit)
<S> <C>
CASH AND CASH EQUIVALENTS
Cash received for sale of assets of the Facility $ 400
-------
OTHER ACCRUED EXPENSES
Estimated accrued transaction costs, including legal fees and
other costs $ (75)
-------
MINORITY INTEREST
Decrease in minority interest related to excess of parent company
investment in the Facility over proceeds from sale $ 62
-------
SHAREHOLDERS' INVESTMENT
Elimination of the Facility equity account and excess of parent
company investment in the Facility over proceeds from sale $ (387)
--------
</TABLE>
8
<PAGE>
FORM 8-K
THERMO TERRATECH INC.
Item 7. FINANCIAL STATEMENTS, PRO FORMA CONDENSED FINANCIAL INFORMATION AND
EXHIBITS (continued)
(c) Exhibits
2.1 Asset Purchase Agreement dated March 6, 2000, by and among TPST
Soil Recyclers of California, Inc. and Nove Investments I, LLC
(filed as Exhibit 2.1 to ThermoRetec Corporation's Form 8-K dated
as of March 21, 2000 [File No. 1-12636] and incorporated herein by
reference).
9
<PAGE>
FORM 8-K
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, on this 21st day of March 2000.
THERMO TERRATECH INC.
By: /S/ PAUL F. KELLEHER
---------------------------
Paul F. Kelleher
Chief Accounting Officer
10
<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 Removed.
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>
- ------------------------
* Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
II-2
<PAGE>
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) that, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) 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;
(5) 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 be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(6) 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;
(7) 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
(8) 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
II-3
<PAGE>
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waltham,
Commonwealth of Massachusetts, on April 27, 2000.
<TABLE>
<S> <C> <C>
THERMO ELECTRON CORPORATION
By: /s/ RICHARD F. SYRON*
-----------------------------------------
Richard F. Syron
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY AND SIGNATURES
Each of the undersigned Directors and Officers of Thermo Electron
Corporation hereby appoints Theo Melas-Kyriazi, 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 Amendment
No. 2 to the 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>
President, Chief Executive
/s/ RICHARD F. SYRON* Officer and Chairman
------------------------------------------- of the Board (Principal April 27, 2000
Richard F. Syron Executive Officer)
Chief Financial Officer
/s/ THEO MELAS-KYRIAZI (Principal Financial
------------------------------------------- Officer and Principal April 27, 2000
Theo Melas-Kyriazi Accounting Officer)
/s/ SAMUEL W. BODMAN*
------------------------------------------- Director April 27, 2000
Samuel W. Bodman
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER O. CRISP*
------------------------------------------- Director April 27, 2000
Peter O. Crisp
/s/ ELIAS P. GYFTOPOULOS*
------------------------------------------- Director April 27, 2000
Elias P. Gyftopoulos
/s/ FRANK JUNGERS*
------------------------------------------- Director April 27, 2000
Frank Jungers
/s/ ROBERT A. MCCABE*
------------------------------------------- Director April 27, 2000
Robert A. McCabe
/s/ HUTHAM S. OLAYAN*
------------------------------------------- Director April 27, 2000
Hutham S. Olayan
/s/ ROBERT W. O'LEARY*
------------------------------------------- Director April 27, 2000
Robert W. O'Leary
/s/ ROGER D. WELLINGTON*
------------------------------------------- Director April 27, 2000
Roger D. Wellington
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ THEO MELAS-KYRIAZI*
-----------------------------------------
Theo Melas-Kyriazi
ATTORNEY-IN-FACT
</TABLE>
II-6
<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 Removed.
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>
- ------------------------
* Previously filed.
<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.
This opinion is limited to the applicable provisions of the Delaware
Constitution, the General Corporation Law of the State of Delaware ("Delaware
Law") and reported judicial decisions interpreting Delaware Law.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to being named in the Registration Statement.
Very truly yours,
/s/ Seth H. Hoogasian
----------------------
Seth H. Hoogasian
General Counsel
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 2 to the Registration Statement on Form S-4
and related Prospectus of Thermo Electron Corporation of our reports dated
February 17, 2000 (except with respect to the matter discussed in Note 17, as
to which the date is March 7, 2000) included or incorporated by reference in
Thermo Electron Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000 and to all references to our Firm included in this
Registration Statement and related Prospectus.
/s/ Arthur Andersen LLP
Boston, Massachusetts
April 27, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 2 to the Registration Statement on Form S-4
and related Prospectus of Thermo Electron Corporation 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
April 26, 2000
