-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzvDH83bQuWy9UjZluxPG+11UvceWmCKu8akFM7ZyT1Is6LesaJs5O3Sqps/HpNk 3WK8XtjQjVVcJnFF5JQDag== 0000795986-98-000002.txt : 19980313 0000795986-98-000002.hdr.sgml : 19980313 ACCESSION NUMBER: 0000795986-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980312 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO INSTRUMENT SYSTEMS INC CENTRAL INDEX KEY: 0000795986 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042925809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09786 FILM NUMBER: 98564626 BUSINESS ADDRESS: STREET 1: 860 WEST AIRPORT FREEWAY STREET 2: SUITE 301 CITY: HURST STATE: TX ZIP: 76054 BUSINESS PHONE: 8174856663 MAIL ADDRESS: STREET 1: 860 WEST AIRPORT FREEWAY STREET 2: SUITE 301 CITY: HURST STATE: TX ZIP: 76054 10-K 1 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 January 3, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9786 THERMO INSTRUMENT SYSTEMS INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 860 West Airport Freeway Suite 301 Hurst, Texas 76054 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 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 January 30, 1998, was approximately $622,251,000. As of January 30, 1998, the Registrant had 122,045,212 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 3, 1998, 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 June 1, 1998, are incorporated by reference into Part III. PAGE PART I Item 1. Business -------- (a) General Development of Business. ------------------------------- Thermo Instrument Systems Inc. (the Company or the Registrant) is a worldwide leader in the development, manufacture, and marketing of analytical instruments used to identify and quantify complex molecular compounds and elements in gases, liquids, and solids. The Company also provides instruments used to monitor radioactivity and air pollution, and to control, image, inspect, and measure various industrial processes and life-sciences phenomena. Through its 77%-owned ThermoSpectra Corporation subsidiary, the Company develops, manufactures, and markets imaging and inspection, temperature-control, and test and measurement instruments. The Company's 88%-owned ThermoQuest Corporation subsidiary develops, manufactures, and sells mass spectrometers, liquid chromatographs, and gas chromatographs for the pharmaceutical, environmental, and industrial marketplaces. These analytical instruments are used in the quantitative and qualitative chemical analysis of organic and inorganic compounds at ultra-trace levels of detection. In addition, the Company manufactures scientific equipment for the preparation and preservation of chemical samples, and consumables for the chromatography industry. Through its 91%-owned Thermo Optek Corporation subsidiary, the Company develops, manufactures, and markets analytical light-based instruments that are used in the quantitative and qualitative chemical analysis of elements and molecular compounds. Through its 70%-owned Thermo BioAnalysis Corporation subsidiary, the Company develops, manufactures, and markets instruments, consumables, and information management systems used in biochemical research and production, as well as in clinical diagnostics. The Company's 60%-owned Metrika Systems Corporation subsidiary develops, manufactures, and markets on-line process optimization systems that employ proprietary, ultra-high-speed advanced scientific measurement technologies for applications in raw-materials analysis and finished-materials quality control. The Company's 78%-owned Thermo Vision Corporation subsidiary designs, manufactures, and markets a diverse array of photonics products that are used in a number of industries for research, testing, detecting, and manufacturing applications. The Company's 87%-owned, privately held ONIX Systems Inc. subsidiary designs, develops, markets, and services sophisticated field measurement instruments and on-line sensors. Through its wholly owned subsidiaries, the Company also manufactures monitoring instruments to detect and monitor environmental pollutants and provides clinical laboratory equipment and consumables that assist in the diagnosis of various diseases. The Company has 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. During 1997*, Metrika Systems and Thermo Vision * References to 1997, 1996, and 1995 herein are for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, respectively. 2PAGE sold shares of their common stock in initial public offerings and ONIX and ThermoQuest sold shares of their common stock in private placements for aggregate net proceeds of $86.3 million. See Note 11 to Consolidated Financial Statements in the Registrant's 1997 Annual Report to Shareholders for a description of the issuance of stock by the Company's subsidiaries. The Company historically has expanded both through the acquisition of companies and product lines and through internal development of new products and technologies. During the past several years, the Company has completed a number of complementary acquisitions that have provided additional technologies, specialized manufacturing or product development expertise, and broader capabilities in marketing and distribution. In March 1997, the Company acquired 95% of Life Sciences International PLC (Life Sciences), a London Stock Exchange-listed company. Subsequently, the Company acquired the remaining shares of Life Sciences' capital stock. The aggregate purchase price for Life Sciences was approximately $442.8 million, net of $55.8 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. The Company was incorporated in Delaware in May 1986 as a wholly owned subsidiary of Thermo Electron Corporation to operate the instruments businesses that were previously conducted by several Thermo Electron subsidiaries. As of January 3, 1998, Thermo Electron owned 99,819,138 shares, or 82%, of the Company's outstanding common stock. Thermo Electron provides analytical and monitoring instruments; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; paper recycling and papermaking equipment; alternative-energy systems; industrial process equipment; and other specialized products. Thermo Electron also provides industrial outsourcing, laboratory, and metallurgical services, and conducts advanced-technology research and development. Thermo Electron intends for the foreseeable future to maintain at least 80% ownership of the Company, so that it may continue to file consolidated U.S. federal and certain state income tax returns with the Company. This may require the purchase by Thermo Electron of additional shares of common stock and/or convertible debentures of the Company from time to time as the number of outstanding shares of the Company increases. These and any other purchases may be made either in the open market or directly from the Company or pursuant to conversions of the Company's 3 3/4% senior convertible note due 2000 held by Thermo Electron. See Notes 5 and 7 to Consolidated Financial Statements in the Registrant's 1997 Annual Report to Shareholders for a description of the Company's outstanding stock options and convertible obligations. During 1997, Thermo Electron purchased 739,600 shares of the Company's common stock in the open market at a total cost of $24.1 million. 3PAGE 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 1997 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Industry Segments. --------------------------------------------- The Company operates in one business segment: the developing, manufacturing, marketing, and servicing of analytical instruments and software used for the identification and quantification of complex molecular compounds and elements in gases, liquids, and solids. Uses include pharmaceutical drug research and clinical diagnostics, monitoring and measuring environmental pollutants, industrial inspection, and test and control for quality assurance and productivity improvement. In addition, the Company develops, manufactures, markets, and services equipment for the measurement, preparation, storage, and automation of sample materials, and photonics products and vacuum components for original equipment manufacturers. (c) Description of Business. ----------------------- Principal Products and Services The Company manufactures and markets instruments that employ a variety of advanced analytical techniques to determine the composition, structure, and physical properties of natural and synthetic substances. The Company's instruments are used for analysis, test and measurement, environmental and nuclear monitoring, process control, and in life sciences applications. Revenues from analytical and test and measurement instruments were $1,084.3 million, $821.6 million, and $537.5 million in 1997, 1996, and 1995, respectively. ThermoSpectra develops, manufactures, and markets precision imaging and inspection, temperature-control, and test and measurement instruments. These instruments are generally combined with proprietary operations and analysis software to provide industrial and research customers with integrated systems that address their specific needs. ThermoQuest is a leading provider of mass spectrometers, liquid chromatographs, and gas chromatographs for the pharmaceutical, environmental, and industrial marketplaces. These analytical instruments are used in the quantitative and qualitative chemical analysis of organic and inorganic compounds at ultratrace levels of detection. ThermoQuest 4PAGE also supplies scientific equipment for the preparation and preservation of chemical samples, and consumables for the chromatography industry. Thermo Optek is a worldwide leader in the development, manufacture, and marketing of analytical instruments that use a range of light- and energy-based techniques. Thermo Optek's instruments are used in the quantitative and qualitative chemical analysis of elements and molecular compounds in a variety of solids, liquids, and gases. Thermo BioAnalysis develops, manufactures, and markets instruments, consumables, and information-management systems used in biochemical research and production, as well as in clinical diagnostics. Thermo BioAnalysis focuses on three principal product areas: life sciences instrumentation and consumables, information-management systems, and health physics instrumentation. Metrika Systems manufactures process optimization systems that provide on-line, real-time analysis of the elemental composition of bulk raw materials in basic-materials production processes, including coal, cement, and minerals. In addition, Metrika Systems manufactures industrial gauging and process-control instruments and systems used principally by manufacturers of finished web materials, such as sheet metal, rubber, and plastic foils, to measure and control parameters such as thickness and coating weight of such materials. Thermo Vision, which became a public subsidiary of the Company in December 1997, designs, manufactures, and markets a diverse array of photonics (light-based) products, including optical components, imaging sensors and systems, lasers, optically based instruments, opto- electronics, and fiber optics. These products are used in applications including medical diagnostics, semiconductor production, X-ray imaging, physics research, and telecommunications. ONIX Systems, a privately held subsidiary of the Company, designs, develops, markets, and services sophisticated field measurement instruments and on-line sensors for process-control industries, particularly oil and gas. Systems provide real-time data collection, analysis, and local control functions regarding the flow, level, density, or composition of a particular material. Thermo Instrument also has wholly owned businesses, including the Life Sciences Clinical Instrument Division, which provides an array of clinical laboratory equipment and consumables, and Thermo Monitoring Instruments, which produces instruments and complete systems for detecting and monitoring environmental pollutants from industrial and mobile sources, and for detecting radioactive contamination. Backlog The Company's backlog of firm orders was $298.9 million as of January 3, 1998, and $266.6 million as of December 28, 1996, The Company anticipates that substantially all of the backlog as of January 3, 1998, will be shipped or completed during 1998. Certain of such orders are cancellable by the customer upon payment of a cancellation charge. The 5PAGE Company does not believe that the level of, or changes in the level of, its backlog is necessarily indicative of intermediate or long-term trends in its business. Competition The Company generally competes on the basis of technical advances that result in new products and improved price/performance ratios, reputation among customers as a quality leader for products and services, and active research and application-development programs. To a lesser extent, the Company competes on the basis of price. In many markets, the Company competes with large analytical- instrument companies such as Hewlett-Packard Co., Perkin-Elmer Corporation, Varian Associates, Inc., and Hitachi, Ltd. Certain products manufactured by the Company also compete with products sold by numerous smaller, specialized firms. ThermoSpectra competes in each of its markets primarily on the basis of technical advances that result in new products and improved price/performance ratios and reputation among customers as a quality leader for products and services. To a lesser extent, ThermoSpectra competes on the basis of price. The market for digital oscillographic recorders is characterized by competition among a number of competitors, including Astro-Med, Inc. and Yokogawa Electric Corporation. The general-purpose digital storage oscilloscope market is dominated by Tektronix, Inc. and Hewlett-Packard. ThermoSpectra competes in the high-end of the X-ray microanalysis market on the basis of quality and technology, and in the mid-end of the X-ray microanalysis market on the basis of quality, performance, and price. The main competitor in this segment is Link Analytical Limited, a wholly owned subsidiary of Oxford Instruments plc. In the X-ray inspection market, ThermoSpectra competes with smaller companies in the manual segment of the market, and primarily with Four Pi Systems, a subsidiary of Hewlett-Packard, in the automated segment. In the digital-video segment of the confocal microscopy market, ThermoSpectra competes primarily with Nikon Inc., as well as Bio-Rad Laboratories, Inc. ThermoSpectra competes in the scanning-probe microscope market on the basis of quality, performance, and, to a lesser extent, price. The dominant competitor in this market is Digital Instruments, Inc. In the temperature-control market, the Company competes primarily on the basis of performance, price, and customer service. The main competitors in this market are Lauder and Jalabo. ThermoQuest competes in each of its markets primarily on technical performance, customer service and support and, to a lesser extent, price. ThermoQuest's principal competitors in the mass spectrometry market include Hewlett-Packard, Waters Instruments Inc. (MicroMass), Shimadzu Corporation, and Perkin-Elmer. ThermoQuest's principal competitors in the liquid chromatography market include Waters, Hewlett-Packard, Shimadzu, and Perkin-Elmer. In the gas chromatography market, ThermoQuest competes with numerous companies including Hewlett-Packard, Varian, Perkin-Elmer, and Shimadzu. ThermoQuest's principal competitors in the sample preparation and preservation markets include Jouan S.A., NuAire, Sanyo Electric, and Labconco. ThermoQuest's principal competitors in the 6PAGE chromatography consumables market include Waters, Merck, Phenomenex, and numerous regional suppliers. Thermo Optek competes in each of its markets primarily on performance, reliability, customer service, and price. In the market for AE and AA spectrometers and ICP/MS instruments, Thermo Optek competes primarily with Perkin-Elmer and, to a lesser extent, Varian. Thermo Optek competes in the arc/spark market primarily with Spectro. In the FT-IR and FT-Raman markets, Thermo Optek competes primarily with Perkin-Elmer and Bio-Rad. Thermo Optek entered the market for UV/Vis instruments with its acquisition of Unicam in 1995. The primary competitor in this market is Perkin-Elmer. In life sciences instrumentation, including molecular interaction, MALDI-TOF mass spectrometry, DNA amplification, and capillary electrophoresis, Thermo BioAnalysis competes primarily on the basis of technological innovation, performance, flexibility, and price. Major competitors in this category include Perkin-Elmer and PerSeptive Biosystems, Inc., which is now a subsidiary of Perkin-Elmer. In information management systems, Thermo BioAnalysis competes in the high-end LIMS and CDS markets primarily on function, flexibility, technical sophistication, customization, and price. Major competitors include Hewlett-Packard, Perkin-Elmer, and Waters. Metrika Systems competes primarily on the basis of performance and, to a lesser extent, price in the on-line coal, cement, and mineral analysis markets. Scantech Limited is the Company's primary competitor in the on-line coal and cement analysis market. Amdel of Australia is the Company's principal competitor in the on-line minerals analysis market. The market for solids and multiphase analyzers for process control is generally fragmented. Competition in the thickness-gauging business is highly fragmented with numerous competitors competing in various end-use market segments. As a result, competition varies according to the end-use segment. Metrika Systems competes primarily on the basis of quality, performance, and price. Thermo Vision competes primarily on the basis of technical suitability, product performance, reliability, and price, and its principal competitors include Melles-Griot, Inc.; Optical Coating Laboratory, Inc.; Newport Corporation; Coherent, Inc.; Corning OCA Corporation; the Bicron Business Unit of Saint-Gobain Industrial Ceramics, Inc.; UDT Sensors, Inc.; and Hamamatsu Corporation, a unit of Hamamatsu Photonics KK. The Company competes in the field measurement instruments and sensors market primarily on quality and reliability, technical features, accuracy, ease of use, price, and reputation for after market service. The field measurement instruments and sensors market segment of the process control market is highly fragmented and intensely competitive, and the Company expects competition to continue to increase. ONIX Systems competes with a few large competitors, including Fisher-Rosemount, a division of Emerson Electric Co., Inc.; Elsag-Bailey Process Automation N.V., affiliates of ABB Asea Brown Boveri (Holding) Ltd.; and Yokogawa, in each of its product areas and with many companies within specific 7PAGE industries. As the technologies utilized within the process measurement industry continue to develop, ONIX Systems expects to face increasing competition from emerging competitors. The Company is a leading manufacturer of ambient air-monitoring instruments and a major manufacturer of source monitoring and worker-safety monitoring instruments. The Company competes in these markets on the basis of technical performance and reliability, as well as customer service. The Company's principal competitors include Monitor Labs Incorporated, Advanced Pollution Instruments, and Mine Safety Appliances Co. The Company has a relatively small presence within the large and varied process-control marketplace, which is extremely fragmented and is comprised of several large companies, including Fisher-Rosemount, Elsag Bailey, and Honeywell Process Control, as well as numerous smaller companies. The Company competes in this market primarily on the basis of technical performance, customer service, and reliability. 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. Number of Employees As of January 3, 1998, the Company employed 9,398 people. (d) Financial Information About Exports by Domestic Operations and -------------------------------------------------------------- About Foreign Operations. ------------------------ Financial information about exports by domestic operations and about foreign operations is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1997 Annual Report to Shareholders and is incorporated herein by reference. (e) Executive Officers of the Registrant. ------------------------------------ Present Title (Year First Became Name Age Executive Officer) ------------------------- --- -------------------------------- Earl R. Lewis 54 President and Chief Executive Officer (1990) Denis A. Helm 59 Senior Vice President (1986) Dr. Richard W.K. Chapman 53 Vice President (1994) Barry S. Howe 42 Vice President (1994) John N. Hatsopoulos * 63 Chief Financial Officer and Senior Vice President (1988) Paul F. Kelleher 55 Chief Accounting Officer (1986) *John N. Hatsopoulos and George N. Hatsopoulos, a director of the Company, are brothers. 8PAGE 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. Lewis and Dr. Chapman, have held comparable positions for at least five years, either with the Company or with its parent company, Thermo Electron. Mr. Lewis was named President and Chief Executive Officer of the Company in March 1997. Mr. Lewis served as Executive Vice President and Chief Operating Officer of the Company from January 1996 through March 1997, as a Senior Vice President from January 1994 through January 1996, and as a Vice President from March 1990 through January 1994. Dr. Chapman has been President and Chief Executive Officer of ThermoQuest since its inception in June 1995, and served as President of Finnigan Corporation, a subsidiary of ThermoQuest, from 1992 to 1995. Messrs. Lewis, Helm, Chapman, and Howe are full-time employees of the Company. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron and certain of its subsidiaries, but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties ---------- The Company owns approximately 2,601,000 square feet of office, engineering, laboratory, and production space, principally in California, Florida, New Mexico, Texas, Wisconsin, Ohio, New Hampshire, New York, Massachusetts, the United Kingdom, and Germany, and leases approximately 2,423,000 square feet of office, engineering, laboratory, and production space, under leases expiring from 1998 through 2017, principally in California, Massachusetts, Texas, Wisconsin, and the United Kingdom. As of January 3, 1998, the Company had an $8.3 million mortgage loan that is secured by 200,000 square feet of property in California with a net book value of $15.8 million. The Company believes that its facilities are in good condition and are suitable and adequate for its present operations and that 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. 9PAGE 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 is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1997 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 1997 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 1997 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 January 3, 1998, and Supplementary Data are included in the Registrant's 1997 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. 10PAGE 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. 11PAGE 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 Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Statement Schedules 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 in the notes thereto. (b) Reports on Form 8-K. ------------------- None. (c) Exhibits. -------- See Exhibit Index on the page immediately preceding exhibits. 12PAGE 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 on its behalf by the undersigned, thereunto duly authorized. Date: March 11, 1998 THERMO INSTRUMENT SYSTEMS INC. By: Earl R. Lewis ----------------------------------- Earl R. Lewis 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 March 11, 1998. Signature Title --------- ----- By: Earl R. Lewis President, Chief Executive Officer, --------------------------- and Director Earl R. Lewis By: John N. Hatsopoulos Chief Financial Officer, --------------------------- Senior Vice President, and Director John N. Hatsopoulos By: Paul F. Kelleher Chief Accounting Officer --------------------------- Paul F. Kelleher By: Director --------------------------- Frank Borman By: George N. Hatsopoulos Director --------------------------- George N. Hatsopoulos By: Arvin H. Smith Chairman of the Board and Director --------------------------- Arvin H. Smith By: Polyvios C. Vintiadis Director --------------------------- Polyvios C. Vintiadis 13PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo Instrument Systems Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Instrument Systems Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 17, 1998. 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 12 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 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 February 17, 1998 14PAGE SCHEDULE II THERMO INSTRUMENT SYSTEMS INC. Valuation and Qualifying Accounts (In thousands) Provision Balance at Charged Accounts Balance Beginning to Accounts Written at End Description of Year Expense Recovered Off Other(a) of Year --------------------------------------------------------------------------- Allowance for Doubtful Accounts Year Ended Jan. 3, 1998 $16,981 $ 4,366 $ 304 $(4,375) $5,510 $22,786 Year Ended Dec. 28, 1996 $12,569 $ 2,274 $ 69 $(5,015) $7,084 $16,981 Year Ended Dec. 30, 1995 $ 8,779 $ 2,543 $ 191 $(2,942) $3,998 $12,569 (a) Includes allowance of businesses acquired during the year as described in Note 4 to Consolidated Financial Statements in the Company's 1997 Annual Report to Shareholders and the effect of foreign currency translation. 15PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 2.1 Asset and Stock Purchase Agreement among the Registrant, Thermo Electron Corporation, and Fisons plc dated March 1, 1995, as amended (filed as Exhibit 2.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and as Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 [File No. 1-9786] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Company hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 2.2 Agreement and Release dated as of December 15, 1997, among Fisons plc, the Registrant and Thermo Electron. 3.1 Amendment to Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 [File No. 1-9786] and incorporated herein by reference). 3.2 By-Laws of the Registrant (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 4.1 Subordinated Indenture, dated January 15, 1998, among the Registrant, Thermo Electron and Bankers Trust Company as trustee, relating to $250,000,000 principal amount of 4% Convertible Subordinated Debentures due 2005 (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Commission on January 16, 1998, and incorporated herein by reference). 4.2 Senior convertible note purchase agreement by and between the Registrant and Thermo Electron as of September 15, 1993 (filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993 [File No. 1-9786] and incorporated 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 instrument with respect to other long-term debt of the Registrant or its subsidiaries. 16PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.1 Amended and Restated Corporate Services Agreement, dated as of January 3, 1993, between Thermo Electron and the Registrant (filed as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 10.2 Tax Allocation Agreement dated as of May 29, 1986, between Thermo Electron and the Registrant (filed as Exhibit 10(b) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). 10.3 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-9786] and incorporated herein by reference). 10.4 Form of Indemnification Agreement with Directors and Officers (filed as Exhibit 10(g) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-9786] and incorporated herein by reference). 10.5 Plan for sale of shares by the Registrant to Thermo Electron (filed as Exhibit 10(dd) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993 [File No. 1-9786] and incorporated herein by reference). 10.6 Master Repurchase Agreement dated December 28, 1996, between the Registrant and Thermo Electron (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 [File No. 1-9786] and incorporated herein by reference). 10.7 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated December 2, 1997, by and among the Registrant and Thermo Electron. 10.8 $30,000,000 Promissory Note dated as of February 13, 1996, issued by Thermo BioAnalysis Corporation to Thermo Electron (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 [File No. 1-9786] and incorporated herein by reference). 17PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.9 $65,000,000 Promissory Note dated as of April 12, 1996, issued by the Registrant to Thermo Electron (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 [File No. 1-9786] and incorporated herein by reference). 10.10 Restated Stock Holdings Assistance Plan and Form of Promissory Note. 10.11-10.15 Reserved. 10.16 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(f) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] and incorporated herein by reference). 10.17 Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.18 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10(c) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] 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 3,515,625 shares, after adjustment to reflect share increase approved in 1990; 3-for-2 stock splits effected in January 1988, July 1993, and April 1995; and 5-for-4 stock splits effected in December 1995 and October 1997). 10.19 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6762] 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 3,515,625 shares, after adjustment to reflect share increase approved in 1990; 3-for-2 stock splits effected in January 1988, July 1993, and April 1995; and 5-for-4 stock splits effected in December 1995 and October 1997). 18PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.20 Equity Incentive Plan of the Registrant (filed as Appendix A to the Proxy Statement dated April 27, 1993, of the Registrant [File No. 1-9786] and incorporated herein by reference). (Maximum number of shares issuable is 5,039,062 shares, after adjustment to reflect share increase approved in December 1993; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock splits effected in December 1995 and October 1997). 10.21 Finnigan Corporation 1979 Long-term Incentive Stock Option Plan (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.22 Former Thermo Environmental Corporation Incentive Stock Option Plan (filed as Exhibit 10(d) to Thermo Environmental's Registration Statement on Form S-1 [Reg. No. 33-329] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Former Thermo Environmental Corporation Nonqualified Stock Option Plan is 1,450,195 shares, after adjustment to reflect share increase approved in 1987; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock splits effected in December 1995 and October 1997). 10.23 Former Thermo Environmental Corporation Nonqualified Stock Option Plan (filed as Exhibit 10(e) to Thermo Environmental's Registration Statement on Form S-1 [Reg. No. 33-329] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Former Thermo Environmental Corporation Incentive Stock Option Plan is 1,450,195 shares, after adjustment to reflect share increase approved in 1987; 3-for-2 stock splits effected in July 1993 and April 1995; and 5-for-4 stock splits effected in December 1995 and October 1997). 10.24 Thermo Instrument Systems Inc. - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.51 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 19PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.25 Thermo Instrument Systems Inc. - ThermoQuest Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.65 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.26 Thermo Instrument Systems Inc. - Thermo BioAnalysis Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.64 to Thermo Cardiosystems' Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-10114] and incorporated herein by reference). 10.27 Thermo Instrument Systems Inc. - Thermo Optek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 [File No. 1-9786] and incorporated herein by reference). 10.28 Thermo Instrument Systems Inc. - Metrika Systems Corporation Nonqualified Stock Option Plan. 10.29 Thermo Instrument Systems Inc. - Thermo Vision Corporation Nonqualified Stock Option Plan. 10.30 Thermo Instrument Systems Inc. - ONIX Systems Inc. Nonqualified Stock Option Plan. 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. The terms of such plans are substantially the same as those of the Registrant's Equity Incentive Plan. 10.31 $210,000,000 Promissory Note dated as of March 27, 1997, issued by the Registrant to Thermo Electron (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997, and incorporated herein by reference). 10.32 $115,000,000 Promissory Note dated as of June 24, 1997, issued by the Registrant to Thermo Electron (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, and incorporated herein by reference). 20PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.33 $3,800,000 Promissory Note dated as of July 14, 1997, issued by Thermo Vision to Thermo Electron (filed as Exhibit 10 to Thermo Optek's Quarterly Report on Form 10-Q for the quarter ended September 27, 1997, and incorporated herein by reference). 10.34 $45,000,000 Promissory Note dated as of September 12, 1997, issued by ThermoSpectra to Thermo Electron (filed as Exhibit 10 to ThermoSpectra's Quarterly Report on Form 10-Q for the quarter ended September 27, 1997, and incorporated herein by reference). 10.35 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of December 5, 1997, between Thermo Optek and Thermo Electron. 10.36 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of December 3, 1997, between ThermoQuest and Thermo Electron. 10.37 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of December 3, 1997, between Metrika Systems and Thermo Electron. 10.38 Master Guarantee Reimbursement and Loan Agreement dated as of November 14, 1997, between Thermo Vision and Thermo Electron. 10.39 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of December 2, 1997, between Thermo BioAnalysis and Thermo Electron. 10.40 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of December 4, 1997, between ThermoSpectra and Thermo Electron. 10.41 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of January 5, 1998, between ONIX Systems and Thermo Electron (filed as Exhibit 10.5 to the Registration Statement of ONIX Systems on Form S-1 [Reg. No. 333-45333] and incorporated herein by reference). 13 Annual Report to Shareholders for the year ended January 3, 1998 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 21PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 27.1 Financial Data Schedule for the year ended January 3, 1998. 27.2 Financial Data Schedule for the year ended December 28, 1996 (restated for the adoption of SFAS No. 128). 27.3 Financial Data Schedule for the quarter ended March 29, 1997 (restated for the adoption of SFAS No. 128). 27.4 Financial Data Schedule for the quarter ended June 28, 1997 (restated for the adoption of SFAS No. 128). 27.5 Financial Data Schedule for the quarter ended September 27, 1997 (restated for the adoption of SFAS No. 128). EX-2.2 2 EXHIBIT 2.2 AGREEMENT AND RELEASE This Agreement and Release, entered into as of the 15th day of December, 1997, by and between Fisons plc, an English company ("Fisons"), on the one hand, and Thermo Instrument Systems Inc., a Delaware corporation ("Thermo"), and Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"), on the other hand (all of whom are sometimes referred to as "parties"). RECITALS A. The parties hereto have previously entered into an Amended and Restated Asset and Stock Purchase Agreement (the "Agreement"), dated as of March 29, 1996, pursuant to which Fisons sold a portion of its scientific instruments business to Thermo. B. Pursuant to Section 4.1 of the Agreement, which provides for a possible post-closing adjustment to the purchase price, Fisons in 1996 delivered to Thermo a draft closing balance sheet with respect to the business sold. Thereafter, Thermo asserted certain objections and other claims with respect to that draft closing balance sheet, which it claimed entitled it to a reduction in the purchase price, plus interest thereon. Subsequently, Thermo made certain other claims with respect to the resale to Fisons pursuant to Section 7.16 of the Agreement of certain accounts receivable. All such objections and claims are referred to herein as the "Asserted Claims". C. The parties desire to resolve the Asserted Claims amicably, without any admission of liability, on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, Fisons, Thermo and Thermo Electron, in consideration of the foregoing and the mutual promises and obligations contained herein, and intending to be legally bound hereby, covenant and agree as follows: 1. In consideration of the terms hereof, the releases granted hereby and the other covenants herein, Fisons shall pay to Thermo the sum of TWENTY-FOUR MILLION FOUR HUNDRED FIFTY-SIX THOUSAND SEVEN HUNDRED EIGHTY-THREE British Pounds Sterling (BPS24,456,783) (collectively, the "Settlement Funds"), as set forth below by wire transfer to the following bank and account number: PAGE Barclays Bank Plc London England Sort Code 20-00-00 For: Thermo Instrument Systems Inc. Account Number xxxxxxxx Attention: North American Team The Settlement Funds are compromised of the following constituent amounts: (a) 2,475,000 British Pounds Sterling, in respect of Claims (as defined below) relating to the matters provided for in Section 7.16 of the Agreement; (b) 19,650,000 British Pounds Sterling, in respect of all other Claims (as defined below) released hereunder; (c) 2,331,783 British Pounds Sterling, representing interest on the amount provided for in subparagraph (b) above. Fisons shall pay the Settlement Funds in full on January 2, 1998. The effectiveness of this Agreement and Release is conditioned upon Thermo's receipt of the Settlement Funds. 2. 2.1 In consideration of the delivery of the Settlement Funds as set forth above in paragraph 1, each of Thermo and Thermo Electron does, for and on behalf of itself as well as all persons claiming by, through or under it (including without limitation all past, present and future parents, predecessors, successors, subsidiaries, affiliates and assigns, their respective past, present and future directors, officers, employees, agents, attorneys and insurers, and administrators thereof) (individually and collectively, "Releasors"), hereby irrevocably and unconditionally acknowledges complete satisfaction of, and does hereby remise, release and forever discharge Fisons, its past, present and future parents, predecessors, successors, subsidiaries, affiliates and assigns, their respective past, present and future directors, officers, shareholders, employees, agents, attorneys and insurers, and administrators thereof (including without limitation Rhone-Poulenc Rorer Inc.) (individually and collectively, "Releasees") of and from, any and all claims, demands, causes of action, suits, debts, sums of money, accounts, covenants, contracts, controversies, agreements, promises, damages and 2PAGE judgments ("Claims") of any kind or nature whatsoever, in law or in equity, known or unknown, existing or contingent, suspected or unsuspected, within this or any jurisdiction, that it ever had or may have had or may now or hereafter have, arising from or relating to: (a) any matter provided for in any one or more of the following Sections of the Agreement: (i) Section 3.2(b) insofar as it relates to any liability for a warranty obligation released under paragraph 2.1(a)(iii) of this Agreement and Release or any liability for a product liability claim released under paragraph 2.1(a)(ii) of this Agreement and Release (and, for the avoidance of doubt, the release under this paragraph 2.1(a)(i) of this Agreement and Release shall not affect any Claim under such Section 3.2 (b) with respect to the lawsuit Biacore, AB and Biacore, Inc. v. Thermo Bioanalysis Corporation, U.S.D.C., D. Del, No. 97-274); (ii) Section 3.2(f) insofar as it relates to any liability for a product liability claim asserted on or prior to the date hereof with respect to an occurrence after the Closing (as defined in the Agreement); (iii) Section 3.2(j), except for any Claim under Section 3.2(j) with respect to the lawsuit The Purdue Frederick Company v. Fisons Instruments, Inc., and VG Laboratory Systems Limited, U.S.D.C., S.D.N.Y. No. 97 CV-0898; (iv) Section 4.1; (v) Section 5, except for the representations and warranties set forth therein that are identified in Section 11.3(c)(i) of the Agreement as surviving without time limit; (vi) Section 7.16; (vii) Section 11.1(a) insofar as it relates to representations and warranties with respect to which Claims are released hereunder; (viii) Section 11.1(b) insofar as it relates to covenants or agreements with respect to which Claims are released hereunder; 3PAGE (ix) Section 11.1(c) insofar as it relates to Excluded Liabilities (as defined in the Agreement) with respect to which Claims are released hereunder; (x) Section 11.1(d) insofar as it relates to Excluded Company Liabilities (as defined in the Agreement) corresponding to the Excluded Liabilities with respect to which Claims are released hereunder; and (xi) all other Sections or portions thereof of the Agreement, except for the Sections and matters set forth below in paragraph 2.2 of this Agreement and Release; provided, however, that each Claim (other than an Asserted Claim or any Claim for a matter that is known to any Releasor as of the date hereof) arising from or relating to any matter provided for in any such other Sections of the Agreement shall be excluded from the release under this paragraph 2.1(a)(xi) to the extent the Losses (as defined in the Agreement) incurred or suffered by Thermo as a result of such Claim exceed ONE MILLION UNITED STATES DOLLARS (US $1,000,000); and provided further that in determining whether such threshold has been exceeded all Claims arising out of separate occurrences shall be treated as separate Claims except that Claims arising out of the same or similar circumstances or the same text of the Agreement shall be treated as a single Claim; and/or (b) the Asserted Claims and/or the subject matter thereof. 2.2 The release under paragraph 2.1(a)(xi) of this Agreement and Release shall not extend to any one or more of the following Sections of the Agreement: (a) Sections 2.7; 2.8; 2.9; 3.2(a), (c), (d), (e), (g), (h), (i), (k), (l), (m), and (n); 4.2; 4.3; 7.6; 7.7(a), (b) and (c); 7.8; 7.9; 7.10(b); 7.12; 7.13; 7.14; 7.15; 7.17; 7.19; 7.21; 7.23; 7.24; 11.1(e),( f), (g) and (h); 11.3; 11.4; and 13; (b) Sections 3.2(b), (f) and (j) insofar as they are excluded from the release under paragraphs 2.1(a)(i), (ii) or (iii) of this Agreement and Release; and (c) Sections 11.1(a), (b), (c) and (d) insofar as they relate to Claims that are excluded from the release 4PAGE hereunder pursuant to paragraph 2.1(a)(xi), 2.2(a) or 2.2(b) of this Agreement and Release. 3. Each of Thermo and Thermo Electron understands and acknowledges that it is possible that unknown losses or claims exist or that the Asserted Claims may have been underestimated in amount or severity, and the parties explicitly took that into account in determining to enter into this Agreement and Release, and nonetheless bargained, with the knowledge of the possibility of such unknown claims to provide for a full accord, satisfaction and discharge of all such claims that are within the scope of the release provided hereunder. Consequently, each of Thermo and Thermo Electron expressly waives all rights under California Civil Code Section 1542, or any similar provision law. Section 1542 provides that: " A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 4. Each of Thermo and Thermo Electron represents, warrants and covenants that there are not now pending and that it will not hereafter under any circumstances commence or prosecute any suit, action or proceeding or assert any claim against any of the Releasees with respect to any Claim released hereunder. 5. Each of Thermo and Thermo Electron represents and warrants that: (a) it has not heretofore assigned or transferred or purported to assign or transfer to any person or entity any Claim (or portion thereof or interest therein) released hereunder, and it shall indemnify, defend and hold the Releasees harmless from and against any and all claims based on or arising out of any such assignment or transfer, or purported assignment or transfer, of any such Claim or any portion thereof or interest therein; (b) it has not been induced to execute this Agreement and Release by any warranty, representation, promise, covenant or agreement made by or on behalf of Releasees or any other person or entity, other than the payment of the Settlement Funds as described in paragraph 1 hereof; (c) it has carefully read and understood the scope and effect of every provision of the Agreement and Release, it has consulted with counsel of its choice who has fully and completely explained to it the terms and 5PAGE provisions of this Agreement and Release and it has executed this Agreement and Release voluntarily and intending to be legally bound hereby; (d) it has full power and authority to execute and deliver this Agreement and Release and to perform its obligations hereunder in accordance with their terms; (e) the execution and delivery of this Agreement and Release, and the performance by it of its obligations hereunder, have been duly authorized by all necessary corporate actions on its part; (f) this Agreement and Release constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms hereof. 6. This Agreement and Release constitutes a full and complete compromise and settlement of all Claims released hereunder. In addition, Fisons acknowledges and agrees that this Agreement and Release constitutes a full and complete compromise and settlement of (i) the adjustments under Section 4.1 of the Agreement based on the Draft Closing Balance Sheet and the Closing Balance Sheet (as those terms are defined in the Agreement); and (ii) all of Fisons' rights and Thermo's obligations under Section 7.16 of the Agreement. 7. Each of Thermo and Thermo Electron acknowledges that this Agreement and Release, the settlement reflected herein and the payment made pursuant hereto are the result of the compromise resolution of disputed claims and shall never be offered or construed as an admission of any liability of any Releasee, or an acknowledgment of the validity of any Claim released hereunder, or as evidence of any such matter. Releasees specifically deny any and all such liability or other responsibility to Releasors and the validity of any and all such Claims. 8. This Agreement and Release and all of its covenants, agreements, representations, warranties, terms and conditions shall be binding upon and shall insure to the benefit of (1) the successors, heirs and assigns hereafter of each of the parties hereto, and (2) any persons and/or entities that acquire all or part of the assets of any of the parties hereto. 9. No waiver or compromise of any default under or breach of this Agreement and Release or any indulgence granted with respect to the performance of any obligation hereunder shall constitute or be deemed to imply a waiver of (1) any subsequent breach of this Agreement and Release or (2) the strict performance of any further obligations hereunder. 6PAGE 10. This Agreement and Release sets forth the entire agreement between the parties and fully supersedes any and all prior agreements, representations and understandings between the parties hereto pertaining to the subject matter hereof. No change, modification or addition, amendment or supplement to this Agreement and Release shall be valid unless set forth in writing and signed and dated by each and all of the parties hereto. 11. This Agreement and Release shall be governed by and construed in accordance with the laws of the State of New York (without regard to principles of conflicts of law). 12. This Agreement and Release may be executed in separate counterparts. IN WITNESS WHEREOF, the parties have caused this Agreement and Release to be executed by their duly authorized representatives as of the date first set forth above. Fisons plc Thermo Instrument Systems Inc. By: /s/ Guillaume Prache By: /s/ Earl R. Lewis Name: Guillaume Prache Name: Earl R. Lewis Title: Sr. Vice President Title: President and Chief Financial Officer Thermo Electron Corporation By: /s/ Earl R. Lewis Name: Earl R. Lewis Title: Vice President 7PAGE RHONE-POULENC RORER RHONE-POULENC RORER INC. 500 ARCOLA ROAD P.O. BOX 1200 COLLEGEVILLE, PA 19426-0107 TEL. 610-454-8000 December 15, 1997 Thermo Instrument Systems Inc. 81 Wyman Street Waltham, MA 02251 Re: Guarantee (the "Guarantee") of Rhone-Poulenc Rorer Inc. ("RPR"), dated March 29, 1996, with respect to Asset and Stock Purchase Agreement (the "Agreement") dated as of March 29, 1996 among Thermo Instrument Systems Inc., Thermo Electron Corporation and Fisons plc Gentlemen: This will confirm that RPR as Guarantor under the above-referenced Guarantee acknowledges and consents to the revisions to the Agreement made by the Agreement and Release, dared as of December 15, 1997, between Fisons plc, Thermo Instrument Systems Inc. and Thermo Electron Corporation. Very truly your, RHONE-POULENC RORER INC. By: /s/ Richard B. Young Richard B. Young Vice President EX-10.7 3 EXHIBIT 10.7 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 2nd day of December, 1997, by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide 1PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but 2 PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. 3PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when 4PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. 5PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan Title: Treasurer THERMO INSTRUMENT SYSTEMS INC. By: /s/ Earl R. Lewis Title: President EX-10.10 4 EXHIBIT 10.10 THERMO INSTRUMENT SYSTEMS INC. RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Instrument Systems Inc. (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Stock Holding Policy. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo Instrument Systems Inc., a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Instrument Systems Inc. Stock Holding Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Stock Holding Policy shall be administered by the Committee, which shall have authority to interpret the Plan and the Stock Holding Policy and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's PAGE interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable on the fifth anniversary of the date of PAGE the Loan, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO INSTRUMENT SYSTEMS INC. Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Instrument Systems Inc. (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay to the Company from the Employee's annual cash incentive compensation (referred to as bonus), beginning with the first such bonus payment to occur after the date of this Note and on each of the next four bonus payment dates occurring prior to the Maturity Date, such amount as may be designated by the Company. Any amount remaining unpaid under this Note shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; PAGE (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-10.28 5 EXHIBIT 10.28 THERMO INSTRUMENT SYSTEMS INC. METRIKA SYSTEMS CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Metrika Systems Corporation ("Subsidiary"), a subsidiary of Thermo Instrument Systems Inc. (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 100,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.29 6 EXHIBIT 10.29 THERMO INSTRUMENT SYSTEMS INC. THERMO VISION CORPORATION NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of Thermo Vision Corporation ("Subsidiary"), a subsidiary of Thermo Instrument Systems Inc. (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 100,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.30 7 EXHIBIT 10.30 THERMO INSTRUMENT SYSTEMS INC. ONIX SYSTEMS INC. NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of ONIX Systems Inc. ("Subsidiary"), subsidiary of Thermo Instrument Systems Inc. (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 100,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. EX-10.35 8 EXHIBIT 10.35 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 5th day of December, 1997 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan Melissa F. Riordan Title: Treasurer THERMO OPTEK CORPORATION By: /s/ Robert J. Rosenthal Robert J. Rosenthal Title: President EX-10.36 9 EXHIBIT 10.36 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 3rd day of December, 1997 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan Melissa F. Riordan Title: Treasurer THERMOQUEST CORPORATION By: /s/ Richard W. K. Chapman Richard W. K. Chapman Title: President EX-10.37 10 EXHIBIT 10.37 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 3rd day of December, 1997 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan Melissa F. Riordan Title: Treasurer METRIKA SYSTEMS CORPORATION By: /s/ Ernesto A. Corte Ernesto A. Corte Title: President EX-10.38 11 EXHIBIT 10.38 MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 14th day of November, 1997 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and PAGE WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If he Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. PAGE 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiarie s. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiarie s and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary . If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority PAGE Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiarie s on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of PAGE possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable . In case any payments of principal and interest shall not be paid when due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary , the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/John N. Hatsopoulos ------------------------------ Title: President THERMO VISION CORPORATION By: /s/Kristine Stotz Langdon ------------------------------ Title: President EX-10.39 12 EXHIBIT 10.39 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 2nd day of December, 1997, by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan ------------------------------ Title: Treasurer THERMO BIOANALYSIS CORPORATION By: /s/ Barry S. Howe ------------------------------ Title: President EX-10.40 13 Exhibit 10.40 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 4th day of December, 1997, by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan ------------------------------ Title: Treasurer THERMOSPECTRA CORPORATION By: /s/ Theo Melas-Kyriazi ------------------------------ Title: President EX-13 14 Exhibit 13 THERMO INSTRUMENT SYSTEMS INC. Consolidated Financial Statements 1997 PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1997 1996 1995 --------------------------------------------------------------------------- Revenues (Note 14) $1,592,314 $1,209,362 $ 782,662 ---------- ---------- ---------- Costs and Operating Expenses: Cost of revenues 842,009 654,165 403,443 Selling, general, and administrative expenses (Note 9) 424,695 340,963 220,436 Research and development expenses 107,613 84,091 54,314 Nonrecurring (income) expense, net (Notes 4 and 12) (1,257) 3,500 - ---------- ---------- ---------- 1,373,060 1,082,719 678,193 ---------- ---------- ---------- Operating Income 219,254 126,643 104,469 Interest Income 28,253 20,490 14,646 Interest Expense (includes $18,014, $8,145, and $5,512 to parent company) (45,894) (28,923) (18,129) Gain on Issuance of Stock by Subsidiaries (Note 11) 46,404 71,713 20,128 Gain on Sale of Related-party Investments (Note 9) - - 2,227 ---------- ---------- ---------- Income Before Provision for Income Taxes and Minority Interest Expense 248,017 189,923 123,341 Provision for Income Taxes (Note 6) 88,113 51,727 42,713 Minority Interest Expense 12,646 5,445 1,322 ---------- ---------- ---------- Net Income $ 147,258 $ 132,751 $ 79,306 ========== ========== ========== Earnings per Share (Note 15): Basic $ 1.21 $ 1.12 $ .70 ========== ========== ========== Diluted $ 1.09 $ 1.01 $ .64 ========== ========== ========== Weighted Average Shares (Note 15): Basic 121,548 118,857 113,222 ========== ========== ========== Diluted 139,415 135,351 133,291 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Balance Sheet (In thousands) 1997 1996 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 468,848 $ 522,688 Available-for-sale investments, at quoted market value (amortized cost of $8,287 and $7,430; Note 2) 8,328 7,452 Accounts receivable, less allowances of $22,786 and $16,981 364,075 303,331 Unbilled contract costs and fees 9,191 6,043 Inventories 264,719 213,683 Prepaid expenses 19,292 13,417 Prepaid income taxes (Note 6) 54,915 58,296 ---------- ---------- 1,189,368 1,124,910 ---------- ---------- Property, Plant, and Equipment, at Cost, Net 219,939 178,663 ---------- ---------- Other Assets (Note 5) 45,477 32,454 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 4 and 6) 896,369 588,373 ---------- ---------- $2,351,153 $1,924,400 ========== ========== 3PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1997 1996 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (includes $55,000 due to parent company in 1997; Notes 4 and 7) $ 116,226 $ 91,584 Accounts payable 97,516 83,161 Accrued payroll and employee benefits 59,745 51,728 Accrued income taxes (includes $20,000 and $10,839 due to parent company) 61,409 39,686 Accrued installation and warranty expenses 42,404 44,211 Accrued acquisition expenses (Note 4) 33,789 30,025 Deferred revenue 41,759 35,959 Other accrued expenses 101,827 99,524 Due to parent company and affiliated companies (Note 4) 22,027 12,329 ---------- ---------- 576,702 488,207 ---------- ---------- Deferred Income Taxes (Note 6) 30,430 20,710 ---------- ---------- Other Deferred Items 27,273 29,805 ---------- ---------- Long-term Obligations (Notes 7 and 17): Senior convertible obligations (includes $140,000 due to parent company) 327,824 334,781 Subordinated convertible obligations 160,547 192,500 Other (includes $169,000 and $15,000 due to parent company; Note 4) 184,823 26,933 ---------- ---------- 673,194 554,214 ---------- ---------- Minority Interest 165,996 85,197 ---------- ---------- Commitments and Contingencies (Note 8) Shareholders' Investment (Notes 5 and 10): Common stock, $.10 par value, 250,000,000 shares authorized; 122,645,040 and 97,674,228 shares issued 12,265 9,767 Capital in excess of par value 333,580 319,464 Retained earnings 571,899 424,641 Treasury stock at cost, 670,827 and 750,055 shares (6,965) (8,679) Cumulative translation adjustment (33,257) 1,060 Net unrealized gain on available-for-sale investments (Note 2) 36 14 ---------- ---------- 877,558 746,267 ---------- ---------- $2,351,153 $1,924,400 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1997 1996 1995 -------------------------------------------------------------------------- Operating Activities: Net income $ 147,258 $ 132,751 $ 79,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54,993 44,233 25,257 Provision for losses on accounts receivable 4,366 2,274 2,543 Nonrecurring (income) expense, net (Notes 4 and 12) (1,257) 3,500 - Gain on issuance of stock by subsidiaries (Note 11) (46,404) (71,713) (20,128) Gain on sale of related-party investments (Note 9) - - (2,227) Minority interest expense 12,646 5,445 1,322 Increase (decrease) in deferred income taxes 2,742 (757) 2,196 Other noncash expenses 6,158 4,889 2,964 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (19,157) 1,394 (22,661) Inventories 13,768 14,184 (7,433) Other current assets 3,547 3,978 3,058 Accounts payable 14,317 (9,903) 1,202 Other current liabilities (23,868) (24,686) (12,552) Other 205 290 (313) --------- --------- --------- Net cash provided by operating activities 169,314 105,879 52,534 --------- --------- --------- Investing Activities: Acquisitions, net of cash acquired (Note 4) (508,059) (248,150) (89,469) Refund of acquisition purchase price (Note 4) 36,132 - - Proceeds from sale of businesses (Notes 3 and 12) 4,980 - 34,267 Purchases of available-for-sale investments (9,000) (10,250) - Proceeds from sale and maturities of available-for-sale investments 10,250 3,000 17,825 Purchases of property, plant, and equipment (29,198) (19,134) (10,313) Proceeds from sale of property, plant, and equipment 7,877 4,597 2,252 Other 2,030 530 (1,691) --------- --------- --------- Net cash used in investing activities $(484,988) $(269,407) $ (47,129) --------- --------- --------- 5PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Financing Activities: Net proceeds from issuance of Company and subsidiary common stock (Note 11) $ 91,375 $ 127,024 $ 41,788 Net proceeds from issuance of long-term obligations - 168,850 187,846 Proceeds from issuance of short- and long-term obligations to parent company (Note 7) 428,800 110,000 15,000 Repayment of short- and long-term obligations to parent company (Note 7) (220,000) (95,000) (15,000) Increase (decrease) in short-term obligations, net (21,528) (12,770) 7,584 Repayment of long-term obligations (7,817) (5,133) (1,373) --------- --------- --------- Net cash provided by financing activities 270,830 292,971 235,845 --------- --------- --------- Exchange Rate Effect on Cash (8,996) (1,988) 1,050 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents (53,840) 127,455 242,300 Cash and Cash Equivalents at Beginning of Year 522,688 395,233 152,933 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 468,848 $ 522,688 $ 395,233 ========= ========= ========= Cash Paid For: Interest $ 43,755 $ 25,837 $ 16,035 Income taxes $ 62,895 $ 42,636 $ 31,529 Noncash Activities: Conversions of Company and subsidiary convertible obligations $ 38,910 $ 67,594 $ 18,321 Fair value of assets of acquired companies $ 673,382 $ 487,218 $ 161,985 Cash paid for acquired companies (545,303) (258,785) (93,004) Due to affiliated company for acquired company (19,117) - - Issuance of subsidiary stock options for acquired company (1,693) - - --------- --------- --------- Liabilities assumed of acquired companies $ 107,269 $ 228,433 $ 68,981 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Common Stock, $.10 Par Value Balance at beginning of year $ 9,767 $ 9,257 $ 4,816 Issuance of stock under employees' and directors' stock plans 4 5 1 Conversions of convertible obligations 45 505 160 Effect of stock splits 2,449 - 4,280 -------- -------- -------- Balance at end of year 12,265 9,767 9,257 -------- -------- -------- Capital in Excess of Par Value Balance at beginning of year 319,464 248,468 233,765 Issuance of stock under employees' and directors' stock plans 1,270 950 (1,023) Tax benefit related to employees' and directors' stock plans 514 199 1,950 Conversions of convertible obligations 6,817 65,924 17,814 Effect of stock splits (2,449) - (4,280) Effect of majority-owned subsidiaries' equity transactions 7,964 3,923 242 -------- -------- -------- Balance at end of year 333,580 319,464 248,468 -------- -------- -------- Retained Earnings Balance at beginning of year 424,641 291,890 212,584 Net income 147,258 132,751 79,306 -------- -------- -------- Balance at end of year 571,899 424,641 291,890 -------- -------- -------- Treasury Stock Balance at beginning of year (8,679) (9,724) (12,736) Activity under employees' and directors' stock plans 1,714 1,045 3,012 -------- -------- -------- Balance at end of year (6,965) (8,679) (9,724) -------- -------- -------- Cumulative Translation Adjustment Balance at beginning of year 1,060 2,814 1,991 Translation adjustment (34,317) (1,754) 823 -------- -------- -------- Balance at end of year $(33,257) $ 1,060 $ 2,814 -------- -------- -------- 7PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Consolidated Statement of Shareholders' Investment (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Net Unrealized Gain on Available-for-sale Investments Balance at beginning of year $ 14 $ - $ 343 Change in net unrealized gain on available-for-sale investments (Note 2) 22 14 (343) -------- -------- -------- Balance at end of year 36 14 - -------- -------- -------- Total Shareholders' Investment $877,558 $746,267 $542,705 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Instrument Systems Inc. (the Company) develops, manufactures, and services instruments and software used for the identification and quantification of complex molecular compounds and elements in gases, liquids, and solids. Uses include pharmaceutical drug research and clinical diagnostics, monitoring and measuring environmental pollutants, industrial inspection, and test and control for quality assurance and productivity improvement. In addition, the Company develops, manufactures, markets, and services equipment for the measurement, preparation, storage, and automation of sample materials and photonics and vacuum components for original equipment manufacturers. Relationship with Thermo Electron Corporation The Company was incorporated on May 28, 1986, as a wholly owned subsidiary of Thermo Electron Corporation. As of January 3, 1998, Thermo Electron owned 99,819,138 shares of the Company's common stock, representing 82% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company; its wholly owned subsidiaries; its majority-owned public subsidiaries, ThermoSpectra Corporation, ThermoQuest Corporation, Thermo Optek Corporation, Thermo BioAnalysis Corporation, Metrika Systems Corporation, and Thermo Vision Corporation; and its majority-owned, privately held subsidiary, ONIX Systems Inc. All material intercompany accounts and transactions have been eliminated. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1997, 1996, and 1995 are for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each included 52 weeks. Revenue Recognition The Company recognizes product revenues upon shipment of its products and recognizes service contract revenues ratably over the term of the contract. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Deferred revenue in the accompanying balance sheet consists primarily of unearned revenue on service contracts. Substantially all of the deferred revenue in the accompanying 1997 balance sheet will be recognized within one year. Gain on Issuance of Stock by Subsidiaries 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 9PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) entity, and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased 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 shareholders' investment as the effect of majority-owned subsidiaries' equity transactions. 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 5). 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 equity. Income Taxes The Company and Thermo Electron have a tax allocation agreement under which the Company and its greater than 80%-owned 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 per Share During the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per Share" (Note 15). As a result, all previously reported earnings per share have been restated. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects. 10PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Stock Split All share and per share information, except for share information in the accompanying 1996 balance sheet, has been restated to reflect a five-for-four stock split, effected in the form of a 25% stock dividend, which was distributed in October 1997. Cash and Cash Equivalents At year-end 1997 and 1996, $284.0 million and $459.1 million, 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, commercial paper, U.S. government-agency securities, 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. At year-end 1997 and 1996, the Company's cash equivalents also include investments in short-term certificates of deposit of the Company's foreign subsidiaries, which have 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 a first-in, first-out or weighted average basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1997 1996 ------------------------------------------------------------------------ Raw materials and supplies $118,611 $ 95,920 Work in process 52,870 47,518 Finished goods 93,238 70,245 -------- -------- $264,719 $213,683 ======== ======== 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 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, 1 to 12 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. 11PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Property, plant, and equipment consists of the following: (In thousands) 1997 1996 ------------------------------------------------------------------------ Land $ 33,539 $ 31,048 Buildings 123,533 101,761 Machinery, equipment, and leasehold improvements 160,533 118,167 -------- -------- 317,605 250,976 Less: Accumulated depreciation and amortization 97,666 72,313 -------- -------- $219,939 $178,663 ======== ======== Other Assets Other assets in the accompanying balance sheet includes the costs of acquired trademarks, patents, and other specifically identifiable intangible assets. These assets are amortized using the straight-line method over their estimated useful lives, which range from 3 to 20 years. These assets were $16.2 million and $15.5 million, net of accumulated amortization of $19.3 million and $16.2 million, at year-end 1997 and 1996, respectively. Other assets in the accompanying 1997 balance sheet also includes prepaid pension costs (Note 5). 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 not exceeding 40 years. Accumulated amortization was $78.0 million and $56.2 million at year-end 1997 and 1996, 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. 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. Environmental Liabilities The Company accrues for costs associated with the remediation of environmental pollution when it is probable that a liability has been incurred and the Company's proportionate share of the amount can be reasonably estimated. Any recorded liabilities have not been discounted. 12PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 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 as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Forward Contracts The Company uses short-term forward foreign exchange contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge certain firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, and German deutsche marks. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Gains and losses arising from forward foreign exchange contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company does not enter into speculative foreign currency agreements. 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 1996 and 1995 have been reclassified to conform to the presentation in the 1997 financial statements. 2. Available-for-sale Investments In accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," the Company's debt and marketable equity 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 currently as a component of shareholders' investment titled "Net unrealized gain on available-for-sale investments." The aggregate market 13PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale Investments (continued) value, cost basis, and gross unrealized gains of available-for-sale investments by major security type are as follows: Gross Market Cost Unrealized (In thousands) Value Basis Gains ------------------------------------------------------------------------ 1997 Corporate bonds $6,105 $6,091 $ 14 Equity securities 2,083 2,056 27 Other 140 140 - ------ ------ ------ $8,328 $8,287 $ 41 ====== ====== ====== 1996 Corporate bonds $7,452 $7,430 $ 22 ====== ====== ====== The corporate bonds and other securities in the accompanying 1997 balance sheet have contractual maturities of one year or less. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains recorded in the accompanying statement of income. Gain on sale of related-party investments in the accompanying 1995 statement of income resulted from gross realized gains relating to the sale of available-for-sale investments (Note 9). 3. Environmental Services Joint Venture Effective April 4, 1994, the Company formed an environmental services joint venture with Thermo TerraTech Inc., another public subsidiary of Thermo Electron. The joint venture operated under the name Thermo Terra Tech. The Company contributed its analytical laboratories and its nuclear health physics and environmental science and engineering services businesses. Thermo TerraTech contributed its environmental laboratory business, which specializes in fast-response testing of petroleum-contaminated soils and groundwater, and approximately $31 million in cash and short-term investments. Effective April 2, 1995, the Company and Thermo TerraTech dissolved their joint venture. Thermo TerraTech then purchased the services businesses formerly operated by the joint venture from the Company for $34.3 million in cash, which was the net book value of the services businesses. The Company had owned 49% of the joint venture and had accounted for its interest in the joint venture using the equity method. 14PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Acquisitions In March 1997, the Company acquired 95% of Life Sciences International PLC (Life Sciences), a London Stock Exchange-listed company. Subsequently, the Company acquired the remaining shares of Life Sciences' capital stock. The aggregate purchase price for Life Sciences was approximately $442.8 million, net of $55.8 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In March 1997, to partially finance the acquisition of Life Sciences, the Company borrowed $210.0 million from Thermo Electron pursuant to a promissory note due March 1999 (Note 7). The Company repaid $105.0 million of this promissory note in September 1997 and the remaining $105.0 million in January 1998 (Note 17). On November 6, 1997, Thermo Power Corporation, a majority-owned subsidiary of Thermo Electron, acquired Peek plc. Thereafter, ONIX Systems acquired from Thermo Power the stock of three businesses comprising the Peek Measurement Business for $19.1 million. The purchase price was determined based on the net book value of the Peek Measurement Business at November 6, 1997, a pro rata allocation of Thermo Power's total cost in excess of net assets of acquired companies recorded in connection with its acquisition of Peek plc based on the 1997 revenues of the Peek Measurement Business relative to Peek plc's total revenues, plus an estimate of Thermo Power's tax liability that arises from the sale of the business to ONIX Systems. The Peek Measurement Business manufactures flow and density measurement systems for use in the water/wastewater and oil and gas industries. The purchase price is included in due to parent company and affiliated companies in the accompanying 1997 balance sheet. During 1997, the Company made several other acquisitions for approximately $46.2 million, net of cash acquired and including the repayment of $1.3 million of bank debt, and the issuance of subsidiary stock options valued at an aggregate $1.7 million. To partially finance 1997 acquisitions, ThermoSpectra borrowed an aggregate of $60.0 million from Thermo Electron pursuant to promissory notes due 1999 and Thermo Vision borrowed $3.8 million from Thermo Electron pursuant to a promissory note due 2000 (Note 7). In March 1996, the Company completed the acquisition of a substantial portion of the businesses constituting the Scientific Instruments Division of Fisons plc (the Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. (RPR), for approximately $181.2 million, net of $7.7 million of cash acquired, and the assumption of approximately $47.2 million of indebtedness. In December 1997, the Company and RPR negotiated a post-closing adjustment under the terms of the purchase agreement for the acquisition of the Fisons businesses pertaining to determination of the net assets of the Fisons businesses at the date of acquisition. This negotiation resulted in a refund to the Company of $36.1 million, plus $3.8 million of interest from the date of acquisition. The Company has recorded $33.1 million of the refund as a reduction of cost in excess of net assets of acquired companies. The remaining $3.0 million represented payment for uncollected accounts 15PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Acquisitions (continued) receivable acquired by the Company that were guaranteed by RPR. In 1996, the Company wrote off $3.5 million of acquired technology relating to this acquisition, which represents the portion of the purchase price allocated to technology in development based on estimated replacement cost. The Fisons businesses are involved in the research, development, manufacture, and sale of analytical instruments to industrial and research laboratories worldwide. To finance the acquisition of the Fisons businesses, the Company used available cash in addition to borrowings from Thermo Electron (Note 7). During 1996, the Company made several other acquisitions for an aggregate $67.0 million in cash, net of cash acquired. During 1995, the Company made several acquisitions for an aggregate $89.5 million in cash, net of cash acquired. These acquisitions 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 $631.9 million, which is being amortized over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in fiscal 1997, is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Based on unaudited data, the following table presents selected financial information for the Company, Life Sciences, and the Fisons businesses, on a pro forma basis, assuming the Company and Life Sciences had been combined since the beginning of 1996 and the Company and the Fisons businesses had been combined since the beginning of 1995. The effect of the acquisitions not included in the pro forma data was not material to the Company's results of operations. (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Revenues $1,645,086 $1,637,582 $1,144,956 Net income 126,528 119,842 46,934 Earnings per share: Basic 1.04 1.01 .41 Diluted .95 .92 .39 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of Life Sciences been made at the beginning of 1996 or the acquisition of the Fisons businesses been made at the beginning of 1995. In connection with the acquisition of Life Sciences, the Company has undertaken a restructuring of the acquired businesses. In accordance with the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3, the Company is in the process of completing a plan that primarily 16PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Acquisitions (continued) includes reductions in staffing levels and abandonment of excess facilities. As part of the cost of the acquisition, the Company established reserves totaling $24.8 million, primarily for estimated severance and excess facilities, $8.8 million of which was expended during 1997, primarily for severance. Unresolved matters at January 3, 1998, included completing planned severances and the locations to be abandoned or consolidated, among other decisions concerning the integration of the acquired businesses into the Company. In accordance with EITF 95-3, finalization of the Company's plan for restructuring the acquired businesses will occur within one year from the date of the acquisition. Any changes in estimates of these costs prior to such finalization will be recorded as adjustments to cost in excess of net assets of acquired companies. During 1996, the Company had undertaken a restructuring of the Fisons businesses. In 1996, the Company established reserves of $38.1 million as part of the cost of the acquisition. During 1997 and 1996, the Company expended $14.3 million and $19.0 million, respectively, for restructuring costs, primarily for severance and abandoned-facility payments. In connection with finalizing its restructuring plans for the Fisons businesses, the Company recorded an additional $8.1 million of acquisition reserves in the first quarter of 1997, primarily for the abandonment of excess facilities, as well as for severance pay. This amount was recorded as an increase in cost in excess of net assets of acquired companies. At January 3, 1998, the remaining reserve for restructuring the Fisons businesses was $11.1 million, as adjusted for the impact of currency translation, and primarily represents ongoing severance and abandoned-facility payments. 5. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has two stock-based compensation plans for its key employees, directors, and others. These plans, adopted in 1993 and 1997, permit the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under these plans. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over a five- to ten-year period, depending on the term of the option, which may range from seven to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's stock 17PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) on the date of grant. Generally, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in 1991, that provides for the grant of stock options in the Company and its majority-owned subsidiaries to outside directors pursuant to a formula approved by the Company's shareholders. Options in the Company awarded under this plan are exercisable six months after the date of grant and expire three or 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. A summary of the Company's stock option activity is as follows: 1997 1996 1995 ---------------- ---------------- ---------------- Weighted Weighted Weighted Number Average Number Average Number Average (Shares of Exercise of Exercise of Exercise in thousands) Shares Price Shares Price Shares Price ------------------------------------------------------------------------ Options outstanding, beginning of year 4,066 $13.98 4,026 $11.88 4,747 $11.15 Granted 727 30.24 472 27.59 7 15.07 Exercised (263) 9.50 (255) 7.31 (468) 4.86 Forfeited (165) 17.56 (177) 12.00 (260) 11.38 ----- ----- ----- Options outstanding, end of year 4,365 $16.83 4,066 $13.98 4,026 $11.88 ===== ====== ===== ====== ===== ====== Options exercisable 4,365 $16.83 4,066 $13.98 4,026 $11.88 ===== ====== ===== ====== ===== ====== Options available for grant 2,346 1,908 2,205 ===== ===== ===== A summary of the status of the Company's stock options at January 3, 1998, is as follows: Options Outstanding and Exercisable ------------------------------------------- Weighted Weighted Average Average Range of Number Remaining Exercise Exercise Prices of Shares Contractual Life Price --------------------------------------------------------------------- (Shares in thousands) $ 4.27 - $11.04 349 1.2 years $ 6.94 11.05 - 17.81 2,872 7.4 years 13.07 17.82 - 31.35 1,144 7.8 years 29.27 ----- $ 4.27 - $31.35 4,365 7.0 years $16.83 ===== 18PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) Employee Stock Purchase Program ------------------------------- Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron. Under this program, shares of the Company's and Thermo Electron's common stock can 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 are subject to a six-month resale restriction. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. During 1997, 1996, and 1995, the Company issued 51,707 shares, 62,466 shares, and 93,532 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 in 1997, 1996, and 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 and earnings per share would have been as follows: (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Net income: As reported $147,258 $132,751 $79,306 Pro forma 143,083 129,591 79,035 Basic earnings per share: As reported 1.21 1.12 .70 Pro forma 1.18 1.09 .70 Diluted earnings per share: As reported 1.09 1.01 .64 Pro forma 1.06 .99 .64 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 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. 19PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) The weighted average fair value per share of options granted was $11.09, $10.90, and $2.98 in 1997, 1996, and 1995, 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: 1997 1996 1995 ------------------------------------------------------------------------ Volatility 28% 26% 26% Risk-free interest rate 5.9% 6.2% 5.1% Expected life of options 5.2 years 6.2 years 1.1 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plans and Employee Stock Ownership Plan The majority of the Company's full-time U.S. employees are eligible to participate in Thermo Electron's 401(k) savings plan. In addition, certain of the Company's employees are eligible to participate in 401(k) savings plans sponsored by the Company's Nicolet Instrument Corporation and Finnigan Corporation subsidiaries. Contributions to the 401(k) savings plans are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For these plans, the Company contributed and charged to expense $6.0 million, $4.9 million, and $3.9 million in 1997, 1996, and 1995, respectively. Defined Benefit Pension Plan Life Sciences has a defined benefit pension plan covering substantially all of its full-time U.K. employees. Net periodic pension costs (income) included the following components: (In thousands) 1997 -------------------------------------------------------------------- Service cost $ 2,749 Interest cost on projected benefit obligation 3,031 Return on plan assets (9,408) Amortization of unrecognized net gain 3,169 ------- $ (459) ======= 20PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) The funded status of the Company's defined benefit pension plan is as follows: (In thousands) 1997 ----------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $41,549 Nonvested benefits - ------- Accumulated benefit obligations 41,549 Effect of projected future salary increases 4,341 ------- Projected benefit obligation 45,890 Less: Plan assets at fair value 63,707 ------- Excess of plan assets over projected benefit obligation 17,817 Unrecognized net gain (172) ------- Prepaid pension costs $17,645 ======= Significant actuarial assumptions used to determine the net periodic pension cost were as follows: 1997 ---------------------------------------------------------------------- Discount rate 8.25% Rate of increase in salary levels 8% Rate of increase in pension rate 5% Expected long-term rate of return on assets 10% 6. Income Taxes The components of income before provision for income taxes and minority interest expense are as follows: (In thousands) 1997 1996 1995 ---------------------------------------------------------------------- Domestic $186,133 $143,377 $ 95,999 Foreign 61,884 46,546 27,342 -------- -------- -------- $248,017 $189,923 $123,341 ======== ======== ======== 21PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) The components of the provision for income taxes are as follows: (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Currently payable: Federal $ 47,121 $ 29,593 $ 29,336 State 8,154 6,978 5,766 Foreign 26,242 27,100 11,490 -------- -------- -------- 81,517 63,671 46,592 -------- -------- -------- Net deferred (prepaid): Federal 3,860 (5,553) (3,628) State 819 (1,178) (769) Foreign 1,917 (5,213) 518 -------- -------- -------- 6,596 (11,944) (3,879) -------- -------- -------- $ 88,113 $ 51,727 $ 42,713 ======== ======== ======== 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 $1.6 million, $2.0 million, and $2.1 million 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, in 1997, 1996, and 1995, respectively. The provision for income taxes that is currently payable does not reflect $2.4 million, $4.7 million, and $3.0 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1997, 1996, and 1995, respectively. The deferred provision for income taxes does not reflect $3.4 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1995. 22PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 35% to income before provision for income taxes and minority interest expense due to the following: (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Provision for income taxes at statutory rate $ 86,806 $ 66,473 $ 43,169 Increases (decreases) resulting from: Gain on issuance of stock by subsidiaries (16,241) (25,100) (7,045) Net foreign losses not benefited and tax rate differential 6,500 5,596 2,438 State income taxes, net of federal tax 5,832 3,770 3,248 Amortization of cost in excess of net assets of acquired companies 4,492 2,445 2,432 Tax benefit of foreign sales corporation (2,517) (2,102) (1,987) Other, net 3,241 645 458 -------- -------- -------- $ 88,113 $ 51,727 $ 42,713 ======== ======== ======== Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1997 1996 ------------------------------------------------------------ Prepaid income taxes: Tax loss carryforwards $ 43,559 $ 64,902 Reserves and accruals 33,717 38,929 Inventory basis difference 13,109 11,895 Accrued compensation 5,306 5,064 Allowance for doubtful accounts 2,459 2,399 Other, net - 9 -------- -------- 98,150 123,198 Less: Valuation allowance 43,235 64,902 -------- -------- $ 54,915 $ 58,296 ======== ======== Deferred income taxes: Depreciation $ 24,928 $ 16,476 Intangible assets 5,502 4,234 -------- -------- $ 30,430 $ 20,710 ======== ======== 23PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) The valuation allowance relates to uncertainty surrounding the realization of certain tax assets, including in 1997 $104.8 million of foreign tax loss carryforwards and $7.7 million of certain federal tax loss carryforwards, the realization of which is limited to the future income of certain subsidiaries. Of the $104.8 million of foreign tax loss carryforwards, $24.3 million expire from 1998 through 2005 and the remainder do not expire. The federal tax loss carryforwards expire from 1998 through 2010. Any tax benefit resulting from the use of the loss carryforwards will first be used to reduce cost in excess of net assets of acquired companies. The decrease in the valuation allowance results primarily from the decrease in foreign net operating loss carryforwards, primarily due to expiration and usage of the carryforwards. 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. A provision has not been made for U.S. or additional foreign taxes on $148 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company currently plans to keep these amounts permanently reinvested overseas. 7. Short- and Long-term Obligations Short-term Obligations Notes payable in the accompanying balance sheet includes $58.7 million and $89.3 million of bank borrowings at several of the Company's foreign subsidiaries at year-end 1997 and 1996, respectively. The weighted average interest rate for these borrowings was 4.80% and 5.25% at year-end 1997 and 1996, respectively. Unused lines of credit were $108.8 million at year-end 1997. In June 1997, to finance the repayment of Life Sciences' debt, the Company borrowed $115.0 million from Thermo Electron, which was repaid in September 1997. In connection with Thermo Optek's acquisition of Spectronic Instruments, Inc. and VG Systems Limited from the Company, Thermo Optek borrowed $40.0 million from Thermo Electron pursuant to a promissory note due August 1998. In connection with the 1996 acquisition of Kevex Instruments and Kevex X-Ray from the Company, ThermoSpectra borrowed $15.0 million from Thermo Electron pursuant to a promissory note due August 1998. To finance the acquisition of the Fisons businesses (Note 4), the Company used available cash in addition to borrowings of $89.0 million from Thermo Electron. In April 1996, the Company repaid a portion of the borrowings and issued a $65.0 million promissory note for the remaining indebtedness, which was repaid in October 1996. 24PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 7. Short- and Long-term Obligations (continued) To partially finance the acquisition of the DYNEX Technologies (DYNEX; formerly Dynatech Laboratories Worldwide) division of Dynatech Corporation in February 1996, Thermo BioAnalysis borrowed $30.0 million from Thermo Electron pursuant to a promissory note, which was repaid in July 1996. To partially finance the acquisition of Gould Instrument Systems, Inc. in May 1995, ThermoSpectra borrowed $15.0 million from Thermo Electron pursuant to a promissory note, which was repaid in August 1995. The promissory notes due to Thermo Electron bear interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. The interest rate for the notes outstanding at year-end 1997 and 1996 was 5.76% and 5.77%, respectively. Long-term Obligations Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ 3 3/4% Senior convertible note to parent company, due 2000, convertible at $13.55 per share $140,000 $140,000 3 3/4% Senior convertible debentures, due 2000, convertible at $13.55 per share 15,324 22,281 4 1/2% Senior convertible debentures, due 2003, convertible at $34.46 per share 172,500 172,500 5% Subordinated convertible debentures, due 2000, convertible into shares of ThermoQuest at $16.50 per share 80,591 96,250 5% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Optek at $13.94 per share 79,956 96,250 10.23% Mortgage loan secured by property with a net book value of $15,780, payable in monthly installments with final payments in 2004 8,343 9,267 Promissory note to parent company, due 1999 (a) 105,000 - Promissory notes to parent company from ThermoSpectra, due 1999 (a) 60,000 - Promissory note to parent company from Thermo Vision, due 2000 (a) 3,800 - Promissory note to parent company from ThermoSpectra, due 1998 - 15,000 Other 10,101 4,788 -------- -------- 675,615 556,336 Less: Current maturities of long-term obligations 2,421 2,122 -------- -------- $673,194 $554,214 ======== ======== (a) Bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis points. 25PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 7. Short- and Long-term Obligations (continued) The senior convertible debentures are guaranteed on a senior basis by Thermo Electron. The 5% subordinated convertible debentures of ThermoQuest and Thermo Optek 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 guarantee. In lieu of issuing all or a portion of the Company's common stock upon conversion of the 3 3/4% senior convertible debentures due 2000, the Company has the option to pay holders of the debentures cash equal to the weighted average market price of the Company's common stock on the last trading date prior to conversion. During 1997, 1996, and 1995, convertible obligations of $38.9 million, $67.6 million, and $18.3 million, respectively, were converted into common stock of the Company or its subsidiaries. The annual requirements for long-term obligations as of January 3, 1998, are $2.4 million in 1998; $167.5 million in 1999; $322.2 million in 2000; $2.4 million in 2001; $2.2 million in 2002; and $178.9 million in 2003 and thereafter. Total future requirements of long-term obligations are $675.6 million. See Note 13 for the fair value information pertaining to the Company's long-term obligations. 8. Commitments and Contingencies Operating Leases The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $28.2 million, $21.1 million, and $11.1 million in 1997, 1996, and 1995, respectively. Future minimum payments due under noncancellable operating leases at January 3, 1998, are $24.5 million in 1998; $20.6 million in 1999; $16.3 million in 2000; $13.0 million in 2001; $10.8 million in 2002; and $36.2 million in 2003 and thereafter. Total future minimum lease payments are $121.4 million. Contingencies In December 1996, five former employees of the Company's Epsilon Industrial, Inc. (Epsilon) subsidiary commenced an arbitration proceeding naming as joint defendants Epsilon, the Company, and certain affiliates of the Company, alleging that these entities breached the terms of certain agreements entered into with such employees at the time that a predecessor of Epsilon acquired the assets and business of a company formerly owned by such employees. The former employees are claiming actual damages of between $27 million and $46 million, punitive damages of twice the actual damages, attorneys' fees and expenses, and pre-judgment and post-judgment interest, resulting from the alleged failure of the Company and its affiliates to, among other things, use best efforts to develop and promote certain products acquired at that time. The arbitration proceeding, which is binding and non-appealable, is expected to conclude in the second quarter of 1998. 26PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 8. Commitments and Contingencies (continued) ThermoQuest's Finnigan subsidiary has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents owned by Finnigan pertaining to methods used in ion-trap mass spectrometers. One of Finnigan's complaints was filed in United States District Court and the other was filed with the United States International Trade Commission (ITC). In February 1998, an administrative law judge at the ITC issued an initial determination to the effect that, although one of Finnigan's patents was infringed, the patents were invalid for purposes of this case. The ITC's jurisdiction on this matter is limited to the issue of whether or not the defendants' products that use the patented methods can be imported into the U.S. The judge's initial determination will be considered by the full commission during the second quarter of 1998. Bruker has presented counterclaims alleging that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers co-marketed by Bruker. They also allege that Finnigan has violated antitrust laws by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorney's fees) it has sustained. Although the Company intends to vigorously defend these matters, there can be no assurance as to their outcome. In the opinion of management, while an unfavorable resolution of one or both of these matters could materially affect the Company's results of operations and cash flows in a particular quarter or year, any such resolution would not have a material adverse effect on the Company's financial position. The Company is also contingently liable with respect to certain other lawsuits and matters which, in the opinion of management, will not have a material effect upon the financial position of the Company or its results of operations. 27PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 9. 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 paid Thermo Electron annually an amount equal to 1.0% of the Company's revenues in 1997 and 1996 and 1.2% of the Company's revenues in 1995. For these services, the Company was charged $15.9 million, $12.1 million, and $9.4 million in 1997, 1996, and 1995, respectively. Beginning in 1998, the Company will pay an annual fee equal to 0.8% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Sale of Related-party Investments During 1995, the Company sold its remaining investment in 6 1/2% subordinated convertible debentures due 1998, which were issued by Thermedics Inc., a majority-owned subsidiary of Thermo Electron. The Company sold $2.3 million principal amount of the Thermedics debentures in 1995 for net proceeds of $4.5 million, which resulted in a gain of $2.2 million. Short- and Long-term Obligations See Note 7 for short- and long-term obligations of the Company held by Thermo Electron. 10. Common Stock At January 3, 1998, the Company had reserved 23,635,127 unissued shares of its common stock for possible issuance under stock-based compensation plans and for issuance upon possible conversion of the Company's convertible obligations. 28PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 11. Issuance of Stock by Subsidiaries Gain on issuance of stock by subsidiaries in the accompanying statement of income results from the following transactions: 1997 Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share, into 949,027 shares of ThermoQuest common stock resulted in gains of $12.0 million and $7.8 million, respectively. Initial public offering of 2,300,000 shares of Metrika Systems common stock at $15.50 per share for net proceeds of $32.5 million resulted in a gain of $13.2 million. Private placements of 1,639,670 shares of ONIX Systems common stock at $14.25 per share for net proceeds of $22.0 million resulted in a gain of $7.9 million. Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated convertible debentures, convertible at $14.85 per share and $13.94 per share, respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a gain of $3.2 million. Initial public offering of 1,139,491 shares of Thermo Vision common stock at $7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3 million. 1996 Initial public offering of 3,450,000 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $47.8 million resulted in a gain of $27.2 million. Initial public offering of 3,450,000 shares of Thermo Optek common stock at $13.50 per share for net proceeds of $42.9 million resulted in a gain of $25.1 million. Initial public offering of 1,670,000 shares of Thermo BioAnalysis common stock at $14.00 per share for net proceeds of $20.8 million resulted in a gain of $9.8 million. Private placement of 967,828 shares of Metrika Systems common stock at $15.00 per share for net proceeds of $13.5 million resulted in a gain of $9.6 million. 1995 Private placement of 1,601,500 shares of Thermo BioAnalysis common stock at $10.00 per share for net proceeds of $14.9 million resulted in a gain of $9.5 million. Initial public offering of 1,725,000 shares of ThermoSpectra common stock at $14.00 per share for net proceeds of $21.9 million resulted in a gain of $9.3 million. Private placement of 202,000 shares of ThermoSpectra common stock at $15.72 per share for net proceeds of $3.0 million resulted in a gain of $1.3 million. 29PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 11. Issuance of Stock by Subsidiaries (continued) The Company's ownership percentages of its majority-owned subsidiaries at year end were as follows: 1997 1996 1995 ---------------------------------------------------------------------- ThermoSpectra 77% 72% 72% ThermoQuest 88% 93% 100% Thermo Optek 91% 93% 100% Thermo BioAnalysis 70% 67% 80% Metrika Systems 60% 84% 100% Thermo Vision (a) 78% 93% 100% ONIX Systems 87% 100% 100% (a)Thermo Vision was a wholly owned subsidiary of Thermo Optek until December 1997, when Thermo Optek distributed to its shareholders 100% of the common stock of Thermo Vision in the form of a dividend. 12. Nonrecurring (Income) Expense, Net Nonrecurring income, net in 1997 reflects a gain of $2.2 million recognized by ThermoSpectra on the sale of its Linac business for $5.0 million in cash and $2.1 million in equity securities, offset in part by a $0.9 million charge incurred by ThermoSpectra, primarily related to severance expense for employees terminated during the year at one of its business units. Nonrecurring expense in 1996 reflects the write-off of acquired technology relating to the acquisition of the Fisons businesses (Note 4). 13. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, available-for-sale investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, due to parent company and affiliated companies, long-term obligations, and forward exchange contracts. The carrying amounts of these financial instruments, with the exception of available-for-sale investments, long-term obligations, and forward foreign exchange contracts, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices (Note 2). 30PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 13. Fair Value of Financial Instruments (continued) The carrying amount and fair value of the Company's long-term obligations and off-balance-sheet financial instruments are as follows: 1997 1996 ------------------ ------------------ Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ----------------------------------------------------------------------- Long-term obligations: Convertible obligations $488,371 $767,769 $527,281 $681,550 Other 184,823 186,653 26,933 27,767 -------- -------- -------- -------- $673,194 $954,422 $554,214 $709,317 ======== ======== ======== ======== Off-balance-sheet financial instruments: Forward exchange contracts receivable $ 923 $ 886 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 fair value of convertible obligations exceeds the carrying amount primarily due to the market price of the Company's and subsidiaries' common stock exceeding the conversion price of certain of the convertible obligations. The Company had forward foreign exchange contracts of $33.1 million and $12.8 million at year-end 1997 and 1996, respectively. The fair value of such contracts is the estimated amount that the Company would receive if it were to terminate the contracts, taking into account the change in foreign exchange rates. 31PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 14. Geographical Data The Company is engaged in one business segment: developing, manufacturing, marketing, and servicing instruments and software used for the identification and quantification of complex molecular compounds and elements in gases, liquids, and solids. The following table shows data for the Company by geographical area: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Revenues: United States $1,010,964 $ 688,865 $ 520,485 United Kingdom 296,570 227,375 78,768 Germany 172,696 182,958 124,035 Other Europe 277,056 225,244 107,755 Other 108,277 104,885 79,368 Transfers among geographical areas (a) (273,249) (219,965) (127,749) ---------- ---------- ---------- $1,592,314 $1,209,362 $ 782,662 ========== ========== ========== Income before provision for income taxes and minority interest expense: United States $ 160,338 $ 97,114 $ 81,144 United Kingdom 27,586 14,333 5,128 Germany 11,309 9,894 8,703 Other Europe 31,937 15,350 12,505 Other 6,377 11,500 8,203 Corporate and eliminations (b) (18,293) (21,548) (11,214) ---------- ---------- ---------- Total operating income 219,254 126,643 104,469 Interest and other income, net 28,763 63,280 18,872 ---------- ---------- ---------- $ 248,017 $ 189,923 $ 123,341 ========== ========== ========== Identifiable assets: United States $1,354,197 $1,045,345 $ 888,620 United Kingdom 360,257 253,203 85,615 Germany 143,212 172,468 125,686 Other Europe 302,744 221,420 94,135 Other 68,080 57,435 62,090 Corporate and eliminations (c) 122,663 174,529 116,667 ---------- ---------- ---------- $2,351,153 $1,924,400 $1,372,813 ========== ========== ========== 32PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 14. Geographical Data (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Export revenues included in United States revenues above (d): Europe $ 142,014 $ 100,767 $ 88,418 Asia 124,441 107,796 80,839 Other 68,398 45,142 40,303 ---------- ---------- ---------- $ 334,853 $ 253,705 $ 209,560 ========== ========== ========== (a)Transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b)Primarily corporate general and administrative expenses. (c)Primarily cash, cash equivalents, and available-for-sale investments. (d)In general, export revenues are denominated in U.S. dollars. 15. Earnings per Share Basic and diluted earnings per share were calculated as follows: (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Basic Net income $147,258 $132,751 $ 79,306 -------- -------- -------- Weighted average shares 121,548 118,857 113,222 -------- -------- -------- Basic earnings per share $ 1.21 $ 1.12 $ .70 ======== ======== ======== Diluted Net income $147,258 $132,751 $ 79,306 Effect of: Convertible obligations 8,089 5,288 5,729 Majority-owned subsidiaries' dilutive securities (2,839) (922) (34) -------- -------- -------- Income available to common shareholders, as adjusted $152,508 $137,117 $ 85,001 -------- -------- -------- Weighted average shares 121,548 118,857 113,222 Effect of: Convertible obligations 16,713 15,292 19,380 Stock options 1,154 1,202 689 -------- -------- -------- Weighted average shares, as adjusted 139,415 135,351 133,291 -------- -------- -------- Diluted earnings per share $ 1.09 $ 1.01 $ .64 ======== ======== ======== 33PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 15. Earnings per Share (continued) In January 1998, the Company sold $250.0 million principal amount of 4% subordinated convertible debentures, which are convertible into shares of the Company's common stock at a conversion price of $35.65 per share (Note 17). 16. Unaudited Quarterly Information (In thousands except per share amounts) 1997(a) First(b) Second Third Fourth ------------------------------------------------------------------------ Revenues $329,120 $405,235 $403,900 $454,059 Gross profit 155,672 194,741 188,901 210,991 Net income 33,587 37,219 37,273 39,179 Earnings per share: Basic .28 .31 .31 .32 Diluted .25 .28 .28 .29 1996(c) First(d) Second Third Fourth ------------------------------------------------------------------------ Revenues $225,571 $321,552 $315,292 $346,947 Gross profit 107,364 144,524 147,803 155,506 Net income 34,043 35,296 30,521 32,891 Earnings per share: Basic .30 .30 .25 .27 Diluted .26 .27 .23 .25 (a)Results include nontaxable gains of $12.0 million, $13.2 million, $12.7 million, and $8.5 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (b)Reflects the March 1997 acquisition of Life Sciences. (c)Results include nontaxable gains of $24.3 million, $25.5 million, $11.4 million, and $10.5 million in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (d)Reflects the March 1996 acquisition of the Fisons businesses. 17. Subsequent Event In January 1998, the Company sold at par value $250.0 million principal amount of 4% subordinated convertible debentures due 2005 for net proceeds of $243.8 million. The debentures are convertible into shares of the Company's common stock at a conversion price of $35.65 per share and are guaranteed on a subordinated basis by Thermo Electron. The Company used a portion of the proceeds to repay a $105.0 million promissory note to Thermo Electron. The $105.0 million promissory note has been classified as long-term in the accompanying 1997 balance sheet, as its repayment was made using the proceeds of debt with a maturity beyond one year. 34PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Instrument Systems Inc.: We have audited the accompanying consolidated balance sheet of Thermo Instrument Systems Inc. (a Delaware corporation and 82%-owned subsidiary of Thermo Electron Corporation) and subsidiaries as of January 3, 1998, and December 28, 1996, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended January 3, 1998. 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 Instrument Systems Inc. and subsidiaries as of January 3, 1998, and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 17, 1998 35PAGE Thermo Instrument Systems Inc. 1997 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." Results of Operations The Company's revenues were $1,592.3 million in 1997, compared with $1,209.4 million in 1996, and $782.7 million in 1995. The increases were primarily due to acquisitions, which included Life Sciences in March 1997, a substantial portion of the businesses constituting the Scientific Instruments Division of Fisons in March 1996, DYNEX and Oriel Corporation in February 1996, the analytical instrument division of Analytical Technology, Inc. in December 1995, and Gould Instrument Systems Inc. in May 1995. Acquisitions added revenues of $407 million in 1997 and $404 million in 1996. In addition to the effect of acquisitions, revenues increased in 1997 due to higher sales at ThermoQuest's existing mass spectrometry business, partly as a result of the continued success of a new product introduced in the first quarter of 1996, and due to increased sales at Metrika Systems, primarily as a result of increased sales in international markets from its on-line raw materials analyzer business. Revenues also increased at ONIX Systems, primarily due to increased sales of industry-specific instruments to the production segment of the oil and gas industry. Revenues from Thermo Optek's existing businesses decreased slightly due to the inclusion in 1996 of several large nonrecurring sales to the Chinese and Japanese governments, a decrease in demand for elemental products in Japan, and the elimination of certain unprofitable acquired product lines, offset substantially by greater demand at one of its business units. In addition to the effect of acquisitions, revenues increased in 1996 due to greater demand experienced by ThermoQuest's mass spectrometry business as a result of the introduction of two new products, one in the third quarter of 1995 and another in the first quarter of 1996, and, to a lesser extent, greater product demand at Thermo Optek's Fourier transform infrared (FT-IR) and FT-Raman spectrometry businesses. The increases in revenues in 1997 and 1996 were offset in part by decreases of $46.8 million and $21.8 million, respectively, due to the unfavorable effects of currency translation as a result of the strengthening of the U.S. dollar relative to foreign currencies in countries in which the Company operates. International sales account for a significant portion of the Company's total revenues. Although the Company seeks to charge its customers in the same currency as its operating costs, the Company's 36PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) financial performance and competitive position can be affected by currency exchange rate fluctuations. Where appropriate, the Company uses short-term forward foreign exchange contracts to reduce its exposure to currency fluctuations. The gross profit margin was 47% in 1997, compared with 46% in 1996 and 48% in 1995. The increase in 1997 was primarily due to margin improvements at certain of the businesses acquired from Fisons in 1996 and increased sales of ThermoQuest's higher-margin mass spectrometry products. These increases were offset in part by the inclusion of lower-margin revenues from acquired businesses, including Life Sciences, which recorded an adjustment to expense of $3.6 million in 1997 relating to the sale of inventories revalued at the date of acquisition and, to a lesser extent, a decrease in the gross profit margin at ThermoSpectra, primarily as a result of a one-time inventory write-off and a change in sales mix at one of its business units. The gross profit margin decreased in 1996 primarily due to lower margins at acquired businesses, including Fisons, which included an adjustment to expense of $2.0 million in 1996 relating to the sale of inventories revalued at the date of acquisition. Selling, general, and administrative expenses as a percentage of revenues was 27% in 1997 and 28% in 1996 and 1995. The decrease in 1997 was primarily due to efforts to reduce selling and administrative expenses at acquired businesses and, to a lesser extent, lower selling costs associated with certain of the Life Sciences businesses. Research and development expenses as a percentage of revenues remained relatively unchanged at 6.8% in 1997, compared with 7.0% in 1996, and 6.9% in 1995. In 1997, ThermoSpectra recognized a gain of $2.2 million on the sale of its Linac business, which was offset in part by a charge by ThermoSpectra of $0.9 million for severance costs for employees terminated during 1997 (Note 12). In 1996, the Company wrote off $3.5 million of acquired technology relating to the acquisition of the Fisons businesses (Note 4). Interest income increased to $28.3 million in 1997 from $20.5 million in 1996 and $14.6 million in 1995. The increase in 1997 was due to interest income earned on invested proceeds from the issuance of $172.5 million principal amount of 4 1/2% senior convertible debentures by the Company in October 1996 and, to a lesser extent, from the invested proceeds from the sale of common stock by the Company's subsidiaries in 1997 and 1996 (Note 11). The increase in 1996 was primarily the result of interest income earned on invested proceeds from the issuance of $96.3 million principal amount of 5% subordinated convertible debentures by each of ThermoQuest and Thermo Optek in August 1995 and October 1995, respectively, the sale of common stock by the Company's subsidiaries (Note 11) and, to a lesser extent, the issuance of the 4 1/2% senior convertible debentures. The increases in interest income in 1997 and 1996 were offset in part by a reduction in cash as a result of acquisitions. Interest expense increased to $45.9 million in 1997 from $28.9 million in 1996 and $18.1 million in 1995. The increase in 1997 was 37PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) primarily due to the issuance of an aggregate $428.8 million of promissory notes to Thermo Electron in connection with acquisitions (Note 7), the issuance of 4 1/2% senior convertible debentures by the Company in October 1996 and, to a lesser extent, the inclusion of interest expense on debt assumed in connection with the acquisitions of the Fisons businesses and Life Sciences, which has been subsequently repaid. In September 1997, the Company repaid $220.0 million of its outstanding promissory notes to Thermo Electron (Notes 4 and 7). The increase in 1996 was primarily due to the issuance of the 5% subordinated convertible debentures by ThermoQuest and Thermo Optek. To a lesser extent, interest expense increased due to the issuance by the Company of the 4 1/2% senior convertible debentures, the issuance of promissory notes to Thermo Electron in connection with acquisitions (Note 7), and the inclusion of interest expense on the debt assumed as part of the acquisition of the Fisons businesses. The increases in interest expense in 1997 and 1996 were offset in part by the conversion of a portion of the Company's and subsidiaries' convertible obligations into common stock of the Company and its subsidiaries. The Company has 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 programs, as well as capital to support the subsidiaries' growth. As a result of the sale of stock by subsidiaries and issuance of stock by subsidiaries upon conversion of convertible debentures, the Company recorded gains of $46.4 million in 1997, $71.7 million in 1996, and $20.1 million in 1995 (Note 11). These gains represent an increase in the Company's net investment in the subsidiaries and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of income. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During fiscal 1997, the FASB decided to focus its efforts on the 38PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations (continued) consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. The Company recorded a gain of $2.2 million in 1995 from the sale of the Company's investment in subordinated convertible debentures issued by Thermedics Inc., a majority-owned subsidiary of Thermo Electron (Note 9). The effective tax rate was 36% in 1997, 27% in 1996, and 35% in 1995. The effective tax rate increased in 1997 primarily due to a lower nontaxable gain on issuance of stock by subsidiaries. The effective tax rate decreased in 1996 primarily due to a higher nontaxable gain on issuance of stock by subsidiaries. Excluding the impact of the gains on issuance of stock by subsidiaries, the effective tax rates exceeded the statutory federal income tax rate due to the inability to provide a tax benefit on losses incurred at certain foreign subsidiaries, the impact of foreign and state income taxes, the nondeductible amortization of cost in excess of net assets of acquired companies and, in 1996, the write-off of acquired technology in connection with the acquisition of the Fisons businesses. Minority interest expense increased to $12.6 million in 1997 from $5.4 million in 1996, primarily due to higher earnings at Thermo BioAnalysis, ThermoQuest, and Thermo Optek and, to a lesser extent, minority interest associated with the Company's newly public Metrika Systems subsidiary. These increases were offset in part by lower earnings at ThermoSpectra. See Note 8 for a description of certain legal proceedings involving the Company. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 39PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Consolidated working capital was $612.7 million at January 3, 1998, compared with $636.7 million at December 28, 1996. Included in working capital are cash, cash equivalents, and available-for-sale investments of $477.2 million at January 3, 1998, and $530.1 million at December 28, 1996. Of the $477.2 million balance at January 3, 1998, $290.4 million was held by the Company's majority-owned subsidiaries and the balance was held by the Company and its wholly owned subsidiaries. Cash provided by operating activities in 1997 was $169.3 million. The Company used $19.2 million during the year to fund an increase in accounts receivable. Of the total increase, $11.8 million was at ThermoQuest and resulted from higher shipments in the fourth quarter and a competitive trend to commercial terms of 30 days from ThermoQuest's past practice of obtaining deposits on certain systems. The Company used $23.9 million of cash during the year to reduce current liabilities, primarily for certain exit costs relating to acquisitions (Note 4). At January 3, 1998, $131.4 million of the Company's cash and cash equivalents was held by its foreign subsidiaries. While this cash can be used outside of the United States, including for acquisitions, repatriation of this cash into the United States would be subject to foreign withholding taxes and could also be subject to a United States tax. The Company's investing activities used $485.0 million of cash in 1997. The Company expended $508.1 million, net of cash acquired, for acquisitions, including the repayment of $106.3 million of bank debt (Note 4), and $29.2 million for purchases of property, plant, and equipment. The Company recorded proceeds of $7.9 million from the sale of property, plant, and equipment in 1997. The Company's financing activities provided $270.8 million of cash in 1997. During 1997, to partially finance acquisitions, the Company and its majority-owned subsidiaries borrowed an aggregate $428.8 million from Thermo Electron pursuant to promissory notes with various dates of maturity (Note 7). In September 1997, the Company repaid $220.0 million of its outstanding promissory notes to Thermo Electron (Notes 4 and 7). Net proceeds from the issuance of Company and subsidiary common stock totaled $93.1 million (Note 11). In January 1998, the Company sold at par value $250.0 million principal amount of 4% subordinated convertible debentures due 2005 for net proceeds of $243.8 million. The Company used a portion of the proceeds to repay a $105.0 million promissory note to Thermo Electron. In 1998, the Company plans to make expenditures of approximately $37 million for property, plant, and equipment. The Company believes that its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future. The Company has historically complemented internal development with acquisitions of businesses or technologies that extend the Company's presence in current markets or provide opportunities to enter and compete effectively in new markets. The Company will consider making acquisitions of such businesses or technologies that are consistent with its plans for strategic growth. The Company expects that it will finance these acquisitions through a 40PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) combination of internal funds, additional debt or equity financing from the capital markets, or short-term borrowings from Thermo Electron although there is no agreement with Thermo Electron to ensure that funds will be available on acceptable terms or at all. Market Risk The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Additionally, the Company uses short-term forward contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The Company does not engage in extensive foreign currency hedging activities; however, the purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The Company's forward foreign exchange contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, and German deutsche marks. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company does not enter into speculative foreign currency agreements. Foreign Currency Exchange Rates Forward foreign exchange contracts are sensitive to changes in foreign currency exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates. A 10% depreciation in year-end 1997 foreign currency exchange rates related to the Company's contracts would result in a decrease in the unrealized gain on forward foreign exchange contracts of $2 million. Since the Company uses forward foreign exchange contracts as hedges of firm purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts resulting from changes in foreign currency exchange rates would be offset by a corresponding change in the fair value of the hedged item. 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 British pounds sterling, German deutsche marks, Dutch guilders, and French francs. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is recorded as a separate component of shareholders' investment. A 10% depreciation 41PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk (continued) in year-end 1997 functional currencies, relative to the U.S. dollar, would result in a $12 million reduction of shareholders' investment. Interest Rates Certain of the Company's available-for-sale investments and long-term obligations are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase or issuance of the financial instrument. A 10% decrease in year-end 1997 market interest rates would result in a negative impact of $6 million on the net fair value of the Company's interest-sensitive financial instruments. Equity Prices The Company's available-for-sale investment portfolio includes equity securities that are sensitive to fluctuations in price. In addition, the Company's and its subsidiaries' convertible obligations are sensitive to fluctuations in the price of Company or subsidiary common stock into which the obligations are convertible. Changes in equity prices would result in changes in the fair value of the Company's available-for-sale investments and convertible obligations due to the difference between the current market price and the market price at the date of purchase or issuance of the financial instrument. A 10% increase in the year-end 1997 market equity prices would result in a negative impact of $58 million on the net fair value of the Company's price-sensitive equity financial instruments. 42PAGE Thermo Instrument Systems Inc. 1997 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 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Risks Associated with Spinout of Subsidiaries. The Company has 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 size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. Further, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During fiscal 1997, the FASB decided to focus its efforts on the consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. Uncertainty of Growth. Certain of the markets in which the Company competes have been flat or declining over the past several years. The Company has identified a number of strategies it believes will allow it to grow its business, including acquiring complementary businesses; developing new applications for its technologies; and strengthening its presence in selected geographic markets. No assurance can be given that the Company will be able to successfully implement these strategies, or that these strategies will result in growth of the Company's business. Risks Associated with Acquisition Strategy. One of the Company's growth strategies is to supplement its internal growth with the 43PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Forward-looking Statements acquisition of businesses and technologies that complement or augment the Company's existing product lines. Certain businesses acquired by the Company have had low levels of profitability. In addition, businesses that the Company may seek to acquire in the future may also be marginally profitable or unprofitable. In order for any acquired businesses to achieve the level of profitability desired by the Company, the Company must successfully change operations and improve market penetration. No assurance can be given that the Company will be successful in this regard. In addition, promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices in many countries. Acquisitions made 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 pending or future acquisitions or that the Company will be able to successfully integrate any acquired business into its existing business or make such businesses profitable. In order to finance any such acquisitions, it may be necessary for the Company to raise additional funds either through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and may result in dilution to the Company's shareholders. Risks Associated with Technological Change, Obsolescence, and the Development and Acceptance of New Products. The market for the Company's products and services is characterized by rapid and significant technological change and evolving industry standards. New product introductions responsive to these factors require significant planning, design, development, and testing at the technological, product, and manufacturing process levels, and may render existing products and technologies uncompetitive or obsolete. There can be no assurance that the Company's products will not become uncompetitive or obsolete. In addition, industry acceptance of new technologies developed by the Company may be slow to develop due to, among other things, existing regulations written specifically for older technologies and general unfamiliarity of users with new technologies. Possible Adverse Effect From Consolidation in the Environmental Market and Changes in Environmental Regulations. One of the important markets for the Company's products is environmental analysis. During the past several years, there has been a contraction in the market for analytical instruments used for environmental analysis. This contraction has caused consolidation in the businesses serving this market. Such consolidation may have an adverse impact on certain of the Company's businesses. In addition, most air, water, and soil analysis is conducted to comply with federal, state, local, and foreign environmental regulations. These regulations are frequently specific as to the type of technology required for a particular analysis and the level of detection required for that analysis. The Company develops, configures, and markets its products to meet customer needs created by existing and anticipated environmental regulations. These regulations may be amended or eliminated in response to new scientific evidence or political or economic 44PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Forward-looking Statements considerations. Any significant change in environmental regulations could result in a reduction in demand for the Company's products. Risks Associated With the Sale of Products to the Pharmaceutical Industry. The pharmaceutical industry is one of the important markets for the Company's products. Although the Company's existing general purpose analytical equipment and services are not subject to regulation by the U.S. Food and Drug Administration (the FDA), FDA regulations apply to the processes and production facilities used to manufacture pharmaceutical products. Any material change by a pharmaceutical company in its manufacturing process or equipment could necessitate additional FDA review and approval. Such requirements may make it more difficult for the Company to sell its products and services to pharmaceutical customers that have already applied for or obtained approval for production processes using different equipment and supplies. Any changes in the regulations that apply to the processes and production facilities used to manufacture pharmaceutical products may adversely affect the market for the Company's products. In addition, from time to time as a result of industry consolidation and other factors, the pharmaceutical industry has reduced its capital expenditures for equipment such as that manufactured by the Company, and there can be no assurance that further changes in the pharmaceutical industry will not adversely affect demand for the Company's products. Risks Associated With Dependence on Capital Spending Policies and Government Funding. The Company's customers include pharmaceutical and chemical companies, laboratories, government agencies, and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for the Company's products. Such spending levels are based on a wide variety of factors, including the resources available to make such purchases, the spending priorities among various types of research equipment, public policy, and the effects of different economic cycles. Any decrease in capital spending by any of the customer groups that account for a significant portion of the Company's sales could have a material adverse effect on the Company's business and results of operations. Possible Adverse Impact of Significant International Operations. International revenues accounted for a significant portion of the Company's total revenues in 1997, and the Company expects that international revenues will continue to account for a significant portion of the Company's revenues in the future. Sales to customers in foreign countries are subject to a number of risks, including the following: fluctuations in exchange rates may affect product demand and adversely affect the profitability in U.S. dollars of products and services provided by the Company in foreign markets where payment for the Company's products and services is made in the local currency; agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries could impose withholding taxes or otherwise tax the Company's foreign income, impose tariffs, or adopt other restrictions on foreign trade; export licenses, if required, may be 45PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Forward-looking Statements difficult to obtain and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business and results of operations. Competition. The Company encounters and expects to continue to encounter intense competition in the sale of its products. The Company believes that the principal competitive factors affecting the market for its products include product performance, price, reliability, and customer service. The Company's competitors include large multinational corporations and their operating units. Some of the Company's competitors have substantially greater financial, marketing, and other resources than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products, than the Company. In addition, competition could increase if new companies enter the market or if existing competitors expand their product lines or intensify efforts within existing product lines. There can be no assurance that the Company's current products, products under development or ability to discover new technologies will be sufficient to enable it to compete effectively with its competitors. Risks Associated with Protection, Defense, and Use of Intellectual Property. The Company holds many patents relating to various aspects of its products, and believes that proprietary technical know-how is critical to many of its products. Proprietary rights relating to the Company's products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that patents will issue from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology and, in the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products or gain access to its trade secrets and know-how. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company's patents, or that they will not use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company's products or technologies. The Company may need to acquire licenses to, or contest the validity of, any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. Further, the laws of some jurisdictions do not protect the Company's proprietary rights to the 46PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Forward-looking Statements same extent as the laws of the U.S. and there can be no assurance that available protections will be adequate. In addition, the Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. Potential Impact of Year 2000 on Processing of Date-sensitive Information. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 47PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Selected Financial Information (In thousands except per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993 --------------------------------------------------------------------------- Statement of Income Data: Revenues $1,592,314 $1,209,362 $ 782,662 $ 649,992 $ 529,278 Income from continuing operations 147,258 132,751 79,306 58,261 42,793 Net income 147,258 132,751 79,306 60,220 44,764 Earnings per share from continuing operations: Basic 1.21 1.12 .70 .53 .41 Diluted 1.09 1.01 .64 .49 .39 Earnings per share: Basic 1.21 1.12 .70 .55 .43 Diluted 1.09 1.01 .64 .50 .40 Balance Sheet Data: Working capital $ 612,666 $ 636,703 $ 489,895 $ 230,306 $ 238,053 Total assets 2,351,153 1,924,400 1,372,813 1,011,917 891,141 Long-term obligations 673,194 554,214 441,034 263,559 286,161 Shareholders' investment 877,558 746,267 542,705 440,763 358,055 (a)Reflects the March 1997 acquisition of Life Sciences and nontaxable gains of $46.4 million from the issuance of stock by subsidiaries. (b)Reflects the March 1996 acquisition of the Fisons businesses, the October 1996 issuance of $172.5 million principal amount of 4 1/2% senior convertible debentures due 2003, and nontaxable gains of $71.7 million from the issuance of stock by subsidiaries. (c)Reflects the August and October 1995 issuance of $96.3 million principal amount of 5% subordinated convertible debentures due 2000 by each of ThermoQuest and Thermo Optek, respectively, and nontaxable gains of $20.1 million from the issuance of stock by subsidiaries. (d)Reflects the March 1994 acquisition of several businesses within the EnviroTech Measurements & Controls group of Baker Hughes Incorporated and nontaxable gains of $6.5 million from the issuance of stock by subsidiary. 48PAGE Thermo Instrument Systems Inc. 1997 Financial Statements Common Stock Market Information The Company's common stock is traded on the American Stock Exchange under the symbol THI. The following table sets forth the high and low sale prices of the Company's common stock for 1997 and 1996, as reported in the consolidated transaction reporting system. Prices were restated to reflect a five-for-four stock split distributed in October 1997 in the form of a 25% stock dividend. 1997 1996 ---------------------- ---------------------- Quarter High Low High Low --------------------------------------------------------------------- First $29 1/5 $23 1/10 $24 2/5 $19 7/10 Second 28 1/2 22 1/2 34 7/10 22 4/5 Third 34 1/5 24 3/5 31 23 3/5 Fourth 34 1/2 23 30 1/10 23 1/5 As of January 30, 1998, the Company had 2,997 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 January 30, 1998, was $29 1/8 per share. Common stock of the Company's majority-owned public subsidiaries is traded on the American Stock Exchange: ThermoSpectra Corporation (symbol THS), ThermoQuest Corporation (symbol TMQ), Thermo Optek Corporation (symbol TOC), Thermo BioAnalysis Corporation (symbol TBA), Metrika Systems Corporation (MKA), and Thermo Vision Corporation (VIZ). Shareholder Services Shareholders of Thermo Instrument Systems Inc. who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo Instrument Systems Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Distribution of printed quarterly reports is limited to the second quarter only. All material will be available from Thermo Electron's Internet site (http://www.thermo.com/subsid/thi1.html). Stock Transfer Agent American Stock Transfer & Trust Company is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 49PAGE Thermo Instrument Systems Inc. 1997 Financial Statements 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 Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 3, 1998, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Instrument Systems Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Monday, June 1, 1998, at 9:00 a.m. at the Hyatt Regency Hotel, Scottsdale, Arizona. EX-21 15 Exhibit 21 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant As of February 20, 1998, the Registrant owned the following subsidiaries: STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited United Kingdom 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 ESM Eberline Instruments Strahlen Germany 100 - und Umweltmesstechnik GmbH Fisons Instruments Vertriebs GmbH Germany 100 Gebruder Haake GmbH Germany 100 Gas Tech Inc. California 100 Gas Tech Australia, Pty. Ltd. Australia 50* Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Life Sciences International Limited United Kingdom 100 Comdate Services Limited England 100 Lipshaw Limited England 100 Luckham Limited England 100 Phicom Limited England 100 Shandon Scientific Limited England 100 Southions Investments Limited England 100 Sungel Puntar Rubber Estate Limited England 100 Westions Limited England 100 Whale Scientific Limited England 100 Helmet Securities Limited England 100 Life Sciences International GmbH Germany 100 Life Sciences International Kft Hungary 100 Life Sciences International SNC France 100 Life Sciences International France 100 (France) SA Shandon SA France 100 Life Sciences International, Inc. Pennsylvania 100 LSI North America Service Inc. Delaware 100 Shandon, Inc. Pennsylvania 100 Alko Diagnostic Corporation Massachusetts 100 E-C Apparatus Corporation Florida 100 Whale Scientific, Inc. Colorado 100 Life Sciences International Holdings BV Netherlands 100 Biosystems Oy Finland 100 Life Sciences International Poland 100 (Poland) SP z O.O Angela Scientific Instruments Limited England 100 Britlowes Limited England 100 PAGE 1 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Commendstar Limited England 100 Consumer & Video Holdings Limited England 100 Video Communications Limited England 100 Greensecure Projects Limited England 100 Labsystems Europe GA Spain 100 Labsystems Ges mbH Austria 100 LSI (US) Inc. Delaware 100 Omnigene Limited England 59 Shandon Southern Instruments Limited England 100 Shenbridge Limited England 100 Southern Instruments Holdings Limited England 100 Metrika Systems Corporation Delaware 60** Eberline Radiometrie GmbH Germany 100 Eberline Radiometrie S.A. France 100 Gamma-Metrics California 100 Gamma-Metrics International F.S.C. Inc. Guam 100 Radiometrie U.S.A., Inc. California 100 Thermo Instrument Systems Limited United Kingdom 100 National Nuclear Corporation California 100 ONIX Systems Inc. Delaware 87** Brandt Instruments, Inc. Delaware 100 CAC Inc. Delaware 100 Flow Automation Inc. Texas 100 Thermo Instrument Controls de Mexico, Mexico 100 S.A. de C.V. (1% of which shares are owned directly by ONIX Systems Inc.) VG Gas Analysis Systems Inc. Massachusetts 100 Houston Atlas Inc. Texas 100 ONIX Holdings Limited England 100 CAC Limited United Kingdom 100 Flow Automation (UK) Limited United Kingdom 100 VG Gas Analysis Limited United Kingdom 100 Peek Measurement Limited England 100 Peek Environmental Limited England 100 Sarasota Data Products Limited England 100 Sarasota Instrumentation Limited England 100 Peek Measurement, Inc. Texas 100 TN Spectrace Europe B.V. Netherlands 100 TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 Westronics Inc. Texas 100 Optek-Nicolet Holdings Inc. Wisconsin 100 PAGE 2 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo Optek Corporation Delaware 91** (additionally, 1.47% of the shares are owned directly by The Thermo Electron Companies Inc.) Spectronic Instruments, Inc. Delaware 100 SLM International Inc. Illinois 100 Thermo Jarrell Ash Corporation Massachusetts 100 ARL Applied Research Laboratories Switzerland 100 S.A. Fisons Instruments (Proprietary) South Africa 100 Limited Thermo Optek Wissenschaftliche Austria 100 Gerate GesmbH Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument China 100 Technology Co. Limited Cahn Instrument Corporation Wisconsin 100 Mattson Instruments Limited United Kingdom 100 Thermo Elemental Limited United Kingdom 100 Thermo Optek Limited United Kingdom 100 Unicam Limited United Kingdom 100 Unicam Export Limited United Kingdom 100 Unicam Analytical Technology Netherlands 100 Netherlands B.V. Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Fisons Instruments Nordic AB Sweden 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Inc. Wisconsin 100 Spectra-Tech, Europe Limited United Kingdom 100 Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited United Kingdom 100 Nicolet Instrument Limited United Kingdom 100 Planweld Limited United Kingdom 100 Hilger Analytical Limited United Kingdom 100 Thermo Electron Limited United Kingdom 100 Thermo Instrument Systems Japan Delaware 100 Holdings, Inc. Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Instruments (Canada) Inc. Canada 100 Eberline Instruments (Canada) Ltd. Canada 100 Fisons Instruments Inc. Canada 100 PAGE 3 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Unicam Analytical Inc. Canada 100 Thermo Optek France S.A. France 100 Thermo Optek Holding B.V. Netherlands 100 Baird Europe B.V. Netherlands 100 Baird France S.A.R.L. France 100 Thermo Group B.V. Netherlands 100 Thermo Optek Materials Analysis (S.E.A.) Singapore 100 Pte Limited VG Systems Limited United Kingdom 100 ThermoSpectra Corporation Delaware 77** (additionally, 6.23% of the shares are owned directly by The Thermo Electron Companies Inc.) Diametrix Detectors, Inc. Delaware 50 Gould Instrument Systems, Inc. Ohio 100 Kevex Instruments Inc. Delaware 100 Kevex X-Ray Inc. Delaware 100 Neslab Instruments Europa BV Netherlands 100 Neslab Instruments, Inc. New Hampshire 100 Neslab Instruments Limited England 100 Nicolet Instrument Technologies Inc. Wisconsin 100 NORAN Instruments Inc. Wisconsin 100 Park Scientific Instruments Corporation California 100 Park Scientific S.A. Switzerland 100 PSI Virgin Islands Incorporated U.S. Virgin 100 Islands Sierra Research and Technology, Inc. Delaware 100 ThermoSpectra B.V. Netherlands 100 Nicolet Technologies B.V. Netherlands 100 Bakker Electronics Limited United Kingdom 100 NORAN Instruments B.V. Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoSpectra Limited United Kingdom 100 Nicolet Technologies Ltd. United Kingdom 100 Thermo Spectra S.A. France 100 Nicolet Technologies S.A.R.L. France 100 Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 PAGE 4 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP ThermoQuest Corporation Delaware 88** (43.9% of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, .12% of the shares are owned directly by The Thermo Electron Companies Inc.) Denley Instruments Limited England 100 E-C Apparatus Limited England 100 Finnigan FT/MS Inc. Delaware 100 Finnigan Corporation Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, California 100 Inc. Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT Canada, Ltd. Canada 100 Finnigan MAT GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products Italy 100 S.R.L. Masslab Limited United Kingdom 100 Thermo Instruments Australia Pty. Australia 100 Limited ThermoQuest Ltd. United Kingdom 100 Finnigan MAT Ltd. United Kingdom 100 Finnigan MAT AB Sweden 100 Thermo Separation Products Ltd. United Kingdom 100 Finnigan Properties, Inc. California 100 Forma Scientific, Inc. Delaware 100 Forma Ohio Inc. Ohio 100 International Equipment Company Delaware 100 International Equipment Company England 100 Limited Savant Instruments, Inc. New York 100 Forma Scientific Limited England 100 Hypersil Inc. Delaware 100 Hypersil Limited England 100 Life Sciences International Hong Kong 100 (Hong Kong) Limited Life Sciences International, Inc. Pennsylvania 100 PAGE 5 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Life Sciences International England 100 (Europe) Limited Life Sciences International England 100 (UK) Limited Kenbury Limited England 100 Savant Instruments Limited England 100 ThermoQuest B.V. Netherlands 100 Thermo Separation Products B.V. Netherlands 100 Thermo Separation Products Belgium 100 B.V. B.A. ThermoQuest France S.A. France 100 Finnigan Automass S.A. France 100 Finnigan MAT S.A.R.L. France 100 Thermo Separation Products S.A. France 100 ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Austria 100 Gerate GmbH Thermo Separation Products AG Switzerland 100 Thermo Separation Products Inc. Delaware 100 ThermoQuest GmbH Germany 100 Thermo Separation Products GmbH Germany 100 ThermoQuest K.K. Japan 100 RealFlex Systems Inc. Texas 100 SID Instruments Inc. Delaware 100 FI Instruments Inc. Delaware 100 FI S.A. France 100 Fisons Instruments BV Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 100 HB Instruments Inc. Delaware 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. United Kingdom 100 Thermo Haake (U.K.) Limited United Kingdom 100 Thermo Instrumentos Cientificos S.A. Spain 100 Spectrace Instruments Inc. California 100 PAGE 6 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo BioAnalysis Corporation Delaware 70** (4.1% of which shares are owned directly by Quest-TSP Holdings Inc. and 1.8% of which shares are owned directly by Quest-Finnigan Holdings Inc. (Additionally, 7.12% of the shares are owned directly by The Thermo Electron Companies Inc.) Denley Instruments Inc. North Carolina 100 Fastighets AB Skrubba Sweden 100 Dynatech Laboratories spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 DYNEX Technologies Inc. Virginia 100 Hybaid BV Netherlands 100 Hybaid Limited England 100 Labsystems Espana SA Spain 100 Labsystems Inc. Delaware 100 Labysystems Japan K.K. Japan 100 Labsystems OY Finland 100 Labsystems (Hong Kong) Limited Hong Kong 99 Labsystems BTD China 33 Labsystems LHD China 33 Labsystems Lenpipette Russia 95 Labsystems Pakistan (Private) Ltd Pakistan 34 Labsystems Sweden AB Sweden 100 Labsystems (UK) Limited England 100 Life Sciences International(Benelux) B.V. Netherlands 100 Thermo BioAnalysis GmbH Germany 100 DYNEX Technologies GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel 100 Islands Thermo BioAnalysis Holding, Limited United Kingdom 100 Affinity Sensors Limited United Kingdom 100 Dynex Technologies Limited United Kingdom 100 Thermo BioAnalysis Limited United Kingdom 100 Thermo LabSystems Limited United Kingdom 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Thermo LabSystem (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 Thermo Environmental Instruments Inc. California 100 PAGE 7 THERMO INSTRUMENT SYSTEMS INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) Van Hengel Holding B.V. Netherlands 100 ESM Eberline Instruments Strahlen Germany 100 - und Umweltmesstechnik GmbH Fisons Instruments Vertriebs GmbH Germany 100 Gebruder Haake GmbH Germany 100 Thermo Instrument Systems B.V. Netherlands 100 Euroglas B.V. Netherlands 100 Thermo Automation Services (ThAS) B.V. Netherlands 100 This Analytical B.V. Netherlands 100 This Gas Analysis B.V. Netherlands This Lab Systems B.V. Netherlands 100 This Scientific B.V. Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 Thermo Vision Corporation Delaware 78** (additionally, 1.27 % of the shares are owned directly by The Thermo Electron Companies Inc.) CID Technologies Inc. New York 100 Centro Vision Inc. Delaware 100 Hilger Crystals Limited United Kingdom 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Oriel Foreign Sales Corp. U.S. Virgin 100 Islands * Joint Venture/Partnership ** As of 1/3/98 PAGE 8 EX-23 16 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 17, 1998, included in or incorporated by reference into Thermo Instrument Systems Inc.'s Annual Report on Form 10-K for the year ended January 3, 1998, into the Company's previously filed Registration Statements as follows: Registration Statement No. 33-14980 on Form S-8, Registration Statement No. 33-16461 on Form S-8, Registration Statement No. 33-14974 on Form S-8, Post Effective Amendment to Registration Statement on Form S-4 No. 33-32579-02 on Form S-8, Registration Statement No. 33-33577 on Form S-8, Registration Statement No. 33-36221 on Form S-8, Registration Statement No. 33-37866 on Form S-8, Registration Statement No. 33-42270 on Form S-3, Registration Statement No. 33-69526 on Form S-3, Registration Statement No. 33-65275 on Form S-8, Registration Statement No. 33-37559 on Form S-8, Registration Statement No. 333-32031 on Form S-3, Registration Statement No. 333-02163 on Form S-3, and Registration Statement No. 333-17707 on Form S-3. Arthur Andersen LLP Boston, Massachusetts March 10, 1998 EX-27.1 17
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1998 JAN-03-1998 468,848 8,328 386,861 22,786 264,719 1,189,368 317,605 97,666 2,351,153 576,702 364,194 0 0 12,265 865,293 2,351,153 1,592,314 1,592,314 842,009 842,009 106,356 4,366 45,894 248,017 88,113 147,258 0 0 0 147,258 1.21 1.09
EX-27.2 18
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 522,688 7,452 320,312 16,981 213,683 1,124,910 250,976 72,313 1,924,400 488,207 399,214 0 0 9,767 736,500 1,924,400 1,209,362 1,209,362 654,165 654,165 87,591 2,274 28,923 189,923 51,727 132,751 0 0 0 132,751 1.12 1.01
EX-27.3 19
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-03-1998 MAR-29-1997 432,256 7,477 383,760 20,711 285,227 1,192,202 306,107 76,741 2,384,121 680,545 508,597 0 0 9,791 764,687 2,384,121 329,120 329,120 173,448 173,448 23,407 1,084 8,460 53,495 17,770 33,587 0 0 0 33,587 .28 .25
EX-27.4 20
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-03-1998 JUN-28-1997 459,328 1,713 376,676 23,470 286,332 1,200,633 316,012 84,632 2,386,787 635,910 401,128 0 0 9,791 790,164 2,386,787 734,355 734,355 383,942 383,942 800 2,890 20,395 114,013 38,761 70,806 0 0 0 70,806 .58 .53
EX-27.5 21
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO INSTRUMENT SYSTEMS INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-03-1998 SEP-27-1997 377,445 10,949 387,442 23,936 278,597 1,134,920 315,726 92,105 2,307,492 587,381 388,493 0 0 12,239 816,691 2,307,492 1,138,255 1,138,255 598,941 598,941 79,404 3,607 33,843 176,502 60,680 108,079 0 0 0 108,079 .89 .81
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