-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RaQNxPWpI2gtars5Ni9hDQxF+vY3HgbK7xHJqftIRYKlA3dP06d//TGK4NWQI+QJ btDFknvfX7AXNao2QvymmQ== 0000796038-95-000013.txt : 19950612 0000796038-95-000013.hdr.sgml : 19950612 ACCESSION NUMBER: 0000796038-95-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950401 FILED AS OF DATE: 19950608 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO PROCESS SYSTEMS INC CENTRAL INDEX KEY: 0000796038 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 042925807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 95545990 BUSINESS ADDRESS: STREET 1: 12068 MARKET ST CITY: LIVONIA STATE: MI ZIP: 48150 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 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 April 1, 1995 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9549 THERMO PROCESS SYSTEMS INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12068 Market Street Livonia, Michigan 48150 (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: Name of each exchange Title of each class on which registered ---------------------------- ----------------------- Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. 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 May 26, 1995, was approximately $37,269,000. As of May 26, 1995, the Registrant had 17,351,555 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Fiscal 1995 Annual Report to Shareholders for the year ended April 1, 1995, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on September 19, 1995, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business. Thermo Process Systems Inc. (the Company or the Registrant) provides a range of specialized environmental services. The Company provides environmental science and consulting services, laboratory-based testing, and nuclear health and safety services. These services were provided through the Company's Thermo Terra Tech joint venture prior to April 2, 1995. Through the Company's majority-owned, publicly held Thermo Remediation Inc. (Thermo Remediation) subsidiary, the Company operates a network of soil-remediation centers that use thermal processing to remove and destroy petroleum contamination. Through its Thermo Fluids subsidiary, Thermo Remediation also collects and recycles used motor oil and provides services such as wastewater processing. As of April 1, 1995, the Company owned 66% of Thermo Remediation's common stock and holds a $2,650,000 principal amount 3.875% subordinated convertible note due 2000 issued by Thermo Remediation, convertible into shares of Thermo Remediation common stock at a conversion price of $9.83 per share. The Company also provides equipment and services for the automated heat treating of metal parts. On February 6, 1995, the Company acquired all of the issued and outstanding capital stock of Engineering, Technology and Knowledge Corporation (ETKC). ETKC's sole subsidiary, Elson T. Killam Associates, Inc. (Killam Associates), is a leading provider of comprehensive environmental consulting and professional engineering services in selected areas of the United States. The Company's majority-owned Beheersmaatschappij J. Amerika N.V. (J. Amerika) subsidiary is a provider in the Netherlands of underground tank and other environmental services. On March 29, 1995, J. Amerika acquired the outstanding shares of Refining and Trading Holland B.V., which conducts business under the name North Refinery. North Refinery, located in Delfzijl, Holland, specializes in processing "off-spec" and contaminated petroleum fluids into usable products such as gas oil, diesel oil, and fuel oil. As a result of combining the businesses of J. Amerika and North Refinery, J. Amerika N.V. intends to change its name to Thermo EuroTech N.V. (Thermo EuroTech). As of April 1, 1995, the Company owned 62% of the outstanding common stock of J. Amerika. Effective April 2, 1995, the Company agreed to dissolve the Thermo Terra Tech joint venture and to purchase the businesses formerly operated by the joint venture from Thermo Instrument Systems Inc. (Thermo Instrument) for $34.3 million in cash. To finance this transaction, the Company issued to Thermo Electron a $35.0 million promissory note that bears interest at the Commercial Paper Composite Rate plus 25 basis points and is due May 13, 1997. On May 10, 1995, the Company acquired substantially all of the assets of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories) for $16.8 million in cash, plus the assumption of $5.4 million in bank indebtedness existing as of the close of acquisition. The purchase price is subject to a post-closing adjustment. Lancaster Laboratories, based in Lancaster, Pennsylvania, is a provider of 2PAGE high-quality analytical services to the environmental, food, and pharmaceutical industries. The Company was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron Corporation (Thermo Electron). Prior to its incorporation, the Company's operations were conducted by two wholly owned subsidiaries of Thermo Electron. As of April 1, 1995, Thermo Electron owned 13,933,591 shares of the common stock of the Company, representing 80% of such stock then outstanding. Thermo Electron is a world leader in environmental monitoring and analysis instruments and a manufacturer of biomedical products including heart-assist systems and mammography systems, papermaking and recycling equipment, alternative-energy systems, and other specialized products. Thermo Electron also conducts advanced technology research and development. Thermo Electron intends, for the foreseeable future, to maintain at least 50% ownership of the Company. During fiscal 19951, Thermo Electron purchased 794,430 shares of the Company's common stock in the open market at a total price of $6,466,000. (b) Financial Information About Industry Segments. The Company conducts business in the environmental services industry segment. The Company provides environmental science and engineering services, laboratory-based testing, and nuclear health and safety services. The Company also provides environmental services for the remediation and testing of petroleum-contaminated soils and groundwater and for waste-fluids recycling, as well as specialized metallurgical-processing services. In addition, the Company designs, manufactures, and installs advanced custom-engineered thermal-processing systems used in manufacturing to impart desirable metallurgical properties, such as added tensile strength and wear resistance, into treated parts. (c) Description of Business. (i) Principal Products and Services Environmental Analysis and Field Services The Company provides two broad types of environmental analysis and field services: environmental and radiochemical analysis, and environmental science and consulting services. Environmental and Radiochemical Analysis Services. Through a network of facilities in the United States, the Company provides comprehensive laboratory-based environmental testing, analysis, and related services to detect and measure hazardous wastes and radioactive materials. Each of the laboratories in the Company's network has developed specializations, and samples obtained by one laboratory can be shipped to the specialists in the network for analysis, enabling the network to provide a full complement of analytical and testing services. Analytical laboratory services consist of a comprehensive range of analytical tests to detect and measure organic contaminants, inorganic contaminants, and radioactive materials in samples of soil, water, air, industrial wastes, and biological materials. In addition, the 1 References to fiscal 1995, 1994, and 1993 herein are for the fiscal years ended April 1, 1995, April 2, 1994, and April 3, 1993, respectively. 3PAGE Company's analytical laboratories have the capability to analyze "mixed wastes," which are hazardous wastes that also are radioactive. The handling of mixed wastes requires special testing procedures and facilities, including a license from the Nuclear Regulatory Commission or its designees to accept shipments of such materials. The Company also has established detailed procedures and strict operating standards to ensure consistent performance and to allow it to participate in the Environmental Protection Agency's (EPA) Contract Laboratory Program (CLP). The EPA, through the CLP, solicits bids on a competitive basis from commercial laboratories to perform testing and analysis. The Company is a provider of radiation and nuclear health physics services, including site surveys for radioactive materials, on-site samples and analysis in support of decontamination programs, and dosimetry services to measure personnel exposure. As part of its on-site services, Company personnel usually perform a preliminary survey using portable radiation-detection equipment. As a result of this survey, samples are taken at critical locations and are then analyzed radiometrically and radiochemically in a mobile laboratory facility at the site or at one of the Company's laboratories. This data is then used to plan cleanup operations. A substantial part of the Company's health physics services has been performed under the U.S. Department of Energy's (DOE) Formerly Utilized Sites Remedial Action Program and Surplus Facilities Management Program. The Company also supplies reusable thermoluminescent dosimeter badges. These badges, worn by personnel working in areas where radioactive material may be present, are periodically returned to the Company for processing to determine the level of radiation exposure. Environmental Science and Engineering Services. Environmental science services include the preparation of environmental impact studies, which are used to predict the environmental effects of a given activity. The Company provides these services through several offices located along the eastern seaboard of the United States. Typically, the Company's customers require an environmental study to meet the standards of a monitoring program or to obtain construction or operating permits. For example, the Company studies the impact of thermal pollution from nuclear power plants and the effects of hydroelectric power plant construction on fish populations. The Company also monitors soil around landfills for toxic contaminants, underground storage tanks, and ambient air conditions for siting and permit applications. In addition, the Company provides a wide range of environmental consulting services to private- and public-sector clients. These services include the design and inspection of water supply and wastewater treatment facilities; investigations of different methods to clean up hazardous waste sites; assistance in obtaining government permits; transportation-related and similar types of infrastructure engineering, survey, and land-use planning; and support services which include mechanical, electrical, and structural engineering. On February 6, 1995, the Company acquired all of the issued and outstanding capital stock of ETKC from Nord Est S.A. The purchase price for ETKC's stock was (a) $12.5 million in cash and (b) a zero coupon note, payable in February and May 1998, with a face value of $28 million and a present value of $22.3 million as of the acquisition closing date. The Company also exchanged certain outstanding options 4PAGE to purchase Killam Associates' stock for $1.9 million in cash and options to purchase the Company's common stock, which options were valued at $6.9 million. To help finance this acquisition, the Company issued to Thermo Electron a $38 million promissory note, due 1997. ETKC's sole subsidiary, Killam Associates, is a leading provider of comprehensive environmental consulting and professional engineering services in selected areas of the United States. Killam Associates is one of the most highly respected sources of expertise in areas related to the design, planning, and construction supervision of municipal and privately owned environmental facilities, including water treatment plants, waste treatment plants, and hazardous wastewater facilities. Killam Associates specializes in full-service contract operations to plant owners in the public and private sectors. These services facilitate regulatory compliance, optimize day-to-day plant operations, reduce costs, provide competent, experienced personnel, and promote good community relations. The market for the Company's environmental analysis and field services results primarily from customers who need to comply with federal, state, and local regulations that relate to environmental protection, the management and treatment of hazardous wastes, and the need to upgrade and expand infrastructure in response to economic development. These customers typically rely on independent laboratories and environmental science and engineering consultants, such as the Company's, for ongoing analysis and monitoring of such wastes and direction for compliance with various environmental regulations. A substantial portion of the Company's analytical laboratory and environmental science services sales are made to existing customers on a repeat basis. Environmental science services are often performed as multiyear studies. In addition to federal, state, and local governments, customers include public utilities, consulting and construction engineers, waste management companies, oil refineries, mining companies, chemical manufacturers, architectural and engineering firms, and a variety of service companies involved with real estate transactions. The Company participates in industrial trade shows and technical conferences concerning pollution control, water quality, environmental management, specific cleanup efforts (e.g. Superfund), and industrial hygiene. During fiscal 1995, 1994, and 1993, the Company derived revenues of $70.9 million, $54.8 million, and $55.0 million, respectively, from environmental analysis and field services. Environmental Remediation Services The Company, through its majority-owned, publicly held Thermo Remediation subsidiary, operates a network of soil-remediation centers serving customers in more than a dozen states. Thermo Remediation's Thermo Fluids subsidiary collects and recycles used motor oil and provides services such as wastewater processing. In October 1994, Thermo Remediation acquired a soil-remediation facility in South Tacoma, Washington (renamed TPST Woodworth) from Woodworth & Company, Inc. for $4.7 million in cash. In December 1994, Thermo Remediation acquired a soil-remediation facility in Baltimore County, Maryland (renamed TPST Maryland) from the principals of Bryn Awel Corporation for $6.8 million in cash. At the Company's soil-remediation centers, soil is thermally treated to remove and destroy petroleum contamination caused by leaking underground storage tanks (USTs), aboveground storage tanks, spills, and other sources. 5PAGE The Company's soil-remediation centers are environmentally secure facilities for receiving, storing, and processing petroleum-contaminated soils. Each site consists principally of a soil-storage area and a soil-remediation unit (SRU). The Company maintains standards for acceptance of petroleum-contaminated soil. Information required by the Company prior to the acceptance of soil includes identification of the generator, the origin and nature of the contamination, and a complete site history. The Company requires a preacceptance analysis by environmental analytical testing laboratories to identify contaminants and their concentrations. In addition, the customer must certify that the soil is not "hazardous" as defined by EPA, state, or local regulations. The Company generates an individual manifest for each truckload of soil that meets the Company's acceptance criteria. The Company screens all soil prior to treatment to remove large nonprocessable materials such as glass, metal, rubber, paper, and stones. Screened soil is then loaded into the SRU's primary combustion chamber, a rotary kiln that heats the soil to temperatures ranging from approximately 400 to 1,000 degrees Fahrenheit to volatilize petroleum contaminants from the soil. The volatilized petroleum gases pass from the rotary kiln into a secondary combustion chamber, where they are heated to temperatures ranging from 1,400 to 1,800 degrees Fahrenheit and are completely oxidized to form carbon dioxide and water vapor. After discharge from the SRU, clean soil is stored in piles and labeled and sampled for analysis by certified environmental laboratories. After receiving certification that the soil meets local cleanup standards, the soil is trucked off-site for a variety of uses, such as construction fill. The market for remediation of petroleum-contaminated soils, as with many other waste markets, was created by environmental regulations and economic concerns. The Company's customers include the major oil companies, public utilities, large industrial companies, the federal government including the military, and certain municipal governments and agencies. The Company and Thermo Electron entered into a development agreement under which Thermo Electron agreed to fund up to $4.0 million of the direct and indirect costs of the Company's development of soil-remediation centers. In exchange for this funding, the Company granted Thermo Electron a royalty equal to approximately 3% of net revenues from soil-remediation services performed at the centers developed under the agreement. The royalty payments may cease if the amounts paid by the Company yield a certain internal rate of return to Thermo Electron on the funds advanced to the Company under the agreement. The Company recorded contract revenues of $776,000 and $1,793,000 under the agreement for development costs expended in fiscal 1994 and 1993, respectively. As of October 2, 1993, funding under the agreement was complete. Two sites, Southern California and West Palm Beach, Florida, were developed under the agreement and the Company paid royalties of $432,000 in fiscal 1995, $351,000 in fiscal 1994, and $149,000 in fiscal 1993 to Thermo Electron. The Company, through its Thermo Fluids subsidiary, collects, tests, processes, and recycles used motor oil and other industrial oils. In addition, the Company collects and recycles oily water and oil filters. Thermo Fluids has collection facilities located in Phoenix and Tucson, Arizona. From these sites, Thermo Fluids operates a fleet of oil and water collection trucks to pick up waste oils and oily water. Outlying areas in Arizona are serviced from one of these two locations. 6PAGE The Company through its J. Amerika subsidiary provides environmental and underground tank services. J. Amerika, which is a provider in the Netherlands of services for remediating petroleum-contaminated groundwater, is seeking to expand its business to include the remediation of petroleum-contaminated soil, although to date the Company's efforts to secure the necessary operating permits have been unsuccessful. On March 29, 1995, J. Amerika acquired the outstanding shares of Refining and Trading Holland B.V., which conducts business under the name North Refinery, from Stalt Holding B.V. The purchase price for North Refinery's stock was 9.6 million Dutch guilders (approximately $6.2 million) and 228,570 shares of J. Amerika's capital stock, valued at 1.3 million Dutch guilders (approximately $0.9 million). North Refinery, a petroleum-fluids recycling operation, is located on 15 acres in Delfzijl, Holland and specializes in processing "off-spec" mixtures of oil that contain water, ash, and sediment into commercially tradable end products used in blending. The off-spec oil is filtered and centrifuged at elevated temperatures in preparation for distillation. Using a completely automated distillation system, the refinery has the capacity to process 120,000 metric tons per year. Processing capacity depends on the pre-treatment requirements of the off-spec oil or chemical waste (feedstock) and as such depends on the quality of the feedstock most of which the refinery receives from Russian oil refineries. During the refining process, samples are continuously tested to monitor the quality of the process flow. After distillation, the resulting end product consists mainly of two commercially tradable products that are sold to blenders who incorporate them into commercial products. North Refinery also holds a chemical-waste permit for the processing of a special classification of oil-contaminated liquids. With the recent grant of this chemical-waste permit, North Refinery has started processing chemical waste stream products. The end product is light gas oil or heavy gas oil, which is used for fuel blending. Light gas oil is used in blending to make diesel fuels. Heavy gas oil is used in blending to make marine fuels or used as a feed material to catalytic cracker operations. The market for blending gas oils is very large and oils such as North Refinery's end products represent a very small percentage of the total market. During fiscal 1995, 1994, and 1993, the Company derived revenues, excluding related party development revenues discussed above, of $36.2 million, $28.8 million, and $19.1 million, respectively, from its environmental remediation services. Metallurgical Services The Company provides a comprehensive range of metallurgical thermal-processing services at its facilities in Minnesota and California. Metallurgical-processing services performed include hardening, annealing, stress relieving, normalizing, and tempering, and are performed over a range of temperatures and in controlled metallurgical atmospheres, as well as thermal treatment using induction hardening methods. Much of the work performed is specialized, requiring the treatment of complex parts without altering dimensions or other specifications or, in some cases, requiring the correction of dimensional differences. In many cases, the Company works with customers to develop specifications and methods for metallurgical processing of their products. 7PAGE During fiscal 1995, 1994, and 1993, the Company derived revenues of $12.3 million, $10.8 million, and $12.2 million, respectively, from its metallurgical services. Process Systems The Company's thermal-processing furnaces include a wide variety of systems such as continuous, controlled-atmosphere furnace systems and batch furnace systems. The Company's customers use these systems in high-volume manufacturing operations such as those employed in the automotive and heavy-equipment industries. The Company's proprietary multi-chamber carburizing systems allow users to regulate temperature and carbon atmosphere requirements with high precision and repeatability, resulting in a more efficient process and higher quality, more uniform parts. The Company's products also include integral-quench batch furnaces with automated materials-handling systems and process monitoring and control systems that incorporate proprietary software, sensors, programmable logic controllers, and other instruments to monitor operating parameters and to control furnace functions. In addition, the Company supplies vacuum furnaces, including conventional two- and six-bar single chamber systems. Heat processing in a vacuum eliminates the detrimental effects of contaminating gases, such as oxygen, which can cause corrosion and surface defects in processed parts. Vacuum processing and related technologies have applications in many industries, but especially in the manufacture of automotive components, aerospace and electronics components, and medical implants. During fiscal 1995, 1994, and 1993, the Company derived revenues of $14.4 million, $15.0 million, and $16.9 million, respectively, from its process systems. (ii) New Products The Company has made no commitments to new products that would require the investment of a material amount of the Company's assets. (iii) Raw Materials The feedstock used by North Refinery has historically been obtained from Russian oil refineries through traders located in Moscow. In fiscal 1994, prior to its acquisition by the Company, North Refinery experienced an interruption of the Russian oil supply which adversely affected its business. North Refinery is concentrating on moving its dependence upon Russian oil to other sources of chemical waste and non-Russian oil. The principal materials used by the Company in its manufacturing operations are fabricated steel, alloy castings, and ceramic and insulating refractory materials. To date, the Company has not experienced any difficulty in obtaining any of the materials or components used in its operations and does not foresee any such difficulty in the future. The Company has multiple sources for all of its significant raw material needs. 8PAGE (iv) Patents, Licenses, and Trademarks The Company currently owns a number of U.S. patents. Although the Company believes that patent protection provides it with competitive advantages with respect to certain portions of its business and will continue to seek patent protection when appropriate, the Company also believes that its business depends primarily upon trade secrets and the technical and marketing expertise of its personnel. The Company has acquired specialized furnace technology to braze, or fuse, aluminum through an exclusive cross-license arrangement with a British firm, Camlaw Ltd. (Camlaw). Under the agreement, the Company will pay Camlaw a royalty of between 5% and 10% of net sales of aluminum-brazing furnaces. Camlaw, in turn, has agreed to a similar royalty arrangement on any sales of furnaces in the U.K. employing the Company's continuous-atmosphere pusher technology. (v) Seasonal Influences While the Company conducts significant operations year-round, several of its soil-remediation centers, particularly in Oregon, Virginia, Washington, and Maryland, experience seasonal fluctuations in their remediation activity due to a reduction in soil excavations during winter months. In Europe, North Refinery may also experience a decline in the feedstock delivered to its facilities during winter months, due to frozen waterways. Certain environmental testing services, such as field sampling, may decline in winter months. Such seasonal influences may have a material effect on the Company's revenues. (vi) Working Capital Requirements In general, there are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. (vii) Dependency on a Single Customer The Company derived 6%, 16%, and 17% of its total revenues in fiscal 1995, 1994, and 1993, respectively, from contracts or subcontracts with the federal government. (viii) Backlog The backlog of firm orders for the Company's environmental analysis and field services was $66,228,000 and $32,225,000 as of April 1, 1995 and April 2, 1994, respectively. Environmental remediation and metallurgical services are provided on a current basis pursuant to purchase orders. Accordingly, there is no backlog for these services. The backlog of firm orders for the Company's process systems products was $4,361,000 and $3,536,000 as of April 1, 1995 and April 2, 1994, respectively. The process systems backlog includes the uncompleted portion of equipment contracts that are accounted for using the percentage-of-completion method. Of the fiscal 1995 backlog amount, substantially all orders are expected to be filled within the current fiscal year. 9PAGE (ix) Government Contracts Approximately 6% of the Company's revenues in fiscal 1995 was derived from contracts or subcontracts with the federal government that are subject to renegotiation of profits or termination. The Company does not have any knowledge of threatened or pending renegotiation or termination of any material contract or subcontract. (x) Competition Environmental Analysis and Field Services Hundreds of independent analytical testing laboratories and consulting firms compete for environmental services business nationwide. Many of these firms use equipment and processes similar to those of the Company. Competition is based not only on price, but also on reputation for accuracy, quality, and the ability to respond rapidly to customer requirements. In addition, many industrial companies have their own in-house analytical testing capabilities. The Company believes that its competitive strength lies in certain niche markets within which the Company is recognized for its expertise. The Company's newly acquired Killam Associates subsidiary is engaged in highly competitive markets in all of its service areas. In its geographic service area, competition consists of small one- to three-person firms offering limited scope of services, as well as much larger firms that may be regional, national, or international in the scope of services they offer. The principal competitive factors for the Company are: reputation; experience; breadth and quality of services offered; and technical, managerial, and business proficiency. Environmental Remediation Services The Company believes that there are two other companies that operate fixed-site thermal-treatment facilities for soil remediation in multiple states. However, several large waste management companies are analyzing this market and may compete with the Company in the future. As a consequence of the Company's strategy and customer base, the Company's current competition is primarily from other fixed-site thermal-treatment facilities and from landfills. However, the market for petroleum-contaminated soil-processing services is highly fragmented and the Company also competes with operators of mobile thermal-treatment facilities, bioremediation and vapor-extraction technologies and, in certain states, with asphalt plants and brick kilns that use the contaminated soil in their production processes. The Company competes primarily based on its ability to offer its customers superior protection from environmental liabilities. Many of the Company's largest customers, such as the major oil companies, are extremely sensitive to environmental liability and therefore conduct thorough environmental audits of soil-treatment facilities before qualifying them as approved facilities. 10PAGE These approvals constitute an important barrier to entry into this segment of the soil-remediation market. Although the Company typically prices its services at a premium over landfills and other treatment technologies, competitive conditions limit the prices charged by the Company in each local market. Pricing is therefore a major competitive factor for the Company. Thermo Fluids operates the largest fleet of collection vehicles in Arizona. Thermo Fluids competes with numerous smaller and several larger collection companies in its current market. North Refinery faces competition for Russian oil from some small companies, major oil companies, Russian refineries, and a company with a similar distillation technology in Italy. It is the Company's strategy to reduce dependence on the Russian oil business by making the transition to process other sources of oil and chemical waste. The market for blending gas oils is very large and oils such as North Refinery's end products represent a very small percentage of the total market. Metallurgical Services The market for metallurgical services is typically regional and very competitive. Both regions in which the Company has facilities contain numerous competitors. In addition, in-house heat-treating facilities provide a major source of competition. The Company competes in this segment on the basis of services provided, turnaround time, and price. Process Systems The market for thermal-processing systems is subject to intense competition worldwide. The Company is aware of at least eight companies that market a number of products comparable to the Company's, but competition for particular projects is typically limited to fewer companies. The Company competes on the basis of several factors, including technical performance, product quality and reliability, timely delivery, and often price. Certain products sold by the Company's competitors are less expensive than comparable products sold by the Company. (xi) Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xii) Number of Employees At April 1, 1995, the Company employed 1,609 persons. (d) Financial Information About Exports by Domestic Operations and About Foreign Operations. The Company's exports by domestic operations and foreign operations are currently insignificant. 11PAGE (e) Executive Officers of the Registrant. Present Title Name Age (Year First Became Executive Officer) ---------------------- --- -------------------------------------------- Dr. John P. Appleton 60 President and Chief Executive Officer (1993) John N. Hatsopoulos 60 Vice President and Chief Financial Officer (1988) Jeffrey L. Powell 36 Vice President (1994) Bruce J. Taunt 44 Vice President, Finance and Administration (1994) Paul F. Kelleher 52 Chief Accounting Officer (1986) 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 Dr. Appleton, Mr. Powell, and Mr. Taunt have held comparable positions for at least five years, either with the Company or with its parent company, Thermo Electron. Dr. Appleton has served as a Vice President of Thermo Electron since 1975 in various managerial capacities. Mr. Powell has been President and Chief Operating Officer of Thermo Remediation since December 1991. From March 1989 until January 1991, Mr. Powell was Vice President, Sales and Marketing, of Thermo Remediation and from January 1991 through December 1991 was President of Thermo Remediation. Mr. Taunt has been Vice President of Finance and Administration since 1992. Prior to joining the Company, Mr. Taunt was Vice President and Controller of the Cross Company, a subsidiary of Cross and Trecker. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties The location and general character of the Company's principal properties as of April 1, 1995, are as follows: The Company owns approximately 369,000 square feet of office, engineering, laboratory, production, and manufacturing space, principally in the Netherlands, Minnesota, New Jersey, California, and New Mexico, and leases approximately 810,000 square feet of office, engineering, laboratory, production, and manufacturing space under leases expiring from fiscal 1995 to 2008, principally in California, Michigan, Massachusetts, New Hampshire, New Jersey, New Mexico, New York, and Vermont. The Company also owns approximately 10 acres in Adelanto, California, approximately four acres in West Palm Beach, Florida, approximately four acres in Portland, Oregon, approximately 20 acres in Columbia, South Carolina, and approximately 63 acres in Baltimore County, Maryland, from which it provides soil-remediation services. The Company occupies approximately one acre in Greenville, South Carolina, pursuant to a lease that expires in 1997, from which it provides soil-remediation services. The Company operates its SRU on approximately two and one-half acres in Chester, Virginia, pursuant to an agreement that expires in 1998, but which can be terminated by the Company at an earlier date. The Company occupies approximately five acres from which it provides soil-remediation services in Tacoma, Washington, pursuant to a lease that expires in 2004. Thermo Fluids occupies an aggregate of approximately eight acres on two sites in Arizona, consisting of office space, fluids-recycling and maintenance facilities, and sites for fluids storage tanks. North Refinery occupies 12PAGE approximately 15 acres in Delfzijl, Holland, consisting of office space, distillation facilities, and oil storage tanks, pursuant to a lease that expires in 2059. The Company believes that these facilities are in good condition and are adequate for its present operations and that other suitable space is readily available if any of such leases are not extended. Item 3. Legal Proceedings The Company has been notified that the EPA has determined that a release or a substantial threat of a release of a hazardous substance, as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) occurred at several sites to which chemical or other wastes generated by the manufacturing operations of the Company were sent. These notifications allege that the Company may be a potentially responsible party with respect to the remedial actions needed to control or clean up any such releases. Under CERCLA, responsible parties can include current and previous owners of the site, generators of hazardous substances disposed of at the site, and transporters of hazardous substances to the site. Each responsible party can be jointly and severally liable, without regard to fault or negligence, for all costs associated with the remediation of the site. In each instance the Company believes that it is only one of several companies which received such notification and who may likewise be held liable for any such remedial costs. The Company evaluates its potential liability as a responsible party for this environmental matter on an ongoing basis based upon factors such as the estimated remediation costs, the nature and duration of the Company's involvement with the site, the financial strength of other potentially responsible parties, and the availability of indemnification from previous owners of acquired businesses. Estimated liabilities are accrued in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." To date, the Company has not incurred any significant liability with respect to this site and the Company anticipates that future liabilities related to any site with which the Company is currently involved will not have a materially adverse effect on the Company's business, results of operations or financial condition. In January 1995, the Company, Thermo Remediation, and several third parties filed a lawsuit in federal district court in Delaware against Recycling Sciences International, Inc. (RSI) requesting a declaratory judgment that six U.S. patents owned by RSI are invalid and not infringed by Thermo Remediation's soil-remediation services and equipment, and asking the court to enjoin RSI from asserting any of these patents against the Company or Thermo Remediation. The suit follows continued allegations by RSI that Thermo Remediation's activities in treating petroleum-contaminated soil infringe a number of these patents and an offer of a non-exclusive patent license in return for payments which Thermo Remediation believes substantially exceed any value of a license. RSI filed an answer to the complaint in April 1995, and is attempting to change the forum of this litigation to the federal district court in Illinois. Although the Company agreed, in connection with the formation of Thermo Remediation, to indemnify and hold Thermo Remediation harmless against damages or other costs associated with any claims of infringement of intellectual property by the technology transferred by the Company to Thermo Remediation, including claims which may be made by RSI, there can be no assurance that RSI may not seek and obtain an injunction against the use of Thermo 13PAGE Remediation's technology to remediate petroleum-contaminated soil. The Company continues to believe that RSI's accusations are unfounded and that Thermo Remediation's activities do not infringe any valid claims of the patents. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Information concerning the market and market price for the Registrant's Common Stock, $.10 par value, and dividend policy is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's Fiscal 1995 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 "Selected Financial Information" and "Dividend Policy" in the Registrant's Fiscal 1995 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's Fiscal 1995 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of April 1, 1995, are included in the Registrant's Fiscal 1995 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable. 14PAGE 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 "Disclosure of Certain Late Filings" 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. 15PAGE 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 Certain 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 the notes thereto. (b) Reports on Form 8-K. On February 21, 1995, the Company filed a Current Report on Form 8-K pertaining to its February 6, 1995, acquisition of Engineering, Technology and Knowledge Corporation, which conducts business as Killam Associates, Inc. On April 21, 1995, the Company filed an amendment on Form 8-K/A, the purpose of which was to file the financial information required by Form 8-K concerning this acquisition. On April 3, 1995, the Company filed a Current Report on Form 8-K pertaining to its March 29, 1995, acquisition of Refining and Trading Holland B.V., which conducts business as North Refinery. The required historical financial statements of North Refinery and pro forma combined condensed financial statements will be filed by June 12, 1995, as part of an amendment to the Form 8-K. 16PAGE (b) Reports on Form 8-K (continued) On May 24, 1995, the Company filed a Current Report on Form 8-K pertaining to the dissolution of the Thermo Terra Tech joint venture on May 9, 1995, and the subsequent purchase of the businesses distributed to Thermo Instrument Systems Inc. as a result of the dissolution. On May 25, 1995, the Company filed a Current Report on Form 8-K pertaining to its May 10, 1995, acquisition of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories). The required historical financial statements of Lancaster Laboratories and pro forma combined condensed financial statements will be filed by July 24, 1995, as part of an amendment to the Form 8-K. (c) Exhibits. See Exhibit Index on the page immediately preceding exhibits. 17PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. Date: June 8, 1995 THERMO PROCESS SYSTEMS INC. By: John P. Appleton ------------------------ John P. Appleton President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of June 8, 1995. Signature Title --------- ----- By: John P. Appleton President, Chief Executive Officer, -------------------------- John P. Appleton and Director By: John N. Hatsopoulos Vice President, Chief Financial Officer, -------------------------- John N. Hatsopoulos and Director By: Paul F. Kelleher Chief Accounting Officer -------------------------- Paul F. Kelleher By: William A. Rainville Chairman of the Board and Director -------------------------- William A. Rainville By: George N. Hatsopoulos Director -------------------------- George N. Hatsopoulos By: Donald E. Noble Director -------------------------- Donald E. Noble By: Warren M. Rohsenow Director -------------------------- Warren M. Rohsenow By: Polyvios C. Vintiadis Director -------------------------- Polyvios C. Vintiadis 18PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo Process Systems Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Process Systems Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 9, 1995 (except with respect to the matter discussed in Note 14 as to which the date is June 2, 1995). 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 16 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts May 9, 1995 19PAGE SCHEDULE II THERMO PROCESS SYSTEMS INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Additions Deductions ------------------------------ ---------- Balance Charged Allowance at to Costs Accounts Balance for Doubtful Beginning and Accounts Written- at End Accounts of Year Expenses Other(a) Recovered off of Year -------------- --------- -------- ------- --------- -------- ------- Year Ended: April 1, 1995 $ 3,260 $ 162 $ 629 $ 88 $ (579) $ 3,560 April 2, 1994 $ 3,073 $ 424 $ 65 $ 79 $ (381) $ 3,260 April 3, 1993 $ 3,768 $ 164 $ - $ 148 $(1,007) $ 3,073 (a) Allowances of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1995 Annual Report to Shareholders. 20PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation, as amended (filed as Exhibit 3(a) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1988 [File No. 1-9549] and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1988 [File No. 1-9549] and incorporated herein by reference). 4.1 Fiscal Agency Agreement dated August 4, 1989, among the Registrant, Thermo Electron Corporation, and Chemical Bank, as fiscal agent (filed as Exhibit B to the Registrant's Current Report on Form 8-K relating to the events occurring on August 4, 1989 [File No. 1-9549] and incorporated herein by reference). The Registrant hereby agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission upon request, a copy of each other instrument with respect to other long-term debt of the Company or its subsidiaries. 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.2 Amended and Restated Corporate Services Agreement dated January 3, 1993, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.3 Agreement of Lease dated December 31, 1985, between Claridge Properties Ltd. and Thermo Electron Corporation (filed as Exhibit 10(c) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.4 Assignment of Lease dated December 31, 1985, between Thermo Electron Corporation and TMO, Inc. (filed as Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.5 Sublease dated March 30, 1986, between TMO, Inc. and Holcroft/Loftus, Inc. (filed as Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.6 Lease Amending Agreement dated January 1, 1995, between Claridge Properties Ltd., Thermo Electron Corporation and TMO, Inc. 21PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.7 License Agreement, dated December 30, 1989, between Degussa Aktiengasellschaft and Holcroft/Loftus, Inc. (filed as Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1990 [File No. 1-9549] and incorporated herein by reference). 10.8 License Agreement dated June 26, 1992, by and between Holcroft Inc. and Camlaw Ltd. (filed as Exhibit 10(g) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.9 Exclusive License and Marketing Agreement dated March 22, 1990, among TPS Technologies Inc., Holcroft Inc., and Thermo Soil Recyclers Inc. (filed as Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1990 [File No. 1-9549] and incorporated herein by reference). 10.10 Form of Indemnification Agreement with Directors and Officers (filed as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1991 [File No. 1-9549] and incorporated herein by reference). 10.11 Development Agreement dated September 15, 1991, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 1991 [File No. 1-9549] and incorporated herein by reference). 10.12 Amended and Restated Development Agreement dated January 2, 1992, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1992 [File No. 1-9549] and incorporated herein by reference). 10.13 Asset Transfer Agreement dated as of October 1, 1993 among the Registrant, TPS Technologies Inc. and Thermo Remediation Inc. (filed as Exhibit 2.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.14 Exclusive License Agreement dated as of October 1, 1993 among the Registrant, TPS Technologies Inc. and Thermo Remediation Inc. (filed as Exhibit 2.4 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.15 Non-Competition and Non-Disclosure Agreement dated as of October 1, 1993 among the Registrant, TPS Technologies Inc. and Thermo Remediation Inc. (filed as Exhibit 2.5 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 22PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.16 Tax Allocation Agreement dated as of June 1, 1992 between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.17 Agreement of Partnership dated May 16, 1994 among Terra Tech Labs Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc. and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.) (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.18 Promissory Note dated May 16, 1994 issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.19 Agreement of Dissolution of Partnership dated May 9, 1995 among Thermo Terra Tech (the Partnership), Terra Tech Labs, Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc. and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.) (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.20 Stock Purchase Agreement dated May 9, 1995 between the Registrant and Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.21 Note dated May 17, 1995 from the Registrant to Thermo Electron Corporation (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.22 Stock Purchase and Note Issuance Agreement dated as of November 22, 1993, between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.11 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 23PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.23 $2,650,000 principal amount Subordinated Convertible Note dated as of November 22, 1993, made by Thermo Remediation Inc., issued to the Registrant (filed as Exhibit 10.12 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.24 Asset Purchase Agreement dated as of November 19, 1993 by and among All Western Oil, Inc. and certain affiliates thereof and Thermo Fluids Inc. (filed as Exhibit 10.13 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.25 First Addendum to Asset Purchase Agreement dated as of August 7, 1994 among All Western Oil, Inc. et al. and Thermo Fluids Inc. (filed as Exhibit 10.1 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 10.26 Promissory Note in the principal amount of $700,000, dated August 7, 1994 (filed as Exhibit 10.2 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 10.27 Security Agreement dated as of August 7, 1994 among All Western Oil, Inc. et al. and Thermo Fluids Inc. (filed as Exhibit 10.3 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 10.28 Stock Purchase and Sale Agreement made and entered into on February 6, 1995, to be effective as of January 29, 1995, by and between Nord Est S.A., the Registrant, and Emil C. Herkert, Kenneth L. Zippler, Franklin O. Williamson, Jr., Fletcher N. Platt, Jr., Eugene J. Destefano, Meint Olthof and Stanley P. Kaltnecker, Jr. (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.29 $28,000,000 Secured Promissory Note dated as of January 29, 1995 issued by the Registrant to Nord Est S.A. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.30 $38,000,000 Promissory Note dated as of February 21, 1995 issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 3 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 24PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.31 Purchase and Sale Agreement dated as of December 20, 1994 by and among TPS Technologies Inc., TPST Soil Recyclers of Maryland Inc., Rafich Corporation, Harry Ratrie, John C. Cyphers and J. Thomas Hood (filed as Exhibit 1 to Thermo Remediation's Current Report on Form 8-K for the events occurring on December 21, 1994 [File No. 1-12636] and incorporated herein by reference). 10.32 Stock Purchase Agreement entered into on March 29, 1995, by and among Stalt Holding, B.V., Beheersmaatschappij J. Amerika N.V., A.J. Van Es, J.B. Van Es and D.A. Slager, and the Registrant (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on March 29, 1995 [File No. 1-9549] and incorporated herein by reference). 10.33 Master Repurchase Agreement dated January 1, 1994 between the Registrant and Thermo Electron Corporation (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1994 [File No. 1-9549] and incorporated herein by reference). 10.34 Master Reimbursement Agreement dated January 1, 1994 between the Registrant, Thermo Electron Corporation, and Thermo Remediation Inc. (filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1994 [File No. 1-9549] and incorporated herein by reference). 10.35 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10(h) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989 and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989). 10.36 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10(i) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989 and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989). 10.37 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(k) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 25PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.38 Equity Incentive Plan (filed as Exhibit 10.63 to Thermedics Inc.'s Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference) (Maximum number of shares issuable is 1,750,000 shares, after adjustment to reflect share increase approved in 1994). 10.39 Directors Stock Option Plan, as amended and restated effective January 1, 1995. 10.40 Severance Agreement with Thomas P. Plunkett dated August 31, 1993 (filed as Exhibit 10(aa) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1993 [File No. 1-9549] and incorporated herein by reference). 10.41 Reserved 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 the Registrant's parent, Thermo Electron Corporation, and its subsidiaries, for services rendered to the Registrant or to such affiliated corporations. Such plans are listed under Exhibits 10.42 - 10.89. 10.42 Thermo Process Systems Inc. - Thermo Remediation Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 1994 [File No. 1-9549] and incorporated herein by reference). 10.43 Thermo Electron Corporation Incentive Stock Option Plan (filed as Exhibit 4(d) to Thermo Electron's Registration Statement on Form S-8 [Reg. No. 33-8993] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Electron Nonqualified Stock Option Plan is 9,035,156 shares, after adjustment to reflect share increases approved in 1984 and 1986, and share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993 and May 1995). 10.44 Thermo Electron Corporation Nonqualified Stock Option Plan (filed as Exhibit 4(e) to Thermo Electron's Registration Statement on Form S-8 [Reg. No. 33-8993] and incorporated herein by reference). (Plan amended in 1984 to extend expiration date to December 14, 1994; maximum number of shares issuable in the aggregate under this plan and the Thermo Electron Incentive Stock Option Plan is 9,035,156 shares, after adjustment to reflect share increases approved in 1984 and 1986, and share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993 and May 1995). 26PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.45 Thermo Electron Corporation Equity Incentive Plan (filed as Exhibit 10.1 to Thermo Electron's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994 [File No. 1-8002] and incorporated herein by reference). (Plan amended in 1989 to restrict exercise price for SEC reporting persons to not less than 50% of fair market value or par value; maximum number of shares issuable is 7,050,000 shares, after adjustment to reflect 3-for-2 stock splits effected in October 1993 and May 1995 and share increase approved in 1994). 10.46 Thermo Electron Corporation - Thermedics Inc. Nonqualified Stock Option Plan (filed as Exhibit 4 to a Registration Statement on Form S-8 of Thermedics [Reg. No. 2-93747] and incorporated herein by reference). (Maximum number of shares issuable is 450,000 shares, after adjustment to reflect share increase approved in 1988, 5-for-4 stock split effected in January 1985, 4-for-3 stock split effected in September 1985, and 3-for-2 stock splits effected in October 1986 and November 1993). 10.47 Thermo Electron Corporation - Thermo Instrument Systems Inc. (formerly Thermo Environmental Corporation) Nonqualified Stock Option Plan (filed as Exhibit 4(c) to a Registration Statement on Form S-8 of Thermo Instrument [Reg. No. 33-8034] and incorporated herein by reference). (Maximum number of shares issuable is 337,500 shares, after adjustment to reflect 3-for-2 stock splits effected in July 1993 and April 1995). 10.48 Thermo Electron Corporation - Thermo Instrument Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.12 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 480,228 shares, after adjustment to reflect share increase approved in 1988 and 3-for-2 stock splits effected in January 1988, July 1993 and April 1995). 10.49 Thermo Electron Corporation - Thermo Process Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.13 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 108,000 shares, after adjustment to reflect 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989). 10.50 Thermo Electron Corporation - Thermo Power Corporation (formerly Tecogen Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10.14 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). 27PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.51 Thermo Electron Corporation - Thermo Cardiosystems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.11 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 130,500 shares, after adjustment to reflect share increases approved in 1990 and 1992, 3-for-2 stock split effected in January 1990, 5-for-4 stock split effected in May 1990 and 2-for-1 stock split effected in November 1993). 10.52 Thermo Electron Corporation - Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.12 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). 10.53 Thermo Electron Corporation - ThermoTrex Corporation (formerly Thermo Electron Technologies Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.13 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 180,000 shares, after adjustment to reflect 3-for-2 stock split effected in October 1993). 10.54 Thermo Electron Corporation - Thermo Fibertek Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.14 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended December 28, 1991 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 400,000 shares, after adjustment to reflect 2-for-1 stock split effected in September 1992). 10.55 Thermo Electron Corporation - Thermo Voltek Corp. (formerly Universal Voltronics Corp.) Nonqualified Stock Option Plan (filed as Exhibit 10.17 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 7,500 shares, after adjustment to reflect 3-for-2 stock split effected in November 1993). 10.56 Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) Incentive Stock Option Plan (filed as Exhibit 10.18 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Ecotek Nonqualified Stock Option Plan is 900,000 shares, after adjustment to reflect share increase approved in December 1993). 28PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.57 Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.19 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Ecotek Incentive Stock Option Plan is 900,000 shares, after adjustment to reflect share increase approved in December 1993). 10.58 Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation) Equity Incentive Plan (filed as Exhibit 10.39 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.59 Thermedics Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(e) to Thermedics' Registration Statement on Form S-1 [Reg. No. 33-84380] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermedics Incentive Stock Option Plan is 1,931,923 shares, after adjustment to reflect share increases approved in 1986 and 1992, 5-for-4 stock split effected in January 1985, 4-for-3 stock split effected in September 1985, and 3-for-2 stock split effected in October 1986 and November 1993). 10.60 Thermedics Inc. Incentive Stock Option Plan (filed as Exhibit 10(d) to Thermedics' Registration Statement on Form S-1 [Reg. No. 33-84380] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermedics Nonqualified Stock Option Plan is 1,931,923 shares, after adjustment to reflect share increases approved in 1986 and 1992, 5-for-4 stock split effected in January 1985, 4-for-3 stock split effected in September 1985, and 3-for-2 stock split effected in October 1986 and November 1993). 10.61 Thermedics Inc. Equity Incentive Plan (filed as Appendix A to the Proxy Statement dated May 10, 1993 of Thermedics [File No. 1-9567] and incorporated herein by reference). (Maximum number of shares issuable is 1,500,000, after adjustment to reflect 3-for-2 stock split effected in November 1993). 10.62 Thermedics Inc. - Thermedics Detection Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.20 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). 29PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.63 Thermo Cardiosystems Inc. Incentive Stock Option Plan (filed as Exhibit 10(f) to Thermo Cardiosystems' Registration Statement on Form S-1 [Reg. No. 33-25144] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Cardiosystems Nonqualified Stock Option Plan is 1,143,750 shares, after adjustment to reflect share increase approved in 1992, 3-for-2 stock split effected in January 1990, 5-for-4 stock split effected in May 1990 and 2-for-1 stock split effected in November 1993). 10.64 Thermo Cardiosystems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(g) to Thermo Cardiosystems' Registration Statement on Form S-1 [Reg. No. 33-25144] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Cardiosystems Incentive Stock Option Plan is 1,143,750 shares, after adjustment to reflect share increase approved in 1992, 3-for-2 stock split effected in January 1990, 5-for-4 stock split effected in May 1990 and 2-for-1 stock split effected in November 1993). 10.65 Thermo Cardiosystems Inc. Equity Incentive Plan (filed as Exhibit 10.46 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.66 Thermo Voltek Corp. (formerly Universal Voltronics Corp.) 1985 Stock Option Plan (filed as Exhibit 10.14 to Thermo Voltek's Annual Report on Form 10-K for the fiscal year ended June 30, 1985 [File No. 0-8245] and incorporated herein by reference). (Maximum number of shares issuable is 200,000 shares, after adjustment to reflect 1-for-3 reverse stock split effected in November 1992 and 3-for-2 stock split effected in November 1993). 10.67 Thermo Voltek Corp. (formerly Universal Voltronics Corp.) 1990 Stock Option Plan (filed as Exhibit 10.2 to Thermo Voltek's Annual Report on Form 10-K for the fiscal year ended June 30, 1990 [File No. 1-10574] and incorporated herein by reference). (Maximum number of shares issuable is 400,000 shares, after adjustment to reflect share increases in 1993 and 1994, 1-for-3 reverse stock split effected in November 1992 and 3-for-2 stock split effected in November 1993). 10.68 Thermo Voltek Corp. Equity Incentive Plan (filed as Exhibit 10.49 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File 1-9786] and incorporated herein by reference. 30PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.69 Thermo Instrument Systems Inc. Incentive Stock Option Plan (filed as Exhibit 10(c) to Thermo Instrument'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 Thermo Instrument Nonqualified Stock Option Plan is 2,250,000 shares, after adjustment to reflect share increase approved in 1990 and 3-for-2 stock splits effected in January 1988, July 1993 and April 1995). 10.70 Thermo Instrument Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(d) to Thermo Instrument'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 Thermo Instrument Incentive Stock Option Plan is 2,250,000 shares, after adjustment to reflect share increase approved in 1990 and 3-for-2 stock splits effected in January 1988, July 1993 and April 1995). 10.71 Thermo Instrument Systems Inc. Equity Incentive Plan (filed as Appendix A to the Proxy Statement dated April 27, 1993 of Thermo Instrument [File No. 1-9786] and incorporated herein by reference). (Maximum number of shares issuable is 3,225,000 shares, after adjustment to reflect share increase approved in December 1993 and 3-for-2 stock splits effected in July 1993 and April 1995). 10.72 Thermo Instrument Systems Inc. (formerly 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 Thermo Instrument (formerly Thermo Environmental) Nonqualified Stock Option Plan is 928,125 shares, after adjustment to reflect share increase approved in 1987 and 3-for-2 stock splits effected in July 1993 and April 1995). 10.73 Thermo Instrument Systems Inc. (formerly 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 Thermo Instrument (formerly Thermo Environmental) Incentive Stock Option Plan is 920,125 shares, after adjustment to reflect share increase approved in 1987 and 3-for-2 stock splits effected in July 1993 and April 1995). 31 PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.74 Thermo Instrument Systems Inc. - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.51 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.75 ThermoSpectra Corporation Equity Incentive Plan (filed as Exhibit 10.52 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.76 ThermoTrex Corporation (formerly Thermo Electron Technologies Corporation) Incentive Stock Option Plan (filed as Exhibit 10(h) to ThermoTrex's Registration Statement on Form S-1 [Reg. No. 33-40972] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the ThermoTrex Nonqualified Stock Option Plan is 1,945,000 shares, after adjustment to reflect share increases approved in 1992 and 1993, and 3-for-2 stock split effected in October 1993). 10.77 ThermoTrex Corporation (formerly Thermo Electron Technologies Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10(i) to ThermoTrex's Registration Statement on Form S-1 [Reg. No. 33-40972] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the ThermoTrex Incentive Stock Option Plan is 1,945,000 shares, after adjustment to reflect share increases approved in 1992 and 1993, and 3-for-2 stock split effected in October 1993). 10.78 ThermoTrex Corporation - ThermoLase Corporation (formerly ThermoLase Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10.53 to Thermedics' Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference). 10.79 ThermoLase Corporation (formerly ThermoLase Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10.54 to Thermedics' Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the ThermoLase Incentive Stock Option Plan is 2,800,000 shares, after adjustment to reflect increase approved in 1993 and 2-for-1 stock splits effected in March 1994 and June 1995). 32PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.80 ThermoLase Corporation (formerly ThermoLase Inc.) Incentive Stock Option Plan (filed as Exhibit 10.55 to Thermedics' Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the ThermoLase Nonqualified Stock Option Plan is 2,800,000 shares, after adjustment to reflect share increase approved in 1993 and 2-for-1 stock splits effected in March 1994 and June 1995). 10.81 ThermoLase Corporation Equity Incentive Plan. 10.82 Thermo Fibertek Inc. Incentive Stock Option Plan (filed as Exhibit 10(k) to Thermo Fibertek's Registration Statement on Form S-1 [Reg. No. 33-51172] and incorporated herein by reference). 10.83 Thermo Fibertek Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(l) to Thermo Fibertek's Registration Statement on Form S-1 [Reg. No. 33-51172] and incorporated herein by reference). 10.84 Thermo Fibertek Inc. Equity Incentive Plan (filed as Exhibit 10.60 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.85 Thermo Power Corporation (formerly Tecogen Inc.) Incentive Stock Option Plan (filed as Exhibit 10(h) to Thermo Power's Registration Statement on Form S-1 [Reg. No. 33-14017] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Power Nonqualified Stock Option Plan is 950,000 shares, after adjustment to reflect share increases approved in 1990, 1992 and 1993). 10.86 Thermo Power Corporation (formerly Tecogen Inc.) Nonqualified Stock Option Plan (filed as Exhibit 10(i) to Thermo Power's Registration Statement on Form S-1 [Reg. No. 33-14017] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Thermo Power Incentive Stock Option Plan is 950,000 shares, after adjustment to reflect share increases approved in 1990, 1992 and 1993). 10.87 Thermo Power Corporation Equity Incentive Plan (filed as Exhibit 10.63 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 10.88 Thermo Remediation Inc. Equity Incentive Plan (filed as Exhibit 10.7 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 33PAGE EXHIBIT INDEX Exhibit Number Reference Page -------------------------------------------------------------------------- 10.89 Thermedics Detection Inc. Equity Incentive Plan (filed as Exhibit 10.69 to Thermo Instrument's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 [File No. 1-9786] and incorporated herein by reference). 13 Annual Report to Shareholders for the fiscal year ended April 1, 1995 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. EX-10.6 2 EXHIBIT 10.6 LEASE AMENDING AGREEMENT entered into as of the first day of January 1995 BETWEEN: CLARIDGE PROPERTIES LTD., a body politic and corporate duly incorporated as such, having its head office in the district of Montreal, province of Quebec, (hereinafter called the "Lessor") AND: THERMO ELECTRON CORPORATION, a body politic and corporate duly incorporated, having an office at 81 Wyman Street, Waltham, Massachusetts 02254, (hereinafter called the "Lessee") AND: TMO, INC., a body politic and corporate duly incorporated, having an office at 81 Wyman Street, Waltham, Massachusetts 02254, (hereinafter called "Assignee") WHEREAS by a lease made as of the 31st day of December 1985 by and between the Lessor and the Lessee (the "Lease"), the Lessor leased to the Lessee for a term of ten (10) years commencing on the 31st day of December 1985 land located in Livonia, Michigan, as more fully described in Exhibit I to the Lease; WHEREAS, by that certain Assignment of Lease dated as of December 31, 1985 (the "Assignment"), the Lessee assigned to the Assignee all of the Lessee's right, title and interest in and to the Lease pursuant to the provisions of section 14 of the Lease, which Assignment expressly provides that the Lessee shall continue to be liable to the Lessor under the Lease, as a principal and not as a guarantor or surety, to the same extent as though no assignment had been made; and WHEREAS the Lessor and the Lessee and the Assignee have agreed to extend the term of the Lease so that it ends on December 31, 2004 (unless sooner terminated as provided under the Lease), and to amend the Lease, the whole in accordance with the terms and conditions hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSETH AS FOLLOWS: 1. The preamble hereto forms a part hereof as if herein recited at length. 2. The Lease is hereby amended as follows: a) The last paragraph of section 1 of the Lease is amended by replacing the word "ten" in the second line thereof with the word "nineteen"; PAGE b) Section 3 of the Lease is amended to provide that the annual fixed rental for the tenth year of the term shall be $584,500 and for subsequent years the amounts set forth in the table below: 11th 12 months $584,500 12th 12 months 584,500 13th 12 months 584,500 14th 12 months 584,500 15th 12 months 709,750 16th 12 months 709,750 17th 12 months 709,750 18th 12 months 709,750 19th 12 months 709,750 c) Section 14.01(c) of the Lease is hereby deleted in its entirety and the following is substituted therefor: "(c) If and when, and so long as, fifty percent (50%) or more of the leasable area of the building forming part of the Demised Premises shall be occupied by one or more persons or parties other than Lessee (or any Subsidiary, as said term is hereinafter defined, which is not paying rental and other consideration to Lessee for use of the Demised Premises in an aggregate amount which, when divided by the number of square feet occupied by such Subsidiary, exceeds the total Fixed Rent and Additional Rent, calculated on a per square foot basis, then payable under this Lease), Lessee shall pay to Lessor as Additional Rent on a monthly basis the amount, if any, by which the aggregate of the rentals and all other sums paid by such assignee(s), subtenant(s) or purchaser(s) to Lessee, for use of the Demised Premises, whether directly or indirectly (after subtracting therefrom all reasonable costs incurred by Lessee in connection with such assignment, subletting or other transfer, including without limitation brokerage commissions, attorney's fees and tenant improvement costs), when divided by the number of square feet of said building occupied by such assignee(s), subtenant(s) or purchaser(s), exceed the total Fixed Rent and Additional Rent, calculated on a per square foot basis, then payable under this Lease; and" d) The following language is hereby added to the end of Section 14.01: "The term 'Subsidiary' for purposes of this Section 14.01 shall mean any corporation with respect to which Thermo Electron Corporation (or any Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors at all times." e) Section 20 of the Lease is amended by replacing the address 630 Dorchester Boulevard West, Montreal, Quebec H3B 1X5 with the address 1170 Peel Street, Suite 800, Montreal, Quebec H3B 4P2; and PAGE f) Section 20 of the Lease is further amended by deleting clause (b) thereof in its entirety and substituting therefor the following: "(b) if to Lessee, addressed to Lessee at 81 Wyman Street, Waltham, Massachusetts 02254, with a copy of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02254, Attention: General Counsel." 3. The parties confirm that in all other respects the terms, covenants and conditions of the Lease remain unchanged and in full force and effect, except as modified by this agreement. 4. This agreement shall be binding upon and ensure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF the parties hereto have duly executed this agreement as of the day and year first above written. Witnesses: CLARIDGE PROPERTIES LTD. Per: Peter Coughlin ---------------------------- ---------------------------- Peter Coughlin, President ---------------------------- Per: ---------------------------- Witnesses: THERMO ELECTRON CORPORATION Per: Jonathan W. Painter ---------------------------- ---------------------------- Jonathan W. Painter,Treasurer ---------------------------- Per: ---------------------------- Witnesses: TMO, INC. Per: Jonathan W. Painter ---------------------------- ---------------------------- Jonathan W. Painter,Treasurer EX-10.39 3 Exhibit 10.39 THERMO PROCESS SYSTEMS INC. DIRECTORS STOCK OPTION PLAN (As amended and restated effective as of January 1, 1995) 1. Purpose The purpose of this Directors Stock Option Plan (the "Plan") of Thermo Process Systems Inc. (the "Company") is to encourage ownership in the Company by non-management Directors of the Company whose services are considered essential to the Company's growth and progress and to provide them with a further incentive to become Directors and to continue as Directors of the Company. The Plan is intended to be a nonstatutory stock option plan. 2. Administration The Board of Directors, or a Committee (the "Committee") consisting of two or more Directors of the Company appointed by the Board of Directors, shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the options to be granted shall be automatic in accordance with Section 5. However, all questions of interpretation of the Plan or of any stock options granted under it shall be determined by the Board of Directors or the Committee and such determination shall be final and binding upon all persons having an interest in the Plan. 3. Participation in the Plan Directors of the Company who are not employees of the Company or any subsidiary or parent of the Company shall be eligible to participate in the Plan. 4. Stock Subject to the Plan The maximum number of shares which may be issued under the Plan shall be seventy-five thousand (75,000) shares of the Company's $.10 par value Common Stock (the "Common Stock") and twenty-five thousand (25,000) shares of the common stock of each Spinout Subsidiary (as defined in Section 5(B)) as of the date of the Annual Meeting of Stockholders on which options to purchase such common stock are first granted to eligible Directors as provided in Section 5(B), each subject to adjustment as provided in Section 9. Shares to be issued upon the exercise of options granted under the Plan may be either authorized but unissued shares or shares held by the Company in its treasury. 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. 5. Terms and Conditions A. Annual Stock Option Grants. Each Director of the Company who meets the requirements of Section 3 and who is holding office immediately following the Annual Meeting of Stockholders shall be granted an option to purchase 1,000 shares of the Common Stock of the Company at the close of business on the date of such PAGE Annual meeting. Options granted under this Subsection A shall be exercisable as to 100% of the shares subject to the option as set forth in Section 5(C)(1), but shares acquired upon exercise are subject to repurchase by the Company at the exercise price if an Optionee ceases to serve as a director of the Company, Thermo Electron Corporation or any subsidiary of Thermo Electron Corporation, prior to the first anniversary of the grant date, for any reason other than death or disability. B. Subsidiary Stock Option Grants. Each Director of the Company who meets the requirements of Section 3 and this Section 5(B), from time to time in accordance with this Section 5(B), shall be granted an option to purchase shares of the common stock of each majority-owned subsidiary of the Company, the common stock of which shall have become publicly traded or a portion of which shall have been sold primarily to third parties in a private placement or other arms-length transaction (such transaction being referred to herein as a "Spinout Transaction", and such subsidiary being referred to herein as a "Spinout Subsidiary"), upon the following terms and conditions. Each eligible Director who is not a Director of the Spinout Subsidiary shall be granted an option to purchase 1,500 shares of common stock of the Spinout Subsidiary as of the close of business on the date of the Company's Annual Meeting of Stockholders that first occurs after the Spinout Transaction, and also as of the close of business on the date of every fifth Annual Meeting of Stockholders of the Company that occurs thereafter during the duration of this Plan. For purposes of this Section 5(B), options to purchase common stock of Thermo Remediation Inc., a majority owned subsidiary of the Corporation, shall first be granted as of the close of business on the date of the Company's 1995 Annual Meeting of Stockholders. Options granted under this Section 5(B) shall vest and be exercisable as to 100% of the shares of common stock subject to the option on the fourth anniversary of the grant date of the option, unless, prior to such anniversary, the underlying common stock shall have been registered under Section 12 of the Securities and Exchange Act of 1934, as amended (referred to herein as "Section 12 Registration"). From and after 90 days after the effective date of Section 12 Registration, options granted hereunder shall be immediately exercisable as to 100% of the shares subject to the option, subject to the right of the Company to repurchase the shares at the exercise price in the event the Optionee ceases to serve as a director of the Company, or any subsidiary of the Company or Thermo Election during the option term. The right of the Company to so repurchase the shares shall lapse as to one-fourth of the shares granted on each of the first, second, third and fourth anniversaries of the grant date of the option, provided the Optionee has remained continuously a director of the Company, Thermo Electron or any subsidiary of Thermo Electron since the grant date. In all other respects, the option shall be subject to the general terms and conditions applicable to all option grants as set forth below in Section 5(C), including the determination of the exercise price of such option. No Director, who is otherwise eligible under Section 3, shall be eligible under this Section 5(B) to receive grants of stock options in Spinout Subsidiaries, if such Director also serves as a director of such Spinout Subsidiary. 2PAGE In the event any subsidiary shall become a "Spinout Subsidiary" as defined herein, then there shall be immediately reserved for transfer hereunder, on the date options to purchase common stock of the Spinout Subsidiary are first granted to eligible Directors and without further action required by the Board of Directors or Stockholders of the Company, twenty-five thousand (25,000) shares of the common stock of such Spinout Subsidiary. C. General Terms and Conditions Applicable to All Grants. 1. Except as otherwise provided in Section 5(B), options shall be exercisable at any time from and after the six-month anniversary of the grant date and prior to the date which is the earliest of: (a) three years after the grant date for options granted under Section 5(A) and five years after the grant date for options granted under Section 5(B), (b) three months after the later of the date (i) the Optionee either ceases to meet the requirements of Section 3 or (ii) otherwise ceases to serve as a director of the Company, Thermo Electron or any subsidiary of Thermo Electron (six months in the event the Optionee ceases to meet the requirements of this Subsection by reason of his death), or (c) the date of dissolution or liquidation of the Company. 2. The exercise price at which Options are granted hereunder shall be the average of the closing prices reported by the national securities exchange on which the common stock is principally traded for the five trading days immediately preceding and including the date the option is granted or, if such security is not traded on an exchange, the average last reported sale price for the five-day period on the NASDAQ National Market List, or the average of the closing bid prices for the five-day period last quoted by an established quotation service for over-the-counter securities, or if none of the above shall apply, the last price paid for shares of the Common Stock by independent investors in a private placement; provided, however, that such exercise price per share shall not be lower than the par value per share or less than 50% of the fair market value of the Common Stock until such time as the Company elects to be subject to Rule 16b-3 as amended by SEC Rel. No. 33-28869. 3. All options shall be evidenced by a written agreement substantially in such form as shall be approved by the Board of Directors or Committee, containing terms and conditions consistent with the provisions of this Plan. 6. Exercise of Options A. Exercise/Consideration 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 the Company's Common Stock (the "Tendered Shares") with a then current market value equal to the exercise price of the shares to be purchased; provided, however, that such Tendered Shares shall have been acquired by the Director more than six months prior to the date of exercise (unless such requirement 3PAGE is waived in writing by the Company). Against such payment the Company shall deliver or cause to be delivered to the Director a certificate for the number of shares then being purchased, registered in the name of the Director 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 or the Director 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. B. Tax Withholding The Board of Directors or Committee will have the right to require that the person exercising an option under the Plan remit to the Company an amount sufficient to satisfy applicable federal, state and local tax withholding requirements, or make other arrangements satisfactory to the Company with regard to such requirements, if any, prior to the delivery of any Common Stock. If and to the extent that such withholding is required, the Board of Directors or Committee may permit the person exercising an option under the Plan to elect at such time and in such manner as the Board of Directors or Committee may provide 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 requirement. 7. Transferability Options shall not be transferable, otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder ("Qualified Domestic Relations Order"). Options may be exercised during the life of the Optionee only by the Optionee or a transferee pursuant to a Qualified Domestic Relations Order. 8. Limitation of Rights to Continue as a Director Neither the Plan, nor the quantity of shares subject to options granted under the Plan, nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a Director for any period of time, or at any particular rate of compensation. 9. Changes in Common Stock If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock, or other securities, an appropriate proportionate adjustment may be made in the maximum number or kind of shares reserved for issuance under the Plan. No fractional shares will be issued under the Plan on account of any such adjustments. 4PAGE 10. 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 herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan or the written agreement evidencing options granted hereunder. 11. 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 permit the exercise in full of all options granted under this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 12. Securities Laws Restrictions A. Investment Representations. The Company may require any person to whom an option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the shares subject to the option for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. B. Compliance with Securities Laws. Each option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 13. Change in Control A. Impact of Event In the event of a "Change in Control" as defined in Section 13(B), the following provisions shall apply, unless the agreement evidencing the Award otherwise provides: (a) Any stock options awarded under the Plan that were not previously exercisable and vested shall become fully exercisable and vested. 5PAGE (b) Shares purchased upon the exercise of options subject to restrictions and to the extent not fully vested, shall become fully vested and all such restrictions shall lapse so that shares issued pursuant to such options shall be free of restrictions. B. Definition of "Change in Control" "Change in Control" means any one of the following events: (i) when, any Person is or becomes the beneficial owner (as defined in Section 13(d) of the Exchange Act and the Rules and Regulations thereunder), together with all Affiliates and Associates (as such terms are used in Rule 12b-2 of the General Rules and Regulations of the Exchange Act) of such Person, directly or indirectly, of 50% or more of the outstanding Common Stock of the Company, or the beneficial owner of 25% or more of the outstanding common stock of Thermo Electron Corporation ("Thermo Electron"), without the prior approval of the Prior Directors of the Company or Thermo Electron, as the case may be, (ii) the failure of the Prior Directors to constitute a majority of the Board of the Company or of the Board of Directors of Thermo Electron, as the case may be, at any time within two years following any Electoral Event, or (iii) any other event that the Prior Directors shall determine constitutes an effective change in the control of the Company or Thermo Electron. As used in the preceding sentence, the following capitalized terms shall have the respective meanings set forth below: (a) "Person" shall include any natural person, any entity, any "affiliate" of any such natural person or entity as such term is defined in Rule 405 under the Securities Act of 1933 and any "group" (within the meaning of such term in Rule 13d-5 under the Exchange Act); (b) "Prior Directors" shall mean the persons sitting on the Company's or Thermo Electron's Board of Directors, as the case may be, immediately prior to any Electoral Event (or, if there has been no Electoral Event, those persons sitting on the applicable Board of Directors on the date of this Agreement) and any future director of the Company or Thermo Electron who has been nominated or elected by a majority of the Prior Directors who are then members of the Board of Directors of the Company or Thermo Electron, as the case may be; and (c) "Electoral Event" shall mean any contested election of Directors, or any tender or exchange offer for the Company's or Thermo Electron's Common Stock, not approved by the Prior Directors, by any Person other than the Company, Thermo Electron or a subsidiary of Thermo Electron. 14. Amendment of the Plan The provisions of Sections 3 and 5 of the Plan shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. Subject to the foregoing, 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, the Board of Directors may not effect such modification or amendment without such approval. 6PAGE 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. 15. Effective Date of the Plan The Plan shall become effective on the date the Plan is approved by the stockholders of the Company. 16. Notice Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Secretary of the Company and shall become effective when it is received. 17. Governing Law The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. EX-10.81 4 Exhibit 10.81 THERMOLASE CORPORATION EQUITY INCENTIVE PLAN 1. Purpose The purpose of this Equity Incentive Plan (the "Plan") is to secure for ThermoLase Corporation (the "Company") and its Stockholders the benefits arising from capital stock ownership by employees, officers and Directors of, and consultants to, the Company and its subsidiaries or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries. The Plan is intended to accomplish these goals by enabling the Company to offer such persons equity-based interests, equity-based incentives or performance-based stock incentives in the Company, or any combination thereof ("Awards"). 2. Administration The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have full power to interpret and administer the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and Awards, and full authority to select the persons to whom Awards will be granted ("Participants"), determine the type and amount of Awards to be granted to Participants (including any combination of Awards), determine the terms and conditions of Awards granted under the Plan (including terms and conditions relating to events of merger, consolidation, dissolution and liquidation, change of control, vesting, forfeiture, restrictions, dividends and interest, if any, on deferred amounts), waive compliance by a participant with any obligation to be performed by him or her under an Award, waive any term or condition of an Award, cancel an existing Award in whole or in part with the consent of a Participant, grant replacement Awards, accelerate the vesting or lapse of any restrictions of any Award and adopt the form of instruments evidencing Awards under the Plan and change such forms from time to time. Any interpretation by the Board of the terms and provisions of the Plan or any Award thereunder and the administration thereof, and all action taken by the Board, shall be final, binding and conclusive on all parties and any person claiming under or through any party. No Director shall be liable for any action or determination made in good faith. The Board may, to the full extent permitted by law, delegate any or all of its responsibilities under the Plan to a committee (the "Committee") appointed by the Board and consisting of two or more members of the Board, each of whom shall be deemed a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) of the Securities Exchange Act of 1934 (the "Exchange Act"). 3. Effective Date The Plan shall be effective as of the date first approved by the Board of Directors, subject to the approval of the Plan by the Corporation's Stockholders. Grants of Awards under the Plan made prior to such approval shall be effective when made (unless otherwise specified by the Board at the time of grant), but shall be conditioned on and subject to such approval of the Plan. PAGE 4. Shares Subject to the Plan Subject to adjustment as provided in Section 10.6, the total number of shares of the common stock, $.01 par value per share, of the Company (the "Common Stock"), reserved and available for distribution under the Plan shall be 500,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any Award of shares of Common Stock requiring exercise by the Participant for delivery of such shares terminates without having been exercised in full, is forfeited or is otherwise terminated without a payment being made to the Participant in the form of Common Stock, or if any shares of Common Stock subject to restrictions are repurchased by the Company pursuant to the terms of any Award or are otherwise reacquired by the Company to satisfy obligations arising by virtue of any Award, such shares shall be available for distribution in connection with future Awards under the Plan. 5. Eligibility Employees, officers and Directors of, and consultants to, the Company and its subsidiaries, or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries shall be eligible to receive Awards under the Plan. The Board, or other appropriate committee or person to the extent permitted pursuant to the last sentence of Section 2, shall from time to time select from among such eligible persons those who will receive Awards under the Plan. 6. Types of Awards The Board may offer Awards under the Plan in any form of equity-based interest, equity-based incentive or performance-based stock incentive in Common Stock of the Company or any combination thereof. The type, terms and conditions and restrictions of an Award shall be determined by the Board at the time such Award is made to a Participant; provided however that the maximum number of shares permitted to be granted under any Award or combination of Awards to any Participant during any one calendar year may not exceed 5% of the shares of Common Stock outstanding at the beginning of such calendar year. An Award shall be made at the time specified by the Board and shall be subject to such conditions or restrictions as may be imposed by the Board and shall conform to the general rules applicable under the Plan as well as any special rules then applicable under federal tax laws or regulations or the federal securities laws relating to the type of Award granted. Without limiting the foregoing, Awards may take the following forms and shall be subject to the following rules and conditions: 6.1 Options An option is an Award that entitles the holder on exercise thereof to purchase Common Stock at a specified exercise price. Options granted under the Plan may be either incentive stock options ("incentive stock options") that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that are not intended to meet the requirements of Section 422 ("non-statutory options"). 2PAGE 6.1.1 Option Price. The price at which Common Stock may be purchased upon exercise of an option shall be determined by the Board, provided however, the exercise price shall not be less than the par value per share of Common Stock. 6.1.2 Option Grants. The granting of an option shall take place at the time specified by the Board. Options shall be evidenced by option agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including but not limited to vesting and forfeiture provisions, acceleration, change of control, protection in the event of merger, consolidations, dissolutions and liquidations) as the Board shall deem advisable. Option agreements shall expressly state whether an option grant is intended to qualify as an incentive stock option or non-statutory option. 6.1.3 Option Period. An option will become exercisable at such time or times (which may be immediately or in such installments as the Board shall determine) and on such terms and conditions as the Board shall specify. The option agreements shall specify the terms and conditions applicable in the event of an option holder's termination of employment during the option's term. Any exercise of an option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any additional documents required by the Board and (2) payment in full in accordance with Section 6.1.4 for the number of shares for which the option is exercised. 6.1.4 Payment of Exercise Price. Stock purchased on exercise of an option shall be paid for as follows: (1) in cash or by check (subject to such guidelines as the Company may establish for this purpose), bank draft or money order payable to the order of the Company or (2) if so permitted by the instrument evidencing the option (or in the case of a non-statutory option, by the Board at or after grant of the option), (i) through the delivery of shares of Common Stock that have been outstanding for at least six months (unless the Board expressly approves a shorter period) and that have a fair market value (determined in accordance with procedures prescribed by the Board) equal to the exercise price, (ii) by delivery of a promissory note of the option holder to the Company, payable on such terms as are specified by the Board, (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the permissible forms of payment. 6.1.5 Buyout Provision. The Board may at any time offer to buy out for a payment in cash, shares of Common Stock, deferred stock or restricted stock, an option previously granted, based on such terms and conditions as the Board shall establish and communicate to the option holder at the time that such offer is made. 6.1.6 Special Rules for Incentive Stock Options. Each provision of the Plan and each option agreement evidencing an incentive stock option shall be construed so that each incentive stock option shall be an incentive stock option as defined in Section 422A of the Code or any statutory provision that may replace such Section, and any provisions thereof that cannot be so construed shall be disregarded. Instruments evidencing incentive stock options must contain such provisions as are required under applicable provisions of the Code. Incentive stock options 3PAGE may be granted only to employees of the Company and its subsidiaries. The exercise price of an incentive stock option shall not be less than 100% (110% in the case of an incentive stock option granted to a more than ten percent Stockholder of the Company) of the fair market value of the Common Stock on the date of grant, as determined by the Board. An incentive stock option may not be granted after the tenth anniversary of the date on which the Plan was adopted by the Board and the latest date on which an incentive stock option may be exercised shall be the tenth anniversary (fifth anniversary, in the case of any incentive stock option granted to a more than ten percent Stockholder of the Company) of the date of grant, as determined by the Board. 6.2 Restricted and Unrestricted Stock An Award of restricted stock entitles the recipient thereof to acquire shares of Common Stock upon payment of the purchase price subject to restrictions specified in the instrument evidencing the Award. 6.2.1 Restricted Stock Awards. Awards of restricted stock shall be evidenced by restricted stock agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including restriction and forfeiture provisions, change of control, protection in the event of mergers, consolidations, dissolutions and liquidations) as the Board shall deem advisable. 6.2.2 Restrictions. Until the restrictions specified in a restricted stock agreement shall lapse, restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and upon certain conditions specified in the restricted stock agreement, must be resold to the Company for the price, if any, specified in such agreement. The restrictions shall lapse at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which the restrictions on all or any part of the shares shall lapse. 6.2.3 Rights as a Stockholder. A Participant who acquires shares of restricted stock will have all of the rights of a Stockholder with respect to such shares including the right to receive dividends and to vote such shares. Unless the Board otherwise determines, certificates evidencing shares of restricted stock will remain in the possession of the Company until such shares are free of all restrictions under the Plan. 6.2.4 Purchase Price. The purchase price of shares of restricted stock shall be determined by the Board, in its sole discretion, but such price may not be less than the par value of such shares. 6.2.5 Other Awards Settled With Restricted Stock. The Board may provide that any or all the Common Stock delivered pursuant to an Award will be restricted stock. 6.2.6 Unrestricted Stock. The Board may, in its sole discretion, sell to any Participant shares of Common Stock free of restrictions under the Plan for a price determined by the Board, but which may not be less than the par value per share of the Common Stock. 6.3 Deferred Stock 6.3.1 Deferred Stock Award. A deferred stock Award entitles the recipient to receive shares of deferred stock which is Common Stock to be 4PAGE delivered in the future. Delivery of the Common Stock will take place at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which delivery of all or any part of the Common Stock will take place. 6.3.2 Other Awards Settled with Deferred Stock. The Board may, at the time any Award described in this Section 6 is granted, provide that, at the time Common Stock would otherwise be delivered pursuant to the Award, the Participant will instead receive an instrument evidencing the right to future delivery of deferred stock. 6.4 Performance Awards 6.4.1 Performance Awards. A performance Award entitles the recipient to receive, without payment, an Amount, in cash or Common Stock or a combination thereof (such form to be determined by the Board), following the attainment of performance goals. Performance goals may be related to personal performance, corporate performance, departmental performance or any other category of performance deemed by the Board to be important to the success of the Company. The Board will determine the performance goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. 6.4.2 Other Awards Subject to Performance Conditions. The Board may, at the time any Award described in this Section 6 is granted, impose the condition (in addition to any conditions specified or authorized in this Section 6 of the Plan) that performance goals be met prior to the Participant's realization of any payment or benefit under the Award. 7. Purchase Price and Payment Except as otherwise provided in the Plan, the purchase price of Common Stock to be acquired pursuant to an Award shall be the price determined by the Board, provided that such price shall not be less than the par value of the Common Stock. Except as otherwise provided in the Plan, the Board may determine the method of payment of the exercise price or purchase price of an Award granted under the Plan and the form of payment. The Board may determine that all or any part of the purchase price of Common Stock pursuant to an Award has been satisfied by past services rendered by the Participant. The Board may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made. 8. Loans and Supplemental Grants The Company may make a loan to a Participant, either on or after the grant to the Participant of any Award, in connection with the purchase of Common Stock under the Award or with the payment of any obligation incurred or recognized as a result of the Award. The Board will have full authority to decide whether the loan is to be secured or unsecured or with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which it may be forgiven. In connection with any Award, the Board may at the time such Award is made or at a later date, provide for and make a cash payment to the participant not to exceed an amount equal to (a) the amount of any federal, state and local income tax or ordinary income for which the Participant will be liable with respect to the Award, plus (b) an additional amount on 5PAGE a grossed-up basis necessary to make him or her whole after tax, discharging all the participant's income tax liabilities arising from all payments under the Plan. 9. Change in Control 9.1 Impact of Event In the event of a "Change in Control" as defined in Section 9.2, the following provisions shall apply, unless the agreement evidencing the Award otherwise provides: (a) Any stock options or other stock-based Awards awarded under the Plan that were not previously exercisable and vested shall become fully exercisable and vested. (b) Awards of restricted stock and other stock-based Awards subject to restrictions and to the extent not fully vested, shall become fully vested and all such restrictions shall lapse so that shares issued pursuant to such Awards shall be free of restrictions. (c) Deferral limitations and conditions that relate solely to the passage of time, continued employment or affiliation, will be waived and removed as to deferred stock Awards and performance Awards. Performance of other conditions (other than conditions relating solely to the passage of time, continued employment or affiliation) will continue to apply unless otherwise provided in the agreement evidencing the Awards or in any other agreement between the Participant and the Company or unless otherwise agreed by the Board. 9.2 Definition of "Change in Control" "Change in Control" means any one of the following events: (i) when, any Person is or becomes the beneficial owner (as defined in Section 13(d) of the Exchange Act and the Rules and Regulations thereunder), together with all Affiliates and Associates (as such terms are used in Rule 12b-2 of the General Rules and Regulations of the Exchange Act) of such Person, directly or indirectly, of 50% or more of the outstanding Common Stock of the Company or its parent corporation, ThermoTrex Corporation ("ThermoTrex"), or the beneficial owner of 25% or more of the outstanding common stock of Thermo Electron Corporation ("Thermo Electron"), without the prior approval of the Prior Directors of the applicable issuer, (ii) the failure of the Prior Directors to constitute a majority of the Board of Directors of the Company, ThermoTrex or Thermo Electron, as the case may be, at any time within two years following any Electoral Event, or (iii) any other event that the Prior Directors shall determine constitutes an effective change in the control of the Company, ThermoTrex or Thermo Electron. As used in the preceding sentence, the following capitalized terms shall have the respective meanings set forth below: (a) "Person" shall include any natural person, any entity, any "affiliate" of any such natural person or entity as such term is defined in Rule 405 under the Securities Act of 1933 and any "group" (within the meaning of such term in Rule 13d-5 under the Exchange Act); (b) "Prior Directors" shall mean the persons sitting on the Company's, ThermoTrex' or Thermo Electron's Board of Directors, as the case may 6PAGE be, immediately prior to any Electoral Event (or, if there has been no Electoral Event, those persons sitting on the applicable Board of Directors on the date of this Agreement) and any future director of the Company, ThermoTrex or Thermo Electron who has been nominated or elected by a majority of the Prior Directors who are then members of the Board of Directors of the Company, ThermoTrex or Thermo Electron, as the case may be; and (c) "Electoral Event" shall mean any contested election of Directors, or any tender or exchange offer for the Company's, ThermoTrex' or Thermo Electron's Common Stock, not approved by the Prior Directors, by any Person other than the Company, ThermoTrex, Thermo Electron or a majority-owned subsidiary of Thermo Electron. 10. General Provisions 10.1 Documentation of Awards Awards will be evidenced by written instruments, which may differ among Participants, prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company or certificates, letters or similar instruments which need not be executed by the participant but acceptance of which will evidence agreement to the terms thereof. Such instruments shall conform to the requirements of the Plan and may contain such other provisions (including provisions relating to events of merger, consolidation, dissolution and liquidations, change of control and restrictions affecting either the agreement or the Common Stock issued thereunder), as the Board deems advisable. 10.2 Rights as a Stockholder Except as specifically provided by the Plan or the instrument evidencing the Award, the receipt of an Award will not give a Participant rights as a Stockholder with respect to any shares covered by an Award until the date of issue of a stock certificate to the participant for such shares. 10.3 Conditions on Delivery of Stock The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove any restriction from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (c) if the outstanding Common Stock is at the time listed on any stock exchange, until the shares have been listed or authorized to be listed on such exchange upon official notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Common Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such act and may require that the certificates evidencing such Common Stock bear an appropriate legend restricting transfer. 7PAGE If an Award is exercised by the participant's legal representative, the Company will be under no obligation to deliver Common Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 10.4 Tax Withholding The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an Award pursuant to which Common Stock may be delivered, the Board will have the right to require that the participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Common Stock. If and to the extent that such withholding is required, the Board may permit the participant or such other person to elect at such time and in such manner as the Board 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 requirement. 10.5 Nontransferability of Awards Except as otherwise specifically provided by the Board in the case of participants who are not reporting persons under Section 16 of the Exchange Act, no Award (other than an Award in the form of an outright transfer of cash or Common Stock not subject to any restrictions) may be transferred other than by the laws of descent and distribution, except pursuant to the terms of a qualified domestic relations order as defined in the Code, and during a Participant's lifetime an Award 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). 10.6 Adjustments in the Event of Certain Transactions (a) In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution with respect to common Stockholders other than normal cash dividends, the Board will make (i) appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above, and (ii) appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provisions of Awards affected by such change. (b) The Board may also make appropriate adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions, repurchases or similar corporate transactions, or any other event, if it is determined by the Board that adjustments are appropriate to avoid distortion in the operation of the Plan, but no such adjustments other than those required by law may adversely affect the rights of any Participant (without the Participant's consent) under any Award previously granted. 8PAGE 10.7 Employment Rights Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued employment with the Company or any subsidiary or interfere in any way with the right of the Company or subsidiary to terminate any employment relationship at any time or to increase or decrease the compensation of such person. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment relationship even if the termination is in violation of an obligation of the Company to the employee. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Board at the time. For purposes of this Plan, transfer of employment between the Company and its subsidiaries shall not be deemed termination of employment. 10.8 Other Employee Benefits The value of an Award granted to a Participant who is an employee, and the amount of any compensation deemed to be received by an employee as a result of any exercise or purchase of Common Stock pursuant to an Award or sale of shares received under the Plan, will not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, stock ownership, stock purchase, life insurance, medical, health, disability or salary continuation plan. 10.9 Legal Holidays If any day on or before which action under the Plan must be taken falls on a Saturday, Sunday or legal holiday, such action may be taken on the next succeeding day not a Saturday, Sunday or legal holiday. 10.10 Foreign Nationals Without amending the Plan, Awards may be granted to persons who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan, as may, in the judgment of the Board, be necessary or desirable to further the purpose of the Plan. 11. Termination and Amendment The Plan shall remain in full force and effect until terminated by the Board. Subject to the last sentence of this Section 11, the Board may at any time or times amend the Plan or any outstanding Award for any purpose that may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards. No amendment, unless approved by the Stockholders, shall be effective if it would cause the Plan to fail to satisfy the requirements of the federal tax law or regulation relating to incentive stock options or the requirements of Rule 16b-3 (or any successor rule) of the Exchange Act. No amendment of the Plan or any agreement evidencing Awards under the Plan may adversely affect the rights of any participant under any Award previously granted without such participant's consent. EX-13 5 EXHIBIT 13 THERMO PROCESS SYSTEMS INC. Consolidated Financial Statements as of April 1, 1995 PAGE Thermo Process Systems Inc. Consolidated Statement of Income Year Ended ------------------------------ (In thousands except April 1, April 2, April 3, per share amounts) 1995 1994 1993 -------------------------------------------------------------------------- Revenues (Note 9): Service revenues $119,422 $ 94,326 $ 86,279 Product revenues 14,381 15,029 16,877 Contract revenues from related party - 776 1,793 -------- -------- -------- 133,803 110,131 104,949 -------- -------- -------- Costs and Operating Expenses: Cost of service revenues 86,570 70,230 66,871 Cost of product revenues 11,982 13,136 14,771 Cost of contract revenues from related party (Note 9) - 776 1,793 Selling, general and administrative expenses (Note 9) 26,257 21,195 16,966 Product and new business development expenses 883 447 29 Costs associated with divisional restructuring - 2,661 - -------- -------- -------- 125,692 108,445 100,430 -------- -------- -------- Operating Income 8,111 1,686 4,519 Gain on Issuance of Stock by Subsidiaries (Note 11) 1,343 4,488 2,348 Interest Income 3,322 1,955 2,101 Interest Expense (includes $1,071 for notes to parent company in fiscal 1995) (2,855) (1,387) (1,316) Gain on Sale of Investments (includes $1,089 on sale of related party debentures in fiscal 1995) 1,092 645 - -------- -------- -------- Income Before Income Taxes, Minority Interest and Cumulative Effect of Change in Accounting Principle 11,013 7,387 7,652 Income Tax (Provision) Benefit (Note 6) (2,630) 40 (968) Minority Interest Expense, Net (4,268) (4,018) (3,520) -------- -------- -------- Income Before Cumulative Effect of Change in Accounting Principle 4,115 3,409 3,164 Cumulative Effect of Change in Accounting Principle (Note 1) - 500 - -------- -------- -------- Net Income $ 4,115 $ 3,909 $ 3,164 ======== ======== ======== Earnings per Share Before Cumulative Effect of Change in Accounting Principle $ 0.24 $ 0.20 $ 0.19 ======== ======== ======== Earnings per Share $ 0.24 $ 0.23 $ 0.19 ======== ======== ======== Weighted Average Shares 17,143 16,863 16,738 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Process Systems Inc. Consolidated Balance Sheet (In thousands) April 1, 1995 April 2, 1994 -------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents $ 35,808 $ 15,976 Short-term available-for-sale investments, at quoted market value (amortized cost of $5,179 and $22,483) (Note 2) 5,155 23,123 Accounts receivable, less allowances of $3,560 and $3,260 27,949 18,513 Unbilled contract costs and fees 16,481 9,394 Inventories 2,732 2,393 Prepaid expenses 3,788 2,091 Prepaid and refundable income taxes (Note 6) 8,228 2,081 -------- -------- 100,141 73,571 -------- -------- Property, Plant and Equipment, at Cost, Net 59,737 32,450 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $10,687 and $11,543) (Note 2) 10,564 11,438 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $22,810) (Note 2) 22,569 - -------- -------- Other Assets 12,146 5,265 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 3) 66,516 32,710 -------- -------- $271,673 $155,434 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Thermo Process Systems Inc. Consolidated Balance Sheet (continued) (In thousands except share amounts) April 1, 1995 April 2, 1994 -------------------------------------------------------------------------- Liabilities and Shareholders' Investment Current Liabilities: Accounts payable $ 9,612 $ 6,152 Notes payable and current maturities of long-term obligations (includes $4,000 in fiscal 1995 due to parent company) (Notes 3 and 8) 4,652 975 Billings in excess of revenues earned 835 1,997 Accrued payroll and employee benefits 6,845 5,010 Accrued and current deferred income taxes 1,773 263 Other accrued expenses (Note 3) 8,612 4,997 Due to parent company 3,116 2,565 -------- -------- 35,445 21,959 -------- -------- Deferred Income Taxes (Note 6) 4,116 2,167 -------- -------- Other Deferred Items 1,057 - -------- -------- Long-term Obligations (Note 8): 6 1/2% Subordinated convertible debentures 18,547 18,547 Other (includes $53,000 in fiscal 1995 due to parent company) (Note 3) 78,304 185 -------- -------- 96,851 18,732 -------- -------- Minority Interest 56,603 50,017 -------- -------- Commitments and Contingencies (Note 7) Shareholders' Investment (Notes 4 and 10): Common stock, $.10 par value, 30,000,000 shares authorized; 17,414,322 and 17,254,026 shares issued 1,741 1,725 Capital in excess of par value 53,559 46,456 Retained earnings 21,727 17,612 Treasury stock at cost, 71,072 and 267,371 shares (864) (2,911) Cumulative translation adjustment 1,526 (669) Net unrealized gain (loss) on available-for- sale investments (Note 2) (88) 346 -------- -------- 77,601 62,559 -------- -------- $271,673 $155,434 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Process Systems Inc. Consolidated Statement of Cash Flows Year Ended ------------------------------ April 1, April 2, April 3, (In thousands) 1995 1994 1993 -------------------------------------------------------------------------- Operating Activities: Net income $ 4,115 $ 3,909 $ 3,164 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,615 5,653 4,802 Minority interest expense, net 4,268 4,018 3,520 Provision for losses on accounts receivable 162 424 164 Other noncash expenses 1,634 1,075 527 Increase in deferred income taxes - 713 105 Gain on issuance of stock by subsidiaries (Note 11) (1,343) (4,488) (2,348) Gain on sale of investments (1,092) (645) - Costs associated with divisional restructuring - 2,661 - Cumulative effect of change in accounting principle (Note 1) - (500) - Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (1,547) (362) 4,660 Inventories and unbilled contract costs and fees (1,752) (895) 1,108 Other current assets 267 (493) (808) Current liabilities (3,942) 498 1,123 -------- -------- -------- Net cash provided by operating activities 7,385 11,568 16,017 -------- -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (38,188) (4,150) (6,440) Proceeds from sale and maturities of available-for-sale investments 19,252 59,401 - Purchases of available-for-sale investments - (74,650) - Purchases of held-to-maturity investments (22,300) - - Increase in short-term investments - - (13,394) Purchases of property, plant and equipment (7,030) (7,491) (6,658) Other (380) (197) 331 -------- -------- -------- Net cash used in investing activities $(48,646) $(27,087) $(26,161) -------- -------- -------- 5PAGE Thermo Process Systems Inc. Consolidated Statement of Cash Flows (continued) Year Ended ------------------------------ April 1, April 2, April 3, (In thousands) 1995 1994 1993 -------------------------------------------------------------------------- Financing Activities: Issuance of note receivable (Note 3) $ (700) $ - $ - Issuance of notes to parent company 57,000 - - Proceeds from issuance of Company and subsidiaries' common stock and warrants (Note 11) 3,903 15,999 4,518 Purchases of Company and subsidiary common stock (135) - (1,871) Dividends paid by subsidiaries to minority shareholders (685) (519) (420) Environmental Services Businesses transfer of cash to Thermo Instrument (Note 3) - (2,703) (4,361) Other 11 (103) (54) -------- -------- -------- Net cash provided by (used in) financing activities 59,394 12,674 (2,188) -------- -------- -------- Exchange Rate Effect on Cash 1,699 (344) 47 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents 19,832 (3,189) (12,285) Cash and Cash Equivalents at Beginning of Year 15,976 19,165 31,450 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 35,808 $ 15,976 $ 19,165 ======== ======== ======== See Note 13 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Process Systems Inc. Consolidated Statement of Shareholders' Investment Common Stock, Capital in $.10 Par Excess of Retained (In thousands) Value Par Value Earnings -------------------------------------------------------------------------- Balance March 28, 1992 $ 1,684 $43,382 $10,539 Net income - - 3,164 Issuance of warrants (Note 11) - 572 - Purchases of Company common stock - - - Issuance of stock under employees' and directors' stock plans 24 1,104 - Conversions of 6 1/2% subordinated convertible debentures 1 133 - Cumulative translation adjustment - - - ------- ------- ------- Balance April 3, 1993 1,709 45,191 13,703 Net income - - 3,909 Issuance of stock under employees' and directors' stock plans 16 469 - Effect of majority-owned subsidiary's equity transactions - 796 - Effect of change in accounting principle (Note 2) - - - Cumulative translation adjustment - - - ------- ------- ------- Balance April 2, 1994 1,725 46,456 17,612 Net income - - 4,115 Issuance of stock under employees' and directors' stock plans 16 582 - Tax benefit related to employees' and directors' stock plans - 1,249 - Issuance of stock for acquired business (Note 3) - (1,326) - Issuance of Company stock options for acquired business (Note 3) - 6,923 - Effect of majority-owned subsidiary's equity transactions - (325) - Change in net unrealized loss on available-for-sale investments (Note 2) - - - Cumulative translation adjustment - - - ------- ------- ------- Balance April 1, 1995 $ 1,741 $53,559 $21,727 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 7PAGE Thermo Process Systems Inc. Consolidated Statement of Shareholders' Investment (continued) Net Unrealized Gain (Loss) Cumulative on Available- Treasury Translation for-sale (In thousands) Stock Adjustment Investments -------------------------------------------------------------------------- Balance March 28, 1992 $ (661) $ (124) $ - Net income - - - Issuance of warrants (Note 11) - - - Purchases of Company common stock (1,841) - - Issuance of stock under employees' and directors' stock plans (454) - - Conversions of 6 1/2% subordinated convertible debentures - - - Cumulative translation adjustment - 96 - ------- ------- ------- Balance April 3, 1993 (2,956) (28) - Net income - - - Issuance of stock under employees' and directors' stock plans 45 - - Effect of majority-owned subsidiary's equity transactions - - - Effect of change in accounting principle (Note 2) - - 346 Cumulative translation adjustment - (641) - ------- ------- ------- Balance April 2, 1994 (2,911) (669) 346 Net income - - - Issuance of stock under employees' and directors' stock plans (119) - - Tax benefit related to employees' and directors' stock plans - - - Issuance of stock for acquired business (Note 3) 2,166 - - Issuance of Company stock options for acquired business (Note 3) - - - Effect of majority-owned subsidiary's equity transactions - - - Change in net unrealized loss on available-for-sale investments (Note 2) - - (434) Cumulative translation adjustment - 2,195 - ------- ------- ------- Balance April 1, 1995 $ (864) $ 1,526 $ (88) ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Relationship with Thermo Electron Corporation Thermo Process Systems Inc. (the Company) was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron Corporation (Thermo Electron). As of April 1, 1995, Thermo Electron owned 13,933,591 shares of the Company's common stock, representing 80% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its majority- and wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Majority-owned subsidiaries include Thermo Remediation Inc. (Thermo Remediation), a publicly held subsidiary; J. Amerika N.V. (J. Amerika), a privately held subsidiary; and Thermo Terra Tech, a 51%-owned joint venture that was formed in May 1994 with Thermo Instrument Systems Inc. (Thermo Instrument), another public subsidiary of Thermo Electron (Notes 3 and 14). Majority-owned subsidiaries that were included in the Company's Thermo Remediation subsidiary effective October 1, 1993 were TPST Soil Recyclers of South Carolina Inc. (TPST South Carolina), TPST Soil Recyclers of Virginia Inc. (TPST Virginia), TPST Soil Recyclers of Southern California Inc. (TPST Southern California), and TPST Soil Recyclers of Florida Inc. (TPST Florida). Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest March 31. References to fiscal 1995, 1994, and 1993 are for the fiscal years ended April 1, 1995, April 2, 1994, and April 3, 1993, respectively. Fiscal years 1995 and 1994 each included 52 weeks; 1993 included 53 weeks. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon completion of services it renders. Revenues from soil-remediation services are recognized as soil is processed. With respect to soil-remediation services, the Company bills customers upon receipt of the contaminated soil at its remediation centers. Amounts billed in excess of revenues recognized are classified as "Billings in excess of revenues earned" in the accompanying balance sheet. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $47,446,000 in fiscal 1995, $46,072,000 in fiscal 1994, and $48,578,000 in fiscal 1993. The percentage of completion is determined by relating either the actual costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are classified as "Unbilled contract costs and fees" in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts billed but not paid under retainage provisions. 9PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) 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 entity and not engaged principally in research and development, the Company records the increase as a gain. See Note 11 for a description of gains recorded. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased either by the subsidiary, the Company, or Thermo Electron, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Income Taxes The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as of the beginning of fiscal 1994. Under SFAS No. 109, deferred income taxes are recognized 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. Prior to fiscal 1994, the Company recorded income taxes on timing differences between financial statement and tax treatment of income and expenses under Accounting Principles Board Opinion No. 11. Upon adoption of SFAS No. 109, the Company recorded a cumulative benefit of $500,000, which is included in the accompanying statement of income. Earnings per Share Earnings per share have been computed based on the weighted average number of shares outstanding during the year. Because the effect of the exercise of common stock equivalents was immaterial, they have been excluded from the earnings per share calculation. Fully diluted earnings per share have not been presented because the effect of the conversion of the Company's subordinated convertible debentures would be antidilutive. Cash and Cash Equivalents As of April 1, 1995, $30,802,000 of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, U.S. government agency securities, money market funds, commercial paper, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company and have an original maturity of three months or less. The repurchase agreement earns a rate based on the Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. As of April 1, 1995, the Company's cash equivalents were also invested in a money market fund. Cash equivalents are carried at cost, which approximates market value. 10PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) Available-for-sale and Held-to-maturity Investments Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," debt and marketable equity securities that the Company considers available-for-sale are accounted for at market value. Debt securities that the Company intends to hold to maturity are accounted for at amortized cost. See Note 2 for a description of these investments. Inventories Inventories are stated at the lower of cost (on an average-cost basis) or market value and include materials and labor. The components of inventories are as follows: (In thousands) 1995 1994 -------------------------------------------------------------------------- Raw materials and supplies $ 2,705 $ 1,908 Work in process and finished goods 27 485 ------- ------- $ 2,732 $ 2,393 ======= ======= 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 - 3 to 10 years; and leasehold improvements - the shorter of the term of the lease or the life of the asset. Soil-remediation units, which accounted for 21% and 19% of the Company's total machinery and equipment at fiscal year-end 1995 and 1994, respectively, are depreciated based on an hourly rate that is computed by estimating total hours of operation for each unit. Property, plant and equipment consist of the following: (In thousands) 1995 1994 -------------------------------------------------------------------------- Land and buildings $23,333 $11,715 Machinery, equipment and leasehold improvements 69,462 50,511 ------- ------- 92,795 62,226 Less: Accumulated depreciation and amortization 33,058 29,776 ------- ------- $59,737 $32,450 ======= ======= Other Assets "Other assets" in the accompanying balance sheet includes the cost of acquired technology and other specifically identifiable intangible assets that are being amortized using the straight-line method over their estimated useful lives, which range from 5 to 12 years. These assets were $9,994,000 and $4,212,000, net of accumulated amortization of $3,217,000 and $2,037,000, at fiscal year-end 1995 and 1994, respectively. 11PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired businesses is amortized using the straight-line method over 40 years. Accumulated amortization was $4,721,000 and $3,744,000 at fiscal year-end 1995 and 1994, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired businesses in assessing the recoverability of this asset. 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. 2. Available-for-sale and Held-to-maturity Investments Effective April 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, the Company's debt and marketable equity securities that are classified as "Available-for-sale investments" in the accompanying balance sheet 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 (loss) on available-for-sale investments." "Effect of change in accounting principle" in the accompanying statement of shareholders' investment represents the unrealized gain, net of related tax effects, pertaining to short-term available-for-sale investments held by the Company on April 2, 1994. In order to meet the Company's obligation to the former owner of Elson T. Killam Associates, Inc., which the Company acquired in February 1995, the Company purchased securities with a maturity date equal to the date the Company's zero coupon promissory note is due (see Note 3). These securities are classified as "Held-to-maturity investments" in the accompanying balance sheet and are carried at amortized cost. 12PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 2. Available-for-sale and Held-to-maturity Investments (continued) The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type, as of April 1, 1995 and April 2, 1994, are as follows: 1995 Gross Gross Unrealized Unrealized (In thousands) Market Value Cost Basis Gains Losses -------------------------------------------------------------------------- Tax-exempt securities $11,545 $11,594 $ - $ 49 Corporate bonds 1,980 2,000 - 20 Money market preferred stock 2,087 2,165 - 78 Other 107 107 - - ------- ------- ------- ------- $15,719 $15,866 $ - $ 147 ======= ======= ======= ======= 1994 Gross Gross Unrealized Unrealized (In thousands) Market Value Cost Basis Gains Losses -------------------------------------------------------------------------- Tax-exempt securities $11,500 $11,761 $ - $ 261 Corporate bonds 16,763 16,024 815 76 Money market preferred stock 3,055 2,990 97 32 Asset-backed securities 2,999 3,007 - 8 Other 244 244 - - ------- ------- ------- ------- $34,561 $34,026 $ 912 $ 377 ======= ======= ======= ======= Short- and long-term available-for-sale investments in the accompanying fiscal 1995 balance sheet include $6,679,000 with contractual maturities of one year or less and $9,040,000 with contractual maturities of more than one year through five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable the Company and/or the issuer to redeem these securities at an earlier date. 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 investments in fiscal 1995 and 1994 resulted from gross realized gains relating to the sale of available-for-sale investments. "Long-term held-to-maturity investments" in the accompanying fiscal 1995 balance sheet represent investments in U.S. treasury bonds that mature in February and May 1998. It is the Company's intent and ability to hold these securities to maturity. 3. Joint Venture and Acquisitions Joint Venture In May 1994, the Company entered into an agreement establishing Thermo Terra Tech, an environmental services joint venture, with Thermo Instrument that became effective April 4, 1994. The Company contributed to the joint venture Terra Tech Labs, Inc. (later renamed Thermo Analytical Inc.) and 13PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) approximately $31 million in cash and short-term investments, $15 million of which was borrowed from Thermo Electron pursuant to a promissory note (Note 8). Thermo Instrument contributed its environmental services businesses (Environmental Services Businesses of Thermo Instrument or Environmental Services Businesses) that consist of a national network of analytical laboratories, and businesses that provide nuclear-radiation safety and environmental science and consulting services. As of April 1, 1995, the Company owned 51% of Thermo Terra Tech. Accordingly, the joint venture's operating results are consolidated with the Company's operating results. Under the terms of the joint venture agreement, 66.67% of income earned by the joint venture from April 4, 1994 to April 1, 1995 was allocated to Thermo Instrument. Because the Company and the Environmental Services Businesses were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction was accounted for at historical cost in a manner similar to a pooling of interests. Accordingly, in fiscal 1994 all historical financial information presented was restated to include the accounts and operations of the Environmental Services Businesses. In fiscal 1994 and 1993, amounts earned by the Environmental Services Businesses of Thermo Instrument were allocated to Thermo Instrument through minority interest expense in the accompanying financial statements. In May 1995, the Company agreed to dissolve the Thermo Terra Tech joint venture and to purchase the businesses formerly operated by the joint venture (Note 14). Acquisitions On March 29, 1995, the Company's J. Amerika subsidiary acquired all of the outstanding capital stock of Refining and Trading Holland B.V., which conducts business under the name North Refinery, from Stalt Holding B.V. North Refinery, located in Delfzijl, Holland. North Refinery specializes in processing "off-spec" and contaminated petroleum fluids into usable products such as gas oil, diesel oil, and fuel oil. The purchase price for North Refinery's stock was 9,568,000 Dutch guilders (approximately $6,180,000) and 228,570 shares of J. Amerika's capital stock, valued at 1,327,000 Dutch guilders (approximately $857,000). J. Amerika has also agreed to pay, after the fifth anniversary date of the closing, an amount equal to 20% of the amount by which the cumulative pretax profits of North Refinery's business over the five-year period ending on such anniversary exceeds 5,000,000 Dutch guilders. In February 1995, the Company acquired all of the outstanding capital stock of Engineering, Technology and Knowledge Corporation (ETKC) from Nord Est S.A., a French industrial company (Nord Est). ETKC's sole subsidiary, Elson T. Killam Associates, Inc. (Killam Associates), is a leading provider of comprehensive environmental consulting and professional engineering services in selected areas of the U.S. The purchase price for ETKC's stock was $12,566,000 in cash and a zero coupon promissory note with a face value of $28,000,000 and a present value of $22,300,000 as of the acquisition closing date, payable in February and May 1998. The purchase price is subject to a post-closing adjustment based on Killam Associates' net tangible book value as of January 29, 1995. The Company has also agreed to pay, after the third anniversary date of the closing, an amount equal to 30% of the amount by which Killam Associates' cumulative net income for the three-year period ending on such anniversary exceeds $13 million. In a 14PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) related transaction, certain members of Killam Associates' senior management (the Killam Management) exchanged outstanding options to purchase shares of Killam Associates' capital stock for options to purchase an aggregate of 847,678 shares of the Company's common stock, which options were valued at $6,923,000. Additional options to purchase shares of Killam Associates' capital stock were canceled in exchange for cash payments to the Killam Management in the aggregate amount of $1,922,000. The Company borrowed the cash portion of the purchase price, including cash used to purchase U.S. treasury bonds to collateralize the promissory note delivered to Nord Est, from Thermo Electron through the issuance of a $38 million promissory note (Note 8). In October 1994, the Company's Thermo Remediation subsidiary acquired a soil-remediation facility in South Tacoma, Washington (renamed TPST Woodworth) from Woodworth & Company, Inc. The purchase price for TPST Woodworth was $4,701,000 in cash. In connection with the financing of acquisitions, Thermo Remediation issued to Thermo Electron a $4,000,000 promissory note (Note 8). During fiscal 1995, the Company's Thermo Remediation subsidiary and Thermo Terra Tech joint venture made other acquisitions for an aggregate of $14.2 million in cash. In January 1994, the Company acquired Terra Tech Labs, Inc. (Terra Tech), a privately held company specializing in fast-response testing of petroleum-contaminated soils and groundwater in the southwestern U.S. The acquisition was made for $1,500,000 in cash and up to an additional $1,200,000 payable over a two-year period if the business achieves certain performance goals. Terra Tech has facilities in Santa Ana, California, and Phoenix, Arizona, as well as four mobile units, which provide services primarily to the petroleum industry and consulting engineers. In November 1993, the Company acquired a fluids recovery company based in Mesa, Arizona (renamed Thermo Fluids) for $2,650,000 in cash and immediately transferred it to Thermo Remediation in exchange for a $2,650,000 principal amount 3.875% subordinated convertible note due 2000. In addition, due to Thermo Fluids having met certain performance criteria, on February 1, 1995, the Company issued to the former owner of Thermo Fluids 178,060 restricted shares of its common stock valued at $840,000. Thermo Remediation in turn issued to the Company 127,369 restricted shares of its common stock valued at $840,000. In August 1994, Thermo Remediation loaned $700,000, included in "Other assets" in the accompanying fiscal 1995 balance sheet, to the former owner of Thermo Fluids in connection with the termination of employment with Thermo Fluids and the settlement of the parties' respective obligations to one another. This obligation is represented by a promissory note bearing interest at a rate equal to the rate of interest on one-year U.S. treasury notes, adjusted on an annual basis, and is secured by a pledge of the Company's common stock issued to the former owner. The note is receivable in three equal installments commencing in March 1997. These acquisitions have been accounted for using the purchase method of accounting, and their results of operations have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $36,838,000, which is 15PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) 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 1995, is subject to adjustment. Based on unaudited data, the following table presents selected financial information for the Company, North Refinery, Killam Associates, and TPST Woodworth on a pro forma basis, assuming the companies had been combined since the beginning of fiscal 1994. The effect on the Company's financial statements of the acquisitions not included in the pro forma data was not significant. (In thousands) 1995 1994 -------------------------------------------------------------------------- Revenues $178,993 $158,933 Income before cumulative effect of change in accounting principle 4,068 3,299 Earnings per share before cumulative effect of change in accounting principle .24 .20 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of fiscal 1994. "Other accrued expenses" in the accompanying fiscal 1995 balance sheet includes $1,848,000 for estimated severance, relocation, and other reserves associated with acquisitions. 4. Stock-based Compensation Plans The Company has stock-based compensation plans for its key employees, directors, and others. Two of these plans, adopted in 1986, permit the grant of nonqualified and incentive stock options. A third plan, adopted in fiscal 1994, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. 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 periods ranging from three to ten years after the first anniversary of the grant date, depending on the term of the option, which may range from five to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than fair market value of the Company's stock on the date of grant. Generally, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in September 1991, that provides for the grant of stock options to nonemployee directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate 16PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 4. Stock-based Compensation Plans (continued) in the stock-based compensation plans of Thermo Electron or its majority-owned subsidiaries. No accounting recognition is given to options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. A summary of the Company's stock option information is as follows: 1995 1994 1993 ---------------- ---------------- --------------- Range Range Range of of of Option Option Option Number Prices Number Prices Number Prices (In thousands except of per of per of per per share amounts) Shares Share Shares Share Shares Share -------------------------------------------------------------------------- Options outstanding, beginning of year 1,318 $ 1.43- 823 $ 1.27- 847 $ 1.27- $16.05 $16.05 $16.05 Granted 665 7.83- 785 7.65- 224 6.00- 8.18 9.28 10.00 Exercised (197) 1.43- (238) 1.27- (229) 1.27- 3.19 3.19 8.65 Lapsed or cancelled (75) 8.10- (52) 6.00- (19) 1.55- 10.00 8.65 8.65 ----- ----- ---- Options outstanding, end of year 1,711 $ 1.79- 1,318 $ 1.43- 823 $ 1.27- ===== $16.05 ===== $16.05 ==== $16.05 Options exercisable 1,710 $ 1.79- 1,316 $ 1.43- 823 $ 1.27- ===== $16.05 ===== $16.05 ==== $16.05 Options available for grant 874 415 397 ===== ===== ==== 5. Employee Benefit Plans Employee Stock Purchase Plan The majority of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by the Company. Under this plan, shares of the Company's and Thermo Electron's common stock may be purchased at the end of a 12-month plan year at 85% of the fair market value at the beginning of the plan year, and the shares purchased are subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. During fiscal 1995, 1994, and 1993, the Company issued 21,999 shares, 28,845 shares, and 23,677 shares of its common stock, respectively, under this plan. Employees of the Environmental Services Businesses of Thermo Instrument participated in an employee stock purchase plan sponsored by Thermo Instrument through the end of November 1994. Thereafter, they became eligible to participate in the Company's employee stock purchase plan. 17PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 5. Employee Benefit Plans (continued) 401(k) Savings Plan 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 and employee stock ownership plan. Contributions to the Thermo Electron 401(k) savings plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. Certain subsidiaries of the Company also have a defined contribution retirement plan, a union-sponsored, collectively bargained multiemployer pension plan, and 401(k) savings plans. For these plans, the Company contributed and charged to expense $1,654,000, $1,465,000, and $1,449,000 in fiscal 1995, 1994, and 1993, respectively. Postemployment Benefits The Company provides certain postemployment benefits to former or inactive employees. In accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits," the Company recognizes the cost of postemployment benefits if certain criteria are met and the amount of benefits can be reasonably estimated. 6. Income Taxes As discussed in Note 1, the Company adopted SFAS No. 109 in fiscal 1994. The components of the income tax (provision) benefit are as follows: (In thousands) 1995 1994 1993 ------------------------------------------------------------------------ Currently (payable) prepaid: Federal $(3,061) $ 139 $ 51 State (1,063) (41) (129) Foreign (96) 45 (138) ------- ------- ------- (4,220) 143 (216) ------- ------- ------- (Deferred) prepaid, net: Federal 1,287 (50) (642) State 303 (53) (110) ------- ------- ------- 1,590 (103) (752) ------- ------- ------- $(2,630) $ 40 $ (968) ======= ======= ======= 18PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 6. Income Taxes (continued) The income tax (provision) benefit in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before income taxes, minority interest and cumulative effect of change in accounting principle due to the following: (In thousands) 1995 1994 1993 ------------------------------------------------------------------------ Income tax provision at statutory rate $(3,744) $(2,512) $(2,602) Differences resulting from: Gain on issuance of stock by subsidiaries 456 1,526 798 Minority interest in joint venture income (Note 3) 1,061 1,205 1,030 Foreign tax rate and tax law differential (10) (114) - State income taxes, net of federal tax (502) (62) (158) Tax-exempt investment income 180 34 - Nondeductible expenses (249) (47) (22) Other, net 178 10 (14) ------- ------- ------- $(2,630) $ 40 $ (968) ======= ======= ======= Deferred income taxes and prepaid income taxes in the accompanying balance sheet consist of the following: (In thousands) 1995 1994 -------------------------------------------------------------- Current and long-term deferred income taxes: Depreciation $ 2,376 $ 2,124 Other deferred items 1,740 306 ------- ------- $ 4,116 $ 2,430 ======= ======= Prepaid income taxes: Accrued compensation $ 3,623 $ 292 Reserves and other accruals 3,112 815 Allowance for doubtful accounts 1,444 169 Depreciation 66 112 Intangible assets 57 55 Net operating loss carryforward 106 184 Federal tax credit carryforward 39 37 Inventory basis difference 57 263 ------- ------- 8,504 1,927 Less: Valuation allowance 276 276 ------- ------- $ 8,228 $ 1,651 ======= ======= The valuation allowance relates to the uncertainty surrounding the realization of the tax benefits attributable to federal operating losses, credit carryforwards, and purchase accounting reserves related to various acquisitions. The valuation allowance will be used to reduce "Cost in excess of net assets of acquired companies" when any portion of the related deferred tax asset is recognized. 19PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 6. Income Taxes (continued) A provision has not been made for U.S. or additional foreign taxes on $2,200,000 of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested overseas. The Company believes that any additional U.S. tax liability due upon remittance of such earnings would be immaterial due to available U.S. foreign tax credits. 7. Commitments and Contingencies Operating Leases The Company leases, land, office and manufacturing facilities, and equipment under operating leases expiring at various dates through fiscal 2009. The accompanying statement of income includes expenses from operating leases of $2,491,000, $2,509,000, and $2,468,000 in fiscal 1995, 1994, and 1993, respectively. Future minimum payments due under noncancelable operating leases at April 1, 1995, are $2,594,000 in fiscal 1996; $1,659,000 in fiscal 1997; $1,120,000 in fiscal 1998; $765,000 in fiscal 1999; $403,000 in fiscal 2000; and $1,632,000 in fiscal 2001 and thereafter. Total future minimum lease payments are $8,173,000. See Note 9 for office and manufacturing facilities leased from Thermo Electron. In March 1991, the Company's TPST Virginia subsidiary entered into a seven-year agreement, terminable at the Company's option with 90 days' notice, to operate one or more of its soil-remediation units at a site owned by a third party. Under the terms of the agreement, the Company pays a fee based on the gross remediation revenues generated from the operations at the site, less certain operating costs incurred by the Company. The accompanying statement of income includes expenses relating to this agreement of $307,000, $410,000, and $625,000 in fiscal 1995, 1994, and 1993, respectively. In December 1994, the Company's Thermo Remediation subsidiary acquired a soil-remediation facility in Baltimore County, Maryland from the principals of Bryn Awel Corporation (Bryn Awel). Thermo Remediation will pay to Bryn Awel a royalty equal to 7.5% of the revenues in excess of $2.0 million each year from soil remediated at this facility. Thermo Remediation has an option to terminate such royalty payments (i) at anytime after the fifth anniversary of the acquisition in exchange for a payment equal to a multiple of the appraised value of the royalty stream or (ii) at anytime after the tenth anniversary of the acquisition in exchange for a payment equal to a multiple of the average of the annual royalty payments over the prior ten years. Litigation In January 1995, the Company, Thermo Remediation, and several third parties filed a lawsuit against Recycling Sciences International, Inc. (RSI) requesting a declaratory judgment that six U.S. patents owned by RSI are invalid and not infringed by Thermo Remediation's soil-remediation services and equipment, and asking the court to enjoin RSI from asserting any of these patents against the Company or Thermo Remediation. The suit follows continued allegations by RSI that Thermo Remediation's activities in treating petroleum-contaminated soil infringe a number of these patents. The Company agreed, in connection with the formation of Thermo Remediation, to indemnify and hold Thermo Remediation harmless against damages or other costs associated with any claims of infringement of intellectual property by the technology transferred by the Company to Thermo Remediation, 20PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 7. Commitments and Contingencies (continued) including claims which may be made by RSI. The Company continues to believe that RSI's accusations are unfounded and that Thermo Remediation's activities do not infringe any valid claims of the patents. The Company is also contingently liable with respect to lawsuits and other matters that arose in the ordinary course of business. In the opinion of management, these contingencies will not have a material effect upon the financial position of the Company or its results of operations. 8. Long-term Obligations and Other Financing Arrangements Long-term obligations of the Company are as follows: 1995 1994 ------------------------------------------------------------------------ (In thousands) 6 1/2% Subordinated convertible debentures, due 1997, convertible at $10.33 per share $18,547 $18,547 Promissory note to parent company, due April 1996 (Note 3) (a) 15,000 - Promissory note to parent company, due June 1997 (Note 3) (a) 38,000 - Zero coupon promissory note, face value $28,000,000, due in two installments in February and May 1998 (Note 3) 22,569 - 6.75% Mortgage loan, payable in monthly installments of $9,167 with final payment in 2008 1,513 - Other 1,874 185 ------- ------- 97,503 18,732 Less: Current maturities of long-term obligations 652 - ------- ------- $96,851 $18,732 ======= ======= (a) Bears interest at the Commercial Paper Composite Rate plus 25 basis points. The 6 1/2% subordinated convertible debentures are guaranteed on a subordinated basis by Thermo Electron. During fiscal 1993, $138,000 of these debentures were converted into common stock of the Company. The annual requirements for long-term obligations as of April 1, 1995, are $652,000 in fiscal 1996; $15,610,000 in fiscal 1997; $68,441,000 in fiscal 1998; $11,395,000 in fiscal 1999; $110,000 in fiscal 2000; and $1,295,000 thereafter. Total requirements of long-term obligations are $97,503,000. The Company's J. Amerika subsidiary has a line of credit, denominated in Netherlands guilders, under which approximately $3,200,000 may be borrowed at the Netherlands discount rate plus 125 basis points. No funds were borrowed under this arrangement during fiscal 1995. 21PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 8. Long-term Obligations and Other Financing Arrangements (continued) In December 1994, Thermo Remediation borrowed $4,000,000 from Thermo Electron through issuance of a promissory note due June 29, 1995, and bearing interest at the Commercial Paper Composite Rate plus 25 basis points. The average interest rate on the note was 6.5% in fiscal 1995. The promissory note is included in "Notes payable and current maturities of long-term obligations" in the accompanying fiscal 1995 balance sheet (Note 14). 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 pays Thermo Electron annually an amount equal to 1.20% of the Company's revenues. Prior to January 1, 1995, the Company paid an annual fee equal to 1.25% of the Company's revenues. Prior to January 3, 1993, the Company paid an annual fee equal to 1% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. For these services, the Company was charged $1,653,000, $1,377,000, and $1,119,000 in fiscal 1995, 1994, and 1993, respectively. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. Development Agreement The Company and Thermo Electron entered into a development agreement under which Thermo Electron agreed to fund up to $4.0 million of the direct and indirect costs of the Company's development of soil-remediation centers. In exchange for this funding, the Company granted Thermo Electron a royalty equal to approximately 3% of net revenues from soil-remediation services performed at the centers developed under the agreement. The royalty payments may cease if the amounts paid by the Company yield a certain internal rate of return to Thermo Electron on the funds advanced to the Company under the agreement. The Company recorded contract revenues of $776,000 and $1,793,000 under this agreement for development costs expended in fiscal 1994 and 1993, respectively. As of October 2, 1993, funding under this agreement was completed. Two sites have been developed under this agreement. The Company paid royalties of $432,000 in fiscal 1995, $351,000 in fiscal 1994, and $149,000 in fiscal 1993 relating to this agreement, which are included in "Selling, general and administrative expenses" in the accompanying statement of income. 22PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 9. Related Party Transactions (continued) Operating Leases The Company leases or subleases two office and manufacturing facilities from Thermo Electron under lease agreements expiring in fiscal 1997 and 2005. The accompanying statement of income includes expenses from the operating lease and sublease of $537,000 in fiscal 1995 and $426,000 in both fiscal 1994 and 1993. The future minimum payments due under the lease and sublease as of April 1, 1995, are $751,000 in both fiscal 1996 and 1997, $585,000 in fiscal 1998 through 2000, and $3,403,000 in fiscal 2001 and thereafter. Total future minimum payments are $6,660,000. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Short- and Long-term Obligations See Note 8 for a description of short- and long-term obligations of the Company held by Thermo Electron. 10. Common Stock At April 1, 1995, the Company had reserved 5,348,672 unissued shares of its common stock for possible issuance under stock-based compensation plans, issuance upon possible conversion of the 6 1/2% subordinated convertible debentures, and exercise of warrants. 11. Transactions in Stock of Subsidiaries During fiscal 1995, the Company's J. Amerika subsidiary completed private placements in Europe of 700,331 shares of its common stock at $3.75 per share. Net proceeds from the sales were $2,423,000, resulting in gains of $829,000. During fiscal 1995, the Company's Thermo Remediation subsidiary completed a private placement of 75,000 shares of its common stock at $9.67 per share. Net proceeds from the sale were $715,000, resulting in a gain of $229,000. During fiscal 1994, the Company's Thermo Remediation subsidiary completed an initial public offering of 1,785,000 shares of its common stock at $8.33 per share. Net proceeds from the sale were $13,505,000, resulting in a gain of $3,886,000. During fiscal 1994, Thermo Remediation also completed a private placement consisting of 300,000 units, comprising an aggregate of 300,000 shares of Thermo Remediation common stock, valued at $6.59 per share, and warrants to purchase 300,000 shares of Thermo Remediation common stock, valued at $.33 per warrant. The warrants expired in whole upon the closing of Thermo Remediation's initial public offering at a price above the warrants' exercise price of $6.93 per share. Net proceeds from the sale were $2,077,000, resulting in a gain on the issuance of shares of Thermo Remediation common stock of $602,000. During fiscal 1993, the Company's TPST Florida subsidiary completed two private placements. The private placements consisted of 94 units, comprising an aggregate of 94,000 shares of TPST Florida common stock, valued at $20.00 per share, and warrants to purchase 188,000 shares of the Company's common stock, valued at $1.50 per warrant. The warrants are exercisable at $11.34 per share during the five-year period commencing upon the date of effectiveness of a registration statement covering the common 23PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 11. Transactions in Stock of Subsidiaries (continued) stock issuable upon exercise of the warrants. Net proceeds from the sales were $2,162,000, resulting in a gain on the issuance of shares of TPST Florida common stock of $1,050,000. During fiscal 1993, the Company's TPST Southern California subsidiary completed two private placements. The private placements consisted of 180 units, comprising an aggregate of 90,000 shares of TPST Southern California common stock, valued at $21.00 and $21.50 per share, and warrants to purchase 225,000 shares of the Company's common stock, valued at $1.20 and $1.40 per warrant. The warrants are exercisable at $10.00 per share during the five-year period commencing upon the date of effectiveness of a registration statement covering the common stock issuable upon exercise of the warrants. Net proceeds from the sales were $2,200,000, resulting in a gain on the issuance of shares of TPST Southern California common stock of $1,298,000. Dividends declared by the Company's majority-owned subsidiaries were $2,012,000, $2,127,000, and $1,586,000 in fiscal 1995, 1994, and 1993, respectively. Dividends declared by the Company's majority-owned subsidiaries include $1,316,000 in fiscal 1995 that was allocated to the Company and reinvested in 113,491 shares of Thermo Remediation's common stock pursuant to Thermo Remediation's Dividend Reinvestment Plan adopted in fiscal 1995, and $1,608,000 in fiscal 1994 and $1,166,000 in fiscal 1993 that were paid to the Company in cash. The Company's percentage ownership of its majority-owned subsidiaries at year-end was as follows: 1995 1994 1993 ------------------------------------------------------------------------- J. Amerika 62% 72% 72% Thermo Remediation 66 66 - TPST Southern California (a) - - 85 TPST Florida (a) - - 79 TPST Virginia (a) - - 78 TPST South Carolina (a) - - 61 (a) Included in Thermo Remediation effective October 1, 1993. 12. Significant Customers During fiscal 1995, 1994, and 1993, revenues derived from U.S. government agencies represented 6%, 16%, and 17%, respectively, of the Company's total revenues. 24 PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 13. Supplemental Cash Flow Information Supplemental cash flow information is as follows: Year Ended ------------------------------ April 1, April 2, April 3, (In thousands) 1995 1994 1993 -------------------------------------------------------------------------- Cash Paid (Refunded) For: Interest $ 2,507 $ 1,938 $ 668 Income taxes, net $ 952 $ 881 $ (798) Noncash Activities: Fair value of assets of acquired companies $ 86,721 $ 5,250 $ 9,713 Cash paid for acquired companies (39,559) (4,150) (7,194) Issuance of notes payable for acquired business (22,300) - (1,000) Issuance of subsidiary common stock for acquired business (857) - - Issuance of stock options for acquired business (6,923) - - -------- -------- -------- Liabilities assumed of acquired companies $ 17,082 $ 1,100 $ 1,519 ======== ======== ======== Conversions of subordinated convertible debentures (Note 8) $ - $ - $ 138 Issuance of Company common stock to former owner of acquired business (Note 3) $ 840 $ - $ - See Notes 3 and 14 for discussion of the environmental services joint venture. 14. Subsequent Events Acquisitions On May 9, 1995, the Company agreed to dissolve the Thermo Terra Tech joint venture and to purchase the businesses formerly operated by the joint venture from Thermo Instrument for $34,267,000 in cash, effective April 2, 1995. As a result of this transaction, the Company increased its ownership in the businesses operated by the joint venture from 51% to 100%. Based on unaudited data, if the acquisition of Thermo Instrument's share of such businesses by the Company had occurred at the beginning of fiscal 1994, income before cumulative effect of change in accounting principle and earnings per share on a pro forma basis would have been $5,953,000 and $.35, respectively, for fiscal 1995 and $6,209,000 and $.37, respectively, for fiscal 1994. The Company borrowed the purchase price from Thermo Electron through the issuance of a $35 million promissory note that bears interest at the Commercial Paper Composite Rate plus 25 basis points and is due May 13, 1997. 25PAGE Thermo Process Systems Inc. Notes to Consolidated Financial Statements 14. Subsequent Events (continued) On May 10, 1995, the Company acquired substantially all of the assets of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories). Lancaster Laboratories, based in Lancaster, Pennsylvania, is a provider of high-quality analytical services to the environmental, food, and pharmaceutical industries. Lancaster Laboratories had gross revenues of approximately $29,000,000 for the fiscal year ended September 30, 1994. The base purchase price for the assets was $16,760,000 in cash, plus the assumption of approximately $5,400,000 in bank indebtedness existing as of the closing of the acquisition. The purchase price is subject to a post-closing adjustment. The Company has also agreed to pay an amount, not to exceed $600,000, if Lancaster Laboratories achieves certain performance goals through the period ending September 30, 1995. In no event will the aggregate purchase price, including bank indebtedness assumed by the Company, exceed $25,000,000. Debenture Offering and Private Placement of Subsidiary Common Stock On May 4, 1995, the Company's Thermo Remediation subsidiary issued and sold in Europe $37,950,000 principal amount of 4 7/8% subordinated convertible debentures due 2000. The debentures are convertible into shares of Thermo Remediation's common stock at a conversion price of $17.92 per share and are guaranteed on a subordinated basis by Thermo Electron. Thermo Process has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. In addition, Thermo Remediation sold 500,000 shares of its common stock at $13.25 per share in a private placement for net proceeds of approximately $6,600,000. Following the private placement, the Company owned 63% of the outstanding stock of Thermo Remediation. In June 1995, Thermo Remediation repaid its $4,000,000 note payable to Thermo Electron with proceeds from the offering. 26PAGE Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Process Systems Inc.: We have audited the accompanying consolidated balance sheet of Thermo Process Systems Inc. (a Delaware corporation and an 80%-owned subsidiary of Thermo Electron Corporation) and subsidiaries as of April 1, 1995 and April 2, 1994, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended April 1, 1995. 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 Process Systems Inc. and subsidiaries as of April 1, 1995 and April 2, 1994, and the results of their operations and their cash flows for each of the three years in the period ended April 1, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective April 4, 1993, the Company changed its method of accounting for income taxes and effective April 2, 1994, the Company changed its method of accounting for investments in debt and marketable equity securities. Arthur Andersen LLP Boston, Massachusetts May 9, 1995 (except with respect to the matters discussed in Note 14 as to which the date is June 2, 1995) 27PAGE Thermo Process Systems Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company's majority-owned public subsidiary, Thermo Remediation Inc. (Thermo Remediation), provides soil-remediation services through a network of regional centers. These soil-remediation centers thermally treat soil to remove and destroy petroleum contamination caused by leaking storage tanks, spills, and other sources. Through Thermo Remediation's November 1993 acquisition of Thermo Fluids, the Company also collects and recycles used motor oil and provides services such as wastewater processing. In February 1995, the Company acquired Elson T. Killam Associates, Inc. (Killam Associates), a leading provider of comprehensive environmental consulting and professional engineering services in selected areas of the United States. The Company's majority-owned J. Amerika N.V. (J. Amerika) subsidiary is a provider in the Netherlands of underground tank and other environmental services. In March 1995, J. Amerika acquired Refining and Trading Holland B.V. (North Refinery), which specializes in processing "off-spec" and contaminated petroleum fluids into usable products. In recognition of its changing focus, J. Amerika intends to change its name to Thermo EuroTech N.V. The Company's Thermo Terra Tech businesses provide environmental science and consulting services, laboratory-based testing, and nuclear-radiation safety services. Terra Tech Labs, Inc. (later renamed Thermo Analytical Inc.), which was acquired in January 1994, specializes in fast-response testing of petroleum-contaminated soils and groundwater. In August 1994, Thermo Terra Tech acquired RMC Environmental Services, Inc. (RMC), an environmental consulting and analytical laboratory services firm specializing in environmental science, hydropower consulting, and analytical laboratory services. The Company also performs metallurgical processing services, using thermal-treatment equipment owned by the Company and designs, manufactures, and installs advanced custom-engineered thermal-processing systems. Results of Operations Fiscal 1995 Compared With Fiscal 1994 Total revenues were $133.8 million in fiscal 1995, compared with $110.1 million in fiscal 1994, an increase of 21%. Service revenues increased 27% to $119.4 million in fiscal 1995 from $94.3 million in fiscal 1994. Revenues from analytical and consulting services increased 29% to $70.9 million in fiscal 1995 from $54.8 million in fiscal 1994. This increase is due to the inclusion of approximately $13.2 million in revenues from businesses acquired in late fiscal 1994 and in fiscal 1995 and, to a lesser extent, revenues generated from a long-term environmental restoration contract for the U.S. Department of Energy's Hanford site. Revenues from the Company's remediation services increased 27% to $36.5 million in fiscal 1995, due primarily to an increase in the volume of soil processed at the Company's soil-remediation centers located in Southern California and Florida and, to a lesser extent, additional revenues of $3.8 million from businesses acquired in late fiscal 1994 and in fiscal 1995. Metallurgical processing services revenues increased 15% to $12.3 million in fiscal 1995 from $10.7 million in fiscal 1994, due primarily to the Company's efforts to increase its nongovernment business. 28PAGE Thermo Process Systems Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Fiscal 1995 Compared With Fiscal 1994 (continued) "Contract revenues from related party" in fiscal 1994 and 1993 represents funding under an agreement between the Company and Thermo Electron Corporation (Thermo Electron) to fund up to $4.0 million of the direct and indirect costs of the Company's development of soil-remediation centers (see Note 9 to Consolidated Financial Statements). The Company earned no profit from this funding. As of October 2, 1993, funding under this agreement was completed. Any expenses incurred in connection with the development of additional soil-remediation centers subsequent to October 2, 1993, are included in "Product and new business development expenses" in the accompanying statement of income. Product revenues from sales of custom-engineered thermal-processing systems were $14.4 million in fiscal 1995, compared with $15.0 million in fiscal 1994. Although this business remains depressed and is subject to intense competition, backlog increased to $4.4 million at April 1, 1995, compared with $3.5 million at April 2, 1994. The gross profit margin increased to 26% in fiscal 1995 from 24% in fiscal 1994. The gross profit margin on service revenues increased to 28% in fiscal 1995 from 26% in fiscal 1994. The gross profit margin on analytical and consulting services improved to 25% in fiscal 1995 from 23% in fiscal 1994 due to higher gross margins at businesses acquired during the year. The gross profit margin on remediation services remained relatively constant at 37% in fiscal 1995, compared with 36% in fiscal 1994. The gross profit margin on metallurgical processing services increased to 14% in fiscal 1995 from 8% in fiscal 1994 as a result of the Company's efforts to increase nongovernment business. The gross profit margin on product revenues increased to 17% in fiscal 1995 from 13% in fiscal 1994 as a result of more profitable contracts in process during fiscal 1995, compared with fiscal 1994. Selling, general and administrative expenses as a percentage of revenues remained relatively unchanged at 19.6% in fiscal 1995, compared with 19.2% in fiscal 1994. The Company recorded gains on the issuance of stock by subsidiaries of $1.3 million in fiscal 1995 and $4.5 million in fiscal 1994. See Notes 1 and 11 to Consolidated Financial Statements for a more complete description of these transactions. Net interest income was $0.5 million in fiscal 1995, compared with $0.6 million in fiscal 1994. An increase in interest expense due to borrowings from Thermo Electron in May 1994 to fund the Company's investment in Thermo Terra Tech and in February 1995 to fund the Company's acquisition of Killam Associates was offset in part by higher average investment balances. See Note 6 to Consolidated Financial Statements for a reconciliation of the statutory tax rate to the effective tax rate. 29PAGE Thermo Process Systems Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Fiscal 1994 Compared With Fiscal 1993 Total revenues were $110.1 million in fiscal 1994, compared with $104.9 million in fiscal 1993, an increase of 5%. Service revenues increased 9% to $94.3 million in fiscal 1994 from $86.3 million in fiscal 1993. Remediation services contributed approximately $9.7 million of additional revenues, while revenues from analytical and consulting services were virtually unchanged from the prior year. The increase in revenues from remediation services is primarily attributable to the first full year of operations at three new soil-remediation centers and, to a lesser extent, the November 1993 acquisition of Thermo Fluids. The increase in service revenues is also due to the January 1994 acquisition of Terra Tech Labs, Inc., which contributed revenues of $0.8 million. Metallurgical processing services revenues declined approximately $1.4 million as a result of continued slowdowns in the aerospace and defense industries. "Contract revenues from related party" in fiscal 1994 and fiscal 1993 represents funding under an agreement between the Company and Thermo Electron to fund up to $4.0 million of the direct and indirect costs of the Company's development of soil-remediation centers (see Note 9 to Consolidated Financial Statements). Product revenues from sales of custom-engineering thermal-processing systems were $15.0 million in fiscal 1994, compared with $16.9 million in fiscal 1993. This business remains depressed. As a result of the continued worldwide overcapacity in the automotive and heavy-equipment industries, recent increases in automobile sales have not generated corresponding increases in capital spending on products such as those offered by the Company's Holcroft division. In addition, the Company has encountered significant competition in this business. As a result of these market conditions, backlog declined to $3.5 million at April 2, 1994, from $6.7 million at April 3, 1993. The gross profit margin increased to 24% in fiscal 1994 from 20% in fiscal 1993. The gross profit margin on service revenues increased to 26% in fiscal 1994 from 22% in fiscal 1993 due to higher gross profit margins from remediation services and analytical and consulting services. The gross profit margin on remediation services improved due primarily to an increase in the volume of soil processed and operational efficiencies achieved through the introduction of more automated and efficient remediation equipment during fiscal 1994. Improvements from analytical and consulting services relate to ongoing cost-containment programs. These increases were offset in part by lower gross profit margins at the metallurgical processing services operations as a result of a decline in revenues. The gross profit margin on product revenues increased slightly to 13% in fiscal 1994 from 12% in fiscal 1993. Despite reduced volume at the Company's Holcroft division, actions to reduce costs have allowed the Company to improve its gross profit margin. Selling, general and administrative expenses increased to $21.2 million in fiscal 1994 from $17.0 million in fiscal 1993 due to the operation of six soil-remediation centers for the full year in fiscal 1994, compared with four centers for the majority of fiscal 1993; the inclusion of $506,000 of Thermo Fluids' and Terra Tech Labs, Inc.'s selling, general and administrative expenses; as well as expanded efforts for a national marketing program and marketing efforts at planned remediation site locations. 30PAGE Thermo Process Systems Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Fiscal 1994 Compared With Fiscal 1993 (continued) "Costs associated with divisional restructuring" in fiscal 1994 represents a one-time noncash charge for the write-off of mobile soil-remediation assets and other related expenses. The Company has decided to no longer actively pursue mobile soil-remediation projects. The Company recorded gains on the issuance of stock by subsidiaries of $4.5 million in fiscal 1994 and $2.3 million in fiscal 1993. See Notes 1 and 11 to Consolidated Financial Statements for a more complete description of these transactions. Net interest income decreased to $0.6 million in fiscal 1994 from $0.8 million in fiscal 1993, primarily as a result of lower prevailing interest rates. The Company recorded a tax benefit of $40,000 in fiscal 1994, compared with a tax provision of $1.0 million in fiscal 1993. See Note 6 to Consolidated Financial Statements for a reconciliation of the statutory tax rate to the effective tax rate. During the first quarter of fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which resulted in a cumulative tax benefit of $0.5 million. Financial Condition Liquidity and Capital Resources Consolidated working capital, including cash, cash equivalents, and short-term available-for-sale investments, increased to $64.7 million at April 1, 1995 from $51.6 million at April 2, 1994. Cash, cash equivalents, and short- and long-term available-for-sale investments were $51.5 million at April 1, 1995, compared with $50.5 million at April 2, 1994. In addition, at April 1, 1995, the Company had $22.6 million of long-term held-to-maturity investments. Of the $51.5 million balance at April 1, 1995, $16.9 million was held by the Company's majority-owned subsidiaries, $31.0 million was held by the Thermo Terra Tech joint venture, and the remainder by the Company and its wholly owned subsidiaries. In May 1994, the Company borrowed $15 million from Thermo Electron to fund the Company's investment in Thermo Terra Tech. In February 1995, the Company borrowed $38 million from Thermo Electron to fund the Company's acquisition of Killam Associates. In connection with the financing of acquisitions, Thermo Remediation issued to Thermo Electron a $4 million promissory note. During fiscal 1995, the Company expended $38.2 million, net of cash, for acquisitions. In September 1994 and October 1994, the Company's J. Amerika subsidiary completed private placements of its common stock for net proceeds of $2.4 million. In May 1994, the Company's Thermo Remediation subsidiary completed a private placement of its common stock for net proceeds of $0.7 million. 31PAGE Thermo Process Systems Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) Subsequent to the end of fiscal 1995, the Company agreed to dissolve the Thermo Terra Tech joint venture and to purchase from Thermo Instrument the businesses formerly operated by the joint venture for $34.3 million in cash. To fund the purchase, the Company borrowed $35 million from Thermo Electron through the issuance of a promissory note due May 1997. Also subsequent to the end of fiscal 1995, the Company acquired Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings for approximately $16.8 million in cash, plus the assumption of approximately $5.4 million in bank indebtedness. The purchase price is subject to a post-closing adjustment, yet in no event will the aggregate purchase price exceed $25 million. Also subsequent to the end of fiscal 1995, the Company's Thermo Remediation subsidiary issued and sold in Europe $38 million principal amount of 4 7/8% subordinated debentures due 2000 and convertible into shares of Thermo Remediation common stock. In addition, Thermo Remediation sold 500,000 shares of its common stock in a private placement for net proceeds of approximately $6.6 million. In June 1995, Thermo Remediation repaid its $4 million note payable to Thermo Electron with proceeds from the offering. Although the Company has no material capital expenditure commitments, such expenditures will largely be affected by the number of soil- remediation centers that can be developed or acquired during the year, as well as acquisitions of companies that are consistent with the Company's strategic plan for growth. The Company believes that it has adequate resources to meet the financial needs of its current operations for the foreseeable future. 32PAGE Thermo Process Systems Inc. Quarterly Information (Unaudited) (In thousands except per share amounts) Fiscal 1995 (a) ------------------------------------- First Second(b) Third Fourth(c) ------------------------------------------------------------------------- Revenues $28,864 $31,015 $34,671 $39,253 Gross profit 7,196 8,207 8,481 11,367 Net income 881 1,028 1,142 1,064 Earnings per share .05 .06 .07 .06 Fiscal 1994 (d) -------------------------------------- First(e) Second Third(f) Fourth(g) ------------------------------------------------------------------------- Revenues $27,667 $26,327 $27,222 $28,915 Gross profit 6,536 5,952 5,912 7,589 Income before cumulative effect of change in accounting principle 615 778 1,081 935 Net income 1,115 778 1,081 935 Earnings per share before cumulative effect of change in accounting principle .04 .05 .06 .06 Earnings per share .07 .05 .06 .06 (a) Results include nontaxable gains of $229,000, $668,000, $161,000, and $285,000 in the first, second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (b) Results reflect the August 1994 acquisition of RMC Environmental Services, Inc. (c) Results reflect the February 1995 acquisition of Engineering, Technology and Knowledge Corporation. (d) Results include nontaxable gains of $602,000, $3,637,000, and $249,000 in the second, third, and fourth quarters, respectively, from the issuance of stock by subsidiaries. (e) Reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." (f) Results reflect the November 1993 acquisition of Thermo Fluids. (g) Results reflect the January 1994 acquisition of Terra Tech Labs, Inc. 33PAGE Thermo Process Systems Inc. Selected Financial Information (In thousands except per share amounts) 1995(a) 1994(b) 1993 1992 1991 --------------------------------------------------------------------------- Statement of Income Data: Revenues $133,803 $110,131 $104,949 $103,019 $113,430 Income before cumulative effect of change in accounting principle 4,115 3,409 3,164 1,035 4,463 Net income 4,115 3,909 3,164 1,035 4,463 Earnings per share before cumulative effect of change in accounting principle .24 .20 .19 .06 .27 Earnings per share .24 .23 .19 .06 .27 Balance Sheet Data: Working capital $ 64,696 $ 51,612 $ 49,542 $ 53,481 $ 52,998 Total assets 271,673 155,434 134,114 129,230 130,473 Long-term obligations 96,851 18,732 18,743 18,918 23,239 Shareholders' investment 77,601 62,559 57,619 54,820 48,498 (a) Reflects the acquisitions of RMC Environmental Services, Inc. in August 1994 and Engineering, Technology and Knowledge Corporation in February 1995 and the issuance of $53 million of long-term promissory notes to Thermo Electron Corporation. (b) Reflects Thermo Remediation Inc.'s private placement and initial public offering of common stock for net proceeds of $15.6 million and the acquisitions of Thermo Fluids in November 1993 and Terra Tech Labs, Inc. in January 1994. Also reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." 34PAGE Thermo Process Systems Inc. Common Stock Market Information The following table shows the market range for the Company's common stock based on reported sale prices on the American Stock Exchange (symbol TPI) for fiscal 1995 and 1994. Fiscal 1995 Fiscal 1994 -------------- -------------- Quarter High Low High Low -------------------------------------------------------------------------- First $ 8 7/8 $ 8 $ 9 3/8 $ 7 1/2 Second 8 3/8 8 9 3/4 7 1/2 Third 8 1/4 7 3/4 10 1/4 7 3/4 Fourth 8 7/8 7 3/4 9 1/4 7 7/8 As of May 26, 1995, the Company had 735 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 May 26, 1995, was $11 1/4 per share. Common stock of Thermo Remediation Inc., the Company's majority-owned public subsidiary, is traded on the American Stock Exchange (symbol THN). Dividend Policy The Company has never paid cash dividends 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. Shareholder Services Shareholders of Thermo Process Systems Inc. who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo Process Systems Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, by letter or by telephone at (617) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly and annual reports as quickly as possible. If you would like your name added to the list, please notify this office. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended April 1, 1995, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Process Systems Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. 35PAGE Thermo Process Systems Inc. Stock Transfer Agent The American Stock Transfer & Trust Company is the transfer agent and maintains shareholder activity records. The agent will respond to questions on issuances of stock certificates, changes of ownership, lost stock certificates, and changes 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 Annual Meeting The annual meeting of shareholders will be held on Tuesday, September 19, 1995. EX-21 6 EXHIBIT 21 THERMO PROCESS SYSTEMS INC. SUBSIDIARIES OF THE REGISTRANT At May 26, 1995, Thermo Process Systems Inc. owned the following companies: State or Registrant's Jurisdiction % of Name Incorporation Ownership --------------------------------------------------------------------------- Beheersmaatschappij J. Amerika N.V. Netherlands 62.2% Amerika Tankinstallaties B.V. Netherlands 100% High-Tech Trouble-Shooters B.V. Netherlands 100% Jac. Amerika en Zonen B.V. Netherlands 100% Refining & Trading Holland B.V. Netherlands 100% Engineering Technology and Knowledge Corporation Delaware 100% Elson T. Killam Associates, Inc. New Jersey 100% Duncan, Lagnese and Associates, Incorporated Pennsylvania 100% E3-Killam, Inc. New York 100% Killam Associates, Inc. Ohio 100% Killam Management and Operational Services, Inc. New Jersey 100% Holcroft (Canada) Limited Canada 100% Holcroft Corporation Delaware 100% Holcroft GmbH Germany 100% Metallurgical, Inc. Minnesota 100% Cal-Doran Metallurgical Services, Inc. California 100% Skinner & Sherman, Inc. Massachusetts 100% Skinner & Sherman Technology, Inc. Massachusetts 100% Bettigole Andrews & Clark, Inc. New York 100% N.H. Bettigole Co., Inc. Delaware 100% N.H. Bettigole, P.A. New Jersey 100% N.H. Bettigole, P.C. New York 100% Eberline Analytical Corporation New Mexico 100% Fellows, Read & Associates, Inc. New Jersey 100% Normandeau Associates, Inc. New Hampshire 100% Thermo Consulting Engineers Inc. Delaware 100% George A. Schock & Associates, Inc. New Jersey 100% Jennison Engineering, Inc. Vermont 100% TMA/NORCAL Inc. California 100% Thermo Analytical Inc. Delaware 100% Thermo Remediation Inc. Delaware 65.88% Thermo Fluids Inc. Delaware 100% TPS Technologies Inc. Florida 100% TPST Soil Recyclers of California Inc. California 100% TPST Soil Recyclers of Maryland Inc. Maryland 100% Todds Lane Limited Partnership Maryland 100%* TPST Soil Recyclers of New York Inc. New York 100% TPST Soil Recyclers of Oregon Inc. Oregon 100% TPST Soil Recyclers of South Carolina Inc. Delaware 100% TPST Soil Recyclers of Virginia Inc. Delaware 100% TPST Soil Recyclers of Washington Inc. Washington 100% * Partnership as of April 1, 1995 EX-23 7 EXHIBIT 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports dated May 9, 1995 (except with respect to the matters discussed in Note 14 as to which the date is June 2, 1995), included in or incorporated by reference into Thermo Process Systems Inc.'s Annual Report on Form 10-K for the year ended April 1, 1995 and into the Company's previously filed Registration Statements as follows: Registration Statement No. 33-16462 on Form S-8, Registration Statement No. 33-16464 on Form S-8, Registration Statement No. 33-16465 on Form S-8, Registration Statement No. 33-31478 on Form S-3, Registration Statement No. 33-40185 on Form S-3, and Registration Statement No. 33-52824 on Form S-8. Arthur Andersen LLP Boston, Massachusetts June 6, 1995 EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO PROCESS SYSTEMS INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED APRIL 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1000 12-MOS APR-01-1995 APR-01-1995 35,808 5,155 31,509 3,560 2,732 100,141 92,795 33,058 271,673 35,445 96,851 1,741 0 0 75,860 271,673 14,381 133,803 11,982 98,552 883 162 2,855 11,013 2,630 4,115 0 0 0 4,115 0.24 0
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