-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H5UF2IE/U7UqwYWUTG33cCnr1UoRN8BXRWavaLWPRWaBLiDSOzfYez6GpBuHsz7H eOxzpPKdLHjQFwUd9eXiOw== 0000796038-96-000032.txt : 19960807 0000796038-96-000032.hdr.sgml : 19960807 ACCESSION NUMBER: 0000796038-96-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960806 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO TERRATECH 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 96604516 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 FORMER COMPANY: FORMER CONFORMED NAME: THERMO PROCESS SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------------------------------- FORM 10-Q (mark one) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended June 29, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number 1-9549 THERMO TERRATECH INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at July 26, 1996 ---------------------------- ---------------------------- Common Stock, $.10 par value 18,227,306 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO TERRATECH INC. Consolidated Balance Sheet (Unaudited) Assets June 29, March 30, (In thousands) 1996 1996 ------------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 71,213 $ 31,182 Short-term available-for-sale investments, at quoted market value (amortized cost of $28,249 and $7,007) 28,254 7,004 Accounts receivable, less allowances of $2,883 and $2,837 45,347 44,053 Unbilled contract costs and fees 24,394 21,113 Inventories: Raw materials and supplies 3,399 3,822 Work in process and finished goods 42 61 Prepaid and refundable income taxes 7,846 9,500 Prepaid expenses 4,579 4,345 -------- -------- 185,074 121,080 -------- -------- Property, Plant and Equipment, at Cost 125,168 121,847 Less: Accumulated depreciation and amortization 41,634 40,002 -------- -------- 83,534 81,845 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,094 and $2,108) 2,073 2,098 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $25,212 and $24,963) 24,690 24,251 -------- -------- Other Assets 18,961 12,931 -------- -------- Cost in Excess of Net Assets of Acquired Companies 86,670 89,804 -------- -------- $401,002 $332,009 ======== ======== 2PAGE THERMO TERRATECH INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment June 29, March 30, (In thousands except share amounts) 1996 1996 ------------------------------------------------------------------------- Current Liabilities: Accounts payable $ 12,567 $ 10,841 Notes payable and current maturities of long-term obligations (includes $38,000 and $15,000 due to parent company) 42,691 19,711 Billings in excess of revenues earned 2,130 2,076 Accrued payroll and employee benefits 9,596 9,801 Accrued income taxes 1,410 - Other accrued expenses 8,189 7,744 Due to parent company and Thermo Electron 2,167 3,459 -------- -------- 78,750 53,632 -------- -------- Deferred Income Taxes 3,332 3,377 -------- -------- Other Deferred Items 977 980 -------- -------- Long-term Obligations: 4 5/8% Subordinated convertible debentures (Note 2) 115,000 - 6 1/2% Subordinated convertible debentures 13,382 18,182 4 7/8% Subordinated convertible debentures 37,950 37,950 Other (includes $73,000 due to parent company in fiscal 1996) (Note 2) 26,651 99,252 -------- -------- 192,983 155,384 -------- -------- Minority Interest 33,073 32,295 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 30,000,000 shares authorized; 18,073,769 and 17,598,013 shares issued 1,807 1,760 Capital in excess of par value 63,742 59,419 Retained earnings 26,383 24,945 Treasury stock at cost, 25,415 and 34,531 shares (306) (410) Cumulative translation adjustment 271 635 Net unrealized loss on available-for-sale investments (10) (8) -------- -------- 91,887 86,341 -------- -------- $401,002 $332,009 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Three Months Ended --------------------- June 29, July 1, (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------- Revenues: Service revenues $ 61,136 $ 46,294 Product revenues 5,752 3,562 -------- -------- 66,888 49,856 -------- -------- Costs and Operating Expenses: Cost of service revenues 49,221 34,581 Cost of product revenues 4,718 3,313 Selling, general and administrative expenses 8,437 8,244 Product and new business development expenses 299 276 -------- -------- 62,675 46,414 -------- -------- Operating Income 4,213 3,442 Interest Income 1,630 1,360 Interest Expense (includes $829 and $1,208 to parent company) (3,108) (2,273) Equity in Earnings of Unconsolidated Subsidiary 279 - Gain on Issuance of Stock by Subsidiary - 2,742 Gain on Sale of Investments 147 80 -------- -------- Income Before Provision for Income Taxes and Minority Interest 3,161 5,351 Provision for Income Taxes 1,501 1,024 Minority Interest Expense 222 378 -------- -------- Net Income $ 1,438 $ 3,949 ======== ======== Earnings per Share $ .08 $ .22 ======== ======== Weighted Average Shares 18,831 18,022 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (Unaudited) Three Months Ended ----------------------- June 29, July 1, (In thousands) 1996 1995 -------------------------------------------------------------------------- Operating Activities: Net income $ 1,438 $ 3,949 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,182 2,817 Equity in earnings of unconsolidated subsidiary (279) - Minority interest expense 222 378 Provision for losses on accounts receivable 122 28 Other noncash expenses 97 101 Increase (decrease) in deferred income taxes (10) 376 Gain on issuance of stock by subsidiary - (2,742) Gain on sale of investments (147) (80) Changes in current accounts, excluding the effects of acquisition: Accounts receivable (1,165) (2,123) Inventories and unbilled contract costs and fees (2,958) (304) Other current assets (613) 72 Current liabilities 3,333 (541) -------- -------- Net cash provided by operating activities 3,222 1,931 -------- -------- Investing Activities: Acquisition, net of cash acquired - (24,763) Purchase of minority interest in Thermo Terra Tech joint venture - (34,267) Purchases of available-for-sale investments (33,977) (23,243) Proceeds from sale and maturities of available-for-sale investments 12,897 5,580 Purchases of property, plant and equipment (4,448) (4,034) Proceeds from sale of property, plant and equipment 134 229 Purchase of other assets (489) (25) -------- -------- Net cash used in investing activities $(25,883) $(80,523) -------- -------- 5PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Three Months Ended ----------------------- June 29, July 1, (In thousands) 1996 1995 -------------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of subordinated convertible debentures (Note 2) $112,500 $ 36,889 Issuance of note payable to parent company - 35,000 Repayment of notes payable to parent company (Note 2) (50,000) (4,000) Proceeds from issuance of Company and subsidiary common stock 242 6,677 Other (42) - -------- -------- Net cash provided by financing activities 62,700 74,566 -------- -------- Exchange Rate Effect on Cash (8) (366) -------- -------- Increase (Decrease) in Cash and Cash Equivalents 40,031 (4,392) Cash and Cash Equivalents at Beginning of Period 31,182 35,808 -------- -------- Cash and Cash Equivalents at End of Period $ 71,213 $ 31,416 ======== ======== Noncash Activities: Fair value of assets of acquired companies $ - $ 27,560 Cash paid for acquired companies - (25,195) -------- -------- Liabilities assumed of acquired companies $ - $ 2,365 ======== ======== Conversions of subordinated convertible debentures $ 4,800 $ - The accompanying notes are an integral part of these consolidated financial statements. 6PAGE THERMO TERRATECH INC. Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements presented have been prepared by Thermo TerraTech Inc. (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at June 29, 1996, the results of operations for the three-month periods ended June 29, 1996 and July 1, 1995, and the cash flows for the three-month periods ended June 29, 1996 and July 1, 1995. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of March 30, 1996, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1996, filed with the Securities and Exchange Commission. Certain amounts in fiscal 1996 have been reclassified to conform to the fiscal 1997 financial statement presentation. Certain of these reclassifications are required to present consistent classification of expenses within the Company's consulting and design services business. 2. Subordinated Convertible Debentures In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003 for net proceeds of $112.5 million. The debentures are convertible into shares of the Company's common stock at a price of $15.90 per share and are guaranteed on a subordinated basis by Thermo Electron Corporation (Thermo Electron). The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. In May 1996, the Company repaid its $15.0 million and $35.0 million promissory notes to Thermo Electron with proceeds from the offering. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company is a provider of environmental services and infrastructure planning and design, encompassing a range of specializations within the remediation and recycling, consulting and design, and laboratory-testing industries. The Company also provides metal-treating services and thermal-processing systems used to treat primary metals and metal parts. 7PAGE THERMO TERRATECH INC. Overview (continued) The Company's environmental services businesses are affected by several factors, particularly, extreme weather variations, government spending, and regulation of remediation activities. Remediation and Recycling - The Company's majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary operates a network of soil-remediation centers, serving customers in more than a dozen states on the East and West coasts by providing thermal treatment of soil to remove and destroy petroleum contamination caused by leaking underground and aboveground storage tanks, spills, and other sources. In December 1995, Thermo Remediation acquired Remediation Technologies, Inc. (ReTec), which provides integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. Through its Thermo Nutech subsidiary, Thermo Remediation provides services to remove radioactive contaminants from sand, gravel, and soil, as well as health physics, radiochemistry laboratory, and radiation dosimetry services. In addition, Thermo Remediation's Thermo Fluids subsidiary offers fluids-recycling services including waste motor oil and wastewater treatment throughout Arizona, Nevada, and in neighboring states. The Company's majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary, located in the Netherlands, provides wastewater treatment services as well as services to test, remove, and install underground storage tanks. Through its North Refinery subsidiary, Thermo Eurotech specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. Consulting and Design - The Company's wholly owned Killam Associates subsidiary provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. The Company's wholly owned Bettigole Andrews & Clark and Normandeau Associates subsidiaries provide both private and public sector clients with a range of consulting services that address transportation planning and design, and natural resource management issues, respectively. Laboratory Testing - The Company's wholly owned Thermo Analytical subsidiary operates a network of analytical laboratories that provide environmental testing services to commercial and government clients throughout the U.S. The May 1995 acquisition of Lancaster Laboratories, Inc. (Lancaster Laboratories) expanded the Company's range of contract services beyond environmental testing to the pharmaceutical- and food-testing industries. Metal Treating - The Company performs metallurgical processing services using thermal-treatment equipment at locations in California and Minnesota. The Company also designs, manufactures, and installs advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan. 8PAGE THERMO TERRATECH INC. Results of Operations First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996 Total revenues in the first quarter of fiscal 1997 increased 34% to $66.9 million from $49.9 million in the first quarter of fiscal 1996. Revenues from remediation and recycling services were $27.5 million in fiscal 1997, compared with $15.4 million in fiscal 1996, primarily due to the inclusion of $10.5 million in revenues from ReTec, which was acquired in December 1995, an increase in revenues at Thermo EuroTech and, to a lesser extent, higher revenues from a long-term environmental restoration contract for the U.S. Department of Energy's (DOE's) Hanford site (Hanford) and related health physics services. These increases were largely offset by a decrease in radiochemistry laboratory work, reflecting a reduction in spending at the DOE and delays in federal government budget appropriations. Revenues from soil-remediation services decreased 8% resulting from declines in the volume and price of soil processed due to competitive pricing pressures and ongoing regulatory uncertainties in several states. Revenues from consulting and design services increased to $21.5 million in fiscal 1997 from $19.8 million in fiscal 1996, primarily due to increased revenues from two major contracts, offset in part by lower revenues from federal government contracts, reflecting a reduction in spending and delays in budget appropriations. Revenues from laboratory-testing services, excluding the radiochemistry laboratory services included in remediation and recycling services, increased to $8.8 million in fiscal 1997 from $7.5 million in fiscal 1996, largely due to the inclusion of an additional $2.8 million of revenues from Lancaster Laboratories, acquired in May 1995, offset in part by a decline in revenues due to reduced federal spending. Metal-treating revenues increased to $9.1 million in fiscal 1997 from $7.2 million in fiscal 1996, primarily due to an increase in demand for thermal-processing equipment. The gross profit margin decreased to 19% in the first quarter of fiscal 1997 from 24% in the first quarter of fiscal 1996, primarily due to the inclusion of lower-margin revenues from ReTec and a decrease in gross profit margins for remediation and recycling services due to competitive pricing pressures. These decreases were offset in part by higher gross profit margins from metal-treating services resulting from an increase in revenues. Selling, general and administrative expenses as a percentage of revenues decreased to 13% in the first quarter of fiscal 1997 from 17% in the first quarter of fiscal 1996, primarily due to efficiencies associated with an increase in revenues and a decline in expenses related to the consolidation of administrative functions within the consulting and design services business. Interest income increased to $1.6 million in the first quarter of fiscal 1997 from $1.4 million in the first quarter of fiscal 1996, primarily due to an increase in invested amounts as a result of the Company's May 1996 issuance of 4 5/8% subordinated convertible debentures (Note 2). Interest expense increased to $3.1 million in fiscal 1997 from $2.3 million in fiscal 1996, primarily due to the Company's May 1996 issuance of subordinated convertible debentures and Thermo Remediation's 9PAGE THERMO TERRATECH INC. First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996 (continued) May 1995 issuance of 4 7/8% subordinated convertible debentures, offset in part by a decrease in interest expense due to the repayment of promissory notes to Thermo Electron Corporation (Thermo Electron) with proceeds from the Company's May 1996 issuance of subordinated convertible debentures (Note 2). Equity in earnings of unconsolidated subsidiary in the first quarter of fiscal 1997 represents ReTec's proportionate share of income from a joint venture. During the first quarter of fiscal 1996, the Company recorded gains of $2.7 million from the sale of stock by subsidiary. The effective tax rates were 47% and 19% in the first quarter of fiscal 1997 and 1996, respectively. The effective tax rate in fiscal 1997 was higher than the statutory federal income tax rate primarily due to nondeductible amortization of cost in excess of net assets of acquired companies and the impact of state income taxes. The effective tax rate in fiscal 1996 was lower than the statutory federal income tax rate primarily due to the nontaxable gain on issuance of stock by subsidiary. Minority interest expense decreased to $0.2 million in the first quarter of fiscal 1997 from $0.4 million in the first quarter of fiscal 1996, due to a reduction in earnings from the Company's majority-owned subsidiaries. Liquidity and Capital Resources Consolidated working capital, including cash, cash equivalents, and short-term available-for-sale investments, increased to $106.3 million at June 29, 1996 from $67.4 million at March 30, 1996. Cash, cash equivalents, and short- and long-term available-for-sale investments were $101.5 million at June 29, 1996, compared with $40.3 million at March 30, 1996. Of the $101.5 million balance at March 30, 1996, $33.7 million was held by Thermo Remediation and the remainder by the Company and its wholly owned subsidiaries. In addition, at June 29, 1996 the Company had $24.7 million of long-term held-to-maturity investments, compared with $24.3 million at March 30, 1996. During the first quarter of fiscal 1997, $3.2 million of cash was provided by operating activities. In the first quarter of fiscal 1997, the Company used cash of $3.0 million primarily to fund an increase in unbilled contract costs and fees due to an increase in thermal- processing equipment contracts, an increase in remediation contracts at ReTec, as well as an increase in consulting and design services contracts. In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003 for net proceeds of $112.5 million (Note 2). The debentures are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. In May 1996, the Company repaid its $15.0 million and $35.0 million promissory notes to Thermo Electron with proceeds from the offering. 10PAGE THERMO TERRATECH INC. Liquidity and Capital Resources (continued) In the first quarter of fiscal 1997, the Company expended $4.4 million on purchases of property, plant and equipment. During the remainder of fiscal 1997, the Company expects to expend $5.6 million for purchases of property, plant and equipment. The Company has no material commitments for the acquisition of businesses or for capital expenditures. Such expenditures will largely be affected by the number and size of the complementary businesses that can be acquired or developed during the year. The Company believes that it has adequate resources to meet the financial needs of its current operations for the foreseeable future. PART II - OTHER INFORMATION Item 6 - Exhibits See Exhibit Index on the page immediately preceding exhibits. 11PAGE THERMO TERRATECH INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of the 6th day of August 1996. THERMO TERRATECH INC. Paul F. Kelleher ------------------------ Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos ------------------------ John N. Hatsopoulos Vice President and Chief Financial Officer 12PAGE THERMO TERRATECH INC. EXHIBIT INDEX Exhibit Number Description of Exhibit Page --------------------------------------------------------------------------- 10.1 Elson T. Killam Associated, Inc. 1987 Incentive Stock Option Plan. 10.2 Elson T. Killam Associates, Inc. 1987 Incentive Stock Option Plan, Incentive Stock Option Agreement. 10.3 Elson T. Killam Associates, Inc. Shareholders' Agreement dated January 29, 1995. 10.4 Amendment No. 1 to Shareholders' Agreement, dated February 6, 1995. 10.5 Option Exchange Agreement between the Company and Emil C. Herkert, dated February 6, 1995. 11 Statement re: Computation of earnings per share. 27 Financial Data Schedule. EX-10.1 2 EXHIBIT 10.1 ELSON T. KILLAM ASSOCIATES, INC. 1987 INCENTIVE STOCK OPTION PLAN As Adopted by the Board of Directors on December 15, 1987 As Ratified by the Shareholders on July 26, 1988 (December 15, 1987) PAGE ELSON T. KILLAM ASSOCIATES, INC. 1987 INCENTIVE STOCK OPTION PLAN 1. Purpose The Elson T. Killam Associates, Inc. 1987 Incentive Stock Option Plan (the "Plan") is intended to enable Elson T. Killam, Associates, Inc. (the "Company") and any parent or subsidiary corporation of the Company to attract and retain capable officers and key senior management employees and to provide them with incentives to promote the best interests of the Company and its parent and subsidiaries by enabling and encouraging them, through the grant of incentive stock options (the "Options") to acquire Company stock. As used in the Plan, the term "incentive stock options" means options which are intended to qualify as incentive stock options within the meaning of section 422A of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), and which are designated as incentive stock options in the Option Agreement. The term "subsidiary" means any corporation (whether or not in existence at the time the Plan is adopted) which, at the time an Option is granted is a subsidiary of the Company under the definition of "subsidiary corporation" contained in section 425(f) of the Code, or any similar provision hereafter enacted. The term "parent" means any corporation (whether or not in existence at the time the Plan is adopted) which, at the time an Option is granted, is a parent of the Company under the definition of "parent corporation" contained in section 425(e) of the Code or any similar provision hereafter enacted. The term "related corporation" means any corporation which is a subsidiary or parent of the Company. 2. Administration. Except as otherwise provided below, the Plan shall be administered by a Management Committee (the "Committee") which shall be composed of the President of Les Chantiers Modernes and the President of the Company or their representatives designated in writing. Subject to the terms of the Plan, the Committee shall have the authority to determine the persons to whom incentive stock options shall be granted under the Plan and to recommend the date of grant and the other terms and conditions thereof. The Committee shall have full authority to administer the Plan and all references hereinafter shall be made to the actions of the Committee except as otherwise provided. The Committee shall have the authority to establish, from time to time, such rules and regulations, not inconsistent with the provisions of the Plan, for the proper administration of the Plan, and to make such determinations and interpretations under or in connection with the Plan and the Options granted hereunder, as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and 1PAGE conclusive upon the Company, its stockholders, employees (including former employees), and any related corporation, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. No member of the of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted hereunder. 3. Eligibility. The persons eligible to participate in the Plan shall be the officers and key senior management employees of the Company and related corporations who may be designated by the Committee. The persons eligible to receive Options under the Plan are hereinafter referred to as "Eligible Individuals". 4. Stock Subject to the Plan. Subject to the provisions of Section 7 hereof, 2,130 shares (the "Shares") of ten dollars ($10.00) par value common stock of the Company (the "Common Stock"), shall be available for the grant of Options under the Plan. Shares issuable under the Plan shall be authorized but unissued Shares or reacquired Shares of the Company as determined by the Committee. If any Option granted under the Plan expires or otherwise terminates, in whole or in part, without having been exercised, the Shares subject to the unexercised portion of such Option shall be available for the granting of Options under the Plan as fully as if such Shares had never been subject to an Option. 5. Grants, Terms and Conditions of Options. From time to time until the expiration or earlier termination of the Plan, the Committee may grant Options to Eligible Individuals (such grantees are hereinafter referred to as "Optionees"), under the Plan. Options granted pursuant to the Plan to such Eligible Individuals shall be in such form as the Committee shall from time to time approve, and shall be subject to the following terms and conditions to the extent such terms and conditions are applicable to such Option: (a) Price. The option price per Share under each Option granted under the Plan as an incentive stock option shall be determined and fixed by the Committee, in its discretion, but shall not be less than the fair market value of the Shares on the date of grant of such Option. The fair market value of a Share on any day shall mean (i) the value assigned to each Share in accordance with the valuation method attached hereto as Exhibit A; or (ii) such other method of determining fair market value as may be required by the Code or the regulations and rulings thereunder, and adopted by the Committee from time to time. 2PAGE (b) Term. Subject to earlier termination as provided in Subsections (c) through (g) below and in Section 7 hereof, and except as otherwise provided in Subsection (j) below, the duration of each Option shall not be more than ten (10) years from the date of grant. (c) Exercise and Payment. Options shall be exercisable in such installments and on such dates as the Committee may specify provided; however, that no Options may be exercised until July 1, 1991, except as otherwise provided in accordance with Section 7 or in the event of death, disability, involuntary termination without cause or retirement of an Optionee as provided herein. Options shall be exercisable in accordance with the following schedule: Option Grant Period Exercisable ------------ ----------- January 1 to 4 years after December 31,1987 Date of Grant January 1, 1988 25% exercis- and thereafter able as of the anniversary date of each Date of Grant beginning in or after 1991 Except as otherwise provided in Subsections (d) through (g) below, Options shall only be exercisable by an Optionee while he remains in the employ of the Company or a related corporation. Any Option Shares, the right to the purchase of which has accrued, may be purchased at any time up to the expiration or termination of the Option. As a condition to the exercise of any of the Options, each Optionee shall enter into a Shareholders' Agreement in substantially the same form as attached hereto as Exhibit D. Options may be exercised, in whole or in part, from time to time, by giving written notice of exercise to the Company at its principal office, specifying the number of Shares to be purchased, and accompanied by payment in full of the aggregate purchase price for such Shares or by a promissory note executed in the form attached hereto as Exhibit C. Only full Shares shall be delivered, and any fractional Share which might otherwise be deliverable upon exercise of an Option granted hereunder shall be forfeited. The purchase price shall be payable in cash or its equivalent, as determined by the Committee, in its discretion unless an Optionee requests the Company to 3PAGE permit the exercise of any or all Options by delivery of a promissory note in accordance with Section 8 hereof. (d) Termination of Optionee's Employment. If an Optionee's employment with the Company and all related corporations is terminated for any reason, voluntarily or with cause, other than by reason of death, disability, or retirement (as described in Subsections (e), (f) and (g) below) prior to the expiration of the original term of his Option ("Expiration Date") such Option shall terminate immediately upon such termination of employment and all rights with respect to any unvested or unexercised Options shall be forfeited. For purposes of this Subsection, an Optionee's employment relationship shall not be deemed terminated while the Optionee is on military leave, sick leave, or other bona fide leave of absence (such as temporary employment by the government) if the period of such leave does not exceed ninety (90) days, or, if longer, so long as the Optionee's right to reemployment with the Company or a related corporation is guaranteed either by statute or contract. (e) Death of Optionee. If an Optionee's employment is terminated by reason of his death prior to the Expiration Date of his Option, or if an Optionee whose employment is terminated as a result of retirement or disability (as described in Subsections (f) and (g) below) shall die following his termination of employment but prior to the Expiration Date of his Option or expiration of the period determined under Subsections (f) or (g) below, if earlier, such Option may be exercised by the Optionee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, whether or not the Options were completely exercisable under Section 5 (c) at the time of death, at any time prior to the earlier of (i) three (3) months following the date of the Optionee's death, or (ii) the Expiration Date of such Option (which, in the case of death following a termination of employment pursuant to Subsections (f) or (g) below, shall be deemed to mean the expiration of the exercise period determined thereunder). (f) Disability of Optionee. If an Optionee shall become disabled (within the meaning of section 22(e)(3) of the Code) during his employment with the Company or a related corporation, and his employment with the Company and all related corporations is terminated as a consequence of such disability prior to the Expiration Date of his Option, such Option may be exercised in full by the Optionee, whether or not the Options were 4PAGE completely exercisable under Section 5(c) at the time of such disability, at any time prior to the earlier of (i) three (3) months following the date of the Optionee's termination of employment, or (ii) the Expiration Date of such Option. In the event of the Optionee's legal disability such Option may be so exercised by the Optionee's legal representative. (g) Retirement or Involuntary Termination of Optionee. If an Optionee retires in accordance with the retirement policy of the Company or any related corporation, or otherwise involuntarily has his employment terminated by the Company without cause prior to the Expiration Date of his Option, all Options may be exercised in full by the Optionee, whether or not the Options were completely exercisable under Section 5(c) at the time of such retirement or involuntary termination any time prior to the earlier of (i) three (3) months after the date of retirement or (ii) the Expiration Date of such Option. (h) Transferability. No Option shall be assignable or transferable by an Optionee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee, the Option shall be exercisable only by him, or in the event of his legal disability, by his legal representative. (i) Rights as a Stockholder. An Optionee shall have no rights as a stockholder with respect to any Shares covered by his Option until the issuance of a stock certificate to him representing such Shares. (j) Ten Percent Shareholder. Any other provision of the Plan notwithstanding, if an Eligible Individual owns more than ten percent (10%) of the total combined voting power of all shares of stock of the Company or of a related corporation at the time an incentive stock Option is granted to such Eligible Individual, the incentive stock option price shall not be less than one hundred ten percent (110%) of the fair market value of the optioned Shares on the date the incentive stock option is granted, and such incentive stock option by its terms shall not be exercisable after the expiration of five (5) years from the date the incentive stock option is granted. For purposes of this Subsection, an Eligible Individual shall be considered to own any 5PAGE shares of the Company or a related corporation which are attributable to such Eligible Individual under section 425(d) of the Code. (k) Annual Limit on Grant of Incentive Stock Options. The aggregate fair market value (determined as of the time an incentive stock option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by an Optionee during any calendar year (under the Plan and any other incentive stock option plan of the Company or a related corporation) shall not exceed one hundred thousand dollars ($100,000.00). (l) Option Agreement and Further Conditions. As a condition to the grant of an Option, each Optionee shall enter into, and be bound by the terms of, a stock option agreement (the "Option Agreement") which shall state the number of Shares to which the Option pertains. The Option Agreement shall set forth such terms, conditions and restrictions regarding the Option not inconsistent with the Plan and the provisions of section 422A(b) of the Code as the Committee shall determine. Without limiting the generality of the foregoing, the Committee, in its discretion, may impose further conditions upon the exercisability of Options and restrictions on transferability with respect to Shares issued upon exercise of Options. (m) Withholding. The obligation of the Company to deliver Shares upon the exercise of any Option shall be subject to any applicable federal, state and local tax withholding requirements. 6. Listing and Registration of Shares. Each Option under the Plan shall be subject to the requirement that, if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Shares covered thereby upon any securities exchange or under the laws of any jurisdiction, or the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option, or the acquisition of Shares thereunder, or that action by the Company or the Optionee should be taken in order to obtain an exemption from any such requirement, then no such Option may be exercised in whole or in part and no certificate representing Shares shall be issued unless and until such listing, registration, qualification, consent, approval, or action shall have been effected, obtained, or taken on conditions acceptable to the Committee. Each Optionee or his legal representative or beneficiaries, also may be required to give satisfactory assurance that Shares acquired upon exercise of an Option are being acquired for investment and not with a view to 6PAGE distribution, and certificates representing such Shares may be legended accordingly. Such Shares shall be transferable thereafter only if the proposed transfer is permissible under the Plan and the Option Agreement and if, in the opinion of counsel (who shall be satisfactory to the Company), such transfer shall at such time be in compliance with securities laws. Nothing contained in this Section 6 shall obligate the Company to list, register or qualify any of the Shares. 7. Adjustments. The number of Shares which may be issued under the Plan, as stated in Section 4 hereof, and the number of Shares issuable upon exercise of outstanding Options under the Plan (as well as the exercise price per share under such outstanding Options) shall be equitably adjusted by the Committee to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. In the event the Company is liquidated, its shares become publicly traded, or a corporate transaction described in section 425(a) of the Code and the Treasury Regulations issued thereunder occurs (as, for example, a merger, consolidation, acquisition of property or stock, separation, or reorganization), each outstanding Option shall be immediately exercisable in full regardless of any exercise schedule otherwise applicable. The Committee shall give each Optionee to whom an outstanding Option has been granted, sixty (60) days written notice prior to such transaction (i.e., by reason of such liquidation, sale, or other corporate transaction described above), so that any outstanding Option or portion thereof may be exercised up to, and including the earlier of: (i) the date immediately preceding such transaction, or (ii) the Expiration Date of such Option. In such event, the Committee may, in its sole discretion, allow each such Optionee to exercise his Option in full or in part (if it has not otherwise terminated) regardless of the provisions of Section 5(c) hereof or of the terms of any Option Agreement even if under the Plan or the Incentive Stock Option Agreement the vesting period has not expired with respect to such Shares. The Committee, in its discretion, may change the number of Shares issuable upon exercise of outstanding Options (as well as the exercise price per share under such outstanding Options) to equitably reflect any such corporate transaction, provided that any such change is made in accordance with section 425(a) of the Code. 8. Loans to Eligible Employees. Prior to delivery of a written notice of exercise (under Section 5 (c)), the Optionee may obtain a loan or loans from the Company for the purchase of Shares by delivering a written request to the Committee stating the desired amount of the loan. Loan requests may not be submitted for amounts in excess of ninety percent (90%) of the exercise price. If such request 7PAGE comports with the requirements of this Plan, the Committee shall notify the Optionee within seven (7) days of receipt of the loan request that the loan is approved, subject to the conditions set forth in Section 8 hereof and the other applicable provisions of this Plan. (a) The loan will be extended only if, within thirty (30) days after receipt from the Committee of notice that the loan request is approved, the Optionee exercises an Option granted pursuant to this Plan for the purchase from the Company of a number of Shares which in the aggregate have an exercise price at least equal to the amount of the loan requested and approved. (b) Loans will be extended under this Plan only to persons who are employees an the date the Option referred to in Section 8(a) is exercised, and no loans will be extended in connection with Options exercised in connection with death, disability or retirement. (c) The loan shall be evidenced by a promissory note bearing interest at the minimum rate to avoid the imputation of interest under the Code in substantially the same form as attached hereto as Exhibit C. (d) If an Optionee terminates his employment with the Company or any subsidiary corporation due to death, disability, retirement, voluntary or involuntary termination or otherwise, any loan indebtedness, and interest thereon, outstanding an the date of such termination shall be repaid to the Company, in full, within ninety (90) days of such termination. (e) As security for the repayment of the loan extended under this Plan, the Optionee shall pledge to the Company shares of Stock of the Company having a total fair market value equal to one hundred percent (100%) of the loan amount; provided, however, that to the extend such Shares are subject to the provisions of Section 12, alternative security may be required within the discretion of the Committee. (f) The Company shall be entitled to all the rights and remedies with respect to the pledged Shares of a secured creditor under the Uniform Commercial Code as in effect from time to time in the State of New Jersey. If an Optionee, or his personal representative or legatee, as the case may be, fails to pay any indebtedness when due or within twenty (20) days thereafter, without making other arrangements satisfactory to the Committee for discharging his indebtedness, the Company may sell any pledged stock or property at public or private sale and apply the proceeds to the unpaid indebtedness without demand or 8PAGE notice to the Optionee. (g) If the Optionee is entitled to receive any Special Performance Bonus in accordance with Exhibit B hereto, such amounts must be applied to repay any loan which remains outstanding at the time such bonus is paid or is to be paid. 9. Amendment or Discontinuance of the Plan. The Board at any time, and from time to time, may suspend or discontinue the Plan or amend it in any respect whatsoever, provided, however, that, without the approval of the holders of at least two-thirds (2/3) of the outstanding Shares, the Plan may not be amended so as to materially (a) increase the benefits accruing to participants under the Plan, (b) increase the number of Shares which may be issued under the Plan (except for adjustments permitted or required under Section 7 hereof), (c) modify the requirements as to eligibility for participation in the Plan, or (d) increase the cost of the Plan to the Company; and provided further, that no such suspension, discontinuance or amendment shall materially impair the rights of any holder of an outstanding Option without the consent of such holder. 10. Absence of Rights. The recommendation or selection of an Eligible Individual as a recipient of an Option under the Plan shall not entitle such person to any Option unless and until the grant actually has been made by appropriate action of the Committee; and any such grant is subject to the provisions of the Plan. Further, the granting of an Option to a person shall not entitle that person to continued employment by the Company or a related corporation or affect the terms and conditions of such employment, and the Company shall have the absolute right, in its discretion, to retire such person in accordance with its retirement policies or otherwise to terminate his employment, whether or not such termination may result in a partial or total termination of his Option. 11. Application of Funds. The funds received by the Company upon the exercise of Options and otherwise under the Plan shall be used for general corporate purposes as permitted by law. 12. Pledge of Shares. To the extent required under Section 12 (u) of the Revolving Credit and Term Loan Agreement dated as of September 16, 1986, to which the Company is a party, the Company shall not issue Shares pursuant to the exercise of any Options unless the Optionee shall have entered into a Pledge Agreement, substantially in the Form of Exhibit E as attached hereto (except that the rights of the 9PAGE Banks and the Agents, as such persons are defined in such Pledge Agreement, shall have recourse only to the being pledged), pledging the Shares the Optionee is purchasing to the Agent. 13. Shareholder Approval. This Plan is subject to the approval of the holders of at least two-thirds (2/3) of the outstanding Shares, which approval shall be obtained on or before December 15, 1988, which date is within twelve (12) months of the date the Plan is adopted by the Board of Directors of the Company. If the shareholders shall not approve the Plan as aforesaid, the Plan shall not be effective, and any and all actions taken prior thereto shall be null and void or shall, if necessary, be deemed to have been fully rescinded. 14. No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon an Optionee to exercise such Option. 15. Termination of Plan. No Options or Stock Grants may be granted after December 15, 1997, provided, however, that the Plan and all outstanding Options shall remain in effect until such Options have expired or vested, as the case may be, or are terminated in accordance with the Plan. EX-10.2 3 EXHIBIT 10.2 ELSON T. KILLAM ASSOCIATES, INC. 1987 INCENTIVE STOCK OPTION PLAN INCENTIVE STOCK OPTION AGREEMENT INCENTIVE STOCK OPTION AGREEMENT, dated as of the ____ day of _________ 198_ (the "Grant Date") between Elson T. Killam Associates, Inc., a New Jersey Corporation (the "Company") and __________ (the "Optionee"), a key senior management employee or officer of the Company. WHEREAS, the Company desires to afford the optionee an opportunity to purchase shares of dollar ($ ) par value Common Stock, of the Company ("Shares") as hereinafter provided, in accordance with the provisions of Elson T. Killam Associates, Inc. 1987 Incentive Stock Option Plan (the "Plan"), a copy of which is attached hereto. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration the legal sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereunder, agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right and option to purchase all or any part of an aggregate of __________ Shares (the "Option"), which Option is intended to qualify as an incentive stock option under Section 422A of the Internal Revenue Code of 1986 (the "Code"). The Option is in all respects limited and conditioned as hereinafter provided, and is subject in all respects to the Plan's terms and conditions as they may be amended from time to time in accordance with the Plan (which terms and conditions are and automatically shall be incorporated herein by reference and made a part hereof and shall control in the event of any conflict with any other terms of this Agreement). The Option is granted subject to the approval of the Plan on or before December 15, 1988 by the holders of at least two-thirds (2/3) of the outstanding Shares. If said shareholder approval is not obtained as aforesaid, the Plan, this Agreement, and any and all actions (including without limitation the granting and exercise of the Option) taken pursuant to or in connection with either, shall be null and void or shall, if necessary, be deemed to have been fully rescinded. 2. Purchase Price. The purchase price per share (the "Option Price") of the Shares covered by the Option (the "Option Shares") shall be $_____. It is the determination of the Committee that the Option Price is not less than one hundred percent (100%) of the fair market value of the Option Shares on the Grant Date. PAGE 3. Term. Unless earlier terminated pursuant to any provision hereof or of the Plan, the Option shall expire on __________ (the "Expiration Date"). 4. Exercise of Option. The Option shall become exercisable on _____________, which date is four (4) years after the Grant Date if granted prior to 1988 or is exercisable in four (4) installments beginning on the anniversary of the Grant Date occurring in or after 1991 and each anniversary date thereafter. The right of the Optionee to purchase the Option Shares which are the subject of any installment of the Option which has become exercisable may be exercised in whole or in part at any time or times prior to the expiration or other termination of the Option. The foregoing provisions of this Paragraph 4 notwithstanding, the exercisability of the Option is subject to the terms and conditions of the Plan, including those set forth in subsections (c) through (g) of Section 5 thereof. 5. Method of Exercising Option. Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by written notice to the Company at its principal office, which is presently located at 27 Bleeker Street, Post Office Box 1008, Millburn, New Jersey 08873. Such notice (a suggested form of which is attached hereto) shall state the election to exercise the Option and the number of Option Shares with respect to which it is being exercised; shall be signed by the person or persons so exercising the Option; shall, if the Company so requests, be accompanied by the investment certificate referred to in Section 6 of the Plan; and shall be accompanied by payment of the full Option Price of such Option Shares unless a loan is permitted within the discretion of the Committee and in accordance with the Plan. The Option Price shall be paid in cash, check, bank draft or postal or express money order, except to the extent a loan is otherwise permitted. Upon receipt of such notice and payment, the Company, as promptly as practicable shall deliver or cause to be delivered a certificate or certificates representing the Shares with respect to which the Option is so exercised. The certificate or certificates for such Shares shall be registered in the name of the person or persons so exercising the Option (or, if the Option is exercised by the Optionee and if the Optionee shall so request in the notice exercising the Option, shall be registered in the name of the Optionee and his or her spouse, jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised by any person or persons after the death or legal disability of the Optionee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable by the Company. 6. Non-Transferability of Option. The Option is not PAGE assignable or transferable, in whole or in part, by the Optionee, otherwise than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee or, in the event of legal disability, by the Optionee's legal representative. 7. Disqualifying Disposition of Option Shares. The Optionee agrees to give written notice to the Company, at its principal office, if a "disposition"' of the Shares acquired through exercise of the Option granted hereunder occurs at any time within two (2) years after the Grant Date or within one (1) year after the transfer to the Optionee of such Shares. For purposes of this Paragraph, the term "disposition" shall have the meaning assigned to such term by section 425(c) of the Code. 8. Withholding of Taxes. The obligation of the Company to deliver Shares upon the exercise of the Option shall be subject to applicable Federal, state and local tax withholding requirements. 9. Governing Law. This Agreement shall, to the maximum extent possible, be construed in a manner consistent with the Code provisions concerning incentive stock options, and its interpretation shall otherwise be governed by the laws of the State of New Jersey. IN WITNESS WHEREOF, the Company has caused this Incentive Stock Option Agreement to be executed by a duly authorized officer, and the Optionee has hereunto set his hand and seal, all as of the day and year first above written. ATTEST [Corporate Seal] ELSON T. KILLAM ASSOCIATES, INC. By:_________________________ By:_______________________________ Assistant Secretary _____________________________ __________________________________ Witness Grantee EX-10.3 4 EXHIBIT 10.3 SHAREHOLDERS' AGREEMENT ELSON T. KILLAM ASSOCIATES, INC. PAGE TABLE OF CONTENTS ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1 1.1 "Closing" . . . . . . . . . . . . . . . . . 2 1.2 "Disability". . . . . . . . . . . . . . . . 2 1.3 "Management Group". . . . . . . . . . . . . 2 1.4 "Prime Rate". . . . . . . . . . . . . . . . 2 1.5 "Purchase Price" . . . . . . . . . . . . . 2 1.6 "Related Corporation" . . . . . . . . . . . 2 1.7 "Retirement". . . . . . . . . . . . . . . . 3 1.8 "Shares" shall mean Killam Common Stock . . 3 1.9 "Selling Shareholder" . . . . . . . . . . . 3 1.10 "Transfer". . . . . . . . . . . . . . . . . 3 ARTICLE 2 ISSUED AND OUTSTANDING SHARES . . . . . . . . . . . 3 2.1 Ownership Of Shares . . . . . . . . . . . . 3 2.2 Future Shares . . . . . . . . . . . . . . . 3 ARTICLE 3 USE OF SHARES PURCHASED BY KILLAM . . . . . . . . . 3 ARTICLE 4 VOLUNTARY TRANSFER OF SHARES. . . . . . . . . . . . 4 4.1 Restriction on Transfer . . . . . . . . . . 4 4.2 Notice of Intent to Transfer Shares . . . . 4 4.3 Option of Killam to Purchase Shares . . . . 4 4.4 Option of ETK to Purchase Shares. . . . . . 4 4.5 Option of Management Group to Purchase Shares. . . . . . . . . . . . . . . . . . 4 ARTICLE 5 INVOLUNTARY TRANSFER OF SHARES. . . . . . . . . . . 5 5.1 Death . . . . . . . . . . . . . . . . . . . 5 5.2 Disability Of Shareholder . . . . . . . . . 5 5.3 Involuntary Termination of Employment . . . 5 5.4 Voluntary Termination of Employment . . . . 5 5.5 Retirement. . . . . . . . . . . . . . . . . 7 ARTICLE 6 REQUIRED REPURCHASE OF SHARES BY KILLAM . . . . . . 7 6.1 Repurchase. . . . . . . . . . . . . . . . . 7 ARTICLE 7 PURCHASE PRICE AND PAYMENT. . . . . . . . . . . . . 7 PAGE 7.1 Purchase Price of Shares. . . . . . . . . . 7 7.2 Payment . . . . . . . . . . . . . . . . . . 7 ARTICLE 8 LOAN REPAYMENT. . . . . . . . . . . . . . . . . . . 8 8.1 Loans Due Killam. . . . . . . . . . . . . . 8 8.2 Loans Due the Shareholder . . . . . . . . . 8 ARTICLE 9 TERMINATION . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 10 LEGEND. . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 11 SECURITY. . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 12 CORPORATE EARNED SURPLUS. . . . . . . . . . . . . . 10 12.1 Creation of Surplus. . . . . . . . . . . . 10 12.2 Inadequate Surplus . . . . . . . . . . . . 10 ARTICLE 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 11 13.1 Warranties . . . . . . . . . . . . . . . . 11 13.2 Waiver, Modification, Cancellation . . . . 11 13.3 Heirs and Successors . . . . . . . . . . . 11 13.4 Entire Agreement . . . . . . . . . . . . . 12 13.5 Further Assurances . . . . . . . . . . . . 12 13.6 Waiver . . . . . . . . . . . . . . . . . . 12 13.7 Choice of Law. . . . . . . . . . . . . . . 12 13.8 Captions . . . . . . . . . . . . . . . . . 12 13.9 Counterparts . . . . . . . . . . . . . . . 12 13.10 Notices . . . . . . . . . . . . . . . . . 12 SCHEDULE 1. . . . . . . . . . . . . . . . . . . . . . S-1 EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . A-1 EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . B-1 EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . C-1 EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . D-1 EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . E-1 PAGE SHAREHOLDERS' AGREEMENT THIS AGREEMENT, dated as of this 6th day of February, 1995, among Elson T. Killam Associates, Inc., a New Jersey corporation doing business as Killam Associates and having its principle place of business at 27 Bleeker Street, Millburn, NJ 07041-1008, New Jersey, ("Killam") Environmental, Technology and Knowledge Corporation, a Delaware corporation having its principal place of business at 1209 Orange Street, Wilmington, Delaware 19801 ("ETK") and each of the persons listed on Schedule I attached hereto (individually, a "Shareholder" and collectively, the "Shareholders"). WITNESSETH WHEREAS, on December 15, 1987, Killam established the Elson T. Killam Associates, Inc. 1987 Incentive Stock Option Plan (the "ISO Plan") for the benefit of the key management employees of Killam and its wholly-owned subsidiary, Duncan, Lagnese and Associates, Inc., a Pennsylvania corporation (hereinafter referred to as "Duncan"); and WHEREAS, a pool of Killam shares, equal in amount to twenty percent (20%) of the issued and outstanding shares of Common Stock in Killam on the date of adoption of the ISO Plan have been set aside for issuance under the ISO Plan; and WHEREAS, the Shareholders will have the right to purchase an equity interest in Killam under the terms of the ISO Plan, and WHEREAS, Killam, ETK and the Shareholders believe it is in their mutual interests to preserve harmony and continuity with respect to the management of Killam and Duncan, which can be best attained by providing for the manner in which the Shareholders may sell or transfer their Shares. NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, and for other good and valuable consideration, the receipt of which is acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS For the purposes of this Agreement, the following terms shall have the meanings ascribed to them in this Article, except as otherwise expressly indicated or limited by the context in which they appear in this Agreement: 1PAGE 1.1 "Closing" shall mean the closing of a transaction of purchase and sale pursuant to this Agreement which shall take place at the principle office of Killam or at such location that is mutually convenient to the parties, on the date thirty (30) days after the date on which the obligation to purchase or repurchase shares is imposed under this Agreement or such other date that is acceptable to the parties, provided, however, that in the event of a purchase and sale of a deceased Shareholder's Shares, the "Closing" shall take place as soon as is reasonably possible after the date of death of the deceased Shareholder. 1.2 "Disability" shall mean either a permanent or total disability as such term is defined in Killam's or Duncan's disability insurance policy having the largest face amount covering any Shareholder as an employee, or, if Killam or Duncan do not have disability insurance, any physical or mental condition which materially interferes with the performance of a Shareholder's customary duties to Killam or Duncan, as the case may be, where such disability has continued for a period of three (3) consecutive months, and where, on the basis of independent medical advice secured by Killam or Duncan, the disability is reasonably expected to continue for an indeterminate duration exceeding one (1) year. The term "Disability" shall not include a Shareholder's involuntary service (or voluntary service in the time of declared war or national emergency) in the armed forces of the United States. In making the independent medical determination as to the duration of the disability of a Shareholder, the determining physician shall include the period of time, if any, commencing with the date of the event giving rise to the Shareholder's disabling physical or mental condition and ending with the date of the physician's determination. 1.3 "Management Group" shall mean the group of key management employees of Killam who received options to purchase Shares under the ISO Plan or any subsequent stock option plan. 1.4 "Prime Rate" shall mean the prime rate of interest of Midlantic National Bank, its successors or assigns, as announced at its principal offices from time to time. 1.5 "Purchase Price" shall mean the dollar amount equal to the number of Shares being purchased pursuant to this Agreement times the value per share determined pursuant to Article 7. 1.6 "Related Corporation" shall mean any corporation which is a "subsidiary corporation" of Killam as defined in Section 425(f) of the Internal Revenue Code or 1986, as amended from time to time (the "Code") and any corporation which is a "parent corporation" as defined in Section 425(c) of the Code. 2PAGE 1.7 "Retirement" shall mean a Shareholder's termination of employment with Killam or Duncan, as the case may be, (other than for reason of the death, disability or involuntary termination of employment of the Shareholder) provided that such Shareholder's termination of services occurs on or after his fifty-fifth (55th) birthday. 1.8 "Shares" shall mean Killam Common Stock. 1.9 "Selling Shareholder" shall mean the Shareholder or the estate or legal representative of a Shareholder required to sell his Shares pursuant to the terms of this Agreement. 1.10 "Transfer" shall mean any gift, sale, assignment, transfer, encumbrance, devise, bequeath or other disposition of or encumbrance during life or death. ARTICLE 2 ISSUED AND OUTSTANDING SHARES 2.1 Ownership Of Shares. As of the date of this Agreement, the Shareholders are the owners of the number of Shares, or options to purchase Shares, listed on Schedule 1. 2.2 Future Shares. The Shareholders agree to be bound by this Agreement with respect to the Shares now owned by them and any Shares acquired by them on or after the date of this Agreement (including but not limited to acquisition by purchase, gift, stock dividend, stock split or division, exercise of an option or options under the ISO Plan, or any other issuance to them of additional Shares). ARTICLE 3 USE OF SHARES PURCHASED BY KILLAM It is the intent of the parties that any Shares purchased by Killam or ETK under the terms of this Agreement shall be applied to grant options to purchase such Shares either to the Management Group or other key employees of either Killam or Duncan, as designated from time to time by ETK, in amounts aggregating up to twenty percent (20%) of the ownership interest in Killam. The time and individual amounts of such options shall be granted within the discretion of ETK. To the extent any Shares are purchased by ETK, ETK may make such Shares available for redemption by Killam in order to facilitate the issuance of additional options in accordance with this Article. Alternatively, Killam and ETK may provide that a comparable amount of authorized but unissued Shares shall be made available for the issuance of options in accordance with this Article. ARTICLE 4 3PAGE VOLUNTARY TRANSFER OF SHARES 4.1 Restriction on Transfer. Except as otherwise provided herein, the Shareholders may not transfer any part of, or all of their Shares, whether now owned or hereafter acquired, in any manner whatsoever, to any third party. 4.2 Notice of Intent to Transfer Shares. In the event that a Shareholder (the "Selling Shareholder") desires to dispose of any or all of his Shares during his employment, and he obtains a bona fide written offer from any member or members of the Management Group to purchase the Shares (a "Bona Fide Offer"), he shall first give at least forty-five (45) days written notice (the "Exercise Period") to Killam of his desire to sell such shares. Such notice shall state the number of Shares offered for sale (the "Offered Shares") and the offered purchase price (the "Offered Price"). 4.3 Option of Killam to Purchase Shares. Within said Exercise Period, Killam shall have the option to purchase any or all of the Offered Shares as it determines, within its discretion. If Killam elects to exercise its option to purchase any portion of the Offered Shares, written notice of such election to exercise its option shall be sent to the Selling Shareholder prior to the expiration of the Exercise Period. The purchase price for any Shares sold hereunder shall be equal to the purchase price determined in accordance with Article 7 regardless of whether the purchase price determined under Article 7 is greater or less than the Offered Price. The Closing for such Offered Shares shall occur within thirty (30) days after the notice, if any, accepting the purchase is received by the Selling Shareholder. 4.4 Option of ETK to Purchase Shares. If Killam does not elect to purchase any of the Offered Shares or elects to purchase less than all of the Offered Shares, it shall give written notice thereof to ETK during the Exercise Period, specifying the number of remaining Offered Shares. ETK shall have the right to purchase all or part of the remaining Offered Shares by giving written notice to the Selling Shareholder within ten (10) days after receipt of the notice from Killam. The purchase price for any Shares sold hereunder shall be equal to the purchase price determined in accordance with Article 7 regardless of whether the purchase price determined under Article 7 is greater or less than the Offered Price. 4.5 Option of Management Group to Purchase Shares. If ETK does not elect to purchase any of the remaining Offered Shares or elects to purchase some but not all of the remaining Offered Shares, ETK shall give written notice thereof to the Management Group, specifying the number of remaining Offered Shares. Each member of the Management Group shall have the option to purchase any remaining Offered Shares in proportion with the number of Shares owned by such member in relation to the total number of 4PAGE Shares then owned by all members of the Management Group who desire to purchase any remaining Shares. Each member shall exercise his option to purchase such Shares by giving notice to the Selling Shareholder within ten (10) days after receipt of the notice from ETK. Such purchases shall be made by the Management Group at the price and on the terms of the Bona Fide Offer. Any Offered Shares not purchased by Killam, ETK or the members of the Management Group may be sold to the member or members of the Management Group that made the Bona Fide Offer. ARTICLE 5 INVOLUNTARY TRANSFER OF SHARES 5.1 Death. Upon the death of a Shareholder, Killam or ETK, as determined by the companies, shall purchase and the estate or personal representative of the deceased Shareholder shall sell all of the Shares of Killam owned by the deceased Shareholder or any Shares thereafter acquired under the ISO Plan. The Closing for such purchases, shall take place as soon as reasonably possible after the date of death of the deceased Shareholder in accordance with Section 1.1. 5.2 Disability Of Shareholder. In the event that a Shareholder shall become Disabled, Killam or ETK, as determined by the companies, shall purchase and the Shareholder, or legal guardian of the Disabled Shareholder, shall sell all of the Shares of Killam owned by the Disabled Shareholder or any Shares thereafter acquired under the ISO Plan. The Closing for such purchase shall take place in accordance with Section 1.1. 5.3 Involuntary Termination of Employment. If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of an involuntary termination, Killam or ETK, as determined by the companies, shall purchase and the Shareholder shall sell, at the Closing, those Shares of Killam held by him at the time of his termination of employment or any Shares thereafter acquired under the ISO Plan. 5.4 Voluntary Termination of Employment. (a) If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of a voluntary termination, Killam may, within its discretion, purchase those Shares held by the Shareholder at the time of his termination or any Shares thereafter acquired under the ISO Plan. If Killam elects to purchase any or all of such Shares, the Shareholder shall sell all Shares for which an election is made. If Killam does not elect to purchase any or all of such Shares, it shall give written notice thereof to ETK. ETK shall then have the right to purchase any or all of such Shares. If Killam and ETK do not elect to purchase such Shares, ETK shall give written notice thereof to the Management Group. The members of the Management Group shall have the option to purchase such Shares in 5PAGE accordance with the provisions of Section 5.4(b) below. The Closing for such purchases shall take place in accordance with Section 1.1. (b) If Killam or ETK do not elect to purchase all of a Shareholder's Shares in accordance with Section 5.4(a), they shall give written notice thereof to the Management Group. Each member of the Management Group shall have the option to purchase any remaining Shares owned by such member in proportion with the total number of Shares then owned by all members of the Management Group who desire to purchase any Shares. Each member shall have the right to purchase such Shares at the price and on the terms as shall be agreed upon between the member or members and the Selling Shareholder; provided, however, that if the purchase price is less than the purchase price at which Killam and ETK could otherwise purchase such Shares under Section 5.4(a), Killam and ETK shall have an additional twenty (20) days from the date of any Bona Fide Offer, in writing, to elect to purchase such Shares at the reduced price. If any member elects to exercise his option to purchase his portion of the Shares, such member shall give written notice of such election to the Selling Shareholder within ten (10) days after receipt of the notice from Killam or ETK, or within ten (10) days after the expiration of the additional twenty (20) day period provided for in the preceding sentence, whichever is later. If any member of the Management Group does not elect to purchase any Shares in accordance with this Section, the Selling Shareholder shall give all members of the Management Group who have elected to purchase the Shares notice of the remaining number of Shares which may be proportionately purchased at the option of such members upon written notice to the Selling Shareholder within ten (10) days of such notice. (c) For purposes of this Agreement, the term "voluntary termination" shall include any voluntary actions on the part of an employee which results in a termination of employment, other than Retirement. In the event any employee voluntarily terminates his employment during a period in which an employment agreement is in effect, such action shall be deemed to be a voluntary termination regardless of whether Killam subsequently characterizes such termination as an involuntary termination for breach of the employment agreement. 5.5 Retirement. If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of Retirement, Killam or ETK, as determined by the companies, shall purchase and the Shareholder shall sell those Shares held by him at the time of his termination or any Shares thereafter acquired under the ISO Plan. The Closing for such purchase shall take place in accordance with Section 1.1. ARTICLE 6 REQUIRED REPURCHASE OF SHARES BY KILLAM 6PAGE 6.1 Repurchase. Notwithstanding any of the provisions contained in Article 4 or Article 5, Killam shall repurchase from the Shareholders and the Shareholders shall sell to Killam on January 1, 1997 and on January 1, 2000 (the "Repurchase Dates"), or as soon thereafter as reasonably possible, up to twenty-five percent (25%) of the Shares held by the Shareholders, or their estates or personal representatives, on each Repurchase Date, provided, however, that Killam may purchase no more than forty-three and three-quarters percent (43.75%) of the number of Shares held by any Shareholder, and the other members of the Management Group, immediately prior to the repurchase on January 1, 1997. Purchases required hereunder shall be made from any Shareholder, and the other members of the Management Group, either by lot, or on a pro rata basis, until all Shares required to be repurchased hereunder are so purchased. The total number of Shares which Killam may repurchase hereunder shall be added to treasury stock and shall be available for issuance under the ISO Plan or any subsequent stock option plan to members of the Management Group or other key employees of Killam or Duncan in accordance with Article 3. ARTICLE 7 PURCHASE PRICE AND PAYMENT 7.1 Purchase Price of Shares. The Purchase Price for any Share eligible for purchase or repurchase by Killam or ETK under this Agreement shall be determined in accordance with the Computation of Fair Market Value of Shares, as set forth in Exhibit A, unless a higher Purchase Price is required under Exhibit E hereof. 7.2 Payment. The Purchase Price for any Shares purchased by Killam pursuant to this Agreement shall be subject to offset in accordance with the provisions of Article 8 and shall be paid at Closing as follows: 7PAGE (a) The Purchase Price for any Shares purchased pursuant to Section 5.2, upon Disability; Section 5.3 upon an involuntary termination and Article 6, upon a required repurchase, shall be paid at Closing by the delivery to the Selling Shareholder of a promissory note providing for the payment of the Purchase Price over a three (3) year period with interest accruing at a rate equal to the Prime Rate on the date preceding the Closing and substantially in the form attached to this Agreement as Exhibit B; (b) The Purchase Price for any Shares purchased pursuant to Sections 5.4, upon voluntary termination and 5.5, Retirement, shall be paid at Closing by the delivery to the Selling Shareholder of a promissory note providing for the payment of the Purchase Price over a five (5) year period with interest accruing at a rate equal to the Prime Rate on the date preceding the Closing and substantially in the form attached to this Agreement as Exhibit C; (c) The Purchase Price for any Shares purchased pursuant to Section 5.1 shall be paid in cash, to the Selling Shareholder at Closing; and (d) The Purchase Price for any Shares to be purchased by Killam or ETK pursuant to Article 4, during the term of a Shareholder's employment, shall be paid upon such terms and conditions as established by Killam or ETK, respectively, and approved to by the Shareholder at the Closing. ARTICLE 8 LOAN REPAYMENT 8.1 Loans Due Killam. Killam shall offset against any portion of the Purchase Price to be paid by it to a Shareholder, the amount of any loans or other indebtedness due from the Shareholder to Killam unless otherwise forgiven under the terms of the ISO Plan, and, to the extent so credited against the Purchase Price, such loan or other indebtedness shall be deemed to be and shall be canceled and discharged. In the event that any Purchase Price is paid by ETK to a Shareholder, the Shareholder shall be required to use such proceeds to repay any indebtedness to Killam in accordance with the preceding sentence. 8.2 Loans Due the Shareholder. Any loan or other indebtedness due from Killam to a Shareholder shall be satisfied in accordance with the terms of such loan or indebtedness. 8PAGE ARTICLE 9 TERMINATION This Agreement shall terminate, with respect to any Shareholder, upon the first to occur of any of the following: (i) execution of a written agreement by Killam, ETK and any Shareholder terminating the Agreement; (ii) voluntary transfer of all Shares held by a Shareholder to Killam, ETK or member(s) of the Management Group; and (iii) the termination of a Shareholder's employment, for any reason, and the final payment of any Purchase Price due hereunder. ARTICLE 10 LEGEND The following legend shall be conspicuously endorsed on each certificate representing any shares issued to Shareholder: "The shares of stock represented by this certificate are subject to restrictions on transfer, as contained in the Shareholders Agreement dated __________, 19__, as the same may be amended from time to time, a copy of which is on file at the offices of Killam and will be furnished upon request. The shares of stock evidenced by this certificate have not been registered under the Securities Act of 1933 or under any applicable state securities law, and may not be transferred except upon delivery to the Corporation of an opinion of counsel satisfactory in form and substance to it that such transfer will not violate the Securities Act of 1933, as amended, or any applicable state securities laws". ARTICLE 11 SECURITY Upon the delivery of a promissory note pursuant to any of the provisions of this Agreement, a Shareholder shall deliver all of the Shares to be sold to an escrow agent mutually agreeable to the parties to this Agreement. The escrow agent shall hold such Shares in accordance with the terms substantially similar to the Escrow Agreement attached hereto as Exhibit D. The Shareholder shall execute such additional documents as may be required by the escrow agent to transfer properly the Shares on the books of Killam. The Shares may be subject to a Pledge Agreement as further described in Section 12 of the ISO Plan. ARTICLE 12 CORPORATE EARNED SURPLUS 9PAGE 12.1 Creation of Surplus. If Killam becomes obligated to purchase a Shareholder's Shares, and if Killam, pursuant to New Jersey law, does not have sufficient surplus to make payment as required under this Agreement or to effectuate or to enter into a valid redemption at such time, Killam shall promptly take all legal action to enable it to make payment out of surplus or to effectuate a valid redemption under New Jersey law, including, but not limited to the following: (a) A recapitalization of Killam so as to reduce its stated capital and increase its surplus in accordance with N.J.S.A. 14A:7-19; and (b) A reappraisal of the assets of Killam (including goodwill, if any) to reflect the market value of such assets on the books of Killam, in the event such value exceeds the book value thereof, so as to increase such surplus, if allowed by law. 12.2 Inadequate Surplus. If Killam does not have sufficient surplus under New Jersey law to effectuate or to enter into a lawful redemption of a Shareholder's unpurchased Shares, and if Killam is unable to take such action pursuant to this Article 12 so as to enable it to effectuate or to enter into a lawful redemption for all such Shares, then, notwithstanding any Provision in this Agreement to the contrary, Killam shall be obligated to purchase only those unpurchased Shares of the Shareholder as may be lawfully redeemed or purchased by it. ARTICLE 13 MISCELLANEOUS 13.1 Warranties. At the time of purchase by Killam or ETK of any Shares held by a Shareholder, the Shareholder represents and warrants that he owns the Shares registered in his name on the books of Killam free and clear of any liens and encumbrances other than as set forth in this Agreement. 13.2 Waiver, Modification, Cancellation. Any waiver, alteration or modification of any of the provisions of this Agreement or cancellation or replacement of this Agreement shall not be valid unless in writing and signed by all of the parties hereto. 13.3 Heirs and Successors. This Agreement shall be binding upon Killam, ETK, the Shareholders, and their respective 10PAGE successors, heirs, assigns and personal representatives, as the case may be. 13.4 Entire Agreement. This Agreement contains the entire agreement of the parties regarding the subject matter hereof and, together with the schedules attached hereto, supersedes all prior agreements, understandings and negotiations regarding the same. 13.5 Further Assurances. Each party hereto agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 13.6 Waiver. The waiver by either party of a breach of any provisions contained herein shall be in writing and shall in no way be construed as a waiver of any succeeding breach of such provision or the waiver of the provision itself. 13.7 Choice of Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey as if the Agreement was performed wholly within such State and without regard to its conflict of law principles. 13.8 Captions. Paragraph captions are inserted for convenience only and in no way are to be construed to define, limit or affect the construction or interpretation hereof. 13.9 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If this Agreement is executed in counterparts, no signatory hereto shall be bound until each of the parties named below shall have duly executed or caused to be duly executed a counterpart of this Agreement. 13.10 Notices. Whenever under this provisions of this Agreement notice is required to be given, it shall be in writing and shall be deemed given when mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to the Shareholder, Killam or ETK at their respective addresses set forth in this Agreement, or to such other address as may appear on the record books of Killam. Any party hereto may change its address for the provision of notice to it hereunder by notification to the other parties hereto in accordance with this Section 13.10. 11PAGE IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as of the day and year first above written. ELSON T. KILLAM ASSOCIATES, INC. By:/s/ Emil C. Herkert ---------------------------- Emil C. Herkert ENVIRONMENTAL TECHNOLOGY AND KNOWLEDGE CORPORATION By:/s/ John P. Appleton ---------------------------- /s/ Emil C. Herkert ------------------------------- Emil C. Herkert /s/ Kenneth L. Zippler ------------------------------- Kenneth L. Zippler /s/ Fletcher N. Platt, Jr. ------------------------------- Fletcher N. Platt, Jr. /s/ Franklin O. Williamson, Jr. ------------------------------- Franklin O. Williamson, Jr. /s/ Eugene J. DeStefano ------------------------------- Eugene J. DeStefano /s/ Meint Olthoff ------------------------------- Meint Olthoff /s/ Stanley P. Kaltnecker, Jr. ------------------------------- Stanley P. Kaltnecker, Jr. EX-10.4 5 EXHIBIT 10.4 AMENDMENT NO. 1 TO SHAREHOLDERS' AGREEMENT WHEREAS, Elson T. Killam Associates, Inc., a New Jersey corporation ("Killam"), Engineering, Technology and Knowledge Corporation, a Delaware corporation (formerly known as Environmental, Technology and Knowledge Corporation ("ETKC"), and certain persons (individually, a "Shareholder" and collectively, the "Shareholders") are parties to that certain Shareholders' Agreement dated as of the 29th day of January, 1995 (the "Shareholders' Agreement"); WHEREAS, ETKC owns 100% of the outstanding capital stock of Killam (the "Killam Stock") and the Shareholders collectively own vested options (the "Killam Options") to purchase, in the aggregate, 1,590 additional shares of Killam Stock; WHEREAS, in the absence of any public trading market for Killam Stock, the Shareholders' Agreement contains certain provisions intended under certain identified circumstances to provide the Shareholders with liquidity with respect to their shares of Killam Stock; WHEREAS, pursuant to a Stock Purchase and Sale Agreement of even date herewith, Thermo Process Systems Inc., a Delaware corporation ("Thermo"), has acquired 100% of the outstanding capital stock of ETKC; WHEREAS, as of the date hereof, the Killam Options (after taking into account the cancellation of certain of the Killam Options) have been assumed by Thermo and have been converted into options to purchase shares of the common stock of Thermo, which shares are listed for trading on the American Stock Exchange and are freely tradable under U.S. securities laws in the public securities markets; and WHEREAS, the parties wish to clarify the Shareholders' Agreement to establish such public markets as the means to provide the Shareholders with the liquidity guaranteed by the Shareholders' Agreement; NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set forth herein, and intending to be legally bound, the parties hereto hereby agree as follows: 1. The Shareholders' Agreement is amended by deleting Section 1.8 thereof in its entirety and substituting therefor the following: "1.8 "SHARES" shall mean shares of the common stock of Thermo Process Systems Inc. acquired upon the exercise of 1PAGE options received by the Shareholders as of February 6, 1995 (the "Thermo Options") upon the conversion of then-outstanding options to purchase shares of the capital stock of Killam." 2. The Shareholders' Agreement is amended by deleting Section 2.2 thereof in its entirety and substituting therefor the following: "2.2 FUTURE SHARES. The Shareholders agree to be bound by this Agreement only with respect to the Shares. This Agreement shall not apply to any other shares of stock of Thermo Process Systems Inc. acquired by the Shareholders." 3. The Shareholders' Agreement is amended by deleting Article 3, Sections 4.2, 4.3, 4.4 and 4.5 and Article 7 thereof in their entirety. 4. The Shareholders' Agreement is amended by deleting Section 5.1 thereof in its entirety and substituting therefor the following: "5.1 DEATH. Upon the death of a Shareholder, the estate or personal representative of such deceased Shareholder may sell, transfer or otherwise dispose of any Shares owned by such deceased Shareholder to any third party on such terms as such estate or personal representative and such third party may agree. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement." 5. The Shareholders' Agreement is amended by deleting Section 5.2 thereof in its entirety and substituting therefor the following: "5.2 DISABILITY. In the event that a Shareholder becomes Disabled, such Disabled Shareholder or the legal guardian of such Disabled Shareholder may sell, transfer or otherwise dispose of any Shares owned by such Disabled Shareholder to any third party on such terms as such Disabled Shareholder or such legal guardian and such third party may agree. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement." 6. The Shareholders' Agreement is amended by deleting Section 5.3 thereof in its entirety and substituting therefor the following: "5.3 INVOLUNTARY TERMINATION OF EMPLOYMENT. If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of an involuntary termination, such Shareholder may sell, transfer or otherwise dispose of any Shares owned by such Shareholder to any third party on such 2PAGE terms as such Shareholder and such third party may agree. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement." 7. The Shareholders' Agreement is amended by deleting Section 5.4 thereof in its entirety and substituting therefor the following: "5.4 VOLUNTARY TERMINATION OF EMPLOYMENT. If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of a voluntary termination, such Shareholder may sell, transfer or otherwise dispose of any Shares owned by such Shareholder to any third party on such terms as such Shareholder and such third party may agree. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement." 8. The Shareholders' Agreement is amended by deleting Section 5.5 thereof in its entirety and substituting therefor the following: "5.5 RETIREMENT. If any Shareholder ceases to be employed by Killam, or any Related Corporation, on account of Retirement, such Shareholder may sell, transfer or otherwise dispose of any Shares owned by such Shareholder to any third party on such terms as such Shareholder and such third party may agree. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement." 9. The Shareholders' Agreement is amended by deleting Section 6.1 thereof in its entirety and substituting therefor the following: "6.1 SALE OF SHARES. Notwithstanding the provisions contained in Article 4, (a) on and after January 1, 1997, each Shareholder may sell up to 25% of his Shares to any third party on such terms as such Shareholder and such third party may agree; (b) on and after January 1, 1998, each Shareholder may sell up to 25% of his Shares to any third party on such terms as such Shareholder and such third party may agree; (c) on and after January 1, 1999 each Shareholder may sell up to 25% of his Shares to any third party on such terms as such Shareholder and such third party may agree; and (d) on and after January 1, 2000 each Shareholder may sell up to 25% of his Shares to any third party on such terms as such Shareholder and such third party may agree; such that beginning on January 1, 1997, each Shareholder will have been entitled to sell one-fourth of his total Shares on and after each such date. Any such third party shall take such Shares free and clear of any restriction imposed on the Shareholder by this Agreement. This Section 3PAGE 6.1 shall not limit the ability of each Shareholder to sell Shares as set forth in Article 5." 10. The Shareholders' Agreement is amended by adding the following Section 13.11 immediately after Section 13.10: "13.11 FLOOR PRICE ON SHARES. In the event that a Shareholder desires to sell in the open market any or all of his Shares at any time prior to January 29, 2002 (subject to the resale restrictions set forth in this Agreement), but cannot do so at prices equal to at least $8.00 per Share, as adjusted for stock dividends, stock splits, reclassifications and similar events (the "Floor Price"), Killam's parent company, Thermo Process Systems Inc. ("Thermo") will either, in its discretion, buy any such Shares that cannot be sold for at least the Floor Price for an amount equal to the Floor Price or (ii) permit the Shareholder to sell such Shares in the open market at such price or prices as may be obtainable and pay to the Shareholder an amount which is equal to the difference between the Floor Price and the amount which such Shareholder received (before taking into account commissions, taxes and other transaction costs) upon such sales. The Shareholders agree, as a condition to such agreements by Thermo, to give Thermo reasonable prior written notice of any such intention to sell such Shares and to consult with Thermo as to the timing of such sales." 11. The Shareholders' Agreement is amended by adding the following Section 13.12 immediately after Section 13.11: "13.12 PLEDGES. Notwithstanding any other provision of this Agreement, each Shareholder may pledge any or all of his Shares as collateral for any loans that may be needed to enable such Shareholder to pay any alternative minimum tax or other income tax due as a result of the exercise of the Thermo Options, provided, however, that any lender accepting such Shares as collateral shall continue to be prohibited from disposing of such Shares except in accordance with the provisions of Section 6.1 of this Agreement." 12. Except as expressly amended hereby, the Shareholders' Agreement shall remain in full force and effect in accordance with the terms thereof. 4PAGE IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the day and year first written above. ELSON T. KILLAM ASSOCIATES, INC. ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION By: /s/ Emil C. Herkert By: /s/ John P. Appleton Printed Name: Emil C. Herkert Printed Name: John P. Title: President Appleton Title: President /s/ Emil C. Herkert /s/ Kenneth L. Zippler Emil C. Herkert Kenneth L. Zippler /s/ Franklin O. Williamson, Jr. /s/ Fletcher N. Platt, Jr. Franklin O. Williamson, Jr. Fletcher N. Platt, Jr. /s/ Eugene J. Destefano /s/ Meint Olthof Eugene J. Destefano Meint Olthof /s/ Stanley P. Kaltnecker, Jr. Stanley P. Kaltnecker, Jr. 5PAGE for purposes of SectionS 10 and 11 hereof only: THERMO PROCESS SYSTEMS INC. By: /s/ John P. Appleton Printed Name: John P. Appleton Title: President EX-10.5 6 EXHIBIT 10.5 OPTION EXCHANGE AGREEMENT THIS AGREEMENT is made as of the 6th day of February, 1995, among Thermo Process Systems Inc., a Delaware Corporation ("Thermo"), and Emil C. Herkert, an individual whose primary residence is in the State of New Jersey ("Optionee"). WHEREAS, pursuant to a Stock Purchase and Sale Agreement of even date herewith (the "Purchase and Sale Agreement"), Thermo has acquired 100% of the outstanding capital stock of Engineering Technology and Knowledge Corporation, a Delaware corporation ("ETKC"); WHEREAS, ETKC owns 100% of the capital stock of Elson T. Killam Associates, Inc., a New Jersey corporation ("Killam"); WHEREAS, Killam adopted an Incentive Stock Option Plan effective as of December 15, 1987 (the "Stock Option Plan"); WHEREAS, the pursuant to a stock option agreement dated as of December 15, 1987, a copy of which is attached as Exhibit A hereto (the "Option Agreement"), Optionee owns a vested option (the "Killam Option") to purchase, in the aggregate, 365.52 shares of the capital stock of Killam (after taking into account the cancellation of the Killam Option with respect to certain shares of the capital stock of Killam (the "Killam Stock"); and WHEREAS, Thermo wishes to acquire such Killam Option and to substitute therefor an economically equivalent option to purchase shares of Thermo's common stock, $.10 par value per share (the "Thermo Stock"); NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set forth herein and of the mutual promises set forth in the Purchase and Sale Agreement, and intending to be legally bound, the parties hereto hereby agree as follows: SECTION 1. ASSUMPTION OF THE STOCK OPTION PLAN AND THE KILLAM OPTION. Except as set forth below, Thermo hereby assumes and agrees to perform and discharge all liabilities, obligations and commitments of Killam which are set forth in the Stock Option Plan and the Option Agreement. Thermo and Optionee hereby agree that the Killam Option is hereby converted, without any further action on the part of either party, into an option (the "Thermo Option") to purchase an aggregate of 250,000 shares of Thermo Stock. Thermo and Optionee hereby agree that the exercise price of the Thermo Option shall be $.0824 per share of Thermo Stock. The assumption of the Stock Option Plan and the Killam Option and the conversion thereof of into the Thermo Option as provided herein shall not give Optionee additional benefits which he did not have immediately prior to the date hereof, result in any -1-PAGE acceleration of any vesting schedule for any Killam Option, or relieve Optionee of any obligation or restriction applicable to the Killam Option or the Killam Stock obtainable upon exercise of the Killam Option, including without limitation obligations and restrictions imposed by that certain Shareholders' Agreement dated January 29, 1995, as amended from time to time. Thermo and Optionee agree that the foregoing assumption and conversion of the Killam Option is intended to comply with Internal Revenue Code Regulations governing incentive stock option roll-overs. SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF OPTIONEE. Optionee represents and warrants to, and covenants with, Thermo that: 2.1. OPTION AGREEMENT. Attached hereto as Exhibit 1 is a true, correct and complete copy of Optionee's Option Agreement. The Option Agreement has not been amended, and is the sole instrument to which Optionee is a party that purports to grant Optionee any right to acquire shares of Killam Stock. Optionee is the sole true, legal and beneficial owner of the Killam Option. Optionee has not previously sold or transferred any interest in the Killam Option to any third party, has not pledged, mortgaged, hypothecated or otherwise encumbered the Killam Option or any or all of the Killam Stock. No third party has been granted or has otherwise obtained, whether by operation of law or otherwise, any lien, security interest or other interest, contingent or otherwise, in or with respect to the Killam Option or in or with respect to any or all of the Killam Stock. 2.2. AUTHORITY. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of Optionee. This Agreement constitutes the valid and binding obligation of Optionee enforceable against him in accordance with the terms hereof, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors or by general principles of equity. Neither the execution, delivery and performance of this Agreement by Optionee, nor the consummation of the transactions contemplated hereby will (i) conflict with or result in a violation, breach, termination or acceleration of, or default under (or would result in such a violation, breach, termination, acceleration or default with the giving of notice or passage of time, or both) any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement or other instrument or obligation to which Optionee is a party or by which Optionee or any of his properties or assets may be bound or affected; or (ii) result in the violation of any order, writ, injunction, decree, statute, rule or regulation applicable to Optionee or his properties or assets. 2.3. INVESTMENT REPRESENTATIONS. -2-PAGE (a) Optionee has, in connection with his decision to acquire the Thermo Option, relied solely upon Thermo's Confidential Placement Memorandum dated January 29, 1995 and the documents incorporated therein by reference; and (b) Taking into account the personnel and resources Optionee can practically bring to bear on the acquisition of the Thermo Options and the Thermo Stock contemplated hereby, Optionee is knowledgeable, sophisticated and experienced in making, and is able to make, decisions with respect to investments in securities presenting an investment decision like that involved in the acquisition of the Thermo Option and the Thermo Stock, including investments in securities issued by Thermo, and to assess the risks and merits presented by the acquisition of the Thermo Stock and the Thermo Options, and has requested, received, reviewed and considered all information he deems relevant in making an informed decision to acquire the Thermo Stock and the Thermo Options. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THERMO. Thermo hereby represents and warrants to, and covenants with, Optionee as follows: 3.1. ORGANIZATION AND QUALIFICATION. Thermo is a corporation validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. 3.2. AUTHORITY. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of Thermo. This Agreement constitutes the valid and binding obligation of Thermo enforceable against Thermo in accordance with the terms hereof, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors or by general principles of equity. Neither the execution, delivery and performance of this Agreement by Thermo, nor the consummation of the transactions contemplated hereby will (i) conflict with or result in a violation, breach, termination or acceleration of, or default under (or would result in such a violation, breach, termination, acceleration or default with the giving of notice or passage of time, or both) any of the terms, conditions or provisions of the certificate of incorporation or bylaws of Thermo, each as amended, or of any note, bond, mortgage, indenture, agreement or other instrument or obligation to which Thermo is a party or by which Thermo or any of its properties or assets may be bound or affected; or (ii) result in the violation of any order, writ, injunction, decree, statute, rule or regulation applicable to Thermo or its properties or assets. -3-PAGE 3.3. ASSUMPTION OF THE STOCK OPTION PLAN AND THE KILLAM OPTION; ISSUANCE, SALE AND DELIVERY OF THE THERMO STOCK. The assumption of the Stock Option Plan and the Killam Option in accordance with the terms of this Agreement, and the conversion of the Killam Option into the Thermo Option, have been duly authorized under applicable law by all requisite corporate action. The Thermo Stock (as set forth in Section 1) will be delivered to Optionee upon exercise of the Thermo Option, and upon payment by Optionee of the exercise price therefor, and as and when delivered, will be validly issued and outstanding, fully paid and nonassessable. 3.4. ACCURACY OF INFORMATION. The information contained in the Memorandum is true and correct in all material respects as of the date thereof. SECTION 4. NOTICES. All notices, requests, demands, consents and other communications which are required or permitted hereunder shall be in writing, and shall be deemed given when actually received or if earlier, two days after deposit with the U.S. postal authorities, certified or registered mail, return receipt requested, postage prepaid or two days after deposit with an internationally recognized air courier or express mail, charges prepaid, addressed as follows: If to Thermo: Thermo Process Systems Inc. c/o Thermo Electron Corporation 81 Wyman Street Waltham, Massachusetts 02254-9046 Attention: President With a copy to: Thermo Electron Corporation 81 Wyman Street Waltham, Massachusetts 02254 Attention: General Counsel If to Optionee: Emil C. Herkert c/o Killam Associates Inc. 27 Bleeker Street P. O. Box 32 Millburn, New Jersey 07041-0032 With a copy to: Norris, McLaughlin & Marcus 721 Route 202-206 P. O. Box 1018 -4-PAGE Somerville, New Jersey 08876-1018 Attention: John J. Eagan, Esq. or to such other address as any party hereto may designate in writing to the other parties, specifying a change of address for the purpose of this Agreement. SECTION 5. CHANGES. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by Thermo and Optionee. SECTION 6. HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 7. SEVERABILITY. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws governing the Option Agreement. SECTION 9. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. THERMO PROCESS SYSTEMS INC. OPTIONEE By: /s/ John P. Appleton /s/ Emil C. Herkert Printed Name: John P. Appleton Printed Name: Emil C. Herkert Title: President EX-11 7 Exhibit 11 THERMO TERRATECH INC. Computation of Earnings per Share Three Months Ended -------------------------- June 29, July 1, 1996 1995 -------------------------------------------------------------------------- Computation of Primary Earnings per Share: Net Income (a) $ 1,438,000 $ 3,949,000 ----------- ----------- Shares: Weighted average shares outstanding 17,892,427 17,350,773 Add: Shares issuable from assumed exercise of options and warrants (as determined by the application of the treasury stock method) 938,650 671,379 ----------- ----------- Weighted average shares outstanding, as adjusted (b) 18,831,077 18,022,152 ----------- ----------- Primary Earnings per Share (a) / (b) $ .08 $ .22 =========== =========== EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-29-1997 JUN-29-1996 71,213 28,254 48,230 2,883 3,441 185,074 125,168 41,634 401,002 78,750 192,983 0 0 1,807 90,080 401,002 5,752 66,888 4,718 53,939 299 122 3,108 3,161 1,501 1,438 0 0 0 1,438 .08 0
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