-----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, M2tH25d8PKsJrpo8yrm3mOheXyDKvDyBCuZRb4u6Y/gi0pLlVtUwMOScQsho4pOQ EBRhbDJwGe0y2aD0y3K51Q== 0001047469-99-034821.txt : 19990908 0001047469-99-034821.hdr.sgml : 19990908 ACCESSION NUMBER: 0001047469-99-034821 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990907 GROUP MEMBERS: THERMO ELECTRON CORPORATION GROUP MEMBERS: THERMO INSTRUMENT SYSTEMS INC. GROUP MEMBERS: THERMOSPECTRA CORP GROUP MEMBERS: THERMOSPECTRA CORPORATION GROUP MEMBERS: TS ACQUISITION CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: THERMOSPECTRA CORP CENTRAL INDEX KEY: 0000929807 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 043242970 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-51119 FILM NUMBER: 99706634 BUSINESS ADDRESS: STREET 1: 8 EAST FORGE PARKWAY STREET 2: PO BOX 9046 CITY: FRANKLIN STATE: MA ZIP: 02038 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254-9046 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: THERMOSPECTRA CORP CENTRAL INDEX KEY: 0000929807 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 043242970 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 8 EAST FORGE PARKWAY STREET 2: PO BOX 9046 CITY: FRANKLIN STATE: MA ZIP: 02038 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254-9046 SC 13E3/A 1 SC 13E3/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- AMENDMENT NO. 1 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) ThermoSpectra Corporation (Name of Issuer) ThermoSpectra Corporation TS Acquisition Corporation Thermo Instrument Systems Inc. Thermo Electron Corporation (Name of Person(s) Filing Statement) Common Stock, par value $.01 per share (Title of Class of Securities) 883660 10 2 (CUSIP Number of Class of Securities) Sandra L. Lambert, Clerk ThermoSpectra Corporation c/o Thermo Electron Corporation 81 Wyman Street P.O. Box 9046 Waltham, Massachusetts 02454-9046 (781) 622-1000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) with a copy to: Seth H. Hoogasian, General Counsel ThermoSpectra Corporation c/o Thermo Electron Corporation 81 Wyman Street P.O. Box 9046 Waltham, Massachusetts 02454-9046 (781) 622-1000 This statement is filed in connection with (check the appropriate box): a. /X/ The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. / / The filing of a registration statement under the Securities Act of 1933. c. / / A tender offer. d. / / None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. /X/ Calculation of Filing Fee
- ------------------------------------------------------------------------------- Transaction Value* Amount of Filing Fee - ------------------------------------------------------------------------------- $19,387,936 $3,878 - -------------------------------------------------------------------------------
* Solely for purposes of calculating the filing fee. Assumes purchase of 1,211,746 shares of Common Stock, par value $.01 per share, of ThermoSpectra Corporation at $16.00 per share. /X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount previously paid: $3,878 Form or registration no.: Preliminary Proxy Statement on Schedule 14A Filing party: ThermoSpectra Corporation Date filed: July 13, 1999 and September 7, 1999 2 This Rule 13e-3 Transaction Statement (as so amended, the "Statement") is being filed in connection with the filing by ThermoSpectra Corporation ("ThermoSpectra" or the "Company") with the Securities and Exchange Commission (the "Commission") on September 7, 1999 of a revised Proxy Statement on Schedule 14A (as amended, the "Proxy Statement") in connection with a special meeting of the stockholders of ThermoSpectra. At such meeting, the stockholders of ThermoSpectra will vote upon the approval of an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement") by and among Thermo Instrument Systems Inc. ("Thermo Instrument"), TS Acquisition Corporation (the "Merger Sub") and ThermoSpectra, pursuant to which the Merger Sub, a wholly owned subsidiary of Thermo Instrument, will be merged with and into ThermoSpectra. The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of the information required to be included in response to the items of this Statement. The information in the Proxy Statement that is attached hereto as Exhibit 17(d)(3), including all appendices thereto, is hereby expressly incorporated herein by reference and the responses to each item are qualified in their entirety by the provisions of the Proxy Statement. CROSS REFERENCE SHEET Item in Schedule 13E-3 Caption or Location in the Proxy Statement - ---------------------- ------------------------------------------ Item 1(a)..................."Introduction;" "Summary - Purpose of the Special Meeting;" "- Parties to the Merger" Item 1(b)..................."Introduction;" "Summary - Purpose of the Special Meeting;" "- Record Date and Quorum;" "- Market Prices of Common Stock and Dividends;" "The Special Meeting - Record Date and Quorum Requirement" Item 1(c)..................."Summary - Market Prices of Common Stock and Dividends" Item 1(d)..................."Summary - Market Prices of Common Stock and Dividends;" "The Merger - Covenants" Item 1(e)...................Not applicable Item 1(f)..................."Appendix E - Information Concerning Transactions in the Common Stock of the Company" Item 2(a) - (c)............."Summary - Parties to the Merger;" "Business of the Company;" "Management;" "Certain Information Concerning the Merger Sub, Thermo 3 Instrument and Thermo Electron;" "Appendix D - Information Concerning Directors and Executive Officers of the Company, Thermo Instrument, the Merger Sub and Thermo Electron" Item 2(d)..................."Management;" "Appendix D - Information Concerning Directors and Executive Officers of the Company, Thermo Instrument, the Merger Sub and Thermo Electron" Item 2(e)...................Not Applicable Item 2(f)...................Not Applicable Item 2(g)..................."Appendix D - Information Concerning Directors and Executive Officers of the Company, Thermo Instrument, the Merger Sub and Thermo Electron" Item 3(a)(1)................"Certain Transactions" Item 3(a)(2) - 3 (b)........"Summary - The Merger;" "- The Special Committee's and the Board's Recommendation;" "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger;" "Special Factors - Background of the Merger;" "- The Special Committee's and the Board's Recommendation;" "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger;" "Certain Transactions;" "Appendix E - Information Concerning Transactions in the Common Stock of the Company" Item 4(a)..................."Introduction;" "Summary - The Merger;" "- Effective Time of the Merger and Payment for Shares;" "- Assumption of ThermoSpectra Stock Options by Thermo Instrument;" "- Conflicts of Interest;" "- Certain Effects of the Merger;" "- Conditions to the Merger, Termination and Expenses;" "Special Factors - Conflicts of Interest;" "- Certain Effects of the Merger;" "The Merger;" "Appendix A - Agreement and Plan of Merger" Item 4(b)..................."Introduction;" "Summary - Purpose of the Special Meeting;" "-The Merger;" "The Merger - Conversion of Securities;" "- Deferred 4 Compensation Plan for Directors;" "Federal Income Tax Consequences;" "Appendix A - Agreement and Plan of Merger" Item 5(a)..................."Special Factors - Conduct of ThermoSpectra's Business After the Merger" Item 5(b)..................."Special Factors - Conduct of ThermoSpectra's Business After the Merger" Item 5(c)..................."Introduction;" "Special Factors - Conflicts of Interest;" " - Conduct of ThermoSpectra's Business After the Merger" Item 5(d)..................."Summary - Certain Effects of the Merger;" "Special Factors - Certain Effects of the Merger;" "The Merger - Conversion of Securities" Item 5(e)..................."Summary - Certain Effects of the Merger;" "Special Factors - Certain Effects of the Merger;" "- Conduct of ThermoSpectra's Business After the Merger" Item 5(f)..................."Summary - Certain Effects of the Merger;" "Special Factors - Certain Effects of the Merger" Item 5(g)..................."Summary - Certain Effects of the Merger;" "Special Factors - Certain Effects of the Merger" Item 6(a)..................."Summary - The Merger;" "The Merger - Source of Funds" Item 6(b)..................."Summary - Opinion of Financial Advisor;" "- Conflicts of Interest;" "Special Factors - Opinion of Financial Advisor;" "- Conflicts of Interest;" "The Merger - Expenses" Item 6(c)...................Not applicable Item 6(d)...................Not applicable Item 7(a) - (c)............."Summary - The Merger;" "- The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor;" "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger;" "Special Factors - 5 Background of the Merger;" "- The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor;" " - Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger" Item 7(d)..................."Summary - The Merger;" "- Assumption of ThermoSpectra Stock Options by Thermo Instrument;" "- Conflicts of Interest;" "- Certain Effects of the Merger;" "- Federal Income Tax Consequences;" "Special Factors - Conflicts of Interest;" "- Certain Effects of the Merger;" "- Conduct of ThermoSpectra's Business After the Merger;" "The Merger - Conversion of Securities;" "- Assumption of ThermoSpectra Stock Options by the Thermo Instrument;" "- Deferred Compensation Plan for Directors;" "Federal Income Tax Consequences" Item 8(a)..................."Summary - The Special Committee's and the Board's Recommendation;" " - Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger;" "Special Factors - The Special Committee's and the Board's Recommendation;" "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" Item 8(b)..................."Summary - The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor;" " - Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger;" "Special Factors - Background of the Merger;" "- The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor;" "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" Item 8(c)..................."Introduction;" "Summary - Vote Required and Revocation of Proxies;" "The Special Meeting - Voting Procedures" Item 8(d)..................."Summary - The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor;" "Special Factors - Background of the Merger;" "- The Special Committee's and the Board's Recommendation;" "- Opinion of Financial 6 Advisor;" "Appendix B - Opinion of Tucker Anthony Cleary Gull" Item 8(e)..................."Summary - The Special Committee's and the Board's Recommendation;" "Special Factors - The Special Committee's and the Board's Recommendation" Item 8(f)...................Not applicable Item 9(a) - (c)............."Summary - Opinion of Financial Advisor;" "Special Factors - Background of the Merger;" "- Opinion of Financial Advisor;" "Appendix B - Opinion of Tucker Anthony Cleary Gull" Item 10(a).................."Introduction;" "Summary - Vote Required and Revocation of Proxies;" "- The Special Committee's and the Board's Recommendation;" "- Conflicts of Interest;" "Special Factors - Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger;" "- Conflicts of Interest;" "The Special Meeting - Voting Procedures;" "Security Ownership of Certain Beneficial Owners and Management;" "Appendix E - Information Concerning Transactions in the Common Stock of the Company" Item 10(b).................."Appendix E - Information Concerning Transactions in the Common Stock of the Company" Item 11....................."Introduction;" "Summary - Vote Required and Revocation of Proxies;" "- The Merger;" "The Special Meeting - Voting Procedures;" "The Merger;" "Appendix A Agreement and Plan of Merger" Item 12(a).................."Introduction;" "Summary - Vote Required and Revocation of Proxies;" "The Special Meeting - Voting Procedures;" "Appendix D - Information Concerning Directors and Executive Officers of the Company, Thermo Instrument, the Merger Sub and Thermo Electron" Item 12(b).................."Summary - The Special Committee's and the Board's Recommendation;" "- Position of Thermo 7 Instrument and Thermo Electron as to Fairness of the Merger;" "Special Factors - The Special Committee's and the Board's Recommendation;" "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" Item 13(a).................."Summary - Rights of Dissenting Stockholders;" "The Special Meeting - Voting Procedures;" "Rights of Dissenting Stockholders;" "Appendix C - Text of Section 262 of the General Corporation Law of the State of Delaware" Item 13(b)..................Not applicable Item 13(c)..................Not applicable Item 14(a).................."Selected Financial Information;" "Consolidated Financial Statements" Item 14(b)..................Not applicable Item 15(a).................."The Special Meeting - Proxy Solicitation" Item 15(b)..................Not applicable Item 16.....................Entirety of Proxy Statement Item 17(a)..................Not applicable Item 17(b)(1)...............Opinion of Tucker Anthony Cleary Gull dated May 21, 1999 (included as Appendix B to the Proxy Statement) Item 17(b)(2)...............Presentation dated May 20, 1999 to the Special Committee of the Board of Directors of ThermoSpectra Corporation by Tucker Anthony Cleary Gull Item 17(c)..................Agreement and Plan of Merger dated as of May 21, 1999 by and among Thermo Instrument Systems Inc., TS Acquisition Corporation and ThermoSpectra Corporation (included as Appendix A to the Proxy Statement) Item 17(d)(1)...............Preliminary Copy of Letter to Stockholders Item 17(d)(2)...............Preliminary Copy of Notice of Special Meeting of Stockholders Item 17(d)(3)...............Preliminary Proxy Statement 8 Item 17(d)(4)...............Form of Proxy Item 17(e)..................Text of Section 262 of the General Corporation Law of the State of Delaware (included as Appendix C to the Proxy Statement) Item 17(f)..................Preliminary Proxy Statement ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The information set forth in the sections entitled "Introduction," "Summary - Purpose of the Special Meeting" and "- Parties to the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Introduction," "Summary - Purpose of the Special Meeting," "- Record Date and Quorum," "- Market Prices of Common Stock and Dividends" and "The Special Meeting - Record Date and Quorum Requirement" of the Proxy Statement is incorporated herein by reference. (c) The information set forth in the sections entitled "Summary - - Market Prices of Common Stock and Dividends" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Summary - - Market Prices of Common Stock and Dividends" and "The Merger - Covenants" of the Proxy Statement is incorporated herein by reference. (e) Not applicable. (f) The information set forth in Appendix E of the Proxy Statement is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed jointly by the Company (which is the issuer of the class of equity securities that is the subject of the Rule 13e-3 transaction), the Merger Sub, Thermo Instrument and Thermo Electron. (a) - (c) The information set forth in the sections entitled "Summary - Parties to the Merger," "Business of the Company," "Management" and "Certain Information Concerning the Merger Sub, Thermo Instrument and Thermo Electron," and in Appendix D of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the section entitled "Management," and in Appendix D of the Proxy Statement is incorporated herein by reference. 9 (e) During the last five years, none of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, nor (to the knowledge of each of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, respectively) any executive officer or director of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, respectively, has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors). (f) During the last five years, none of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, nor (to the knowledge of each of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, respectively) any executive officer or director of the Company, the Merger Sub, Thermo Instrument or Thermo Electron, respectively, has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order (i) enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or (ii) finding a violation with respect to such laws. (g) The information set forth in Appendix D of the Proxy Statement is incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a) (1) The information set forth in the section entitled "Certain Transactions" of the Proxy Statement is incorporated herein by reference. (a) (2) - (b) The information set forth in the sections entitled "Summary - The Merger," "- The Special Committee's and the Board's Recommendation," "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger," "Special Factors - Background of the Merger," "- The Special Committee's and the Board's Recommendation," "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger" and "Certain Transactions," and in Appendix E of the Proxy Statement is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the sections entitled "Introduction," "Summary - The Merger," "- Effective Time of the Merger and Payment for Shares," "- Assumption of ThermoSpectra Stock Options by Thermo Instrument," "- Conflicts of Interest," "- Certain Effects of the Merger," "- Conditions to the Merger, Termination and Expenses," "Special Factors - Conflicts of Interest," "- Certain Effects of the Merger" and "The Merger," and in Appendix A of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Introduction," "Summary - Purpose of the Special Meeting," "- The Merger," "The Merger - Conversion of Securities," "- Deferred Compensation Plan for Directors" and "Federal Income Tax Consequences," and Appendix A of the Proxy Statement is incorporated herein by reference. 10 ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a) The information set forth in the section entitled "Special Factors - Conduct of ThermoSpectra's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the section entitled "Special Factors - Conduct of ThermoSpectra's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (c) The information set forth in the sections entitled "Introduction," "Special Factors - Conflicts of Interest" and " - Conduct of ThermoSpectra's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Summary - Certain Effects of the Merger," "Special Factors - Certain Effects of the Merger," and "The Merger - Conversion of Securities" of the Proxy Statement is incorporated herein by reference. (e) The information set forth in the sections entitled "Summary - Certain Effects of the Merger," "Special Factors - Certain Effects of the Merger" and "- Conduct of ThermoSpectra's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (f) The information set forth in the sections entitled "Summary - Certain Effects of the Merger" and "Special Factors - Certain Effects of the Merger" of the Proxy Statement is incorporated herein by reference. (g) The information set forth in the sections entitled "Summary - Certain Effects of the Merger" and "Special Factors - Certain Effects of the Merger" of the Proxy Statement is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the sections entitled "Summary - The Merger" and "The Merger - Source of Funds" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Summary - Opinion of Financial Advisor," "- Conflicts of Interest," "Special Factors - Opinion of Financial Advisor," "- Conflicts of Interest" and "The Merger - Expenses" of the Proxy Statement is incorporated herein by reference. (c) Not applicable. (d) Not applicable. 11 ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) - (c) The information set forth in the sections entitled "Summary -The Merger," "- The Special Committee's and the Board's Recommendation;" "- Opinion of Financial Advisor," "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger," "Special Factors - Background of the Merger," "- The Special Committee's and the Board's Recommendation," "- Opinion of Financial Advisor" and "- Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Summary - The Merger," "Assumption of ThermoSpectra Stock Options by Thermo Instrument," "- Conflicts of Interest," "- Certain Effects of the Merger," "- Federal Income Tax Consequences," "Special Factors - Conflicts of Interest," "- Certain Effects of the Merger," "- Conduct of ThermoSpectra's Business After the Merger," "The Merger - Conversion of Securities," "- Assumption of ThermoSpectra Stock Options by the Thermo Instrument," "- Deferred Compensation Plan for Directors" and "Federal Income Tax Consequences" of the Proxy Statement is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a) The information set forth in the sections entitled "Summary - The Special Committee's and the Board's Recommendation," "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger," "Special Factors - The Special Committee's and the Board's Recommendation" and "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Summary - The Special Committee's and the Board's Recommendation," "- Opinion of Financial Advisor," "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger," "Special Factors - Background of the Merger," " - The Special Committee's and the Board's Recommendation," "- Opinion of Financial Advisor" and "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" of the Proxy Statement is incorporated herein by reference. (c) The information set forth in the sections entitled "Introduction," "Summary - Vote Required and Revocation of Proxies" and "The Special Meeting - Voting Procedures" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Summary - The Special Committee's and the Board's Recommendation," "- Opinion of Financial Advisor," "Special Factors - Background of the Merger," "- The Special Committee's and the Board's Recommendation" and "- Opinion of Financial Advisor," and in Appendix B of the Proxy Statement is incorporated herein by reference. (e) The information set forth in the sections entitled "Summary - The Special Committee's and the Board's Recommendation" and "Special Factors - The Special 12 Committee's and the Board's Recommendation" of the Proxy Statement is incorporated herein by reference. (f) Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a) - (c) The information set forth in the sections entitled "Summary - Opinion of Financial Advisor," "Special Factors - Background of the Merger" and "- Opinion of Financial Advisor," and in Appendix B of the Proxy Statement is incorporated herein by reference. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a) The information set forth in the sections entitled "Introduction," "Summary - Vote Required and Revocation of Proxies," "- The Special Committee's and the Board's Recommendation," "- Conflicts of Interest," "Special Factors - Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger," "- Conflicts of Interest," "The Special Meeting - Voting Procedures" and "Security Ownership of Certain Beneficial Owners and Management," and in Appendix E of the Proxy Statement is incorporated herein by reference. (b) The information set forth in Appendix E of the Proxy Statement is incorporated herein by reference. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in the sections entitled "Introduction," "Summary - Vote Required and Revocation of Proxies," "- The Merger," "The Special Meeting - Voting Procedures" and "The Merger," and in Appendix A of the Proxy Statement is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a) The information set forth in the sections entitled "Introduction," "Summary - Vote Required and Revocation of Proxies" and "The Special Meeting - Voting Procedures," and in Appendix D of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Summary - The Special Committee's and the Board's Recommendation," "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger," "Special Factors - The Special Committee's and the Board's Recommendation" and "- Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger" of the Proxy Statement is incorporated herein by reference. 13 ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in the sections entitled "Summary - Rights of Dissenting Stockholders," "The Special Meeting - Voting Procedures" and "Rights of Dissenting Stockholders," and in Appendix C of the Proxy Statement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in the sections entitled "Selected Financial Information" and "Consolidated Financial Statements" of the Proxy Statement is incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The information set forth in the section entitled "The Special Meeting - Proxy Solicitation" of the Proxy Statement is incorporated herein by reference. (b) Not applicable. ITEM 16. ADDITIONAL INFORMATION. The entirety of the Proxy Statement is incorporated herein by reference. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a) Not applicable. (b)(1) Opinion of Tucker Anthony Cleary Gull dated May 21, 1999 (included as Appendix B to the preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (b)(2) Presentation dated May 20, 1999 to the Special Committee of the Board of Directors of ThermoSpectra Corporation by Tucker Anthony Cleary Gull. (c) Agreement and Plan of Merger dated as of May 21, 1999 by and among Thermo Instrument Systems Inc., TS Acquisition Corporation and ThermoSpectra Corporation, (included as Appendix A to the preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(1) Preliminary Copy of Letter to Stockholders. (d)(2) Preliminary Copy of Notice of Special Meeting of Stockholders. (d)(3) Preliminary Proxy Statement. (d)(4) Form of Proxy. 14 (e) Text of Section 262 of the General Corporation Law of the State of Delaware (included as Appendix C to the preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (f) Preliminary Proxy Statement (see Exhibit (d)(3)). 15 SIGNATURES After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this Statement is true, complete and correct. THERMOSPECTRA CORPORATION Dated: September 3, 1999 By: /s/ Barry S. Howe ------------------------------------------- Name: Barry S. Howe Title: President and Chief Executive Officer TS ACQUISITION CORPORATION Dated: September 3, 1999 By: /s/ Earl R. Lewis ------------------------------------------- Name: Earl R. Lewis Title: President THERMO INSTRUMENT SYSTEMS INC. Dated: September 3, 1999 By: /s/ Earl R. Lewis ------------------------------------------- Name: Earl R. Lewis Title: President and Chief Executive Officer THERMO ELECTRON CORPORATION Dated: September 3, 1999 By: /s/ Kenneth J. Apicerno ------------------------------------------- Name: Kenneth J. Apicerno Title: Treasurer EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 99.17(b)(1) Opinion of Tucker Anthony Cleary Gull dated May 21, 1999 (included as Appendix B to the preliminary Proxy Statement, which is filed herewith as Exhibit 99.17(d)(3)). 99.17(b)(2) Presentation dated May 20, 1999 to the Special Committee of the Board of Directors of ThermoSpectra Corporation by Tucker Anthony Cleary Gull. 99.17(c) Agreement and Plan of Merger dated as of May 21, 1999 by and among Thermo Instrument Systems Inc., TS Acquisition Corporation and ThermoSpectra Corporation, (included as Appendix A to the preliminary Proxy Statement, which is filed herewith as Exhibit 99.17(d)(3)). 99.17(d)(1) Preliminary Copy of Letter to Stockholders. 99.17(d)(2) Preliminary Copy of Notice of Special Meeting of Stockholders. 99.17(d)(3) Preliminary Proxy Statement. 99.17(d)(4) Form of Proxy. 99.17(e) Text of Section 262 of the General Corporation Law of the State of Delaware (included as Appendix C to the preliminary Proxy Statement, which is filed herewith as Exhibit 99.17(d)(3)). 99.17(f) Preliminary Proxy Statement (see Exhibit 99.17(d)(3)). EX-99.17(B)(2) 2 EXHIBIT 99.17(B)(2) Exhibit 99.17(b)(2) - -------------------------------------------------------------------------------- PROJECT ORBIS ================================================================================ Presentation to the Special Committee of the Board of Directors May 20, 1999 - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- ================================================================================ PROJECT ORBIS - -------------------------------------------------------------------------------- Table of Contents Section Page I. Executive Summary Transaction Overview...................................... I - 1 Transaction Chronology.................................... I - 2-3 II. Valuation Methodologies Summary Reference Equity Value Range...................... II - 1-2 Exhibits Analysis of Selected Reference Publicly Traded Companies..... Exhibit A Analysis of Selected Reference Merger and Acquisition Transactions............................................... Exhibit B Analysis of Selected Acquisition of Minority Interest Transactions............................................... Exhibit C Analysis of Selected Acquisition of Remaining Interest Transactions............................................... Exhibit D Discounted Cash Flow Analyses................................ Exhibit E Consolidated Historical and Projected Income Statements...... Exhibit F Institutional Ownership...................................... Exhibit G Selected Price/Volume and Shares Traded Graphs............... Exhibit H - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- SECTION I Executive Summary - -------------------------------------------------------------------------------- Transaction Overview o ThermoSpectra Corporation (the "Company" or "THS") is a publicly traded, 92% owned subsidiary of Thermo Instrument Systems, Inc. ("THI"). THI has publicly announced its intention to repurchase all of the shares of THS stock it does not currently own. o Pursuant to a formal offer, THI proposes to purchase the remaining 8% minority stake for $16.00 per share in cash, reflecting an aggregate purchase price of $17.5 million, based on approximately 1,095,871 shares held by the minority shareholders. - -------------------------------------------------------------------------------- I-1 ------------- TUCKER CLEARY ------------- Executive Summary - -------------------------------------------------------------------------------- Transaction Chronology Mid-March 1998: ThermoSpectra announces appointment of Barry S. Howe as President and Chief Executive Officer. July 1998: Thermo Instrument Systems announces that its Board of Directors had authorized the repurchase, over the following 12 months, of up to 2 million shares of its common stock, as well as up to $25 million worth of its subsidiaries' securities. July 1998 - December 1998: Thermo Electron Corporation, a beneficial owner of more than 10% of the shares of ThermoSpectra Corporation, purchases 932,100 shares of THS, bringing its holdings to 14,239,545 or approximately 92% of THS shares outstanding. September 29, 1998: ThermoSpectra announces that it will record a third quarter charge of approximately $5.4 million relating to employee severance costs and facility closing costs. ThermoSpectra further announces that it expects 1999 savings resulting from these charges of approximately $11 million. Early March 1999: Tucker Cleary meets with the Special Committee to review its preliminary valuation of ThermoSpectra and provide guidance with respect to any offers from Thermo Instrument Systems for the minority stake of ThermoSpectra. In connection with the valuation, Tucker Cleary has: o Visited the Temperature Control division as well as the larger entities within the Test & Measurement and Imaging & Inspection divisions o Prepared a financial model incorporating management's financial projections o Reviewed comparable companies and comparable merger transactions - -------------------------------------------------------------------------------- I-2 ------------- TUCKER CLEARY ------------- Executive Summary - -------------------------------------------------------------------------------- Transaction Chronology (continued) March 1999 - May 1999: The Special Committee, in conjunction with its legal and financial advisors, negotiates with representatives of THI regarding an agreement in principle with respect to the price at which the minority stake in Orbis will be purchased by THI. Parties ultimately agree to a per share price in cash of $16.00. - -------------------------------------------------------------------------------- I-3 ------------- TUCKER CLEARY ------------- SECTION II Valuation Methodologies - Summary - -------------------------------------------------------------------------------- Reference Equity Value Range ---------------- -------------------- Reference Reference M&A Transactions Public Companies (1) ---------------- -------------------- Imputed Equity Value $156 M - $196 M $120 M - $138 M Per Share $10.20 - $12.79 $7.80 - $8.99 ------------------ ------------------- Acquisition of Acquisition of Minority Interests Remaining Interests ------------------ ------------------- Premiums (1 week prior to announcement) High 50.7% 50.6% Adjusted Mean 14.3% 18.8% Low 1.5% 3.8% THS Stock Price (5/14/99) $11.125 $11.125 Imputed High Value $16.77 $16.75 Imputed Mean Value $12.72 $13.22 Imputed Low Value $11.29 $11.55 - ---------- (1) Represents the sum of the imputed values for each of the three divisions, before giving effect to any acquisition premium. - -------------------------------------------------------------------------------- II-1 ------------- TUCKER CLEARY ------------- Valuation Methodologies - Summary - -------------------------------------------------------------------------------- Reference Equity Value Range -- Chronology of DCF Valuations -------------------------------------- Consolidated DCF (3/10/99 Presentation Methodology (1)) -------------------------------------- Management Case Adjusted Case --------------- ------------- Imputed Equity Value $278 M - $324 M $172 M - $201 M Per Share $18.16 - $21.14 $11.22 - $13.11 ---------- ---------- --------- ------------ THS Tucker Cleary THS Tucker Cleary Original DCF Revised DCF Revised DCF Revised DCF 3/19/99(2) 3/26/99(3) 4/7/99(4) Early May(5) ---------- ---------- --------- ------------ Imputed Equity Value $221 M $302 M $242 M $252 M Per Share $14.40 $19.65 $15.73 $16.41 - ---------- (1) Updated to reflect current estimated cost of capital and terminal value multiples. (2) Employing 10-year period and alternative terminal value calculation. (3) Employing THS methodology consistently applied. (4) Employing management projections for years 1-5 and revised year 6-10 projections. (5) Employing 5 year projections. - -------------------------------------------------------------------------------- II-2 ------------- TUCKER CLEARY ------------- TAB A Project Orbis - Temperature Control Group Imputed Valuation Based on Reference Company Analysis (Based on Latest Twelve Months ended 4/3/99 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------ - ------------------------------- Valuation Enterprise Value Multiple of: - ------------------------------- ------------------------------------------------- LTM LTM LTM Revenues EBITDA EBIT -------------- ----------- -------------- SELECTED COMP GROUP MULTIPLE Adjusted Mean 0.9x 13.6x 17.7x TEMPERATURE CONTROL DIVISION Financial Data (1) $54,768 $7,350 $5,912 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $47,310 $100,012 $104,434 - ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Based on Temperature Control Division model. Prior to restructuring costs and adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Temperature Control Group Imputed Valuation Based on Reference Company Analysis (Based on Fiscal 1999 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------ - ------------------------------- Valuation Enterprise Value Multiple of: - ------------------------------- ------------------------------------------------- 1999 1999 1999 Revenues EBITDA EBIT -------------- ----------- -------------- SELECTED COMP GROUP MULTIPLE (1) Adjusted Mean 0.9x 13.6x 17.7x TEMPERATURE CONTROL DIVISION (2) Financial Data $49,451 $8,372 $5,844 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $42,717 $113,921 $103,227 - ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) 1999 enterprise value is calculated using 1998 adjusted mean multiples. (2) Based on 1999 Temperature Control Division model. EBIT has been adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Temperature Control Group Selected Reference Company Analysis (All Dollar Amounts in Thousands, Except Per Share Amounts) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Temperature Control Div. (1) Mean ---------------- -------------- Ticker/Exchange NA Latest Fiscal Year Ending 01/02/99 Latest Fiscal Quarter Ending 04/03/99 Preliminary Earnings Reported - - -------------------------------------------- Current Market Information - -------------------------------------------- Stock Price: 05/14/99 NA 52-Week High NA 52-Week Low NA % Within High/Low Range NA Common Shares Outstanding (000s) NA % Held by Institutions NA Market Value of Common Equity (EMV) NA $179,405 Plus: Total Funded Debt (TFD) (a) NA $33,796 Less: Cash and Marketable Securities $1,820 $13,400 ------------- -------------- Total Market Capitalization (b) NA $199,801 ============= ============== - -------------------------------------------- Last 12 Months' (LTM) Income Information - -------------------------------------------- LTM Revenues $54,639 $143,850 LTM Gross Profit $19,658 $65,103 LTM EBITDA $8,117 (2) $14,990 LTM EBIT $6,679 (2) $9,401 LTM Net Income $4,942 (2) $5,778 Margins: LTM Gross Margin 36.0% 45.5% LTM EBITDA Margin 14.9% (2) 10.5% LTM EBIT Margin 12.2% (2) 6.7% LTM Net Income Margin 9.0% (2) 4.1% Tax Rate 4.3% 38.3% - -------------------------------------------- EPS Information - -------------------------------------------- LTM EPS NA Projected CY 1999 EPS (c) NA Projected CY 2000 EPS (c) NA Book Value NA Projected 5 Year Growth (EPS) (c) NA - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Valuation Comparables -------------------------------------------------------------------- Keithley Cerprobe GenRad, IFR Instruments, Corporation Inc. Systems, Inc. Inc. -------------- -------------- --------------- --------------- Ticker/Exchange CRPB / NASDAQ GEN / NYSE IFRS / NASDAQ KEI / NYSE Latest Fiscal Year Ending 12/31/98 01/02/99 06/30/98 09/30/98 Latest Fiscal Quarter Ending 12/31/98 01/02/99 12/31/98 12/31/98 Preliminary Earnings Reported 03/31/99 - - 03/31/99 - -------------------------------------------- Current Market Information - -------------------------------------------- Stock Price: 05/14/99 $9.44 $18.56 $4.31 $8.06 52-Week High $18.25 $22.31 $23.25 $9.69 52-Week Low $8.38 $10.19 $3.13 $3.75 % Within High/Low Range 10.8% 69.1% 5.9% 72.6% Common Shares Outstanding (000s) 8,145 29,335 8,208 7,545 % Held by Institutions 36.3% 62.8% 53.0% 41.9% Market Value of Common Equity (EMV) $76,868 $544,524 $35,397 $60,832 Plus: Total Funded Debt (TFD) (a) $6,573 $8,487 $114,125 $6,000 Less: Cash and Marketable Securities $19,884 $12,998 $4,663 $16,056 -------------- -------------- --------------- --------------- Total Market Capitalization (b) $63,557 $540,013 $144,859 $50,776 ============== ============== =============== =============== - -------------------------------------------- Last 12 Months' (LTM) Income Information - -------------------------------------------- LTM Revenues $68,860 $224,789 $180,027 $101,725 LTM Gross Profit $26,836 $105,912 $68,780 $58,882 LTM EBITDA $8,274 $32,424 (3) $7,920 (4) $11,343 LTM EBIT $3,598 $17,112 (3) ($1,561) (4) $7,494 LTM Net Income $2,639 $10,907 (3) ($12,724) (4) $3,788 Margins: LTM Gross Margin 39.0% 47.1% 38.2% 57.9% LTM EBITDA Margin 12.0% 14.4% (3) 4.4% (4) 11.2% LTM EBIT Margin 5.2% 7.6% (3) (0.9%) (4) 7.4% LTM Net Income Margin 3.8% 4.9% (3) (7.1%) (4) 3.7% Tax Rate 42.7% 31.0% NM 41.3% - -------------------------------------------- EPS Information - -------------------------------------------- LTM EPS $0.45 $0.85 $0.18 $0.69 Projected CY 1999 EPS (c) $0.73 $1.37 $0.27 $0.63 Projected CY 2000 EPS (c) $1.29 $1.78 $0.34 $0.70 Book Value $6.58 $4.57 $3.72 $5.35 Projected 5 Year Growth (EPS) (c) 25.0% 25.0% 25.0% 12.0% - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Industry Comparables --------------- ---------------------------------------------------- Keithley Applied Credence Instruments, Materials Systems KLA-Tencor Inc. Inc. Corporation Corporation --------------- ---------------- ---------------- -------------- Ticker/Exchange KEI / NYSE AMAT / NASDAQ CMOS / NASDAQ KLAC / NASDAQ Latest Fiscal Year Ending 09/30/98 10/31/98 10/31/98 06/30/98 Latest Fiscal Quarter Ending 12/31/98 01/31/99 10/31/98 12/31/98 Preliminary Earnings Reported 03/31/99 - 01/31/99 03/31/99 - -------------------------------------------- Current Market Information - -------------------------------------------- Stock Price: 05/14/99 $8.06 $60.69 $26.94 $51.50 52-Week High $9.69 $71.63 $32.06 $65.00 52-Week Low $3.75 $21.56 $9.31 $20.75 % Within High/Low Range 72.6% 78.2% 77.5% 69.5% Common Shares Outstanding (000s) 7,545 372,974 20,477 88,159 % Held by Institutions 41.9% 65.4% 95.7% 74.5% Market Value of Common Equity (EMV) $60,832 $22,634,879 $551,607 $4,540,189 Plus: Total Funded Debt (TFD) (a) $6,000 $624,554 $115,000 $16,416 Less: Cash and Marketable Securities $16,056 $562,401 $58,343 $747,679 --------------- ---------------- ---------------- -------------- Total Market Capitalization (b) $50,776 $22,697,032 $608,264 $3,808,926 =============== ================ ================ ============== - -------------------------------------------- Last 12 Months' (LTM) Income Information - -------------------------------------------- LTM Revenues $101,725 $3,476,479 $148,207 $1,469,730 LTM Gross Profit $58,882 $1,554,818 $78,413 $817,834 LTM EBITDA $11,343 (5) $695,602 (6) $6,864 $231,022 (7) LTM EBIT $7,494 (5) $407,203 (6) ($8,095) $192,105 (7) LTM Net Income $3,788 (5) $267,862 (6) ($5,046) $241,223 (7) Margins: LTM Gross Margin 57.9% 44.7% 52.9% 55.6% LTM EBITDA Margin 11.2% (5) 20.0% (6) 4.6% 15.7% (7) LTM EBIT Margin 7.4% (5) 11.7% (6) -5.5% 13.1% (7) LTM Net Income Margin 3.7% (5) 7.7% (6) (3.4%) 16.4% (7) Tax Rate 41.3% 33.3% 18.8% 34.3% - -------------------------------------------- EPS Information - -------------------------------------------- LTM EPS $0.69 $0.74 ($0.42) $0.72 Projected CY 1999 EPS (c) $0.63 $1.45 $0.06 $1.11 Projected CY 2000 EPS (c) $0.70 $1.81 $0.08 $1.95 Book Value $5.35 $8.63 $7.07 $13.62 Projected 5 Year Growth (EPS) (c) 12.0% 25.0% 25.0% 25.0% - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (a) Total Funded Debt equals Short-Term Debt plus Long-Term Debt plus Preferred Equity. (b) Total Market Capitalization equals Market Value of Common Equity plus Total Funded Debt less Cash and Marketable Securities. (c) Consensus estimates from First Call. "NA" indicates value not available; "NM" indicates a negative value. (1) Temperature Control Division results provided by the Company. (2) Before Allocated corporate overhead, interest and taxes. Excludes $237 of restructuring charges in 1998. (3) GenRad, Inc. excludes $31,406 of extraordinary items in 1998. (4) IFR excludes $15,700 of acquired research and development in 1998. (5) Keithley excludes $4,808 abd $2,852 of gain on sale of business in 1999 and 1998 respectively and excludes $335 and $1,172 of special charges in 1999 and 1998 respectively. (6) Applied Materials exclude $5,000 and $237,227 of non-recurring items in 1999 and 1998 respectively. (7) KLA-Tencor excludes $42,700 and $22,474 of non-recurring acquisition, restructuring and other charges in 1999 and 1998 respectively. Project Orbis - Temperature Control Group Selected Reference Company Analysis - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- Valuation Comparables ---------------------------------------------------------------------- Cerprobe GenRad, IFR Keithley Market Multiples Corporation Inc. Systems, Inc. Instruments, Inc. ---------------- ---------------- ---------------- ---------------- Price / LTM EPS 21.0x 21.8x 24.0x 11.7x Price / CY 1999 EPS 12.9x 13.5x 16.0x 12.9x Price / CY 2000 EPS 7.3x 10.4x 12.8x 11.5x Total Capitalization/LTM Revenues 0.9x 2.4x 0.8x 0.5x Total Capitalization/LTM EBITDA 7.7x 16.7x 18.3x 4.5x Total Capitalization/LTM EBIT 17.7x 31.6x (92.8x) 6.8x CY 1999 P/E Ratio/Future 5-Yr Growth Rate 0.5x 0.5x 0.6x 1.1x Market / Book Multiple 1.4x 4.1x 1.2x 1.5x - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Industry Comparables ---------------------------------------------------- Applied Materials Credence Systems KLA-Tencor Market Multiples Inc. Corporation Corporation ---------------- ---------------- ---------------- Price / LTM EPS 82.0x (64.1x) 71.5x Price / CY 1999 EPS 41.9x 449.0x 46.4x Price / CY 2000 EPS 33.5x 359.2x 26.4x Total Capitalization/LTM Revenues 6.5x 4.1x 2.6x Total Capitalization/LTM EBITDA 32.6x 88.6x 16.5x Total Capitalization/LTM EBIT 55.7x (75.1x) 19.8x CY 1999 P/E Ratio/Future 5-Yr Growth Rate 1.7x 18.0x 1.9x Market / Book Multiple 7.0x 3.8x 3.8x - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- - ----------------------------------- Adjusted Summary Statistics (a) Mean (b) High Low Count - ----------------------------------- ---------------- ---------------- ---------------- ---------------- Price / LTM EPS 21.4x 24.0x 11.7x 4 Price / CY 1999 EPS 13.2x 16.0x 12.9x 4 Price / CY 2000 EPS 11.0x 12.8x 7.3x 4 Total Capitalization/LTM Revenues 0.9x 2.4x 0.5x 4 Total Capitalization/LTM EBITDA 13.6x 18.3x 4.5x 5 Total Capitalization/LTM EBIT 17.7x 19.8x 6.8x 3 CY 1999 P/E Ratio/Future 5-Yr Growth Rate 0.6x 1.1x 0.5x 4 Market / Book Multiple 1.4x 1.5x 1.2x 3 - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (a) Boldfaced multiples, if any, are excluded from Summary Statistics, as they are deemed extraordinary. (b) Adjusted Mean excludes high and low values. Project Orbis - Temperature Control Group Selected Reference Company Analysis (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- Valuation Comparables ------------------------------------------------------------------ Cerprobe GenRad, IFR Keithley Mean Corporation Inc. Systems, Inc. Instruments, Inc. -------- ------------ ------------- --------------- -------------- Revenues LTM $68,860 $224,789 $180,027 $101,725 Latest Fiscal Year 1997/98 $76,207 $224,789 $148,069 $117,776 Fiscal Year 1996/97 $77,110 $236,761 $103,517 $123,295 Fiscal Year 1995/96 $37,310 $183,545 $89,997 $118,946 -------- ------------ ------------- --------------- -------------- 3 Yr. Revenue CAGR 18.5% 42.9% 10.7% 28.3% NM Gross Margin LTM 39.0% 47.1% 38.2% 57.9% Latest Fiscal Year 1997/98 40.9% 47.1% 36.5% 57.3% Fiscal Year 1996/97 41.0% 53.5% 40.8% 57.9% Fiscal Year 1995/96 45.5% 52.5% 37.7% 61.2% -------- ------------ ------------- --------------- -------------- Avg. 3 Yr. Gross Margin 50.1% 42.5% 51.1% 38.3% 58.8% EBITDA Margin LTM 12.0% 14.4% 4.4% 11.2% Latest Fiscal Year 1997/98 16.3% 14.4% 6.9% 9.7% Fiscal Year 1996/97 11.8% 20.2% 13.5% 5.8%(1) Fiscal Year 1995/96 7.2% 17.8% 12.5% 8.6%(1) -------- ------------ ------------- --------------- -------------- Avg. 3 Yr. EBITDA Margin 17.2% 11.7% 17.5% 11.0% 8.0% EBIT Margin LTM 5.2% 7.6% (0.9%) 7.4% Latest Fiscal Year 1997/98 10.1% 7.6% 2.6% 6.4% Fiscal Year 1996/97 7.0% 16.3% 10.5% 2.5%(1) Fiscal Year 1995/96 2.0% 14.1% 9.2% 5.2%(1) -------- ------------ ------------- --------------- -------------- Avg. 3 Yr. EBIT Margin 12.8% 6.4% 12.7% 7.4% 4.7% Net Income LTM $2,639 $10,907 ($12,724) $3,788 Latest Fiscal Year 1997/98 $5,237 $10,907 ($6,517) $3,710 Fiscal Year 1996/97 $1,840 $41,295 $6,646 $1,253 (1) Fiscal Year 1995/96 ($1,360) $27,335 $4,761 $1,547 (1) -------- ------------ ------------- --------------- -------------- 3 Yr. Net Income CAGR 54.9% NM NM NM 54.9% Net Income Margin LTM 3.8% 4.9% (7.1%) 3.7% Latest Fiscal Year 1997/98 6.9% 4.9% (4.4%) 3.2% Fiscal Year 1996/97 2.4% 17.4% 6.4% 1.0%(1) Fiscal Year 1995/96 (3.6%) 14.9% 5.3% 1.3%(1) -------- ------------ ------------- --------------- -------------- Avg. 3 Yr. Net Income Margin 8.4% 1.9% 12.4% 2.4% 1.8% - ---------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Industry Comparables --------------------------------------------------- Applied Materials Credence Systems KLA-Tencor Inc. Corporation Corporation ----------------- ---------------- ------------ Revenues LTM $3,476,479 $148,207 $1,469,730 Latest Fiscal Year 1997/98 $4,041,687 $204,092 $1,166,325 Fiscal Year 1996/97 $4,074,275 $238,788 $1,031,824 Fiscal Year 1995/96 $4,144,817 $176,805 $1,094,492 ----------- ---------- ------------ 3 Yr. Revenue CAGR NM 7.4% 3.2% Gross Margin LTM 44.7% 52.9% 55.6% Latest Fiscal Year 1997/98 46.1% 55.9% 52.4% Fiscal Year 1996/97 46.7% 59.4% 54.3% Fiscal Year 1995/96 47.0% 60.3% 57.1% ----------- ---------- ------------ Avg. 3 Yr. Gross Margin 46.6% 58.5% 54.6% EBITDA Margin LTM 20.0% 4.6% 15.7% Latest Fiscal Year 1997/98 22.5% 14.2% 19.4% Fiscal Year 1996/97 24.2% 27.6% 25.1% Fiscal Year 1995/96 26.0% 28.4% 29.3% ----------- ---------- ------------ Avg. 3 Yr. EBITDA Margin 24.2% 23.4% 24.6% EBIT Margin LTM 11.7% (5.5%) 13.1% Latest Fiscal Year 1997/98 15.5% 7.4% 16.0% Fiscal Year 1996/97 18.8% 22.8% 20.0% Fiscal Year 1995/96 22.4% 24.8% 27.1% ----------- ---------- ------------ Avg. 3 Yr. EBIT Margin 18.9% 18.3% 21.0% Net Income LTM $267,862 ($5,046) $241,223 Latest Fiscal Year 1997/98 $431,306 $10,699 $147,580 Fiscal Year 1996/97 $543,965 $37,703 $141,727 Fiscal Year 1995/96 $614,645 $30,354 $196,634 ----------- ---------- ------------ 3 Yr. Net Income CAGR NM NM NM Net Income Margin LTM 7.7% (3.4%) 16.4% Latest Fiscal Year 1997/98 10.7% 5.2% 12.7% Fiscal Year 1996/97 13.4% 15.8% 13.7% Fiscal Year 1995/96 14.8% 17.2% 18.0% ----------- ---------- ------------ Avg. 3 Yr. Net Income Margin 13.0% 12.7% 14.8% - -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Keithley Instruments excludes $771 and $11,645 of special charges in 1997 and 1996 respectively. Project Orbis Business Descriptions of Selected Reference Companies - -------------------------------------------------------------------------------- Temperature Control Group Applied Materials, Inc. Applied Materials, Inc. develops, manufactures, markets, and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Cerprobe Corporation Cerprobe Corporation designs, manufactures, and markets products for the high-performance testing of integrated circuits and other microelectronics components. The Company sells its products to semiconductor manufacturers worldwide. Credence Systems Corp. Credence Systems Corporation designs, manufactures, sells, and services automatic test equipment used in the production of semiconductors. The Company also develops, publishes, and distributes software products used to aid in the generation and verification of test programs for automatic test equipment systems. GenRad, Inc. GenRad, Inc. manufactures and sells computer controlled test and development equipment. The Company's devices are used by electronic and mechanical equipment and semiconductor manufacturers to test their products for quality and reliability at various stages of their design and production. GenRad also sells integrated software. The Company operates throughout North America and Europe. IFR Systems, Inc. IFR Systems, Inc. designs and manufactures test equipment. The Company sells communications, test and measurement, avionics, and fiber optic equipment. IFR also sells fiber optics software solutions for use in connection with certain of the Company's test equipment products. Keithley Instruments, Inc. Keithley Instruments, Inc. provides measurement-based solutions to the semiconductor, telecommunications, and electronic components industries. The Company markets its products to engineers and scientists worldwide for process monitoring, production test, and basic research. KLA-Tencor Corporation KLA-Tencor Corporation manufactures yield management and process monitoring systems for the semiconductor industry. The Company's systems are used to analyze product and process quality at critical steps in the manufacture of circuits. KLA-Tencor operates sales, service, and application centers worldwide. Project Orbis - Imaging & Inspection Group Imputed Valuation Based on Reference Company Analysis (Based on Latest Twelve Months ended 4/3/99 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ------------------------------------------------------------ LTM LTM LTM Revenues EBITDA EBIT ----------- ------------ ----------- SELECTED COMP GROUP MULTIPLE Adjusted Mean 0.9x 9.4x 10.8x IMAGING & INSPECTION DIVISION Financial Data (1) $86,026 $5,946 $4,295 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $74,205 $55,603 $46,582 - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Based on LTM as of 4/3/99 Imaging & Inspection Division model. Prior to restructuring costs and adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Imaging & Inspection Group Imputed Valuation Based on Reference Company Analysis (Based on Fiscal 1999 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ------------------------------------------------------------ 1999 1999 1999 Revenues EBITDA EBIT ----------- ------------ ----------- SELECTED COMP GROUP MULTIPLE (1) Adjusted Mean 0.9x 9.4x 10.8x IMAGING & INSPECTION DIVISION (2) Financial Data $96,960 $19,187 $10,584 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $83,637 $179,424 $114,783 - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) 1999 enterprise value is calculated using 1998 adjusted mean multiples. (2) Based on 1999 Imaging & Inspection Division model. EBIT has been adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Imaging & Inspection Group Selected Reference Company Analysis (All Dollar Amounts in Thousands, Except Per Share Amounts) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- ------------------ -------------------------------------- Imaging & American Science Barringer Inspection Div.(1) Mean and Engineering Technologies ------------------ -------- -------------------------------------- Ticker/Exchange NA ASE/AMEX BARR/NASD Latest Fiscal Year Ending 01/02/99 03/31/98 12/31/98 Latest Fiscal Quarter Ending 04/03/99 12/31/98 03/31/99 Preliminary Earnings Reported - - - - ------------------------------------------------ Current Market Information - ------------------------------------------------ Stock Price: 05/14/99 NA $8.69 $5.88 52-Week High NA $16.50 $12.13 52-Week Low NA $7.13 $5.00 % Within High/Low Range NA 16.7% 12.3% Common Shares Outstanding (000s) NA 4,825 7,214 % Held by Institutions NA 14.4% 51.9% Market Value of Common Equity (EMV) NA $246,878 $41,917 $42,382 Plus: Total Funded Debt (TFD) (a) $26 $28,567 $1,050 $92 Less: Cash and Marketable Securities $3,535 $30,961 $1,514 $14,632 --------------- ---------------- ---------------- Total Market Capitalization (b) NA $237,342 $41,453 $27,842 =============== ================ ================ - ------------------------------------------------ Last 12 Months' (LTM) Income Information - ------------------------------------------------ LTM Revenues $85,824 $152,402 $50,829 $19,787 LTM Gross Profit $37,009 $73,251 $17,573 $12,128 LTM EBITDA $6,503 (2) $14,993 $4,104 $3,259 (3) LTM EBIT $4,853 (2) $10,738 $3,431 $2,400 (3) LTM Net Income $2,253 (2) $11,066 $4,312 $1,717 (3) Margins: LTM Gross Margin 43.1% 51.0% 34.6% 61.3% LTM EBITDA Margin 7.6% 11.1% 8.1% 16.5%(3) LTM EBIT Margin 5.7% 7.5% 6.8% 12.1%(3) LTM Net Income Margin 2.6% 7.8% 8.5% 8.7%(3) Tax Rate 28.1% 48.3% NM NM - ------------------------------------------------ EPS Information - ------------------------------------------------ LTM EPS NA $0.43 $0.24 Projected CY 1999 EPS (c) NA NA $0.43 Projected CY 2000 EPS (c) NA NA $0.74 Book Value NA $3.84 $6.54 Projected 5 Year Growth (EPS) (c) NA 14.8% NA 17.0% ----------------------------------------------------------------------------- Bio-Rad Cognex Invision Moore Laboratories, Inc. Corp. Technologies Products Co. ----------------------------------------------------------------------------- Ticker/Exchange BIO / AMEX CGNX/NASD INVN/NASD MORP/NASD Latest Fiscal Year Ending 12/31/98 12/31/98 12/31/98 12/31/98 Latest Fiscal Quarter Ending 12/31/98 12/31/98 12/31/98 12/31/98 Preliminary Earnings Reported - 04/04/99 03/31/99 - - ------------------------------------------------ Current Market Information - ------------------------------------------------ Stock Price: 05/14/99 $27.88 $29.38 $6.00 $23.63 52-Week High $34.00 $30.38 $9.75 $34.75 52-Week Low $18.88 $8.63 $3.63 $18.00 % Within High/Low Range 59.5% 95.4% 38.8% 33.6% Common Shares Outstanding (000s) 12,463 40,347 12,068 2,637 % Held by Institutions 45.8% 69.0% NA 53.6% Market Value of Common Equity (EMV) $347,394 $1,185,179 $72,406 $62,301 Plus: Total Funded Debt (TFD) (a) $51,732 $0 $2,329 $176 Less: Cash and Marketable Securities $16,255 $172,531 $14,773 $7,549 ---------------- ---------------- ----------------- ---------------- Total Market Capitalization (b) $382,871 $1,012,648 $59,962 $54,928 ================ ================ ================= ================ - ------------------------------------------------ Last 12 Months' (LTM) Income Information - ------------------------------------------------ LTM Revenues $441,942 $109,273 $62,919 $168,113 LTM Gross Profit $239,504 $74,176 $27,623 $63,554 LTM EBITDA $31,145 $20,127 (4) $10,316 $11,360 (5) LTM EBIT $31,145 $11,413 (4) $8,327 $7,420 (5) LTM Net Income $24,302 $14,025 (4) $7,595 $3,025 (5) Margins: LTM Gross Margin 54.2% 67.9% 43.9% 37.8% LTM EBITDA Margin 7.0% 18.4%(4) 16.4% 6.8%(5) LTM EBIT Margin 7.0% 10.4%(4) 13.2% 4.4%(5) LTM Net Income Margin 5.5% 12.8%(4) 12.1% 1.8%(5) Tax Rate 29.0% 25.2% NM 58.5% - ------------------------------------------------ EPS Information - ------------------------------------------------ LTM EPS $2.15 $0.64 $0.59 $1.37 Projected CY 1999 EPS (c) $2.30 $0.60 $0.62 NA Projected CY 2000 EPS (c) $2.66 $0.99 $0.76 NA Book Value $17.20 $6.32 $4.04 $23.87 Projected 5 Year Growth (EPS) (c) 16.0% 20.0% 22.0% NA -------------------------------------------------------------------------- Robotic Vision Oxford PPT Veeco Instruments Systems, Inc. Instruments Plc Vision, Inc. Inc. -------------------------------------------------------------------------- Ticker/Exchange ROBV / OTC OXIG/LND PPTV/NASD VECO/NASD Latest Fiscal Year Ending 09/30/97 03/31/98 10/31/98 12/31/98 Latest Fiscal Quarter Ending 12/31/98 09/30/98 01/31/99 12/31/98 Preliminary Earnings Reported - - - 03/31/99 - ------------------------------------------------ Current Market Information - ------------------------------------------------ Stock Price: 05/14/99 $3.00 $3.49 $4.50 $35.88 52-Week High $7.81 $6.02 $9.50 $64.50 52-Week Low $1.69 $2.62 $4.00 $20.38 % Within High/Low Range 21.4% 25.5% 9.1% 35.1% Common Shares Outstanding (000s) 24,887 47,700 5,398 15,891 % Held by Institutions 17.6% 24.2% 21.4% 46.7% Market Value of Common Equity (EMV) $74,662 $166,411 $24,290 $570,090 Plus: Total Funded Debt (TFD) (a) $39,029 $78,043 $0 $18,011 Less: Cash and Marketable Securities $2,653 $18,285 $1,011 $70,017 ---------------- ---------------- ---------------- ---------------- Total Market Capitalization (b) $111,038 $226,169 $23,279 $518,084 ================ ================ ================ ================ - ------------------------------------------------ Last 12 Months' (LTM) Income Information - ------------------------------------------------ LTM Revenues $127,720 $279,674 $9,786 $209,158 LTM Gross Profit $61,870 $101,457 $5,698 $108,777 LTM EBITDA $6,141 $22,603 ($1,177) $28,526 (6) LTM EBIT $349 $14,110 ($1,691) $26,877 (6) LTM Net Income ($278) $15,734 ($372) $16,611 (6) Margins: LTM Gross Margin 48.4% 36.3% 58.2% 52.0% LTM EBITDA Margin 4.8% 8.1% (12.0%) 13.6%(6) LTM EBIT Margin 0.3% 5.0% (17.3%) 12.9%(6) LTM Net Income Margin (0.2%) 5.6% (3.8%) 7.9%(6) Tax Rate 109.2% 30.3% 37.9% 36.9% - ------------------------------------------------ EPS Information - ------------------------------------------------ LTM EPS ($1.04) $0.31 ($0.17) $1.09 Projected CY 1999 EPS (c) $0.35 NA ($0.17) $1.53 Projected CY 2000 EPS (c) $0.39 NA ($0.16) $2.25 Book Value $1.41 $3.34 $4.98 $10.62 Projected 5 Year Growth (EPS) (c) 10.0% NA 4.0% 25.0% - --------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (a) Total Funded Debt equals Short-Term Debt plus Long-Term Debt plus Preferred Equity. (b) Total Market Capitalization equals Market Value of Common Equity plus Total Funded Debt less Cash and Marketable Securities. (c) Consensus estimates from First Call. "NA" indicates value not available; "NM" indicates a negative value. (1) Imaging & Inspection Division results provided by the Company. Excludes $1,555 and $758 of restructuring charges in 1998 and 1999 respectively. (2) Before Allocated corporate overhead, interest and taxes. (3) Barringer excludes $435 of write-off of acquired technology in 1998. (4) Cognex excludes $2,100 of charge for acquired in-process technology in 1998. (5) Moore Products excludes $944 of net gain from early retirement progress in 1998 and $1,000 of write-down of joing venture assets. (6) Veco excludes $7,500 of merger and reorganization expenses in 1998. Project Orbis - Imaging & Inspection Group Analysis of Selected Reference Companies - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------- - --------------------- American Science Barringer Bio-Rad Cognex Invision Market Multiples and Engineering Technologies Laboratories, Inc. Corp. Technologies - --------------------- ---------------------------------------------------------------------------------------------- Price / LTM EPS 20.2x 24.5x 13.0x 45.9x 10.2x Price / CY 1999 EPS NA 13.7x 12.1x 49.0x 9.7x Price / CY 2000 EPS NA 7.9x 10.5x 29.7x 7.9x Total Capitalization/LTM Revenues 0.8x 1.4x 0.9x 9.3x 1.0x Total Capitalization/LTM EBITDA 10.1x 8.5x 12.3x 50.3x 5.8x Total Capitalization/LTM EBIT 12.1x 11.6x 12.3x 88.7x 7.2x CY 1999 P/E Ratio/Future 5-Yr Growth Rate NA 0.8x 0.8x 2.4x 0.4x Market / Book Multiple 2.3x 0.9x 1.6x 4.6x 1.5x - ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ - --------------------- Moore Robotic Vision Oxford PPT Veeco Instruments Market Multiples Products Co. Systems, Inc. Instruments Plc Vision, Inc. Inc. - --------------------- ------------------------------------------------------------------------------------------------ Price / LTM EPS 17.2x NM 11.4x NM 32.9x Price / CY 1999 EPS NA 8.6x NA (26.5x) 23.4x Price / CY 2000 EPS NA 7.8x NA (27.6x) 15.9x Total Capitalization/LTM Revenues 0.3x 0.9x 0.8x 2.4x 2.5x Total Capitalization/LTM EBITDA 4.8x 18.1x 10.0x NM 18.2x Total Capitalization/LTM EBIT 7.4x 318.2x 16.0x NM 19.3x CY 1999 P/E Ratio/Future 5-Yr Growth Rate NA 0.9x NA (6.6x) 0.9x Market / Book Multiple 1.0x 2.1x 1.0x 0.9x 3.4x - ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- - ----------------------------- Adjusted Summary Statistics (a) Mean (b) High Low Count - ----------------------------- ----------------- ---------------- ----------------- ----------------- Price / LTM EPS 15.4x 24.5x 10.2x 6 Price / CY 1999 EPS 10.9x 13.7x 8.6x 4 Price / CY 2000 EPS 7.9x 10.5x 7.8x 4 Total Capitalization/LTM Revenues 0.9x 1.4x 0.3x 7 Total Capitalization/LTM EBITDA 9.4x 18.1x 4.8x 7 Total Capitalization/LTM EBIT 10.8x 16.0x 7.2x 6 CY 1999 P/E Ratio/Future 5-Yr Growth Rate 0.8x 0.9x 0.4x 5 Market / Book Multiple 1.2x 2.1x 0.9x 7 - ----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (a) Boldfaced multiples, if any, are excluded from Summary Statistics, as they are deemed extraordinary. (b) Mean excludes high and low values. Project Orbis - Imaging & Inspection Group SELECTED REFERENCE COMPANY ANALYSIS (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- --------------- --------------------------------- Imaging & American Science Barringer Inspection Div. Mean and Engineering Technologies --------------- -------- --------------------------------- Revenues LTM $85,824 $50,829 $19,787 Latest Fiscal Year 1997/98 $85,824 $32,699 $20,458 Fiscal Year 1996/97 NA $28,479 $22,689 Fiscal Year 1995/96 NA $17,815 $10,923 --------------- -------- --------------- --------------- 3 Yr. Revenue CAGR NA 27.8% 35.5% 36.9% Gross Margin LTM 43.1% 34.6% 61.3% Latest Fiscal Year 1997/98 43.1% 39.4% 61.1% Fiscal Year 1996/97 NA 35.3% 60.3% Fiscal Year 1995/96 NA 33.6% 50.9% --------------- -------- --------------- --------------- Avg. 3 Yr. Gross Margin 43.1% 50.1% 36.1% 57.4% EBITDA Margin LTM 7.6% 8.1% 16.5% Latest Fiscal Year 1997/98 7.6% 9.6% 21.0% Fiscal Year 1996/97 NA 8.1% 23.2% Fiscal Year 1995/96 NA 6.0% 15.7% --------------- -------- --------------- --------------- Avg. 3 Yr. EBITDA Margin 7.6% 12.7% 7.9% 20.0% EBIT Margin LTM 5.7% 6.8% 12.1% Latest Fiscal Year 1997/98 5.7% 8.0% 17.4% Fiscal Year 1996/97 NA 6.9% 22.0% Fiscal Year 1995/96 NA 4.9% 14.6% --------------- -------- --------------- --------------- Avg. 3 Yr. EBIT Margin 5.7% 10.5% 6.6% 18.0% Net Income LTM $2,253 $4,312 $1,717 Latest Fiscal Year 1997/98 $2,253 $4,661 $3,008 Fiscal Year 1996/97 NA $1,925 $5,754 Fiscal Year 1995/96 NA $802 $2,059 --------------- -------- --------------- --------------- 3 Yr. Net Income CAGR NM 58.2% 141.1% 20.9% Net Income Margin LTM 2.6% 8.5% 8.7% Latest Fiscal Year 1997/98 2.6% 14.3% 14.7% Fiscal Year 1996/97 NA 6.8% 25.4% Fiscal Year 1995/96 NA 4.5% 18.9% --------------- -------- --------------- --------------- Avg. 3 Yr. Net Income Margin 2.6% 11.0% 8.5% 19.6% - ----------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- Bio-Rad Cognex Invision Moore Laboratories, Inc. Corp. Technologies Products Co. ---------------------------------------------------------------------- Revenues LTM $441,942 $109,273 $62,919 $168,113 Latest Fiscal Year 1997/98 $441,942 $121,844 $63,284 $168,113 Fiscal Year 1996/97 $426,914 $155,340 $56,427 $164,247 Fiscal Year 1995/96 $418,789 $122,843 $15,841 $142,892 --------------- -------------- --------------- --------------- 3 Yr. Revenue CAGR 2.7% NM 99.9% 8.5% Gross Margin LTM 54.2% 67.9% 43.9% 37.8% Latest Fiscal Year 1997/98 54.2% 69.4% 44.8% 37.8% Fiscal Year 1996/97 55.7% 72.8% 50.3% 43.0% Fiscal Year 1995/96 56.5% 68.4% 38.5% 42.1% --------------- -------------- --------------- --------------- Avg. 3 Yr. Gross Margin 55.5% 70.2% 44.5% 41.0% EBITDA Margin LTM 7.0% 18.4% 16.4% 6.8% Latest Fiscal Year 1997/98 7.0% 25.1% 17.1% 6.8% Fiscal Year 1996/97 6.2% 38.4% 17.7%(2) 8.5% Fiscal Year 1995/96 9.9%(1) 34.7% (23.5%) 3.9%(3) --------------- -------------- --------------- --------------- Avg. 3 Yr. EBITDA Margin 7.7% 32.7% 3.8% 6.4% EBIT Margin LTM 7.0% 10.4% 13.2% 4.4% Latest Fiscal Year 1997/98 7.0% 18.0% 14.0% 4.4% Fiscal Year 1996/97 6.2% 35.3% 15.4%(2) 6.3% Fiscal Year 1995/96 9.9%(1) 31.2% (26.9%) 1.5%(3) --------------- -------------- --------------- --------------- Avg. 3 Yr. EBIT Margin 7.7% 28.1% 0.8% 4.1% Net Income LTM $24,302 $14,025 $7,595 $3,025 Latest Fiscal Year 1997/98 $24,302 $21,463 $8,041 $3,025 Fiscal Year 1996/97 $16,364 $42,405 $7,050 (2) $6,468 Fiscal Year 1995/96 $28,975 (1) $30,369 ($5,676) $1,444 (3) --------------- -------------- --------------- --------------- 3 Yr. Net Income CAGR NM NM NM 44.7% Net Income Margin LTM 5.5% 12.8% 12.1% 1.8% Latest Fiscal Year 1997/98 5.5% 17.6% 12.7% 1.8% Fiscal Year 1996/97 3.8% 27.3% 12.5%(2) 3.9% Fiscal Year 1995/96 6.9%(1) 24.7% (35.8%) 1.0%(3) --------------- -------------- --------------- --------------- Avg. 3 Yr. Net Income Margin 5.4% 23.2% NM 2.2% - --------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- Robotic Vision Oxford PPT Veeco Instruments Systems, Inc. Instruments Plc Vision, Inc. Inc. -------------------------------------------------------------------- Revenues LTM $127,720 $279,674 $9,786 $209,158 Latest Fiscal Year 1997/98 $152,103 $284,147 $12,055 $206,838 Fiscal Year 1996/97 $143,540 $233,819 $12,693 $216,728 Fiscal Year 1995/96 $122,125 NA $9,750 $115,042 -------------- --------------- --------------- --------------- 3 Yr. Revenue CAGR 11.6% 10.2% 11.2% 34.1% Gross Margin LTM 48.4% 36.3% 58.2% 52.0% Latest Fiscal Year 1997/98 49.5% 35.5% 59.4% 54.0% Fiscal Year 1996/97 48.0% 41.9% 60.3% 51.1% Fiscal Year 1995/96 51.0% NA 54.4% 45.9% -------------- --------------- --------------- --------------- Avg. 3 Yr. Gross Margin 49.5% 38.7% 58.0% 50.3% EBITDA Margin LTM 4.8% 8.1% (12.0%) 13.6% Latest Fiscal Year 1997/98 9.2% 9.5% 2.8% 13.6% Fiscal Year 1996/97 9.8% 13.6% 17.6% 19.3%(5) Fiscal Year 1995/96 11.9% NA 10.7% 16.1% -------------- --------------- --------------- --------------- Avg. 3 Yr. EBITDA Margin 10.3% 11.6% 10.4% 16.3% EBIT Margin LTM 0.3% 5.0% (17.3%) 12.9% Latest Fiscal Year 1997/98 6.0% 6.9% (0.7%) 12.8% Fiscal Year 1996/97 7.6%(4) 11.2% 15.4% 18.5%(5) Fiscal Year 1995/96 10.0% NA 9.0% 14.5% -------------- --------------- --------------- --------------- Avg. 3 Yr. EBIT Margin 7.9% 9.1% 7.9% 15.3% Net Income LTM ($278) $15,734 ($372) $16,611 Latest Fiscal Year 1997/98 $5,461 $18,211 $660 $17,201 Fiscal Year 1996/97 $6,283 (4) $24,182 $3,711 $29,897 (5) Fiscal Year 1995/96 $7,346 NA $1,347 $10,835 -------------- --------------- --------------- --------------- 3 Yr. Net Income CAGR NM NM NM 26.0% Net Income Margin LTM (0.2%) 5.6% (3.8%) 7.9% Latest Fiscal Year 1997/98 3.6% 6.4% 5.5% 8.3% Fiscal Year 1996/97 4.4%(4) 10.3% 29.2% 13.8%(5) Fiscal Year 1995/96 6.0% NA 13.8% 9.4% -------------- --------------- --------------- --------------- Avg. 3 Yr. Net Income Margin 4.7% 8.4% 16.2% 10.5% - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Bio-Rad excludes $2,700 of restructuring costs in 1996. (2) Invision excludes $685 of acquisition costs in 1997. (3) Moore Products excludes $2,056 of write-down joint venture assets in 1996. (4) Robotic Vision excludes $623 of merger expenses in 1997. (5) Veeco excludes $2,250 of merger and reorganization expenses and $4,000 of write-off of purchase in-process technology in 1997. Project Orbis Business Descriptions of Selected Reference Companies - -------------------------------------------------------------------------------- Imaging & Inspection Group American Science and Engineering, Inc. American Science and Engineering, Inc. provides a line of X-ray detection and imaging products used for the detection of illegal drugs, terrorist explosives, and smuggled goods. The Company's equipment, purchased by government and commercial clients, utilizes transmission and backscatter X-ray detection to provide differentiation of bombs, drugs, and contraband in camouflaged environments. Barringer Technologies, Inc. Barringer Technologies, Inc. manufactures high sensitivity equipment used for detecting and identifying trace amounts of plastic and other explosives, as well as illegal drugs. The Company designs and produces products that use a proprietary application of ion mobility spectrometry technology that can detect and identify targeted compounds. Bio-Rad Laboratories Bio-Rad Laboratories, Inc. is a multinational manufacturer and distributor of life science research products, clinical diagnostics, and analytical instrumentation. The Company's products and systems separate complex chemical and biological materials, as well as identify, analyze, and purify their components. Cognex Corporation Cognex Corporation designs, develops, manufactures, and markets machine vision systems. The Company's systems are used to automate the manufacture of a variety of discrete items and to assure their quality. Cognex has offices located throughout North America, Japan, Europe, and Southeast Asia. Invision Technologies, Inc. Invision Technologies, Inc. develops, manufactures, markets and supports explosive detection systems for civil aviation security and drug detection applications. The Company's products, based on advanced computer tomography technology, include the "CTX 5000" series that checks for explosives in luggage on commercial flights. Moore Products Company Moore Products Company develops, manufactures, sells and supports products used in the measurement and control of manufacturing processes. The Company's products include digital electronic, analog electronic and pneumatic instruments and control systems, dimensional measuring systems and inspection products. Moore's product market includes the chemical, power and pharmaceutical industries. Robotic Vision Systems, Inc. Robotic Vision Systems, Inc. supplies a broad line of 1-D, 2-D, and 3-D machine vision-based systems for inspection, measurement, and identification. The Company is also involved in electro-optical sensor technology. Oxford Instruments, plc Oxford Instruments, plc produces advanced instrumentation equipment used for scientific research, chemical analysis, patient monitoring, semiconductor processing and diagnostic imaging. Oxford has manufacturing operations in the United States and the United Kingdom, and it primarily sells to customers in the United States and Germany. Project Orbis Business Descriptions of Selected Reference Companies - -------------------------------------------------------------------------------- PPT Vision, Inc. PPT Vision, Inc. designs, manufactures, markets and integrates machine vision based automated inspection systems for manufacturing applications such as electronic and mechanical assembly verification. These systems are also used in the verification of printed characters and packaging integrity, detection of surface flaws and precision measuring. Veeco Instruments Inc. Veeco Instruments Inc. designs manufactures, markets, and services a broad line of metrology and process equipment primarily used by manufacturers worldwide in the data storage and semiconductor industries. Project Orbis - Test & Measurement Group Imputed Valuation Based on Reference Company Analysis (Based on Latest Twelve Months ended 4/3/99 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------- Valuation Enterprise Value Multiple of: - ------------------------------- --------------------------------------------------------------- LTM LTM LTM Revenues EBITDA EBIT ----------- ----------- ----------- SELECTED COMP GROUP MULTIPLE Adjusted Mean 0.9x 7.6x 9.2x TEST & MEASUREMENT DIVISION Financial Data (1) $41,053 $2,812 $1,984 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $37,328 $21,434 $18,212 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Based on LTM as of 4/3/99 Test & Measurement Division model. Adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Test & Measurement Group Imputed Valuation Based on Reference Company Analysis (Based on Fiscal 1999 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------- Valuation Enterprise Value Multiple of: - ------------------------------- --------------------------------------------------------------- 1999 1999 1999 Revenues EBITDA EBIT ----------- ----------- ----------- SELECTED COMP GROUP MULTIPLE (1) Adjusted Mean 0.9x 7.6x 9.2x TEST & MEASUREMENT DIVISION (2) Financial Data $41,691 $4,770 $3,452 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $37,908 $36,362 $31,683 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) 1999 enterprise value is calculated using 1998 adjusted mean multiples. (2) Based on 1999 Test & Measurement Division model. EBIT has been adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. Project Orbis - Test & Measurement Group Selected Reference Company Analysis (All Dollar Amounts in Thousands, Except Per Share Amounts) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ ------------------ -------------------------------------------------- Test & Astro-Med Cyber Faro Measurement Div. (1) Mean Inc. Optics Corp. Technologies, Inc. -------------------- --------- -------------------------------------------------- Ticker/Exchange NA ALOT/NASD CYBE/NASD FARO/NASD Latest Fiscal Year Ending 01/02/99 01/31/99 12/31/98 12/31/99 Latest Fiscal Quarter Ending 04/03/99 01/31/99 12/31/98 12/31/99 Preliminary Earnings Reported -- -- 03/31/99 03/31/99 - ---------------------------------------------- Current Market Information - ---------------------------------------------- Stock Price: 05/14/99 NA $7.50 $11.50 $4.31 52-Week High NA $7.88 $22.00 $12.38 52-Week Low NA $4.75 $7.88 $3.38 % Within High/Low Range NA 88.0% 25.7% 10.4% Common Shares Outstanding (000s) NA 4,481 4,960 11,343 % Held by Institutions NA 19.0% 44.4% NA Market Value of Common Equity (EMV) NA $320,441 $33,611 $57,039 $48,919 Plus: Total Funded Debt (TFD) (a) $0 $133,002 $228 $0 $0 Less: Cash and Marketable Securities $5,849 $52,098 $4,946 $27,603 $34,238 ------------------ ------------ ------------- ------------- Total Market Capitalization (b) NA $348,145 $28,893 $29,436 $14,680 ================== ============ ============= ============= - ---------------------------------------------- Last 12 Months' (LTM) Income Information - ---------------------------------------------- LTM Revenues $40,957 $385,149 $41,562 $33,711 $27,737 LTM Gross Profit $18,773 $147,925 $16,579 $18,122 $16,389 LTM EBITDA $3,069 (2) $24,641 $844 $2,882 ($1,335)(3) LTM EBIT $2,242 (2) $13,254 ($267) $1,731 ($5,120)(3) LTM Net Income ($1,114)(2) $11,147 $496 $2,653 ($5,169)(3) Margins: LTM Gross Margin 45.8% 47.74% 39.9% 53.8% 59.1% LTM EBITDA Margin 7.5% (2) 9.43% 2.0% 8.5% (4.8%)(3) LTM EBIT Margin 5.5% (2) 6.53% (0.6%) 5.1% (18.5%)(3) LTM Net Income Margin (2.7%)(2) 5.11% 1.2% 7.9% (18.6%)(3) Tax Rate (17.3%) 32.78% 18.7% 31.8% (27.4%) - ---------------------------------------------- EPS Information - ---------------------------------------------- LTM EPS NA $0.11 $0.52 ($0.15) Projected CY 1999 EPS (c) NA $0.11 $0.23 $0.12 Projected CY 2000 EPS (c) NA NA $0.94 $0.58 Book Value NA $7.52 $10.48 $3.91 Projected 5 Year Growth (EPS) (c) NA 21.1% NA 23.0% 40.0% -------------------------------------------------------------- Keithley K-Tron Nanometrics Newport Instruments, Inc.Int'l, Inc. Incorporated Corporation -------------------------------------------------------------- Ticker/Exchange KEI / NYSE KTII/NASD NANO/NASD NEWP/NASD Latest Fiscal Year Ending 09/30/98 12/31/98 12/31/98 12/31/98 Latest Fiscal Quarter Ending 12/31/98 12/31/98 12/31/98 12/31/98 Preliminary Earnings Reported 03/31/99 04/03/99 03/31/99 03/31/99 - ------------------------------------------------ Current Market Information - ------------------------------------------------ Stock Price: 05/14/99 $8.06 $18.00 $7.25 $14.97 52-Week High $9.69 $20.00 $9.88 $22.88 52-Week Low $3.75 $16.88 $3.78 $8.88 % Within High/Low Range 72.6% 36.0% 56.9% 43.5% Common Shares Outstanding (000s) 7,545 2,947 8,751 9,155 % Held by Institutions 41.9% 55.8% 19.4% 43.3% Market Value of Common Equity (EMV) $60,832 $53,048 $63,445 $137,037 Plus: Total Funded Debt (TFD) (a) $6,000 $11,458 $3,238 $20,945 Less: Cash and Marketable Securities $16,056 $2,863 $3,996 $3,627 -------------- ------------- ------------ ------------ Total Market Capitalization (b) $50,776 $61,643 $62,687 $154,355 ============== ============= ============ ============ - ------------------------------------------------ Last 12 Months' (LTM) Income Information - ------------------------------------------------ LTM Revenues $101,725 $87,527 $28,915 $130,144 LTM Gross Profit $58,882 $39,680 $16,990 $57,197 LTM EBITDA $11,343 (4) $12,303 $1,392 (5) $18,700 LTM EBIT $7,494 (4) $9,076 $1,094 (5) $12,625 LTM Net Income $3,788 (4) $6,646 $1,005 (5) $7,886 Margins: LTM Gross Margin 57.9% 45.3% 58.8% 43.9% LTM EBITDA Margin 11.2%(4) 14.1% 4.8%(5) 14.4% LTM EBIT Margin 7.4%(4) 10.4% 3.8%(5) 9.7% LTM Net Income Margin 3.7%(4) 7.6% 3.5%(5) 6.1% Tax Rate 41.3% 21.2% 35.7% 26.0% - ------------------------------------------------ EPS Information - ------------------------------------------------ LTM EPS $0.69 $2.08 $0.53 $0.91 Projected CY 1999 EPS (c) $0.56 $2.25 $0.16 $1.00 Projected CY 2000 EPS (c) $0.56 $2.35 $0.65 $1.32 Book Value $5.35 $7.13 $3.64 $7.80 Projected 5 Year Growth (EPS) (c) 12.0% NA 20.0% 23.0% --------------------------------------------------------------- Tektronix TSI Yokogawa Electric Zygo Inc. Incorporated Corporation Corp. --------------------------------------------------------------- Ticker/Exchange TEK / NYSE TSII/NASD 6841 JP/NASD ZIGO/NASD Latest Fiscal Year Ending 05/31/98 03/31/98 03/31/98 06/30/98 Latest Fiscal Quarter Ending 02/27/99 12/31/98 -- 12/31/98 Preliminary Earnings Reported -- -- 03/31/99 03/31/99 - ------------------------------------------------ Current Market Information - ------------------------------------------------ Stock Price: 05/14/99 $26.75 $8.75 $5.31 $8.88 52-Week High $42.00 $9.88 $6.45 $21.31 52-Week Low $13.69 $6.63 $4.30 $5.00 % Within High/Low Range 46.1% 65.4% 47.0% 23.8% Common Shares Outstanding (000s) 46,869 11,250 250,653 11,375 % Held by Institutions 74.4% 25.5% 35.8% 38.8% Market Value of Common Equity (EMV) $1,253,739 $98,434 $1,330,967 $100,953 Plus: Total Funded Debt (TFD) (a) $289,093 $0 $467,280 $0 Less: Cash and Marketable Securities $36,012 $10,495 $371,431 $14,660 ------------- -------- ---------------- ------------- Total Market Capitalization (b) $1,506,820 $87,939 $1,426,817 $86,293 ============= ======== ================ ============= - ------------------------------------------------ Last 12 Months' (LTM) Income Information - ------------------------------------------------ LTM Revenues $1,879,663 $85,170 $1,413,048 $63,850 LTM Gross Profit $746,779 $47,072 $458,185 $19,951 LTM EBITDA $111,027 (6) $12,538 $26,940 ($7,526)(7) LTM EBIT $40,662 (6) $10,326 $23,027 ($11,331)(7) LTM Net Income $37,150 (6) $7,286 $22,757 ($7,013)(7) Margins: LTM Gross Margin 39.7% 55.3% 32.4% 31.2% LTM EBITDA Margin 5.9%(6) 14.7% 1.9% (11.8%(7) LTM EBIT Margin 2.2%(6) 12.1% 1.6% (17.7%(7) LTM Net Income Margin 2.0%(6) 8.6% 1.6% (11.0%(7) Tax Rate 31.0% 32.2% 44.2% 31.6% - ------------------------------------------------ EPS Information - ------------------------------------------------ LTM EPS $0.97 $0.66 $0.13 ($0.23) Projected CY 1999 EPS (c) $1.39 $0.74 NA $0.07 Projected CY 2000 EPS (c) $1.80 $0.87 NA $0.09 Book Value $12.89 $4.30 $5.61 $5.91 Projected 5 Year Growth (EPS) (c) 12.0% 17.0% NA 22.0% - ----------------------------------------------------------------------------------------------------------------------
Notes: (a) Total Funded Debt equals Short-Term Debt plus Long-Term Debt plus Preferred Equity. (b) Total Market Capitalization equals Market Value of Common Equity plus Total Funded Debt less Cash and Marketable Securities. (c) Consensus estimates from First Call. "NA" indicates value not available; "NM" indicates a negative value. (1) Test & Measurement Division results provided by the Company. (2) Before Allocated corporate overhead, interest and taxes. (3) Faro Technologies excludes $3,210 of purchased in-process research and development costs in 1998. (4) Keithley excludes $4,808 abd $2,852 of gain on sale of business in 1999 and 1998 respectively and excludes $335 and $1,172 of special charges in 1999 and 1998 respectively. (5) Nanometrics excludes $1,421 of acquired in-process research and development in 1998. (6) Tektronix excludes $81,438 and $40,478 of non-recurring charges in 1998 and 1998 respectively. (7) Zygo excludes $1,585 of non-recurring acquisition-related charges and $335 of failed merger costs in 1998. Project Orbis - Test & Measurement Group Analysis of Selected Reference Companies - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- - ------------------------------- Astro-Med Cyber Faro Keithley Market Multiples Inc. Optics Corp. Technologies, Inc. Instruments, Inc. - ------------------------------- --------------------------------------------------------------------------- Price / LTM EPS 68.2x 22.1x NM 11.7x Price / CY 1999 EPS 68.2x 50.0x 35.9x 14.4x Price / CY 2000 EPS NA 12.2x 7.4x 14.4x Total Capitalization/LTM Revenues 0.7x 0.9x 0.5x 0.5x Total Capitalization/LTM EBITDA 34.2x 10.2x NM 4.5x Total Capitalization/LTM EBIT NM 17.0x NM 6.8x CY 1999 P/E Ratio/Future 5-Yr Growth Rate NA 2.2x 0.9x 1.2x Market / Book Multiple 1.0x 1.1x 1.1x 1.5x ------------------------------------------------------------------------------ - ------------------------------- K-Tron Nanometrics Newport Tektronix Market Multiples Int'l, Inc. Incorporated Corporation Inc. - ------------------------------- ------------------------------------------------------------------------------ Price / LTM EPS 8.7x 13.7x 16.4x 27.6x Price / CY 1999 EPS 8.0x 45.3x 15.0x 19.2x Price / CY 2000 EPS 7.7x 11.2x 11.3x 14.9x Total Capitalization/LTM Revenues 0.7x 2.2x 1.2x 0.8x Total Capitalization/LTM EBITDA 5.0x 45.0x 8.3x 13.6x Total Capitalization/LTM EBIT 6.8x 57.3x 12.2x 37.1x CY 1999 P/E Ratio/Future 5-Yr Growth Rate NA 2.3x 0.7x 1.6x Market / Book Multiple 2.5x 2.0x 1.9x 2.1x ----------------------------------------------------- - ------------------------------- TSI Yokogawa Electric Zygo Market Multiples Incorporated Corporation Corp. - ------------------------------- ----------------------------------------------------- Price / LTM EPS 13.3x 40.8x NM Price / CY 1999 EPS 11.8x NA 126.8x Price / CY 2000 EPS 10.1x NA 103.9x Total Capitalization/LTM Revenues 1.0x 1.0x 1.4x Total Capitalization/LTM EBITDA 7.0x 53.0x NM Total Capitalization/LTM EBIT 8.5x 62.0x NM CY 1999 P/E Ratio/Future 5-Yr Growth Rate 0.7x NA 5.8x Market / Book Multiple 2.0x 0.9x 1.5x - -----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------- Adjusted Summary Statistics (a) Mean (b) High Low Count - ------------------------------------------- ---------------- ---------------- ----------- ---------------------- Price / LTM EPS 13.8x 22.1x 8.7x 6 Price / CY 1999 EPS 13.7x 19.2x 8.0x 5 Price / CY 2000 EPS 11.1x 14.9x 7.4x 8 Total Capitalization/LTM Revenues 0.9x 2.2x 0.5x 11 Total Capitalization/LTM EBITDA 7.6x 13.6x 4.5x 6 Total Capitalization/LTM EBIT 9.2x 17.0x 6.8x 5 CY 1999 P/E Ratio/Future 5-Yr Growth Rate 1.5x 5.8x 0.7x 8 Market / Book Multiple 1.8x 2.5x 1.1x 8 - -----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (a) Boldfaced multiples, if any, are excluded from Summary Statistics, as they are deemed extraordinary. (b) Mean excludes high and low values. Project Orbis - Test & Measurement Group SELECTED REFERENCE COMPANY ANALYSIS (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------- ----------------- ----------------------------------------------- Test & Astro-Med Cyber Faro Measurement Div. Mean Inc. Optics Corp. Technologies, Inc. ----------------- -------- ----------------------------------------------- Revenues LTM $40,957 $41,562 $33,711 $27,737 Latest Fiscal Year 1997/98 $44,012 $41,562 $36,636 $27,515 Fiscal Year 1996/97 NA $43,748 $35,120 $23,516 Fiscal Year 1995/96 NA $44,175 $28,062 $14,656 ----------------- -------- ------------ ------------- --------------- 3 Yr. Revenue CAGR NA 15.6% NM 14.3% 37.0% Gross Margin LTM 45.8% 39.9% 53.8% 59.1% Latest Fiscal Year 1997/98 46.0% 39.9% 55.0% 59.0% Fiscal Year 1996/97 NA 37.7% 55.5% 59.1% Fiscal Year 1995/96 NA 38.3% 51.0% 55.7% ----------------- -------- ------------ ------------- --------------- Avg. 3 Yr. Gross Margin 46.0% 49.1% 38.7% 53.8% 57.9% EBITDA Margin LTM 7.5% 2.0% 8.5% (4.81%) Latest Fiscal Year 1997/98 6.3% 2.0% 11.8% 2.0% Fiscal Year 1996/97 NA 3.7% 15.7% 22.2% Fiscal Year 1995/96 NA 6.6% 5.9% 20.1% ----------------- -------- ------------ ------------- --------------- Avg. 3 Yr. EBITDA Margin 6.3% 12.3% 4.1% 11.1% 14.8% EBIT Margin LTM 5.5% (0.64%) 5.1% (18.46%) Latest Fiscal Year 1997/98 4.4% (0.64%) 8.7% (8.99%) Fiscal Year 1996/97 NA 1.5% 13.1% 21.0% Fiscal Year 1995/96 NA 4.5% 3.2% 18.5% ----------------- -------- ------------ ------------- --------------- Avg. 3 Yr. EBIT Margin 4.4% 9.5% 1.8% 8.3% 10.2% Net Income LTM ($1,114) $496 $2,653 ($5,169) Latest Fiscal Year 1997/98 ($890) $496 $3,669 ($3,005) Fiscal Year 1996/97 NA $1,041 $4,597 $3,207 Fiscal Year 1995/96 NA $2,288 $2,180 $1,407 ----------------- -------- ------------ ------------- --------------- 3 Yr. Net Income CAGR NM 24.1% NM 29.7% NM Net Income Margin LTM (2.72%) 1.2% 7.9% (18.64%) Latest Fiscal Year 1997/98 (2.02%) 1.2% 10.0% (10.92%) Fiscal Year 1996/97 NA 2.4% 13.1% 13.6% Fiscal Year 1995/96 NA 5.2% 7.8% 9.6% ----------------- -------- ------------ ------------- --------------- Avg. 3 Yr. Net Income Margin NM 6.3% 2.9% 10.3% 4.1% - -------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- ------------------------------------------------------------- Keithley K-Tron Nanometrics Newport Instruments, Inc. Int'l, Inc. Incorporated Corporation ------------------------------------------------------------ Revenues LTM $101,725 $87,527 $28,915 $130,144 Latest Fiscal Year 1997/98 $117,776 $89,142 $33,264 $134,359 Fiscal Year 1996/97 $123,295 $87,152 $36,657 $132,594 Fiscal Year 1995/96 $118,946 $89,871 $30,336 $119,910 -------------- ----------- ---------- ------------ 3 Yr. Revenue CAGR NM NM 4.7% 5.9% Gross Margin LTM 57.9% 45.3% 58.8% 43.9% Latest Fiscal Year 1997/98 57.3% 45.1% 60.9% 43.8% Fiscal Year 1996/97 57.9% 44.8% 67.0% 43.6% Fiscal Year 1995/96 61.2% 43.4% 66.7% 44.0% -------------- ----------- ---------- ------------ Avg. 3 Yr. Gross Margin 58.8% 44.4% 64.9% 43.8% EBITDA Margin LTM 11.2% 14.1% 4.8% 14.4% Latest Fiscal Year 1997/98 9.7% 14.1% 12.4% 15.0% Fiscal Year 1996/97 5.8%(1) 13.1% 25.5% 13.8% Fiscal Year 1995/96 8.6%(1) 12.5% 21.5% 11.6% -------------- ----------- ---------- ------------ Avg. 3 Yr. EBITDA Margin 8.0% 13.2% 19.8% 13.5% EBIT Margin LTM 7.4% 10.4% 3.8% 9.7% Latest Fiscal Year 1997/98 6.4% 10.6% 11.5% 10.5% Fiscal Year 1996/97 2.5%(1) 9.7% 24.9% 9.4% Fiscal Year 1995/96 5.2%(1) 8.8% 20.5% 6.6% -------------- ----------- ---------- ------------ Avg. 3 Yr. EBIT Margin 4.7% 9.7% 19.0% 8.8% Net Income LTM $3,788 $6,646 $1,005 $7,886 Latest Fiscal Year 1997/98 $3,710 $6,593 $2,683 $8,978 Fiscal Year 1996/97 $1,253 (1) $5,444 $5,757 $7,064 Fiscal Year 1995/96 $1,547 (1) $4,026 $3,993 $4,703 -------------- ----------- ---------- ------------ 3 Yr. Net Income CAGR 54.9% 28.0% NM 38.2% Net Income Margin LTM 3.72% 7.6% 3.5% 6.1% Latest Fiscal Year 1997/98 3.2% 7.4% 8.1% 6.7% Fiscal Year 1996/97 1.0%(1) 6.2% 15.7% 5.3% Fiscal Year 1995/96 1.3%(1) 4.5% 13.2% 3.9% -------------- ----------- ---------- ------------ Avg. 3 Yr. Net Income Margin 1.8% 6.0% 12.3% 5.3% - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- -------------------------------------------------------------- Tektronix TSI Yokogawa Electric Zygo Inc. Incorporated Corporation Corp. -------------------------------------------------------------- Revenues LTM $1,879,663 $85,170 $1,413,048 $63,850 Latest Fiscal Year 1997/98 $2,085,802 $81,012 $1,413,048 $97,871 Fiscal Year 1996/97 $1,940,082 $80,240 $2,310,605 $87,220 Fiscal Year 1995/96 $1,768,858 $69,233 $2,122,831 $57,374 ------------ ----------- --------------- ------------ 3 Yr. Revenue CAGR 8.6% 8.2% NM 30.6% Gross Margin LTM 39.7% 55.3% 32.4% 31.2% Latest Fiscal Year 1997/98 41.5% 55.7% 32.4% 42.0% Fiscal Year 1996/97 42.9% 56.0% 35.8% 48.0% Fiscal Year 1995/96 41.9% 55.6% 37.8% 45.1% ------------ ----------- --------------- ------------ Avg. 3 Yr. Gross Margin 42.1% 55.8% 35.4% 45.0% EBITDA Margin LTM 5.9% 14.7% 1.9% (11.79%) Latest Fiscal Year 1997/98 10.6% 14.3% 1.9% 15.9% Fiscal Year 1996/97 11.6% 16.2% 4.1% 26.3% Fiscal Year 1995/96 10.8% 14.3% 4.2% 21.4% ------------ ----------- --------------- ------------ Avg. 3 Yr. EBITDA Margin 11.0% 14.9% 3.4% 21.2% EBIT Margin LTM 2.2% 12.1% 1.6% (17.75%) Latest Fiscal Year 1997/98 7.5% 11.6% 1.6% 12.4% Fiscal Year 1996/97 8.5% 13.6% 4.0% 23.3% Fiscal Year 1995/96 8.1% 11.8% 4.1% 18.9% ------------ ----------- --------------- ------------ Avg. 3 Yr. EBIT Margin 8.0% 12.3% 3.2% 18.2% Net Income LTM $37,150 $7,286 $22,757 ($7,013) Latest Fiscal Year 1997/98 $106,572 $6,826 $22,757 $8,266 Fiscal Year 1996/97 $114,785 $7,213 $31,196 $9,527 Fiscal Year 1995/96 $99,586 $5,482 $29,167 $7,799 ------------ ----------- --------------- ------------ 3 Yr. Net Income CAGR 3.4% 11.6% NM 3.0% Net Income Margin LTM 1.98% 8.6% 1.6% (10.98%) Latest Fiscal Year 1997/98 5.1% 8.4% 1.6% 8.4% Fiscal Year 1996/97 5.9% 9.0% 1.4% 10.9% Fiscal Year 1995/96 5.6% 7.9% 1.4% 13.6% ------------ ----------- --------------- ------------ Avg. 3 Yr. Net Income Margin 5.6% 8.4% 1.4% 11.0% - -------------------------------------------------------------------------------------------------
Project Orbis Business Descriptions of Selected Reference Companies - -------------------------------------------------------------------------------- Test & Measurement Group Astro-Med, Inc. Astro-Med, Inc. designs, manufactures, and sells digital color label printers and thermal/thermal transfer printers that produce high-quality bar code labels. The Company's bar code printers are sold under the "QuickLabel" name. Astro-Med also records signals that reflect the physiological status of living creatures on paper, on a hard drive, or on a CD-ROM. CyberOptics Corporation CyberOptics Corporation designs, manufactures, and markets intelligent, non contact sensors and integrated systems. The Company's systems measure the minute characteristics, dimensions, and distances required for process and quality control in the automated assembly of complex manufactured goods. FARO Technologies, Inc. FARO Technologies, Inc. designs, develops, markets and supports portable, software-driven, 3-D measurement systems used in manufacturing and industrial applications. The Company's "FAROArm" articulated measuring device and its companion "AnthroCam" software are used with other technology to improve productivity, enhance product quality and decrease rework and scrap in manufacturing. Keithley Instruments, Inc. Keithley Instruments, Inc. provides measurement-based solutions to the semiconductor, telecommunications, and electronic components industries. The Company markets its products to engineers and scientists worldwide for process monitoring, production test, and basic research. K-Tron International, Inc. K-Tron International, Inc. designs, produces, markets and sells gravimetric and volumetric feeders and related equipment. The Company's products control the rate at which ingredients are fed into manufacturing processes for products primarily in the plastics, food, chemical, cement, glass, and aluminum industries. K-Tron also designs, markets, and sells electronic assemblies and controls. Nanometrics Incorporated Nanometrics Incorporated supplies automated metrology equipment used for advanced IC, flat panel display, and magnetic head manufacturing. Newport Corporation Newport Corporation designs, manufactures and markets components, instruments, and integrated systems to fiber optic communications, semiconductor equipment, computer peripherals, and scientific research markets. Tektronix, Inc. Tektronix, Inc. manufactures and sells measurement business products, color printing and imaging products, and video and networking products. The Company's products include various electronic test instruments; color printers and related products; and digital video storage products, business network computers, and other products. TSI Incorporated TSI Incorporated develops, manufactures, and markets measuring and/or control instruments for a variety of market applications. The Company's products are generally applied to enhancing the safety, comfort and health of people, as well as process productivity and quality improvement. Project Orbis Business Descriptions of Selected Reference Companies - -------------------------------------------------------------------------------- Yokogawa Electric Corporation Yokogawa Electric Corporation develops, manufactures, and markets industrial systems, products, and software. The Company's products include measuring instruments and recorders, distributed control systems, industrial sensors, process analyzers, power monitors, analytical equipment, medical information systems, and software products. Zygo Corporation Zygo Corporation designs, develops, manufactures, and markets measurement and yield improvement instruments, systems, and accessories used in high technology industries. Project Orbis Imputed Valuation Based on Reference Company Analysis (Based on Latest Twelve Months ended 4/3/99 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ----------------------------------------------- LTM LTM LTM Revenues EBITDA EBIT ----------- ----------- ---------- IMPLIED GROSS ENTERPRISE VALUE Temperature Control Division $47,310 $100,012 $104,434 Imaging and Inspection Division $74,205 $55,603 $46,582 Test and Measurement Division $37,328 $21,434 $18,212 -------- -------- -------- AGGREGATE GROSS ENTERPRISE VALUE(1) $158,843 $177,049 $169,229 Plus: Cash on Balance Sheet 18,094 $18,094 $18,094 Minus: Debt 57,326 $57,326 $57,326 IMPLIED EQUITY VALUE $119,611 $137,817 $129,997 EQUITY VALUE PER SHARE (2)(3) $7.80 $8.99 $8.48 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Reflects the sum of individual valuations for LTM data ending 4/3/99 based on reference company multiples for the Temperature Control Division, the Imaging & Inspection Division and the Test & Measurement Division. (2) Based on 15,335,416 shares outstading as of April 30, 1999. (3) Before giving effect to any outstanding premium. Project Orbis Imputed Valuation Based on Reference Company Analysis (Based on Fiscal 1999 Financial Data) (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ------------------------------------------------ 1999 1999 1999 Est. Revenues Est. EBITDA(4) Est. EBIT ------------- -------------- --------- IMPLIED GROSS ENTERPRISE VALUE Temperature Control Division $42,717 $113,921 $103,227 Imaging and Inspection Division $83,637 $179,424 $114,783 Test and Measurement Division $37,908 $36,362 $31,683 -------- -------- -------- AGGREGATE GROSS ENTERPRISE VALUE(1) $164,262 $329,706 $249,693 Plus: Cash on Balance Sheet $18,094 $18,094 $18,094 Minus: Debt $57,326 $57,326 $57,326 IMPLIED EQUITY VALUE $125,030 $290,474 $210,461 EQUITY VALUE PER SHARE (2)(3) $8.15 $18.94 $13.72 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Reflects the sum of individual valuations for 1999 based on reference company multiples for the Temperature Control Division, the Imaging & Inspection Division and the Test & Measurement Division. (2) Based on 15,335,416 shares outstading as of April 30, 1999. (3) Before giving effect to any outstanding premium. (4) Includes depreciation in excess of historical and projected levels. TAB B Project Orbis Imputed Valuation Based on Selected Merger and Acquisition Transactions (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ------------------------------------------------ LTM LTM LTM Revenues EBITDA EBIT ----------- ----------- ----------- SELECTED COMP GROUP MULTIPLE Adjusted Mean 1.3x 12.2x 12.0x PROJECT ORBIS LTM Financial Data (1) $179,824 $16,083 $7,286 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $235,400 $195,663 $87,285 Plus: Cash on Balance Sheet $18,094 $18,094 $18,094 Minus: Net Debt $57,326 $57,326 $57,326 IMPLIED EQUITY VALUE Adjusted Mean $196,167 $156,431 $48,053 EQUITY VALUE PER SHARE (2) Adjusted Mean $12.79 $10.20 $3.13 - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Based on latest twelve months ending 4/3/99. (2) Based on 15,335,416 shares outstading as of April 30, 1999. Project Orbis Imputed Valuation Based on Selected Merger and Acquisition Transactions (All Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- - ------------------------------ Valuation Enterprise Value Multiple of: - ------------------------------ ----------------------------------------------- 1999 1999 1999 Revenues EBITDA (3) EBIT ----------- ----------- ---------- SELECTED COMP GROUP MULTIPLE Adjusted Mean 1.3x 12.2x 12.0x PROJECT ORBIS Financial Data (1) $188,102 $32,328 $19,879 IMPLIED GROSS ENTERPRISE VALUE Adjusted Mean $246,235 $393,306 $238,157 Plus: Cash on Balance Sheet $18,094 $18,094 $18,094 Minus: Net Debt $57,326 $57,326 $57,326 IMPLIED EQUITY VALUE Adjusted Mean $207,003 $354,074 $198,925 EQUITY VALUE PER SHARE (2) Adjusted Mean $13.50 $23.09 $12.97 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Based on projected 1999 company results. (2) Based on 15,335,416 shares outstading as of April 30, 1999. (3) Includes depreciation in excess of historical and projected levels. Project Orbis Selected Merger and Acquisition Transactions - -------------------------------------------------------------------------------- Analysis of Selected Completed and Pending Acquisitions in Instrumentation, Measurement and Detection January 1, 1994 - Present (Transactions greater than $10 million)
Date Announced Target Name Target Business Description Acquiror Name - --------------- ---------------------------------- ----------------------------------- ----------------------------------- 3/24/94 Forney International Inc Mnfr burner mgnt systems Williams Holdings PLC 2/7/95 EPRO Corp Electricity measuring equip Credence Systems Corp 3/7/95 Uson Corp Mnfr process control instr Roper Industries Inc 3/14/95 GC Thorsen (Elgin National Ind) Mnfr,whl electronic,elec parts Katy Industries Inc 3/20/95 Unisys Corp-Defense Electn Bus Mnfr electronic components Loral Corp 5/10/95 Best Power Technology Inc Mnfr power protection equip General Signal Corp 7/20/95 Analytical Technology Inc Mnfr lab analytical equip Thermo Instrument Systems Inc 9/6/95 Megatest Mnfr automatic testing equip Teradyne Inc 9/15/95 Data Measurement Corp Mnfr measurement systems Measurex Corp 10/13/95 Kevlin Corp Mnfr microwave components Chelton Communications Systems 10/19/95 Thermoscan (Thomas H Lee) Mnfr infrared thermometers Gillette Co 10/26/95 Telecom Analysis Systems Inc Mnfr wireless test instr,sys Bowthorpe PLC 1/3/96 International Jensen Inc Mnfr radios and televisions Recoton Corp 2/15/96 Andros Inc Mnfr infrared gas analyzers Genstar Capital Partners II LP 10/7/96 Augat Inc Mnfr electn,hardware prods Thomas & Betts Corp 11/18/96 Amicon Inc (Natl Med Care Inc) Mnfr ultrafiltration equipment Millipore Corp 1/27/97 Measurex Corp Mnfr process control systems Honeywell Inc 4/11/97 C&S Hybrid Mnfr microwave components Remec Inc 5/6/97 Quintar Corp (Bell & Howell Co) Mnfr embedded controllers Splash Technology Holdings Inc 5/16/97 Petrotech Inc Mnfr process control eqiup Roper Industries Inc 6/10/97 Numar Corp Mnfr imaging logging equip Halliburton Co 6/16/97 Core Industries Inc Manufacture electronic equip United Dominion Industries Ltd 7/1/97 NDC Systems Mnfr gauging equip Fairey Group PLC 7/31/97 Gems Sensors Mnfr measuring devices Danaher Corp 8/7/97 Magnetic Technologies Corp Manufacture copiers, printers SPS Technologies Inc 8/11/97 Tower Electronics Inc Mnfr power delivery systems Advanced Energy Industries 8/25/97 PerSeptive Biosystems Inc Mnfr chromatography equipment Perkin-Elmer Corp 9/3/97 Zytec Corp Mnfr electric power supplies Computer Products Inc 9/12/97 Adwest Group-US Electn Bus Mnfr electronic products Martek Power Switch Inc 9/30/97 Biosystems Inc Mnfr gas detection equipment Bacou USA Inc 10/17/97 Computational Systems Inc Manufacture measuring devices Emerson Electric Co 10/17/97 Exide Electronics Group Inc Manufacture power supplies BTR PLC 11/25/97 TW Communication Corp Mnfr multimedia wiring Anicom Inc 12/12/97 Impact Systems Inc Paper prodn control systems Voith Sulzer Paper Technology 12/22/97 EG&G Inc-Sealol Industrial Mnfr electornic components TI Group PLC 3/10/98 Corcom Inc Manufacture radio filters Communications Instruments Inc 3/31/98 Kavouras Inc Mnfr meteorological equipment Data Transmission Network Corp 4/27/98 Fluke Corp Mnfr electronic test equipment Danaher Corp 5/13/98 Sage Laboratories Inc Mnfr electronic components Filtronic Comtek PLC 6/19/98 Schlumberger-Fuel Dispenser Mnfr fuel dispenser sys Tokheim Corp 7/8/98 Atlantic Precision Products Mnfr precision eqmnt component Allied Devices Corp ------------------------------------------- -------------------------------------- Enterprise LTM Target Information ($mil) Enterprise Value as a Multiple of Date Value (1) ------------------------------------------- -------------------------------------- Announced ($mil) Revenues EBITDA EBIT Revenues EBITDA EBIT - ------------- ------------- ------------------------------------------- -------------------------------------- 3/24/94 50.0 49.0 -- -- 1.0 x -- -- 2/7/95 32.6 13.4 4.0 3.9 2.4 x 8.2 x 8.4 x 3/7/95 13.5 10.1 -- -- 1.3 x -- -- 3/14/95 23.0 45.0 -- -- 0.5 x -- -- 3/20/95 862.0 2,600.0 -- -- 0.3 x -- -- 5/10/95 193.6 166.2 19.5 17.8 1.2 x 9.9 x 10.9 x 7/20/95 41.9 78.0 -- -- 0.5 x -- -- 9/6/95 207.3 86.9 (9.9) (14.0) 2.4 x NM NM 9/15/95 32.8 27.8 2.7 2.3 1.2 x 12.2 x 14.3 x 10/13/95 11.8 11.1 1.2 0.8 1.1 x 9.8 x 14.7 x 10/19/95 367.1 82.0 20.9 18.6 4.5 x 17.6 x 19.7 x 10/26/95 28.2 10.0 -- -- 2.8 x -- -- 1/3/96 109.6 247.2 6.8 2.7 0.4 x 16.1 x 40.6 x 2/15/96 61.2 39.3 2.1 0.0 1.6 x 29.1 x -- 10/7/96 611.8 579.1 66.8 43.0 1.1 x 9.2 x 14.2 x 11/18/96 125.0 60.0 -- -- 2.1 x -- -- 1/27/97 587.4 416.0 71.1 54.6 1.4 x 8.3 x 10.8 x 4/11/97 20.6 2.7 -- -- 7.6 x -- -- 5/6/97 14.7 5.3 (1.5) (1.7) 2.8 x NM NM 5/16/97 22.0 31.0 -- -- 0.7 x -- -- 6/10/97 336.5 22.4 5.2 0.7 15.0 x 64.7 x 480.8 x 6/16/97 317.3 241.7 31.4 26.0 1.3 x 10.1 x 12.2 x 7/1/97 30.0 24.2 -- 2.5 1.2 x -- 12.0 x 7/31/97 85.0 75.0 -- -- 1.1 x -- -- 8/7/97 16.0 20.8 1.5 1.0 0.8 x 10.7 x 16.0 x 8/11/97 16.0 19.3 4.4 4.1 0.8 x 3.6 x 3.9 x 8/25/97 339.3 89.5 16.7 (25.9) 3.8 x 20.3 x NM 9/3/97 428.0 235.3 22.4 17.3 1.8 x 19.1 x 24.7 x 9/12/97 38.0 41.8 -- 4.3 0.9 x -- 8.8 x 9/30/97 13.5 13.7 -- -- 1.0 x -- -- 10/17/97 160.5 62.2 9.1 6.2 2.6 x 17.6 x 25.9 x 10/17/97 590.9 562.0 28.4 12.8 1.1 x 20.8 x 46.2 x 11/25/97 32.1 82.4 1.8 1.7 0.4 x 17.8 x 18.9 x 12/12/97 28.5 19.2 0.0 (0.2) 1.5 x NA NM 12/22/97 100.0 88.8 -- -- 1.1 x -- -- 3/10/98 44.5 36.0 5.4 4.4 1.2 x 8.2 x 10.1 x 3/31/98 20.4 19.7 3.5 2.4 1.0 x 5.8 x 8.5 x 4/27/98 657.5 441.0 49.9 34.3 1.5 x 13.2 x 19.2 x 5/13/98 16.3 9.5 0.9 0.4 1.7 x 18.1 x 40.7 x 6/19/98 330.0 350.0 -- -- 0.9 x -- -- 7/8/98 13.8 10.0 -- -- 1.4 x -- -- ------------------------------------------- --------------------------------------
Project Orbis Selected Merger and Acquisition Transactions - -------------------------------------------------------------------------------- Analysis of Selected Completed and Pending Acquisitions in Instrumentation, Measurement and Detection January 1, 1994 - Present (Transactions greater than $10 million)
Date Announced Target Name Target Business Description Acquiror Name - --------------- ---------------------------------- ----------------------------------- ----------------------------------- 7/13/98 Revere Transducers Inc Mnfr weighing load cells SI Technologies Inc 8/10/98 Molecular Dynamics Inc Mnfr,whl laboratory equipment Amersham Pharmacia Biotech Ltd 8/24/98 General Microwave Corp Mnfr microwave test equipment Herley Industries Inc 12/3/98 Microdyne Corp Mnfr,whl telemetry products L-3 Communications Holdings 12/11/98 Nu-Metrics Inc Mnfr traffic sensing devices TranSafe Corp (Quixote Corp) 12/14/98 Inframetrics Inc Mnfr infrared instruments FLIR Systems 12/18/98 Kuhlman Corp Mnfr transformers,indl springs Borg-Warner Automotive Inc 12/22/98 MagneTek Inc-Generator Bus Mnfr alternators Emerson Electric Co 12/31/98 Vars/Dentech Mnfr measuring devices KLA-Tencor Corp 1/5/99 National Controls Corp Manufacture industrial relays AMETEK Inc 1/8/99 Wireless Telecom Grp-Wireless Mnfr communs testing prods Bowthorpe PLC 1/11/99 International Power Devices Mnfr,whl converters,generators Power-One Inc 1/11/99 Whittaker Porta Bella Mnfr and develop electronics Santa Clarita LLC 1/15/99 Testec Corp Mnfr elec instruments Electro Scientific Inds Inc 2/1/99 AMP Inc-Conditioning Prod Ops Mnfr ceramic filter connectors Spectrum Control Inc 2/1/99 MicroVision Corp Mnfr semiconductors Electro Scientific Inds Inc 2/4/99 Watson Engineering Testing Pvd engineering svcs Johnson Matthey PLC 2/16/99 MVE Holdings Inc Mnfr,whl insulated containers Chart Industries Inc 3/1/99 Harrow Industries Mnfr access controls,hardware Ingersoll-Rand Co 3/2/99 Phoenix Microwave Corp Mnfr microwave components Stellex Microwave Systems Inc 3/2/99 XYLAN Corp Develop LAN hub systems Alcatel SA 3/15/99 Lightera Networks Inc Mnfr carrier-core switches CIENA Corp 3/16/99 United Technologies Automotive Mnfr auto parts,accessories Lear Corp 3/19/99 Products Unlimited Corp Mnfr relays,transformers Communications Instruments Inc 3/29/99 Strategic Technology Sys Inc Mnfr monitoring sys Smiths Industries PLC 4/13/99 TouchWave Inc Dvlps netwrk intgrtd phone sys LM Ericsson Telefon AB 4/21/99 A-G Geophysical Products Inc Mnfr marine connectors,cables Bolt Technology Corp 4/27/99 Identicator Inc Mnfr biometric fingerprint sys Identix Inc 5/3/99 Gulton-Stathman Transducers Mnfr transmitters, transducers AMETEK Inc ------------------------------------------- -------------------------------------- Enterprise LTM Target Information ($mil) Enterprise Value as a Multiple of Date Value (1) ------------------------------------------- -------------------------------------- Announced ($mil) Revenues EBITDA EBIT Revenues EBITDA EBIT - ------------- ------------- ------------------------------------------- -------------------------------------- 7/13/98 10.4 21.0 -- -- 0.5 x -- -- 8/10/98 261.5 58.1 6.3 4.1 4.5 x 41.5 x 63.8 x 8/24/98 20.9 22.3 3.0 2.2 0.9 x 7.0 x 9.5 x 12/3/98 90.0 51.1 10.2 9.0 1.8 x 8.8 x 10.0 x 12/11/98 15.0 7.0 -- -- 2.1 x -- -- 12/14/98 59.9 55.0 -- -- 1.1 x -- -- 12/18/98 789.9 745.8 69.8 94.2 1.1 x 11.3 x 8.4 x 12/22/98 115.0 100.0 -- -- 1.2 x -- -- 12/31/98 20.0 -- -- -- -- -- -- 1/5/99 29.0 25.0 -- -- 1.2 x -- -- 1/8/99 19.0 20.0 -- -- 1.0 x -- -- 1/11/99 31.8 30.0 -- -- 1.1 x -- -- 1/11/99 15.0 -- -- -- -- -- -- 1/15/99 21.4 -- -- -- -- -- -- 2/1/99 20.0 30.0 -- -- 0.7 x -- -- 2/1/99 44.6 14.0 -- -- 3.2 x -- -- 2/4/99 10.6 5.0 -- 1.0 2.1 x -- 10.6 x 2/16/99 240.0 204.8 14.5 23.5 1.2 x 16.6 x 10.2 x 3/1/99 160.0 155.0 -- -- 1.0 x -- -- 3/2/99 21.0 -- -- -- -- -- -- 3/2/99 1,822.5 314.4 48.4 32.8 5.8 x 37.7 x 55.6 x 3/15/99 552.3 -- -- -- -- -- -- 3/16/99 2,300.0 3,000.0 -- -- 0.8 x -- -- 3/19/99 59.4 -- -- -- -- -- -- 3/29/99 14.5 -- -- -- -- -- -- 4/13/99 46.0 -- -- -- -- -- -- 4/21/99 14.0 10.0 -- -- 1.4 x -- -- 4/27/99 59.4 20.8 -- -- 2.9 x -- -- 5/3/99 23.0 24.0 -- -- 1.0 x -- -- ------------------------------------------- --------------------------------------
- ------------------------------------------------------- SIC Codes - ------------------------------------------------------- 3823 Process Control Instrumentation 3825 Instruments to Measure Electricity 3826 Lab Analytical Instruments 3829 Measurement & Control Devices 3629 Electrical Ind. Apparatus 3679 Electronic Components - ------------------------------------------------------- - ------------------------------------------------------------------------- Aggregate Summary Table (2) Revenues EBITDA EBIT - ------------------------------ -------------------------------------- Adj. Mean (3) 1.3x 12.2x 12.0x High 3.2x 19.8x 19.7x Low 0.3x 3.6x 3.9x - ------------------------------------------------------------------------- (1) Enterprise value is equal to the total value of consideration paid by the acquiror, including net debt if publicly disclosed, and excluding fees and expenses. (2) Bolded market multiples, if any, are excluded from Summary Statistics as they are considered extraordinary. (3) Adjusted Mean excludes high and low values. Source: Securities Data Company, Inc. (201) 622-3100 TAB C Project Orbis Selected Acquisition of Minority Interest Transactions - -------------------------------------------------------------------------------- Analysis of Select Completed and Pending Acquisition of Minority Interest Transactions January 1, 1994 - Present
Target Date SIC Announced Target Name Code Target Industry Sector - ----------------------------------------------------------------------------------------------------------------- 01/03/94 Au Bon Pain Co Inc 5812 Retail Trade-Eating and Drinking Places 01/21/94 Video Lottery Technologies Inc 3577 Computer and Office Equipment 02/22/94 Nostalgia Network Inc 4841 Radio and Television Broadcasting Stations 03/16/94 California Micro Devices Corp 3674 Electronic and Electrical Equipment 03/18/94 Air & Water Technologies Corp 8711 Business Services 03/28/94 Jones Intercable Inc 4841 Radio and Television Broadcasting Stations 05/03/94 Computer Task Group Inc 7372 Prepackaged Software 05/06/94 Dreyer's Grand Ice Cream Inc 2024 Food and Kindred Products 06/14/94 Cairn Energy USA Inc 1311 Oil and Gas; Petroleum Refining 06/14/94 Sprint Corp 4813 Telecommunications 06/21/94 Stac Electronics Inc 7374 Business Services 06/23/94 Corrections Corp of America 8744 Business Services 06/27/94 Celtrix Pharmaceuticals Inc 2834 Drugs 06/27/94 Somatogen Inc 2836 Drugs 07/01/94 Citicasters 4833 Radio and Television Broadcasting Stations 07/13/94 Titan Wheel International Inc 3714 Transportation Equipment 08/19/94 Atlas Corp 1041 Mining 08/22/94 Pyramid Technology Corp 3571 Computer and Office Equipment 09/07/94 People's Choice TV Corp 4841 Radio and Television Broadcasting Stations 09/12/94 Borden Inc 2026 Food and Kindred Products 10/03/94 Giant Food Inc 5411 Retail Trade-Food Stores 10/19/94 Acclaim Entertainment Inc 7372 Prepackaged Software 10/28/94 Younkers Inc 5311 Retail Trade-General Merchandise and Apparel 11/11/94 Chiron Corp 8731 Business Services 11/14/94 AmeriQuest Technologies Inc 3572 Computer and Office Equipment 11/14/94 AmeriQuest Technologies Inc 3572 Computer and Office Equipment 12/01/94 Veterinary Centers of America 0742 Agriculture, Forestry, and Fishing 12/07/94 Synetic Inc 3089 Rubber and Miscellaneous Plastic Products 12/13/94 GTS Duratek Corp 3564 Machinery 12/20/94 Santa Fe Pacific Corp 4011 Transportation and Shipping (except air) 12/22/94 Empire of Carolina Inc 3944 Miscellaneous Manufacturing 12/27/94 Quality Food Centers Inc 5411 Retail Trade-Food Stores 02/15/95 IG Laboratories Inc 8071 Health Services 03/15/95 Ropak Corp 3089 Rubber and Miscellaneous Plastic Products 04/05/95 Club Med Inc 7011 Hotels and Casinos 04/07/95 LIN Bdcstg(McCaw Cellular) 4813 Telecommunications 07/06/95 Grand Gaming Corp 7011 Hotels and Casinos 07/14/95 REN Corp-USA(COBE Labs Inc) 8092 Health Services 01/02/96 Forest Oil Corp 1311 Oil and Gas; Petroleum Refining 01/04/96 Tuboscope Vetco International 1389 Oil and Gas; Petroleum Refining 01/08/96 Loral Space & Communications 3669 Communications Equipment 01/17/96 Avant! Corp 7372 Prepackaged Software 01/25/96 Magellan Health Services Inc 8063 Health Services 02/14/96 Wet Seal Inc(Suzy Shier Ltd) 5651 Retail Trade-General Merchandise and Apparel 02/29/96 Sithe Energies(Cie Generale) 4911 Electric, Gas, and Water Distribution ------------------------------------- Value of Enterprise % of Premiums Prior to Announcement Date Transaction Value (1) Shares ------------------------------------- Announced Acquiror Name ($mil) ($mil) Acq. 1 day 1 week 4 weeks - ----------------------------------------------------------------------------------------------------------------------------- 01/03/94 Morgan Stanley Group Inc 30.0 NA 11.40 -- -- -- 01/21/94 Electronic Data Systems Corp 67.6 357.51 20.00 39.2% 50.7% 64.2% 02/22/94 Concept Communications Inc 11.5 NA 27.56 -- -- -- 03/16/94 Hitachi Metals(Hitachi) 21.1 181.48 10.00 71.4% 67.0% 71.4% 03/18/94 CGE 60.0 NA 11.25 -- -- -- 03/28/94 BCE Telecom International 204.0 NA 22.05 -- -- -- 05/03/94 Stock Employee Compensation 13.4 82.67 15.22 (2.9%) 3.0% 7.9% 05/06/94 Nestle USA Inc(Nestle SA) 96.0 600.29 17.00 20.8% 26.7% 32.0% 06/14/94 Aeneas Group Inc 15.0 106.05 11.77 (9.1%) (1.6%) 25.0% 06/14/94 Investor Group 4,070.8 21,234.67 20.00 23.9% 24.7% 26.4% 06/21/94 Microsoft Corp 39.9 NA 15.50 -- -- -- 06/23/94 Sodexho SA(Financiere Sodexho) 17.5 NA 20.00 -- -- -- 06/27/94 Genzyme Corp 10.0 NA 10.00 12.2% 5.3% (9.5%) 06/27/94 Eli Lilly & Co 20.0 NA 13.50 -- -- -- 07/01/94 American Finl Entps Inc 23.9 250.71 10.00 17.1% 10.8% -- 07/13/94 Pirelli Armstrong Tire Co 17.5 NA 15.79 -- -- -- 08/19/94 MIM Holdings Ltd 11.0 101.77 11.00 180.5% 232.2% 193.6% 08/22/94 Siemens Nixdorf Info AG 17.3 NA 12.30 -- 11.3% 50.0% 09/07/94 Blackstone Capital Partners II 50.0 NA 14.70 -- -- -- 09/12/94 Kohlberg Kravis Roberts & Co 309.5 NA 16.50 (5.4%) (9.3%) (11.1%) 10/03/94 J Sainsbury PLC 336.8 NA 16.70 -- -- -- 10/19/94 Tele-Communications Inc 80.8 685.39 10.00 7.0% (2.2%) 2.6% 10/28/94 Carson Pirie Scott & Co 16.2 NA 11.69 -- -- -- 11/11/94 Ciba-Geigy AG 1,387.7 3,918.98 28.37 95.8% 98.3% 86.5% 11/14/94 Computer 2000 AG(Kloeckner) 18.0 NA 12.70 -- -- -- 11/14/94 Computer 2000 AG(Kloeckner) 31.5 71.79 28.10 (51.7%) (50.0%) (48.1%) 12/01/94 Heinz Pet Products Co 10.0 45.03 17.60 (1.4%) 1.5% 15.0% 12/07/94 Investor 35.9 151.43 28.60 (56.4%) (55.3%) (55.0%) 12/13/94 Carlyle Group LP 16.0 NA 19.18 -- -- -- 12/20/94 Burlington Northern Inc 500.0 5,002.13 12.30 (1.2%) (8.0%) (14.9%) 12/22/94 WPG Corporate Dev Assoc IV 15.0 NA 28.00 -- -- -- 12/27/94 Zell/Chilmark Fund LP 74.4 453.59 15.26 12.4% 25.0% 17.0% 02/15/95 LinPac Mouldings Ltd 22.3 71.29 31.97 4.9% 3.8% 2.9% 03/15/95 Club Mediterranee SA 28.5 81.65 40.00 10.5% 10.4% 10.5% 04/05/95 McCaw Cellular Commun (AT&T) 153.4 503.61 33.00 22.6% 22.9% 22.1% 04/07/95 Grand Casinos Inc 3,209.4 8,393.36 45.00 109.9% 108.5% 108.5% 07/06/95 COBE Laboratories (Gambro AB) 36.5 182.97 22.20 3.8% 3.8% 3.3% 07/14/95 COBE Laboratories (Gambro AB) 182.1 388.35 47.00 15.8% 16.6% 15.9% 01/02/96 JEDI 44.9 NA 17.30 2.8% 3.1% 2.9% 01/04/96 SCF Partners 31.0 NA 22.70 6.1% 5.8% 6.1% 01/08/96 Lockheed Martin Corp 344.0 786.87 20.00 -- -- -- 01/17/96 Investor Group 133.1 391.46 19.90 14.3% 15.8% 16.3% 01/25/96 Rainwater-Magellan Holding LP 69.7 973.59 12.20 21.8% 22.4% 24.0% 02/14/96 Craig Drill Capital LP 12.9 56.26 23.30 7.3% 7.4% 7.3% 02/29/96 Marubeni Corp 195.5 2,047.34 29.50 5.9% 6.3% 6.6% -------------------------------------
Project Orbis Selected Acquisition of Minority Interest Transactions - -------------------------------------------------------------------------------- Analysis of Select Completed and Pending Acquisition of Minority Interest Transactions January 1, 1994 - Present
Target Date SIC Announced Target Name Code Target Industry Sector - -------------------------------------------------------------------------------------------------------------- 03/04/96 Inhale Therapeutic Systems 3841 Measuring, Medical, Photo Equipment; Clocks 03/15/96 General Communication Inc 4813 Telecommunications 04/08/96 Cyberonics Inc 3841 Measuring, Medical, Photo Equipment; Clocks 04/16/96 Regeneron Pharmaceuticals Inc 8731 Business Services 05/02/96 Equity Corp International 7261 Personal Services 05/06/96 Aydin Corp 3663 Communications Equipment 05/17/96 DMX Inc 4841 Radio and Television Broadcasting Stations 06/06/96 Anacomp Inc 3861 Measuring, Medical, Photo Equipment; Clocks 06/10/96 CIDCO Inc 3661 Communications Equipment 06/11/96 UNC Inc 3724 Aerospace and Aircraft 06/26/96 Swiss Army Brands Inc 3421 Metal and Metal Products 06/27/96 PetroCorp Inc 1382 Oil and Gas; Petroleum Refining 07/24/96 Alliance Gaming Corp 7993 Amusement and Recreation Services 07/26/96 Imperial Holly Corp 2062 Food and Kindred Products 07/30/96 Recovery Engineering Inc 3589 Machinery 10/04/96 TCSI Corp 7372 Prepackaged Software 10/15/96 Sport Supply Group Inc 5091 Wholesale Trade-Durable Goods 10/15/96 PetroCorp Inc 1382 Oil and Gas; Petroleum Refining 11/27/96 Graham-Field Health Products 5047 Wholesale Trade-Durable Goods 11/27/96 Graham-Field Health Products 5047 Wholesale Trade-Durable Goods 01/15/97 Xircom Inc 7373 Business Services 03/06/97 Westinghouse Air Brake Co 3743 Transportation Equipment 03/31/97 Dynamics Corp of America 3634 Electronic and Electrical Equipment 04/21/97 Immune Response Corp 8731 Business Services 04/22/97 Allied Waste Industries Inc 4953 Sanitary Services 04/23/97 Vail Resorts Inc 7999 Amusement and Recreation Services 06/06/97 Grand Union Co 5411 Retail Trade-Food Stores 06/09/97 Comcast Corp 4841 Radio and Television Broadcasting Stations 06/11/97 Excite Inc 7372 Prepackaged Software 06/20/97 Sygnet Wireless Inc 4812 Telecommunications 06/20/97 Hugoton Energy Corp 1311 Oil and Gas; Petroleum Refining 06/26/97 ABIOMED 3845 Measuring, Medical, Photo Equipment; Clocks 07/23/97 ARV Assisted Living Inc 8051 Health Services 08/07/97 Pioneer Hi-Bred International 8731 Business Services 08/26/97 Learning Co Inc 7372 Prepackaged Software 09/29/97 Metricom Inc 3663 Communications Equipment 10/13/97 I-Link Inc 8071 Health Services 10/13/97 Metricom Inc 3663 Communications Equipment 11/04/97 D&E Communications Inc 4813 Telecommunications 11/04/97 Compost America Holding Co Inc 4953 Sanitary Services 11/21/97 Shared Technologies Fairchild 3661 Communications Equipment 12/19/97 Panavision Inc 3861 Measuring, Medical, Photo Equipment; Clocks 01/05/98 Marketing Services Group Inc 7389 Business Services 01/06/98 NetSpeak Corp 7375 Business Services 01/16/98 US Office Products Co 5112 Wholesale Trade-Nondurable Goods ------------------------------------- Value of Enterprise % of Premiums Prior to Announcement Date Transaction Value (1) Shares ------------------------------------- Announced Acquiror Name ($mil) ($mil) Acq. 1 day 1 week 4 weeks - ----------------------------------------------------------------------------------------------------------------------------- 03/04/96 Baxter International Inc 20.0 148.98 11.60 12.3% 11.8% 11.6% 03/15/96 MCI Communications Corp 13.0 137.17 23.00 5.0% 5.1% 4.8% 04/08/96 St Jude Medical Inc 12.0 45.71 17.50 5.5% 4.8% 4.5% 04/16/96 Amgen Inc 48.0 NA 11.60 12.8% 12.5% 13.6% 05/02/96 Service Corp International 36.6 287.56 11.24 28.5% 27.0% 29.0% 05/06/96 EA Industries Inc 10.8 NA 11.70 15.5% 15.3% 14.4% 05/17/96 Tele-Communications Inc 11.4 82.08 13.00 1.6% 1.8% 1.9% 06/06/96 Investor Group 70.4 1,498.31 28.95 -- -- -- 06/10/96 Forstmann Little & Co 150.0 NA 19.00 37.5% 38.3% 39.5% 06/11/96 Investor 21.0 NA 14.40 9.0% 9.1% 9.1% 06/26/96 Investor Group 12.8 114.00 11.11 13.4% 13.9% 13.5% 06/27/96 Kaiser-Francis Oil Co(GBK) 17.5 99.38 24.70 8.5% 7.9% 7.3% 07/24/96 Investor Group 35.0 NA 10.00 -- -- -- 07/26/96 Greencore Group PLC 50.4 259.86 27.00 13.3% 12.6% 11.1% 07/30/96 Investor Group 15.0 NA 18.80 12.5% 14.3% 13.3% 10/04/96 Investor Group 61.7 430.52 12.74 12.1% 12.3% 20.0% 10/15/96 Emerson Radio Corp 12.0 NA 17.10 6.3% 5.8% 7.5% 10/15/96 Kaiser-Francis Oil Co(GBK) 13.1 87.30 18.50 8.4% 8.6% 8.9% 11/27/96 BIL(Far East Holdings)Ltd 25.0 205.28 11.70 8.3% 7.9% 7.0% 11/27/96 BIL(Far East Holdings)Ltd 10.0 NA 12.40 8.3% 7.9% 7.0% 01/15/97 Intel Corp 52.0 NA 12.50 20.6% 20.6% 22.5% 03/06/97 Investor Group 66.0 663.03 21.10 12.6% 13.0% 12.4% 03/31/97 WHX Corp 22.8 218.68 10.66 33.5% 33.0% 30.1% 04/21/97 Investor Group 15.8 NA 10.00 7.4% 7.9% 8.4% 04/22/97 Investor Group 146.0 NA 19.90 11.4% 10.1% 8.0% 04/23/97 Investor 75.1 298.85 10.20 18.5% 19.3% 20.4% 06/06/97 Investor Group 40.0 NA 10.00 1.8% 2.1% 2.6% 06/09/97 Microsoft Corp 1,000.0 NA 11.50 17.3% 17.4% 16.4% 06/11/97 Intuit Inc 39.2 193.03 23.64 13.1% 10.3% 9.0% 06/20/97 Boston Ventures 15.0 NA 11.00 -- -- -- 06/20/97 Belco Oil & Gas Corp 30.9 298.14 14.88 11.6% 10.8% 11.9% 06/26/97 Genzyme Corp 15.0 89.43 16.44 12.8% 12.5% 12.0% 07/23/97 Prometheus Assisted Living LLC 26.9 NA 16.60 -- -- -- 08/07/97 EI du Pont de Nemours and Co 1,705.6 8,433.19 16.63 76.6% 74.0% 72.8% 08/26/97 Investor Group 123.0 NA 25.00 11.5% 10.8% 11.4% 09/29/97 Vulcan Ventures Inc 17.5 131.67 14.10 7.1% 7.1% 5.8% 10/13/97 Winter Harbor LLC 12.1 NA 23.40 -- -- -- 10/13/97 Vulcan Ventures Inc 56.0 205.45 25.37 12.9% 12.5% 5.9% 11/04/97 Citizens Utilities Co 27.0 NA 17.50 16.7% 17.0% 18.0% 11/04/97 Wafra Investment Advisory Co 20.0 NA 25.00 -- -- -- 11/21/97 Intermedia Communications Inc 60.0 553.39 23.30 14.2% 11.9% 12.4% 12/19/97 Mafco Holdings Inc 147.6 NA 24.00 -- 25.6% 22.3% 01/05/98 General Electric Co 15.0 NA 24.00 5.1% 4.8% 4.9% 01/06/98 Bay Networks Inc 37.5 NA 10.90 27.1% 24.5% 23.1% 01/16/98 Clayton Dubilier & Rice Inc 270.0 NA 24.90 18.4% 15.9% 16.7% -------------------------------------
Project Orbis Selected Acquisition of Minority Interest Transactions - -------------------------------------------------------------------------------- Analysis of Select Completed and Pending Acquisition of Minority Interest Transactions January 1, 1994 - Present
Target Date SIC Announced Target Name Code Target Industry Sector - -------------------------------------------------------------------------------------------------------------- 01/26/98 Continental Airlines Inc 4512 Air Transportation and Shipping 02/11/98 EarthLink Network Inc 7375 Business Services 02/11/98 EarthLink Network Inc 7375 Business Services 03/18/98 NetSpeak Corp 7375 Business Services 04/08/98 Verio Inc 7374 Business Services 05/30/98 Panavision Inc 3861 Measuring, Medical, Photo Equipment; Clocks 06/16/98 Pepsi-Cola Puerto Rico 2086 Food and Kindred Products 07/29/98 Chaparral Resources Inc 1311 Oil and Gas; Petroleum Refining 07/29/98 Telenorte Celular 4813 Telecommunications 08/24/98 Freeport-McMoRan Copper & Gold 1021 Mining 10/14/98 ASV Inc 3531 Machinery 12/03/98 Visioneer Inc 3577 Computer and Office Equipment 03/09/99 Charles E Smith Commercial 6798 Investment & Commodity Firms,Dealers,Exchanges ------------------------------------- Value of Enterprise % of Premiums Prior to Announcement Date Transaction Value (1) Shares ------------------------------------- Announced Acquiror Name ($mil) ($mil) Acq. 1 day 1 week 4 weeks - ------------------------------------------------------------------------------------------------------------------------------ 01/26/98 Northwest Airlines Corp 502.0 NA 14.10 54.0% 49.6% 46.9% 02/11/98 Sprint Corp 56.3 522.75 11.14 38.6% 32.1% 28.5% 02/11/98 Sprint Corp 124.0 NA 18.86 38.6% 32.1% 28.5% 03/18/98 Motorola Inc 80.6 311.33 21.80 26.9% 25.8% 22.1% 04/08/98 Nippon Telegraph & Telephone 100.0 NA 12.50 -- -- -- 05/30/98 Mafco Holdings Inc 154.4 621.58 25.00 26.4% 26.3% 26.3% 06/16/98 Investor Group 22.5 95.49 28.80 6.8% 7.1% 7.5% 07/29/98 Investor Group 10.0 82.09 13.02 2.2% 1.7% 1.6% 07/29/98 Telesystem International 161.8 NA 19.26 -- -- -- 08/24/98 Genzyme Corp 12.6 4,517.80 15.90 12.4% 12.9% 14.3% 10/14/98 Caterpillar Inc 18.0 149.04 13.15 19.0% 12.5% 7.5% 12/03/98 Xerox Corp 10.5 35.37 19.09 13.7% 99.8% 174.7% 03/09/99 Vornado Realty Trust 242.0 NA 24.40 -- -- -- -------------------------------------
------------------------------------------------------------------ Aggregate Summary Table (2) Premiums prior to announcement: ------------------------------------------------------------------ 1 day 1 week 4 weeks Adj. Mean (3) 14.7% 14.3% 15.0% High 54.0% 50.7% 64.2% Low 1.6% 1.5% 1.6% ------------------------------------------------------------------ - -------------------------------------------------------------------------------- Source: Securities Data Company, Inc. (201) 622-3100 (1) Enterprise value is equal to the total value of consideration paid by the acquiror, including net debt if publicly disclosed, and excluding fees and expenses. (2) Bolded market multiples, if any, are excluded from Summary Statistics as they are considered extraordinary. (3) Adjusted Mean excludes high and low values. TAB D Project Orbis Selected Acquisition of Remaining Interest Transactions - -------------------------------------------------------------------------------- Analysis of Select Completed and Pending Acquisition of Remaining Interest Transactions January 1, 1994 - Present
Target Date SIC Announced Target Name Code Target Industry Sector - ---------------------------------------------------------------------------------------------------------- 02/17/94 Scripps Howard Broadcasting Co 4832 Radio and Television Broadcasting Stations 03/23/94 Adia Services Inc (Adia SA) 7363 Business Services 04/26/94 Diamond Shamrock Offshore 1311 Oil and Gas; Petroleum Refining 06/06/94 Ogden Projects Inc (Ogden Corp) 1629 Construction Firms 07/28/94 Chemical Waste Management Inc 4953 Sanitary Services 09/08/94 Contel Cellular Inc (Contel) 4812 Telecommunications 11/02/94 Pacific Telecom (PacifiCorp) 4813 Telecommunications 07/06/95 Grand Gaming Corp 7011 Hotels and Casinos 05/27/96 SyStemix Inc(Novartis AG) 2836 Drugs 07/03/96 Golden Poultry Co Inc 2015 Food and Kindred Products 10/03/96 LXE(Electromagnetic Sciences) 3663 Communications Equipment 10/10/96 WCI Steel Inc(Renco Group Inc) 3312 Metal and Metal Products 01/21/97 Mafco Consolidated Grp(Mafco) 2844 Soaps, Cosmetics, and Personal-Care Products 02/25/97 Fina Inc 2911 Oil and Gas; Petroleum Refining 04/16/97 Steck-Vaughn Publishing Corp 2731 Printing, Publishing, and Allied Services 07/09/97 Seaman Furniture Co 5712 Retail Trade-Home Furnishings 10/23/97 Brad Ragan Inc(Goodyear Tire) 5014 Wholesale Trade-Durable Goods 03/05/98 XLConnect Solutions Inc 7373 Business Services 03/10/98 IP Timberlands Ltd 0811 Agriculture, Forestry, and Fishing 03/27/98 Intl Specialty Prods 2869 Chemicals and Allied Products 04/29/98 Group 1 Software Inc 7372 Prepackaged Software 09/23/98 Ryerson Tull Inc 5051 Wholesale Trade-Durable Goods 01/22/99 Treadco Inc 5531 Miscellaneous Retail Trade ------------------------------------ Value of Enterprise % of Premiums Prior to Announcement Date Transaction Value (1) Shares ------------------------------------ Announced Acquiror Name ($mil) ($mil) Acq. 1 day 1 week 4 weeks - ------------------------------------------------------------------------------------------------------------------------------- 02/17/94 EW Scripps (Edward Scripps Tr) 115.9 NA 14.00 -- -- -- 03/23/94 Adia SA 35.8 170.2 19.00 (43.4%) (42.3%) (37.5%) 04/26/94 Burlington Resources Inc 42.6 330.5 12.90 (3.1%) (0.4%) 5.4% 06/06/94 Ogden Corp 110.3 691.3 15.80 5.8% 17.6% 20.5% 07/28/94 WMX Technologies Inc 397.4 3310.9 21.40 10.6% 8.9% 1.1% 09/08/94 GTE Corp 254.3 4533.9 10.00 43.7% 37.8% 36.0% 11/02/94 PacifiCorp 159.0 1643.9 13.38 23.7% 23.7% 23.7% 07/06/95 Grand Casinos Inc 36.5 183.0 22.20 3.8% 3.8% 3.3% 05/27/96 Novartis AG 107.6 401.6 26.80 18.6% 11.5% 12.3% 07/03/96 Gold Kist Inc 52.1 209.7 25.00 9.4% 9.5% 10.3% 10/03/96 Electromagnetic Sciences Inc 14.8 82.0 22.20 10.8% 11.5% 11.0% 10/10/96 Renco Group Inc 56.5 437.2 15.53 8.5% 7.8% 5.6% 01/21/97 Mafco Holdings Inc 116.8 980.3 15.00 27.1% 27.1% 26.3% 02/25/97 Petrofina SA 257.0 2,427.1 14.70 50.1% 50.6% 49.4% 04/16/97 Harcourt General Inc 40.3 221.4 17.00 12.1% 11.1% 11.9% 07/09/97 Investor Group 45.6 130.1 20.00 20.6% 20.0% 20.6% 10/23/97 Goodyear Tire & Rubber Co 20.7 119.1 25.00 30.0% 32.4% 30.4% 03/05/98 Xerox Corp 93.0 353.6 20.00 22.5% 17.4% 16.4% 03/10/98 IP Forest Resources Co 99.5 NA 16.00 10.3% 10.4% 13.4% 03/27/98 ISP Holdings Inc 324.5 2,125.8 16.20 17.5% 17.9% 15.9% 04/29/98 COMNET Corp 11.8 64.6 18.80 8.0% 8.5% 8.0% 09/23/98 Inland Steel Industries Inc 61.2 510.813 13.59 (8.5%) (11.6%) (40.8%) 01/22/99 Arkansas Best Corp 22.7 63.1 48.10 38.5% 46.9% 24.1% ------------------------------------
- -------------------------------------------------------------------------------- Aggregate Summary Table (2) Premiums prior to announcement: - -------------------------------------------------------------------------------- 1 day 1 week 4 weeks Adj. Mean (3) 18.7% 18.8% 16.4% High 50.1% 50.6% 49.4% Low 3.8% 3.8% 1.1% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Source: Securities Data Company, Inc. (201) 622-3100 (1) Enterprise value is equal to the total value of consideration paid by the acquiror, including net debt if publicly disclosed, and excluding fees and expenses. (2) Bolded market multiples, if any, are excluded from Summary Statistics as they are considered extraordinary. (3) Adjusted Mean excludes high and low values. TAB E Project Orbis - Valuation On Consolidated Basis Management Case (6) Discounted Cash Flow Analysis (All Dollar Amounts in Thousands, Except Per Share Amounts) - --------------------------------------------------------------------------------
Projected Calendar Year Ending December 31, ---------------------------------------------------- FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 ---------------------------------------------------- Revenues $188,102 $209,659 $229,437 $251,819 $285,080 EBIT Before Corporate Overhead $ 22,384 $ 32,001 $ 37,597 $ 44,039 $ 52,768 Adjusted EBIT (1) $ 19,880 $ 29,324 $ 34,762 $ 41,024 $ 49,487 Less: Taxes (@43%) (8,548) (12,609) (14,948) (17,640) (21,279) Plus: Depreciation and amortization $ 12,449 $ 7,417 $ 7,111 $ 7,101 $ 7,218 Less: Capital Expenditures $ (4,576) $ (3,310) $ (3,349) $ (3,441) $ (3,562) Plus Changes in Working Capital $ (1,111) $ (3,135) $ (2,505) $ (3,637) $ (5,168) ---------------------------------------------------- Free Cash Flow 18,094 17,687 21,071 23,407 26,696 Terminal Value EBIT Multiple @ 12.0x(2) 0 0 0 0 592,872 ---------------------------------------------------- Free Cash Flow 18,094 17,687 21,071 23,407 619,567 ==================================================== PV of Free Cash Flow 15,504 12,986 13,257 12,619 286,209 ====================================================
Midpoint Assumptions for Equity Valuation Equity Value Calculation - ----------------------------------------- ------------------------ Exit Multiple (x EBIT) 12.0x(3) Enterprise Value (PV of Cash Flows) $340,575 Weighted Average Cost of Capital 16.7%(4) Less: Funded Indebtedness @ 4/3/99 (57,326) Plus: Cash balance @ 4/3/99 18,094 -------- Equity Valuation $301,343 ========
------------------------------------------------------ Weighted Average Cost of Capital ("WACC") -------------------------------------------- Equity Value 15.7% 16.7% 17.7% -------------------------------------------- Exit 11.0x $ 291,209 $ 278,482 $ 266,374 ----------------------------------- Multiple 11.5x $ 303,142 $ 289,913 $ 277,327 ----------------------------------- (x EBIT) 12.0x $ 315,075 $ 301,343 $ 288,280 ----------------------------------- 12.5x $ 327,008 $ 312,773 $ 299,233 ----------------------------------- 13.0x $ 338,940 $ 324,203 $ 310,185 ------------------------------------------------------ ------------------------------------------------------ Weighted Average Cost of Capital ("WACC") -------------------------------------------- Equity Value Per Share (5) 15.7% 16.7% 17.7% -------------------------------------------- Exit 11.0x $ 18.99 $ 18.16 $ 17.37 ----------------------------------- Multiple 11.5x $ 19.77 $ 18.90 $ 18.08 ----------------------------------- (x EBIT) 12.0x $ 20.55 $ 19.65 $ 18.80 ----------------------------------- 12.5x $ 21.32 $ 20.40 $ 19.51 ----------------------------------- 13.0x $ 22.10 $ 21.14 $ 20.23 ------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. (2) Terminal Value applied to adjusted EBIT (3) Based on comparable merger and acquisition transactions. (4) Range based on weighted average WACC for each division based on percentage of EBIT. (5) Based on 15,335,416 shares outstanding as of April 30, 1999. (6) Original valuation methodology updated to reflect current estimated cost of capital and terminal value multiples. Project Orbis - Valuation On Consolidated Basis Sensitivity Case: Adjusted EBIT Margin @ 11.0% (6) Discounted Cash Flow Analysis (All Dollar Amounts in Thousands, Except Per Share Amounts) - -------------------------------------------------------------------------------
Projected Calendar Year Ending December 31, -------------------------------------------------------- FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 -------------------------------------------------------- Revenues $188,102 $209,659 $229,437 $251,819 $285,080 Adjusted EBIT (1) $ 20,691 $ 23,062 $ 25,238 $ 27,700 $ 31,359 Less: Taxes (@43%) (8,897) (9,917) (10,852) (11,911) (13,484) Plus: Depreciation and amortization $ 12,449 $ 7,417 $ 7,111 $ 7,101 $ 7,218 Less: Capital Expenditures $ (4,576) $ (3,310) $ (3,349) $ (3,441) $ (3,562) Plus Changes in Working Capital $ (1,111) $ (3,135) $ (2,505) $ (3,637) $ (5,168) -------------------------------------------------------- Free Cash Flow 18,556 14,118 15,643 15,812 16,363 Terminal Value EBIT Multiple @ 12.0x(2) 0 0 0 0 375,689 -------------------------------------------------------- Free Cash Flow 18,556 14,118 15,643 15,812 392,052 ======================================================== PV of Free Cash Flow 15,900 10,366 9,842 8,524 181,108 ========================================================
Midpoint Assumptions for Equity Valuation Equity Value Calculation - ----------------------------------------- ------------------------ Exit Multiple (x EBIT) 12.0x(3) Enterprise Value (PV of Cash Flows) $225,740 Weighted Average Cost of Capital 16.7%(4) Less: Funded Indebtedness @ 4/3/99 (57,326) Plus: Cash balance @ 4/3/99 18,094 -------- Equity Valuation $186,508 ========
------------------------------------------------------- Weighted Average Cost of Capital ("WACC") ----------------------------------------------- Equity Value 15.7% 16.7% 17.7% ------------------------------------ Exit 11.0x $ 180,221 $ 172,022 $ 164,218 ------------------------------------ Multiple 11.5x $ 187,783 $ 179,265 $ 171,158 ------------------------------------ (x EBIT) 12.0x $ 195,344 $ 186,508 $ 178,099 ------------------------------------ 12.5x $ 202,906 $ 193,751 $ 185,040 ------------------------------------ 13.0x $ 210,467 $ 200,994 $ 191,980 ------------------------------------------------------- ------------------------------------------------------- Weighted Average Cost of Capital ("WACC") ----------------------------------------------- Equity Value Per Share (5) 15.7% 16.7% 17.7% ------------------------------------ Exit 11.0x $ 11.75 $ 11.22 $ 10.71 ------------------------------------ Multiple 11.5x $ 12.25 $ 11.69 $ 11.16 ------------------------------------ (x EBIT) 12.0x $ 12.74 $ 12.16 $ 11.61 ------------------------------------ 12.5x $ 13.23 $ 12.63 $ 12.07 ------------------------------------ 13.0x $ 13.72 $ 13.11 $ 12.52 -------------------------------------------------------
- -------------------------------------------------------------------------------- Notes: (1) Adjusted for corporate overhead, intercompany sales and corporate office adjustments based on a percentage of sales. (2) Terminal Value applied to adjusted EBIT (3) Based on comparable merger and acquisition transactions. (4) Range based on weighted average WACC for each division based on percentage of EBIT. (5) Based on 15,335,416 shares outstanding as of April 30, 1999. (6) Original valuation methodology updated to reflect current estimated cost of capital and terminal value multiples. Project Orbis Management DCF - -------------------------------------------------------------------------------- - ----------------------------------------- ------------------- ----------------------------- Months in 1st TMO Calendar Year: 12 Tax Rate: 43.0% Terminal Growth Rate: 2.0% - ----------------------------------------- ------------------- -----------------------------
Management Projections --------------------------------------------------------- 1999 2000 2001 2002 2003 ------- ------- ------- ------- ------- Revenues 188,102 209,659 229,437 251,819 285,080 Growth Rate 11.5% 9.4% 9.8% 13.2% Gross Profit 85,967 97,693 107,807 119,505 135,580 Gross Profit Margin 45.7% 46.6% 47.0% 47.5% 47.6% EBIT (w/out goodwill amort.) 23,133 32,605 38,043 44,305 52,768 EBIT Margin 12.3% 15.6% 16.6% 17.6% 18.5% EBIAT 13,186 18,585 21,685 25,254 30,078 NOA 62,056 59,167 61,115 63,695 67,968 NOA / Sales 33.0% 28.2% 26.6% 25.3% 23.8% Incr (Decr) NOA (6,819) (2,889) 1,948 2,580 4,273 Operating Cash Flows 20,005 21,474 19,737 22,674 25,805 PV of Operating Cash Flow 18,861 17,996 14,702 15,014 15,188 WACC 12.50% Present Value of Operating Cash Flows 147,715 Present Value of Terminal Value 124,264 -------- Enterprise Value of Company (intrinsic) 271,979 Net Debt $ 50,673 Equity Value 221,306 Shares Outstanding 15,372 -------- Per Share Value $ 14.40 -------- Extrapolated Projections ------------------------------------------------------- Terminal 2004 2005 2006 2007 2008 Value ------- ------- ------- ------- ------- -------- Revenues 315,866 349,976 387,770 429,645 476,042 Growth Rate 10.8% 10.8% 10.8% 10.8% 10.8% Gross Profit 150,221 166,444 184,418 204,333 226,399 Gross Profit Margin 47.6% 47.6% 47.6% 47.6% 47.6% EBIT (w/out goodwill amort.) 58,466 64,780 71,776 79,527 88,115 EBIT Margin 18.5% 18.5% 18.5% 18.5% 18.5% EBIAT 33,326 36,925 40,912 45,330 50,225 NOA 75,308 83,440 92,451 102,435 113,497 NOA / Sales 23.8% 23.8% 23.8% 23.8% 23.8% Incr (Decr) NOA 7,340 8,132 9,011 9,984 11,062 ------- Operating Cash Flows 25,986 28,792 31,901 35,347 39,164 380,446 ------- PV of Operating Cash Flow 13,596 13,390 13,188 12,988 12,792 124,264
- -------------------------------------------------------------------------------- Adjusted 2008 Terminal Value Calculation - -------------------------------------------------------------------------------- Growth Rate 5.0% --------- Sales $499,844 Gross Profit $237,719 Gross Profit Margin 47.6% EBIT (w/out g'will amort.) $ 92,521 EBIT Margin 18.5% EBIAT $ 52,737 NOA $119,171 NOA/Sales 23.8% Incr (Decr) NOA $ 5,675 Operating Cash Flows $ 47,062 Terminal Value (TV) $627,492 Present Value of TV $204,955 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Present Value Delta (THI Case v. Tucker Case) - -------------------------------------------------------------------------------- Growth Rate 5.0% --------- TA PV $204,955 THI PV $124,264 Delta $ 80,692 - -------------------------------------------------------------------------------- Per Share $ 5.25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Adjusted Per Share Fair Value - -------------------------------------------------------------------------------- 5.0% $19.65 ---------- Project Orbis Management DCF - --------------------------------------------------------------------------------
Management Projections ------------------------------------------------------------- Terminal Year 1999 2000 2001 2002 2003 Calculation ------- ------- ------- ------- ------- Revenues 188,102 209,659 229,437 251,819 285,080 $ 299,334 Growth Rate 11.5% 9.4% 9.8% 13.2% 5.0% Growth Profit 85,967 97,693 107,807 119,505 135,580 $ 142,359 Growth Profit Margin 45.7% 46.6% 47.0% 47.5% 47.6% 47.6% EBIT (w/out goodwill amort.) 23,133 32,605 38,043 44,305 52,768 $ 55,406 EBIT Margin 12.3% 15.6% 16.6% 17.6% 18.5% 18.5% EBIAT 13,186 18,585 21,685 25,254 30,078 $ 31,582 NOA 62,056 59,167 61,115 63,695 67,968 $ 71,366 NOA / Sales 33.0% 28.2% 26.6% 25.3% 23.8% 23.8% Incr (Decr) NOA (6,819) (2,889) 1,948 2,580 4,273 $ 3,398 Operating Cash Flows 20,005 21,474 19,737 22,674 25,805 $ 28,183 PV of Operating Cash Flow 18,861 17,996 14,702 15,014 15,188 $ 14,745 ------------------------------------------------------------- Terminal Value --------- $ 375,777 WACC 12.50% Present Value of Operating Cash Flows 81,762 Present Value of Terminal Value 221,179 -------- Enterprise Value of Company (intrinsic) 302,940 Net Debt $ 50,673 Equity Value 252,267 Share Outstanding 15,372 -------- Per Share Value $ 16.41 --------
Project Orbis - Temperature Control Group Weighted Average Cost of Capital Calculation - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Formulas: Weighted Average Cost of Capital: Source: - --------- --------------------------------- ------- Capital Asset Pricing Model (CAPM): R(f) Risk Free Rate 5.57% 10 Year Treasury as of 5/12/99 K(e) = R(f) + B*[R(m)-R(f)] + SP R(m)-R(f) Market Risk Premium 7.50% Ibbotson Associates 1997 Yearbook Unlevering/Relevering Beta: SP Size Premium 3.5% Micro Capitalization Equity Size Premium (Capitalization below $197 million) B(u) = B(l)/(1+D/E) t Effective Tax Rate 43.0% ThermoSpectra's statutory tax rate D/E Debt/Equity Ratio 6.4% Ind. Comp. Debt to Equity Ratio for SIC Code 3825 Source: Ibbotson Associates Yearbook 1997 B(l) = B(u)*(1+D/E) B(u) Estimated Unlevered Beta 1.10x Adjusted unlevered beta of comparable group. Weighted Average Cost of Capital (WACC): B(l) Estimated Relevered Beta 1.22x Adjusted levered beta of comparable group, Source: Bloomberg. [D/TC*(K(d)*(1-t))]+[E/TC*K(e)] K(e) Cost of Equity 18.2% K(d) Cost of Debt 8.00% ThermoSpectra's Cost of Debt E/TC Equity/(Debt+Equity) 94.0% Ind. Comp. Equity/Total Capital, Source: Ibbotson Associates 1997 Yearbook D/TC Debt/(Debt+Equity) 6.0% Ind. Comp. Debt/Total Capital, Source: Ibbotson Associates 1997 Yearbook ----------------------------- WACC 17.6% ----------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- Unlevered Beta Calculation for the Comparable Group of Public Traded Companies: Market Debt to Value Market Total of Equity Equity Levered Unlevered Public Comparables Debt 05/14/99 Ratio Beta Beta - ------------------ ----------- ------------ ----------- ----------------- --------- Cerprobe Corporation $6,573 $76,868 0.09x 1.12 1.03 GenRad, Inc. $8,487 $544,524 0.02x 1.06 1.04 IFR Systems, Inc. $114,125 $35,397 3.22x 0.88 0.21 Keithley Instruments, Inc. $6,000 $60,832 0.10x 0.72 0.66 Applied Materials, Inc. $624,554 $22,634,879 0.03x 1.66 1.62 Credence Systems Corp. $115,000 $551,607 0.21x 1.66 1.37 KLA-Tencor Corp. $16,416 $4,540,189 0.00x 1.39 1.38 ------------------------------------------------------------------------- Mean 0.52x 1.21x 1.04x Adjusted Mean* 0.09x 1.22x 1.10x ------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Note: Betas vs. the Standard & Poor's 500 Index * Indicates adjusted to exclude the high and low values in calculating the average. Project Orbis - Imaging & Inspection Group Weighted Average Cost of Capital Calculation - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- Formulas: Weighted Average Cost of Capital: Source: - --------- --------------------------------- ------- Capital Asset Pricing Model (CAPM): R(f) Risk Free Rate 5.57% 10 Year Treasury as of 5/12/99 K(e) = R(f) + B*[R(m)-R(f)] + SP R(m)-R(f) Market Risk Premium 7.50% Ibbotson Associates 1997 Yearbook Unlevering/Relevering Beta: SP Size Premium 3.5% Micro Capitalization Equity Size Premium (Capitalization below $197 million) B(u) = B(l)/(1+D/E) t Effective Tax Rate 43.0% ThermoSpectra's statutory tax rate D/E Debt/Equity Ratio 6.4% Ind. Comp. Debt to Equity Ratio for SIC Code 3825 Source: Ibbotson Associates Yearbook 1997 B(l) = B(u)*(1+D/E) B(u) Estimated Unlevered Beta 0.84x Adjusted unlevered beta of comparable group. Weighted Average Cost of Capital (WACC): B(l) Estimated Relevered Beta 0.90x Adjusted levered beta of comparable group, Source: Bloomberg. [D/TC*(K(d)*(1-t))]+[E/TC*K(e)] K(e) Cost of Equity 15.8% K(d) Cost of Debt 8.00% ThermoSpectra's Cost of Debt E/TC Equity/(Debt+Equity) 94.0% Ind. Comp. Equity/Total Capital , Source: Ibbotson Associates 1997 Yearbook D/TC Debt/(Debt+Equity) 6.0% Ind. Comp. Debt/Total Capital , Source: Ibbotson Associates 1997 Yearbook --------------------------- WACC 15.4% --------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- Unlevered Beta Calculation for the Comparable Group of Public Traded Companies: Market Debt to Value Market Total of Equity Equity Levered Unlevered Public Comparables Debt 05/14/99 Ratio Beta Beta - ------------------ ---------- ---------- ----------- ----------------- ---------- American Science and Engineering $1,050 $41,917 0.03x 0.79 0.77 Barringer Technologies $92 $42,382 0.00x 0.86 0.86 Bio-Rad Laboratories, Inc. $51,732 $347,394 0.15x 0.57 0.50 Cognex Corp. $0 $1,185,179 0.00x 1.45 1.45 Invision Technologies $2,329 $72,406 0.03x 0.95 0.92 Moore Products Co. $176 $62,301 0.00x 0.91 0.91 Robotic Vision Systems, Inc. $39,029 $74,662 0.52x 0.99 0.65 Oxford Instruments Plc $78,043 $166,411 0.47x 0.51 0.35 PPT Vision, Inc. $0 $24,290 0.00x 0.70 0.70 Veeco Instruments Inc. $18,011 $570,090 0.03x 1.49 1.44 ------------------------------------------------------------------------ Mean 0.12x 0.92x 0.85x Adjusted Mean* 0.09x 0.90x 0.84x ------------------------------------------------------------------------ - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Note: Betas vs. the Standard & Poor's 500 Index * Indicates adjusted to exclude the high and low values in calculating the average. Project Orbis - Test & Measurement Group Weighted Average Cost of Capital Calculation - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Formulas: Weighted Average Cost of Capital: Source: - --------- --------------------------------- ------- Capital Asset Pricing Model (CAPM): R(f) Risk Free Rate 5.57% 10 Year Treasury as of 5/12/99 K(e) = R(f) + B*[R(m)-R(f)] + SP R(m)-R(f) Market Risk Premium 7.50% Ibbotson Associates 1997 Yearbook Unlevering/Relevering Beta: SP Size Premium 3.5% Micro Capitalization Equity Size Premium (Capitalization below $197 million) B(u) = B(l)/(1+D/E) t Effective Tax Rate 43.0% ThermoSpectra's statutory tax rate D/E Debt/Equity Ratio 6.4% Ind. Comp. Debt to Equity Ratio for SIC Code 3825 Source: Ibbotson Associates Yearbook 1997 B(l) = B(u)*(1+D/E) B(u) Estimated Unlevered Beta 0.77x Adjusted unlevered beta of comparable group. Weighted Average Cost of Capital (WACC): B(l) Estimated Relevered Beta 0.86x Adjusted levered beta of comparable group, Source: Bloomberg. [D/TC*(K(d)*(1-t))]+[E/TC*K(e)] K(e) Cost of Equity 15.5% K(d) Cost of Debt 8.00% ThermoSpectra's Cost of Debt E/TC Equity/(Debt+Equity) 94.0% Ind. Comp. Equity/Total Capital , Source: Ibbotson Associates 1997 Yearbook D/TC Debt/(Debt+Equity) 6.0% Ind. Comp. Debt/Total Capital , Source: Ibbotson Associates 1997 Yearbook -------------------------- WACC 15.1% -------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ Unlevered Beta Calculation for the Comparable Group of Public Traded Companies: Market Debt to Value Market Total of Equity Equity Levered Unlevered Public Comparables (1) Debt 05/14/99 Ratio Beta Beta - ---------------------- --------- ----------- ----------- ----------------- --------- Astro-Med Inc. $228 $33,611 0.01x 0.33 0.33 Cyber Optics Corp. $0 $57,039 0.00x 1.25 1.25 Keithley Instruments, Inc. $6,000 $60,832 0.10x 0.72 0.66 K-Tron Int'l Inc. $11,458 $53,048 0.22x 0.35 0.29 Nanomentrics Incorporated $3,238 $63,445 0.05x 0.96 0.91 Newport Corporation $20,945 $137,037 0.15x 0.92 0.80 Tektronix Inc. $289,093 $1,253,739 0.23x 1.15 0.93 TSI Incorporated $0 $98,434 0.00x 0.60 0.60 Yokogawa Electric Corp. $467,280 $1,330,967 0.35x 0.95 0.70 Zygo Corp. $0 $100,953 0.00x 1.34 1.34 ----------------------------------------------------------------------- Mean 0.11x 0.86x 0.78x Adjusted Mean* 0.09x 0.86x 0.77x ----------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Note: Betas vs. the Standard & Poor's 500 Index * Indicates adjusted to exclude the high and low values in calculating the average. TAB F Project Orbis Consolidated Historical and Projected Income Statements ($000s) - --------------------------------------------------------------------------------
Historical --------------------------------------------------- 1994 1995 1996 1997 ---- ---- ---- ---- Revenues $ 42,142 $ 91,714 $ 123,199 $ 198,900 % increase in Revenues 117.6% 34.3% 61.4% Cost of Revenues 21,759 46,384 62,900 115,747 --------------------------------------------------- Gross Profit $ 20,383 $ 45,330 $ 60,299 $ 83,153 Gross Profit % 48.4% 49.4% 48.9% 41.8% Operating Expenses: Corporate G&A NA NA NA NA Goodwill Amortization and Other Expenses NA NA NA NA Research & Development expenses 4,149 9,036 12,910 17,303 Selling, General & Administrative Expenses 12,136 28,501 36,493 53,182 --------------------------------------------------- Total Operating Expenses $ 16,285 $ 37,537 $ 49,403 $ 70,485 --------------------------------------------------- Earnings Before Interest and Taxes 4,098 7,793 10,896 12,668 EBIT Margin 9.7% 8.5% 8.8% 6.4% Interest Income 226 820 935 692 Interest (expense) (114) (707) (773) (4,217) Other Expense, Net -- -- -- -- Restructuring Costs -- -- (171) 1,257 --------------------------------------------------- Total Other Income (Expense) 112 113 (9) (2,268) --------------------------------------------------- Income Before Taxes 4,210 7,906 10,887 10,400 Provision (Credit) for Income Taxes 1,842 3,312 4,270 4,552 --------------------------------------------------- Net Income $ 2,368 $ 4,594 $ 6,617 $ 5,848 =================================================== Basic Earnings Per Share $ 0.25 $ 0.41 $ 0.53 $ 0.40 Depreciation and Amortization 1,273 3,720 4,493 6,615 --------------------------------------------------- EBITDA 5,371 11,513 15,389 19,283 =================================================== EBITDA Margin 12.7% 12.6% 12.5% 9.7% Historical --------------------------------------------------- 1998 1Q1999 1Q1998 LTM ---- ------ ------ --- Revenues $ 191,017 $ 41,874 $ 53,067 $ 179,824 % increase in Revenues (4.0%) NA NA NA Cost of Revenues 110,915 25,111 30,397 105,629 --------------------------------------------------- Gross Profit $ 80,103 $ 16,763 $ 22,670 $ 74,195 Gross Profit % 41.9% 40.0% 42.7% 41.3% Operating Expenses: Corporate G&A 1,528 335 425 1,439 Goodwill Amortization and Other Expenses 3,538 1,065 463 4,140 Research & Development expenses 16,298 3,771 4,513 15,555 Selling, General & Administrative Expenses 48,474 10,191 12,890 45,776 --------------------------------------------------- Total Operating Expenses $ 69,839 $ 15,362 $ 18,291 $ 66,910 --------------------------------------------------- Earnings Before Interest and Taxes 10,264 1,401 4,379 7,286 EBIT Margin 5.4% 3.3% 8.3% 4.1% Interest Income 1,333 186 325 1,194 Interest (expense) (4,337) (822) (1,191) (3,968) Other Expense, Net 713 -- -- 713 Restructuring Costs (4,320) (758) -- (5,078) --------------------------------------------------- Total Other Income (Expense) (6,611) (1,394) (866) (7,138) --------------------------------------------------- Income Before Taxes 3,653 7 3,513 147 Provision (Credit) for Income Taxes 1,828 4 1,440 391 --------------------------------------------------- Net Income $ 1,825 $ 4 $ 2,073 ($ 244) =================================================== Basic Earnings Per Share $ 0.12 $ 0.00 $ 0.14 ($ 0.01) Depreciation and Amortization 8,682 1,929 1,814 8,797 --------------------------------------------------- EBITDA 18,946 3,330 6,193 16,083 =================================================== EBITDA Margin 9.9% 8.0% 11.7% 8.9% --------------------------------------------------- Projected ----------------------------------------------------------------- 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- Revenues $ 188,102 $ 209,659 $ 229,437 $ 251,819 $ 285,080 % increase in Revenues (1.5%) 11.5% 9.4% 9.8% 13.2% Cost of Revenues 102,135 111,966 121,630 132,314 149,500 ----------------------------------------------------------------- Gross Profit $ 85,967 $ 97,693 $ 107,807 $ 119,505 $ 135,580 Gross Profit % 45.7% 46.6% 47.0% 47.5% 47.6% Operating Expenses: Corporate G&A 1,504 1,677 1,835 2,015 2,281 Goodwill Amortization and Other Expenses 3,984 4,210 4,209 4,491 4,533 Research & Development expenses 16,892 16,898 17,992 19,200 21,098 Selling, General & Administrative Expenses 43,708 45,586 49,009 52,775 58,182 ----------------------------------------------------------------- Total Operating Expenses $ 66,088 $ 68,371 $ 73,045 $ 78,481 $ 86,094 ----------------------------------------------------------------- Earnings Before Interest and Taxes 19,879 29,322 34,762 41,024 49,486 EBIT Margin 10.6% 14.0% 15.2% 16.3% 17.4% Interest Income 500 482 452 452 452 Interest (expense) (4,100) (4,100) (4,100) (4,100) (4,100) Other Expense, Net -- -- -- -- -- Restructuring Costs (1,055) -- -- -- -- ----------------------------------------------------------------- Total Other Income (Expense) (4,655) (3,618) (3,648) (3,648) (3,648) ----------------------------------------------------------------- Income Before Taxes 15,224 25,704 31,114 37,376 45,838 Provision (Credit) for Income Taxes 4,872 9,145 11,364 13,931 17,400 ----------------------------------------------------------------- Net Income $ 10,352 $ 16,559 $ 19,750 $ 23,445 $ 28,438 ================================================================= Basic Earnings Per Share $ 0.67 $ 1.08 $ 1.28 $ 1.52 $ 1.85 Depreciation and Amortization 12,449 7,417 7,111 7,101 7,218 ----------------------------------------------------------------- EBITDA 32,328 36,739 41,873 48,125 56,704 ================================================================= EBITDA Margin 17.2% 17.5% 18.3% 19.1% 19.9%
Project Orbis Consolidated Historical and Projected Percentage Income Statements - --------------------------------------------------------------------------------
Historical ---------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1Q1999 1Q1998 LTM ---- ---- ---- ---- ---- ------ ------ --- Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Revenues 51.6% 50.6% 51.1% 58.2% 58.1% 60.0% 57.3% 58.7% ---------------------------------------------------------------------------- Gross Profit 48.4% 49.4% 48.9% 41.8% 41.9% 40.0% 42.7% 41.3% Operating Expenses: Corporate G&A NA NA NA NA 0.8% 0.8% 0.8% 0.8% Amortization and Other Expenses NA NA NA NA 1.9% 2.5% 0.9% 2.3% Research & Development Expenses 9.8% 9.9% 10.5% 8.7% 8.5% 9.0% 8.5% 8.7% Selling, General & Administrative Expenses 28.8% 31.1% 29.6% 26.7% 25.4% 24.3% 24.3% 25.5% Total Operating Expenses 38.6% 40.9% 40.1% 35.4% 36.6% 36.7% 34.5% 37.2% ---------------------------------------------------------------------------- Earnings Before Interest and Taxes 9.7% 8.5% 8.8% 6.4% 5.4% 3.3% 8.3% 4.1% Interest Income 0.5% 0.9% 0.8% 0.3% 0.7% 0.4% 0.6% 0.7% Interest (expense) (0.3%) (0.8%) (0.6%) (2.1%) (2.3%) (2.0%) (2.2%) (2.2%) Other Expense, Net 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 0.4% Restructuring Costs 0.0% 0.0% (0.1%) 0.6% (2.3%) (1.8%) 0.0% (2.8%) ---------------------------------------------------------------------------- Total Other Income (Expense) 0.3% 0.1% 0.0% (1.1%) (3.5%) (3.3%) (1.6%) (4.0%) ---------------------------------------------------------------------------- Income Before Taxes 10.0% 8.6% 8.8% 5.2% 1.9% 0.0% 6.6% 0.1% Provision (credit) for Income Taxes 4.4% 3.6% 3.5% 2.3% 1.0% 0.0% 2.7% 0.2% ---------------------------------------------------------------------------- Net Income 5.6% 5.0% 5.4% 2.9% 1.0% 0.0% 3.9% (0.1%) ============================================================================ Depreciation and Amortization 3.0% 4.1% 3.6% 3.3% 4.5% 4.6% 3.4% 4.9% ---------------------------------------------------------------------------- EBITDA 12.7% 12.6% 12.5% 9.7% 9.9% 8.0% 11.7% 8.9% ============================================================================ Projected ---------------------------------------------- 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Revenues 54.3% 53.4% 53.0% 52.5% 52.4% ---------------------------------------------- Gross Profit 45.7% 46.6% 47.0% 47.5% 47.6% Operating Expenses: Corporate G&A 0.8% 0.8% 0.8% 0.8% 0.8% Amortization and Other Expenses 2.1% 2.0% 1.8% 1.8% 1.6% Research & Development Expenses 9.0% 8.1% 7.8% 7.6% 7.4% Selling, General & Administrative Expenses 23.2% 21.7% 21.4% 21.0% 20.4% Total Operating Expenses 35.1% 32.6% 31.8% 31.2% 30.2% ---------------------------------------------- Earnings Before Interest and Taxes 10.6% 14.0% 15.2% 16.3% 17.4% Interest Income 0.3% 0.2% 0.2% 0.2% 0.2% Interest (expense) (2.2%) (2.0%) (1.8%) (1.6%) -1.4% Other Expense, Net 0.0% 0.0% 0.0% 0.0% 0.0% Restructuring Costs (0.6%) 0.0% 0.0% 0.0% 0.0% ---------------------------------------------- Total Other Income (Expense) (2.5%) (1.7%) (1.6%) (1.4%) -1.3% ---------------------------------------------- Income Before Taxes 8.1% 12.3% 13.6% 14.8% 16.1% Provision (credit) for Income Taxes 2.6% 4.4% 5.0% 5.5% 6.1% ---------------------------------------------- Net Income 5.5% 7.9% 8.6% 9.3% 10.0% ============================================== Depreciation and Amortization 6.6% 3.5% 3.1% 2.8% 2.5% ---------------------------------------------- EBITDA 17.2% 17.5% 18.3% 19.1% 19.9% ==============================================
Project Orbis Consolidated Historical and Projected Income Statements ($000s) Analysis of Projected and Actual First Quarter 1999 Results - --------------------------------------------------------------------------------
Projected Actual $ Amount Percentage 1Q 1999 1Q 1999 Change Change --------- ------- -------- ---------- Revenues $44,405 $41,874 ($2,531) (5.7%) Cost of Revenues 24,785 25,111 326 1.3% ------- ------- ------- ----- Gross Profit $19,620 $16,763 ($2,857) (14.6%) Operating Expenses: Corporate G&A 355 335 (20) (5.6%) Goodwill Amortization and Other Expenses 1,055 1,065 10 0.9% Research & Development expenses 4,184 3,771 (413) (9.9%) Selling, General & Administrative Expenses 10,856 10,191 (665) (6.1%) ------- ------- ------- ----- Total Operating Expenses $16,450 $15,362 ($1,088) (6.6%) ------- ------- ------- ----- Earnings Before Interest and Taxes 3,170 1,401 (1,769) (55.8%) Interest Income 128 186 58 45.5% Interest (expense) (1,025) (822) 203 (19.8%) Other Expense, Net -- -- -- -- Restructuring Costs (1,055) (758) 297 (28.2%) ------- ------- ------- ----- Total Other Income (Expense) (1,952) (1,394) 558 (28.6%) ------- ------- ------- ----- Income Before Taxes 1,218 7 (1,211) (99.4%) Provision (Credit) for Income Taxes 173 4 (169) (97.9%) ------- ------- ------- ----- Net Income $1,045 $4 ($1,041) (99.6%) ======= ======= ======= ===== Basic Earnings Per Share $0.07 $0.00 ($0.07) (99.6%) Depreciation and Amortization 3,167 1,929 (1,238) (39.1%) ------- ------- ------- ----- EBITDA 6,337 3,330 (3,007) (47.4%) ======= ======= ======= =====
TAB G Project Orbis Institutional Ownership - -------------------------------------------------------------------------------- - ---------------------------------------- THS Closing Price on 5/14/99 $11.13 - ----------------------------------------
Shares Total Institution Country Held Mkt Value Date - ------------------------------------ ------------ ---------- ------------ -------------- Thermo Electron Corporation United States 14,239,545 $158,414,938 12/10/1998 Dimensional Fund Advisors, Inc. United States 179,300 $1,994,713 31/12/1998 Barclays Global Investors, N.A. United States 54,984 $611,697 31/12/1998 Brundage, Story and Rose, LLC United States 39,900 $443,888 31/03/1999 National City Bank, Indiana United States 38,600 $429,425 31/12/1998 David L. Babson & Company, Inc. United States 28,300 $314,838 31/12/1998 AXA Rosenberg Investment Mgmt. LLC United States 24,300 $270,338 31/12/1998 Mellon Private Asset Management United States 20,232 $225,081 31/12/1998 The Northern Trust Company United States 19,800 $220,275 31/12/1998 Howe (Barry S.) NA 15,010 $166,986 30/06/1998 William Harris Investors Inc. United States 15,000 $166,875 31/12/1998 Burroughs & Hutchinson United States 14,200 $157,975 31/12/1998 Bear, Stearns Asset Management Inc. United States 10,300 $114,588 31/12/1998 Aberdeen Asset Managers (London) Ltd England 10,000 $111,250 31/01/1998 TIAA-CREF Investment Management Inc. United States 7,000 $77,875 31/12/1998 World Asset Management United States 1,800 $20,025 31/12/1998 Bankers Trust Company United States 300 $3,338 31/12/1998
- ---------------------------------- Total Shares Out: 15,335,416 - ---------------------------------- TAB H Project Orbis - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Price Since IPO / Volume Graph Weekly: August 4, 1995 to May 14, 1999 [The following table was depicted as a line graph in the printed material.] Share Shares Price Traded 4-Aug-95 $17.13 0 11-Aug-95 16 545,600 18-Aug-95 17.75 176,700 25-Aug-95 19 126,800 1-Sep-95 17.875 103,600 8-Sep-95 18.125 70,500 15-Sep-95 18.125 48,700 22-Sep-95 16.75 50,500 29-Sep-95 16.75 17,400 6-Oct-95 16.375 45,400 13-Oct-95 16.125 89,700 20-Oct-95 16 43,000 27-Oct-95 15.625 16,500 3-Nov-95 16.25 18,400 10-Nov-95 17.375 43,000 17-Nov-95 16.875 26,000 24-Nov-95 15.625 40,500 1-Dec-95 15.75 159,900 8-Dec-95 16.25 151,100 15-Dec-95 15.5 22,700 22-Dec-95 15.5 74,600 29-Dec-95 15.625 53,100 5-Jan-96 15.375 25,200 12-Jan-96 15 26,700 19-Jan-96 14.875 62,500 26-Jan-96 18 284,400 2-Feb-96 18.25 114,700 9-Feb-96 17.5 48,800 16-Feb-96 18.5 135,900 23-Feb-96 18.25 51,400 1-Mar-96 17.125 59,600 8-Mar-96 17.125 27,200 15-Mar-96 17.125 50,700 22-Mar-96 17 45,900 29-Mar-96 17.375 48,900 5-Apr-96 17.25 14,000 12-Apr-96 16.875 48,800 19-Apr-96 16.25 26,900 26-Apr-96 17.125 49,600 3-May-96 $17.50 32,000 10-May-96 17.125 17,500 17-May-96 18.25 83,700 24-May-96 18.25 89,600 31-May-96 18.125 81,000 7-Jun-96 17.75 43,500 14-Jun-96 16.625 29,900 21-Jun-96 16 38,000 28-Jun-96 15.75 80,900 5-Jul-96 15.25 11,200 12-Jul-96 14 48,900 19-Jul-96 13.5 91,800 26-Jul-96 14.375 39,300 2-Aug-96 14.5 23,000 9-Aug-96 14.75 11,900 16-Aug-96 15 51,300 23-Aug-96 15.5 14,400 30-Aug-96 15.5 12,300 6-Sep-96 15.625 19,700 13-Sep-96 14.75 69,500 20-Sep-96 13.375 21,000 27-Sep-96 14 37,000 4-Oct-96 13.75 52,400 11-Oct-96 13.125 103,500 18-Oct-96 13.5 116,600 25-Oct-96 13.375 55,000 1-Nov-96 13.125 50,600 8-Nov-96 13 66,200 15-Nov-96 14.5 63,000 22-Nov-96 15.25 72,900 29-Nov-96 14.125 37,400 6-Dec-96 12.875 18,500 13-Dec-96 12.375 45,100 20-Dec-96 11.875 50,000 27-Dec-96 11.875 36,600 3-Jan-97 12.75 46,500 10-Jan-97 14 73,400 17-Jan-97 14.5 33,500 24-Jan-97 14.5 81,800 31-Jan-97 14.75 39,300 7-Feb-97 $14.63 17,800 14-Feb-97 15.125 46,500 21-Feb-97 15 33,600 28-Feb-97 15 34,900 7-Mar-97 14.625 45,100 14-Mar-97 14.25 23,600 21-Mar-97 13.75 45,600 28-Mar-97 13.75 9,700 4-Apr-97 12.75 27,800 11-Apr-97 12 17,900 18-Apr-97 11.75 36,700 25-Apr-97 12 49,300 2-May-97 13 22,500 9-May-97 13.25 37,500 16-May-97 13 106,500 23-May-97 14.25 50,200 30-May-97 14.375 11,600 6-Jun-97 13.875 28,200 13-Jun-97 13 35,700 20-Jun-97 12.5 14,000 27-Jun-97 11.812 29,400 4-Jul-97 10.938 110,000 11-Jul-97 11.375 70,000 18-Jul-97 11.062 78,800 25-Jul-97 10.375 35,700 1-Aug-97 10.375 133,700 8-Aug-97 10.25 51,600 15-Aug-97 11.125 44,900 22-Aug-97 11.562 81,800 29-Aug-97 12.5 73,200 5-Sep-97 12.062 29,200 12-Sep-97 13.25 43,100 19-Sep-97 12.812 38,900 26-Sep-97 13.375 156,700 3-Oct-97 13 29,700 10-Oct-97 12.25 49,300 17-Oct-97 11.625 42,500 24-Oct-97 10.938 39,200 31-Oct-97 10.375 31,200 7-Nov-97 $10.13 66,200 14-Nov-97 9.938 26,200 21-Nov-97 9.5 49,800 28-Nov-97 9.375 15,500 5-Dec-97 9.812 41,800 12-Dec-97 9.438 35,400 19-Dec-97 9.438 33,000 26-Dec-97 9.375 46,600 2-Jan-98 10.062 107,800 9-Jan-98 9.188 19,600 16-Jan-98 9.188 18,800 23-Jan-98 9 4,900 30-Jan-98 9.5 21,800 6-Feb-98 8.875 17,600 13-Feb-98 8.875 24,500 20-Feb-98 8.75 21,700 27-Feb-98 9.75 55,400 6-Mar-98 10 72,600 13-Mar-98 9.75 26,200 20-Mar-98 10.688 83,000 27-Mar-98 9.438 146,400 3-Apr-98 9.5 107,700 10-Apr-98 9.125 55,900 17-Apr-98 9.25 73,100 24-Apr-98 8.812 93,400 1-May-98 8.938 54,500 8-May-98 9.938 116,400 15-May-98 10.25 86,600 22-May-98 11.188 66,400 29-May-98 11.062 68,300 5-Jun-98 11.312 63,100 12-Jun-98 10.75 27,700 19-Jun-98 10 142,800 26-Jun-98 10.375 30,800 3-Jul-98 11.938 123,300 10-Jul-98 11.375 38,200 17-Jul-98 10.875 71,700 24-Jul-98 10 117,900 31-Jul-98 9.625 32,900 7-Aug-98 $9.56 136,300 14-Aug-98 10 29,200 21-Aug-98 9.938 119,300 28-Aug-98 9.938 23,000 4-Sep-98 9.875 163,300 11-Sep-98 10.125 52,500 18-Sep-98 10.125 60,200 25-Sep-98 10.125 8,200 2-Oct-98 10.125 3,300 9-Oct-98 8.938 15,600 16-Oct-98 8.75 12,300 23-Oct-98 9.375 84,400 30-Oct-98 11.75 275,300 6-Nov-98 11.375 181,700 13-Nov-98 10.875 64,800 20-Nov-98 11.312 4,800 27-Nov-98 11.25 14,400 4-Dec-98 11.375 44,700 11-Dec-98 11 4,300 18-Dec-98 11 10,300 25-Dec-98 11.375 24,200 1-Jan-99 11.25 11,100 8-Jan-99 10.875 1,100 15-Jan-99 11 8,200 22-Jan-99 10.75 5,400 29-Jan-99 10.625 16,000 5-Feb-99 10.125 4,100 12-Feb-99 10.625 10,300 19-Feb-99 10.125 15,800 26-Feb-99 10.438 1,200 5-Mar-99 11.375 9,200 12-Mar-99 10.688 23,200 19-Mar-99 11.188 3,700 26-Mar-99 11 1,700 2-Apr-99 10 13,000 9-Apr-99 10.5 23,400 16-Apr-99 9.812 48,300 23-Apr-99 9.938 19,600 30-Apr-99 10.875 21,000 7-May-99 $11.00 16,800 14-May-99 11.125 26,000 Source: IDD Information Services - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- Project Orbis - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Last Twelve Months Price / Volume Graph Daily: May 14, 1998 to May 14, 1999 [The following table was depicted as a line graph in the printed material.] Share Shares Price Traded 14-May-98 $10.00 0 15-May-98 10.25 19,200 18-May-98 10.75 10,700 19-May-98 11.125 20,700 20-May-98 11.375 16,100 21-May-98 11.312 16,300 22-May-98 11.25 2,600 25-May-98 11.25 #N/A 26-May-98 11.375 25,400 27-May-98 11 9,300 28-May-98 11.062 25,900 29-May-98 11.062 7,700 1-Jun-98 11 12,200 2-Jun-98 10.938 1,200 3-Jun-98 11 16,200 4-Jun-98 11 7,500 5-Jun-98 11.312 26,000 8-Jun-98 11.375 6,000 9-Jun-98 11.312 8,200 10-Jun-98 11.312 6,500 11-Jun-98 11.25 7,000 12-Jun-98 11.188 #N/A 15-Jun-98 11 25,000 16-Jun-98 10.375 23,100 17-Jun-98 9.875 54,900 18-Jun-98 10.062 33,700 19-Jun-98 10.062 6,100 22-Jun-98 10 7,900 23-Jun-98 10.5 11,500 24-Jun-98 10.625 10,400 25-Jun-98 10.562 1,000 26-Jun-98 10.75 #N/A 29-Jun-98 10.625 10,600 30-Jun-98 12.75 64,900 1-Jul-98 12.375 39,500 2-Jul-98 12 8,300 3-Jul-98 12 #N/A 6-Jul-98 $12.00 7,100 7-Jul-98 11.875 2,000 8-Jul-98 11.75 4,300 9-Jul-98 11.688 14,200 10-Jul-98 11.688 10,600 13-Jul-98 11.375 12,200 14-Jul-98 11.125 1,000 15-Jul-98 11.25 28,500 16-Jul-98 11.062 10,400 17-Jul-98 11 19,600 20-Jul-98 11.125 #N/A 21-Jul-98 11 2,700 22-Jul-98 10.875 19,300 23-Jul-98 10.25 10,300 24-Jul-98 10.125 85,600 27-Jul-98 10 13,100 28-Jul-98 9.75 2,700 29-Jul-98 9.688 6,100 30-Jul-98 9.75 9,500 31-Jul-98 9.625 1,500 3-Aug-98 10 131,900 4-Aug-98 9.938 500 5-Aug-98 9.75 1,500 6-Aug-98 9.875 2,400 7-Aug-98 10 #N/A 10-Aug-98 9.625 3,000 11-Aug-98 9.375 9,700 12-Aug-98 9.375 5,200 13-Aug-98 10 3,700 14-Aug-98 10.062 7,600 17-Aug-98 10.25 22,400 18-Aug-98 10.188 66,400 19-Aug-98 10.125 7,600 20-Aug-98 10 18,900 21-Aug-98 9.938 4,000 24-Aug-98 10.125 #N/A 25-Aug-98 9.938 3,000 26-Aug-98 9.938 12,700 27-Aug-98 10 5,700 28-Aug-98 9.938 1,600 31-Aug-98 $9.94 8,300 1-Sep-98 9.938 115,800 2-Sep-98 9.875 6,700 3-Sep-98 9.875 2,200 4-Sep-98 9.875 30,300 7-Sep-98 9.875 #N/A 8-Sep-98 9.875 5,000 9-Sep-98 9.875 9,900 10-Sep-98 10.188 15,800 11-Sep-98 10.125 21,800 14-Sep-98 10.25 3,000 15-Sep-98 10.188 54,600 16-Sep-98 10.625 #N/A 17-Sep-98 10.125 2,200 18-Sep-98 10.125 400 21-Sep-98 10.125 1,600 22-Sep-98 10.125 1,500 23-Sep-98 10.125 1,600 24-Sep-98 10.125 3,000 25-Sep-98 10.125 500 28-Sep-98 10.125 200 29-Sep-98 10 1,000 30-Sep-98 10.625 #N/A 1-Oct-98 9.875 500 2-Oct-98 10.125 1,600 5-Oct-98 9.875 6,900 6-Oct-98 9.625 1,300 7-Oct-98 10.25 #N/A 8-Oct-98 9.375 7,000 9-Oct-98 8.938 400 12-Oct-98 8.875 100 13-Oct-98 8.625 1,000 14-Oct-98 8.5 1,100 15-Oct-98 8.5 8,500 16-Oct-98 8.75 1,600 19-Oct-98 9.25 #N/A 20-Oct-98 8.75 3,200 21-Oct-98 9.25 #N/A 22-Oct-98 9 27,400 23-Oct-98 9.375 53,800 26-Oct-98 $9.50 1,200 27-Oct-98 9.562 32,200 28-Oct-98 9.875 199,300 29-Oct-98 11 9,300 30-Oct-98 11.75 33,300 2-Nov-98 11.75 157,000 3-Nov-98 11.5 12,200 4-Nov-98 11.688 2,800 5-Nov-98 11.438 8,100 6-Nov-98 11.5 1,600 9-Nov-98 11.375 1,200 10-Nov-98 11.375 39,600 11-Nov-98 11.5 13,900 12-Nov-98 11.5 10,100 13-Nov-98 12.25 #N/A 16-Nov-98 11.438 1,100 17-Nov-98 12.25 #N/A 18-Nov-98 11.438 900 19-Nov-98 11.312 500 20-Nov-98 11.312 2,300 23-Nov-98 11.312 6,500 24-Nov-98 11.25 5,200 25-Nov-98 11.25 2,300 26-Nov-98 11.25 #N/A 27-Nov-98 11.25 400 30-Nov-98 11.25 800 1-Dec-98 11.25 900 2-Dec-98 11.25 5,000 3-Dec-98 11.375 12,900 4-Dec-98 11.375 25,100 7-Dec-98 11.375 500 8-Dec-98 11.312 100 9-Dec-98 11.25 2,500 10-Dec-98 11 1,000 11-Dec-98 11 200 14-Dec-98 11 1,200 15-Dec-98 11 1,000 16-Dec-98 11.5 #N/A 17-Dec-98 11 500 18-Dec-98 11.062 7,600 21-Dec-98 $11.13 1,100 22-Dec-98 11.5 5,000 23-Dec-98 11.75 16,900 24-Dec-98 11.5 1,200 25-Dec-98 11.5 #N/A 28-Dec-98 11.5 1,000 29-Dec-98 11.5 5,900 30-Dec-98 11.438 1,600 31-Dec-98 11.25 2,600 1-Jan-99 11.25 #N/A 4-Jan-99 11.375 100 5-Jan-99 11.312 200 6-Jan-99 11.5 800 7-Jan-99 12.125 #N/A 8-Jan-99 12.125 #N/A 11-Jan-99 11.438 200 12-Jan-99 11.5 1,000 13-Jan-99 11.375 500 14-Jan-99 11.25 3,100 15-Jan-99 11 3,400 18-Jan-99 11 #N/A 19-Jan-99 10.875 1,800 20-Jan-99 10.812 100 21-Jan-99 11 2,500 22-Jan-99 10.75 1,000 25-Jan-99 10.75 500 26-Jan-99 10.75 300 27-Jan-99 10.688 3,500 28-Jan-99 10.562 6,000 29-Jan-99 10.75 5,700 1-Feb-99 10.625 1,000 2-Feb-99 10.75 2,000 3-Feb-99 10.688 600 4-Feb-99 10.75 500 5-Feb-99 11.25 #N/A 8-Feb-99 10.688 7,700 9-Feb-99 11.25 #N/A 10-Feb-99 10.625 400 11-Feb-99 11.25 #N/A 12-Feb-99 10.688 2,200 15-Feb-99 $10.69 #N/A 16-Feb-99 10.688 6,000 17-Feb-99 10.688 3,600 18-Feb-99 10.75 6,200 19-Feb-99 11.5 #N/A 22-Feb-99 10.688 100 23-Feb-99 11 400 24-Feb-99 11.625 #N/A 25-Feb-99 11.125 700 26-Feb-99 11.75 #N/A 1-Mar-99 11.094 2,000 2-Mar-99 11.75 #N/A 3-Mar-99 11.062 1,000 4-Mar-99 11.25 2,700 5-Mar-99 11.375 3,500 8-Mar-99 11.75 8,200 9-Mar-99 12 5,200 10-Mar-99 11.875 800 11-Mar-99 11.625 9,000 12-Mar-99 12 #N/A 15-Mar-99 11.25 2,600 16-Mar-99 11.875 #N/A 17-Mar-99 11.125 400 18-Mar-99 11.875 #N/A 19-Mar-99 11.188 700 22-Mar-99 11.875 #N/A 23-Mar-99 11.125 400 24-Mar-99 11.125 1,100 25-Mar-99 11.75 #N/A 26-Mar-99 11 200 29-Mar-99 11.75 #N/A 30-Mar-99 11.75 #N/A 31-Mar-99 10.875 12,800 1-Apr-99 10 200 2-Apr-99 10 #N/A 5-Apr-99 9.938 8,400 6-Apr-99 10 3,600 7-Apr-99 10.125 500 8-Apr-99 10.75 #N/A 9-Apr-99 10.5 10,900 12-Apr-99 $11.25 #N/A 13-Apr-99 10.25 6,800 14-Apr-99 10.312 10,900 15-Apr-99 10.25 21,200 16-Apr-99 9.938 9,400 19-Apr-99 9.938 15,300 20-Apr-99 9.875 200 21-Apr-99 9.875 400 22-Apr-99 9.875 600 23-Apr-99 10 3,100 26-Apr-99 9.875 500 27-Apr-99 10 1,500 28-Apr-99 10 6,000 29-Apr-99 10.375 4,700 30-Apr-99 10.875 8,300 3-May-99 11.188 #N/A 4-May-99 10.875 6,900 5-May-99 11.125 5,800 6-May-99 11.062 500 7-May-99 11.062 3,600 10-May-99 11.625 13,500 11-May-99 11.5 4,000 12-May-99 11.5 500 13-May-99 11.5 3,400 14-May-99 11.5 4,600 Source: IDD Information Services - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- Project Orbis - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Percent of Total Volume Traded at Specific Prices May 14, 1998 to May 14, 1999 [The following table was depicted as a bar graph in the printed material.] $8.00 - $9.00 1.0% $9.00 - $10.00 29.0% $10.00 - $11.00 35.0% $11.00 - $12.00 30.0% $12.00 - $13.00 5.0% Note: Graph shows 2,431,100 cumulative shares Source: IDD Information Services - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- Project Orbis - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Price Performance Comparison Graph Daily: May 14, 1998 to May 14, 1999 [The following table was depicted as a line graph in the printed material.] THS Temperature Imaging & Test & Control Inspection Measurement 14-May-98 100.00% 100.00% 100.00% 100.00% 15-May-98 102.50% 96.00% 97.00% 99.20% 18-May-98 107.50% 97.50% 95.90% 99.40% 19-May-98 110.00% 96.30% 96.20% 98.00% 20-May-98 113.80% 92.90% 95.40% 98.40% 21-May-98 113.10% 88.80% 94.90% 97.80% 22-May-98 111.90% 86.70% 93.50% 96.10% 25-May-98 111.90% 86.70% 93.50% 96.10% 26-May-98 111.20% 85.60% 88.60% 91.60% 27-May-98 109.40% 85.30% 85.20% 90.30% 28-May-98 110.00% 88.10% 87.60% 93.50% 29-May-98 110.60% 83.40% 84.70% 94.50% 1-Jun-98 110.00% 78.00% 79.20% 92.60% 2-Jun-98 109.40% 79.10% 78.10% 91.90% 3-Jun-98 109.40% 76.10% 79.20% 90.60% 4-Jun-98 110.00% 74.30% 78.40% 90.30% 5-Jun-98 113.10% 75.80% 81.30% 90.10% 8-Jun-98 113.10% 77.20% 81.90% 90.00% 9-Jun-98 113.10% 77.50% 82.40% 88.70% 10-Jun-98 112.50% 74.30% 80.50% 87.40% 11-Jun-98 110.00% 72.90% 78.80% 86.50% 12-Jun-98 107.50% 72.70% 77.50% 85.40% 15-Jun-98 105.00% 70.50% 76.10% 84.30% 16-Jun-98 96.20% 75.40% 77.10% 85.70% 17-Jun-98 96.90% 71.90% 78.50% 86.10% 18-Jun-98 100.60% 73.10% 77.10% 85.20% 19-Jun-98 100.00% 71.50% 77.20% 86.20% 22-Jun-98 100.00% 74.00% 77.10% 86.80% 23-Jun-98 105.00% 76.10% 79.00% 88.80% 24-Jun-98 106.20% 78.90% 80.80% 89.20% 25-Jun-98 105.60% 76.80% 80.40% 88.00% 26-Jun-98 103.80% 77.10% 79.50% 87.50% 29-Jun-98 106.20% 77.50% 81.00% 87.70% 30-Jun-98 127.50% 75.90% 78.80% 87.30% 1-Jul-98 120.00% 77.80% 80.30% 88.20% 2-Jul-98 119.40% 75.60% 77.90% 87.00% 3-Jul-98 119.40% 75.60% 77.80% 87.00% 6-Jul-98 120.00% 77.30% 77.40% 86.90% 7-Jul-98 118.80% 79.70% 76.50% 86.00% 8-Jul-98 116.20% 76.80% 77.90% 86.40% 9-Jul-98 116.20% 74.20% 76.00% 85.40% 10-Jul-98 113.80% 75.50% 75.80% 87.50% 13-Jul-98 111.20% 73.60% 76.30% 86.80% 14-Jul-98 111.20% 72.70% 76.00% 86.90% 15-Jul-98 108.80% 77.70% 78.80% 85.40% 16-Jul-98 109.40% 78.90% 79.10% 85.00% 17-Jul-98 108.80% 78.50% 79.00% 83.60% 20-Jul-98 107.50% 77.90% 78.90% 81.80% 21-Jul-98 110.00% 80.60% 78.20% 81.30% 22-Jul-98 103.80% 78.80% 75.30% 79.30% 23-Jul-98 98.80% 76.70% 73.80% 77.10% 24-Jul-98 100.00% 76.40% 72.40% 73.60% 27-Jul-98 97.50% 77.70% 72.20% 73.60% 28-Jul-98 96.90% 81.90% 73.90% 73.60% 29-Jul-98 96.90% 79.70% 73.30% 71.60% 30-Jul-98 97.50% 82.60% 76.60% 71.70% 31-Jul-98 96.20% 83.60% 74.50% 69.60% 3-Aug-98 100.00% 83.30% 72.90% 68.80% 4-Aug-98 99.40% 80.40% 70.40% 67.10% 5-Aug-98 97.50% 83.30% 70.60% 68.80% 6-Aug-98 98.10% 86.40% 75.70% 71.80% 7-Aug-98 95.60% 88.10% 80.20% 72.60% 10-Aug-98 95.60% 84.20% 80.10% 70.90% 11-Aug-98 93.80% 82.50% 77.40% 69.20% 12-Aug-98 93.10% 80.80% 79.50% 72.10% 13-Aug-98 100.00% 78.20% 78.20% 71.90% 14-Aug-98 100.00% 77.80% 77.70% 71.40% 17-Aug-98 102.50% 83.30% 75.80% 72.40% 18-Aug-98 101.20% 85.10% 76.50% 75.10% 19-Aug-98 100.00% 81.50% 74.70% 61.80% 20-Aug-98 100.00% 78.30% 73.00% 60.60% 21-Aug-98 99.40% 76.40% 72.50% 58.60% 24-Aug-98 97.50% 76.80% 73.10% 55.30% 25-Aug-98 99.40% 78.30% 71.90% 53.90% 26-Aug-98 99.40% 74.10% 69.90% 51.10% 27-Aug-98 100.00% 68.30% 67.10% 48.20% 28-Aug-98 99.40% 66.70% 65.60% 48.00% 31-Aug-98 99.40% 60.80% 61.90% 44.30% 1-Sep-98 98.80% 65.90% 66.10% 44.00% 2-Sep-98 98.80% 63.70% 66.50% 45.70% 3-Sep-98 98.80% 60.60% 62.80% 44.00% 4-Sep-98 98.80% 59.80% 60.10% 43.60% 7-Sep-98 98.80% 59.80% 60.30% 43.60% 8-Sep-98 98.80% 64.50% 63.80% 46.10% 9-Sep-98 98.80% 60.90% 63.30% 46.50% 10-Sep-98 101.90% 60.60% 61.70% 44.50% 11-Sep-98 101.20% 63.10% 62.80% 47.20% 14-Sep-98 102.50% 61.20% 63.90% 49.60% 15-Sep-98 101.90% 60.20% 63.00% 49.20% 16-Sep-98 95.00% 61.40% 63.30% 49.90% 17-Sep-98 101.20% 60.90% 62.40% 48.40% 18-Sep-98 101.20% 61.80% 62.90% 47.60% 21-Sep-98 101.20% 62.70% 63.60% 46.50% 22-Sep-98 101.20% 63.50% 65.60% 46.10% 23-Sep-98 101.20% 65.80% 65.60% 46.10% 24-Sep-98 101.20% 65.30% 64.50% 45.10% 25-Sep-98 101.20% 68.40% 65.00% 45.70% 28-Sep-98 101.20% 67.60% 64.60% 45.20% 29-Sep-98 100.00% 68.20% 63.20% 44.50% 30-Sep-98 93.80% 64.50% 62.70% 44.30% 1-Oct-98 98.80% 60.60% 60.80% 43.10% 2-Oct-98 101.20% 60.60% 58.90% 43.40% 5-Oct-98 97.50% 58.40% 55.10% 42.10% 6-Oct-98 96.20% 59.00% 53.60% 39.60% 7-Oct-98 91.20% 57.80% 52.40% 39.70% 8-Oct-98 90.00% 56.50% 50.90% 39.10% 9-Oct-98 89.40% 60.30% 53.90% 40.30% 12-Oct-98 88.80% 67.70% 56.70% 41.40% 13-Oct-98 86.20% 66.20% 54.80% 41.40% 14-Oct-98 82.50% 68.50% 56.30% 41.00% 15-Oct-98 85.00% 71.40% 58.30% 41.40% 16-Oct-98 87.50% 72.40% 59.40% 43.60% 19-Oct-98 80.00% 75.30% 61.10% 46.30% 20-Oct-98 87.50% 73.40% 66.10% 47.60% 21-Oct-98 81.20% 76.20% 67.20% 49.70% 22-Oct-98 90.00% 82.60% 69.70% 49.20% 23-Oct-98 93.80% 85.40% 68.60% 49.40% 26-Oct-98 94.40% 84.50% 69.20% 49.80% 27-Oct-98 95.60% 81.10% 69.00% 49.90% 28-Oct-98 98.80% 86.70% 69.10% 48.90% 29-Oct-98 110.00% 89.80% 68.00% 49.70% 30-Oct-98 117.50% 88.60% 67.40% 50.70% 2-Nov-98 117.50% 85.20% 65.70% 50.70% 3-Nov-98 113.80% 82.20% 65.40% 51.40% 4-Nov-98 114.40% 87.90% 68.80% 54.90% 5-Nov-98 113.80% 87.50% 70.20% 56.40% 6-Nov-98 113.80% 92.80% 73.20% 55.50% 9-Nov-98 113.80% 90.90% 73.40% 55.40% 10-Nov-98 113.80% 89.70% 75.10% 55.30% 11-Nov-98 115.00% 94.20% 75.50% 55.90% 12-Nov-98 114.40% 97.20% 74.50% 55.60% 13-Nov-98 108.80% 96.00% 72.60% 55.90% 16-Nov-98 114.40% 91.60% 71.70% 56.10% 17-Nov-98 109.40% 93.50% 71.80% 56.20% 18-Nov-98 114.40% 93.40% 72.00% 56.40% 19-Nov-98 113.10% 95.30% 74.90% 62.30% 20-Nov-98 113.10% 98.00% 78.00% 63.80% 23-Nov-98 113.10% 100.00% 78.10% 64.20% 24-Nov-98 112.50% 105.00% 76.40% 63.30% 25-Nov-98 112.50% 100.80% 75.60% 63.40% 26-Nov-98 112.50% 100.80% 75.80% 63.40% 27-Nov-98 112.50% 102.10% 76.00% 65.40% 30-Nov-98 112.50% 95.70% 73.90% 67.90% 1-Dec-98 112.50% 97.50% 75.00% 65.80% 2-Dec-98 112.50% 108.60% 76.70% 65.80% 3-Dec-98 113.80% 107.50% 77.50% 66.00% 4-Dec-98 113.80% 110.40% 78.20% 63.70% 7-Dec-98 113.80% 110.80% 79.50% 64.50% 8-Dec-98 113.10% 114.10% 83.50% 65.00% 9-Dec-98 110.00% 109.90% 83.20% 65.30% 10-Dec-98 110.00% 103.90% 80.10% 62.70% 11-Dec-98 110.00% 104.70% 80.40% 64.90% 14-Dec-98 110.00% 97.60% 75.60% 62.20% 15-Dec-98 110.00% 101.70% 76.00% 62.30% 16-Dec-98 103.80% 98.60% 75.70% 62.10% 17-Dec-98 110.00% 103.20% 77.80% 68.20% 18-Dec-98 110.00% 112.60% 81.20% 68.60% 21-Dec-98 111.20% 110.40% 83.70% 70.20% 22-Dec-98 115.00% 107.20% 82.10% 70.00% 23-Dec-98 117.50% 109.60% 84.00% 70.50% 24-Dec-98 113.80% 108.70% 83.20% 71.50% 25-Dec-98 113.80% 108.70% 83.20% 71.50% 28-Dec-98 112.50% 108.00% 83.90% 71.70% 29-Dec-98 115.00% 107.60% 83.60% 71.60% 30-Dec-98 112.50% 105.40% 83.00% 71.60% 31-Dec-98 112.50% 107.30% 86.60% 72.30% 1-Jan-99 112.50% 107.30% 86.60% 72.30% 4-Jan-99 113.80% 111.50% 86.20% 71.60% 5-Jan-99 113.10% 125.60% 90.10% 74.00% 6-Jan-99 115.00% 134.20% 96.70% 78.70% 7-Jan-99 108.80% 136.00% 96.20% 77.60% 8-Jan-99 108.80% 137.80% 97.50% 78.00% 11-Jan-99 114.40% 138.60% 97.30% 77.10% 12-Jan-99 115.00% 134.60% 96.30% 74.40% 13-Jan-99 113.80% 137.30% 95.10% 75.50% 14-Jan-99 110.60% 134.00% 94.50% 73.30% 15-Jan-99 110.00% 141.60% 95.30% 74.80% 18-Jan-99 110.00% 141.60% 95.20% 74.80% 19-Jan-99 108.10% 137.30% 96.20% 69.80% 20-Jan-99 108.10% 144.00% 99.30% 69.80% 21-Jan-99 108.80% 138.30% 98.00% 68.30% 22-Jan-99 107.50% 135.70% 97.50% 67.10% 25-Jan-99 107.50% 134.50% 95.60% 67.10% 26-Jan-99 106.90% 144.70% 97.20% 67.80% 27-Jan-99 105.00% 139.50% 94.20% 66.30% 28-Jan-99 105.60% 146.00% 95.60% 66.30% 29-Jan-99 106.20% 155.40% 100.30% 66.10% 1-Feb-99 106.20% 152.00% 100.40% 65.80% 2-Feb-99 107.50% 145.10% 96.10% 64.30% 3-Feb-99 106.90% 155.50% 95.00% 65.50% 4-Feb-99 107.50% 151.00% 95.90% 64.60% 5-Feb-99 101.20% 148.30% 95.70% 64.50% 8-Feb-99 106.90% 163.20% 96.60% 66.00% 9-Feb-99 101.20% 153.60% 94.30% 65.80% 10-Feb-99 106.20% 148.80% 93.00% 64.20% 11-Feb-99 100.60% 163.20% 95.00% 64.10% 12-Feb-99 106.20% 162.80% 92.50% 63.00% 15-Feb-99 106.20% 162.80% 92.40% 63.00% 16-Feb-99 106.90% 164.80% 91.40% 63.20% 17-Feb-99 106.20% 162.90% 89.40% 60.30% 18-Feb-99 107.50% 161.10% 90.40% 59.10% 19-Feb-99 101.20% 166.00% 92.30% 59.40% 22-Feb-99 106.90% 166.00% 92.70% 60.20% 23-Feb-99 110.00% 166.30% 90.30% 59.00% 24-Feb-99 103.10% 165.90% 90.40% 58.50% 25-Feb-99 111.20% 154.70% 88.10% 57.40% 26-Feb-99 104.40% 136.60% 84.30% 56.20% 1-Mar-99 110.90% 140.00% 85.20% 56.80% 2-Mar-99 103.80% 139.20% 83.30% 55.40% 3-Mar-99 110.60% 140.50% 82.80% 55.10% 4-Mar-99 112.50% 140.40% 82.20% 54.10% 5-Mar-99 113.80% 149.20% 82.60% 54.40% 8-Mar-99 117.50% 153.40% 85.60% 55.50% 9-Mar-99 118.80% 143.90% 85.80% 54.20% 10-Mar-99 117.50% 150.00% 85.90% 54.30% 11-Mar-99 113.80% 150.10% 84.20% 54.40% 12-Mar-99 106.90% 148.00% 85.00% 54.00% 15-Mar-99 111.20% 146.70% 83.60% 54.30% 16-Mar-99 105.00% 153.50% 84.90% 53.70% 17-Mar-99 111.20% 154.60% 86.40% 53.00% 18-Mar-99 105.00% 154.00% 85.60% 54.90% 19-Mar-99 111.90% 146.90% 86.80% 63.10% 22-Mar-99 105.00% 144.80% 85.80% 62.00% 23-Mar-99 111.20% 140.60% 82.50% 60.80% 24-Mar-99 110.00% 137.40% 80.00% 61.10% 25-Mar-99 104.40% 146.50% 81.20% 63.20% 26-Mar-99 110.00% 139.30% 80.10% 67.00% 29-Mar-99 105.00% 147.10% 81.90% 64.60% 30-Mar-99 103.80% 148.60% 82.00% 61.50% 31-Mar-99 100.00% 146.30% 80.50% 63.50% 1-Apr-99 100.00% 152.60% 81.60% 63.30% 2-Apr-99 100.00% 152.60% 81.60% 63.30% 5-Apr-99 96.90% 156.20% 84.00% 63.30% 6-Apr-99 100.00% 161.00% 83.80% 63.00% 7-Apr-99 101.20% 154.50% 83.40% 62.90% 8-Apr-99 93.80% 156.40% 83.30% 62.70% 9-Apr-99 105.00% 158.30% 83.90% 63.50% 12-Apr-99 98.80% 149.30% 80.20% 63.60% 13-Apr-99 102.50% 141.70% 77.70% 63.90% 14-Apr-99 101.20% 141.60% 79.30% 63.30% 15-Apr-99 100.00% 150.10% 79.90% 63.30% 16-Apr-99 98.10% 148.00% 81.90% 64.20% 19-Apr-99 98.80% 140.60% 81.50% 65.10% 20-Apr-99 98.80% 137.80% 83.00% 63.50% 21-Apr-99 98.80% 149.70% 88.80% 63.60% 22-Apr-99 98.80% 150.80% 92.70% 63.10% 23-Apr-99 99.40% 149.10% 91.40% 63.70% 26-Apr-99 98.80% 148.30% 92.40% 64.20% 27-Apr-99 100.00% 144.60% 92.10% 63.70% 28-Apr-99 100.00% 134.60% 93.30% 62.70% 29-Apr-99 103.10% 129.60% 91.90% 62.60% 30-Apr-99 108.80% 132.20% 91.10% 62.00% 3-May-99 108.10% 135.50% 91.40% 62.90% 4-May-99 108.80% 131.90% 91.10% 64.70% 5-May-99 110.60% 143.20% 91.70% 66.60% 6-May-99 110.60% 134.10% 91.70% 68.20% 7-May-99 110.00% 140.20% 92.50% 70.00% 10-May-99 115.00% 138.80% 92.40% 69.50% 11-May-99 115.00% 139.10% 92.40% 70.20% 12-May-99 115.00% 146.90% 92.70% 69.30% 13-May-99 115.00% 144.30% 92.90% 68.30% 14-May-99 111.20% 146.80% 91.70% 66.20% Source: IDD Information Services - -------------------------------------------------------------------------------- ------------- TUCKER CLEARY ------------- EX-99.17(D)(1) 3 EXHIBIT 99.17(D)(1) [LOGO] , 1999 8 EAST FORGE PARKWAY FRANKLIN, MASSACHUSETTS 02038 Dear Stockholder: I am pleased to invite you to a Special Meeting of the stockholders of ThermoSpectra Corporation ("ThermoSpectra") at which you will be asked to approve an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement") by and among ThermoSpectra, Thermo Instrument Systems Inc., the parent company of ThermoSpectra ("Thermo Instrument"), and TS Acquisition Corporation, a newly-formed subsidiary of Thermo Instrument (the "Merger Sub"). The Special Meeting will take place at 10:00 a.m. on , , 1999 at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454. Under the terms of the Merger Agreement, the Merger Sub would merge with and into ThermoSpectra, with ThermoSpectra being the surviving corporation (the "Merger"). Each issued and outstanding share of ThermoSpectra common stock (other than shares held by Thermo Instrument, Thermo Electron Corporation and stockholders who are entitled to and who have perfected their dissenters' rights under Delaware law) would be converted into the right to receive $16.00 in cash, without interest (the "Cash Merger Consideration"). ThermoSpectra would become a private company. The Merger is more fully described in the Merger Agreement, which is attached as Appendix A to the enclosed Proxy Statement. If you choose to dissent from approval of the Merger Agreement and wish to seek appraisal of the fair value of your shares of ThermoSpectra common stock, please refer to the sections of the Proxy Statement regarding the rights of dissenting stockholders under Delaware law. A special committee of the ThermoSpectra Board of Directors (the "Special Committee"), acting in the interests of the stockholders of ThermoSpectra other than Thermo Instrument, Thermo Electron Corporation and the directors and officers of ThermoSpectra, Thermo Instrument and Thermo Electron Corporation (the "Minority Stockholders"), evaluated the merits of, and negotiated the terms of, the Merger. The Special Committee received an opinion from its financial advisor, Tucker Anthony Cleary Gull, as to the fairness of the Merger from a financial point of view to the Minority Stockholders. Please read carefully the written opinion of Tucker Anthony Cleary Gull, dated May 21, 1999, which is attached as Appendix B to the enclosed Proxy Statement. The Special Committee recommended that ThermoSpectra's Board of Directors approve the Merger Agreement. ThermoSpectra's Board of Directors and the Special Committee believe that the proposed Merger is both substantively and procedurally fair to the Minority Stockholders of ThermoSpectra, and the Board of Directors unanimously recommends that stockholders vote "FOR" approval of the Merger Agreement. In considering the recommendation of the Board of Directors with respect to the Merger Agreement, stockholders should be aware that five of the seven members of the ThermoSpectra Board of Directors are either directors of Thermo Instrument or Thermo Electron Corporation, or employees of Thermo Electron Corporation or its affiliates, and thus have interests that are in addition to, or different from, your interests as stockholders of ThermoSpectra. In reaching their decisions to approve the Merger Agreement, the Special Committee and ThermoSpectra's Board of Directors considered several factors, including (i) the Cash Merger Consideration to be received by the Minority Stockholders in the Merger; (ii) the relationship of the Cash Merger Consideration to the historical market prices of ThermoSpectra's common stock, (iii) information concerning the financial performance, condition, business operations and prospects of ThermoSpectra, (iv) the terms of the Merger Agreement, (v) the current market trends in the industries in which ThermoSpectra competes, primarily the semiconductor industry, (vi) the liquidity that would be realized by the Minority Stockholders from the all-cash offer, (vii) the written opinion of Tucker Anthony Cleary Gull as to the fairness of the Merger from a financial point of view to the Minority Stockholders and (viii) the positive aspects of ThermoSpectra. For more a more detailed discussion of these factors, please refer to the sections of the Proxy Statement regarding the recommendation of the Special Committee and ThermoSpectra's Board of Directors. In addition, stockholders should be aware that as a result of the Merger, the entire equity interest in ThermoSpectra would be beneficially owned by Thermo Electron, directly and indirectly through Thermo Instrument. The Minority Stockholders would no longer have any interest in, and would not be stockholders of, ThermoSpectra, and therefore would not participate in ThermoSpectra's future earnings and potential growth. Delaware law requires that a majority of the outstanding shares of ThermoSpectra common stock entitled to vote at the Special Meeting vote in favor of the Merger Agreement for the Merger Agreement to be approved. Thermo Instrument, which owns approximately 82% of ThermoSpectra's outstanding common stock, and Thermo Electron Corporation, which owns approximately 10% of ThermoSpectra's outstanding common stock, intend to vote their shares in favor of the Merger Agreement, thus assuring that the Merger Agreement will be approved. Only stockholders of record at the close of business on , 1999 will receive notice of and be able to vote at the Special Meeting or any adjournment or adjournments thereof. The accompanying Proxy Statement provides you with a summary of the proposed Merger and additional information about the parties involved and their interests. Please give all this information your careful attention. You can also obtain other information about ThermoSpectra, Thermo Instrument and Thermo Electron Corporation from documents filed with the Securities and Exchange Commission. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE TIME TO VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD TO US TODAY. IF YOU DATE, SIGN AND MAIL YOUR PROXY CARD WITHOUT INDICATING HOW YOU WISH TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. Your Board of Directors believes that the transaction with Thermo Instrument is in the best interests of ThermoSpectra and its stockholders, including its Minority Stockholders, and has unanimously approved it. Your Board of Directors unanimously recommends that stockholders vote for the approval of the Merger Agreement. On behalf of the Board of Directors, I urge you to sign, date and return the enclosed Proxy Card today. Please do not send any stock certificates to us now. Assuming the Merger Agreement is approved, we will send you instructions concerning the surrender of your shares. Thank you for your interest and participation. Yours very truly, BARRY S. HOWE PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-99.17(D)(2) 4 EXHIBIT 99.17(D)(2 [LOGO] NOTICE OF SPECIAL MEETING , 1999 TO THE HOLDERS OF THE COMMON STOCK OF THERMOSPECTRA CORPORATION I am pleased to give you notice of and cordially invite you to attend in person or by proxy the Special Meeting of the stockholders of ThermoSpectra Corporation, a Delaware corporation (the "Company" or "ThermoSpectra"), which will be held on , , 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454, and at any adjournment or adjournments thereof (the "Special Meeting"). At the Special Meeting, stockholders will: 1. Consider and vote on a proposal to approve an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement") pursuant to which TS Acquisition Corporation, a newly-formed company (the "Merger Sub"), will be merged with and into ThermoSpectra (the "Merger"). Upon the Merger, each stockholder of the Company (other than stockholders who perfect their dissenters' rights, Thermo Instrument Systems Inc. ("Thermo Instrument") and Thermo Electron Corporation) will become entitled to receive $16.00 in cash, without interest, for each outstanding share of common stock, $.01 par value, of the Company (the "Common Stock") owned by such stockholder immediately prior to the effective time of the Merger. A copy of the Merger Agreement is attached as Appendix A to and is described in the accompanying Proxy Statement. 2. Transact such other business as may properly come before the Special Meeting. Only stockholders of record at the close of business on , 1999 will receive notice of and be able to vote at the Special Meeting. The accompanying Proxy Statement describes the Merger Agreement, the proposed Merger and the actions to be taken in connection with the Merger. The Company's Bylaws require that the holders of a majority of the outstanding shares of Common Stock entitled to vote be present or represented by proxy at the Special Meeting in order to constitute a quorum for the transaction of business. It is important that your shares be represented at the Special Meeting regardless of the number of shares you hold. Whether or not you are able to be present in person, please sign and return promptly the enclosed Proxy Card in the accompanying envelope, which requires no postage if mailed in the United States. You may revoke your proxy in the manner described in the accompanying Proxy Statement at any time before it is voted at the Special Meeting. Stockholders who properly demand appraisal prior to the stockholder vote at the Special Meeting, who do not vote in favor of adoption of the Merger Agreement and who otherwise comply with the provisions of Section 262 of the General Corporation Law of the State of Delaware (the "DGCL") will be entitled, if the Merger is completed, to statutory appraisal of the fair value of their shares of Common Stock. See "RIGHTS OF DISSENTING STOCKHOLDERS" in the accompanying Proxy Statement and the full text of Section 262 of the DGCL, which is attached as Appendix C to and is described in the accompanying Proxy Statement, for a description of the procedures that you must follow in order to exercise your appraisal rights. This Notice, the Proxy Card and Proxy Statement enclosed herewith are sent to you by order of the Board of Directors. SANDRA L. LAMBERT SECRETARY WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING. TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED. YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE MERGER AGREEMENT AT THE SPECIAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. IN CONSIDERING THE RECOMMENDATION OF THE BOARD OF DIRECTORS WITH RESPECT TO THE MERGER, STOCKHOLDERS OTHER THAN THERMO INSTRUMENT, THERMO ELECTRON CORPORATION AND THE DIRECTORS AND OFFICERS OF THE COMPANY, THERMO INSTRUMENT AND THERMO ELECTRON CORPORATION (THE "MINORITY STOCKHOLDERS"), SHOULD BE AWARE THAT CERTAIN OFFICERS AND DIRECTORS OF THE COMPANY HAVE CERTAIN INTERESTS THAT ARE IN ADDITION TO, OR DIFFERENT FROM, THE INTERESTS OF THE MINORITY STOCKHOLDERS. SEE "SPECIAL FACTORS-- CONFLICTS OF INTEREST." IF A PROPERLY EXECUTED PROXY CARD IS SUBMITTED AND NO INSTRUCTIONS ARE GIVEN, THE SHARES OF COMMON STOCK REPRESENTED BY THAT PROXY WILL BE VOTED "FOR" APPROVAL OF THE MERGER AGREEMENT. PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO THE COMPANY AT THIS TIME. EX-99.17(D)(3) 5 EXHIBIT 99.17(D)(3) PROXY STATEMENT INTRODUCTION This Proxy Statement is being furnished to the stockholders of ThermoSpectra Corporation, a Delaware corporation (the "Company" or "ThermoSpectra"), in connection with the solicitation by its Board of Directors (the "Board" or the "Board of Directors") of proxies to be used at a Special Meeting of stockholders to be held on , , 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454, and at any adjournment or adjournments thereof (the "Special Meeting"). A committee of the Board of Directors has fixed the close of business on , 1999 as the record date (the "Record Date") for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting. The Special Meeting has been called to consider and vote on a proposal to approve an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement"), which is attached to this Proxy Statement as Appendix A. Pursuant to the Merger Agreement, TS Acquisition Corporation (the "Merger Sub"), a newly-formed Delaware corporation, will be merged with and into ThermoSpectra (the "Merger"), with ThermoSpectra being the surviving corporation (the "Surviving Corporation"). ThermoSpectra is a majority-owned subsidiary of, and the Merger Sub is a wholly owned subsidiary of, Thermo Instrument Systems Inc., a Delaware corporation ("Thermo Instrument"), which in turn is a majority-owned subsidiary of Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"). The Merger Sub was organized by Thermo Instrument solely to facilitate the Merger. In the Merger, each outstanding share of common stock, $.01 par value, of ThermoSpectra (the "Common Stock") (other than shares held by stockholders who are entitled to and who have perfected their Dissenters' Rights (as defined below), shares held by ThermoSpectra in treasury and shares held by Thermo Instrument and Thermo Electron) will be canceled and converted automatically into the right to receive $16.00 in cash, payable to the holder thereof, without interest. See "THE MERGER." On August 11, 1998, the last trading day prior to the date Thermo Electron first publicly announced the proposal to take ThermoSpectra private, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $9.375. On May 20, 1999, the last trading day prior to the public announcement of the financial terms of the proposed Merger, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $11.50. On , 1999, the last trading day prior to the printing of this Proxy Statement, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $ . The directors and officers of ThermoSpectra immediately prior to the Merger shall be the initial directors and officers of the Surviving Corporation; however, Thermo Instrument intends to appoint a board of directors comprised solely of members of the Surviving Corporation's and Thermo Instrument's management after the Merger. All options to purchase Common Stock immediately prior to the Merger shall be assumed by Thermo Instrument and converted into options to purchase the common stock, $.10 par value, of Thermo Instrument. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Under Delaware law, approval of the Merger Agreement at the Special Meeting will require the affirmative vote of holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting. Thermo Instrument, which owns approximately 82% of the outstanding Common Stock, and Thermo Electron, which owns approximately 10% of the outstanding Common Stock, intend to vote their shares in favor of the Merger Agreement, thus assuring that the Merger Agreement will be approved. The Board of Directors recommends that stockholders vote "FOR" approval and adoption of the Merger Agreement. In considering the recommendation of the Board of Directors with respect to the Merger, stockholders other than Thermo Instrument, Thermo Electron and the directors and officers of the Company, Thermo Instrument and Thermo Electron (the "Minority Stockholders"), should be aware that certain officers and directors of the Company have certain interests that are in addition to, or different from, the interests of the Minority Stockholders. See "SPECIAL FACTORS--Conflicts of Interest." Stockholders should read and consider carefully the information contained in this Proxy Statement. This Proxy Statement, the Notice of Special Meeting and the enclosed Proxy Card are first being mailed to stockholders of the Company on or about , 1999. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. 2 TABLE OF CONTENTS QUESTIONS AND ANSWERS ABOUT THE MERGER................................................ 6 SUMMARY............................................................................... 8 Date, Time and Place of the Special Meeting......................................... 8 Purpose of the Special Meeting...................................................... 8 Record Date and Quorum.............................................................. 8 Vote Required and Revocation of Proxies............................................. 8 Parties to the Merger............................................................... 9 The Merger.......................................................................... 10 Effective Time of the Merger and Payment for Shares................................. 10 Assumption of ThermoSpectra Stock Options by Thermo Instrument...................... 10 The Special Committee's and the Board's Recommendation.............................. 11 Opinion of Financial Advisor........................................................ 12 Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger......... 12 Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger...... 13 Conflicts of Interest............................................................... 14 Certain Effects of the Merger....................................................... 15 Conditions to the Merger, Termination and Expenses.................................. 15 Federal Income Tax Consequences..................................................... 16 Rights of Dissenting Stockholders................................................... 16 Accounting Treatment................................................................ 17 Market Prices of Common Stock and Dividends......................................... 17 SPECIAL FACTORS....................................................................... 18 Background of the Merger............................................................ 18 The Special Committee's and the Board's Recommendation.............................. 24 Opinion of Financial Advisor........................................................ 27 Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger......... 33 Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger...... 35 Conflicts of Interest............................................................... 35 Certain Effects of the Merger....................................................... 37 Conduct of ThermoSpectra's Business After the Merger................................ 37 Conduct of ThermoSpectra's Business if the Merger is Not Consummated................ 37 THE SPECIAL MEETING................................................................... 38 Proxy Solicitation.................................................................. 38 Record Date and Quorum Requirement.................................................. 38 Voting Procedures................................................................... 38 Voting and Revocation of Proxies.................................................... 39 Effective Time...................................................................... 39 THE MERGER............................................................................ 40 Conversion of Securities............................................................ 40 Assumption of ThermoSpectra Stock Options by Thermo Instrument...................... 41 Deferred Compensation Plan for Directors............................................ 41 Transfer of Shares.................................................................. 42
3 Conditions.......................................................................... 42 Representations and Warranties...................................................... 42 Covenants........................................................................... 43 Indemnification and Insurance....................................................... 44 Termination, Amendment and Waiver................................................... 44 Source of Funds..................................................................... 45 Expenses............................................................................ 45 Accounting Treatment................................................................ 45 Regulatory Approvals................................................................ 45 RIGHTS OF DISSENTING STOCKHOLDERS..................................................... 46 FEDERAL INCOME TAX CONSEQUENCES....................................................... 48 BUSINESS OF THE COMPANY............................................................... 49 Overview............................................................................ 49 Imaging and Inspection Instruments.................................................. 49 Temperature Control Instruments..................................................... 50 Test and Measurement Instruments.................................................... 50 Properties.......................................................................... 51 SELECTED FINANCIAL INFORMATION........................................................ 52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 54 Overview............................................................................ 54 Results of Operations............................................................... 55 Liquidity and Capital Resources..................................................... 59 Market Risk......................................................................... 60 Year 2000........................................................................... 60 CERTAIN PROJECTED FINANCIAL DATA...................................................... 63 Projections......................................................................... 64 RISK FACTORS.......................................................................... 65 MANAGEMENT............................................................................ 68 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 70 Principal Stockholder............................................................... 70 Management.......................................................................... 70 CERTAIN TRANSACTIONS.................................................................. 72 CERTAIN INFORMATION CONCERNING THE MERGER SUB, THERMO INSTRUMENT AND THERMO ELECTRON............................................................................ 76 The Merger Sub...................................................................... 76 Thermo Instrument................................................................... 76 Thermo Electron..................................................................... 76 INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 76 STOCKHOLDER PROPOSALS................................................................. 76 ADDITIONAL INFORMATION................................................................ 77 AVAILABLE INFORMATION................................................................. 77 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 78 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................ F-1
4 APPENDICES APPENDIX A--Agreement and Plan of Merger.............................................. A-1 APPENDIX B--Opinion of Tucker Anthony Cleary Gull..................................... B-1 APPENDIX C--Text of Section 262 of the General Corporation Law of the State of Delaware............................................................................ C-1 APPENDIX D-- Information Concerning Directors and Executive Officers of the Company, Thermo Instrument, the Merger Sub and Thermo Electron..................... D-1 APPENDIX E--Information Concerning Transactions in the Common Stock of the Company.... E-1
5 QUESTIONS AND ANSWERS ABOUT THE MERGER 1. WHEN AND WHERE IS THE THERMOSPECTRA SPECIAL MEETING? The ThermoSpectra Special Meeting will take place on , , 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454. 2. WHAT PROPOSALS ARE THERMOSPECTRA STOCKHOLDERS VOTING ON? ThermoSpectra stockholders are being asked to approve the Merger Agreement. The Merger Agreement provides that a wholly owned subsidiary of Thermo Instrument will merge with and into ThermoSpectra and, as a result, Thermo Instrument and Thermo Electron will collectively own all of the outstanding Common Stock of ThermoSpectra. 3. WHAT WILL THERMOSPECTRA STOCKHOLDERS RECEIVE IN THE MERGER? In the Merger, ThermoSpectra stockholders will receive $16.00 in cash per share of Common Stock. The amount of cash consideration to be paid to ThermoSpectra stockholders will equal approximately $20 million in the aggregate. On August 11, 1998, the last trading day prior to the date Thermo Electron first publicly announced the proposal to take ThermoSpectra private, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $9.375. On May 20, 1999, the last trading day prior to the public announcement of the financial terms of the proposed Merger, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $11.50. On , 1999, the last trading day prior to the printing of this Proxy Statement, the closing price per share of Common Stock reported in the consolidated transaction reporting system was $ . 4. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER? For federal income tax purposes, each stockholder's receipt of $16.00 per share in the Merger will be treated as a taxable sale of the holder's Common Stock. Each stockholder's gain or loss per share will equal the difference between $16.00 and the stockholder's basis in the share of Common Stock. ThermoSpectra stockholders should consult their tax advisors for a full understanding of the tax consequences of the Merger. No gain or loss for federal income tax purposes will be recognized by ThermoSpectra, Thermo Instrument or the Merger Sub by reason of the Merger. 5. WHY IS THERMOSPECTRA'S BOARD OF DIRECTORS RECOMMENDING APPROVAL OF THE MERGER AGREEMENT? ThermoSpectra's Board of Directors believes, based on the recommendation of its Special Committee, that the proposed transaction is fair to, and in the best interests of, ThermoSpectra and its stockholders other than Thermo Instrument, Thermo Electron and the directors and officers of the Company, Thermo Instrument and Thermo Electron. 6. WHAT RIGHTS DO STOCKHOLDERS HAVE IF THEY OPPOSE THE MERGER? Stockholders who wish to dissent from the Merger may seek appraisal of the fair value of their shares, but only if they strictly comply with all of the procedures under Delaware law that are summarized on pages 46-48 of this Proxy Statement. 7. WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT? Under Delaware law, a majority of the outstanding shares of Common Stock entitled to vote must vote to approve the Merger Agreement. Thermo Instrument and Thermo Electron collectively own approximately 92% of the outstanding Common Stock and intend to vote in favor of approval of the Merger Agreement. Accordingly, the vote approving the Merger Agreement is assured. 6 8. WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HOLDING MY SHARES AS TO HOW TO VOTE THEM OR I ABSTAIN FROM VOTING? If your shares are held by a broker as nominee, your broker will not be able to vote your shares without instructions from you. If your broker is unable to vote your shares or if you abstain, it will have the effect of voting against approval of the Merger Agreement; however, Thermo Instrument and Thermo Electron own sufficient shares to satisfy the voting requirement for approval of the Merger Agreement. 9. WHO IS ENTITLED TO VOTE? Holders of record of Common Stock at the close of business on , 1999, the record date for the Special Meeting, are entitled to vote at the Special Meeting. 10. WHEN IS THE MERGER EXPECTED TO BE COMPLETED? We are working to complete all aspects of the Merger as quickly as possible. We currently expect the Merger to be completed by , 1999. 11. WHAT DO I NEED TO DO NOW? After you have carefully read this Proxy Statement, please complete, sign and mail your Proxy Card in the enclosed return envelope as soon as possible. That way, your shares can be represented at the Special Meeting. If your shares are held by a broker as nominee, you should receive a Proxy Card from your broker. ThermoSpectra stockholders must return their Proxy Cards before the Special Meeting in order for their votes to be counted at the Special Meeting. 12. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD? You may change your vote at any time before the vote takes place at the Special Meeting. To do so, you can attend the Special Meeting and vote in person, you can complete and send a new Proxy Card with a later date or you can send a written notice stating you would like to revoke your proxy. The notice should be sent to: ThermoSpectra Corporation, c/o Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, Attention: Corporate Secretary. 13. SHOULD I SEND IN MY THERMOSPECTRA STOCK CERTIFICATES NOW? No. You should continue to hold your certificates for Common Stock. After the Merger Agreement is approved, you will receive instructions on how to exchange your shares of Common Stock for cash. 14. WHAT WILL HAPPEN TO THE THERMOSPECTRA STOCK OPTIONS? Options to purchase Common Stock outstanding on the effective date of the Merger, whether or not then exercisable, will be assumed by Thermo Instrument and converted into options to purchase the common stock of Thermo Instrument. 15. WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS? You should call ThermoSpectra Investor Relations at (781) 622-1111. 16. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING? We are not aware of any other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, including a motion to adjourn the Special Meeting for the purpose of soliciting additional proxies, the persons named on the accompanying Proxy Card will vote the shares represented by all properly executed proxies on such matters in their discretion, except that shares represented by proxies that have been voted "AGAINST" approval of the Merger Agreement will not be used to vote "FOR" adjournment of the Special Meeting for the purpose of allowing additional time to solicit additional votes "FOR" the Merger Agreement. 7 SUMMARY The following is a summary of certain information contained elsewhere in this Proxy Statement. Reference is made to, and this Summary is qualified in its entirety by, the more detailed information contained elsewhere or incorporated by reference in this Proxy Statement. Stockholders should read this Proxy Statement and its appendices in their entirety before voting. DATE, TIME AND PLACE OF THE SPECIAL MEETING The Special Meeting of stockholders of ThermoSpectra Corporation, a Delaware corporation (the "Company" or "ThermoSpectra"), will be held on , , 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454. PURPOSE OF THE SPECIAL MEETING At the Special Meeting, the stockholders of the Company will consider and vote on a proposal to approve an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement"), which is attached to this Proxy Statement as Appendix A. The Merger Agreement provides that TS Acquisition Corporation (the "Merger Sub"), a newly-formed Delaware corporation that is a wholly owned subsidiary of Thermo Instrument Systems Inc., a Delaware corporation ("Thermo Instrument"), would merge with and into ThermoSpectra (the "Merger"). ThermoSpectra would be the surviving corporation (the "Surviving Corporation") in the Merger, and each outstanding share of common stock, $.01 par value, of ThermoSpectra (the "Common Stock"), other than shares held by stockholders who are entitled to and who have perfected their Dissenters' Rights (as defined below), shares held by ThermoSpectra in treasury and shares held by Thermo Instrument and Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"), will be converted automatically into the right to receive $16.00 in cash, payable to the holders thereof, without interest (the "Cash Merger Consideration"). See "THE MERGER." RECORD DATE AND QUORUM A committee of the Board of Directors of the Company (the "Board" or the "Board of Directors") has fixed the close of business on , 1999 as the record date (the "Record Date") for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting. Each holder of record of Common Stock at the close of business on the Record Date is entitled to one vote for each share then held on each matter submitted to a vote of stockholders. At the close of business on the Record Date, there were shares of Common Stock outstanding. The holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business. Abstentions will be counted as shares present and entitled to vote for purposes of determining a quorum; however, broker non-votes will not be counted as shares present and entitled to vote for purposes of determining a quorum. See "THE SPECIAL MEETING--Record Date and Quorum Requirement." VOTE REQUIRED AND REVOCATION OF PROXIES Under Delaware law, holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting must vote to approve the Merger Agreement. For the purposes of this vote, a failure to vote, a vote to abstain and a broker non-vote will each have the same legal effect as a vote cast against approval of the Merger Agreement. Thermo Instrument, which owns approximately 82% of the outstanding Common Stock, and Thermo Electron, which owns approximately 10% of the outstanding Common Stock, own enough shares of Common Stock to vote to approve the Merger Agreement under Delaware law without the vote of any other holders of Common Stock and intend to vote their shares in favor of the Merger Agreement. See "THE SPECIAL MEETING--Voting Procedures." A stockholder who returns a proxy may revoke it at any time before the stockholder's shares are voted at the Special Meeting. The proxy may be revoked by written notice to the Secretary of the Company 8 received prior to the Special Meeting, by executing and returning a later-dated proxy or by voting by ballot at the Special Meeting. See "THE SPECIAL MEETING--Voting and Revocation of Proxies." If a properly executed Proxy Card is submitted and no instructions are given, the shares of Common Stock represented by that Proxy Card will be voted "FOR" the approval of the proposed Merger Agreement. The Board is not aware of any other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, including a motion to adjourn the Special Meeting for the purpose of soliciting additional proxies, the persons named on the accompanying Proxy Card will vote the shares represented by all properly executed proxies on such matters in their discretion, except that shares represented by proxies that have been voted "AGAINST" approval of the Merger Agreement will not be used to vote "FOR" adjournment of the Special Meeting for the purpose of allowing additional time to solicit additional votes "FOR" the Merger Agreement. See "THE SPECIAL MEETING--Voting Procedures." PARTIES TO THE MERGER THE COMPANY The Company develops, manufactures and markets imaging and inspection, temperature control and test and measurement instruments. These instruments are generally combined with proprietary operations and analysis software to provide industrial and research customers with integrated systems that address their specific needs. The Company's imaging and inspection products include X-ray instruments, X-ray sources and X-ray imaging systems, as well as an assortment of scanning probe and confocal laser scanning microscopes, all of which are used in a variety of analytical- and inspection-oriented applications. The imaging and inspection products also include systems that rework and repair printed circuit boards that have failed quality control inspection. The Company's temperature control instruments include temperature control systems for analytical, laboratory, industrial, research and development, laser and semiconductor applications. The Company's test and measurement instruments include data-acquisition systems, digital oscilloscopes and recording systems used primarily in product development and process monitoring settings. The principal executive offices of the Company are located at 8 East Forge Parkway, Franklin, Massachusetts 02038, and its telephone number is (508) 553-5155. See "BUSINESS OF THE COMPANY." THE MERGER SUB The Merger Sub is a newly-formed Delaware corporation organized at the direction of Thermo Instrument for the sole purpose of effecting the Merger and has not conducted any prior business. The principal executive offices of the Merger Sub are located at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone number is (781) 622-1000. See "CERTAIN INFORMATION CONCERNING THE MERGER SUB, THERMO INSTRUMENT AND THERMO ELECTRON." THERMO INSTRUMENT Thermo Instrument develops, manufactures and markets analytical instruments used to identify complex chemical compounds, toxic metals and other elements in a broad range of liquids and solids. Thermo Instrument also develops and manufactures instruments used to monitor radioactivity and air pollution; life sciences instruments and consumables; and imaging, inspection, measurement and control instruments. These products are used for multiple applications in a range of industries, including industrial processing, food and beverage production, life sciences research and medical diagnostics. The principal executive offices of Thermo Instrument are located at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone number is (781) 622-1000. See "CERTAIN 9 INFORMATION CONCERNING THE MERGER SUB, THERMO INSTRUMENT AND THERMO ELECTRON." THE MERGER The Merger Agreement provides that subject to satisfaction of certain conditions, the Merger Sub will be merged with and into ThermoSpectra, and that following the Merger, the separate existence of the Merger Sub will cease and ThermoSpectra will continue as the Surviving Corporation. At the effective time of the Merger, which shall be the date and time of filing of the Certificate of Merger with the Secretary of State of the State of Delaware (the "Effective Time") (and the date on which the Effective Time occurs being the "Effective Date"), and subject to the terms and conditions set forth in the Merger Agreement, each share of issued and outstanding Common Stock (other than shares as to which Dissenters' Rights (as defined below) are properly perfected and not withdrawn, shares held by ThermoSpectra in treasury and shares held by Thermo Instrument and Thermo Electron) will, by virtue of the Merger, be canceled and converted into the right to receive the Cash Merger Consideration. As a result of the Merger, ThermoSpectra's Common Stock will no longer be publicly traded and will be 100% owned by Thermo Instrument and Thermo Electron. The aggregate consideration payable in the Merger, assuming no Dissenters' Rights (as defined below) are exercised, is approximately $20 million. See "THE MERGER." EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES The Effective Time is currently expected to occur as soon as practicable after the Special Meeting, subject to approval of the Merger Agreement at the Special Meeting and satisfaction or waiver of the terms and conditions of the Merger Agreement. See "--Conditions to the Merger, Termination and Expenses" and "THE MERGER--Conditions." Detailed instructions with regard to the surrender of stock certificates, together with a letter of transmittal, will be forwarded to stockholders by the Company's transfer agent, American Stock Transfer & Trust Company (the "Payment Agent"), promptly following the Effective Time. Stockholders should not submit their stock certificates to the Payment Agent until they have received such materials. The Payment Agent will send payment of the Cash Merger Consideration to stockholders as promptly as practicable following receipt by the Payment Agent of their stock certificates and other required documents. No interest will be paid or accrued on the cash payable upon the surrender of stock certificates. See "THE MERGER--Conversion of Securities." Stockholders should not send any stock certificates to the Company or the Payment Agent at this time. ASSUMPTION OF THERMOSPECTRA STOCK OPTIONS BY THERMO INSTRUMENT At the Effective Time, each outstanding option to purchase shares of Common Stock (each, a "ThermoSpectra Stock Option") under the ThermoSpectra Stock Option Plans (as defined below), whether or not exercisable, will be assumed by Thermo Instrument. Each ThermoSpectra Stock Option so assumed by Thermo Instrument will continue to have, and be subject to, the same terms and conditions set forth in the applicable ThermoSpectra Stock Option Plan immediately prior to the Effective Time, except that (i) each ThermoSpectra Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of common stock, $.10 par value per share, of Thermo Instrument ("Thermo Instrument Common Stock") equal to the product of the number of shares of Common Stock that were issuable upon exercise of such ThermoSpectra Stock Option immediately prior to the Effective Time multiplied by a fraction (the "Exchange Ratio"), the numerator of which is the Cash Merger Consideration and the denominator of which is the closing price (the "Closing Price") of Thermo Instrument Common Stock on the day immediately preceding the Effective Date as reported by the American Stock Exchange, Inc. (the "AMEX"), rounded down to the nearest whole number of shares of Thermo Instrument Common Stock, and (ii) the per share exercise price for the shares of Thermo Instrument Common Stock issuable upon exercise of each such assumed ThermoSpectra Stock Option will be equal to the quotient determined by dividing the exercise price per share of Common Stock at which such ThermoSpectra Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. 10 At the Effective Time, each outstanding option to purchase shares of Common Stock (each a "ThermoSpectra ESPP Stock Option") under the ThermoSpectra Employees' Stock Purchase Plan (the "ThermoSpectra ESPP") will also be assumed by Thermo Instrument. Each ThermoSpectra ESPP Stock Option so assumed by Thermo Instrument will continue to have, and be subject to, the same terms and conditions as set forth in the ThermoSpectra ESPP immediately prior to the Effective Time except that (i) the assumed option shall be exercisable for shares of Thermo Instrument Common Stock; (ii) the purchase price per share of Thermo Instrument Common Stock shall be the lower of (a) 85% of (x) the per share market value of the Common Stock on the grant date of the option divided by (y) the Exchange Ratio, with the resulting price rounded up to the nearest whole cent, and (b) 85% of the market value of Thermo Instrument Common Stock as of the exercise date of the option; and (iii) the $25,000 limit under Section 9.2(i) of the ThermoSpectra ESPP shall be applied by taking into account Thermo Instrument's assumption of the ThermoSpectra ESPP Stock Options in accordance with Section 423(b)(8) of the Internal Revenue Code of 1986, as amended, and applicable regulations. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION In December 1998, the Board appointed a committee (the "Special Committee") of two directors, Messrs. Joseph A. Baute and David J. Beaubien (who are not officers or employees of the Company, Thermo Instrument, the Merger Sub or Thermo Electron and who are not directors of Thermo Electron, Thermo Instrument or the Merger Sub), to act on behalf of, and in the interests of, the stockholders of the Company other than Thermo Instrument, Thermo Electron and the directors and officers of the Company, Thermo Instrument and Thermo Electron (the "Minority Stockholders") in evaluating the merits of, and negotiating the terms of, any proposed transaction with Thermo Instrument. The members of the Special Committee hold options to acquire an aggregate of 2,000 shares of Common Stock, at exercise prices of $15.33, which will be assumed by Thermo Instrument and converted into options to acquire shares of Thermo Instrument Common Stock on the same terms as all the other holders of ThermoSpectra Stock Options. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Further, deferred units equal to 103 shares of Common Stock have accumulated under the Company's deferred compensation plan for directors for the benefit of Mr. Baute, which units will be converted into the right to receive the Cash Merger Consideration per unit for an aggregate cash payment of $1,648. See "THE MERGER--Deferred Compensation Plan for Directors." The members of the Special Committee unanimously recommended to the Company's Board that the Merger Agreement, with the terms and provisions they negotiated, be approved and that it be recommended to the stockholders of the Company for adoption and approval. In connection with its recommendation, the Special Committee considered the opinion of its financial advisor, Tucker Anthony Cleary Gull ("Tucker Cleary"), that the consideration of $16.00 per share in cash payable under the Merger Agreement is fair, from a financial point of view, to the Minority Stockholders. See "SPECIAL FACTORS--Opinion of Financial Advisor." As part of their deliberations, the members of the Special Committee determined that the Merger is substantively and procedurally fair to the Minority Stockholders. Following the unanimous recommendation of the Special Committee, the Board of Directors unanimously approved the Merger Agreement, declared its advisability and recommended that the stockholders of the Company approve the Merger Agreement. In connection with its recommendation, the Board also considered the opinion of Tucker Cleary and adopted the analysis of the Special Committee with regard to both the substantive and procedural fairness of the Merger. In reaching their respective decisions to recommend approval of the Merger Agreement, the Special Committee and the Board also considered the factors set forth elsewhere in this Proxy Statement. See "SPECIAL FACTORS--The Special Committee's and the Board's Recommendation." In considering the recommendation of the Board of Directors with respect to the Merger, the Minority Stockholders should be aware that certain officers and directors of the Company have certain 11 interests that are in addition to, or different from, the interests of the Minority Stockholders. See "SPECIAL FACTORS--Conflicts of Interest." The Board unanimously recommends that the ThermoSpectra stockholders vote "FOR" approval of the Merger Agreement. OPINION OF FINANCIAL ADVISOR Tucker Cleary provided its oral opinion to the Special Committee on May 20, 1999, that, as of the date of such opinion, the consideration of $16.00 per share in cash payable under the Merger Agreement was fair, from a financial point of view, to the Minority Stockholders of the Company. Tucker Cleary subsequently confirmed its oral opinion in writing on May 21, 1999. The full text of the written opinion of Tucker Cleary dated May 21, 1999, which sets forth assumptions made, matters considered and limitations on the review undertaken in connection with the opinion, is attached hereto as Appendix B and is incorporated herein by reference. The opinion of Tucker Cleary referred to herein does not constitute a recommendation as to how any stockholder should vote with respect to the Merger Agreement. Holders of shares of Common Stock are urged to, and should, read the opinion in its entirety. See "SPECIAL FACTORS--Opinion of Financial Advisor." The Special Committee retained Tucker Cleary as financial advisor to assist it in evaluating the merits of, and negotiating the terms of, any proposed transaction with Thermo Instrument. Pursuant to the terms of Tucker Cleary's engagement letter dated February 2, 1999 with the Special Committee, the Company paid Tucker Cleary a retainer fee of $50,000 and a fee of $100,000 for the preparation and delivery of its written fairness opinion dated May 21, 1999 (which fee was payable regardless of the conclusions expressed therein). In addition, the Company has agreed to pay Tucker Cleary an additional $75,000 if the Merger is consummated. The Company has also agreed to reimburse Tucker Cleary up to $10,000 for its out-of-pocket expenses, including the reasonable fees and disbursements of its counsel, arising in connection with its engagement, and to indemnify Tucker Cleary, its affiliates and their respective directors, officers, employees and agents to the fullest extent permitted by law against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement, except for liabilities found to have resulted from the bad faith, gross negligence or intentional or reckless misconduct of Tucker Cleary. PURPOSE AND REASONS OF THERMO INSTRUMENT AND THERMO ELECTRON FOR THE MERGER The purpose of Thermo Instrument and Thermo Electron for engaging in the transactions contemplated by the Merger Agreement is for Thermo Instrument to acquire all of the outstanding shares of Common Stock, other than the shares held by Thermo Electron. In determining to acquire such shares of Common Stock at this time, Thermo Instrument and Thermo Electron considered the following factors: (i) the past performance of ThermoSpectra and its future business prospects, as well as the potential benefits to ThermoSpectra's business if it were to become part of a larger business unit; (ii) the latest market trends in the markets in which the Company competes, primarily the cyclicality of the semiconductor industry; (iii) the substantial debt owed by the Company to, primarily, Thermo Electron; (iv) the reduction in the amount of public information available to competitors about ThermoSpectra's business that would result from the termination of the Company's obligations under the Securities and Exchange Commission (the "Commission") reporting requirements; (v) the elimination of additional burdens on management associated with public reporting and other tasks resulting from the Company's public company status, including, for example, the dedication of time and resources of management and of the Board to stockholder and analyst inquiries, and investor and public relations; (vi) the decrease in costs, particularly those associated with being a public company (for example, as a privately-held entity, the Company would no longer be required to file quarterly and annual reports with the Commission or publish and distribute to its stockholders annual reports and proxy statements), that Thermo Electron and Thermo Instrument anticipate could result in savings of approximately $450,000 per year, which estimate includes the approximate cost of the associated legal and accounting fees; and (vii) the greater flexibility that the 12 Company's management would have to focus on long-term business goals, as opposed to quarterly earnings, as a private company. Thermo Instrument and Thermo Electron also considered the advantages and disadvantages of certain alternatives to taking ThermoSpectra private, including (i) selling their respective equity interests in the Company and (ii) leaving ThermoSpectra as a public majority-owned subsidiary of Thermo Instrument. The first alternative, that of selling their respective equity interests in the Company, was briefly considered by Thermo Electron management, but it was not an alternative that was pursued as reasonable, given that Thermo Electron did not want to sell its equity interest, and did not want Thermo Instrument to sell its equity interest, in the Company. The advantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Instrument and Thermo Electron considered included (i) the ability of Thermo Instrument to invest the cash that would be required to buy the minority stockholder interest in ThermoSpectra in alternative uses and (ii) maintaining the potential access ThermoSpectra has to capital in the public markets as a public company. The disadvantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Instrument and Thermo Electron considered included (i) the burden on ThermoSpectra of substantial debt owed primarily to Thermo Electron, (ii) the costs associated with being a public company and (iii) the public information available to competitors about ThermoSpectra's business as result of its filing obligations with the Commission. Thermo Instrument and Thermo Electron also considered the number of ThermoSpectra shares held by the Minority Stockholders, recent trends in the price of the Common Stock and the relative lack of liquidity for the Common Stock. Thermo Instrument and Thermo Electron reviewed the net overall cost of the transaction and its benefits, including its contribution to Thermo Instrument's earnings. Thermo Instrument also explored alternative uses for the cash proposed to be used for this transaction. After consideration of these various factors, Thermo Instrument and Thermo Electron decided to make a proposal to ThermoSpectra to acquire for cash, through a merger, all of the outstanding shares of Common Stock that Thermo Instrument and Thermo Electron did not own at a price of $16.00 per share, which represented a premium of (i) approximately 71% over the closing price of the Common Stock reported in the consolidated transaction reporting system on August 11, 1998, the day immediately prior to Thermo Electron's first public announcement of the proposal to take ThermoSpectra private and (ii) approximately 39% over the closing price of the Common Stock reported in the consolidated transaction reporting system on May 20, 1999, the day immediately prior to the public announcement of the financial terms of Thermo Instrument's proposal. Thermo Instrument proposed to structure the transaction as a cash merger in order to transfer ownership of the equity interest in the Company in a single transaction and provide the stockholders other than Thermo Instrument and Thermo Electron with prompt payment in cash in exchange for their shares. See "SPECIAL FACTORS--Background of the Merger" and "SPECIAL FACTORS--Purpose and Reasons of Thermo Instrument and Thermo Electron for the Merger." Thermo Electron beneficially owns, in the aggregate, directly and indirectly through Thermo Instrument, approximately 92% of the outstanding Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Principal Stockholder." POSITION OF THERMO INSTRUMENT AND THERMO ELECTRON AS TO FAIRNESS OF THE MERGER Thermo Instrument and Thermo Electron considered the analyses and findings of (i) Tucker Cleary with respect to the fairness, from a financial point of view, of the consideration of $16.00 per share in cash payable under the Merger Agreement to the Minority Stockholders (see "SPECIAL FACTORS--Opinion of Financial Advisor") and (ii) the Special Committee and the Board with respect to the fairness of the Merger to the Minority Stockholders (see "SPECIAL FACTORS--The Special Committee's and the Board's Recommendation"). As of the date of the Merger Agreement, each of Thermo Instrument and Thermo Electron adopted the analyses and findings of the Special Committee and the Board with respect to the fairness of the Merger. Based on the analyses and findings of Tucker Cleary and the Special Committee, Thermo Instrument and Thermo Electron believe that the Merger is both procedurally and 13 substantively fair to the Minority Stockholders and that the Cash Merger Consideration is fair to the Minority Stockholders from a financial point of view. Neither Thermo Instrument nor Thermo Electron attached specific weights to any factors in reaching its respective belief as to fairness. Thermo Instrument and Thermo Electron are not making any recommendation as to how the Minority Stockholders should vote on the Merger Agreement. See "SPECIAL FACTORS--Position of Thermo Instrument and Thermo Electron as to Fairness of the Merger." The Minority Stockholders should be aware that certain officers and directors of Thermo Instrument and Thermo Electron are also officers and directors of the Company and have certain interests that are in addition to, or different from, the interests of the Minority Stockholders. See "SPECIAL FACTORS-- Conflicts of Interest." Thermo Instrument and Thermo Electron considered these potential conflicts of interest and based in part thereon, Thermo Instrument's proposed offer was conditioned on, among other things, the approval of the Merger by the Special Committee and the receipt by the Special Committee of a fairness opinion from an investment banking firm. CONFLICTS OF INTEREST In considering the recommendation of the Board with respect to the Merger, stockholders should be aware that certain officers and directors of ThermoSpectra have interests in connection with the Merger that present them with actual or potential conflicts of interest, which are described in more detail under "SPECIAL FACTORS--Conflicts of Interest." THE SPECIAL COMMITTEE Mr. Baute and Mr. Beaubien, members of the Special Committee, hold options to acquire an aggregate of 2,000 shares of Common Stock, at exercise prices of $15.33, which will be assumed by Thermo Instrument and converted into options to acquire shares of Thermo Instrument Common Stock on the same terms as all the other holders of ThermoSpectra Stock Options. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Further, deferred units equal to 103 shares of Common Stock have accumulated under the Company's deferred compensation plan for directors for the benefit of Mr. Baute, which units will be converted into the right to receive the Cash Merger Consideration per unit for an aggregate cash payment of $1,648. See "THE MERGER--Deferred Compensation Plan for Directors." The Special Committee formally met 16 times, either in person or telephonically, from December 1998 through the date of this Proxy Statement and, in addition, had numerous informal discussions and consultations in person and telephonically. As compensation for serving on the Special Committee, the Board has authorized that each member of the Special Committee receive a one-time special retainer fee of $20,000 and additional fees of $1,000 for each meeting attended in person and $500 for each meeting attended telephonically. Mr. Baute is also a member of the board of directors of Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument, and Mr. Beaubien is also a member of the board of directors of ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. See "SPECIAL FACTORS--Conflicts of Interest" and "MANAGEMENT." THE THERMOSPECTRA DIRECTORS AND EXECUTIVE OFFICERS The members of the Board of Directors, other than the members of the Special Committee, and executive officers of ThermoSpectra own in the aggregate 40,610 shares of Common Stock and will receive a payment for their shares of Common Stock in the aggregate amount of $649,760 upon consummation of the Merger. In addition, such Board members and executive officers hold options to acquire an aggregate of 362,300 shares of Common Stock, with exercise prices ranging from $9.53 to $15.33, which will be assumed by Thermo Instrument and converted into options to acquire shares of Thermo Instrument Common Stock on the same terms as all the other holders of ThermoSpectra Stock Options. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Further, deferred units equal to 22 shares of Common Stock have accumulated under the Company's deferred compensation plan for directors for the benefit of Elias P. Gyftopoulos, which units will be converted into the right to 14 receive the Cash Merger Consideration per unit for an aggregate cash payment of $352. See "THE MERGER--Deferred Compensation Plan for Directors." Such Board members and executive officers also beneficially own shares of common stock of Thermo Instrument and Thermo Electron as set forth in more detail under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Management." Further, certain members of the Board and certain executive officers hold directorship or officer positions with Thermo Instrument and/or Thermo Electron. See "MANAGEMENT." INDEMNIFICATION AND INSURANCE The Merger Agreement provides that for a period of six years after the Effective Time, Thermo Instrument will, and will cause the Surviving Corporation to, fulfill and honor in all respects the indemnification obligations of ThermoSpectra, pursuant to ThermoSpectra's Certificate of Incorporation and Bylaws, each as in effect immediately prior to the Effective Time, to those individuals who were directors, including the members of the Special Committee, or officers of ThermoSpectra at the Effective Time. In addition, the directors and officers of the Company will be provided with continuing directors' and officers' liability insurance coverage for a period of six years following the Merger, subject to certain limitations. See "SPECIAL FACTORS--Conflicts of Interest" and "THE MERGER--Indemnification and Insurance." CERTAIN EFFECTS OF THE MERGER As a result of the Merger, the entire equity interest in the Company will be beneficially owned by Thermo Electron, directly and indirectly through Thermo Instrument. Thermo Electron and Thermo Instrument will have complete control over the conduct of the Company's business and will have 100% interest in the net book value and net earnings of the Company and any future increases in the value of the Company. Thermo Instrument's and Thermo Electron's combined ownership of the Company prior to the transaction contemplated herein aggregated approximately 92%. Upon completion of this transaction, Thermo Instrument's and Thermo Electron's aggregate interest in the Company's net book value of $129.7 million on July 3, 1999 and net earnings of $1.8 million and $0.6 million for the year ended January 2, 1999 and the six months ended July 3, 1999, respectively, would increase from approximately 92% of such amounts to 100% of such amounts. The Minority Stockholders will no longer have any interest in, and will not be stockholders of, ThermoSpectra and therefore will not participate in ThermoSpectra's future earnings and potential growth and will no longer bear the risk of any decreases in the value of the Company. Instead, the stockholders of the Company other than Thermo Instrument, Thermo Electron and holders who perfect their Dissenters' Rights (as defined below) will have the right to receive the Cash Merger Consideration for each share held. In addition, the Common Stock will no longer be traded on the AMEX and price quotations with respect to sales of shares in the public market will no longer be available. The registration of the Common Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), will be terminated, and this termination will eliminate the Company's obligation to file periodic financial and other information with the Commission and will make most other provisions of the Exchange Act inapplicable. See "SPECIAL FACTORS--Certain Effects of the Merger." CONDITIONS TO THE MERGER, TERMINATION AND EXPENSES Each party's obligation to effect the Merger is subject to satisfaction of a number of conditions, including with respect to one or both parties: (i) the Merger Agreement shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon in accordance with the provisions of Section 251 of the General Corporation Law of the State of Delaware (the "DGCL"); (ii) no court, administrative agency or commission or other governmental or regulatory body or authority or instrumentality shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order that is 15 in effect and that has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger; (iii) the representations and warranties of the parties shall be true and correct in all material respects as of the Effective Time, except as permitted by the Merger Agreement; and (iv) each of the parties shall have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed by them on or prior to the Effective Time. Certain conditions that have not been satisfied may be waived by the other party. See "THE MERGER-- Conditions." Even if the stockholders approve the Merger Agreement, there can be no assurance that the Merger will be consummated. At any time prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, the Merger Agreement may be terminated by the mutual written consent of the board of directors of Thermo Instrument and the Board of Directors of ThermoSpectra (upon approval of the Special Committee). In addition, either Thermo Instrument or ThermoSpectra (upon approval of the Special Committee), in accordance with the provisions of the Merger Agreement, may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if (i) the Merger has not been consummated by October 31, 1999, subject to certain exceptions, (ii) a court of competent jurisdiction or governmental, regulatory or administrative agency or commission issues an order, decree or ruling or takes any other action enjoining, restraining or otherwise prohibiting the Merger and such order, decree or ruling is final and nonappealable or (iii) the approval of the stockholders of ThermoSpectra necessary to consummate the Merger has not been obtained, subject to certain exceptions. See "THE MERGER--Termination, Amendment and Waiver." In addition, Thermo Instrument may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if ThermoSpectra breaches any representation, warranty, covenant or agreement and fails to cure such breach within ten business days after written notice of such breach from Thermo Instrument. ThermoSpectra may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if (i) ThermoSpectra's Board of Directors, upon approval of the Special Committee, determines in good faith on the advice of outside legal counsel that the Board's fiduciary duties under applicable law require it to do so or (ii) Thermo Instrument breaches any representation, warranty, covenant or agreement and fails to cure such breach within ten business days after written notice of such breach from ThermoSpectra. See "THE MERGER--Termination, Amendment and Waiver." Each of the parties has agreed to pay its own costs and expenses in connection with the Merger Agreement, whether or not the Merger is consummated. See "THE MERGER--Expenses." FEDERAL INCOME TAX CONSEQUENCES For federal income tax purposes, the receipt of the Cash Merger Consideration by holders of Common Stock pursuant to the Merger will be a taxable sale of the holder's Common Stock. All holders of Common Stock should consult their tax advisors to determine the effect of the Merger under federal, state, local and foreign tax laws. See "FEDERAL INCOME TAX CONSEQUENCES." RIGHTS OF DISSENTING STOCKHOLDERS Any stockholder of ThermoSpectra who does not vote in favor of the proposal to approve the Merger Agreement and who complies strictly with the applicable provisions of Section 262 of the DGCL has the right to dissent and be paid cash for the fair value of such holder's shares of Common Stock ("Dissenters' Rights"). The applicable provisions of Section 262 of the DGCL are attached to this Proxy Statement as Appendix C. To perfect Dissenters' Rights with respect to the Merger, a ThermoSpectra stockholder must follow the procedures set forth therein precisely. These procedures are summarized in this Proxy Statement under "RIGHTS OF DISSENTING STOCKHOLDERS." 16 Shares of Common Stock held by persons properly exercising Dissenters' Rights will not be converted into the Cash Merger Consideration in the Merger and after the Effective Time will represent only the right to receive such consideration as is determined to be due such dissenting stockholder pursuant to Section 262 of the DGCL. If after the Effective Time any dissenting stockholder (i) fails to perfect or loses such right to payment or appraisal pursuant to Section 262 of the DGCL or (ii) withdraws such demand for appraisal within 60 days after the Effective Date pursuant to Section 262 of the DGCL, each share of Common Stock of such stockholder shall be treated as a share that had been converted as of the Effective Time into the right to receive the Cash Merger Consideration. ACCOUNTING TREATMENT The Merger will be accounted for as the acquisition of a minority interest by Thermo Instrument, using the purchase method of accounting. MARKET PRICES OF COMMON STOCK AND DIVIDENDS The Common Stock is traded on the AMEX (symbol: THS). The following table sets forth, for the periods indicated, the high and low sales prices of the Company's Common Stock as reported in the consolidated transaction reporting system.
HIGH LOW --------- ---------- 1997 First Quarter.......................................................... $ 15.125 $ 11.75 Second Quarter......................................................... 14.50 11.375 Third Quarter.......................................................... 13.625 9.75 Fourth Quarter......................................................... 13.625 9.00 1998 First Quarter.......................................................... 10.75 8.625 Second Quarter......................................................... 12.75 8.625 Third Quarter.......................................................... 12.00 9.25 Fourth Quarter......................................................... 11.75 8.25 1999 First Quarter.......................................................... 12.00 10.00 Second Quarter......................................................... 15.875 9.6875 Third Quarter (through September 3, 1999).............................. 16.00 15.50
On August 11, 1998, the last trading day prior to the date Thermo Electron first publicly announced the proposal to take ThermoSpectra private, the high, low and closing sales price per share of Common Stock reported in the consolidated transaction reporting system was $9.375, $9.25 and $9.375, respectively. On May 20, 1999, the last trading day prior to the public announcement of the financial terms of the proposed Merger, the high, low and closing sales price per share of Common Stock reported in the consolidated transaction reporting system was $11.50, $11.25 and $11.50, respectively. On , 1999, the last trading day prior to the printing of this Proxy Statement, the high, low and closing sales price per share of Common Stock reported in the consolidated transaction reporting system was $ , $ and $ , respectively. As of , 1999, there were holders of record of Common Stock and approximately persons or entities holding in nominee name. The Company has never paid any cash dividends on its Common Stock. Pursuant to the Merger Agreement, the Company has agreed not to pay any dividends on the Common Stock prior to the earlier of the termination of the Merger Agreement or the Effective Time. 17 SPECIAL FACTORS BACKGROUND OF THE MERGER During the beginning of August 1998, Thermo Instrument's and Thermo Electron's senior management initially considered Thermo Instrument's acquisition of the minority stockholder interest in ThermoSpectra in connection with a proposed corporate reorganization of Thermo Electron and certain of its subsidiaries that was publicly announced on August 12, 1998. The goals of Thermo Electron's proposed corporate reorganization include (i) reducing the complexity of Thermo Electron's corporate structure, (ii) consolidating and strategically realigning certain businesses to enhance their competitive market positions and improve management coordination, and (iii) increasing liquidity in the public markets by providing larger market floats for Thermo Electron's publicly traded subsidiaries. If Thermo Electron's reorganization plan is completed as proposed, including completion of the proposed transaction between Thermo Instrument and the Company, it will reduce the number of Thermo Electron's majority-owned subsidiaries from 23 to 12. Thermo Instrument's and Thermo Electron's management examined several factors, including the past performance of the Company and its future business prospects, as well as the potential benefits to ThermoSpectra's business if it were to become part of a larger business unit. Thermo Instrument and Thermo Electron also considered the following factors: (i) the reduction in the amount of public information available to competitors about ThermoSpectra's business that would result from the termination of the Company's obligations under the Commission reporting requirements; (ii) the elimination of additional burdens on management associated with public reporting and other tasks resulting from the Company's public company status, including, for example, the dedication of time and resources of management and of the Board to stockholder and analyst inquiries, and investor and public relations; (iii) the decrease in costs, particularly those associated with being a public company (for example, as a privately-held entity, the Company would no longer be required to file quarterly and annual reports with the Commission or publish and distribute to its stockholders annual reports and proxy statements), that Thermo Electron and Thermo Instrument anticipate could result in savings of approximately $450,000 per year, which estimate includes the approximate cost of the associated legal and accounting fees; and (iv) the greater flexibility that the Company's management would have to focus on long-term business goals, as opposed to quarterly earnings, as a private company. Thermo Instrument and Thermo Electron also considered the relatively low volume of trading in the Common Stock and that the Merger would result in immediate availability of enhanced liquidity for the Minority Stockholders. Management of both Thermo Instrument and Thermo Electron also considered that, by acquiring the minority stockholder interest in ThermoSpectra, it would advance the goal of Thermo Electron's proposed corporate reorganization to reduce the number of majority-owned, public subsidiaries of Thermo Electron. Management of Thermo Instrument and Thermo Electron also considered recent trends in the price of the Common Stock, although ThermoSpectra's current stock price was not a significant factor in the timing of Thermo Instrument's or Thermo Electron's decision to propose acquiring the minority stockholder interest in ThermoSpectra. In mid-August 1998, management of Thermo Instrument and Thermo Electron decided to propose to their respective board of directors that Thermo Instrument make an offer to acquire all of the shares of Common Stock that Thermo Instrument and Thermo Electron did not already own for either cash or shares of Thermo Instrument common stock. On August 10 and 11, 1998, the board of directors of Thermo Electron held a special meeting at which Thermo Electron's and Thermo Instrument's management presented the proposal for Thermo Instrument to acquire all of the shares of Common Stock that Thermo Instrument and Thermo Electron did not already own, as a part of a proposed corporate reorganization of Thermo Electron and certain of its subsidiaries. The Thermo Electron board of directors discussed several factors presented by management regarding this proposal, including (i) the past performance of the Company and its future business prospects, as well as the potential benefits to ThermoSpectra's business if it were to become part of a 18 larger business unit; (ii) the reduction in the amount of public information available to competitors about ThermoSpectra's business that would result from the termination of the Company's obligations under the Commission reporting requirements; (iii) the elimination of additional burdens on management associated with public reporting and other tasks resulting from the Company's public company status, including, for example, the dedication of time and resources of management and of the Board to stockholder and analyst inquiries, and investor and public relations; (iv) the decrease in costs, particularly those associated with being a public company (for example, as a privately-held entity, the Company would no longer be required to file quarterly and annual reports with the Commission or publish and distribute to its stockholders annual reports and proxy statements), that Thermo Electron and Thermo Instrument anticipate could result in savings of approximately $450,000 per year, which estimate includes the approximate cost of the associated legal and accounting fees; and (v) the greater flexibility that the Company's management would have to focus on long-term business goals as opposed to quarterly earnings, as a private company. The Thermo Electron board of directors also considered the relatively low volume of trading in the Common Stock and that the Merger would result in immediate availability of enhanced liquidity for the Minority Stockholders. The Thermo Electron board of directors also acknowledged that as a result of the Merger, the entire equity interest in ThermoSpectra would be beneficially owned by Thermo Electron, directly and indirectly through Thermo Instrument. The Minority Stockholders would no longer have any interest in, and would not be stockholders of, ThermoSpectra, and therefore would not participate in ThermoSpectra's future earnings and potential growth. Additionally, upon consummation of the Merger, the Common Stock would no longer be traded on the AMEX, price quotations with respect to sales of shares in the public market would no longer be available and the registration of the Common Stock under the Exchange Act would be terminated. In addition, the Thermo Electron board of directors considered the advantages and disadvantages of certain alternatives to acquiring the minority stockholder interest in ThermoSpectra, including (i) selling its and Thermo Instrument's equity interest in the Company and (ii) leaving ThermoSpectra as a majority-owned, public subsidiary of Thermo Instrument. The first alternative, that of selling its and Thermo Instrument's equity interest in the Company, was briefly considered by Thermo Electron management, but it was not an alternative that was pursued as reasonable, given that Thermo Electron did not want to sell its equity interest, and did not want Thermo Instrument to sell its equity interest, in the Company. The advantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Electron considered included (i) the ability of Thermo Instrument to invest the cash that would be required to buy the minority stockholder interest in ThermoSpectra in alternative uses and (ii) maintaining the potential access ThermoSpectra has to capital in the public markets as a public company. The disadvantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Electron considered included (i) the costs associated with being a public company and (ii) the public information available to competitors about ThermoSpectra's business as result of its filing obligations with the Commission. The Thermo Electron board of directors also discussed that, by acquiring the minority stockholder interest in ThermoSpectra, it would advance the goal of Thermo Electron's proposed corporate reorganization to reduce the number of Thermo Electron's majority-owned, public subsidiaries. After consideration of these various factors, Thermo Electron's board authorized a proposed corporate reorganization, which included Thermo Instrument acquiring all of the shares of Common Stock that Thermo Instrument and Thermo Electron did not already own for either cash or Thermo Instrument common stock. On August 12, 1998, Thermo Electron issued a press release announcing its proposed corporate reorganization. On September 24 and 25, 1998, the board of directors of Thermo Instrument held a meeting at which the proposed plan to acquire the minority stockholder interest in ThermoSpectra was discussed. Thermo Instrument's management reviewed the considerations set forth above. 19 On December 3, 1998, the board of directors of Thermo Electron held a meeting at which the proposed plan to acquire the minority stockholder interest in ThermoSpectra was discussed. Thermo Instrument's and Thermo Electron's management reviewed the considerations set forth above. Thermo Electron's board discussed the advantages and disadvantages of acquiring the minority stockholder interest in ThermoSpectra. The advantages to acquiring the minority stockholder interest that the Thermo Electron board considered included a review of the factors considered at its August 10-11, 1998 meeting set forth above. The disadvantages to acquiring the minority stockholder interest in ThermoSpectra that Thermo Electron considered included (i) the inability of Thermo Instrument to invest the cash that would be required to buy the minority stockholder interest in ThermoSpectra in alternative uses and (ii) the elimination of potential access by ThermoSpectra to capital in the public markets as a private company. Following these discussions, Thermo Electron's board authorized a modified corporate reorganization plan, which included Thermo Instrument taking ThermoSpectra private by acquiring all of the shares of ThermoSpectra that Thermo Instrument and Thermo Electron did not already own for cash. On December 10, 1998, Thermo Electron issued a press release announcing its modified proposed corporate reorganization. On December 4, 1998, the board of directors of Thermo Instrument held a meeting at which the proposed plan to acquire the minority stockholder interest in ThermoSpectra was discussed. Thermo Instrument's management reviewed the considerations set forth above. On December 8, 1998, ThermoSpectra's Board held a meeting during which all members were present in person or by telephone. The Board's first action was to appoint Messrs. Joseph A. Baute and David J. Beaubien as directors of the Company. The Board next determined that because Thermo Instrument was its majority stockholder, it was desirable to appoint a Special Committee, to act on behalf of, and in the interests of, the Minority Stockholders, for the purpose of evaluating the merits of, and negotiating the terms of, any proposed transaction with Thermo Instrument. The Board appointed Messrs. Baute and Beaubien to serve as members of the Special Committee. The Board also authorized the Special Committee to retain a financial advisor, a legal advisor and any other advisors it deemed necessary to assist it in carrying out its responsibilities. Additionally, the Board granted the Special Committee and its advisors access to all of the officers and members of management of ThermoSpectra and its subsidiaries, including its books, records, projections and financial statements that were deemed necessary by the Special Committee and its advisors for their review. The Board noted that Mr. Baute was also a director of Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument, and that Mr. Beaubien was a director of ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. The Board determined that these directorships did not prevent either member from fulfilling his duties as a member of the Special Committee. On December 21, 1998, the Company received an unsolicited offer to purchase certain assets of one of its Test and Measurement businesses for approximately $4 million and the assumption of certain liabilities. The Company subsequently rejected the offer due to its proposed participation in the corporate reorganization of Thermo Electron, the inadequacy of the proposed price and its review of various strategic alternatives for this business. In December 1998 and early January 1999, the Special Committee conducted interviews with and considered three law firms to act as its legal advisor. Following such investigation, on December 31, 1998 the Special Committee retained Goodwin, Procter & Hoar LLP ("Goodwin Procter") of Boston to act as its legal advisor. In making its decision, the Special Committee took into account that Goodwin Procter (i) had neither currently nor in the past represented Thermo Electron or any of its subsidiaries and (ii) was located in Boston, close to the corporate offices of the Company, Thermo Instrument and Thermo Electron. On January 19, 1999 the Special Committee convened a meeting with Goodwin Procter, which meeting included discussions relating to the scope of the duties of the members of the Special Committee, 20 the scope of the Special Committee's authority and the requirement that the members of the Special Committee be independent. The members of the Special Committee affirmed their independence, their understanding of their obligations and their intent to get the best result for the Minority Stockholders. The members of the Special Committee also determined that they would not recommend a transaction if they did not believe it was at a fair price and was not the best transaction available for the Minority Stockholders. At this time, the Special Committee noted that it had requested that Thermo Instrument not disclose the terms of any proposed offer to the Special Committee until the Special Committee had chosen its financial advisor and completed its independent due diligence analysis. The Special Committee discussed its plans to visit various ThermoSpectra facilities and to pursue discussions with management about the business, financial condition and prospects of the Company. The Special Committee then interviewed four investment banking firms that had previously submitted proposals to serve as the Special Committee's financial advisor in evaluating the terms of any proposed offer from Thermo Instrument. On January 20, 1999, the Special Committee reconvened telephonically with Goodwin Procter. After due deliberation, the Special Committee retained Tucker Anthony Cleary Gull ("Tucker Cleary") as its financial advisor to assist in the evaluation of any proposed offer from Thermo Instrument. Since it had been over eight years since Tucker Cleary had provided any investment banking services to Thermo Electron or its subsidiaries, the Special Committee concluded that there was no current conflict of interest as a result of such prior work. Tucker Cleary agreed to assist the Special Committee in, among other things: - reviewing ThermoSpectra's business plan, growth strategies and historic operating and financial performance; - preparing an analysis of ThermoSpectra to determine valuation parameters for ThermoSpectra; - assisting in evaluating and negotiating the terms and conditions of any proposed offer from Thermo Instrument; and - providing a written opinion as to the fairness, from a financial point of view, of the consideration to be received by the Minority Stockholders in connection with any proposed offer from Thermo Instrument. On January 29, 1999, the Special Committee met with representatives from Goodwin Procter and Tucker Cleary at the Company's NESLAB Instruments, Inc. ("NESLAB") facility in Portsmouth, New Hampshire. The Special Committee, Goodwin Procter and Tucker Cleary toured the facilities and were given a business presentation by Mr. Barry Howe, President and Chief Executive Officer of ThermoSpectra. Following the presentation and tour, the members of the Special Committee held a meeting to discuss the presentation, the Company's financial statements, their impressions of the NESLAB facility, the Company's investments, the Company's business focus and the outlook of certain of its industry segments, as well as ThermoSpectra's corporate history and its role in Thermo Electron's overall business and structure. They further discussed the timing of Thermo Instrument's proposed offer, the historic trends in ThermoSpectra's stock price and stockholder expectations. Following its selection in January, Tucker Cleary pursued its diligence review and analysis, including preparation of a financial model that incorporated financial projections provided by ThermoSpectra's management (the "Projections"), review of the valuations of comparable public companies and the financial terms of comparable merger transactions, and preparation of discounted cash flow valuations. Tucker Cleary also made visits to the companies comprising ThermoSpectra's Temperature Control business, as well as to the larger companies and divisions within ThermoSpectra's Test and Measurement and Imaging and Inspection businesses. On February 25, 1999 and February 26, 1999, the boards of directors of Thermo Electron and Thermo Instrument, respectively, held special meetings to discuss, among other things, a proposed transaction with ThermoSpectra. Thermo Electron's and Thermo Instrument's management discussed the advantages and 21 disadvantages of acquiring the minority stockholder interest in ThermoSpectra, as described above. Thermo Electron and Thermo Instrument also discussed (i) the cyclicality of one of the Company's primary industries, the semiconductor industry and (ii) the burden on ThermoSpectra of, at that time, its $67.3 million borrowings from, primarily, Thermo Electron in connection with various past acquisitions and Thermo Instrument's and Thermo Electron's increased flexibility to cancel or postpone payment of these borrowings if ThermoSpectra were to become a private subsidiary of Thermo Instrument and Thermo Electron. In addition, Thermo Electron and Thermo Instrument reviewed the net overall cost of the transaction and explored alternative uses for the cash proposed to be used for this transaction. After consideration of these various factors, the Thermo Electron board authorized Thermo Instrument to make an offer to ThermoSpectra to acquire, through a merger, all of the outstanding shares of ThermoSpectra Common Stock that Thermo Instrument and Thermo Electron did not already own for cash, and the Thermo Instrument board authorized its management to negotiate such a transaction with ThermoSpectra. On March 8, 1999, Goodwin Procter provided the members of the Special Committee with a memorandum of certain principles governing their duties and responsibilities as independent directors representing the Minority Stockholders in evaluating and negotiating the terms of the offer. On March 10, 1999, the members of the Special Committee met with Goodwin Procter and Tucker Cleary. Tucker Cleary discussed the Projections and noted that the Projections included an assumption that the Company's operating margins in the future periods would be substantially greater than actual historical operating margins and substantially greater than the actual operating margins realized by comparable companies. Tucker Cleary modified this assumption to reduce the forecast operating margins and presented a revised version of the Projections (the "Revised Projections"). Tucker Cleary noted that using the Projections and a discounted cash flow analysis, which was only one component of its overall aggregate analysis, produced a range of $19.37 to $22.37 per share. The same calculation using the Revised Projections resulted in a per share valuation range of $12.16 to $14.06. Tucker Cleary concluded, based upon its aggregate preliminary analysis and valuation of the Company, that a price in the range of $13.50 to $15.00 per share of Common Stock would be fair to the Minority Stockholders. The members of the Special Committee discussed the appropriateness of the various analyses presented with Tucker Cleary and Goodwin Procter. On March 19, 1999, the members of the Special Committee met to review Tucker Cleary's analysis and to prepare for Thermo Instrument's presentation and offer. The Special Committee decided in advance that it would defer any response to the offer until it had fully considered the offer, reviewed its underlying assumptions and analyses, and assessed the merits of the offer. Later that same day, representatives from Thermo Electron and Thermo Instrument presented Thermo Instrument's offer of $13.00 per share for the shares of Common Stock owned by the Minority Stockholders. The Special Committee instructed Tucker Cleary to review Thermo Instrument's offer and underlying financial analysis. On March 24, 1999, the members of the Special Committee held a telephonic meeting with Goodwin Procter and Tucker Cleary. Tucker Cleary reviewed Thermo Instrument's financial analysis of ThermoSpectra, noting that Thermo Instrument had utilized a discounted cash flow methodology that was different from that used by Tucker Cleary. The Special Committee also discussed the propriety of using the Revised Projections in Tucker Cleary's various valuation analyses, since among other things, the Projections were prepared by ThermoSpectra management who had the greatest insight into ThermoSpectra's operations and prospects. After discussing the relative merits of different valuation methodologies, the Special Committee directed Tucker Cleary to prepare a revised discounted cash flow analysis of the Company, using the Projections and taking into account certain different assumptions proposed by Tucker Cleary, primarily relating to terminal growth rates and working capital needs, underlying Thermo Instrument's March 19, 1999 financial analysis of ThermoSpectra. On March 29, 1999, after reviewing Tucker Cleary's report on its revisions to Thermo Instrument's discounted cash flow analysis of the Projections, the members of the Special Committee held two 22 telephonic meetings. Goodwin Procter was present at both meetings and Tucker Cleary was present at only the second meeting. Tucker Cleary concluded that $19.65 per share of Common Stock, which was the result of its revisions to Thermo Instrument's discounted cash flow analysis of the Projections, would be the price that would have been produced by Thermo Instrument's own analysis had they used the different assumptions proposed by Tucker Cleary. The Special Committee determined that $19.65 should be the Special Committee's counter-offer to Thermo Instrument's offer of $13.00 per share. On March 31, 1999, the Company received an unsolicited offer to purchase its Test and Measurement businesses for up to approximately $22 million and the assumption of certain liabilities. The Company subsequently rejected the offer due to its proposed participation in the corporate reorganization of Thermo Electron, the inadequacy of the proposed price and its review of various strategic alternatives for these businesses. On April 7, 1999, ThermoSpectra's Board held a regularly scheduled meeting during which all members were present in person or by telephone. The Board attended to various unrelated matters and then heard a brief update from the members of the Special Committee. The members of the Special Committee reported to the Board that they had retained Goodwin Procter and Tucker Cleary as their legal and financial advisors, respectively, and that they were currently in negotiations with Thermo Instrument's management over the terms of the offer. On April 9, 1999, the members of the Special Committee held a telephonic consultation with Goodwin Procter and Tucker Cleary. The members of the Special Committee deliberated over the various valuation methodologies and Thermo Instrument's modified offer of a range of $13.00 to $15.00 per share that had been communicated to the Special Committee on April 7, 1999 by Mr. Earl R. Lewis, President and Chief Executive Officer of Thermo Instrument. On April 23, 1999, the members of the Special Committee met with Mr. Lewis. At this meeting, Mr. Lewis raised the per share price of the offer to $15.50. The Special Committee responded with a counter-offer of $17.00 per share. On April 26, 1999, the members of the Special Committee had a telephonic meeting with Mr. Lewis and Dr. George N. Hatsopoulos, Chairman and then Chief Executive Officer of Thermo Electron, regarding the $15.50 per share price offered by Thermo Instrument. The Special Committee responded that $15.50 was an unacceptably low price and that the Special Committee would consider a per share price of $17.00 to be fair. On April 27, 1999, the members of the Special Committee held a telephonic meeting with Goodwin Procter and Tucker Cleary. After a discussion of applicable legal requirements, the Special Committee's responsibilities and the applicability of the various pricing models, the members of the Special Committee determined that it would continue its efforts to obtain a price higher than $15.50 per share. On April 29, 1999, in a telephonic meeting of the members of the Special Committee with Mr. Lewis, a price of $16.00 per share was offered and agreed upon as fair to the Minority Stockholders. In May, counsel for Thermo Instrument and Goodwin Procter prepared, negotiated and agreed upon the terms of the Merger Agreement. On May 18, 1999, Thermo Instrument provided the Special Committee with written confirmation of its proposed offer to purchase the shares of Common Stock of the Minority Stockholders for $16.00 per share in cash, without interest. On May 20, 1999, Tucker Cleary met with the members of the Special Committee to give its final report on the terms of the proposed Merger and render its oral opinion to the Special Committee that the proposal by Thermo Instrument of $16.00 per share in cash was fair, from a financial point of view, to the Minority Stockholders. Tucker Cleary reviewed the various factors it considered in rendering its opinion, which are described below under "--Opinion of Financial Advisor." The full Board of ThermoSpectra 23 then met to hear the report of Tucker Cleary and to review the terms of the Merger Agreement. The members of the Special Committee then recommended to the full Board that it accept Thermo Instrument's offer and approve the Merger Agreement in the form presented at the meeting. The Board unanimously approved the Merger Agreement, declared its advisability and recommended that the stockholders vote in favor of the proposed Merger. Also on May 20, 1999, the Merger Agreement was presented to the board of directors of Thermo Instrument at a special meeting of the board. Thermo Instrument's board of directors unanimously approved the Merger Agreement. On May 21, 1999, the Merger Agreement was presented to the board of directors of Thermo Electron at a special meeting of the board. Thermo Electron's board of directors unanimously approved the Merger Agreement. The Merger Agreement was then duly executed by the parties. Tucker Cleary rendered its written opinion to the Special Committee on May 21, 1999, to the effect that, as of that date, the $16.00 per share consideration to be received pursuant to the proposed Merger was fair, from a financial point of view, to the Minority Stockholders. On the same day, ThermoSpectra issued a press release announcing that, based on the recommendation of the Special Committee, its Board had approved the Merger Agreement with Thermo Instrument. THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION The Special Committee and the ThermoSpectra Board believe that the terms of the Merger are fair to, and in the best interests of, the Minority Stockholders. In reaching this conclusion, the Special Committee has determined that the Merger is both substantively and procedurally fair, and is therefore entirely fair, to the Minority Stockholders. The Board has adopted the analysis of the Special Committee with regard to both the substantive and procedural fairness of the Merger. Accordingly, the ThermoSpectra Board has unanimously approved the Merger Agreement and unanimously recommends its approval by the stockholders. In reaching their decisions to approve the Merger Agreement, the Special Committee and the ThermoSpectra Board considered the following factors, each of which the Special Committee and the Board deemed favorable: - THE PREMIUM REFLECTED IN THE CASH MERGER CONSIDERATION OF $16.00 PER SHARE. Thermo Instrument's willingness to pay $16.00 per share, considered in light of the course of negotiations with Thermo Instrument and the historical market price of the Common Stock, was the most important factor considered by the Special Committee and the Board in making their respective decisions to approve the Merger Agreement. - COURSE OF NEGOTIATIONS. The Special Committee and the Board considered the history of negotiations with respect to the Merger Agreement, which led to an increase in Thermo Instrument's initial proposal of $13.00 per share on March 19, 1999 to a range of $13.00 to $15.00 per share offered on April 7, 1999 to $15.50 offered on April 23, 1999 and finally to $16.00 offered on April 29, 1999. - THE RELATIONSHIP OF THE CASH MERGER CONSIDERATION OF $16.00 PER SHARE TO THE HISTORICAL MARKET PRICES FOR THE COMMON STOCK. The Special Committee and the Board considered the declining per share price of the Common Stock and the possibility that the price would remain depressed. The Special Committee and the Board noted that it had been approximately three years since the Common Stock had consistently traded at or above $16.00 and that the Common Stock had ranged from a high of $15.125 in the first quarter of 1997 to a low of $8.25 in the fourth quarter of 1998. The Special Committee and the Board concluded that the $16.00 per share price proposed by Thermo Instrument, which represented premiums of (i) approximately 61%, 44% and 39% over the per share price on 24 dates four weeks, one week and one day, respectively, prior to announcement of the offer on May 21, 1999 and (ii) approximately 71% over the per share price on the day prior to Thermo Electron's first public announcement of the proposal to take ThermoSpectra private on August 12, 1998, would enable the Minority Stockholders to obtain a higher price for their stock than would otherwise be available in the market at that time. The purchase by Thermo Instrument would also eliminate the exposure of the Minority Stockholders to any future or continued declines in the price of the Common Stock. - INFORMATION CONCERNING THE FINANCIAL PERFORMANCE, CONDITION, BUSINESS OPERATIONS AND PROSPECTS OF THERMOSPECTRA. The Special Committee and the Board considered the historical, current and potential future performance of ThermoSpectra and determined that the substantial premium reflected in the price per share offered by Thermo Instrument was attractive in light of the current performance, declining sales and profitability, and the uncertainty of the Company's growth prospects. In addition, the Special Committee and the Board determined that the Merger would shift the risk of the future financial performance of ThermoSpectra from the Minority Stockholders, who do not have the power to control ThermoSpectra, entirely to Thermo Instrument, which does have the power to control ThermoSpectra and has the resources to manage and bear that risk over the long term. - CURRENT MARKET TRENDS IN THE INDUSTRIES IN WHICH THERMOSPECTRA COMPETES, PRIMARILY THE SEMICONDUCTOR INDUSTRY. The Special Committee and the Board considered the fact that a significant portion of the Company's total revenues, primarily in its Imaging and Inspection and Temperature Control businesses, is attributable to the sale of products and related services to customers in the semiconductor industry. The semiconductor industry has historically been cyclical and is characterized by sudden and sharp changes in supply and demand. Demand for the Company's products and services within the semiconductor industry is dependent upon, among other things, the level of capital spending by semiconductor companies. The semiconductor industry has been experiencing weakness in demand for its products as a result of the economic crisis in Asia, excess manufacturing capacity and slowdowns in sales of high-end personal computers. Many semiconductor manufacturers delayed construction or expansion of their production facilities in response to the foregoing conditions. The slowdown in semiconductor activity began to affect demand for the Company's products in the second quarter of 1998. The semiconductor industry has shown some increased activity, but not to the levels experienced prior to this most recent slowdown. - TERMS OF THE MERGER AGREEMENT. The Special Committee and the Board considered the terms of the Merger Agreement, including (i) the amount and form of the consideration, (ii) the limited number of conditions to the obligations of Thermo Instrument, including the lack of a financing condition, (iii) the right of the ThermoSpectra Board, upon recommendation of the Special Committee, to terminate the Merger Agreement if the Board determines that the Board's fiduciary duties to the ThermoSpectra stockholders require it to do so, and (iv) the absence of a termination fee in the event ThermoSpectra terminates the Merger Agreement. The Special Committee and the Board believed that the foregoing made the consummation of the transaction more likely than it would if more significant conditions were placed on the completion of the transaction or if Thermo Instrument did not have the independent financial resources to complete the transaction. Further, the Special Committee and the Board believed that the ability of the Board to terminate the Merger Agreement without payment of a termination fee in the event its fiduciary duties to the ThermoSpectra stockholders required it to do so provided the Board the freedom to protect the interests of the Minority Stockholders. - THE LIQUIDITY THAT WOULD BE REALIZED BY THE MINORITY STOCKHOLDERS FROM THE ALL-CASH OFFER. The Special Committee and the Board believed that the liquidity to be realized by the Minority Stockholders would be beneficial to such stockholders since Thermo Instrument's and Thermo Electron's combined significant ownership of the Common Stock (i) resulted in a relatively small public float 25 that necessarily limited the amount of trading in the Common Stock and (ii) decreased the likelihood that a proposal to acquire the Common Stock would be made by an independent entity without the consent of Thermo Instrument and furthermore, Thermo Instrument and Thermo Electron had stated their current intention to retain their majority holdings in the Company, which foreclosed the opportunity to consider an alternative transaction with a third party purchaser of the Company or otherwise provide liquidity to the Minority Stockholders. - THE OPINION OF TUCKER CLEARY THAT THE CONSIDERATION OF $16.00 PER SHARE IN CASH IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE MINORITY STOCKHOLDERS. The Special Committee and the Board reviewed the independent financial analyses performed by Tucker Cleary, including analyses of relative value and discounted cash flows that assume ThermoSpectra will continue as a going concern, and found them to be reasonable. They believed that Tucker Cleary's conclusion that the price offered by Thermo Instrument was fair, from a financial point of view, to the Minority Stockholders was a reasonable conclusion based on the analyses performed. See "--Opinion of Financial Advisor." The Special Committee and the Board also considered the following factors, all of which they considered as negative factors in their deliberations concerning their respective decisions to approve the Merger Agreement: - FOLLOWING THE MERGER, THE MINORITY STOCKHOLDERS WILL CEASE TO PARTICIPATE IN THE FUTURE EARNINGS OR GROWTH, IF ANY, OF THERMOSPECTRA OR BENEFIT FROM INCREASES, IF ANY, IN THE VALUE OF THERMOSPECTRA. The Special Committee and the Board evaluated this in light of the recent financial performance of ThermoSpectra, the current industry outlook and the risks and uncertainties associated with ThermoSpectra's future prospects, as described above. - THE POSITIVE ASPECTS OF THE COMPANY, INCLUDING ITS HIGH QUALITY PRODUCTS, HIGHLY REGARDED MANAGEMENT TEAM, LEADING MARKET POSITION IN CERTAIN PRODUCT AREAS, DIVERSIFIED CUSTOMER BASE AND STRONG EXISTING PRODUCT PORTFOLIO. The Special Committee and the Board believed that these aspects were potential contributors to the future success of ThermoSpectra and weighed in favor of continuing ThermoSpectra as a public company. However, these positive aspects were offset by the many other considerations listed above. - POTENTIAL OR ACTUAL CONFLICTS OF INTEREST OF OFFICERS AND DIRECTORS OF THERMOSPECTRA IN CONNECTION WITH THE MERGER. See "--Conflicts of Interest." The Special Committee and the Board did not consider the Cash Merger Consideration as compared to any implied liquidation value because it was not contemplated that the Company be liquidated, whether or not the Merger would be completed. In addition, Thermo Instrument and Thermo Electron indicated to the Special Committee and the Board that they intended to continue to operate the Company's businesses substantially as they were being operated. In determining that the Merger is fair to the Minority Stockholders, the Special Committee and the Board considered the above factors as a whole and did not assign specific or relative weights to them other than the Cash Merger Consideration, which was considered the most important factor. The factors described above constitute all of the material factors considered by the Special Committee and the Board. In the view of the Special Committee and the Board, each of the positive factors listed above, in the aggregate, reinforced their belief that the transaction was in the best interests of the Minority Stockholders and outweighed the negative factors listed above. The Special Committee's and the Board's belief as to the procedural fairness of the Merger was based on their recognition that (i) the Special Committee consisted of two independent directors appointed by a majority of the Board of Directors to represent solely the interests of the Minority Stockholders and to provide independent consideration of the transaction; (ii) the Special Committee retained and was advised by independent legal counsel; (iii) the Special Committee retained Tucker Cleary as its independent financial advisor to assist in evaluating the proposed transaction and received advice from Tucker Cleary; 26 and (iv) the fact that the Cash Merger Consideration and the other terms and conditions of the Merger Agreement resulted from active arms-length bargaining between representatives of the Special Committee and representatives of management of Thermo Instrument and Thermo Electron. In forming the Special Committee, the Board noted that Mr. Baute was also a director of Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument, and that Mr. Beaubien was a director of ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. The Board determined that these directorships did not prevent either member from fulfilling his duties as a member of the Special Committee. No other unaffiliated representative was retained to act solely on behalf of the Minority Stockholders for the purposes of negotiating the terms of the Merger or the Merger Agreement. THE SPECIAL COMMITTEE AND THE THERMOSPECTRA BOARD, BY A UNANIMOUS VOTE, HAVE APPROVED THE MERGER AGREEMENT, BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR TO THE MINORITY STOCKHOLDERS AND THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT. In considering the recommendation of the Special Committee and the Board with respect to the Merger Agreement, stockholders should be aware that certain members of the Special Committee and the Board have certain interests in the Merger that are different from, or in addition to, the interests of stockholders generally and that represent actual or potential conflicts of interest. The Special Committee and the Board were aware of these interests and considered them, among other matters, in approving the Merger Agreement. See "--Conflicts of Interest." In order to aid the evaluation of the Company by the Special Committee and Tucker Cleary and Tucker Cleary's assessment of the fairness, from a financial point of view, of the consideration of $16.00 per share in cash payable to the Minority Stockholders pursuant to the Merger Agreement, the Company furnished the Special Committee and Tucker Cleary with certain projected financial data prepared by the Company's management. See "CERTAIN PROJECTED FINANCIAL DATA." OPINION OF FINANCIAL ADVISOR The Special Committee retained Tucker Cleary to act as its financial advisor and to render an opinion to the Special Committee as to the fairness, from a financial point of view, of the consideration to be received by the Minority Stockholders of the Company pursuant to the proposed transaction with Thermo Instrument. The Special Committee selected Tucker Cleary for a number of reasons, including its knowledge of the instrumentation segment of the technology industry and its experience and reputation in the area of valuation and financial advisory work generally, and in relation to transactions of the size and nature of the proposed transaction specifically. Tucker Cleary is a nationally recognized investment banking firm and is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, private placements and valuations for corporate and other purposes. From time to time, Tucker Cleary and its affiliates may hold long or short positions in the Common Stock, the common stock of Thermo Electron or the common stock of Thermo Instrument. Tucker Cleary rendered its written opinion to the Special Committee on May 21, 1999, to the effect that, as of that date, the consideration to be received pursuant to the proposed Merger was fair, from a financial point of view, to the Minority Stockholders. Tucker Cleary has not been requested to, and will not, update its opinion unless the Special Committee requests such an update. The Special Committee has advised Tucker Cleary that it will not seek an update to the fairness opinion unless: - there is a material modification to the terms of the proposed consideration or other material amendment to the Merger Agreement that the Special Committee determines would be reasonably likely to impact the overall fairness of the Merger to the Minority Stockholders; or - a material event occurs that the Special Committee determines would be reasonably likely to affect Tucker Cleary's opinion if the opinion was reissued taking into account such event. 27 The Special Committee has informed Tucker Cleary that, as of the date of this Proxy Statement, there has been no change in the terms of the proposed consideration and there has been no material event that the Special Committee believes could affect Tucker Cleary's opinion since Tucker Cleary rendered such opinion. THE FULL TEXT OF THE WRITTEN OPINION OF TUCKER CLEARY DATED MAY 21, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY TUCKER CLEARY IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE TUCKER CLEARY OPINION IS DIRECTED TO THE SPECIAL COMMITTEE AND PERTAINS ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE MINORITY STOCKHOLDERS PURSUANT TO THE PROPOSED MERGER, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY THERMOSPECTRA STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE APPROVAL OF THE MERGER AGREEMENT. THE SUMMARY OF TUCKER CLEARY'S OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE WRITTEN OPINION ATTACHED HERETO AS APPENDIX B. HOLDERS OF COMMON STOCK ARE URGED TO READ THE ENTIRE OPINION CAREFULLY. In conducting its investigation and analysis and in arriving at its opinion, Tucker Cleary reviewed the information and took into account the financial and economic factors as it deemed relevant and material under the circumstances. The material actions Tucker Cleary undertook in its analysis were as follows: - reviewed internal financial information concerning the business and operations of ThermoSpectra that was furnished to Tucker Cleary by the Company's management for purposes of its analysis, as well as publicly available information, including but not limited to ThermoSpectra's recent filings with the Commission; - reviewed the Merger Agreement in the form presented to the Special Committee; - compared the historical market prices and trading activity of the Common Stock with those of other publicly traded companies that Tucker Cleary deemed relevant; - compared the financial position and operating results of ThermoSpectra with those of other publicly traded companies that Tucker Cleary deemed relevant; - compared the proposed financial terms of the Merger with the financial terms of other merger and acquisition transactions that Tucker Cleary deemed relevant; and - held discussions with members of ThermoSpectra's senior management concerning the Company's historical and current financial condition and operating results, as well as the future prospects of the Company. Tucker Cleary also reviewed relevant industry market research studies, company research reports and key economic and market indicators, including interest rates, inflation rates, consumer spending levels, manufacturing productivity levels, unemployment rates and general stock market performance. Other than as set forth above, Tucker Cleary did not review any additional information in preparing its opinion that, independently, was material to its analysis. As a part of its engagement, Tucker Cleary was not requested to, and did not, solicit third party indications of interest in acquiring ThermoSpectra. The Special Committee did not place any limitation upon Tucker Cleary with respect to the procedures followed or factors considered by Tucker Cleary in rendering its opinion. In arriving at its opinion, Tucker Cleary assumed and relied upon the accuracy and completeness of all of the financial and other information that was publicly available or provided to Tucker Cleary by, or on behalf of, the Company, and did not independently verify that information. Tucker Cleary assumed, with the Special Committee's consent, that: - all material assets and liabilities (contingent or otherwise, known or unknown) of the Company are as set forth in its financial statements; 28 - obtaining all regulatory and other approvals and third party consents required for consummation of the proposed Merger would not have a material effect on the anticipated benefits of the transaction; and - the Merger would be consummated in accordance with the terms set forth in the Merger Agreement, without any amendment thereto and without waiver by the Company or Thermo Instrument of any of the conditions to their respective obligations thereunder. Tucker Cleary assumed that the Projections examined by it were reasonably prepared based upon the best available estimates and good faith judgments of the Company's senior management as to the future performance of ThermoSpectra. In conducting its review, Tucker Cleary did not obtain an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of ThermoSpectra. Tucker Cleary's opinion did not predict or take into account any possible economic, monetary or other changes which may occur, or information which may become available, after the date of its written opinion. SUMMARY OF ANALYSES The following is a summary of the material financial analyses performed by Tucker Cleary in connection with rendering its opinion. ANALYSIS OF THERMOSPECTRA'S VALUATION PREMIUM. Tucker Cleary compared the premium to be received by the Minority Stockholders of ThermoSpectra as represented by the proposed consideration of $16.00 per share in cash to the closing price of the Common Stock one week prior to the May 21, 1999 date of its written opinion. - Tucker Cleary calculated that the proposed consideration of $16.00 per share represented a premium of 43.8% over the closing price of $11.125 for the Common Stock on May 14, 1999, one week prior to the date of its written opinion. Tucker Cleary reviewed comparable transactions in the following categories: (i) 103 acquisitions between January 1994 and March 1999 of a minority interest (ranging from 10.0% to 47.0%) in a public company that remained a public company following the transaction; and (ii) 23 acquisitions between February 1994 and January 1999 of a remaining minority interest (ranging from 10.0% to 48.1%) in a public company that went private as a result of the transaction. Tucker Cleary noted that the ThermoSpectra transaction represents a remaining minority interest transaction. Tucker Cleary further noted that an acquisition of a minority interest or a remaining minority interest differs from an acquisition of a 100% interest. In a 100% acquisition, the acquiring company purchases, and the financial terms of the transaction reflect, a control premium. The acquisition of a minority interest in a public company does not, generally, involve a control premium. While the acquisition of a remaining minority interest does not, generally, involve a control premium, it nevertheless is impacted by the fact that stockholders do not have the alternative to retain their publicly traded stock in the subject company. Accordingly, premiums paid in remaining interest transactions generally are greater than premiums paid in minority interest transactions. Tucker Cleary's analysis produced the following adjusted mean premiums (the adjusted mean excludes the high and low values in calculating the average) over the one-week-prior stock price in the comparable transactions as compared to the 43.8% premium in the proposed transaction: - the adjusted mean premium over the stock price one week prior to the announcement of the 103 acquisitions of a minority interest in a public company was 14.3%, with a range of 1.5% to 50.7%; and - the adjusted mean premium over the stock price one week prior to the announcement of the 23 remaining minority interest transactions was 18.8%, with a range of 3.8% to 50.6%. Tucker Cleary again noted that these transactions are most comparable to the ThermoSpectra transaction. ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES COMPARABLE TO THERMOSPECTRA. Tucker Cleary noted that the profile of the Company's business in aggregate is unique. As a result, Tucker Cleary reviewed 29 publicly available financial information as of the most recently reported period and stock market information as of May 14, 1999 for publicly traded companies that Tucker Cleary deemed relevant to each of the Company's three business segments: (i) Temperature Control segment; (ii) Test and Measurement segment; and (iii) Imaging and Inspection segment. For each comparable company, Tucker Cleary calculated multiples of enterprise value to the latest twelve months ("LTM") earnings before interest and taxes ("EBIT"), LTM earnings before interest, taxes, depreciation and amortization ("EBITDA") and LTM Revenues. Tucker Cleary then calculated the implied gross enterprise value for each business segment based on the adjusted mean of these comparable group multiples and the corresponding business segment financial data for the LTM ending April 3, 1999, which financial data is based on actual results for the nine months ending January 2, 1999 and estimated results for the three months ending April 3, 1999. Tucker Cleary compared the financial characteristics of the Company's Temperature Control segment to the following companies: 1. Cerprobe Corporation 5. Applied Materials, Inc. 2. GenRad, Inc. 6. Credence Systems Corporation 3. IFR Systems, Inc. 7. KLA--Tencor Corporation 4. Keithley Instruments, Inc.
The following table sets forth the calculation of implied gross enterprise values for the Temperature Control segment: TEMPERATURE CONTROL SEGMENT
COMPARABLE GROUP MULTIPLES SEGMENT ----------------- IMPLIED GROSS FINANCIAL DATA ENTERPRISE -------------- VALUES (IN THOUSANDS) ---------------- (IN THOUSANDS) LTM EBIT $ 5,912 17.7x $ 104,434 LTM EBITDA $ 7,350 13.6x $ 100,012 LTM Revenues $ 54,768 0.9x $ 47,310
Tucker Cleary compared the financial characteristics of the Company's Imaging and Inspection segment to the following companies: 1. American Science and Engineering, Moore Products Company Inc. 6. 2. Barringer Technologies, Inc. 7. Robotic Vision Systems, Inc. 3. Bio-Rad Laboratories, Inc. 8. Oxford Instruments plc 4. Cognex, Inc. 9. PPT Vision, Inc. 5. Invision Technologies, Inc. 10. Veeco Instruments Inc.
The following table sets forth the calculation of implied gross enterprise values for the Imaging and Inspection segment: IMAGING AND INSPECTION SEGMENT
COMPARABLE GROUP MULTIPLES SEGMENT --------------- IMPLIED GROSS FINANCIAL DATA ENTERPRISE -------------- VALUES (IN THOUSANDS) ---------------- (IN THOUSANDS) LTM EBIT $ 4,295 10.8x $ 46,582 LTM EBITDA $ 5,946 9.4x $ 55,603 LTM Revenues $ 86,026 0.9x $ 74,205
30 Tucker Cleary compared the financial characteristics of the Company's Test and Measurement segment to the following companies: 1. Astro-Med, Inc. 7. Newport Corporation 2. Cyber Optics Corp. 8. Tektronix Inc. 3. Faro Technologies, Inc. 9. TSI Incorporated 4. Keithley Instruments, Inc. 10. Yokogawa Electronic Corporation 5. K-Tron International, Inc. 11. Zygo Corp. 6. Nanometrics Incorporated
The following table sets forth the calculation of implied gross enterprise values for the Test and Measurement segment: TEST AND MEASUREMENT SEGMENT
COMPARABLE GROUP MULTIPLES SEGMENT ------------------- IMPLIED GROSS FINANCIAL DATA ENTERPRISE -------------- VALUES (IN THOUSANDS) ---------------- (IN THOUSANDS) LTM EBIT $ 1,984 9.2x $ 18,212 LTM EBITDA $ 2,812 7.6x $ 21,434 LTM Revenues $ 41,053 0.9x $ 37,328
Tucker Cleary then calculated the aggregate implied gross enterprise value of the Company as follows:
IMPLIED GROSS ENTERPRISE VALUE BASED ON MULTIPLES OF: ------------------------------------------- THERMOSPECTRA SEGMENT LTM EBIT LTM REVENUES - ------------------------------------ ----------- LTM EBITDA -------------- -------------- (IN THOUSANDS) Temperature Control $ 104,434 $ 100,012 $ 47,310 Imaging and Inspection 46,582 55,603 74,205 Test and Measurement 18,212 21,434 37,328 ----------- -------------- -------------- Aggregate $ 169,228 $ 177,049 $ 158,843 ----------- -------------- -------------- ----------- -------------- --------------
Tucker Cleary then calculated the implied equity value per share of the Company based on the above aggregate implied gross enterprise values by adding the cash balance ($18,094,000) and subtracting the amount of outstanding debt ($57,326,000) of the Company, each as of April 3, 1999. The resulting amounts were then divided by the number of outstanding shares of Common Stock as of April 30, 1999. These calculations produced per share values equal to $8.48, $8.99 and $7.80, based upon multiples of LTM EBIT, LTM EBITDA and LTM Revenues, respectively. Tucker Cleary compared these amounts to the Company's one-week-prior stock price of $11.125 and the proposed consideration of $16.00 per share. Tucker Cleary performed a sensitivity analysis on these calculations by basing additional calculations on the Company's Projections for the year ending January 1, 2000. These calculations resulted in per share values of $13.72, $18.94 and $8.15 based upon multiples of projected EBIT, EBITDA and Revenues. Tucker Cleary noted that these per share values were not comparable to the comparable company calculations and the per share values derived therefrom discussed above. However, Tucker Cleary believed that they were consistent with its above historical analysis and compared these per share values to the Company's one-week-prior stock price of $11.125 and the proposed consideration of $16.00 per share. ANALYSIS OF SELECTED COMPARABLE 100% ACQUISITION TRANSACTIONS. Tucker Cleary reviewed 103 transactions that Tucker Cleary deemed relevant. The transactions were 100% acquisitions and were chosen based on a review of acquired companies that possessed general business, operating and financial characteristics representative of companies in the industries in which ThermoSpectra's businesses operate. Tucker Cleary noted that none of the selected transactions reviewed were identical to the proposed transaction and that, accordingly, the analysis of comparable transactions necessarily involves complex consideration and judgments concerning differences in financial and operating characteristics of ThermoSpectra and other 31 factors that would affect the acquisition value of comparable transactions including, among others, the general market conditions prevailing in the equity capital markets at the time of such transactions. For each comparable transaction, Tucker Cleary calculated multiples of enterprise value to LTM EBIT, LTM EBITDA and LTM Revenues. Tucker Cleary then calculated the implied gross enterprise value of ThermoSpectra based upon the adjusted mean of these multiples. Tucker Cleary calculated the implied equity value per share by adding the cash balance ($18,094,000) and subtracting the amount of outstanding debt ($57,326,000) of the Company, each as of April 3, 1999. The resulting amounts were divided by the number of outstanding shares of Common Stock as of April 30, 1999. These calculations produced per share values of $3.13, $10.20 and $12.79 based upon the Company's LTM EBIT, LTM EBITDA and LTM Revenues for the twelve months ending April 3, 1999, respectively. Tucker Cleary performed a sensitivity analysis for these calculations based upon the Company's projected EBIT, EBITDA and Revenues for the year ending January 1, 2000. These calculations produced per share values of $12.97, $23.09 and $13.50, respectively. While Tucker Cleary noted that values associated with 100% acquisitions differed from those in a remaining minority interest acquisition such as the proposed transaction, Tucker Cleary compared these per share values to the proposed consideration of $16.00. DISCOUNTED CASH FLOW ANALYSIS. Tucker Cleary performed a discounted cash flow analysis of ThermoSpectra using ThermoSpectra's Projections for 1999 through 2003, without taking into account any potential cost savings and efficiencies that may be realized following the Merger. In such analysis, Tucker Cleary assumed terminal value multiples of 11.0x to 13.0x EBIT in the year 2003 and discount rates of 15.7% to 17.7%. Selection of an appropriate discount rate is an inherently subjective process and is affected by numerous factors. The discount rates used by Tucker Cleary were selected based upon its calculation of ThermoSpectra's weighted average cost of capital. This analysis produced present values of the Common Stock ranging from $17.37 to $22.10 per share. Tucker Cleary also performed a sensitivity analysis, resulting in the Revised Projections, taking into account the possibility that ThermoSpectra may be able to attain an operating margin in future years of only 11.0% compared to a range of projected operating margins of 14.0% in 2000 to 17.4% in 2003 in the Projections. Tucker Cleary noted that the Company's historical operating margins were 9.7% in 1994, 8.5% in 1995, 8.8% in 1996, 6.4% in 1997 and 5.4% in 1998 and 3.3% in the quarter ending April 3, 1999. Tucker Cleary also noted that the operating margins in the Projections were substantially in excess of the operating margins achieved by comparable companies. This analysis produced present values of ThermoSpectra's Common Stock ranging from $10.71 to $13.72. Tucker Cleary noted that the per share present values in its discounted cash flow analysis represented values attributable to a 100% acquisition. As such, these values included a control premium that was not comparable to this remaining minority interest transaction. While Tucker Cleary compared the above present values per share to the proposed consideration of $16.00 per share, it did so only with reference to this context. Tucker Cleary also compared these present values per share to the per share values of $3.13 to $23.09 derived from its analysis of comparable merger and acquisition transactions involving 100% acquisitions discussed above. Tucker Cleary also reviewed and analyzed a discounted cash flow analysis presented to the Special Committee by Thermo Instrument as support for its initial offer of $13.00 per share made on March 19, 1999. The methodology of this analysis differed from that used by Tucker Cleary in its analyses. Tucker Cleary advised the Special Committee that it believed two assumptions upon which, in part, Thermo Instrument's analysis was based were disputable. These assumptions included (i) the terminal growth rate of the business (Thermo Instrument's analysis used 2% and Tucker Cleary proposed a 5% growth rate) and (ii) the requirement for net operating assets, or working capital, based upon the expected growth rate (Thermo Instrument's analysis indicated a requirement that was substantially in excess of what Tucker Cleary believed such requirement to be). At the request of the Special Committee, Tucker Cleary modified Thermo Instrument's discounted cash flow analysis in these two areas. These changes resulted in a per share present value of $19.65. 32 Subsequently, in response to these proposed modifications, Tucker Cleary and Thermo Instrument management discussed the appropriateness of such modifications. It was agreed that the analysis should be modified to cover a five-year period rather than a 10-year period. On this basis it was agreed that the modifications were appropriate. This analysis resulted in a per share present value of $16.41. Tucker Cleary noted that this per share value was based upon the Projections, not the Revised Projections, and was attributable to a 100% acquisition rather than a remaining minority interest transaction. The foregoing summary does not purport to be a complete description of the analyses performed by Tucker Cleary. The preparation of a fairness opinion is a complex process and is not susceptible to partial analysis or summary description. Tucker Cleary believes that its analyses must be considered as a whole, and that selecting portions of such analysis without considering all analyses and factors, would create an incomplete view of the processes underlying its opinion. Tucker Cleary did not attempt to assign specific weights to particular analyses. However, there were no specific factors reviewed by Tucker Cleary that did not support its opinion. Any estimates contained in Tucker Cleary's analyses are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, Tucker Cleary does not assume responsibility for their accuracy. Pursuant to the terms of Tucker Cleary's engagement letter dated February 2, 1999 with the Special Committee, the Company paid Tucker Cleary a retainer fee of $50,000 and a fee of $100,000 for the preparation and delivery of its written fairness opinion dated May 21, 1999 (which fee was payable regardless of the conclusions expressed therein). In addition, the Company has agreed to pay Tucker Cleary an additional $75,000 if the Merger is consummated. The Company has also agreed to reimburse Tucker Cleary up to $10,000 for its out-of-pocket expenses, including the reasonable fees and disbursements of its counsel, arising in connection with its engagement, and to indemnify Tucker Cleary, its affiliates and their respective directors, officers, employees and agents to the fullest extent permitted by law against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement, except for liabilities found to have resulted from the bad faith, gross negligence or intentional or reckless misconduct of Tucker Cleary. In the past, Tucker Cleary has not performed investment banking services for ThermoSpectra or received any compensation from ThermoSpectra, other than as provided for in the engagement letter. Additionally, it has been over eight years since Tucker Cleary has provided any investment banking services to Thermo Electron or its subsidiaries. PURPOSE AND REASONS OF THERMO INSTRUMENT AND THERMO ELECTRON FOR THE MERGER The purpose of Thermo Instrument and Thermo Electron for engaging in the transactions contemplated by the Merger Agreement is for Thermo Instrument to acquire all of the outstanding shares of Common Stock, other than the shares held by Thermo Electron. In determining to acquire such shares of Common Stock at this time, Thermo Instrument and Thermo Electron considered the following factors: (i) the past performance of ThermoSpectra and its future business prospects, as well as the potential benefits to ThermoSpectra's business if it were to become part of a larger business unit; (ii) the latest market trends in the markets in which the Company competes, primarily the cyclicality of the semiconductor industry; (iii) the substantial debt owed by the Company to, primarily, Thermo Electron; (iv) the reduction in the amount of public information available to competitors about ThermoSpectra's business that would result from the termination of the Company's obligations under the Commission reporting requirements; (v) the elimination of additional burdens on management associated with public reporting and other tasks resulting from the Company's public company status, including, for example, the dedication of time and resources of management and of the Board members to stockholder and analyst inquiries, and investor and public relations; (vi) the decrease in costs, particularly those associated with being a public company (for example, as a privately-held entity, the Company would no longer be required to file quarterly and annual reports with the Commission or publish and distribute to its stockholders annual 33 reports and proxy statements), that Thermo Electron and Thermo Instrument anticipate could result in savings of approximately $450,000 per year, which estimate includes the approximate cost of the associated legal and accounting fees; and (vii) the greater flexibility that the Company's management would have to focus on long-term business goals, as opposed to quarterly earnings, as a private company. Thermo Instrument and Thermo Electron also considered the advantages and disadvantages of certain alternatives to taking ThermoSpectra private, including (i) selling their respective equity interests in the Company and (ii) leaving ThermoSpectra as a public majority-owned subsidiary of Thermo Instrument. The first alternative, that of selling their respective equity interests in the Company, was briefly considered by Thermo Electron management, but it was not an alternative that was pursued as reasonable, given that Thermo Electron did not want to sell its equity interest, and did not want Thermo Instrument to sell its equity interest, in the Company. The advantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Instrument and Thermo Electron considered included (i) the ability of Thermo Instrument to invest the cash that would be required to buy the minority stockholder interest in ThermoSpectra in alternative uses and (ii) maintaining the potential access ThermoSpectra has to capital in the public markets as a public company. The disadvantages to leaving ThermoSpectra as a majority-owned, public subsidiary that Thermo Instrument and Thermo Electron considered included (i) the burden on ThermoSpectra of substantial debt owed primarily to Thermo Electron, (ii) the costs associated with being a public company and (iii) the public information available to competitors about ThermoSpectra's business as result of its filing obligations with the Commission. Thermo Instrument and Thermo Electron also considered the number of ThermoSpectra shares held by the Minority Stockholders, recent trends in the price of the Common Stock and the relative lack of liquidity for the Common Stock. Thermo Instrument and Thermo Electron reviewed the net overall cost of the transaction and its benefits, including its contribution to Thermo Instrument's earnings. Thermo Instrument also explored alternative uses for the cash proposed to be used for this transaction. After consideration of these various factors, Thermo Instrument and Thermo Electron decided to make a proposal to ThermoSpectra to acquire for cash, through a merger, all of the outstanding shares of Common Stock that Thermo Instrument and Thermo Electron did not own at a price of $16.00 per share, which represented a premium of (i) approximately 71% over the closing price of the Common Stock reported in the consolidated transaction reporting system on August 11, 1998, the day immediately prior to Thermo Electron's first public announcement of the proposal to take ThermoSpectra private and (ii) approximately 39% over the closing price of the Common Stock reported in the consolidated transaction reporting system on May 20, 1999, the day immediately prior to the public announcement of the financial terms of Thermo Instrument's proposal. Thermo Instrument proposed to structure the transaction as a cash merger in order to transfer ownership of the equity interest in the Company in a single transaction and provide the stockholders other than Thermo Instrument and Thermo Electron with prompt payment in cash in exchange for their shares. Thermo Electron beneficially owns, in the aggregate, directly and indirectly through Thermo Instrument, approximately 92% of the outstanding Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Principal Stockholder." The Minority Stockholders should be aware that as a result of the Merger, the entire equity interest in ThermoSpectra would be beneficially owned by Thermo Electron, directly and indirectly through Thermo Instrument. The Minority Stockholders would no longer have any interest in, and would not be stockholders of, ThermoSpectra, and therefore would not participate in ThermoSpectra's future earnings and potential growth. Additionally, upon consummation of the Merger, the Common Stock would no longer be traded on the AMEX, price quotations with respect to sales of shares in the public market would no longer be available and the registration of the Common Stock under the Exchange Act would be terminated. See "--Certain Effects of the Merger." 34 POSITION OF THERMO INSTRUMENT AND THERMO ELECTRON AS TO FAIRNESS OF THE MERGER Thermo Instrument and Thermo Electron considered the analyses and findings of (i) Tucker Cleary with respect to the fairness, from a financial point of view, of the consideration of $16.00 per share in cash payable under the Merger Agreement to the Minority Stockholders (see "--Opinion of Financial Advisor") and (ii) the Special Committee and the Board with respect to the fairness of the Merger to the Minority Stockholders (see "--The Special Committee's and the Board's Recommendation"). As of the date of the Merger Agreement, each of Thermo Instrument and Thermo Electron adopted the analyses and findings of the Special Committee and the Board with respect to the fairness of the Merger. Based on the analyses and findings of Tucker Cleary and the Special Committee, Thermo Instrument and Thermo Electron believe that the Merger is both procedurally and substantively fair to the Minority Stockholders and that the Cash Merger Consideration is fair to the Minority Stockholders from a financial point of view. Neither Thermo Instrument nor Thermo Electron attached specific weights to any factors in reaching its respective belief as to fairness. Thermo Instrument and Thermo Electron are not making any recommendation as to how the Minority Stockholders should vote on the Merger Agreement. Certain officers and directors of Thermo Instrument and Thermo Electron are also officers and directors of the Company and have certain interests that are in addition to, or different from, the interests of the Minority Stockholders. See "--Conflicts of Interest." Thermo Instrument and Thermo Electron considered these potential conflicts of interest and based in part thereon, Thermo Instrument's proposed offer was conditioned on, among other things, the approval of the Merger by the Special Committee and the receipt by the Special Committee of a fairness opinion from an investment banking firm. CONFLICTS OF INTEREST In considering the recommendation of the Board with respect to the Merger, the Minority Stockholders should be aware that certain officers and directors of ThermoSpectra have interests in connection with the Merger that present them with actual or potential conflicts of interest, as summarized below. The Special Committee and the Board were aware of these interests and did not view them either positively or negatively, but considered them among the other matters described above under "--The Special Committee's and the Board's Recommendation." Following consummation of the Merger, the current officers and directors of ThermoSpectra will continue as the initial officers and directors of the Surviving Corporation; however, Thermo Instrument intends to appoint a board of directors comprised solely of members of the Surviving Corporation's and Thermo Instrument's management after the Merger. Officers and directors who own Common Stock will receive the Cash Merger Consideration on the same terms as all the other stockholders. SPECIAL COMMITTEE As compensation for serving on the Special Committee, which formally met on 16 occasions, either in person or telephonically, from December 1998 through the date of this Proxy Statement, the Board has authorized that each member of the Special Committee receive a one-time special retainer fee of $20,000 and additional fees of $1,000 for each meeting attended in person and $500 for each meeting attended telephonically. The members of the Special Committee hold options to acquire an aggregate of 2,000 shares of Common Stock, at exercise prices of $15.33, which will be assumed by Thermo Instrument and converted into options to acquire shares of Thermo Instrument Common Stock on the same terms as all the other holders of ThermoSpectra Stock Options. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Further, deferred units equal to 103 shares of Common Stock have accumulated under the Company's deferred compensation plan for directors for the benefit of Mr. Baute, which units will be converted into the right to receive the Cash Merger Consideration per unit for an aggregate cash payment of $1,648. See "THE MERGER--Deferred Compensation Plan for Directors." 35 Mr. Baute is also a member of the board of directors of Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument, and Mr. Beaubien is also a member of the board of directors of ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. See "MANAGEMENT." Mr. Baute and Mr. Beaubien, as compensation for serving on the board of directors of Metrika Systems Corporation and ONIX Systems Inc., respectively, also each receive an annual retainer fee of $4,000 and additional fees of $1,000 for each regular board meeting attended in person and $500 for each board meeting attended telephonically and for participating in certain meetings of committees of the board of directors. THE THERMOSPECTRA DIRECTORS AND EXECUTIVE OFFICERS The members of the Board of Directors, other than the members of the Special Committee, and executive officers of ThermoSpectra own in the aggregate 40,610 shares of Common Stock and will receive a payment for their shares of Common Stock in the aggregate amount of $649,760 upon consummation of the Merger. In addition, such Board members and executive officers hold options to acquire an aggregate of 362,300 shares of Common Stock, with exercise prices ranging from $9.53 to $15.33, which will be assumed by Thermo Instrument and converted into options to acquire shares of Thermo Instrument Common Stock on the same terms as all the other holders of ThermoSpectra Stock Options. See "THE MERGER--Assumption of ThermoSpectra Stock Options by Thermo Instrument." Further, deferred units equal to 22 shares of Common Stock have accumulated under the Company's deferred compensation plan for directors for the benefit of Elias P. Gyftopoulos, which units will be converted into the right to receive the Cash Merger Consideration per unit for an aggregate cash payment of $352. See "THE MERGER--Deferred Compensation Plan for Directors." See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--Management," for information regarding beneficial ownership by the Board and executive officers of Common Stock and common stock of Thermo Instrument and Thermo Electron. Further, certain members of the Board and certain executive officers hold directorship or officer positions with Thermo Instrument and/or Thermo Electron. For a description of such positions, see "MANAGEMENT" and the information contained in Appendix D to this Proxy Statement. INDEMNIFICATION AND INSURANCE The Merger Agreement provides that for a period of six years after the Effective Time, Thermo Instrument will, and will cause the Surviving Corporation to, fulfill and honor in all respects the indemnification obligations of ThermoSpectra, pursuant to ThermoSpectra's Certificate of Incorporation and Bylaws, each as in effect immediately prior to the Effective Time, to those individuals who were directors, including the members of the Special Committee, or officers of ThermoSpectra at the Effective Time. The Surviving Corporation's Certificate of Incorporation and Bylaws will contain the provisions with respect to indemnification and elimination of liability for monetary damages currently set forth in ThermoSpectra's Certificate of Incorporation and Bylaws, and such provisions will not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights of those individuals who were directors or officers of ThermoSpectra at the Effective Time, unless such modification is required by law. See "THE MERGER--Indemnification and Insurance." In addition, Thermo Instrument will cause the Surviving Corporation, either directly or through participation in Thermo Electron's umbrella policy, to maintain in effect, for a period of six years after the Effective Time, a directors' and officers' liability insurance policy covering the ThermoSpectra directors and officers who, at the Effective Time, were then covered by Thermo Electron's liability insurance policy, with coverage providing substantially the same amount and scope as such director's and officer's existing coverage. However, in no event will the Surviving Corporation be required to pay premiums for such insurance in excess of 175% of the current annual premiums, as adjusted for inflation each year, allocable to and paid by ThermoSpectra. See "THE MERGER--Indemnification and Insurance." 36 CERTAIN EFFECTS OF THE MERGER As a result of the Merger, the entire equity interest in the Company will be beneficially owned by Thermo Electron, directly and indirectly through Thermo Instrument. Thermo Electron and Thermo Instrument will have complete control over the conduct of the Company's business and will have 100% interest in the net book value and net earnings of the Company and any future increases in the value of the Company. Thermo Instrument's and Thermo Electron's combined ownership of the Company prior to the transaction contemplated herein aggregated approximately 92%. Upon completion of this transaction, Thermo Instrument's and Thermo Electron's aggregate interest in the Company's net book value of $129.7 million on July 3, 1999 and net earnings of $1.8 million and $0.6 million for the year ended January 2, 1999 and the six months ended July 3, 1999, respectively, would increase from approximately 92% of such amounts to 100% of such amounts. The Minority Stockholders will no longer have any interest in, and will not be stockholders of, ThermoSpectra and therefore will not participate in ThermoSpectra's future earnings and potential growth and will no longer bear the risk of any decreases in the value of the Company. Instead, the stockholders of the Company other than Thermo Instrument, Thermo Electron and holders who perfect their Dissenters' Rights will have the right to receive the Cash Merger Consideration for each share held. In addition, upon consummation of the Merger, the Common Stock will no longer be traded on the AMEX, price quotations with respect to sales of shares in the public market will no longer be available and the registration of the Common Stock under the Exchange Act will be terminated. The termination of registration of the Common Stock under the Exchange Act will eliminate the Company's obligation to file periodic financial and other information with the Commission and will make most of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy or information statement in connection with stockholders' meetings, no longer applicable. For federal income tax purposes, the receipt of the Cash Merger Consideration by holders of Common Stock pursuant to the Merger will be a taxable sale of the holder's Common Stock. See "FEDERAL INCOME TAX CONSEQUENCES." CONDUCT OF THERMOSPECTRA'S BUSINESS AFTER THE MERGER ThermoSpectra, Thermo Instrument and Thermo Electron are continuing to evaluate ThermoSpectra's business, assets, practices, operations, properties, corporate structure, capitalization, management and personnel and discuss what changes, if any, will be desirable. Subject to the foregoing, for the foreseeable future, Thermo Instrument and Thermo Electron expect that the day-to-day business and operations of ThermoSpectra will be conducted substantially as they are currently being conducted by ThermoSpectra. Thermo Instrument and Thermo Electron are considering the sale of certain ThermoSpectra businesses, but do not currently have any commitment or agreement for any such sales. Additionally, Thermo Electron and Thermo Instrument do not currently contemplate any material change in the composition of ThermoSpectra's current management except that Thermo Instrument intends to appoint a board of directors comprised solely of members of the Surviving Corporation's and Thermo Instrument's management after the Merger. CONDUCT OF THERMOSPECTRA'S BUSINESS IF THE MERGER IS NOT CONSUMMATED If the Merger is not consummated, the Board of Directors expects that the Company's current management will continue to operate the Company's business substantially as presently operated, except with respect to certain businesses that are being considered for sale. See "--Conduct of ThermoSpectra's Business After the Merger." 37 THE SPECIAL MEETING PROXY SOLICITATION This Proxy Statement is being delivered to ThermoSpectra's stockholders in connection with the solicitation by the Board of proxies to be voted at the Special Meeting to be held on , , 1999 at 10:00 a.m., local time, at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454. All expenses incurred in connection with solicitation of the enclosed proxy will be paid by the Company. Officers, directors and regular employees of the Company, who will receive no additional compensation for their services, may solicit proxies by telephone or personal call. The Company has requested brokers and nominees who hold stock in their names to furnish this proxy material to their customers and the Company will reimburse such brokers and nominees for their related out-of-pocket expenses. This Proxy Statement and the accompanying Proxy Card are first being mailed to stockholders of the Company on or about , 1999. RECORD DATE AND QUORUM REQUIREMENT A committee of the Board has fixed the close of business on , 1999 as the Record Date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting. Each holder of record of Common Stock at the close of business on the Record Date is entitled to one vote for each share then held on each matter submitted to a vote of stockholders. At the close of business on the Record Date, there were shares of Common Stock issued and outstanding held by holders of record and by approximately persons or entities holding in nominee name. The holders of a majority of the outstanding shares entitled to vote at the Special Meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business. Abstentions will be counted as shares present or represented at the Special Meeting for purposes of determining whether a quorum exists. If you hold your shares of Common Stock through a broker, bank or other nominee, generally the nominee may only vote the Common Stock that it holds for you in accordance with your instructions. However, if it has not timely received your instructions, the nominee may only vote on matters for which it has discretionary voting authority. Brokers will not have discretionary voting authority with respect to the proposal to approve the Merger Agreement. If a nominee cannot vote on a particular matter because it does not have discretionary voting authority, this is a "broker non-vote" on that matter. Broker non-votes will not be counted as shares present and entitled to vote for purposes of determining the presence or absence of a quorum for the transaction of business at the Special Meeting. VOTING PROCEDURES Under Delaware law, holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting must vote to approve the Merger Agreement. The Merger Agreement is attached to this Proxy Statement as Appendix A. For the purposes of the vote required under Delaware law, a failure to vote, a vote to abstain and a broker non-vote will each have the same legal effect as a vote cast against approval of the Merger Agreement. Thermo Instrument, which owns approximately 82% of the outstanding Common Stock, and Thermo Electron, which owns approximately 10% of the outstanding Common Stock, own enough shares of Common Stock to vote to approve the Merger Agreement under Delaware law without the vote of the Minority Stockholders and intend to vote their shares in favor of the Merger Agreement. If a properly executed Proxy Card is submitted and no instructions are given, the shares of Common Stock represented by that Proxy Card will be voted "FOR" approval of the proposed Merger Agreement. The Board is not aware of any other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, including a motion to adjourn the Special Meeting for 38 the purpose of soliciting additional proxies, the persons named on the accompanying Proxy Card will vote the shares represented by all properly executed proxies on such matters in their discretion, except that shares represented by proxies that have been voted "AGAINST" approval of the Merger Agreement will not be used to vote "FOR" adjournment of the Special Meeting for the purpose of allowing additional time to solicit additional votes "FOR" the Merger Agreement. Under Delaware law, holders of Common Stock who comply with certain notice requirements, do not vote in favor of the Merger Agreement and comply with certain other procedures will have the right to dissent and to be paid cash for the fair value of their shares as finally determined in accordance with the procedures under Delaware law. The fair value, as finally determined, may be more or less than the consideration to be received by other stockholders of ThermoSpectra under the terms of the Merger Agreement. Failure to follow such procedures under Delaware law precisely will result in the loss of Dissenters' Rights. See "RIGHTS OF DISSENTING STOCKHOLDERS." VOTING AND REVOCATION OF PROXIES A stockholder giving a proxy has the power to revoke it at any time before it is exercised by (i) filing with the Secretary of ThermoSpectra an instrument revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii) voting in person at the Special Meeting. Subject to such revocation, all shares represented by each properly executed proxy received by the Secretary of ThermoSpectra will be voted in accordance with the instructions indicated thereon, and if no instructions are indicated, will be voted to approve the Merger Agreement. The shares represented by the accompanying Proxy Card and entitled to vote will be voted if the Proxy Card is properly signed and received by the Secretary of the Company prior to the Special Meeting. EFFECTIVE TIME The Merger will be effective as soon as practicable following stockholder approval of the Merger Agreement at the Special Meeting and satisfaction or waiver of the terms and conditions set forth in the Merger Agreement, and upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware. See "THE MERGER--Conditions." 39 THE MERGER The Merger Agreement provides that the Merger Sub, a newly-formed Delaware corporation that is a wholly owned subsidiary of Thermo Instrument, will be merged with and into ThermoSpectra, and that following the Merger, the separate existence of the Merger Sub will cease and ThermoSpectra will continue as the Surviving Corporation. The terms of and conditions to the Merger are contained in the Merger Agreement that is included in full as Appendix A to this Proxy Statement and is incorporated herein by reference. The discussion in this Proxy Statement of the Merger, and the summary description of all material terms of the Merger Agreement that is contained in this section, are subject to and qualified in their entirety by reference to the more complete information set forth in the Merger Agreement. CONVERSION OF SECURITIES At the Effective Time, subject to the terms, conditions and procedures set forth in the Merger Agreement, each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than shares held by stockholders exercising Dissenters' Rights, shares held in treasury by ThermoSpectra and shares held by Thermo Instrument and Thermo Electron) will, by virtue of the Merger, be converted into the right to receive the Cash Merger Consideration. Except for the right to receive the Cash Merger Consideration, from and after the Effective Time, all shares (other than shares held by stockholders exercising Dissenters' Rights, shares held in treasury by ThermoSpectra and shares held by Thermo Instrument and Thermo Electron), by virtue of the Merger and without any action on the part of the holders, will no longer be outstanding and will be canceled and retired and will cease to exist. Each holder of a stock certificate formerly representing any shares (other than shares held by stockholders exercising Dissenters' Rights, shares held in treasury by ThermoSpectra and shares held by Thermo Instrument and Thermo Electron) will after the Effective Time cease to have any rights with respect to such shares other than the right to receive the Cash Merger Consideration for such shares upon surrender of the stock certificate. No interest will be paid or accrued on the amount payable upon the surrender of any stock certificate. Payment to be made to a person other than the registered holder of the stock certificate surrendered is conditioned upon the stock certificate so surrendered being properly endorsed and otherwise in proper form for transfer, as determined by the Payment Agent. Further, the person requesting such payment will be required to pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the stock certificate surrendered or establish to the satisfaction of the Payment Agent that such tax has been paid or is not payable. Six months following the Effective Date, Thermo Instrument may require the Payment Agent to deliver to it any funds made available to the Payment Agent that have not been disbursed to holders of stock certificates formerly representing shares outstanding prior to the Effective Time. After such time and with respect to cash payable upon due surrender of their stock certificates, holders of ThermoSpectra stock certificates will have no greater rights against Thermo Instrument than as may be accorded to general creditors of Thermo Instrument. Notwithstanding the foregoing, neither the Payment Agent nor any party to the Merger Agreement will be liable to any holder of stock certificates formerly representing shares for any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law. At the Effective Time, subject to the terms, conditions and procedures set forth in the Merger Agreement, each share of Common Stock issued and outstanding immediately prior to the Effective Time held by Thermo Instrument and Thermo Electron will, by virtue of the Merger, be converted at the Effective Time into one share of common stock of the Surviving Corporation. Each share of the Merger Sub's common stock that is issued and outstanding immediately prior to the Merger will, at the Effective Time, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist. All shares held in treasury by ThermoSpectra immediately prior to the Effective Time will, 40 at the Effective Time, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist. Shares of Common Stock held by persons properly exercising Dissenters' Rights will not be converted into the Cash Merger Consideration in the Merger and after the Effective Time will represent only the right to receive such consideration as is determined to be due such dissenting stockholder pursuant to Section 262 of the DGCL. See "RIGHTS OF DISSENTING STOCKHOLDERS." ASSUMPTION OF THERMOSPECTRA STOCK OPTIONS BY THERMO INSTRUMENT ThermoSpectra has, from time to time, issued options to acquire Common Stock pursuant to its Park Scientific Instruments Corporation 1988 Incentive Stock Plan, Equity Incentive Plan, Employees Equity Incentive Plan and Directors' Stock Option Plan, each as amended (collectively, the "ThermoSpectra Stock Option Plans"). At the Effective Time, each outstanding ThermoSpectra Stock Option under the ThermoSpectra Stock Option Plans, whether or not exercisable, will be assumed by Thermo Instrument. Each ThermoSpectra Stock Option so assumed by Thermo Instrument will continue to have, and be subject to, the same terms and conditions set forth in the applicable ThermoSpectra Stock Option Plan immediately prior to the Effective Time, except that (i) each ThermoSpectra Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Thermo Instrument Common Stock equal to the product of the number of shares of Common Stock that were issuable upon exercise of such ThermoSpectra Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio (as defined below), rounded down to the nearest whole number of shares of Thermo Instrument Common Stock, and (ii) the per share exercise price for the shares of Thermo Instrument Common Stock issuable upon exercise of such assumed ThermoSpectra Stock Option will be equal to the quotient determined by dividing the exercise price per share of Common Stock at which such ThermoSpectra Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. The Exchange Ratio is a fraction, the numerator of which is the Cash Merger Consideration and the denominator of which is the closing price of Thermo Instrument Common Stock on the day immediately preceding the Effective Date as reported by the AMEX. At the Effective Time, each outstanding option to purchase shares of Common Stock (each a "ThermoSpectra ESPP Stock Option") under the ThermoSpectra Employees' Stock Purchase Plan (the "ThermoSpectra ESPP") will also be assumed by Thermo Instrument. Each ThermoSpectra ESPP Stock Option so assumed by Thermo Instrument will continue to have, and be subject to, the same terms and conditions as set forth in the ThermoSpectra ESPP immediately prior to the Effective Time except that (i) the assumed option shall be exercisable for shares of Thermo Instrument Common Stock; (ii) the purchase price per share of Thermo Instrument Common Stock shall be the lower of (a) 85% of (x) the per share market value of the Common Stock on the grant date of the option divided by (y) the Exchange Ratio, with the resulting price rounded up to the nearest whole cent, and (b) 85% of the market value of Thermo Instrument Common Stock as of the exercise date of the option; and (iii) the $25,000 limit under Section 9.2(i) of the ThermoSpectra ESPP shall be applied by taking into account Thermo Instrument's assumption of the ThermoSpectra ESPP Stock Options in accordance with Section 423(b)(8) of the Internal Revenue Code of 1986, as amended, and applicable regulations. DEFERRED COMPENSATION PLAN FOR DIRECTORS At the Effective Time, the ThermoSpectra deferred compensation plan for directors (the "Deferred Compensation Plan") will terminate, and ThermoSpectra will distribute to each participant the sum in cash equal to the balance of stock units credited to his deferred compensation account under the Deferred Compensation Plan as of the Effective Time multiplied by the Cash Merger Consideration. 41 TRANSFER OF SHARES Shares of Common Stock will not be transferred on the stock transfer books at or after the Effective Time. If certificates representing such shares are presented to ThermoSpectra after the Effective Time, such shares will be canceled and exchanged for the Cash Merger Consideration. CONDITIONS Each party's obligation to effect the Merger is subject to the satisfaction of each of the following conditions at or prior to the Effective Time: (i) the Merger Agreement and the transactions contemplated therein shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon in accordance with the DGCL; and (ii) no court, administrative agency or commission or other governmental or regulatory body or authority or instrumentality shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order that is in effect and that has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. The obligations of ThermoSpectra to effect the Merger are subject to the satisfaction of each of the following conditions at or prior to the Effective Time, unless waived in writing by ThermoSpectra (upon approval of the Special Committee): (i) the representations and warranties of the Merger Sub and Thermo Instrument in the Merger Agreement shall be true and correct in all material respects on and as of the Effective Time, except as otherwise permitted by the Merger Agreement; (ii) the Merger Sub and Thermo Instrument shall have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by them at or prior to the Effective Time; and (iii) ThermoSpectra shall have received a certificate of the President, Chief Executive Officer or Vice President of Thermo Instrument certifying to the effect of above clauses (i) and (ii). The obligations of the Merger Sub and Thermo Instrument to effect the Merger are subject to the satisfaction of each of the following conditions at or prior to the Effective Time, unless waived in writing by Thermo Instrument: (i) the representations and warranties of ThermoSpectra in the Merger Agreement shall be true and correct in all material respects on and as of the Effective Time, except as otherwise permitted by the Merger Agreement; (ii) ThermoSpectra shall have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the Effective Time; and (iii) Thermo Instrument shall have received a certificate of the President, Chief Executive Officer or Vice President of ThermoSpectra certifying to the effect of above clauses (i) and (ii). REPRESENTATIONS AND WARRANTIES ThermoSpectra has made representations and warranties in the Merger Agreement regarding, among other things, its organization and good standing, authority to enter into the Merger Agreement and consummate the transactions contemplated thereby, its capitalization, requisite governmental and other 42 consents and approvals, the content and submission of forms and reports required to be filed by ThermoSpectra with the Commission, and its receipt of a fairness opinion from Tucker Cleary. Thermo Instrument and the Merger Sub have made representations and warranties in the Merger Agreement regarding, among other things, their organization and good standing, authority to enter the Merger Agreement and consummate the transactions contemplated thereby, adequacy of Thermo Instrument's financial resources to pay the Cash Merger Consideration, accuracy of information supplied by Thermo Instrument for submission on forms and reports required to be filed by ThermoSpectra with the Commission, and requisite governmental and other consents and approvals. The representations and warranties of the parties in the Merger Agreement will expire upon consummation of the Merger. After such expiration, none of the parties to the Merger Agreement or their respective officers, directors or principals will have any liability for any such representations or warranties. COVENANTS In the Merger Agreement, ThermoSpectra has agreed that during the period from the date of the Merger Agreement and continuing until the earlier of termination of the Merger Agreement or the Effective Time, ThermoSpectra will carry on its business in the usual, regular and ordinary course, substantially consistent with past practice and will not, without the prior consent of Thermo Instrument, or unless otherwise permitted by the Merger Agreement: (i) waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange for any options granted under any of such plans; (ii) enter into any material partnership arrangements, joint development agreements or strategic alliances; (iii) grant any severance or termination pay to any officer or employee except payments in amounts consistent with past practices or pursuant to written agreements outstanding, or existing policies, or adopt any new severance plan; (iv) declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock; (v) issue, deliver, sell, authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any securities convertible into shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into shares of capital stock, or enter into other agreements or commitments of any character obligating it to issue any such shares or convertible securities, other than the issuance of shares of Common Stock pursuant to the exercise of stock options therefor; (vi) cause, permit or propose any amendments to its Certificate of Incorporation or Bylaws; (vii) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a material portion of the assets of, or by any other manner, any other business or any corporation, partnership interest, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets or enter into any joint ventures, strategic partnerships or alliances; (viii) sell, lease, license, encumber or otherwise dispose of any properties or assets that are material, individually or in the aggregate, to the business of ThermoSpectra; (ix) incur any indebtedness for borrowed money (other than ordinary course trade payables or pursuant to existing credit facilities in the ordinary course of business) or guarantee any such 43 indebtedness or issue or sell any debt securities or warrants or guarantee any debt securities of others; (x) adopt or amend any employee benefit or stock purchase or option plan, or enter into any employment contract, pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its officers or employees, except increases in amounts consistent with past practice; (xi) pay, discharge or satisfy any claim, liability or obligation, other than the payment, discharge or satisfaction in the ordinary course of business; (xii) make any grant of exclusive rights to any third party; or (xiii) agree in writing or otherwise to take any of the actions described above. INDEMNIFICATION AND INSURANCE The Merger Agreement provides that for a period of six years after the Effective Time, Thermo Instrument will, and will cause the Surviving Corporation to, fulfill and honor in all respects the indemnification obligations of ThermoSpectra, pursuant to ThermoSpectra's Certificate of Incorporation and Bylaws, each as in effect immediately prior to the Effective Time, to those individuals who were directors, including the members of the Special Committee, or officers of ThermoSpectra at the Effective Time. The Surviving Corporation's Certificate of Incorporation and Bylaws will contain the provisions with respect to indemnification and elimination of liability for monetary damages currently set forth in ThermoSpectra's Certificate of Incorporation and Bylaws, and such provisions will not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights of those individuals who were directors or officers of ThermoSpectra at the Effective Time, unless such modification is required by law. In addition, Thermo Instrument will cause the Surviving Corporation, either directly or through participation in Thermo Electron's umbrella policy, to maintain in effect, for a period of six years after the Effective Time, a directors' and officers' liability insurance policy covering the ThermoSpectra directors and officers who, at the Effective Time, were then covered by Thermo Electron's liability insurance policy, with coverage providing substantially the same amount and scope as such director's and officer's existing coverage. However, in no event will the Surviving Corporation be required to pay premiums for such insurance in excess of 175% of the current annual premiums, as adjusted for inflation each year, allocable to and paid by ThermoSpectra. TERMINATION, AMENDMENT AND WAIVER At any time prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, the Merger Agreement may be terminated by the mutual written consent of the board of directors of Thermo Instrument and the Board of Directors of ThermoSpectra (upon approval of the Special Committee). In addition, either Thermo Instrument or ThermoSpectra (upon approval of the Special Committee), in accordance with the provisions of the Merger Agreement, may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if (i) the Merger has not been consummated by October 31, 1999, unless such party's action or inaction constitutes a breach of the Merger Agreement and has been a principal cause of or resulted in the failure of the Merger to be consummated, (ii) a court of competent jurisdiction or governmental, regulatory or administrative agency or commission issues an order, decree or ruling or takes any other action enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or action is final and nonappealable or (iii) the approval of the stockholders of ThermoSpectra necessary to consummate the Merger has not been obtained, unless such party's action or inaction constitutes a breach of the Merger Agreement and has been the principal cause of or resulted in the failure to obtain the requisite stockholder approval to consummate the Merger. 44 In addition, Thermo Instrument may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if ThermoSpectra breaches any representation, warranty, covenant or agreement and fails to cure such breach within ten business days after written notice of such breach from Thermo Instrument. ThermoSpectra may terminate the Merger Agreement prior to the Effective Time, whether before or after approval of the Merger Agreement by the stockholders of ThermoSpectra, if (i) ThermoSpectra's Board of Directors, upon approval of the Special Committee, determines in good faith on the advice of outside legal counsel that the Board's fiduciary duties under applicable law require it to do so or (ii) Thermo Instrument breaches any representation, warranty, covenant or agreement and fails to cure such breach within ten business days after written notice of such breach from ThermoSpectra. Subject to the provisions of applicable law, the Merger Agreement may be amended by the parties thereto at any time by written agreement of the parties; provided, however, that ThermoSpectra may not amend the Merger Agreement without the approval of the Special Committee. SOURCE OF FUNDS The aggregate consideration payable in the Merger is approximately $20 million. Thermo Instrument intends to finance the Merger entirely from cash on hand. EXPENSES The parties have agreed to pay their own costs and expenses in connection with the Merger Agreement and the transactions contemplated thereby. Assuming the Merger is consummated, the estimated costs and fees in connection with the Merger and the related transactions that will be paid by ThermoSpectra are as follows:
COST OR FEE ESTIMATED AMOUNT - --------------------------------------------------------------------------- ----------------- Financial advisory fees.................................................... $ 225,000 Legal fees................................................................. 115,000 Accounting fees............................................................ 15,000 Special Committee fees..................................................... 64,000 Printing and mailing fees.................................................. 150,000 Commission filing fees..................................................... 3,878 Other regulatory filing fees............................................... 5,000 Miscellaneous.............................................................. 47,122 -------- $ 625,000
See "SPECIAL FACTORS--Opinion of Financial Advisor" for a description of the fees to be paid to Tucker Cleary in connection with its engagement. For a description of certain fees payable to the members of the Special Committee, see "SPECIAL FACTORS--Conflicts of Interest." ACCOUNTING TREATMENT The Merger will be accounted for as the acquisition of a minority interest by Thermo Instrument, using the purchase method of accounting. REGULATORY APPROVALS No federal or state regulatory approvals are required to be obtained that have not already been obtained, nor any regulatory requirements complied with, in connection with the consummation of the Merger by any party to the Merger Agreement, except for (i) the requirements of the DGCL in connection with stockholder approvals and consummation of the Merger and (ii) the requirements of the federal securities laws. 45 RIGHTS OF DISSENTING STOCKHOLDERS Under the DGCL, record holders of shares of Common Stock who follow the procedures set forth in Section 262 and who have not voted in favor of the Merger Agreement will be entitled to have their shares of Common Stock appraised by the Court of Chancery of the State of Delaware and to receive payment of the fair value of such shares together with a fair rate of interest, if any, as determined by such court. The fair value as determined by the Delaware court is exclusive of any element of value arising from the accomplishment or expectation of the Merger. The following is a summary of certain of the provisions of Section 262 of the DGCL and is qualified in its entirety by reference to the full text of Section 262, a copy of which is attached hereto as Appendix C. Under Section 262, where a merger agreement is to be submitted for approval and adoption at a meeting of stockholders, as in the case of the Special Meeting, not less than 20 calendar days prior to the meeting, the Company must notify each of the holders of Common Stock at the close of business on the Record Date that such appraisal rights are available and include in each such notice a copy of Section 262. This Proxy Statement constitutes such notice. Any stockholder wishing to exercise appraisal rights should review the following discussion and Appendix C carefully because failure to timely and properly comply with the procedures specified in Section 262 will result in the loss of appraisal rights under the DGCL. A holder of shares of Common Stock wishing to exercise appraisal rights must deliver to the Company, before the vote on the approval and adoption of the Merger Agreement at the Special Meeting, a written demand for appraisal of such holder's shares of Common Stock. Such demand will be sufficient if it reasonably informs the Company of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the Merger Agreement will not constitute such a demand. In addition, a holder of shares of Common Stock wishing to exercise appraisal rights must hold of record such shares on the date the written demand for appraisal is made and must continue to hold such shares through the Effective Time. Only a holder of record of shares of Common Stock is entitled to assert appraisal rights for the shares of Common Stock registered in that holder's name. A demand for appraisal should be executed by or on behalf of the holder of record fully and correctly, as the holder's name appears on the stock certificates. Holders of Common Stock who hold their shares in brokerage accounts or other nominee forms and wish to exercise appraisal rights should consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such nominee. All written demands for appraisal of Common Stock should be sent or delivered to Sandra L. Lambert, Secretary, ThermoSpectra Corporation, c/o Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, so as to be received before the vote on the approval and adoption of the Merger Agreement at the Special Meeting. If the shares of Common Stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the shares of Common Stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is agent for such owner or owners. A record holder such as a broker holding Common Stock as nominee for several beneficial owners may exercise appraisal rights with respect to the Common Stock held for one or more beneficial owners while not exercising such rights with respect to the Common Stock held for other beneficial owners; in such case, the written demand should set forth the number of shares as to which appraisal is sought and where no number of shares is expressly mentioned the demand will be presumed to cover all Common Stock held in the name of the record owner. Within 10 calendar days after the Effective Time, the Company, as the Surviving Corporation in the Merger, must send a notice as to the effectiveness of the Merger to each person who has satisfied the 46 appropriate provisions of Section 262 and who has not voted in favor of the Merger Agreement. Within 120 calendar days after the Effective Time, the Company, or any stockholder entitled to appraisal rights under Section 262 and who has complied with the foregoing procedures, may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of all such stockholders. The Company is not under any obligation, and has no present intention, to file a petition with respect to the appraisal of the fair value of the shares of Common Stock. Accordingly, it is the obligation of the stockholders to initiate all necessary action to perfect their appraisal rights within the time prescribed in Section 262. Within 120 calendar days after the Effective Time, any stockholder of record who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the Company a statement setting forth the aggregate number of shares of Common Stock with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such statement must be mailed within 10 calendar days after a written request therefor has been received by the Company. If a petition for an appraisal is timely filed, after a hearing on such petition, the Delaware Court of Chancery will determine the stockholders entitled to appraisal rights and will appraise the fair value of the shares of Common Stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Holders considering seeking appraisal should be aware that the fair value of their shares of Common Stock as determined under Section 262 could be more than, the same as or less than the amount per share that they would otherwise receive if they did not seek appraisal of their shares of Common Stock. The Delaware Supreme Court has stated that "proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in the appraisal proceedings. In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenter's exclusive remedy. The Court will also determine the amount of interest, if any, to be paid upon the amounts to be received by persons whose shares of Common Stock have been appraised. The costs of the action may be determined by the Court and taxed upon the parties as the Court deems equitable. The Court may also order that all or a portion of the expenses incurred by any holder of shares of Common Stock in connection with an appraisal, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all the shares of Common Stock entitled to appraisal. The Court may require stockholders who have demanded an appraisal and who hold Common Stock represented by certificates to submit their certificates of Common Stock to the Court for notation thereon of the pendency of the appraisal proceedings. If any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. Any stockholder who has duly demanded an appraisal in compliance with Section 262 will not, after the Effective Time, be entitled to vote the shares of Common Stock subject to such demand for any purpose or be entitled to the payment of dividends or other distributions on those shares (except dividends or other distributions payable to holders of record of shares of Common Stock as of a date prior to the Effective Time). If any stockholder who demands appraisal of shares under Section 262 fails to perfect, or effectively withdraws or loses, the right to appraisal, as provided in the DGCL, the shares of Common Stock of such holder will be converted into the right to receive the Cash Merger Consideration in accordance with the Merger Agreement, without interest. A stockholder will fail to perfect, or effectively lose, the right to appraisal if no petition for appraisal is filed within 120 calendar days after the Effective Time. A stockholder may withdraw a demand for appraisal by delivering to the Company a written withdrawal of the demand for appraisal and acceptance of the Merger, except that any such attempt to withdraw made 47 more than 60 calendar days after the Effective Time will require the written approval of the Company. Once a petition for appraisal has been filed, such appraisal proceeding may not be dismissed as to any stockholder without the approval of the Court. For federal income tax purposes, stockholders who receive cash for their shares of Common Stock upon exercise of Dissenters' Rights will realize taxable gain or loss. See "FEDERAL INCOME TAX CONSEQUENCES." FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material federal income tax considerations relevant to the Merger. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to the holders of Common Stock as described herein. Special tax consequences not described below may be applicable to particular classes of taxpayers, including financial institutions, broker-dealers, persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States and holders who acquired their stock through the exercise of an employee stock option or otherwise as compensation. In addition, the following discussion does not include any discussion of any state, local or foreign tax consequences that may result from the Merger. THIS TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT UNITED STATES FEDERAL INCOME TAX LAW. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS. For federal income tax purposes, the receipt of the Cash Merger Consideration by holders of Common Stock pursuant to the Merger will be a taxable sale of the holder's Common Stock. Each holder's gain or loss per share will equal the difference between $16.00 and the holder's basis in the share of Common Stock. Such gain or loss generally will be a capital gain or loss provided that the holder has held the Common Stock as a capital asset. Capital gain or loss will be treated as long-term capital gain or loss if the holder has held the Common Stock for more than one year, and will be treated as short-term capital gain or loss if the holder has held the Common Stock for one year or less. A holder of Common Stock may be subject to backup withholding at the rate of 31% with respect to Cash Merger Consideration received pursuant to the Merger, unless the holder (a) is a corporation or comes within certain other exempt categories and, when required, adequately demonstrates this fact, or (b) provides a correct taxpayer identification number ("TIN"), certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. To prevent the possibility of backup withholding, each holder must provide the Payment Agent with his or her correct TIN by completing a Form W-9 or Substitute Form W-9 or, in the case of exempt foreign persons, with certain other information by completing the appropriate Form W-8 or Substitute Form W-8. A holder of Common Stock who does not provide the above information may be subject to penalties imposed by the Internal Revenue Service (the "IRS"), as well as backup withholding. Any amount withheld under these rules will be creditable against the holder's federal income tax liability. Thermo Instrument (or its agent) will report to the holders of Common Stock and the IRS the amount of any "reportable payments," as defined in Section 3406 of the Code, and the amount of tax, if any, withheld with respect thereto. Neither the Company, Merger Sub nor Thermo Instrument will recognize gain or loss for federal income tax purposes as a result of the Merger. 48 BUSINESS OF THE COMPANY OVERVIEW ThermoSpectra was incorporated in 1994 as an indirect wholly owned subsidiary of Thermo Instrument, a publicly traded subsidiary of Thermo Electron. The Company develops, manufactures and markets imaging and inspection, temperature control and test and measurement instruments. These instruments are generally combined with proprietary operations and analysis software to provide industrial and research customers with integrated systems that address their specific needs. The Company's imaging and inspection products include X-ray microanalysis instruments, X-ray fluorescence instruments, nondestructive X-ray inspection systems, specialty X-ray tubes, as well as confocal laser scanning microscopes. The Company broadened its product offerings to include scanning probe microscopes through the acquisitions of Park Scientific Instruments Corporation ("PSI") in March 1997 and TopoMetrix Corporation ("TopoMetrix") in October 1998. These two businesses were subsequently combined to form ThermoMicroscopes Corp. ("ThermoMicroscopes"). In addition, the Company acquired Sierra Research and Technology Inc. ("SRT") in July 1997, a manufacturer of systems that rework and repair printed circuit boards that have failed quality control inspection. The Company expanded into temperature control instruments with its March 1997 acquisition of NESLAB Instruments, Inc. ("NESLAB"), which manufactures temperature control systems for analytical, laboratory, industrial, research and development, laser and semiconductor applications. The Company's test and measurement instruments include data-acquisition systems, digital oscillographic recorders and digital storage oscilloscopes used primarily in product development and process monitoring settings. IMAGING AND INSPECTION INSTRUMENTS The Company's Kevex Instruments Inc. ("Kevex Instruments") and NORAN Instruments Inc. ("NORAN") subsidiaries manufacture X-ray analytical instruments enhanced by real-time digital imaging technology for the electronics, aerospace and automotive industries, among others. Product lines in this segment include several X-ray microanalysis instruments that analyze the chemical composition of microscopic samples by detecting, collecting, sorting and measuring X-rays emitted by a sample that has been excited by an energy source. The Company also manufactures a range of X-ray fluorescence instruments that incorporate an X-ray source into the instrument to excite the sample. Industrial customers, universities and government laboratories represent the majority of the end users of X-ray microanalysis systems. Over 50% of the Company's sales of X-ray microanalyzers are to electron microscope manufacturers for resale to end-users. The Company sells its X-ray microanalyzers and X-ray fluorescence instruments in the United States through a direct sales force; through a combination of direct salespeople, distributors and sales representatives in Europe, Japan and the rest of the Pacific Rim; and through original equipment manufacturer ("OEM") relationships with electron microscope manufacturers. The Company's Kevex X-Ray Inc. ("Kevex X-Ray") subsidiary is a manufacturer of specialized X-ray sources used by industrial users for imaging, inspection, analytical and thickness-gauging applications. Kevex X-Ray also supplies X-ray sources for advanced medical diagnostic imaging equipment. The Company sells its X-ray sources primarily to OEMs through a direct sales force in the United States, a distributor in Japan and through both a direct sales force and distributors in the remainder of the world. The Company's Nicolet Imaging Systems ("NIS") division manufactures real-time, nondestructive X-ray imaging systems for quality-control inspection. NIS' products are used to inspect high-reliability, high-liability products (for example, components for the telecommunications industry and those used in airbag assembly in the automotive industry). The Company's line of X-ray inspection products are among the most complete on the market, ranging from manual, industrial inspection systems to fully automated, conveyorized circuit board analysis systems for high-volume electronics manufacturing. The Company markets its X-ray inspection systems worldwide through a network of domestic and international sales representatives. 49 Through the Company's SRT subsidiary, the Company manufactures systems for the rework and repair of printed circuit boards that have failed quality-control inspection. The product line includes systems that remove defective components from the board, clean away excess solder, redispense solder to the board and replace components. This is facilitated by proprietary software that allows for increased automation and ease of use when incorporated into the system. The Company sells its circuit board-repair systems through a combination of distributors and sales representatives. Through its ThermoMicroscopes subsidiary, the Company designs, manufactures and sells a family of scanning probe microscopes including vacuum, ambient air and liquid cell systems. Scanning probe microscopy is a new imaging tool that offers three-dimensional resolution used for studying the surface properties of materials down to the atomic level. Scanning probe microscopes can measure such physical surface properties as magnetic fields, surface conductivity and static-charge distribution. ThermoMicroscopes' instruments are used for academic, semiconductor, computer storage, materials science, optics and life sciences applications. The Company sells its scanning probe microscopes through a direct sales force, representatives and distributors throughout the world. The Company's NORAN subsidiary also manufactures confocal laser scanning microscopes that create an image of a sample by rapidly scanning it with a laser light source. Confocal microscopes provide greatly enhanced depth resolution over conventional optical microscopes. The Company sells its confocal laser scanning microscopes through a direct sales force and through distributors and sales representatives. Revenues from imaging and inspection systems represented 45%, 46% and 54% of the Company's total revenues in 1998, 1997 and 1996, respectively. See Note 12 to the Company's Consolidated Financial Statements included elsewhere within this Proxy Statement for financial information relating to business segments and geographical information. TEMPERATURE CONTROL INSTRUMENTS Through its NESLAB subsidiary, the Company manufactures and markets precision temperature control systems for analytical, laboratory, industrial, research and development, laser and semiconductor applications. The laboratory product line includes constant-temperature bath/circulators and immersion coolers typically used for cell culture, incubations, refractometer cooling and general research and development. The industrial product line features self-contained cooling systems that pump chilled water through water-cooled equipment such as lasers; analytical instrumentation such as X-ray diffraction; and, in the semiconductor industry, etchers and ion implanters. The Company sells its temperature control systems through a direct sales force in the United States and Europe, and through a network of distributors and sales representatives in the rest of the world. Revenues from temperature control systems represented 32% and 28% of the Company's total revenues in 1998 and 1997, respectively. See Note 12 to the Company's Consolidated Financial Statements included elsewhere within this Proxy Statement for financial information relating to business segments and geographical information. TEST AND MEASUREMENT INSTRUMENTS The Company's Nicolet Instrument Technologies and Gould Instrument Systems subsidiaries manufacture data-acquisition systems, digital oscilloscopes and recording systems addressing a broad range of applications, primarily in product development and process monitoring settings. Markets served include automotive, power, medical research, telecommunications, and television and video. The product family enables the analysis and display of most common signal types such as voltage, pressure, current, strain, acceleration and temperature. The Company markets its test and measurement instruments in the United States and Europe through a combination of direct salespeople, distributors and sales representatives, and in the rest of the world through over 90 distributors and sales representatives. 50 Revenues from test and measurement instruments represented 23%, 26% and 46% of the Company's total revenues in 1998, 1997 and 1996, respectively. See Note 12 to the Company's Consolidated Financial Statements included elsewhere within this Proxy Statement for financial information relating to business segments and geographical information. PROPERTIES The Company owns approximately 119,000 square feet of office, engineering, laboratory and manufacturing space, which includes approximately 117,000 square feet in Middleton, Wisconsin and Valencia, California used by the Company's Imaging and Inspection businesses and approximately 2,000 square feet in Kempen, Cheshire, United Kingdom used by the Company's Temperature Control businesses. The Company leases approximately 432,000 square feet of additional office, engineering, laboratory and manufacturing space under leases expiring from 1999 through 2005. The Company's Imaging and Inspection businesses lease approximately 151,000 square feet, principally in Sunnyvale, San Diego and Scotts Valley, California, and Westford, Massachusetts. The Company's Test and Measurement businesses lease approximately 110,000 square feet, principally in Valley View, Ohio and Madison, Wisconsin. The Temperature Control businesses of the Company lease approximately 170,000, principally in Newington, New Hampshire. In addition, the Company leases approximately 1,000 square feet of office space in Franklin, Massachusetts. The Company believes that its facilities are in good condition and are suitable and adequate for its present operations. With respect to leases expiring in the near future, in the event the Company does not renew such leases, the Company believes suitable alternate space is available for lease on acceptable terms. 51 SELECTED FINANCIAL INFORMATION The selected financial information presented below as of and for the years ended January 2, 1999, and January 3, 1998, and for the year ended December 28, 1996, has been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere in this Proxy Statement. The selected financial information presented below as of December 28, 1996, and as of and for the years ended December 30, 1995, and December 31, 1994, has been derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, but have not been included or incorporated by reference herein. This information should be read in conjunction with the Company's Consolidated Financial Statements and related notes included elsewhere in this Proxy Statement. The selected financial information for the six months ended July 3, 1999, and July 4, 1998, has not been audited but, in the opinion of the Company, includes all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly such information in accordance with generally accepted accounting principles applied on a consistent basis. The results of operations for the six months ended July 3, 1999, are not necessarily indicative of results for the entire year.
SIX MONTHS ENDED ---------------------- FISCAL YEAR JULY 3, JULY 4, -------------------------------------------------------- 1999 1998 1998(1) 1997(2) 1996(3) 1995(4) 1994 ---------- ---------- ---------- ---------- ---------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA Revenues................................. $ 84,609 $ 102,125 $ 191,017 $ 198,900 $ 123,199 $ 91,714 $ 42,142 ---------- ---------- ---------- ---------- ---------- --------- --------- Costs and Operating Expenses: Cost of revenues....................... 50,487 58,831 110,915 115,747 62,900 46,384 21,759 Selling, general, and administrative expenses............................. 23,478 27,278 53,643 53,182 36,493 28,501 12,136 Research and development expenses...... 7,530 8,712 16,298 17,303 12,910 9,036 4,149 Restructuring costs.................... 875 -- 4,320 953 1,038 -- -- Other nonrecurring income.............. (45) (339) (102) (2,210) (867) -- -- ---------- ---------- ---------- ---------- ---------- --------- --------- 82,325 94,482 185,074 184,975 112,474 83,921 38,044 ---------- ---------- ---------- ---------- ---------- --------- --------- Operating Income......................... 2,284 7,643 5,943 13,925 10,725 7,793 4,098 Interest Income.......................... 364 773 1,333 692 935 820 226 Interest Expense......................... (1,577) (2,376) (4,337) (4,217) (773) (707) (114) Gain on Sale of Investment............... -- -- 713 -- -- -- -- ---------- ---------- ---------- ---------- ---------- --------- --------- Income Before Provision for Income Taxes.................................. 1,071 6,040 3,652 10,400 10,887 7,906 4,210 Provision for Income Taxes............... 515 2,480 1,827 4,552 4,270 3,312 1,842 ---------- ---------- ---------- ---------- ---------- --------- --------- Net Income............................... $ 556 $ 3,560 $ 1,825 $ 5,848 $ 6,617 $ 4,594 $ 2,368 ---------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- --------- --------- Earnings per Share: Basic.................................. $ .04 $ .23 $ .12 $ .40 $ .53 $ .41 $ .25 ---------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- --------- --------- Diluted................................ $ .04 $ .23 $ .12 $ .39 $ .53 $ .40 $ .25 ---------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- --------- --------- Weighted Average Shares: Basic.................................. 15,338 15,322 15,324 14,694 12,437 11,229 9,383 ---------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- --------- --------- Diluted................................ 15,430 15,344 15,354 14,806 12,570 11,356 9,383 ---------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- --------- ---------
52 SELECTED FINANCIAL INFORMATION (CONTINUED)
SIX MONTHS ENDED ---------------------- FISCAL YEAR JULY 3, JULY 4, -------------------------------------------------------- 1999 1998 1998(1) 1997(2) 1996(3) 1995(4) 1994 ---------- ---------- ---------- ---------- ---------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS) BALANCE SHEET DATA (AT END OF PERIOD) Working Capital.......................... $ 1,188 $ 52,741 $ (2,252) $ 53,540 $ 44,683 $ 35,961 $ 27,377 Total Assets............................. 240,225 257,869 249,882 253,397 152,485 122,917 78,701 Long-term Obligations.................... 7,300 57,300 7,300 67,300 22,300 7,300 7,300 Shareholders' Investment................. 129,673 132,645 130,835 128,338 89,621 82,525 53,313 OTHER DATA (UNAUDITED) Book Value per Share..................... 8.44 8.66 8.54 8.38 7.20 6.64 5.08 Cash Dividends Declared per Share........ -- -- -- -- -- -- -- RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)(5)......................... 1.46 2.94 1.67 3.02 7.11 6.39 10.82
- ------------------------ (1) Reflects the October 1998 acquisition of TopoMetrix Corporation and a $5.4 million pretax charge for restructuring and related costs, consisting of restructuring costs of $4.3 million and an inventory write-down of $1.1 million, which is included in cost of revenues. (2) Reflects the March 1997 acquisitions of NESLAB Instruments, Inc. and Park Scientific Instruments Corporation, the July 1997 acquisition of Sierra Research and Technology Inc. and a $1.8 million pretax charge for restructuring and related costs, consisting of restructuring costs of $1.0 million and an inventory write-down of $0.8 million, which is included in cost of revenues. Also reflects other nonrecurring income of $2.2 million relating to the sale of a product line. (3) Reflects the March 1996 acquisition of Kevex Instruments and Kevex X-Ray, pretax restructuring costs of $1.0 million, and other nonrecurring income of $0.9 million related to a settlement with the former owner of Gould Instrument Systems, Inc. in connection with the discontinuance of a product line. (4) Reflects the May 1995 acquisition of Gould and the net proceeds of the Company's initial public offering and private placement of common stock. (5) For purposes of computing the ratios of earnings to fixed charges, "earnings" represent income from continuing operations before taxes, plus fixed charges. "Fixed charges" for continuing operations consist of interest on indebtedness and amortization of debt expense and one-third of rental expense, which is deemed to be the interest component of such rental expense. 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, manufactures, and markets precision instruments in three segments: Imaging and Inspection, Temperature Control, and Test and Measurement. These instruments are generally combined with proprietary operations and analysis software to provide industrial and research customers with integrated systems that address their specific needs. The Imaging and Inspection segment includes X-ray microanalysis instruments; X-ray fluorescence instruments; nondestructive X-ray inspection systems; specialty X-ray tubes; and confocal laser scanning microscopes. The Company broadened its product offerings to include scanning probe microscopes through the acquisitions of PSI in March 1997 and TopoMetrix in October 1998 (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). In addition, the Company acquired SRT in July 1997, a manufacturer of systems used for the rework and repair of printed circuit boards (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). The Test and Measurement segment includes digital oscillographic recorders, digital storage oscilloscopes ("DSOs"), and data acquisition systems. The Company expanded into the Temperature Control segment through its March 1997 acquisition of NESLAB, which manufactures and markets precision temperature control systems for analytical, laboratory, industrial, research and development, laser, and semiconductor applications (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). The Company's growth strategy has included acquiring complementary businesses, developing new applications for its technologies to address related market segments, and strengthening its presence in selected geographic markets. Because the Company competes primarily on the basis of its technology in all of its segments, it will also need to continually improve the technology underlying the products of any company it acquires. One of the Company's principal goals during recent quarters has been to improve operating margins. As part of this plan, the Company completed the divestiture of two low-margin product lines in December 1997 and January 1998 (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement) and undertook certain other restructuring actions during 1998 (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). A significant portion of the Company's total revenues, primarily in the Imaging and Inspection and Temperature Control segments, is attributable to the sale of products and related services to customers in the semiconductor industry. The semiconductor industry has historically been cyclical and is characterized by sudden and sharp changes in supply and demand. Demand for the Company's products and services within the semiconductor industry is dependent upon, among other things, the level of capital spending by semiconductor companies. The semiconductor industry has been experiencing weakness in demand for its products as a result of the economic crisis in Asia, excess manufacturing capacity, and a slowdown in sales of high-end personal computers. Many semiconductor manufacturers delayed construction or expansion of their production facilities in response to the foregoing conditions. The slowdown in semiconductor activity began to affect demand for the Company's products in the second quarter of 1998. During the first six months of 1999, the semiconductor industry has shown some increased activity, but not to the levels experienced prior to this most recent slowdown. Continued fluctuation in the semiconductor industry could have a significant adverse effect upon the demand for the Company's products and related services, which could materially adversely affect the Company's business and future results of operations. The Company conducts all of its manufacturing operations in the United States. The Company sells its products worldwide. During 1998, exports to the Far East represented 15% of total revenues. Asia is experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign currency exchange and interest rates, and unstable stock markets. The Company's sales to Asia have been, and are expected to continue to be, adversely affected by the unstable 54 economic conditions in that region. Additionally, certain of the Company's customers located outside of the Asian region could be adversely affected by the unstable economic conditions in Asia. The Company anticipates that a significant portion of its revenues in all three segments will be from sales to customers outside the United States. The Company's business activities outside the United States are conducted through sales and service subsidiaries and through third party representatives and distributors. The results of the Company's international operations are subject to foreign currency fluctuations, and the exchange rate value of the dollar may have a significant impact on both revenues and earnings. The Company may use forward contracts to reduce its exposure to currency fluctuations. RESULTS OF OPERATIONS FIRST SIX MONTHS 1999 COMPARED WITH FIRST SIX MONTHS 1998 Total revenues decreased to $84.6 million in the first six months of 1999 from $102.1 million in the first six months of 1998. Revenues from the Imaging and Inspection segment decreased $3.2 million to $41.9 million in 1999 from $45.1 million in 1998, primarily due to a $4.0 million decrease in revenues at Kevex Instruments as a result of lower demand and lower revenues due to continued softness in the semiconductor market. The decrease in revenues at the Imaging and Inspection segment was offset in part by an increase of $3.9 million due to the inclusion of revenues from TopoMetrix, acquired in October 1998. Revenues from the Temperature Control segment decreased $10.0 million to $24.5 million in 1999 from $34.5 million in 1998, principally due to a severe reduction in capital-equipment expenditures in the semiconductor industry. Revenues from the Test and Measurement segment decreased $4.3 million to $18.2 million in 1999 from $22.5 million in 1998, primarily due to a decline in demand for its products. The gross profit margin decreased to 40% in the first six months of 1999 from 42% in the first six months of 1998, primarily due to lower sales volume. The decrease in the gross profit margin was offset in part by reduced spending on labor and overhead of $3.2 million as a result of restructuring actions commenced in 1998. Selling, general, and administrative expenses as a percentage of revenues increased to 28% in the first six months of 1999 from 27% in the first six months of 1998, primarily due to decreased revenues. Selling, general, and administrative expenses decreased 14% to $23.5 million in 1999 from $27.3 million in 1998, primarily as a result of restructuring actions commenced in 1998. Research and development expenses decreased to $7.5 million in the first six months of 1999 from $8.7 million in the first six months of 1998. The decreased spending primarily resulted from the discontinuation of research and development efforts on underperforming product lines, which reduced expenses by $0.7 million, and, to a lesser extent, the completion of efforts relating to new-product releases. The Company recorded $0.9 million of restructuring costs in the first six months of 1999, all of which represents cash costs that were paid in 1999 (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). The restructuring charges relate to actions initiated in 1998 and consist of severance costs of $0.3 million, facility-closing costs of $0.2 million, and business relocation and related costs of $0.4 million. Of the total charge for severance, $0.2 million was recorded by PSI and $40,000 was recorded by Kevex, both of which are included in the Imaging and Inspection segment. The severance charge was for terminations across all functions. The restructuring charges for facility-closing and business relocation and related costs were recorded by Kevex and relate to the closure of its southern California facility. In connection with the closing of certain facilities, the Company expects to incur approximately $0.2 million of additional costs in the third quarter of 1999. Interest income decreased to $0.4 million in the first six months of 1999 from $0.8 million in the first six months of 1998, principally due to a reduction in invested balances as a result of the repayment of an aggregate $25.0 million of promissory notes to Thermo Electron in August 1998 and March 1999. Interest 55 expense, related party, decreased to $1.6 million in 1999 from $2.4 million in 1998, primarily due to the repayment of such promissory notes. The effective tax rate was 48% in the first six months of 1999, compared with 41% in the first six months of 1998. The effective tax rates exceeded the statutory federal income tax rate primarily due to the impact of state income taxes and nondeductible amortization of cost in excess of net assets of acquired companies for certain of the Company's acquisitions. The effective tax rate increased primarily due to the higher relative impact of nondeductible amortization of cost in excess of net assets of acquired companies. 1998 COMPARED WITH 1997 Total revenues decreased $7.9 million to $191.0 million in 1998 from $198.9 million in 1997. Revenues increased $17.6 million due to the inclusion of $22.4 million of revenues for the full year from NESLAB, PSI, and SRT, which were acquired during 1997, in addition to the inclusion of TopoMetrix, acquired October 1998, offset by the exclusion of $4.8 million of revenues resulting from the sale of the NIS product lines in late 1997 and early 1998. Revenues were adversely affected by approximately $4.1 million due to the strengthening in the value of the U.S. dollar relative to currencies in foreign countries in which the Company operates. Revenues from the Imaging and Inspection segment decreased $6.0 million to $85.8 million in 1998 from $91.8 million in 1997. Excluding the impact of acquisitions of $7.3 million, dispositions of $4.8 million and the negative effects of foreign currency translation of $3.9 million, revenues from the Imaging and Inspection segment decreased $4.5 million, primarily due to reduced demand for semiconductor-related products of $2.5 million, a shipment at Kevex Instruments of $1.0 million that occurred in the first quarter of 1997, and a downturn in overseas markets of $0.9 million. Revenues from the Temperature Control segment increased $4.9 million to $61.2 million in 1998 from $56.3 million in 1997, primarily due to the inclusion of $15.1 million of revenues for the full year from NESLAB. This increase was offset in part by a decrease of $10.2 million due to a severe reduction in capital-equipment expenditures in the semiconductor industry. Revenues from the Test and Measurement segment decreased $6.8 million to $44.0 million in 1998 from $50.8 million in 1997, including $0.2 million resulting from currency translation, primarily due to decreased demand. The Company's backlog decreased $14.4 million during 1998 to $26.0 million, primarily due to the downturn in the semiconductor industry. The gross profit margin was unchanged at 42% in 1998 and 1997. The Company recorded inventory write-downs of $1.1 million and $0.8 million in 1998 and 1997, respectively, primarily for discontinuing certain underperforming products. The write-downs in 1998 included certain recorders and plotters in the Test and Measurement segment and excess inventories in the Imaging and Inspection segment due to consolidation of facilities. The write-down in 1997 included X-ray inspection systems that the Imaging and Inspection segment discontinued (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). The inventory write-downs were recorded in cost of revenues. The gross profit margin remained constant as savings resulting from restructuring actions were offset by lower selling prices at Kevex Instruments and Gould due to decreased demand. Selling, general, and administrative expenses as a percentage of revenues increased to 28% in 1998 from 27% in 1997, primarily due to decreased revenues. The impact of decreased revenues was offset in part by lower employment and spending levels at most of the Company's subsidiaries in response to the revenue decline. Research and development expenses decreased to $16.3 million in 1998 from $17.3 million in 1997. Research and development expenses decreased $1.7 million due to the completion of efforts as a result of new product releases, $0.6 million due to the discontinuation of underperforming products, and $0.2 million due to a decrease in professional services. These decreases were offset in part by an increase of $1.5 million due to the inclusion of expenses from NESLAB, PSI, and SRT for the full period in 1998. In addition to the inventory write-downs, the Company recorded restructuring charges of $4.3 million in 1998 and $1.0 million in 1997 (See Note 4 to the Company's Consolidated Financial Statements included 56 elsewhere in this Proxy Statement). The 1998 charges consisted of severance costs of $3.7 million and facility-closing costs of $0.6 million. The 1998 actions arose as a result of lower sales volume due to a downturn in the semiconductor industry, an economic crisis in Asia, and lower demand and will be completed in 1999. Of the total 1998 charge for severance of $3.7 million, $1.2 million was recorded by the Imaging and Inspection segment's Kevex subsidiary, $2.3 million by the Test and Measurement segment's Gould subsidiary, and $0.2 million by the Temperature Control segment's NESLAB subsidiary. The severance charge was for terminations across all functions. Of the total 1998 charge for facility-closing costs of $0.6 million, $0.4 million was for the write-off of building improvements at Kevex's southern California facility, which closed in the fourth quarter of 1998 and was consolidated with other facilities in northern California and Wisconsin. The balance was principally for fixed assets at Gould's U.K. facility, which was consolidated with another U.K. facility. The Company's 1998 and 1997 actions generally occurred over a short period of time and, consequently, the Company does not believe that the restructuring actions materially affected its ongoing business. The relocation of Kevex's facility was announced in the third quarter of 1998 and occurred in the following quarter and, as a result, the Company believes that some disruption to operations occurred, although the effect is not deemed material. Of the total 1998 charges of $4.3 million, $3.8 million represents cash costs, of which $1.4 million was paid in 1998 and $1.5 million was paid in the first six months of 1999. The Company expects that the balance will be paid over the remainder of 1999. The 1998 restructuring actions are expected to result in lower annual payroll costs of approximately $10 million. Interest income increased to $1.3 million in 1998 from $0.7 million in 1997, due to higher average invested balances. Interest expense, related party, primarily represents interest incurred on the $60 million aggregate amount of promissory notes issued to Thermo Electron in 1997 in connection with acquisitions. During 1998, the Company sold its shares of SteriGenics International Inc. ("SteriGenics") common stock that were received in connection with the 1997 sale of its Linac business, resulting in a gain of $0.7 million. The effective tax rate was 50% in 1998, compared with 44% in 1997. The effective tax rates exceeded the statutory federal income tax rate primarily due to the impact of state income taxes and nondeductible amortization of cost in excess of net assets of acquired companies for certain of the Company's acquisitions. The effective tax rate increased principally due to the larger relative impact of nondeductible amortization of cost in excess of net assets of acquired companies. 1997 COMPARED WITH 1996 Revenues were $198.9 million in 1997, compared with $123.2 million in 1996, an increase of 61%. Revenues increased $76.6 million due to the inclusion of revenues from NESLAB, PSI, and SRT, which were acquired during 1997, and the inclusion of revenues for the full year in 1997 from Kevex Instruments and Kevex X-Ray. Excluding the impact of acquisitions and the negative effects of foreign currency translation of $3.5 million, revenues increased 2% in 1997. Revenues from the Imaging and Inspection segment increased $24.1 million to $91.8 million in 1997 from $67.7 million in 1996, primarily due to the inclusion of $20.3 million in revenues from acquisitions and higher demand for inspection systems manufactured by NIS of $6.6 million and X-ray tubes manufactured by Kevex X-Ray of $1.6 million. These increases were offset in part by a decrease in revenues due to a decline in demand for confocal laser scanning microscopes at NORAN of $2.5 million and the negative effects of foreign currency translation of $1.4 million. Test and Measurement segment revenues decreased $4.7 million, or 8%, to $50.8 million in 1997 from $55.5 million in 1996, primarily due to a decline in demand and the negative effects of currency translation of $2.1 million. The Company's Temperature Control segment was created with the 1997 acquisition of NESLAB. The gross profit margin declined to 42% in 1997 from 49% in 1996. The decline in the gross profit margin is primarily attributable to the inclusion of lower-margin revenues from NESLAB, which had a 57 gross profit margin of 36% in 1997, and to an eight percentage-point deterioration in margin levels at NIS due to an inventory write-down of $0.8 million in the third quarter of 1997 and a change in mix from higher-margin manual systems to lower-margin automated systems. The inventory write-down included X-ray inspection systems that the Imaging and Inspection segment discontinued and was recorded in cost of revenues. To a lesser extent, the gross margin was adversely impacted in 1997 by a deterioration in the gross profit margin for the Company's test and measurement systems and at NORAN due in part to the strengthening of the U.S. dollar. Selling, general, and administrative expenses as a percentage of revenues decreased to 27% in 1997 from 30% in 1996, primarily due to the inclusion of lower selling expenses as a percentage of revenues at NESLAB, which totaled 18%, and, to a lesser extent, lower selling, general, and administrative expenses at Gould as a result of ongoing expense reductions, including restructuring charges taken in 1997 that reduced employee cost levels at that subsidiary (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). These improvements were offset in part by the inclusion of higher selling, general, and administrative expenses as a percentage of revenues at PSI and a higher relative expense level at NORAN primarily due to lower revenues. Research and development expenses increased to $17.3 million in 1997 from $12.9 million in 1996, primarily due to the inclusion of $5.8 million of expenses at acquired businesses, offset in part by overall reduced research and development spending levels at the Company's existing operations. The Company recorded restructuring charges of $1.0 million in both 1997 and 1996, primarily related to severance costs incurred by the Test and Measurement segment's Gould subsidiary (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). These actions consisted of staff reductions across all functions in response to lower sales volume at this business. The 1997 actions commenced in June 1997 and were completed in February 1998. The 1996 actions commenced in September 1996 and were completed by April 1997. The restructuring charges in both periods represent cash costs. Of the 1997 charges, $0.7 million was paid in 1997 and the remainder was paid in 1998. Of the 1996 charges, $14,000 was paid in 1996 and the remainder was paid in 1997. The 1997 and 1996 restructuring actions resulted in lower annual payroll costs of approximately $2.0 million and $1.5 million, respectively. Other nonrecurring income in 1997 represents the sale of the Company's Linac business to SteriGenics for $5.0 million in cash and 109,607 shares of SteriGenics common stock valued at $2.1 million. The Linac business, which had revenues and operating income in 1997 of $3.7 million and $1.2 million, respectively, is an electron beam radiation business that offers contract sterilization services. Other nonrecurring income in 1996 represents a settlement with the prior owner of Gould, for costs incurred by Gould in connection with its Acqulab product line (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). Interest income decreased to $0.7 million in 1997 from $0.9 million in 1996 due to lower average invested cash balances as a result of cash used to partially fund the acquisitions of the Kevex businesses, which was paid to Thermo Instrument in August 1996, and the acquisition of PSI in March 1997. Interest expense, related party, increased to $4.2 million in 1997 from $0.8 million in 1996 due to borrowings from Thermo Electron to fund acquisitions (See Note 8 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). The effective tax rate was 44% in 1997, compared with 39% in 1996. The effective tax rates exceeded the statutory federal income tax rate primarily due to the impact of state income taxes, nondeductible amortization of cost in excess of net assets of acquired companies for certain of the Company's acquisitions and, in 1997, the inability to benefit losses at certain of the Company's foreign subsidiaries. The increase in the effective tax rate in 1997 was due to the impact of nondeductible amortization of cost in excess of net assets of acquired companies from the acquisitions of NESLAB and PSI and increased losses at certain of the Company's foreign subsidiaries that were not benefited. 58 LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $1.2 million at July 3, 1999, compared with negative working capital of $2.3 million at January 2, 1999. Included in working capital are cash and cash equivalents of $9.7 million at July 3, 1999, compared with $20.7 million at January 2, 1999. In addition, as of July 3, 1999, the Company had $7.2 million invested in an advance to affiliate. Prior to the use of a new domestic cash management arrangement between the Company and Thermo Electron (See Note 16 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement), which became effective June 1, 1999, amounts invested with Thermo Electron were included in cash and cash equivalents. Also reflected in working capital are notes payable to Thermo Electron of $50.0 million at July 3, 1999, and $60.0 million at January 2, 1999. In July 1999, the Company repaid its $5.0 million promissory note owed to Thermo Electron, and Thermo Electron extended the maturity of the Company's $45.0 million promissory note to December 1999. The promissory note bears interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set at the beginning of each month. During the first six months of 1999, the Company's operating activities provided $5.9 million of cash. A decrease in accounts receivable, primarily due to lower revenues, provided $3.0 million of cash. An increase in accounts payable, due to the timing of payments, provided $1.5 million of cash. These increases in cash were reduced in part by the use of $3.1 million of cash to fund a decrease in the other current liabilities, primarily for cash payments relating to severance and facility-closure costs (See Note 4 to the Company's Consolidated Financial Statements included elsewhere in the Proxy Statement). As of July 3, 1999, the Company had $0.9 million of accrued restructuring costs, all of which it expects to pay in the remainder of 1999. During the first six months of 1999, the Company's primary investing activities, excluding advance to affiliate activity, included the purchase of property, plant, and equipment. The Company used $2.2 million of cash for purchases of property, plant and equipment and received a $0.6 million refund of a portion of the acquisition purchase price for PSI, which resulted from the final determination of the post-closing adjustment. During the remainder of 1999, the Company plans to expend approximately $1.8 million for the purchases of property, plant and equipment. During the first six months of 1999, the Company's financing activities used $6.8 million of cash. The Company repaid $10.0 million of borrowings to Thermo Electron in March 1999. In addition, an increase in short-term borrowings provided $2.8 million of cash. Net cash provided by operating activities was $21.1 million in 1998. A decrease in accounts receivable provided $3.6 million of cash and a decrease in accounts payable used $2.0 million of cash, primarily due to the decline in revenues and corresponding decline in purchases as result of the downturn in the semiconductor industry. A decrease in inventories, primarily at the Test and Measurement segment, provided $3.3 million due to lower sales volume. Other current liabilities provided $3.8 million, primarily due to restructuring costs that were not paid by the end of 1998. Increases in amounts due to affiliates provided $3.0 million as a result of the timing of payments at year-end. The Company's investing activities used $4.7 million of cash in 1998. The Company used $7.9 million, net of cash acquired, for the acquisition of TopoMetrix and received $0.8 million of cash from the sale of a product line (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement) and $2.1 million from the sale of property, plant, and equipment, primarily from the sale of a building by Gould. During 1998, the Company expended $2.2 million for the purchase of property, plant, and equipment. The Company sold its shares of SteriGenics common stock for $2.8 million during 1998 (See Note 3 to the Company's Consolidated Financial Statements included elsewhere in this Proxy Statement). During 1998, the Company's financing activities consisted primarily of the repayment of $15.0 million of long-term obligations to Thermo Electron. 59 The Company generally expects to have positive cash flow from its existing operations. Although the Company does not presently intend to actively seek to acquire additional businesses in the near future, it may acquire one or more complementary businesses if they are presented to the Company on terms the Company believes to be attractive. Such acquisitions may require significant amounts of cash. The Company expects that it would seek to finance any such acquisitions through a combination of internal funds and/or short-term borrowings from Thermo Instrument or Thermo Electron, although it has no agreement with these companies to ensure that any additional funds will be available on acceptable terms or at all. Thermo Electron has indicated that it will seek repayment from the Company of its $45.0 million promissory note, the maturity of which was extended by Thermo Electron to December 1999, only to the extent the Company's cash flow permits such repayment. Accordingly, the Company believes that its existing resources and cash provided by operations are sufficient to meet the capital requirements of its existing businesses for the foreseeable future. MARKET RISK The Company's exposure to market risk from changes in foreign currency exchange rates and interest rates, which could affect its future results of operations and financial condition, has not changed materially from its exposure at year-end 1998. The Company manages its exposure to these risks through its regular operating and financing activities. FOREIGN CURRENCY EXCHANGE RATES The Company generally views its investment in foreign subsidiaries with a functional currency other than the Company's reporting currency as long-term. The Company's investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of the Company's foreign subsidiaries are principally denominated in British pounds sterling, Japanese yen, French francs, Dutch guilders, and German marks. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is recorded in the "Accumulated Other Comprehensive Items" component of shareholders' investment. A 10% decrease in year-end 1998 functional currencies, relative to the U.S. dollar, would result in an $875,000 reduction of shareholders' investment. INTEREST RATES The Company's cash and cash equivalents and certain long-term obligations are sensitive to changes in interest rates. Interest rate changes would result in a change in interest income and expense due to the difference between the current interest rates on these financial instruments and the variable rate that these financial instruments may adjust to in the future. YEAR 2000 The following information constitutes a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act. The Company continues to assess the potential impact of the year 2000 date recognition issue on the Company's internal business systems, products and operations. The Company's year 2000 initiatives include (i) testing and upgrading significant information technology systems and facilities; (ii) testing and developing upgrades, if necessary, for the Company's current products and certain discontinued products; (iii) assessing the Year 2000 readiness of its key suppliers and vendors to determine their year 2000 compliance status; and (iv) developing a contingency plan. THE COMPANY'S STATE OF READINESS The Company has implemented a compliance program to ensure that its critical information technology systems and non-information technology systems will be ready for the year 2000. In the first phase of the program, the Company tested and evaluated critical information technology systems and non- 60 information technology systems for year 2000 compliance, which efforts included testing and evaluating its significant computer systems, software applications and related equipment for year 2000 compliance, and testing the year 2000 readiness of its manufacturing, utility and telecommunications systems at its critical facilities. In phase two of its program, any material noncompliant information technology systems or non-information technology systems that were identified during phase one were prioritized and remediated. In many cases, upgrades or replacements were made in the ordinary course of business, without accelerating previously scheduled upgrades or replacements. The Company believes that all of its material information technology systems and critical non-information technology systems are currently year 2000 compliant. The Company has also implemented a compliance program to test and evaluate the year 2000 readiness of the material products that it currently manufactures and sells. The Company believes that all of such material products are year 2000 compliant. However, as many of the Company's products are complex, interact with or incorporate third party products, and operate on computer systems that are not under the Company's control, there can be no assurance that the Company has identified all of the year 2000 problems with its current products. The Company believes that certain of its older products, which it no longer manufactures or sells, may not be year 2000 compliant. The Company is continuing to test and evaluate such products. The Company is focusing its efforts on products that are still under warranty and/ or are early in their expected life. The Company is offering upgrades and/or identifying potential solutions where reasonably practicable. The Company has also identified and assessed the year 2000 readiness of key suppliers and vendors that are believed to be significant to the Company's business operations. As part of this effort, the Company developed and distributed questionnaires relating to year 2000 compliance to its significant suppliers and vendors. The Company followed up with its significant suppliers and vendors that did not respond to the Company's questionnaires. The Company has completed the majority of its assessment of third party risk. CONTINGENCY PLAN The Company has developed a contingency plan that will allow its primary business operations to continue despite disruptions due to year 2000 problems. This plan includes identifying and securing other suppliers, increasing inventories and modifying production facilities and schedules. As the Company continues to evaluate the year 2000 readiness of its business systems and facilities, products, and significant suppliers and vendors, it will modify and adjust its contingency plan as may be required. ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES To date, costs incurred in connection with the year 2000 issue have not been material. The Company does not expect total year 2000 remediation costs to be material, but there can be no assurance that the Company will not encounter unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs are, and will continue to be, funded from working capital. All internal costs and related external costs, other than capital additions, related to year 2000 remediation have been and will continue to be expensed as incurred. The Company does not track the internal costs incurred for its year 2000 compliance project. Such costs are principally the related payroll costs for its information systems group. REASONABLY LIKELY WORST CASE SCENARIO At this point in time, the Company is not able to determine the most reasonably likely worst case scenario to result from the year 2000 issue. One possible worst case scenario would be that certain of the Company's material suppliers or vendors experience business disruptions due to the year 2000 issue and are unable to provide materials and services to the Company on time. The Company's operations could be delayed or temporarily shut down, and it could be unable to meet its obligations to customers in a timely fashion. The Company's business, operations, and financial condition could be adversely affected in 61 amounts that cannot be reasonably estimated at this time. If the Company believes that any of its key suppliers or vendors may not be year 2000 compliant, it will seek to identify and secure other suppliers or vendors as part of its contingency plan. RISKS OF THE COMPANY'S YEAR 2000 ISSUES While the Company is attempting to minimize any negative consequences arising from the year 2000 issue, there can be no assurance that year 2000 problems will not have a material adverse impact on the Company's business, operations, or financial condition. Despite its efforts to ensure that its material current products are year 2000 compliant, the Company may see an increase in warranty and other claims, especially those related to Company products that incorporate, or operate using, third party software or hardware. In addition, certain of the Company's older products, which it no longer manufactures or sells, may not be year 2000 compliant, which may expose the Company to claims. If any of the Company's material suppliers or vendors experience business disruptions due to year 2000 issues, the Company might also be materially adversely affected. There is expected to be a significant amount of litigation relating to the year 2000 issue and there can be no assurance that the Company will not incur material costs in defending or bringing lawsuits. In addition, if any year 2000 issues are identified, there can be no assurance that the Company will be able to retain qualified personnel to remedy such issues. Any unexpected costs or delays arising from the year 2000 issue could have a significant adverse impact on the Company's business, operations and financial condition in amounts that cannot be reasonably estimated at this time. 62 CERTAIN PROJECTED FINANCIAL DATA The Company does not, as a matter of course, make public forecasts or projections as to future sales, earnings or other income statement data, cash flows or balance sheet and financial position information. However, in order to aid the evaluation of the Company by the Special Committee and Tucker Cleary, and Tucker Cleary's assessment of the fairness, from a financial point of view, of the consideration of $16.00 per share in cash payable to the Minority Stockholders pursuant to the Merger Agreement, the Company furnished the Special Committee and Tucker Cleary with certain projections (the "Projections") prepared by the Company's management. The following summary of the Projections is included in this Proxy Statement solely because the Projections were made available to such parties. The Projections do not reflect any of the effects of the Merger or other changes that may in the future be deemed appropriate concerning the Company and its assets, business, operations, properties, policies, corporate structure, capitalization and management in light of the circumstances then existing. The Company has not updated the Projections to reflect changes that have occurred since their preparation; the Company believes that the assumptions were reasonable at the time the Projections were prepared, given the information known by management at such time. Stockholders should be aware that the Projections were prepared by management approximately one year prior to the date of this Proxy Statement and were based on actual results of the Company through September 1998. As indicated elsewhere in this Proxy Statement, Tucker Cleary used the Projections in its analysis of the fairness, from a financial point of view, of the Cash Merger Consideration to the Minority Stockholders, and for this reason the Company has presented the Projections below. If the Company was to update the Projections, they would reflect a downward adjustment in the Company's performance. The Projections were not prepared with a view toward public disclosure or compliance with published guidelines of the Commission or the American Institute of Certified Public Accountants regarding forward-looking information or generally accepted accounting principles. Neither the Company's independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained in the Projections, nor have they expressed any opinion or given any form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, such prospective financial information. Furthermore, the Projections necessarily make numerous assumptions, some (but not all) of which are set forth below and many of which are beyond the control of the Company and may prove not to have been, or may no longer be, accurate. Additionally, this information, except as otherwise indicated, does not reflect revised prospects for the Company's businesses, changes in general business and economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such information was prepared. Accordingly, such information is not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth below, and should not be regarded as a representation that they will be achieved. THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF THE COMPANY MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND THE COMPANY'S ABILITY TO CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED OR THAT THE COMPANY'S FUTURE FINANCIAL RESULTS WILL NOT MATERIALLY VARY FROM THE PROJECTIONS. The Projections included herein have been prepared by the Company based upon management's estimates of the total market for its products and the Company's own performance through 2003, as well as cost reductions (reflected in Selling, general and administrative expenses) related to the closure of certain facilities, severance costs for a number of terminated employees, inventory write-downs for discontinuation of certain underperforming products and other estimated expense reductions. In addition, the Projections assume (i) market conditions remaining constant based on past trends, (ii) no significant impact on currency exchange rates, (iii) no significant acquisitions and (iv) the competitive market position of the 63 Company remaining constant vis-a-vis its competitors. The Projections are necessarily limited by such assumptions, as market conditions, exchange rates and market share do not remain constant for the Company or its competitors in the industries in which the Company competes. The projected results for fiscal 1999 set forth in the Projections were based upon actual results through September 1998 and management forecasts for the remainder of fiscal 1998 and beyond. PROJECTIONS (IN THOUSANDS)
FISCAL YEAR ---------------------------------------------------------- 1999(P) 2000(P) 2001(P) 2002(P) 2003(P) ---------- ---------- ---------- ---------- ---------- REVENUES............................................. $ 188,102 $ 209,659 $ 229,437 $ 251,819 $ 285,080 COSTS AND OPERATING EXPENSES Cost of revenues................................... 102,135 111,966 121,630 132,314 149,500 Selling, general and administrative expenses....... 49,196 51,473 55,053 57,266 64,996 Research and development expenses.................. 16,892 16,898 17,992 19,200 21,098 Restructuring costs and nonrecurring income, net... 1,055 -- -- -- -- ---------- ---------- ---------- ---------- ---------- 169,278 180,337 194,675 208,780 235,594 ---------- ---------- ---------- ---------- ---------- Operating Income..................................... 18,824 29,322 34,762 43,039 49,486 Interest Income...................................... 500 482 452 452 452 Interest Expense..................................... (4,100) (4,100) (4,100) (4,100) (4,100) ---------- ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes............. 15,224 25,704 31,114 39,391 45,838 Provision for Income Taxes........................... 4,872 9,145 11,364 13,931 17,400 ---------- ---------- ---------- ---------- ---------- Net Income........................................... $ 10,352 $ 16,559 $ 19,750 $ 25,460 $ 28,438 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- SELECTED BALANCE SHEET DATA Accounts Receivable, Net............................. $ 37,441 $ 37,251 $ 39,376 $ 42,741 $ 47,253 Inventories.......................................... 30,572 29,113 30,837 32,638 35,318 Prepaid Income Taxes and Other Current Assets........ 9,015 8,864 8,719 8,755 8,793 ---------- ---------- ---------- ---------- ---------- Total Current Assets Excluding Cash and Investments........................................ 77,028 75,228 78,932 84,134 91,364 Property, Plant, and Equipment: Balance, beginning of year......................... 16,614 8,103 7,277 6,796 6,417 Additions.......................................... 4,576 3,310 3,349 3,441 3,562 Depreciation expense............................... (9,196) (4,136) (3,830) (3,820) (3,937) Sales.............................................. (3,891) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Balance, end of year............................... 8,103 7,277 6,796 6,417 6,042 Cost in Excess of Net Assets of Acquired Companies... 106,243 102,309 99,028 95,747 92,466
64 RISK FACTORS The Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in the remainder of fiscal 1999 and beyond to differ materially from those expressed in any forward- looking statements made by, or on behalf of, the Company. DEPENDENCE ON SEMICONDUCTOR INDUSTRY; INDUSTRY VOLATILITY. A significant portion of the Company's total revenues, primarily in its Imaging and Inspection and Temperature Control businesses, is attributable to the sale of products and related services to customers in the semiconductor industry. The semiconductor industry has historically been cyclical and is characterized by sudden and sharp changes in supply and demand. Demand for the Company's products and services within the semiconductor industry is dependent upon, among other things, the level of capital spending by semiconductor companies. The semiconductor industry has been experiencing weakness in demand for its products as a result of the economic crisis in Asia, excess manufacturing capacity and slowdowns in sales of high-end personal computers. Many semiconductor manufacturers delayed construction or expansion of their production facilities in response to the foregoing conditions. The slowdown in semiconductor activity began to affect demand for the Company's products in the second quarter of 1998. During the first six months of 1999, the semiconductor industry has shown some increased activity, but not to the levels experienced prior to this most recent slowdown. Continued fluctuation in the semiconductor industry could have a significant adverse effect upon the demand for the Company's products and related services, which would materially adversely affect the Company's business and future results of operations. POSSIBLE ADVERSE IMPACT OF SIGNIFICANT INTERNATIONAL OPERATIONS. The Company expects that international sales will continue to represent a significant portion of its revenues. In 1998, international sales accounted for approximately half of the Company's total revenues. These sales carry a number of inherent risks, including risks associated with currency exchange, tariffs and other potential trade barriers, potentially reduced protection for intellectual property, the impact of recessionary environments in economies outside the United States, and generally longer receivable collection patterns. In addition, exports to the Far East represented 15% of total revenues in 1998. Exports to Japan represented 7% of total revenues and exports to Taiwan, South Korea and Singapore, collectively, represented 3% of total revenues. Asia is experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency-exchange and interest rates and unstable stock markets. The Company's sales to Asia have been, and are expected to continue to be, adversely affected by the unstable economic conditions in that region. Additionally, certain of the Company's customers located outside of the Asian region could be adversely affected by the unstable economic conditions in Asia. UNCERTAINTY OF GROWTH. Certain of the markets in which the Company competes have been flat or declining over the past several years. The Company has identified a number of strategies it believes will allow it to grow its business, including, acquiring complementary businesses, developing new applications for its technologies and strengthening its presence in selected geographic markets. No assurance can be given that the Company will be able to successfully implement these strategies, or that these strategies will result in growth of the Company's business. POTENTIAL INCREASED COMPETITION. The Company predominantly sells its products in the high-performance segment of the markets in which it competes. The products in this segment are generally characterized by superior engineering and performance and compete more on product specifications than on price. The other segments of these markets are dominated by companies with substantially greater financial resources than those of the Company. If these larger companies enter the high-performance segment of the market, no assurance can be given that the Company will be able to successfully compete against them. 65 NEED TO RESPOND TO TECHNOLOGICAL CHANGE. Many of the Company's products are marketed primarily based on their technologies. In order to be successful, the Company believes that it will be important to continually improve the technology underlying its products. No assurance can be given that the Company will be able to do so or that a competitor of the Company will not develop technology or products that will render the Company's competing products noncompetitive or obsolete. RISKS ASSOCIATED WITH ACQUISITION STRATEGY. The Company's strategy includes the acquisition of underperforming businesses and technologies that complement or augment the Company's existing product lines. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals, including antitrust approvals. Acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired businesses into its existing businesses or make such businesses profitable. RISKS ASSOCIATED WITH PROTECTION, DEFENSE AND USE OF INTELLECTUAL PROPERTY. The Company holds many patents relating to various aspects of its products, and believes that proprietary technical know-how is critical to many of its products. Proprietary rights relating to the Company's products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that patents will issue from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology and, in the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's products or gain access to its trade secrets and know-how. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company's patents, or that they will not use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company's products or technologies. The Company has received correspondence alleging that certain of its products infringe patents owned by third parties, though no lawsuits have been filed. The Company may need to acquire licenses to, or contest the validity of, these or any other such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. In addition, if any such competitor were successful in enforcing such patents, the Company could be subject to damages and enjoined from manufacturing and selling any related products. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. Further, the laws of some jurisdictions do not protect the Company's proprietary rights to the same extent as the laws of the United States and there can be no assurance that the available protections will be adequate. In addition, the Company relies on trade secrets and proprietary know-how that it seeks to protect, in part, by confidentiality agreements with its collaborators, employees and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. RISKS ASSOCIATED WITH CASH MANAGEMENT ARRANGEMENT WITH THERMO ELECTRON. The Company participates in a cash management arrangement with Thermo Electron. Under this cash management arrangement, the Company lends its excess cash to Thermo Electron on an unsecured basis. The Company has the contractual right to withdraw its funds invested in the cash management arrangement upon 30 days' prior notice. Thermo Electron is contractually required to maintain cash, cash equivalents and/or immediately available bank lines of credit equal to at least 50% of all funds invested under the cash management 66 arrangement by all Thermo Electron subsidiaries other than wholly owned subsidiaries. The funds are held on an unsecured basis and therefore are subject to the credit risk of Thermo Electron. The Company's ability to receive its cash upon notice of withdrawal could be adversely affected if participants in the cash management arrangement demand withdrawal of their funds in an aggregate amount in excess of the 50% reserve required to be maintained by Thermo Electron. In the event of a bankruptcy of Thermo Electron, the Company would be treated as an unsecured creditor and its right to receive funds from the bankruptcy estate would be subordinated to secured creditors and would be treated on a PARI PASSU basis with all other unsecured creditors. Further, all cash withdrawn by the Company from the cash management arrangement within one year before the bankruptcy would be subject to rescission. The inability of Thermo Electron to return the Company's cash on a timely basis or at all could have a material adverse effect on the Company's results of operations and financial position. POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE INFORMATION. The Company continues to assess the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information technology and non-information technology systems and on products sold as well as products purchased by the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Year 2000." 67 MANAGEMENT The current directors and executive officers of the Company are as follows:
NAME AGE POSITION - --------------------------------------- --- ------------------------------------------------------------------ Barry S. Howe.......................... 43 President, Chief Executive Officer and Director Theo Melas-Kyriazi..................... 40 Chief Financial Officer and Chairman of the Board Paul F. Kelleher....................... 57 Chief Accounting Officer Richard S. Melanson.................... 46 Senior Vice President Christopher J. Barron.................. 51 Vice President Ronald W. Lindell...................... 48 Vice President Joseph A. Baute........................ 71 Director David J. Beaubien...................... 64 Director Robert E. Finnigan..................... 71 Director Elias P. Gyftopoulos................... 71 Director Earl R. Lewis.......................... 55 Director
All of the Company's directors are elected annually by the stockholders and hold office until their respective successors are duly elected and qualified. Executive officers are elected annually by the Board of Directors and serve at its discretion. Barry S. Howe has been the president, chief executive officer and a director of the Company since March 1998. Mr. Howe has been a vice president of Thermo Instrument since 1994. In March 1999, Mr. Howe was also named interim president of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and light for purposes of materials analysis, characterization and preparation. He was chief executive officer, president and a director of Thermo BioAnalysis Corporation, a majority-owned subsidiary of Thermo Instrument that manufactures products for biochemical research, drug discovery and clinical laboratories, from February 1995 to March 1998. From September 1989 to December 1995, he served as the president of Thermo Separation Products Inc. and its predecessor, a manufacturer of chromatography instruments and a subsidiary of ThermoQuest Corporation, which in turn is a majority-owned subsidiary of Thermo Instrument. Mr. Howe is also a director of Thermo Optek Corporation. Theo Melas-Kyriazi has been a director of the Company since its inception in August 1994, chairman of the board since March 1998, and chief financial officer since January 1999. Mr. Melas-Kyriazi has also been vice president, corporate strategy of Thermo Electron since March 1998 and chief financial officer since January 1999, and chief financial officer of Thermo Instrument since January 1999. Prior to his appointment as a vice president at Thermo Electron, Mr. Melas-Kyriazi served as the Company's president and chief executive officer from its inception until March 1998. Mr. Melas-Kyriazi was treasurer of Thermo Instrument and Thermo Electron from 1988 to August 1994. Mr. Melas-Kyriazi is also a director of ThermoRetec Corporation, an affiliate of Thermo Electron. Paul F. Kelleher has been the chief accounting officer of the Company since its inception in August 1994. He has been senior vice president, finance and administration, of Thermo Electron since June 1997, and served as its vice president, finance from 1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982 until January 1996. He is a director of ThermoLase Corporation, an affiliate of Thermo Electron. Mr. Kelleher also serves as the chief accounting officer of Thermo Instrument. Richard S. Melanson joined the Company in October 1997 and was named senior vice president in December 1997. Mr. Melanson also served as president of NESLAB Instruments, Inc. from November 1997 to January 1999. From July 1996 to September 1997, Mr. Melanson was vice president and general manager of Philips Electroscan Corporation, a supplier of scanning and transmission electron microscopes, semiconductor defect review tools and focused ion beam systems. Prior to that time, 68 Mr. Melanson held a variety of positions at Electroscan Corporation, a venture capital financed high technology start-up, including president and chief executive officer, executive vice president and chief operating officer, and vice president of manufacturing, since 1986. Christopher J. Barron has been a vice president of the Company since its inception in August 1994 and president of Nicolet Instrument Technologies Inc. since August 1993. Mr. Barron held various positions within Nicolet Instrument Corporation from May 1988 to August 1993. Ronald W. Lindell has been a vice president of the Company since its inception in August 1994 and president of Nicolet Imaging Systems, Inc. since January 1994. Mr. Lindell was a founder of Imaging Systems International, Inc. and its president from November 1992 to January 1994 when it was acquired by Thermo Instrument. From November 1989 to March 1992, he was senior vice president and general manager of the Industrial Products Division of IRT Corporation. Joseph A. Baute has been a director of the Company since December 1998. Mr. Baute has been a consultant to Markem Corporation, a manufacturer of marking and printing machinery, specialty inks and printing elements since 1993. Mr. Baute was the chairman and chief executive officer of Markem Corporation from 1977 and 1979, respectively, until his retirement in 1993. He is also a director of Houghton-Mifflin Company, INSO Corporation and Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument. David J. Beaubien has been a director of the Company since December 1998. Since 1990, Mr. Beaubien has been the chairman of Yankee Environmental Systems Inc., a manufacturer of solar radiation monitoring instruments. From 1967 until his retirement in 1991, Mr. Beaubien was a senior vice president of EG&G Inc., a manufacturer of scientific instruments and manager of US government facilities. He served as director of the Kidder Peabody Family of Mutual Funds from 1983 to 1995 and of Oriel Instruments Corporation from 1990 to 1996. Mr. Beaubien is also a director of IEC Electronics, Inc., Paine Webber Pace Mutual Funds and ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. Robert E. Finnigan has been a director of the Company since April 1997. Dr. Finnigan served in various executive roles at and was a director of Finnigan Corporation, an analytical instrument manufacturer, from 1967 to 1990, when it was acquired by Thermo Instrument. Since 1990, he has served as a consultant, from time to time, to Thermo Instrument on technology issues, and as an advisor to Hambrecht & Quist's Environmental Technology Fund, a venture capital fund. He is also a director of Strategic Diagnostics Inc. Elias P. Gyftopoulos has been a director of the Company since its inception in August 1994. He is Professor Emeritus at The Massachusetts Institute of Technology, where he was the Ford Professor of Mechanical Engineering and of Nuclear Engineering for more than 20 years until his retirement in 1996. Dr. Gyftopoulos is also a director of Thermo Electron and the following affiliates of Thermo Electron: Thermo BioAnalysis Corporation, Thermo Cardiosystems Inc., ThermoLase Corporation, ThermoRetec Corporation, Thermo Vision Corporation and Trex Medical Corporation. Earl R. Lewis has been a director of the Company since its inception in August 1994. He was the chairman of the board from June 1995 until March 1998 and was vice chairman of the board from August 1994 to June 1995. Mr. Lewis has been president and chief executive officer of Thermo Instrument since March 1997 and January 1998, respectively, and was chief operating officer of Thermo Instrument from January 1996 to January 1998. Prior to that time, he was executive vice president of Thermo Instrument from January 1996 to March 1997, senior vice president of Thermo Instrument from January 1994 to January 1996 and vice president of Thermo Instrument from March 1992 to January 1994. Mr. Lewis has been chief operating officer, measurement and detection, of Thermo Electron since September 1998. Prior to his appointment as chief operating officer, Mr. Lewis served as senior vice president of Thermo Electron from June 1998 to September 1998 and vice president from September 1996 69 to June 1998. Mr. Lewis served as chief executive officer of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and light for purposes of materials analysis, characterization and preparation, from its inception in August 1995 to January 1998, and served as president of its predecessor, Thermo Jarrell Ash Corporation, for more than five years prior to 1995. Mr. Lewis is also a director of SpectRx Inc. and the following affiliates of Thermo Electron: FLIR Systems, Inc., Metrika Systems Corporation, ONIX Systems Inc., Spectra-Physics Lasers, Inc., Thermo BioAnalysis Corporation, Thermo Instrument, Thermo Optek Corporation, ThermoQuest Corporation and Thermo Vision Corporation. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL STOCKHOLDER The following table sets forth certain information regarding the beneficial ownership of Common Stock as of July 3, 1999 with respect to the only person that was known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock.
NUMBER OF SHARES NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF OUTSTANDING OF BENEFICIAL OWNER OWNED SHARES BENEFICIALLY OWNED - -------------------------------------------------------------------- ----------------- --------------------------- Thermo Electron Corporation (1)..................................... 14,118,626 91.9% 81 Wyman Street Waltham, MA 02454-9046
- ------------------------ (1) Thermo Electron beneficially owned 91.9% of the Common Stock outstanding as of July 3, 1999, of which approximately 82.2% is owned through Thermo Instrument and approximately 9.7% is owned directly. Thermo Electron, through Thermo Instrument, has the power to elect all of the members of the Company's Board of Directors. After the Merger, Thermo Electron will beneficially own 100% of the outstanding Common Stock. MANAGEMENT The following table sets forth the beneficial ownership of Common Stock, as well as the common stock of Thermo Instrument and Thermo Electron, as of June 30, 1999, with respect to (i) each director of the Company, (ii) the chief executive officer of the Company and other executive officers of the Company who, during the last completed fiscal year of the Company, met the definition of "highly compensated" within the meaning of the Commission's executive compensation disclosure rules (collectively, the "named executive officers") and (iii) all directors and current executive officers as a group. While certain directors and executive officers of the Company are also directors and executive officers of Thermo Electron or its subsidiaries other than the Company, all such persons disclaim beneficial ownership of the shares of Common Stock owned by Thermo Instrument or by Thermo Electron, as the case may be. 70
THERMO THERMOSPECTRA THERMO INSTRUMENT ELECTRON CORPORATION(2) SYSTEMS INC.(3) CORPORATION(4) ---------------------------- ------------------------ ----------- NUMBER OF PERCENTAGE NUMBER PERCENTAGE NUMBER OF NAME(1) SHARES OF CLASS OF SHARES OF CLASS SHARES - -------------------------------------------------- ----------- --------------- ----------- ----------- ----------- Christopher J. Barron............................. 33,000 * 12,833 * 1,548 Joseph A. Baute................................... 1,103 * 0 * 0 David J. Beaubien................................. 1,000 * 0 * 0 Robert E. Finnigan................................ 12,000 * 0 * 0 Elias P. Gyftopoulos.............................. 22,022 * 57,743 * 71,698 Barry S. Howe..................................... 119,010 * 138,389 * 73,742 Earl R. Lewis..................................... 55,000 * 338,250 * 204,878 Ronald W. Lindell................................. 37,000 * 3,000 * 1,400 Richard S. Melanson............................... 42,100 * 8,000 * 4,700 Theo Melas-Kyriazi................................ 77,800 * 50,258 * 314,125 All directors and current executive officers as a group (11 persons).............................. 405,035 2.6 631,837 * 872,996 PERCENTAGE NAME(1) OF CLASS - -------------------------------------------------- --------------- Christopher J. Barron............................. * Joseph A. Baute................................... * David J. Beaubien................................. * Robert E. Finnigan................................ * Elias P. Gyftopoulos.............................. * Barry S. Howe..................................... * Earl R. Lewis..................................... * Ronald W. Lindell................................. * Richard S. Melanson............................... * Theo Melas-Kyriazi................................ * All directors and current executive officers as a group (11 persons).............................. *
- ------------------------ * Reflects ownership of less than 1.0% of the outstanding common stock. (1) Except as reflected in the footnotes to this table, shares beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children, and all share ownership includes sole voting and investment power. (2) The shares of Common Stock beneficially owned by Mr. Barron, Mr. Baute, Mr. Beaubien, Dr. Finnigan, Dr. Gyftopoulos, Mr. Howe, Mr. Lewis, Mr. Lindell, Mr. Melanson, Mr. Melas-Kyriazi and all directors and current executive officers as a group include 33,000, 1,000, 1,000, 11,000, 21,000, 104,000, 50,000, 37,000, 37,100, 64,200 and 364,300 shares, respectively, that such person or group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. Shares beneficially owned by Mr. Baute, Dr. Gyftopoulos and all directors and current executive officers as a group include 103, 22 and 125 shares, respectively, allocated through April 3, 1999, to their respective accounts maintained under the Company's Deferred Compensation Plan. Shares beneficially owned by Dr. Finnigan include 1,000 shares held in a trust of which he and his spouse are the trustees. No director or named executive officer beneficially owned more than 1.0% of the Common Stock outstanding as of June 30, 1999; all directors and current executive officers as a group beneficially owned 2.6% of the Common Stock outstanding as of such date. (3) Shares of the common stock of Thermo Instrument beneficially owned by Mr. Barron, Dr. Gyftopoulos, Mr. Howe, Mr. Lewis, Mr. Lindell, Mr. Melanson, Mr. Melas-Kyriazi and all directors and current executive officers as a group include 12,375, 11,946, 113,750, 322,085, 3,000, 8,000, 44,295 and 534,201 shares, respectively, that such person or group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. Shares of the common stock of Thermo Instrument beneficially owned by Mr. Melas-Kyriazi and all directors and executive officers as a group include 468 and 963 shares, respectively, allocated through June 30, 1999, to their respective accounts maintained pursuant to Thermo Electron's employee stock ownership plan (the "ESOP"), of which the trustees, who have investment power over its assets, are executive officers of Thermo Electron. Shares beneficially owned by Mr. Howe include 374 shares held by him in custodial accounts for the benefit of two minor children. Shares beneficially owned by Mr. Lewis include 2,987 shares held by his spouse. No director or named executive officer beneficially owned more than 1.0% of the common stock of Thermo Instrument outstanding as of June 30, 1999; all directors and current executive officers as a group did not beneficially own more than 1.0% of the common stock of Thermo Instrument outstanding as of such date. 71 (4) The shares of the common stock of Thermo Electron beneficially owned by Mr. Barron, Dr. Gyftopoulos, Mr. Howe, Mr. Lewis, Mr. Lindell, Mr. Melanson, Mr. Melas-Kyriazi and all directors and current executive officers as a group include 1,400, 8,625, 65,757, 202,350, 1,400, 4,700, 275,811 and 728,030 shares, respectively, that such person or group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. Shares of the common stock of Thermo Electron beneficially owned by Mr. Melas-Kyriazi and all directors and current executive officers as a group include 1,071 and 2,497 shares, respectively, allocated through June 30, 1999, to accounts maintained pursuant to the ESOP. Shares beneficially owned by Dr. Gyftopoulos and all the directors and current executive officers as a group include 494 shares allocated through April 3, 1999 to Dr. Gyftopoulos' account maintained pursuant to Thermo Electron's deferred compensation plan for directors. No director or named executive officer beneficially owned more than 1.0% of the common stock of Thermo Electron outstanding as of June 30, 1999; all directors and current executive officers as a group did not beneficially own more than 1.0% of the common stock of Thermo Electron outstanding as of such date. CERTAIN TRANSACTIONS Thermo Electron has, from time to time, caused certain subsidiaries to sell minority interests to investors, resulting in several majority-owned private and publicly held subsidiaries. Thermo Instrument has created the Company as a majority-owned publicly held subsidiary. The Company and such other majority-owned Thermo Electron subsidiaries are hereinafter referred to as the "Thermo Subsidiaries." Thermo Electron and each of the Thermo Subsidiaries recognize that the benefits and support that derive from their affiliation are essential elements of their individual performance. Accordingly, Thermo Electron and each of the Thermo Subsidiaries, including the Company, have adopted the Thermo Electron Corporate Charter (the "Charter") to define the relationships and delineate the nature of such cooperation among themselves. The purpose of the Charter is to ensure that (1) all of the companies and their stockholders are treated consistently and fairly, (2) the scope and nature of the cooperation among the companies, and each company's responsibilities, are adequately defined, (3) each company has access to the combined resources and financial, managerial and technological strengths of the others, and (4) Thermo Electron and the Thermo Subsidiaries, in the aggregate, are able to obtain the most favorable terms from outside parties. To achieve these ends, the Charter identifies the general principles to be followed by the companies, addresses the role and responsibilities of the management of each company, provides for the sharing of group resources by the companies and provides for centralized administrative, banking and credit services to be performed by Thermo Electron. The services provided by Thermo Electron include collecting and managing cash generated by members, coordinating the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group") to external financing sources, ensuring compliance with external financial covenants and internal financial policies, assisting in the formulation of long-range planning and providing other banking and credit services. Pursuant to the Charter, Thermo Electron may also provide guarantees of debt or other obligations of the Thermo Subsidiaries or may obtain external financing at the parent level for the benefit of the Thermo Subsidiaries. In certain instances, the Thermo Subsidiaries may provide credit support to, or on behalf of, the consolidated entity or may obtain financing directly from external financing sources. Under the Charter, Thermo Electron is responsible for determining that the Thermo Group remains in compliance with all covenants imposed by external financing sources, including covenants related to borrowings of Thermo Electron or other members of the Thermo Group, and for apportioning such constraints within the Thermo Group. In addition, Thermo Electron establishes certain internal policies and procedures applicable to members of the Thermo Group. The cost of the services provided by Thermo Electron to the Thermo Subsidiaries is covered under existing corporate services agreements between Thermo Electron and the Thermo Subsidiaries. 72 The Charter currently provides that it shall continue in effect so long as Thermo Electron and at least one Thermo Subsidiary participate. The Charter may be amended at any time by agreement of the participants. Any Thermo Subsidiary, including the Company, can withdraw from participation in the Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a subsidiary's participation in the Charter in the event the subsidiary ceases to be controlled by Thermo Electron or ceases to comply with the Charter or the policies and procedures applicable to the Thermo Group. A withdrawal from the Charter automatically terminates the corporate services agreement and tax allocation agreement (if any) in effect between the withdrawing company and Thermo Electron. The withdrawal from participation does not terminate outstanding commitments to third parties made by the withdrawing company, or by Thermo Electron or other members of the Thermo Group, prior to the withdrawal. In addition, a withdrawing company is required to continue to comply with all policies and procedures applicable to the Thermo Group and to provide certain administrative functions mandated by Thermo Electron so long as the withdrawing company is controlled by or affiliated with Thermo Electron. As provided in the Charter, the Company and Thermo Electron have entered into a Corporate Services Agreement (the "Services Agreement") under which Thermo Electron's corporate staff provides certain administrative services, including general legal advice and services, risk management, employee benefit administration, tax advice and preparation of tax returns, centralized cash management and certain financial and other services to the Company. The Company was assessed an annual fee equal to 1.0% and 0.8% of the Company's revenues for these services in fiscal 1997 and 1998, respectively. The annual fee will remain at 0.8% of the Company's total revenues for fiscal 1999. The fee is reviewed annually and may be changed by mutual agreement of the Company and Thermo Electron. During fiscal 1997, 1998 and the six months ended July 3, 1999, Thermo Electron assessed the Company $1,989,000, $1,528,000 and $677,000 in fees under the Services Agreement. Management believes that the charges under the Services Agreement are reasonable and that the terms of the Services Agreement are fair to the Company. In fiscal 1997, 1998 and the six months ended July 3, 1999, the Company paid Thermo Electron an additional $94,000, $67,000 and $9,000 for certain administrative services required by the Company that were not covered by the Services Agreement. The Services Agreement automatically renews for successive one-year terms, unless canceled by the Company upon 30 days' prior notice. In addition, the Services Agreement terminates automatically in the event the Company ceases to be a member of the Thermo Group or ceases to be a participant in the Charter. In the event of a termination of the Services Agreement, the Company will be required to pay a termination fee equal to the fee that was paid by the Company for services under the Services Agreement for the nine-month period prior to termination. Following termination, Thermo Electron may provide certain administrative services on an as-requested basis by the Company or as required in order to meet the Company's obligations under Thermo Electron's policies and procedures. Thermo Electron will charge the Company a fee equal to the market rate for comparable services if such services are provided to the Company following termination. The Company has entered into a Tax Allocation Agreement with Thermo Electron that outlines the terms under which the Company will be included in Thermo Electron's consolidated Federal and state income tax returns. Under current law, the Company will be included in such tax returns so long as Thermo Electron owns at least 80% of the outstanding common stock of Thermo Instrument, and Thermo Instrument and Thermo Electron collectively own at least 80% of the outstanding Common Stock of the Company. In years in which the Company has taxable income, it will pay to Thermo Electron amounts comparable to the taxes the Company would have paid if it had filed its own separate company tax returns. If Thermo Instrument's and Thermo Electron's equity ownership of the Company were to drop below 80%, the Company would file its own tax returns. In 1999, because Thermo Instrument's and Thermo Electron's combined equity ownership of the Company now exceeds 80%, the Company will be included in Thermo Electron's consolidated tax returns and will be assessed for amounts due to Thermo Electron in accordance with the Tax Allocation Agreement. 73 From time to time, the Company may transact business with other companies in the Thermo Group. During fiscal 1997, 1998 and the six months ended July 3, 1999, these transactions included the following: In March 1997, Thermo Instrument acquired approximately 95% of the outstanding shares of Life Sciences International PLC ("LSI"), a London Stock Exchange-listed company. Subsequently, Thermo Instrument acquired the remaining shares of LSI capital stock. In July 1997, the Company agreed to acquire NESLAB Instruments, Inc. and its related sales and service entity, NESLAB Instruments Europa BV in the Netherlands (collectively, "NESLAB"), a global supplier of temperature control products and former LSI subsidiary, from Thermo Instrument for approximately $76,222,000. The purchase price represented the sum of the net tangible book value of the business as of June 28, 1997, plus a percentage of Thermo Instrument's total cost in excess of net assets acquired associated with its acquisition of LSI, based on NESLAB's 1996 revenues relative to LSI's 1996 consolidated revenues. The purchase price consisted of 2,759,042 shares of the Company's Common Stock valued at $31,315,000 issued to Thermo Instrument and the assumption of $44,907,000 of debt to Thermo Instrument, which was subsequently paid by borrowing $45,000,000 from Thermo Electron. The purchase price included $255,000 for the increase in net book value from the date the business was acquired by Thermo Instrument to June 28, 1997. To finance the acquisition of IRT Corporation in September 1994, the Company borrowed $7,300,000 from Thermo Instrument pursuant to a promissory note due September 2001. In connection with the 1996 acquisition of Kevex Instruments and Kevex X-Ray, the Company borrowed $15,000,000 from Thermo Electron pursuant to a promissory note that was paid in August 1998. In connection with the acquisition of Park Scientific Instruments Corporation in March 1997, the Company borrowed $10,000,000 from Thermo Electron pursuant to a promissory note that was paid in March 1999. In connection with the acquisition of NESLAB from Thermo Instrument in July 1997, the Company borrowed $45,000,000 from Thermo Electron pursuant to a promissory note due July 1999, the maturity of which was extended by Thermo Electron to December 1999. This note bears interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set at the beginning of each month. To partially finance the acquisition of Sierra Research and Technology Inc. in July 1997, the Company borrowed $5,000,000 from Thermo Electron pursuant to a promissory note that was paid in July 1999. The Company, along with certain other Thermo Subsidiaries, participates in a notional pool arrangement with Barclays Bank, which includes, as of July 3, 1999, a $72,360,000 credit facility. The Company has access to $315,000 under this credit facility. Only U.K.-based Thermo Subsidiaries participate in this arrangement. Under this arrangement the Bank notionally combines the positive and negative cash balances held by the participants to calculate the net interest yield/expense for the group. The benefit derived from this arrangement is then allocated based on balances attributable to the respective participants. Thermo Electron guarantees all of the obligations of each participant in this arrangement. As of July 3, 1999, the Company had a positive cash balance of approximately $1,383,000, based on an exchange rate of $1.5763/GBP 1.00 as of July 3, 1999. For the six months ended July 3, 1999, the average interest rate earned on GBP deposits by participants in this credit arrangement was approximately 5.61% and the average interest rate paid on overdrafts was approximately 6.00%. The Company, along with certain other Thermo Subsidiaries, also participates in a pool arrangement with ABN AMRO. Only European-based Thermo Subsidiaries participate in this arrangement. This arrangement consists of a zero balance arrangement, which includes, as of July 3, 1999, a $22,534,000 credit facility. The Company has access to $234,000 under this credit facility. Funds borrowed by the Company under this arrangement pay interest at a rate set by Thermo Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the beginning of each month, based on Netherlands market rates. Funds invested by the Company under the arrangement earn a rate set by Thermo Finance B.V. at the beginning of each month, based on Netherlands market rates. Thermo Electron guarantees all of the obligations of each participant in this arrangement. As of July 3, 1999, the Company had a positive cash balance of approximately $317,000, based on an exchange rate of $0.4680/NLG 1.00 as of July 3, 1999. For the six months ended July 3, 1999, the average interest rate earned on NLG deposits by participants in this credit 74 arrangement was approximately 3.29% and the average interest rate paid on overdrafts was approximately 3.83%. As of July 3, 1999, $7,243,000 of the Company's cash equivalents were invested in a cash management arrangement with Thermo Electron, which was effective June 1, 1999. Under the cash management arrangement, the Company lends excess cash to Thermo Electron and has the contractual right to withdraw its invested funds upon 30 days' prior notice. Thermo Electron is contractually required to maintain cash, cash equivalents and/or immediately available bank lines of credit equal to at least 50% of all funds invested under the arrangement by all Thermo Electron subsidiaries other than wholly owned subsidiaries. The Company's funds invested in the new arrangement earn a rate equal to the 30-day Dealer Commercial Paper Rate as reported in THE WALL STREET JOURNAL plus 50 basis points, set at the beginning of each month. In addition, under the cash management arrangement, amounts borrowed from Thermo Electron by the Company for domestic cash management purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points. The Company has no borrowings under this arrangement as of July 3, 1999. As of July 3, 1999, the Company owed Thermo Electron and its other subsidiaries an aggregate of $2,627,000, excluding the promissory notes described above, for amounts due under the Services Agreement and related administrative charges, for other products and services and for miscellaneous items, net of amounts owed to the Company by Thermo Electron and its other subsidiaries for products, services and for miscellaneous items. The largest amount of such net indebtedness owed by the Company to Thermo Electron and its other subsidiaries since January 3, 1998, was $5,648,000. These amounts do not bear interest and are expected to be paid in the normal course of business. In addition, the Company purchases and sells products and services in the ordinary course of business with other companies affiliated with Thermo Electron. In fiscal 1997, 1998 and the six months ended July 3, 1999, purchases from these companies totaled $2,226,000, $2,013,000 and $1,103,000, respectively, and sales to these companies totaled $825,000, $1,215,000 and $421,000, respectively. The human resources committee of the Company's board of directors established a stock holding policy that required executive officers of the Company to acquire and hold a minimum number of shares of Common Stock. In order to assist the executive officers in complying with this policy, the Company also adopted a stock holding assistance plan under which the Company may make interest-free loans to executive officers to enable them to purchase shares of Common Stock in the open market. The stock holding policy and the stock holding assistance plan were both subsequently amended to apply only to the chief executive officer. In 1996, Mr. Melas-Kyriazi received loans in the aggregate principal amount of $164,831 under the stock holding assistance plan to purchase 12,525 shares of Common Stock, of which amount $131,864 was outstanding as of July 3, 1999. In 1998, Mr. Howe, Mr. Melas-Kyriazi's successor as president and chief executive officer of the Company, received a loan in the principal amount of $141,992 to purchase 15,000 shares of Common Stock, the entire amount of which was outstanding as of July 3, 1999. These loans are repayable upon the earlier demand or the fifth anniversary of the date of the loan, unless otherwise determined by the Committee. 75 CERTAIN INFORMATION CONCERNING THE MERGER SUB, THERMO INSTRUMENT AND THERMO ELECTRON THE MERGER SUB The Merger Sub is a newly-formed Delaware corporation organized at the direction of Thermo Instrument for the sole purpose of facilitating the Merger and has not conducted any prior business. The principal executive offices of the Merger Sub are located at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone number is (781) 622-1000. THERMO INSTRUMENT Thermo Instrument develops, manufactures and markets analytical instruments used to identify complex chemical compounds, toxic metals and other elements in a broad range of liquids and solids. Thermo Instrument also develops and manufactures instruments used to monitor radioactivity and air pollution; life sciences instruments and consumables; and imaging, inspection, measurement and control instruments. These products are used for multiple applications in a range of industries, including industrial processing, food and beverage production, life sciences research and medical diagnostics. The principal executive offices of Thermo Instrument are located at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone number is (781) 622-1000. THERMO ELECTRON Thermo Electron develops, manufactures and markets monitoring, analytical and biomedical instrumentation; biomedical products including heart-assist devices, respiratory-care equipment and mammography systems; paper recycling and papermaking equipment; alternative-energy systems and clean fuels; industrial process equipment; and other specialized products. Thermo Electron also provides a range of services that include industrial outsourcing, particularly in environmental-liability management, laboratory analysis and metallurgical processing; and conducts advanced-technology research and development. The principal executive offices of Thermo Electron are located at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, and its telephone number is (781) 622-1000. INDEPENDENT PUBLIC ACCOUNTANTS The Consolidated Balance Sheet as of January 2, 1999 and January 3, 1998, and the related Consolidated Statements of Income, Cash Flows, and Comprehensive Income and Shareholders' Investment for each of the three years in the period ended January 2, 1999, included in this Proxy Statement have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report. Representatives of Arthur Andersen LLP are not expected to be at the Special Meeting. STOCKHOLDER PROPOSALS Proposals of stockholders intended to be included in the proxy statement and form of proxy relating to the 2000 Annual Meeting of the Stockholders of ThermoSpectra must be received by the Company for inclusion in the proxy statement and form of proxy no later than December 14, 1999. Notices of stockholder proposals submitted outside the processes of Rule 14a-8 under the Exchange Act (relating to proposals to be presented at the meeting but not included in the Company's proxy statement and form of proxy), will be considered untimely, and thus the Company's proxy may confer discretionary voting authority on the persons named in the proxy with regard to such proposals, if received after March 1, 2000. 76 ADDITIONAL INFORMATION Pursuant to the requirements of Section 13(e) of the Exchange Act, and Rule 13e-3 promulgated thereunder, the Company, as issuer of the class of equity securities that is the subject of the Rule 13e-3 transaction, together with the Merger Sub, Thermo Instrument and Thermo Electron, have filed a Schedule 13E-3 with the Commission with respect to the transactions contemplated by the Merger Agreement. As permitted by the rules and regulations of the Commission, this Proxy Statement omits certain information, exhibits and undertakings contained in the Schedule 13E-3. Such additional information can be inspected at and obtained from the Commission in the manner set forth below under "AVAILABLE INFORMATION." Statements contained in this Proxy Statement or in any document incorporated herein by reference as to the contents of any contract or other document referred to herein or therein are not necessarily complete and in each instance reference is made to such contract or other document filed as an exhibit to the Schedule 13E-3 or such other document, and each such statement shall be deemed qualified in its entirety by such reference. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files reports, proxy statements, and other information with the Commission. The reports, proxy statements, and other information filed with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington D.C. 20549 and at the following Regional Offices of the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. The same information is also available on the Internet at http://www.FreeEDGAR.com. The Common Stock is listed on the AMEX, and such material that relates to the Company may also be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006-1881. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT, IN CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THERMO INSTRUMENT, THERMO ELECTRON OR THE MERGER SUB. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, THE MERGER SUB, THERMO INSTRUMENT AND THERMO ELECTRON SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF. 77 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission (File No. 1-13876) are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999; 2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 1999; 3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999; and 4. The Company's Current Report on Form 8-K, filed with the Commission on May 25, 1999, regarding the entering into of the Merger Agreement with Thermo Instrument. Copies of the documents listed above (other than exhibits thereto that are not specifically incorporated by reference herein) are available, without charge, to any person, including any beneficial owner of Common Stock, to whom this Proxy Statement is delivered, upon oral or written request to Sandra L. Lambert, Secretary, ThermoSpectra Corporation, c/o Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046 (telephone (781) 622-1000). Any statements contained in a document incorporated or deemed to be incorporated herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. All information appearing in this Proxy Statement is qualified in its entirety by the information and financial statements (including notes thereto) appearing in the documents incorporated herein by reference. 78 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE --------- Report of Independent Public Accountants................................................................. F-2 Consolidated Statement of Income for the six months ended July 3, 1999, and July 4, 1998, and the years ended January 2, 1999, January 3, 1998, and December 28, 1996.......................................... F-3 Consolidated Balance Sheet as of July 3, 1999, January 2, 1999, and January 3, 1998...................... F-4 Consolidated Statement of Cash Flows for the six months ended July 3, 1999, and July 4, 1998, and the years ended January 2, 1999, January 3, 1998, and December 28, 1996.................................... F-6 Consolidated Statement of Comprehensive Income and Shareholders' Investment for the six months ended July 3, 1999, and the years ended January 2, 1999, January 3, 1998, and December 28, 1996................... F-8 Notes to Consolidated Financial Statements............................................................... F-9
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of ThermoSpectra Corporation: We have audited the accompanying consolidated balance sheet of ThermoSpectra Corporation (a Delaware corporation and 82%-owned subsidiary of Thermo Instrument Systems Inc.) and subsidiaries as of January 2, 1999, and January 3, 1998, and the related consolidated statements of income, cash flows, and comprehensive income and shareholders' investment for each of the three years in the period ended January 2, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ThermoSpectra Corporation and subsidiaries as of January 2, 1999, and January 3, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 1999, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 16, 1999 (except with respect to certain matters discussed in Note 16, as to which the date is June 1, 1999) F-2 THERMOSPECTRA CORPORATION CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED YEAR ENDED -------------------- -------------------------------------- JULY 3, JULY 4, JANUARY 2, JANUARY 3, DECEMBER 28, 1999 1998 1999 1998 1996 --------- --------- ----------- ----------- ------------ (UNAUDITED) REVENUES (Notes 8 and 12).......................... $ 84,609 $ 102,125 $ 191,017 $ 198,900 $ 123,199 --------- --------- ----------- ----------- ------------ Costs and Operating Expenses: Cost of revenues (Note 8)........................ 50,487 58,831 110,915 115,747 62,900 Selling, general, and administrative expenses (Note 8)....................................... 23,478 27,278 53,643 53,182 36,493 Research and development expenses................ 7,530 8,712 16,298 17,303 12,910 Restructuring costs (Note 4)..................... 875 -- 4,320 953 1,038 Other nonrecurring income (Note 3)............... (45) (339) (102) (2,210) (867) --------- --------- ----------- ----------- ------------ 82,325 94,482 185,074 184,975 112,474 --------- --------- ----------- ----------- ------------ Operating Income................................... 2,284 7,643 5,943 13,925 10,725 Interest Income.................................... 364 773 1,333 692 935 Interest Expense................................... -- -- (3) (66) -- Interest Expense, Related Party (Note 8)........... (1,577) (2,376) (4,334) (4,151) (773) Gain on Sale of Investment (Note 3)................ -- -- 713 -- -- --------- --------- ----------- ----------- ------------ Income Before Provision for Income Taxes........... 1,071 6,040 3,652 10,400 10,887 Provision for Income Taxes (Note 6)................ 515 2,480 1,827 4,552 4,270 --------- --------- ----------- ----------- ------------ NET INCOME......................................... $ 556 $ 3,560 $ 1,825 $ 5,848 $ 6,617 --------- --------- ----------- ----------- ------------ --------- --------- ----------- ----------- ------------ EARNINGS PER SHARE (Note 13) Basic............................................ $ .04 $ .23 $ .12 $ .40 $ .53 --------- --------- ----------- ----------- ------------ --------- --------- ----------- ----------- ------------ Diluted.......................................... $ .04 $ .23 $ .12 $ .39 $ .53 --------- --------- ----------- ----------- ------------ --------- --------- ----------- ----------- ------------ WEIGHTED AVERAGE SHARES (Note 13) Basic............................................ 15,338 15,322 15,324 14,694 12,437 --------- --------- ----------- ----------- ------------ --------- --------- ----------- ----------- ------------ Diluted.......................................... 15,430 15,344 15,354 14,806 12,570 --------- --------- ----------- ----------- ------------ --------- --------- ----------- ----------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 THERMOSPECTRA CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
JANUARY JANUARY JULY 3, 2, 3, 1999 1999 1998 ----------- --------- --------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents.................................. $ 9,723 $ 20,717 $ 20,672 Advance to affiliate (Note 16)............................. 7,243 -- -- Available-for-sale investments, at quoted market value (cost of $2,056 in 1997; Note 2)......................... -- -- 2,083 Accounts receivable, less allowances of $2,172, $2,386, and $1,934................................................... 36,792 41,016 43,015 Inventories................................................ 30,536 31,745 34,785 Prepaid income taxes (Note 6).............................. 13,107 10,188 7,337 Other current assets....................................... 2,343 2,271 1,774 ----------- --------- --------- 99,744 105,937 109,666 ----------- --------- --------- Property, Plant, and Equipment, at Cost, Net................. 16,212 16,991 20,391 ----------- --------- --------- Patents, Trademarks, and Other Assets........................ 7,059 7,280 8,108 ----------- --------- --------- Cost in Excess of Net Assets of Acquired Companies (Note 3)......................................................... 117,210 119,674 115,232 ----------- --------- --------- $ 240,225 $ 249,882 $ 253,397 ----------- --------- --------- ----------- --------- ---------
F-4 THERMOSPECTRA CORPORATION CONSOLIDATED BALANCE SHEET (CONTINUED) (IN THOUSANDS EXCEPT SHARE AMOUNTS)
JANUARY JANUARY JULY 3, 2, 3, 1999 1999 1998 ----------- --------- --------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Notes payable (includes $50,000, $60,000, and $15,000 due to Thermo Electron; Notes 3 and 8)....................... $ 52,714 $ 60,000 $ 15,000 Accounts payable........................................... 13,135 11,822 12,842 Accrued payroll and employee benefits...................... 5,221 6,239 6,987 Accrued installation and warranty expenses................. 4,533 4,362 4,495 Deferred revenue........................................... 3,624 4,360 4,695 Accrued income taxes....................................... 4,770 3,735 2,050 Accrued restructuring costs (Note 4)....................... 907 2,459 244 Other accrued expenses (Note 3)............................ 11,025 10,684 8,252 Due to parent company and affiliated companies............. 2,627 4,528 1,561 ----------- --------- --------- 98,556 108,189 56,126 ----------- --------- --------- Deferred Income Taxes (Note 6)............................... 2,946 1,651 356 ----------- --------- --------- Other Deferred Items......................................... 1,750 1,907 1,277 ----------- --------- --------- Long-term Obligations, Due to Related Party (Notes 3 and 8)......................................................... 7,300 7,300 67,300 ----------- --------- --------- Commitments and Contingencies (Notes 7 and 8) Shareholders' Investment (Notes 3, 5, and 10): Common stock, $.01 par value, 25,000,000 shares authorized; 15,369,190, 15,327,620, and 15,313,506 shares issued..... 154 153 153 Capital in excess of par value............................. 111,900 111,549 111,262 Retained earnings.......................................... 20,319 19,763 17,938 Treasury stock at cost, 423 shares......................... (7) (7) (7) Accumulated other comprehensive items (Note 14)............ (2,693) (623) (1,008) ----------- --------- --------- 129,673 130,835 128,338 ----------- --------- --------- $ 240,225 $ 249,882 $ 253,397 ----------- --------- --------- ----------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-5 THERMOSPECTRA CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED --------------------- ------------------------------------- JULY 3, JULY 4, JANUARY 2, JANUARY 3, DECEMBER 28, 1999 1998 1999 1998 1996 ---------- --------- ----------- ---------- ------------ (UNAUDITED) OPERATING ACTIVITIES Net income........................................ $ 556 $ 3,560 $ 1,825 $ 5,848 $ 6,617 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 4,346 3,581 7,073 6,615 4,493 Provision for losses on accounts receivable... 44 96 689 521 199 Gain on sales of building, investment, and business, net (Note 3)...................... (45) (339) (815) (2,210) -- Other noncash expenses........................ 486 495 2,554 1,417 839 Deferred income tax benefit................... -- -- (1,432) (40) (796) Changes in current accounts, excluding the effects of acquisitions and dispositions: Accounts receivable....................... 2,956 3,146 3,597 (733) (3,444) Inventories............................... 653 486 3,260 4,873 (3,105) Other current assets...................... (126) (427) (170) (81) 335 Accounts payable.......................... 1,485 (849) (1,988) (2,330) 2,123 Due to parent company and affiliated companies............................... (1,352) 2,013 2,967 (2,699) 426 Other current liabilities................. (3,111) (1,171) 3,841 (2,829) (2,238) Other......................................... -- 106 (343) 34 (21) ---------- --------- ----------- ---------- ------------ Net cash provided by operating activities... 5,892 10,697 21,058 8,386 5,428 ---------- --------- ----------- ---------- ------------ INVESTING ACTIVITIES Acquisitions, net of cash acquired (Note 3)....... -- -- (7,943) (21,142) (22,521) Proceeds from sale of product lines and business (Note 3)........................................ -- 750 750 4,980 -- Refund of acquisition purchase price (Note 3)..... 595 -- -- -- 1,103 Advances to affiliate, net (Note 16).............. (7,243) -- -- -- -- Purchases of property, plant, and equipment....... (2,193) (942) (2,199) (2,595) (2,762) Proceeds from sale of property, plant, and equipment....................................... 160 2,052 2,052 91 168 Proceeds from sale and maturities of available-for-sale investments (Note 3)......... -- -- 2,769 -- 3,000 Purchases of available-for-sale investments....... -- -- -- -- (3,000) Other, net........................................ (148) (30) (111) (926) (733) ---------- --------- ----------- ---------- ------------ Net cash provided by (used in) investing activities................................ $ (8,829) $ 1,830 $ (4,682) $ (19,592) $ (24,745) ---------- --------- ----------- ---------- ------------
F-6 THERMOSPECTRA CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED --------------------- ------------------------------------- JULY 3, JULY 4, JANUARY 2, JANUARY 3, DECEMBER 28, 1999 1998 1999 1998 1996 ---------- --------- ----------- ---------- ------------ (UNAUDITED) FINANCING ACTIVITIES Repayment of long-term obligations to Thermo Electron........................................ $ (10,000) $ -- $ (15,000) $ -- $ -- Proceeds from issuance of long-term obligations to Thermo Electron (Note 8)........................ -- -- -- 60,000 15,000 Payment to Thermo Instrument for debt assumed in connection with acquisition of NESLAB (Note 3).............................................. -- -- -- (44,907) -- Net proceeds from issuance of Company common stock........................................... 352 42 48 561 74 Change in short-term borrowings and Other......... 2,812 -- 239 (674) 552 ---------- --------- ----------- ---------- ------------ Net cash provided by (used in) financing activities................................ (6,836) 42 (14,713) 14,980 15,626 ---------- --------- ----------- ---------- ------------ Exchange Rate Effect on Cash........................ (1,221) (89) (1,618) 318 (35) ---------- --------- ----------- ---------- ------------ Increase (Decrease) in Cash and Cash Equivalents.... (10,994) 12,480 45 4,092 (3,726) Cash and Cash Equivalents at Beginning of Period.... 20,717 20,672 20,672 16,580 20,306 ---------- --------- ----------- ---------- ------------ Cash and Cash Equivalents at End of Period.......... $ 9,723 $ 33,152 $ 20,717 $ 20,672 $ 16,580 ---------- --------- ----------- ---------- ------------ ---------- --------- ----------- ---------- ------------ CASH PAID FOR Interest.......................................... $ 2,185 $ 2,376 $ 4,335 $ 4,217 $ 773 Income taxes...................................... $ 199 $ 402 $ 1,158 $ 4,490 $ 3,419 NONCASH ACTIVITIES Common stock received from sale of business (Note 3).............................................. $ -- $ -- $ -- $ 2,056 $ -- Fair value of assets of acquired companies........ $ -- $ -- $ 10,519 $ 114,495 $ 29,757 Cash paid for acquired companies.................. -- -- (7,967) (24,379) (22,525) Stock options issued in connection with acquisition of PSI.............................. -- -- -- (1,693) -- Stock issuable to Thermo Instrument in connection with acquisition of NESLAB...................... -- -- -- (31,315) -- Debt assumed in connection with acquisition of NESLAB.......................................... -- -- -- (44,907) -- ---------- --------- ----------- ---------- ------------ Liabilities assumed of acquired companies....... $ -- $ -- $ 2,552 $ 12,201 $ 7,232 ---------- --------- ----------- ---------- ------------ ---------- --------- ----------- ---------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-7 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS ThermoSpectra Corporation (the Company) develops, manufactures, and markets imaging and inspection, temperature control, and test and measurement instruments, which represent 45%, 32%, and 23% of the Company's 1998 revenues, respectively. The Company sells its products on a worldwide basis (Note 12). RELATIONSHIP WITH THERMO INSTRUMENT SYSTEMS INC. AND THERMO ELECTRON CORPORATION The Company was incorporated in August 1994 as an indirect, wholly owned subsidiary of Thermo Instrument Systems Inc. As of January 2, 1999, Thermo Instrument owned 12,637,417 shares of the Company's common stock, representing 82% of such stock outstanding. Thermo Instrument is an 85%-owned subsidiary of Thermo Electron Corporation. As of January 2, 1999, Thermo Electron owned 1,491,453 shares of the Company's common stock, representing 10% of such stock outstanding. Thermo Electron has announced a proposed reorganization involving certain of Thermo Electron's subsidiaries, including the Company. As part of this reorganization, Thermo Electron announced that the Company may be taken private (Note 16). PRINCIPLES OF CONSOLIDATION The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. FISCAL YEAR The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1998, 1997, and 1996 are for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996, respectively. Fiscal years 1998 and 1996 each included 52 weeks; 1997 included 53 weeks. REVENUE RECOGNITION The Company recognizes product revenue upon shipment. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Deferred revenue in the accompanying balance sheet consists of unearned revenue on service contracts, which is recognized as revenue over the life of the service contract. Substantially all of the deferred revenue included in the accompanying 1998 balance sheet will be recognized within one year. SOFTWARE DEVELOPMENT COSTS In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," software development costs are expensed as incurred until technological feasibility has been established. The Company believes that, under its current process for developing software, the software is essentially completed concurrently with the establishment of technological feasibility. Accordingly, no software development costs have been capitalized. F-9 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION PLANS The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 5). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to shareholders' investment. INCOME TAXES The Company's initial public offering in August 1995 resulted in a reduction of Thermo Instrument's equity ownership of the Company below 80% and, as a result, the Company was required to file its own federal income tax returns for 1996 through 1998. Thermo Instrument's equity ownership of the Company now exceeds 80%, therefore, effective January 3, 1999, the Company will be included in Thermo Electron's consolidated tax return as provided for under a tax allocation agreement between the Company and Thermo Instrument. This agreement provides that, in years that the Company has taxable income, the Company will pay to Thermo Instrument amounts comparable to the taxes the Company would have paid if it had filed separate tax returns. In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. EARNINGS PER SHARE Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share have been computed assuming the exercise of stock options, as well as their related income tax effects. CASH AND CASH EQUIVALENTS At year-end 1998 and 1997, $10,323,000 and $14,311,000, respectively, of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, U.S. government-agency securities, commercial paper, money market funds, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter (Note 16). At year-end 1998, $147,000 of the Company's cash equivalents, denominated in Dutch guilders, were invested in a repurchase agreement with a wholly owned subsidiary of Thermo Electron under terms similar to those outlined in the above agreement, except that the rate earned is based on Netherlands market rates, set at the beginning of each month. The Company, along with other subsidiaries of Thermo Electron, participates in a notional pool arrangement with Barclays Bank, which includes a $71 million credit facility. The Company has access to $2,423,000 under this credit facility, which is included in the amount available for use as discussed in F-10 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Note 9. Only U.K.-based subsidiaries of Thermo Electron participate in this arrangement. Under this arrangement, Barclays notionally combines the positive and negative cash balances held by the participants to calculate the net interest yield/expense for the group. The benefit derived from this arrangement is then allocated based on balances attributable to the respective participants. Thermo Electron guarantees all of the obligations of each participant in this arrangement. At year-end 1998 and 1997, the Company had a positive cash balance under this arrangement of $1,958,000 and $44,000, respectively. At year-end 1998 and 1997, the Company's cash equivalents also included investments in short-term certificates of deposit held by the Company's foreign operations, which have an original maturity of three months or less. Cash equivalents are carried at cost, which approximates market value. INVENTORIES Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are:
1998 1997 --------- --------- (IN THOUSANDS) Raw Materials and Supplies................................ $ 18,355 $ 16,850 Work in Process........................................... 5,899 7,096 Finished Goods............................................ 7,491 10,839 --------- --------- $ 31,745 $ 34,785 --------- --------- --------- ---------
The Company periodically reviews the quantities of inventories on hand and compares these amounts to expected usage of each particular product or product line. The Company records as a charge to cost of revenues any amounts required to reduce the carrying value of inventories to net realizable value. PROPERTY, PLANT, AND EQUIPMENT The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 5 to 30 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of:
1998 1997 --------- --------- (IN THOUSANDS) Land...................................................... $ 2,424 $ 3,067 Buildings................................................. 6,238 6,910 Machinery, Equipment, and Leasehold Improvements.......... 21,855 21,131 --------- --------- 30,517 31,108 Less: Accumulated Depreciation and Amortization........... 13,526 10,717 --------- --------- $ 16,991 $ 20,391 --------- --------- --------- ---------
F-11 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PATENTS, TRADEMARKS, AND OTHER ASSETS Patents, trademarks, and other assets in the accompanying balance sheet includes the costs of acquired patents and trademarks that are amortized using the straight-line method over an estimated useful life of 3 to 20 years. These assets were $4,028,000 and $4,826,000, net of accumulated amortization of $2,965,000 and $2,135,000, at year-end 1998 and 1997, respectively. COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over 40 years. Accumulated amortization was $8,015,000 and $4,927,000 at year-end 1998 and 1997, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired businesses in assessing the recoverability of this asset. If impairment occurs, any excess of carrying value over fair value is recorded as a loss. FOREIGN CURRENCY All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the "Accumulated other comprehensive items" component of shareholders' investment (Note 14). Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. FORWARD CONTRACTS The Company uses short-term forward foreign exchange contracts to manage exposures related to firm purchase and sale commitments that are denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in U.S. dollars, British pound sterling, Japanese yen, French francs, and German marks. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Gains and losses arising from forward foreign exchange contracts are recorded as an offset to the gains and losses resulting from the transactions being hedged. The Company does not enter into speculative foreign currency agreements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRESENTATION Certain amounts in 1997 and 1996 have been reclassified to conform to the presentation in the 1998 financial statements. F-12 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTERIM FINANCIAL STATEMENTS The financial statements as of July 3, 1999, and for the six-month periods ended July 3, 1999, and July 4, 1998, are unaudited but, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation of results for these interim periods. The results of operations for the six-month period ended July 3, 1999, are not necessarily indicative of the results to be expected for the entire year. 2. AVAILABLE-FOR-SALE INVESTMENTS The Company's marketable equity securities are considered available-for-sale investments and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded in the "Accumulated Other Comprehensive Items" component of shareholders' investment. Available-for-sale investments in the accompanying 1997 balance sheet represent common stock received in connection with the sale of its Linac business (Note 3). 3. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS In October 1998, the Company acquired the assets, subject to certain liabilities, of TopoMetrix Corporation, a scanning probe microscope manufacturing business, for approximately $7,967,000 in cash, subject to a post-closing adjustment. The cost of this acquisition exceeded the estimated fair value of the net assets by $7,061,000. The businesses of Park Scientific Instruments Corporation (PSI) and TopoMetrix were combined and renamed ThermoMicroscopes Corporation. In July 1997, the Company acquired Sierra Research and Technology Inc. (SRT), a manufacturer of systems used for the rework and repair of printed circuit boards, for $7,638,000 in cash. The cost of this acquisition exceeded the estimated fair value of the net assets by $6,368,000. To partially finance the acquisition, the Company borrowed $5,000,000 from Thermo Electron (Note 8). In March 1997, Thermo Instrument acquired Life Sciences International PLC (LSI), a London Stock Exchange-listed company. In July 1997, the Company agreed to acquire NESLAB Instruments, Inc. and its related sales and service entity, NESLAB Instruments Europa BV in the Netherlands, (collectively, NESLAB), a global supplier of temperature control systems and former LSI subsidiary, from Thermo Instrument for $76,222,000. The purchase price represents the sum of the net tangible book value of the business as of June 28, 1997, plus a percentage of Thermo Instrument's total cost in excess of net assets acquired associated with its acquisition of LSI, based on NESLAB's 1996 revenues relative to LSI's 1996 consolidated revenues. The Company believes that this allocation methodology is reasonable and in accordance with the guidance provided by Securities and Exchange Commission Staff Accounting Bulletin (SAB) 55 (Topic 1:B). The purchase price of NESLAB consisted of 2,759,042 shares of Company common stock valued at $31,315,000 issued to Thermo Instrument and the assumption of $44,907,000 of debt to Thermo Instrument, which was subsequently paid. To repay the debt assumed from Thermo Instrument, the Company borrowed $45,000,000 from Thermo Electron (Note 8). The cost of this acquisition exceeded the estimated fair value of the net assets by $57,774,000. F-13 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DISPOSITIONS (CONTINUED) Because the Company and NESLAB were deemed for accounting purposes to be under control of their common majority owner, Thermo Instrument, the transaction has been accounted for in a manner similar to a pooling of interests. Accordingly, the accompanying financial statements include the results of NESLAB from March 12, 1997, the date the business was acquired by Thermo Instrument and the shares issued have been treated as outstanding from that date. The purchase price included $255,000 for the increase in net book value from the date the business was acquired by Thermo Instrument to June 28, 1997. This amount was recorded as a reduction in retained earnings. In March 1997, the Company acquired PSI, a manufacturer of scanning-probe microscopes used in industry and academia to test and measure the topography and other surface properties of materials, for $16,702,000 in cash, including the repayment of $1,300,000 of bank debt. In addition, the Company assumed outstanding PSI stock options, which were converted into stock options that are exercisable into 144,941 shares of Company common stock at a weighted average exercise price of $3.07 per share, with an aggregate value of $1,693,000 as of the date of the merger agreement. The cost of this acquisition exceeded the estimated fair value of the net assets by $14,132,000. To partially finance the acquisition, the Company borrowed $10,000,000 from Thermo Electron (Note 8). In March 1996, Thermo Instrument acquired a substantial portion of the businesses comprising the Scientific Instruments Division of Fisons plc, a wholly owned subsidiary of Rhone-Poulenc Rorer, Inc. Pursuant to an agreement executed in August 1996, the Company acquired Kevex Instruments and Kevex X-Ray (the Kevex businesses), which were formerly part of Fisons, from Thermo Instrument for $21,567,000 in cash. To partially finance the acquisition, the Company borrowed $15,000,000 from Thermo Electron, which was repaid in 1998 (Note 8). The purchase price was determined based on the net book value of the Kevex businesses at March 29, 1996, and a pro rata allocation of Thermo Instrument's total cost in excess of the net assets of acquired companies recorded in connection with the acquisition of the Fisons businesses. The Company believes that this allocation methodology is reasonable and in accordance with the guidance provided by SAB 55 (Topic 1:B). The cost of this acquisition exceeded the estimated fair value of the net assets by $10,046,000. Kevex Instruments is a manufacturer of X-ray microanalyzers and X-ray fluorescence instruments and Kevex X-Ray is a manufacturer of specialty X-ray sources. Because the Company and the Kevex businesses were deemed for accounting purposes to be under control of their common majority owner, Thermo Instrument, the transaction has been accounted for in a manner similar to a pooling of interests. Accordingly, the Company's 1996 financial statements include the results of the Kevex businesses from March 29, 1996, the date these businesses were acquired by Thermo Instrument. During 1996, the Company acquired two additional companies for an aggregate $900,000 in cash. Except for NESLAB and the Kevex businesses, the acquisitions described above have been accounted for using the purchase method of accounting and their results of operations have been included in the accompanying financial statements from their respective dates of acquisition. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for TopoMetrix, is subject to adjustment. The Company has gathered no information that indicates the final allocation of the purchase price for TopoMetrix will differ materially from the preliminary estimate. In connection with these acquisitions, the Company has undertaken restructuring activities at the acquired businesses. The Company's restructuring activities, which were accounted for in accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing levels and the abandonment of excess facilities. In connection with these restructuring activities, as part of F-14 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DISPOSITIONS (CONTINUED) the cost of the acquisitions, the Company established reserves as detailed below, primarily for severance and excess facilities. In accordance with EITF 95-3, the Company finalizes its restructuring plans no later than one year from the respective dates of the acquisitions. A summary of the changes in accrued acquisition expenses for severance follows:
IMAGING AND INSPECTION TEMPERATURE SEGMENT CONTROL -------------------- SEGMENT TOPO- ------------ KEVEX METRIX NESLAB OTHER TOTAL --------- --------- ------------ --------- --------- (IN THOUSANDS) -------------------------------------------------------- BALANCE AT DECEMBER 30, 1995......................... $ -- $ -- $ -- $ 570 $ 570 Reserves established............................... 730 -- -- -- 730 Usage.............................................. (207) -- -- (344) (551) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... -- -- -- (191) (191) --------- --------- ------------ --------- --------- BALANCE AT DECEMBER 28, 1996......................... 523 -- -- 35 558 Reserves established............................... -- -- 150 23 173 Usage.............................................. (265) -- (67) (58) (390) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... (147) -- (8) -- (155) --------- --------- ------------ --------- --------- BALANCE AT JANUARY 3, 1998........................... 111 -- 75 -- 186 Reserves established............................... -- 149 -- -- 149 Usage.............................................. (111) (119) -- -- (230) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... -- -- (75) -- (75) --------- --------- ------------ --------- --------- BALANCE AT JANUARY 2, 1999........................... -- 30 -- -- 30 (UNAUDITED) Reserves established............................... -- 39 -- -- 39 Usage.............................................. -- (63) -- -- (63) --------- --------- ------------ --------- --------- BALANCE AT JULY 3, 1999.............................. $ -- $ 6 $ -- $ -- $ 6 --------- --------- ------------ --------- --------- --------- --------- ------------ --------- ---------
F-15 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DISPOSITIONS (CONTINUED) A summary of the changes in accrued acquisition expenses for the abandonment of excess facilities follows:
IMAGING AND INSPECTION TEMPERATURE SEGMENT CONTROL -------------------- SEGMENT TOPO- ------------ KEVEX METRIX NESLAB OTHER TOTAL --------- --------- ------------ --------- --------- (IN THOUSANDS) -------------------------------------------------------- BALANCE AT DECEMBER 30, 1995......................... $ -- $ -- $ -- $ 989 $ 989 Reserves established............................... 377 -- -- 1 378 Usage.............................................. (335) -- -- (700) (1,035) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... -- -- -- (114) (114) --------- --------- ------------ --------- --------- BALANCE AT DECEMBER 28, 1996......................... 42 -- -- 176 218 Reserves established............................... -- -- 588 -- 588 Usage.............................................. (42) -- -- (85) (127) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... -- -- (135) (91) (226) Currency translation............................... -- -- (53) -- (53) --------- --------- ------------ --------- --------- BALANCE AT JANUARY 3, 1998........................... -- -- 400 -- 400 Reserves established............................... -- 602 -- -- 602 Usage.............................................. -- (237) (213) -- (450) Decrease due to finalization of restructuring plan, recorded as a decrease to cost in excess of net assets of acquired companies..................... -- -- (166) -- (166) Currency translation............................... -- -- 30 -- 30 --------- --------- ------------ --------- --------- BALANCE AT JANUARY 2, 1999........................... -- 365 51 -- 416 (UNAUDITED) Reserves established............................... -- 207 -- -- 207 Usage.............................................. -- (407) (40) -- (447) Currency translation............................... -- -- (5) -- (5) --------- --------- ------------ --------- --------- BALANCE AT JULY 3, 1999.............................. $ -- $ 165 $ 6 $ -- $ 171 --------- --------- ------------ --------- --------- --------- --------- ------------ --------- ---------
The increase in accrued acquisition expenses in 1996 primarily related to severance across all functions at the Imaging and Inspection segment's Kevex Instruments subsidiary and relocation of its California sales and service office to another California facility and the closure of its Japan sales and service office. The increase in accrued acquisition expenses in 1997 principally related to lease costs at the Temperature Control segment's NESLAB Instruments subsidiary's Netherlands facility, which was abandoned, and severance across all functions at this business. The increase in accrued acquisition expenses in 1998 and 1999 principally related to cancellation of operating leases at the Imaging and Inspection segment's TopoMetrix subsidiary's sales and services office in Germany and at its manufacturing facility in F-16 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DISPOSITIONS (CONTINUED) California, both of which were closed. In addition, the increase represented severance across all functions at this business. Unresolved matters at July 3, 1999, primarily included completion of abandonment of excess facilities for TopoMetrix. Accrued acquisition expenses are included in other accrued expenses in the accompanying balance sheet. Based on unaudited data, the following table presents selected financial information for the Company, NESLAB, PSI, and the Kevex businesses, on a pro forma basis, assuming that the Company and these acquired businesses had been combined since the beginning of 1996. The effect of the acquisitions not included in the pro forma data was not material to the Company's results of operations.
1997 1996 --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues................................................ $ 210,412 $ 202,813 Net Income.............................................. 3,736 3,280 Earnings per Share: Basic................................................. .25 .22 Diluted............................................... .24 .21
The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions of NESLAB, PSI, and the Kevex businesses been made at the beginning of 1996. In 1996, the Company finalized negotiations with the former owner of Gould Instrument Systems, Inc. in connection with amounts claimed by the Company for the discontinuance of the Acqulab product line, which was sold to the Company as part of the 1995 purchase of Gould. Of the $1,970,000 settlement received, $1,103,000 related to a reduction of the purchase price principally for the unrealized earning potential of the Acqulab product line, resulting in a reduction of cost in excess of net assets of acquired companies in 1996. The remaining $867,000 related to a reimbursement of expenses incurred subsequent to the acquisition of Gould for the ongoing development of Acqulab. This amount is classified as other nonrecurring income in the accompanying 1996 statement of income. DISPOSITIONS In January 1998, the Company's Nicolet Imaging Systems division sold its security screening product line to OSI Systems, Inc. for $750,000 in cash for a nominal loss. The product line represented less than 1.0% of the Company's revenues. During 1998, the Company sold real estate for a gain of $106,000. In December 1997, the Company sold its Linac business to SteriGenics International, Inc. for $4,980,000 in cash and 109,607 shares of SteriGenics common stock valued at $2,056,000, resulting in a gain of $2,210,000. The Linac business is an electron beam radiation business that offers contract sterilization services. The Company sold its shares of SteriGenics common stock in 1998 and realized a gain of $713,000. F-17 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RESTRUCTURING COSTS During 1998, the Company recorded restructuring and related costs of $5,399,000. Restructuring costs of $4,320,000, which were accounted for in accordance with EITF 94-3, consist of $3,712,000 related to severance costs for 259 employees across all functions and $608,000 related primarily to facility-closing costs. The charge for facility-closing costs includes $490,000 for write-downs of related fixed assets. In addition, the Company recorded an inventory write-down totaling $1,079,000 related to the discontinuation of certain underperforming products, which is included in cost of revenues in the accompanying 1998 statement of income. As of January 2, 1999, the Company had terminated 182 employees and had expended $1,371,000 of the established reserves. During the first six months of 1999, the Company terminated 36 additional employees and recorded additional restructuring costs of $875,000. Such costs consist of $265,000 related to severance costs for nine employees at a foreign sales office, $201,000 for facility-closing costs, and $409,000 related to certain business relocation and related costs. In connection with the Company's restructuring activities, the Company expects to incur approximately $200,000 of additional costs which, pursuant to the requirements of EITF 94-3, are not permitted as charges until incurred. These additional costs primarily include costs for certain employee and business relocation and related costs. The Company plans to complete implementation of its restructuring plan in the third quarter of 1999. In 1997, the Company's Gould subsidiary incurred a $953,000 restructuring charge, related primarily to severance costs for 40 employees terminated during 1997. Accrued restructuring costs of $244,000 in the accompanying 1997 balance sheet relates to these actions and was expended during 1998. In addition, in 1997 the Company's Nicolet Imaging Systems division recorded an inventory write-down of $0.8 million, related primarily to the discontinuation of an underperforming product, which is included in cost of revenues in the accompanying 1997 statement of income. In 1996, Gould incurred $1,038,000 in connection with a restructuring plan, which included the termination of approximately 40 employees. F-18 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RESTRUCTURING COSTS (CONTINUED) The Company recorded charges for its restructuring plans as follows:
ABANDONMENT OF EXCESS SEVERANCE FACILITIES OTHER TOTAL --------- ------------- --------- --------- (IN THOUSANDS) ---------------------------------------------- 1996 RESTRUCTURING PLAN Costs incurred in 1996 (a).................................... $ 1,038 $ -- $ -- $ 1,038 1996 Usage.................................................... (14) -- -- (14) --------- ------------- --------- --------- BALANCE AT DECEMBER 28, 1996.................................. 1,024 -- -- 1,024 1997 Usage.................................................... (1,024) -- -- (1,024) --------- ------------- --------- --------- BALANCE AT JANUARY 3, 1998.................................... $ -- $ -- $ -- $ -- --------- ------------- --------- --------- --------- ------------- --------- --------- 1997 RESTRUCTURING PLAN Costs incurred in 1997 (b).................................... $ 953 $ -- $ -- $ 953 1997 Usage.................................................... (709) -- -- (709) --------- ------------- --------- --------- BALANCE AT JANUARY 3, 1998.................................... 244 -- -- 244 1998 Usage.................................................... (244) -- -- (244) --------- ------------- --------- --------- BALANCE AT JANUARY 2, 1999.................................... $ -- $ -- $ -- $ -- --------- ------------- --------- --------- --------- ------------- --------- --------- 1998 RESTRUCTURING PLAN Costs incurred in 1998 (c).................................... $ 3,712 $ 118 $ -- $ 3,830 1998 Usage.................................................... (1,253) (118) -- (1,371) --------- ------------- --------- --------- BALANCE AT JANUARY 2, 1999.................................... 2,459 -- -- 2,459 (UNAUDITED) Costs incurred in 1999 (d).................................... 265 201 409 875 1999 Usage.................................................... (1,773) (201) (409) (2,383) Currency translation.......................................... (44) -- -- (44) --------- ------------- --------- --------- BALANCE AT JULY 3, 1999....................................... $ 907 $ -- $ -- $ 907 --------- ------------- --------- --------- --------- ------------- --------- ---------
- ------------------------ (a) Reflects restructuring costs recorded by the Test and Measurement segment. (b) Reflects restructuring costs recorded by the Test and Measurement segment. Excludes noncash inventory write-down of $0.8 million included in cost of revenues and recorded by the Imaging and Inspection segment. (c) Reflects restructuring costs of $1.2 million, $2.4 million, and $0.2 million recorded by the Imaging and Inspection, Test and Measurement, and Temperature Control segments, respectively. Excludes noncash inventory write-down of $1.1 million included in cost of revenues, of which $0.5 million was recorded by the Imaging and Inspection segment and $0.6 million was recorded by the Test and Measurement segment. Excludes provision of $0.5 million for an asset write-down, of which $0.4 million was recorded by the Imaging and Inspection segment and $0.1 million was recorded by the Test and Measurement segment. (d) Reflects restructuring costs recorded by the Imaging and Inspection segment. F-19 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. EMPLOYEE BENEFIT PLANS STOCK-BASED COMPENSATION PLANS STOCK OPTION PLANS The Company has stock-based compensation plans for its key employees, directors, and others, which permit the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. The option recipients and the terms of options granted under these plans are determined by the Board Committee. As of year-end 1998, only nonqualified stock options have been awarded under these plans. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over a one- to ten-year period, depending on the term of the option, which generally ranges from five to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's common stock on the date of grant. To date, all options have been granted at fair market value. The Company also has a directors' stock option plan that provides for the grant of stock options to outside directors pursuant to a formula approved by the Company's shareholders. Options granted under this plan have the same general terms as options granted under the stock-based compensation plans described above, except that the restrictions and repurchase rights generally lapse ratably over a four-year period and the option term is five years. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron and Thermo Instrument. In November 1998, the Company's employees, excluding its officers and directors, were offered the opportunity to exchange previously granted options to purchase shares of Company common stock for an amount of options equal to half of the number of options previously held, exercisable at a price equal to the fair market value at the time of the exchange offer. Holders of options to acquire 87,000 shares at a weighted average exercise price of $14.50 per share elected to participate in this exchange and, as a result, received options to purchase 43,500 shares of Company common stock at $11.41 per share, which are included in the 1998 grants in the table below. The other terms of the new options are the same as the exchanged options except that the holders may not sell shares purchased pursuant to such new options for six months from the exchange date. The options exchanged were canceled by the Company. F-20 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. EMPLOYEE BENEFIT PLANS (CONTINUED) A summary of the Company's stock option activity is:
1998 1997 1996 --------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- -------- -------- -------- -------- (SHARES IN THOUSANDS) Options Outstanding, Beginning of Year.................................. 1,256 $11.23 971 $12.10 862 $11.32 Issued upon acquisition of PSI........ -- -- 145 3.07 -- -- Granted............................... 370 10.73 374 10.46 183 15.26 Exercised............................. (14) 3.44 (105) 4.20 (8) 10.00 Forfeited............................. (306) 12.17 (129) 12.02 (66) 10.89 Canceled due to exchange.............. (87) 14.50 -- -- -- -- ----- -------- -------- Options Outstanding, End of Year........ 1,219 $10.70 1,256 $11.23 971 $12.10 ----- -------- -------- -------- -------- -------- ----- -------- -------- -------- -------- -------- Options Exercisable..................... 1,212 $10.74 1,238 $11.35 971 $12.10 ----- -------- -------- -------- -------- -------- ----- -------- -------- -------- -------- -------- Options Available for Grant............. 388 172 121 ----- -------- -------- ----- -------- --------
A summary of the status of the Company's stock options at January 2, 1999, is:
OPTIONS OUTSTANDING ---------------------------------------- WEIGHTED AVERAGE WEIGHTED NUMBER REMAINING AVERAGE OF CONTRACTUAL EXERCISE RANGE OF EXERCISE PRICES SHARES LIFE PRICE - ---------------------------------------- ------------- ------------ ----------- (IN THOUSANDS) $ 2.55--$ 6.20.......................... 36 6.1 years $ 3.37 6.21-- 9.85.......................... 163 6.8 years 9.50 9.86-- 13.50.......................... 847 7.1 years 10.42 13.51-- 17.15.......................... 173 6.5 years 14.73 ----- $ 2.55--$17.15.......................... 1,219 6.9 years $ 10.70 ----- -----
The information disclosed above for options outstanding at January 2, 1999, does not differ materially for options exercisable. EMPLOYEE STOCK PURCHASE PROGRAM Effective November 1, 1996, substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron, under which employees can purchase shares of the Company's and Thermo Electron's common stock. Prior to November 1, 1996, the program was sponsored by Thermo Instrument and Thermo Electron. Prior to the 1998 program year, the applicable shares of common stock could be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased were subject to a six-month resale restriction. Effective November 1, 1998, the applicable shares of common stock may be purchased at 85% of the lower of the fair market value at the beginning or end of the plan year, and the shares purchased are subject to a one-year resale restriction. F-21 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. EMPLOYEE BENEFIT PLANS (CONTINUED) Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. No shares were issued under this program during 1998. During 1997, the Company issued 9,852 shares of its common stock under this program. PRO FORMA STOCK-BASED COMPENSATION EXPENSE In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards granted under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been:
1998 1997 1996 --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net Income: As reported.................................................... $ 1,825 $ 5,848 $ 6,617 Pro forma...................................................... 1,070 5,343 6,277 Basic Earnings per Share: As reported.................................................... .12 .40 .53 Pro forma...................................................... .07 .36 .50 Diluted Earnings per Share: As reported.................................................... .12 .39 .53 Pro forma...................................................... .07 .36 .50
Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The weighted average fair value per share of options granted was $4.04, $3.74, and $5.80 in 1998, 1997, and 1996, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1998 1997 1996 ---------- ---------- ---------- Volatility............................................... 28% 28% 26% Risk-free Interest Rate.................................. 5.3% 5.9% 6.6% Expected Life of Options................................. 5.6 years 5.0 years 5.4 years
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in F-22 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. EMPLOYEE BENEFIT PLANS (CONTINUED) management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(K) SAVINGS PLANS Substantially all of the Company's full-time U.S. employees are eligible to participate in 401(k) savings plans. Contributions to the 401(k) savings plans are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For these plans, the Company contributed and charged to expense $1,350,000, $1,427,000, and $689,000 in 1998, 1997, and 1996, respectively. 6. INCOME TAXES The components of income before provision for income taxes are:
1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Domestic......................................... $ 2,306 $ 10,719 $ 8,969 Foreign.......................................... 1,346 (319) 1,918 --------- --------- --------- $ 3,652 $ 10,400 $ 10,887 --------- --------- --------- --------- --------- ---------
The components of the provision for income taxes are:
1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Currently Payable: Federal........................................ $ 2,207 $ 3,834 $ 3,427 State.......................................... 529 600 774 Foreign........................................ 523 158 865 --------- --------- --------- 3,259 4,592 5,066 --------- --------- --------- Net Deferred (Prepaid): Federal........................................ (1,248) (112) (608) State.......................................... (280) (24) (129) Foreign........................................ 96 96 (59) --------- --------- --------- (1,432) (40) (796) --------- --------- --------- $ 1,827 $ 4,552 $ 4,270 --------- --------- --------- --------- --------- ---------
The Company receives a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $114,000, $304,000, and $382,000 of such benefits that have been allocated to capital in excess of par value in 1998, 1997, and 1996, respectively. In addition, the provision for income taxes that is currently payable does not reflect $1,024,000 of tax benefits used to reduce cost in excess of net assets of acquired companies in 1996. F-23 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES (CONTINUED) The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before provision for income taxes due to:
1998 1997 1996 --------- --------- --------- (IN THOUSANDS) Provision for Income Taxes at Statutory Rate........ $ 1,242 $ 3,536 $ 3,702 Increases (Decreases) Resulting from: State income taxes, net of federal tax............ 164 380 426 Foreign tax rate and tax law differential......... 163 362 154 Amortization of cost in excess of net assets of acquired companies.............................. 841 685 146 Tax benefit of foreign sales corporation.......... (362) (295) (268) Other, net........................................ (221) (116) 110 --------- --------- --------- $ 1,827 $ 4,552 $ 4,270 --------- --------- --------- --------- --------- ---------
Prepaid and deferred income taxes in the accompanying balance sheet consist of:
1998 1997 --------- --------- (IN THOUSANDS) Prepaid Income Taxes: Tax loss carryforwards................................... $ 10,133 $ 9,052 Reserves and accruals.................................... 5,439 4,152 Inventory basis difference............................... 4,749 3,185 --------- --------- 20,321 16,389 Less: Valuation allowance................................ 10,133 9,052 --------- --------- $ 10,188 $ 7,337 --------- --------- --------- --------- Deferred Income Taxes: Fixed and intangible assets.............................. $ 1,651 $ 356 --------- --------- --------- ---------
At year-end 1998, the Company had foreign and federal tax loss carryforwards of $23,497,000 and $6,088,000, respectively. The valuation allowance relates to uncertainty surrounding the realization of the tax loss carryforwards, for which realization is limited to the future income of certain subsidiaries. The federal tax loss carryforwards expire in the years 2008 through 2010. Foreign tax loss carryforwards of $313,000 expire in 2006, while the remainder do not expire. Any resulting benefit from the loss carryforwards will first be used to reduce cost in excess of net assets of acquired companies, with any remaining benefit used to reduce other acquired intangible assets. A provision has not been made for U.S. or additional foreign taxes on $5,695,000 of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested overseas. F-24 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of income includes expenses from operating leases of $2,333,000, $2,171,000, and $2,818,000 in 1998, 1997, and 1996, respectively, net of sublease income of $847,000 and $893,000 in 1998 and 1997, respectively. Future minimum payments due under noncancelable operating leases at January 2, 1999, were $2,093,000 in 1999; $1,937,000 in 2000; $1,589,000 in 2001; $1,438,000 in 2002; $1,312,000 in 2003; and $1,580,000 in 2004 and thereafter. Total future minimum lease payments are $9,949,000 and have not been reduced by minimum sublease rental income of $3,744,000 due through 2004 and thereafter under noncancelable operating subleases. See Note 8 for office and manufacturing space leased from related parties. CONTINGENCIES The Company has received correspondence alleging that certain of its products infringe patents owned by third parties, though no lawsuits have been filed. The Company does not believe that its products infringe the intellectual property rights of these parties; however, given the inherent uncertainty of dispute resolution, there can be no assurance that the outcome of any such lawsuit, if filed, would not result in a material adverse effect on the Company's results of operations or financial position. 8. RELATED-PARTY TRANSACTIONS CORPORATE SERVICES AGREEMENT The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company currently pays Thermo Electron annually an amount equal to 0.8% of the Company's revenues. In 1997 and 1996, the Company paid an amount equal to 1.0% of the Company's revenues. For these services, the Company was charged $1,528,000, $1,989,000, and $1,232,000 in 1998, 1997, and 1996, respectively. The fee is reviewed and adjusted annually by mutual agreement of the parties. Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. OPERATING LEASES In addition to the operating leases discussed in Note 7, the Company leases certain office and manufacturing space from subsidiaries of Thermo Instrument under two leases expiring in 2000 and 2001. The accompanying statement of income includes expenses from these operating leases of $899,000, $602,000, and $208,000 in 1998, 1997, and 1996, respectively. At January 2, 1999, future minimum payments due under these leases are $906,000 in 1999, $739,000 in 2000, and $236,000 in 2001. Total future minimum lease payments under these leases are $1,881,000. F-25 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RELATED-PARTY TRANSACTIONS (CONTINUED) OTHER RELATED-PARTY TRANSACTIONS The Company purchases and sells products and services in the ordinary course of business with other companies affiliated with Thermo Electron. Sales of products to such affiliated companies totaled $1,215,000, $825,000, and $240,000 in 1998, 1997, and 1996, respectively. Purchases of products and services from such affiliated companies totaled $2,013,000, $2,226,000, and $1,310,000 in 1998, 1997, and 1996, respectively. During 1998, the Company sold a product line to Thermo Optek for $125,000. REPURCHASE AGREEMENT The Company invests excess cash in repurchase agreements with Thermo Electron as discussed in Notes 1 and 16. SHORT- AND LONG-TERM OBLIGATIONS The accompanying balance sheet includes the following amounts borrowed from Thermo Instrument and Thermo Electron to finance the acquisitions of certain companies (Note 3):
1998 1997 --------- --------- (IN THOUSANDS) Promissory Notes to Thermo Electron, Due: August 1998........................................................... $ -- $ 15,000 March 1999............................................................ 10,000 10,000 July 1999............................................................. 50,000 50,000 Promissory Note to Thermo Instrument, Due September 2001................ 7,300 7,300 --------- --------- $ 67,300 $ 82,300 --------- --------- --------- ---------
These notes bear interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. The interest rate for the notes outstanding at year-end 1998 and 1997 was 5.36% and 5.76%, respectively. 9. LINES OF CREDIT Unused amounts available under outstanding lines of credit were $3,345,000 and $3,249,000 at year-end 1998 and 1997, respectively. Borrowings under lines of credit are guaranteed by Thermo Electron or Thermo Instrument. 10. COMMON STOCK At January 2, 1999, the Company had reserved 1,672,000 unissued shares of its common stock for possible issuance under stock-based compensation plans. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, notes payable to Thermo Electron, accounts payable, due to affiliated companies, long-term obligations due to related party, and forward foreign exchange contracts. Available-for-sale investments were carried at fair value in the accompanying 1997 balance sheet (Note 2). The Company's long-term F-26 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) obligations (Note 8) bear interest at a variable market rate and, therefore, the carrying amounts approximate fair value. The carrying amounts of the Company's remaining financial instruments, with the exception of forward foreign exchange contracts, approximate fair value due to their short-term nature. The notional amounts of forward foreign exchange contracts outstanding totaled $1,519,000 and $2,041,000 at year-end 1998 and 1997, respectively. The fair value of the Company's forward foreign exchange contracts receivable was $19,000 and $3,000 at year-end 1998 and 1997, respectively. The fair value of such contracts is the estimated amount that the Company would receive upon termination of the contracts, taking into account the change in foreign exchange rates. 12. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION The Company organizes and manages its business by functional operating entity. The Company operates in three segments: Imaging and Inspection, Temperature Control, and Test and Measurement. In classifying operational entities into a particular segment, the Company aggregates businesses with similar economic characteristics, products and services, production processes, customers, and methods of distribution. The Company, through its Imaging and Inspection segment, designs, manufactures, and markets instruments and systems used in the analysis of material samples by industrial, academic, and government laboratories. Principal products manufactured by this segment include X-ray microanalysis systems that analyze the chemical composition of microscopic samples; X-ray sources for imaging, inspection, analytical, and thickness-gauging applications; X-ray imaging systems for quality-control inspections; systems for the rework and repair of printed circuit boards that have failed quality-control inspection; scanning probe microscopes that measure physical surface properties; and confocal laser scanning microscopes that create high-resolution three-dimensional images. The Temperature Control segment manufactures and markets precision temperature control systems for analytical, laboratory, industrial, research and development, laser, and semiconductor applications. The Test and Measurement segment manufactures data-acquisition systems, digital oscilloscopes, and recording systems used primarily in product development and process monitoring settings. F-27 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION (CONTINUED)
SIX MONTHS ENDED ---------------------- JULY 3, JULY 4, 1999 1998 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS) BUSINESS SEGMENT INFORMATION Revenues: Imaging and Inspection.................................... $ 41,879 $ 45,113 $ 85,824 $ 91,771 $ 67,711 Temperature Control....................................... 24,512 34,545 61,198 56,288 -- Test and Measurement...................................... 18,218 22,467 43,995 50,841 55,488 ---------- ---------- ---------- ---------- ---------- $ 84,609 $ 102,125 $ 191,017 $ 198,900 $ 123,199 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes: Imaging and Inspection.................................... $ 756 $ 3,056 $ 1,580 $ 7,422 $ 9,219 Temperature Control....................................... 1,378 4,498 7,070 6,698 -- Test and Measurement...................................... 1,145 1,184 (967) 2,713 3,942 Corporate (a)............................................. (995) (1,095) (1,740) (2,908) (2,436) ---------- ---------- ---------- ---------- ---------- Total operating income.................................... 2,284 7,643 5,943 13,925 10,725 Interest and other income (expense), net.................. (1,213) (1,603) (2,291) (3,525) 162 ---------- ---------- ---------- ---------- ---------- $ 1,071 $ 6,040 $ 3,652 $ 10,400 $ 10,887 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets: Imaging and Inspection.................................... $ 110,695 $ 104,026 $ 84,547 Temperature Control....................................... 77,356 83,509 -- Test and Measurement...................................... 42,227 43,658 50,926 Corporate (b)............................................. 19,604 22,204 17,012 ---------- ---------- ---------- $ 249,882 $ 253,397 $ 152,485 ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization: Imaging and Inspection.................................... $ 3,019 $ 2,896 $ 2,109 Temperature Control....................................... 2,469 1,911 -- Test and Measurement...................................... 1,582 1,808 2,384 Corporate................................................. 3 -- -- ---------- ---------- ---------- $ 7,073 $ 6,615 $ 4,493 ---------- ---------- ---------- ---------- ---------- ---------- Capital Expenditures: Imaging and Inspection.................................... $ 1,083 $ 1,857 $ 2,215 Temperature Control....................................... 477 516 -- Test and Measurement...................................... 621 222 547 Corporate................................................. 18 -- -- ---------- ---------- ---------- $ 2,199 $ 2,595 $ 2,762 ---------- ---------- ---------- ---------- ---------- ----------
F-28 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION (CONTINUED)
1998 1997 1996 ---------- ---------- ---------- (IN THOUSANDS) GEOGRAPHICAL INFORMATION Revenues (c): United States............................................. $ 165,363 $ 176,717 $ 94,493 Germany................................................... 11,495 12,217 14,673 England................................................... 10,853 12,546 14,260 Other..................................................... 29,324 25,393 19,291 Transfers among geographical areas (d).................... (26,018) (27,973) (19,518) ---------- ---------- ---------- $ 191,017 $ 198,900 $ 123,199 ---------- ---------- ---------- ---------- ---------- ---------- Long-lived Assets (e): United States............................................. $ 18,462 $ 20,684 $ 20,361 International............................................. 863 2,104 2,190 ---------- ---------- ---------- $ 19,325 $ 22,788 $ 22,551 ---------- ---------- ---------- ---------- ---------- ---------- Export Revenues Included in United States Revenues Above (f)....................................................... $ 59,413 $ 59,433 $ 36,472 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (a) Primarily general and administrative expenses. (b) Primarily cash, cash equivalents, and available-for-sale investments. (c) Revenues are attributed to countries based on selling location. (d) Transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (e) Includes property, plant, and equipment, net, and other long-term tangible assets. (f) In general, export revenues are denominated in U.S. dollars. F-29 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. EARNINGS PER SHARE Basic and diluted earnings per share were calculated as follows:
SIX MONTHS ENDED -------------------- JULY 3, JULY 4, 1999 1998 1998 1997 1996 --------- --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) BASIC Net income..................................... $ 556 $ 3,560 $ 1,825 $ 5,848 $ 6,617 --------- --------- --------- --------- --------- Weighted Average Shares........................ 15,338 15,322 15,324 14,694 12,437 --------- --------- --------- --------- --------- Basic Earnings per Share....................... $ .04 $ .23 $ .12 $ .40 $ .53 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- DILUTED Net Income..................................... $ 556 $ 3,560 $ 1,825 $ 5,848 $ 6,617 --------- --------- --------- --------- --------- Weighted Average Shares........................ 15,338 15,322 15,324 14,694 12,437 Effect of Stock Options........................ 92 22 30 112 133 --------- --------- --------- --------- --------- Weighted Average Shares, as Adjusted........... 15,430 15,344 15,354 14,806 12,570 --------- --------- --------- --------- --------- Diluted Earnings per Share..................... $ .04 $ .23 $ .12 $ .39 $ .53 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The computation of diluted earnings per share for each period excludes the effect of assuming the exercise of certain outstanding stock options because the effect would be antidilutive. As of January 2, 1999, there were 311,075 of such options outstanding, with exercise prices ranging from $11.03 to $17.15 per share. 14. COMPREHENSIVE INCOME During the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This pronouncement sets forth requirements for disclosure of the Company's comprehensive income and accumulated other comprehensive items. In general, comprehensive income combines net income and "Other comprehensive items, net," which represents certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses from available-for-sale investments. Accumulated other comprehensive items in the accompanying balance sheet consists of:
1998 1997 --------- --------- (IN THOUSANDS) Cumulative Translation Adjustment.......................................... $ (623) $ (1,035) Net Unrealized Gain on Available-for-sale Investments...................... -- 27 --------- --------- $ (623) $ (1,008) --------- --------- --------- ---------
F-30 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. UNAUDITED QUARTERLY INFORMATION
1998 FIRST SECOND THIRD(A) FOURTH - -------------------------------------------------------- --------- --------- --------- ----------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues................................................ $ 53,067 $ 49,058 $ 44,052 $ 44,840 Gross Profit............................................ 22,670 20,624 16,485 20,323 Net Income (Loss)....................................... 2,072 1,488 (2,503) 768 Basic and Diluted Earnings (Loss) per Share............. .14 .10 (.16) .05 1997 FIRST(B) SECOND THIRD FOURTH(C) - -------------------------------------------------------- --------- --------- --------- ----------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues................................................ $ 37,177 $ 49,692 $ 52,271 $ 59,760 Gross Profit............................................ 16,275 21,702 20,249 24,927 Net Income.............................................. 1,188 1,337 705 2,618 Basic and Diluted Earnings per Share.................... .09 .09 .05 .17
- ------------------------ (a) Reflects a $5.4 million pretax charge for restructuring and related costs. (b) Reflects the March 1997 acquisitions of NESLAB and PSI. (c) Reflects a $2.2 million gain from the sale of the Company's Linac business. 16. SUBSEQUENT EVENTS PROPOSED MERGER On May 21, 1999, the Company entered into a definitive agreement and plan of merger with Thermo Instrument pursuant to which Thermo Instrument would acquire all of the outstanding shares of Company common stock held by shareholders other than Thermo Instrument and Thermo Electron in exchange for $16.00 in cash per share, without interest. Following the merger, the Company's common stock would cease to be publicly traded. The Board of Directors of the Company unanimously approved the merger agreement based on a recommendation by a special committee of the Board of Directors, consisting solely of outside directors of the Company. The special committee's recommendation was based on extensive negotiations, related to the pricing and terms of this proposed transaction, with representatives of Thermo Instrument. The completion of this merger is subject to certain conditions, including shareholder approval of the merger agreement and the completion of review by the Securities and Exchange Commission of certain required filings. Thermo Electron and Thermo Instrument intend to vote all of their shares of common stock of the Company in favor of approval of the merger agreement and, therefore, approval of the merger agreement is assured. This merger is expected to be completed in the fourth quarter of 1999. CASH MANAGEMENT ARRANGEMENT Effective June 1, 1999, the Company and Thermo Electron commenced use of a new domestic cash management arrangement. Under the new arrangement, amounts advanced to Thermo Electron by the Company for domestic cash management purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points set at the beginning of each month. Thermo Electron is contractually required to maintain cash, cash equivalents, and/or immediately available bank lines of credit equal to at least 50% of all funds invested under this cash management arrangement by all Thermo Electron subsidiaries other than wholly owned subsidiaries. The Company has the contractual right to withdraw its funds invested in F-31 THERMOSPECTRA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) 16. SUBSEQUENT EVENTS (CONTINUED) the cash management arrangement upon 30 days' prior notice. Amounts invested in this arrangement are included in "advance to affiliate" in the accompanying balance sheet. In addition, under the new domestic cash management arrangement, amounts borrowed from Thermo Electron by the Company for domestic cash management purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 150 basis points, set at the beginning of each month. The Company has no borrowings under this arrangement as of July 3, 1999. F-32 APPENDIX A AGREEMENT AND PLAN OF MERGER BY AND AMONG THERMO INSTRUMENT SYSTEMS INC. TS ACQUISITION CORPORATION AND THERMOSPECTRA CORPORATION DATED AS OF MAY 21, 1999 A-1 ARTICLE I THE MERGER...................................................................... A-4 1.1. The Merger..................................................................... A-4 1.2. Effective Time; Closing........................................................ A-4 1.3. Effect of the Merger........................................................... A-5 1.4. Certificate of Incorporation; Bylaws........................................... A-5 1.5. Directors and Officers......................................................... A-5 1.6. Effect on Capital Stock........................................................ A-5 1.7. Surrender of Certificates...................................................... A-6 1.8. No Further Ownership Rights in ThermoSpectra Common Stock...................... A-7 1.9. Lost, Stolen or Destroyed Certificates......................................... A-7 1.10. Dissenting Shares.............................................................. A-7 1.11. Taking of Necessary Action; Further Action..................................... A-7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THERMOSPECTRA................................ A-8 2.1. Organization of ThermoSpectra.................................................. A-8 2.2. ThermoSpectra Capital Structure................................................ A-8 2.3. Authority...................................................................... A-8 2.4. Board Approval................................................................. A-9 2.5. Fairness Opinion............................................................... A-9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO INSTRUMENT AND MERGER SUB............................................................................... A-9 3.1. Organization................................................................... A-9 3.2. Authority...................................................................... A-9 3.3. Financial Resources............................................................ A-10 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................ A-10 4.1. Conduct of Business by ThermoSpectra........................................... A-10 4.2. Certain Actions by ThermoSpectra............................................... A-10 ARTICLE V ADDITIONAL AGREEMENTS........................................................... A-11 5.1. Schedule 13E-3; Proxy Statement; Other Filings................................. A-11 5.2. Meeting of ThermoSpectra Stockholders.......................................... A-12 5.3. Access to Information.......................................................... A-13 5.4. Public Disclosure.............................................................. A-13 5.5. Legal Requirements............................................................. A-13 5.6. Notification of Certain Matters................................................ A-13 5.7. Best Efforts and Further Assurances............................................ A-13 5.8. Stock Option and Employee Stock Purchase Plans................................. A-13 5.9. Thermo Instrument Form S-8..................................................... A-14 5.10. Indemnification; Insurance..................................................... A-14 5.11. Deferred Compensation Plan..................................................... A-15 ARTICLE VI CONDITIONS TO THE MERGER....................................................... A-15 6.1. Conditions to Obligations of Each Party to Effect the Merger................... A-15 6.2. Additional Conditions to Obligations of ThermoSpectra.......................... A-15 6.3. Additional Conditions to the Obligations of Thermo Instrument and Merger A-16 Sub............................................................................
A-2 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................................. A-16 7.1. Termination.................................................................... A-16 7.2. Notice of Termination; Effect of Termination................................... A-17 7.3. Fees and Expenses.............................................................. A-17 7.4. Amendment...................................................................... A-17 7.5. Extension; Waiver.............................................................. A-17 ARTICLE VIII GENERAL PROVISIONS........................................................... A-18 8.1. Non-Survival of Representations and Warranties................................. A-18 8.2. Notices........................................................................ A-18 8.3. Counterparts................................................................... A-18 8.4. Entire Agreement............................................................... A-18 8.5. Severability................................................................... A-19 8.6. Other Remedies; Specific Performance........................................... A-19 8.7. Governing Law.................................................................. A-19 8.8. Assignment..................................................................... A-19
A-3 AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of May 21, 1999 is by and among Thermo Instrument Systems Inc., a Delaware corporation ("Thermo Instrument"), TS Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Thermo Instrument ("Merger Sub"), and ThermoSpectra Corporation, a Delaware corporation ("ThermoSpectra"). RECITALS A. Thermo Instrument and its parent, Thermo Electron Corporation ("Thermo Electron"), own approximately 82% and 10%, respectively, of the outstanding shares of common stock, par value $.01 per share, of ThermoSpectra (the "ThermoSpectra Common Stock"), and Thermo Instrument desires to acquire the remaining outstanding shares of ThermoSpectra Common Stock. B. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), Thermo Instrument and ThermoSpectra will enter into a business combination transaction pursuant to which Merger Sub will merge with and into ThermoSpectra (the "Merger"). C. The Board of Directors of Thermo Instrument (i) has determined that the Merger is consistent with and in furtherance of the long-term business strategy of Thermo Instrument, and (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement. D. The Board of Directors of ThermoSpectra, on the recommendation of a special committee of the Board of Directors consisting of all directors of ThermoSpectra that are not (a) officers or directors of Thermo Instrument or Thermo Electron or (b) officers of ThermoSpectra (the "Special Committee") that this Agreement, including the Exchange Price (as defined below), is fair to, and in the best interests of, the stockholders of ThermoSpectra (other than Thermo Instrument and Thermo Electron), (i) has determined that the Merger is consistent with and in furtherance of the long-term business strategy of ThermoSpectra and fair to, and in the best interests of, ThermoSpectra and its stockholders, (ii) has approved and deemed advisable this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) has recommended the approval of this Agreement by the stockholders of ThermoSpectra. E. Thermo Instrument, ThermoSpectra and Merger Sub desire to make certain representations and warranties and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER 1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the DGCL, Merger Sub shall be merged with and into ThermoSpectra, the separate corporate existence of Merger Sub shall cease and ThermoSpectra shall continue as the surviving corporation. ThermoSpectra as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 1.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL (the time of such filing, or such later time as may be agreed in writing by the parties and specified in the Certificate of Merger, being the "Effective Time" and the date on which the Effective Time occurs being A-4 the "Effective Date") as soon as practicable on the Closing Date (as herein defined). Unless the context otherwise requires, the term "Agreement" as used herein refers collectively to this Agreement and the Certificate of Merger. The closing of the Merger (the "Closing") shall take place at the executive offices of Thermo Electron at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI, or at such other time, date and location as the parties hereto agree in writing (the "Closing Date"). At the Closing, (i) ThermoSpectra shall deliver to Thermo Instrument the various certificates and instruments required under Article VI, (ii) Thermo Instrument and Merger Sub shall deliver to ThermoSpectra the various certificates and instruments required under Article VI and (iii) ThermoSpectra and Merger Sub shall execute and file the Certificate of Merger with the Secretary of State of the State of Delaware. 1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of ThermoSpectra and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of ThermoSpectra and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4. CERTIFICATE OF INCORPORATION; BYLAWS. (a) At the Effective Time, the Certificate of Incorporation of ThermoSpectra, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation. (b) The Bylaws of ThermoSpectra, as in effect immediately prior to the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving Corporation until thereafter amended. 1.5. DIRECTORS AND OFFICERS. The directors of ThermoSpectra immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, to serve until their respective successors are duly elected or appointed and qualified. The officers of ThermoSpectra immediately prior to the Effective Time shall be the officers of the Surviving Corporation, to serve until their successors are duly elected or appointed or qualified. 1.6. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, ThermoSpectra or the holders of any of the following securities: (a) CONVERSION OF THERMOSPECTRA COMMON STOCK. Each share of ThermoSpectra Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares of ThermoSpectra Common Stock held in the treasury of ThermoSpectra, by Thermo Instrument or Thermo Electron or Dissenting Shares, as defined in Section 1.10 hereof) will be automatically converted into the right to receive Sixteen Dollars ($16.00) in cash (the "Exchange Price") upon surrender of the certificate representing such share of ThermoSpectra Common Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.9). (b) STOCK OPTIONS. All options to purchase ThermoSpectra Common Stock then outstanding under the Park Scientific Instruments Corporation 1988 Incentive Stock Plan, ThermoSpectra's Equity Incentive Plan, ThermoSpectra's Employees Equity Incentive Plan and ThermoSpectra's Directors' Stock Option Plan, each as amended (together, the "ThermoSpectra Stock Option Plans"), shall be converted into options to purchase Thermo Instrument common stock, par value $.10 per share ("Thermo Instrument Common Stock"), in accordance with Section 5.8 hereof. (c) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall cease to be A-5 outstanding, be cancelled and retired without payment of any consideration therefor and cease to exist. (d) TREASURY STOCK; AFFILIATE STOCK. Each share of ThermoSpectra Common Stock issued and outstanding and owned by Thermo Instrument and Thermo Electron shall be converted into one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. All treasury shares held by ThermoSpectra immediately prior to the Effective Time shall cease to be outstanding, be cancelled and retired without payment of any consideration therefor and cease to exist. (e) ADJUSTMENTS TO EXCHANGE PRICE. The Exchange Price shall be adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into ThermoSpectra Common Stock), recapitalization or other like change without receipt of consideration with respect to ThermoSpectra Common Stock occurring on or after the date hereof and prior to the Effective Time. 1.7. SURRENDER OF CERTIFICATES. (a) PAYMENT AGENT. Thermo Instrument shall authorize one or more persons to act as the payment agent (the "Payment Agent") in the Merger. (b) THERMO INSTRUMENT TO PROVIDE EXCHANGE CONSIDERATION. Immediately prior to the Effective Time, Thermo Instrument shall deposit with the Payment Agent, in trust for the benefit of the holders of certificates (the "Certificates") representing shares of ThermoSpectra Common Stock converted pursuant to Section 1.6(a) for payment in accordance with this Article I, cash in an amount equal to the product of the Exchange Price multiplied by the number of shares of ThermoSpectra Common Stock entitled to conversion for payment pursuant to Section 1.6(a). (c) EXCHANGE PROCEDURES. Promptly after, and in no event more than five days after, the Effective Time, Thermo Instrument shall cause the Payment Agent to mail to each holder of record (as of the Effective Time) of a Certificate (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Payment Agent and shall be in such form and have such other provisions as Thermo Instrument may reasonably specify) and (ii) instructions for effecting the exchange of the Certificates for the Exchange Price. Upon surrender of a Certificate for cancellation to the Payment Agent or to such other agent or agents as may be appointed by Thermo Instrument, together with such letter of transmittal duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor payment of the Exchange Price multiplied by the number of shares of ThermoSpectra Common Stock represented by such Certificate, without interest, and the Certificate so surrendered shall forthwith be cancelled. Until so surrendered, each outstanding Certificate will be deemed from and after the Effective Time, for all corporate purposes, to evidence only the right to receive payment of the Exchange Price for each share of ThermoSpectra Common Stock represented on such Certificate. (d) TRANSFERS OF OWNERSHIP. If payment of the Exchange Price is to be made to any person other than the person in whose name the Certificate surrendered in exchange therefor is registered, it will be a condition of such payment that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such payment will have paid to Thermo Instrument or any agent designated by it any transfer or other taxes required by reason of payment to a person other than the registered holder of the Certificate surrendered, or established to the satisfaction of Thermo Instrument or any agent designated by it that such tax has been paid or is not payable. (e) NO LIABILITY. Notwithstanding anything to the contrary in this Section 1.7, neither the Payment Agent, Thermo Instrument, the Surviving Corporation nor any party hereto shall be liable to A-6 a holder of shares of ThermoSpectra Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) RESPONSIBILITY; TERM. The Payment Agent shall make the payments referred to in Section 1.6(a) out of the funds supplied by Thermo Instrument. Promptly following the date that is six months after the Effective Date, the Payment Agent shall, upon request by Thermo Instrument, deliver to Thermo Instrument all cash, Certificates and other documents in its possession relating to the transactions described in this Agreement, and the Payment Agent's duties shall terminate. Thereafter, each holder of a Certificate formerly representing shares of ThermoSpectra Common Stock may surrender such Certificate to Thermo Instrument and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor the Exchange Price multiplied by the number of shares of ThermoSpectra Common Stock represented by such Certificate, without any interest thereon, but shall have no greater rights against Thermo Instrument than as may be accorded to general creditors of Thermo Instrument under applicable law. 1.8. NO FURTHER OWNERSHIP RIGHTS IN THERMOSPECTRA COMMON STOCK. All amounts paid upon the surrender of shares of ThermoSpectra Common Stock in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of ThermoSpectra Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of ThermoSpectra Common Stock that were outstanding immediately prior to the Effective Time. If after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged for rights to receive the applicable aggregate Exchange Price as provided in this Article I. 1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates shall have been lost, stolen or destroyed, the Payment Agent shall pay the aggregate Exchange Price in respect of such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof; provided, however, that, as a condition precedent to the payment thereof, the owner of such lost, stolen or destroyed Certificates shall deliver a bond in such sum as Thermo Instrument or the Payment Agent may reasonably direct as indemnity against any claim that may be made against Thermo Instrument or the Payment Agent with respect to the Certificates alleged to have been lost, stolen or destroyed, unless Thermo Instrument waives such requirement in writing. 1.10. DISSENTING SHARES. Notwithstanding any other provision of this Agreement, shares of ThermoSpectra Common Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have demanded properly in writing appraisal of such shares in accordance with DGCL Section 262 and who shall not have withdrawn such demand or otherwise forfeited appraisal rights (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Exchange Price. Such stockholders shall, as of the Effective Time, cease to retain any rights with respect to the ThermoSpectra Common Stock, except as provided in the DGCL, including the right to receive payment of the appraised value of the shares held by them in accordance with the provisions of Section 262, provided that all Dissenting Shares held by stockholders (i) who shall have failed to perfect or lost their rights to appraisal of such shares under Section 262, or (ii) who have withdrawn their demand for appraisal within 60 days after the Effective Date and accept the terms offered upon the Merger in accordance with Section 262(e), shall thereupon be, or be deemed to have been, converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Exchange Price, upon surrender, in the manner provided in Section 1.7, of the Certificates that formerly evidenced such shares without the prior consent of Thermo Instrument. 1.11. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of ThermoSpectra and Merger Sub, the officers and directors of ThermoSpectra and A-7 Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action, so long as such action is consistent with this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THERMOSPECTRA ThermoSpectra represents and warrants to Thermo Instrument and Merger Sub as follows: 2.1. ORGANIZATION OF THERMOSPECTRA. ThermoSpectra and each of its subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, has the corporate or similar power to own, lease and operate its property and to carry on its business as now being conducted and as proposed by ThermoSpectra to be conducted, and is duly qualified to do business and in good standing as a foreign corporation or other legal entity in each jurisdiction in which the failure to be so qualified would have a material adverse effect on ThermoSpectra. 2.2. THERMOSPECTRA CAPITAL STRUCTURE. The authorized capital stock of ThermoSpectra consists of 25,000,000 shares of Common Stock, par value $.01 per share, of which there were 15,335,839 shares issued and outstanding as of April 3, 1999, and 423 shares in treasury as of April 3, 1999. All outstanding shares of ThermoSpectra Common Stock are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of ThermoSpectra or any agreement or document to which ThermoSpectra is a party or by which it is bound. As of May 5, 1999, an aggregate of 1,650,043 shares of ThermoSpectra Common Stock, net of exercises, were reserved for issuance to employees, consultants and non-employee directors pursuant to the ThermoSpectra Stock Option Plans, under which options are outstanding for an aggregate of 1,188,655 shares. All shares of ThermoSpectra Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. 2.3. AUTHORITY. (a) ThermoSpectra has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of ThermoSpectra, subject only to the adoption of this Agreement by ThermoSpectra's stockholders and the filing and recording of the Certificate of Merger pursuant to the DGCL. Under the DGCL, ThermoSpectra's stockholders may adopt this Agreement by vote of the holders of a majority of the outstanding shares of ThermoSpectra Common Stock. This Agreement has been duly executed and delivered by ThermoSpectra, and assuming the due authorization, execution and delivery by Thermo Instrument and Merger Sub, constitutes the valid and binding obligation of ThermoSpectra, enforceable in accordance with its terms. The execution and delivery of this Agreement by ThermoSpectra do not, and the performance of this Agreement by ThermoSpectra will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of ThermoSpectra, (ii) subject to obtaining the adoption by ThermoSpectra's stockholders of this Agreement as contemplated in Section 5.2 and compliance with the requirements set forth in Section 2.3(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to ThermoSpectra or any of its material subsidiaries or by which its or their respective properties is bound, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the rights of ThermoSpectra or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of ThermoSpectra or any of its material subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument A-8 or obligation to which ThermoSpectra or any of its material subsidiaries is a party or by which ThermoSpectra or any of its material subsidiaries or its or any of their properties are bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, defaults or other occurrences that would not have a material adverse effect on ThermoSpectra or the Surviving Corporation. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other governmental or regulatory body or authority or instrumentality ("Governmental Entity") is required by or with respect to ThermoSpectra in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of Delaware, (ii) the filing of the Proxy Statement (as defined in Section 5.1) and the Schedule 13E-3 (as defined in Section 5.1) with the U.S. Securities and Exchange Commission ("SEC") in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (iii) such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws. 2.4. BOARD APPROVAL. The Board of Directors of ThermoSpectra, upon recommendation of the Special Committee that this Agreement, including the Exchange Price, is fair to, and in the best interests of, the stockholders of ThermoSpectra (other than Thermo Instrument and Thermo Electron), has, as of the date of this Agreement, unanimously (i) adopted a resolution approving this Agreement and declaring its advisability, (ii) determined that the Merger is fair to, and in the best interests of, ThermoSpectra and its stockholders, and (iii) determined to recommend that the stockholders of ThermoSpectra approve this Agreement. 2.5. FAIRNESS OPINION. The Special Committee of ThermoSpectra has received an opinion from Tucker Anthony Incorporated dated May 21, 1999 that, as of such date, the consideration to be received by ThermoSpectra's stockholders in the Merger is fair, from a financial point of view, to ThermoSpectra's stockholders other than Thermo Instrument and Thermo Electron. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO INSTRUMENT AND MERGER SUB Thermo Instrument and Merger Sub represent and warrant to ThermoSpectra as follows: 3.1. ORGANIZATION. Thermo Instrument is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, each has the corporate power to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on Thermo Instrument or Merger Sub. 3.2. AUTHORITY. (a) Each of Thermo Instrument and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Thermo Instrument and Merger Sub, subject only to the filing and recording of the Certificate of Merger pursuant to the DGCL. This Agreement has been duly executed and delivered by each of Thermo Instrument and Merger Sub and, assuming the due authorization, execution and delivery of this Agreement by ThermoSpectra, this Agreement constitutes the valid and binding obligation of each of Thermo Instrument and Merger Sub, enforceable in accordance with its terms. The execution and delivery of A-9 this Agreement by each of Thermo Instrument and Merger Sub do not, and the performance of this Agreement by each of Thermo Instrument and Merger Sub will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of Thermo Instrument or the Certificate of Incorporation or Bylaws of Merger Sub, (ii) subject to compliance with the requirements set forth in Section 3.2(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Thermo Instrument or any of its material subsidiaries (including Merger Sub, but excluding ThermoSpectra and its subsidiaries) or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Thermo Instrument's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Thermo Instrument or any of its material subsidiaries (including Merger Sub, but excluding ThermoSpectra and its subsidiaries) pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Thermo Instrument or any of its material subsidiaries (including Merger Sub, but excluding ThermoSpectra and its subsidiaries) is a party or by which Thermo Instrument or any of its material subsidiaries (including Merger Sub, but excluding ThermoSpectra and its subsidiaries) or its or any of their respective properties are bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, defaults or other occurrences that would not have a material adverse effect on Thermo Instrument or Merger Sub. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity is required by or with respect to Thermo Instrument or Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of Delaware, (ii) the filing of the Schedule 13E-3 (as defined in Section 5.1) with the SEC in accordance with the Exchange Act, and (iii) such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws. 3.3. FINANCIAL RESOURCES. Thermo Instrument has the financial resources to consummate the transactions contemplated by this Agreement and to pay the consideration in the Merger provided for in Section 1.6(a). ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1. CONDUCT OF BUSINESS BY THERMOSPECTRA. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, ThermoSpectra shall, except as otherwise contemplated by this Agreement or consented to by Thermo Instrument, carry on its business in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted, pay its debts and taxes when due subject to good faith disputes over such debts or taxes, pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. 4.2. CERTAIN ACTIONS BY THERMOSPECTRA. In addition, notwithstanding Section 4.1 above, without the prior consent of Thermo Instrument, ThermoSpectra shall not do any of the following: (a) Waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange for any options granted under any of such plans; A-10 (b) Enter into any material partnership arrangements, joint development agreements or strategic alliances; (c) Grant any severance or termination pay to any officer or employee except payments in amounts consistent with policies and past practices or pursuant to written agreements outstanding, or policies existing, on the date hereof, or adopt any new severance plan; (d) Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock; (e) Issue, deliver, sell, authorize or propose the issuance, delivery or sale of, any shares of capital stock or any securities convertible into shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into shares of capital stock, or enter into other agreements or commitments of any character obligating it to issue any such shares or convertible securities, other than the issuance of shares of ThermoSpectra Common Stock pursuant to the exercise of stock options therefor; (f) Cause, permit or propose any amendments to its Certificate of Incorporation or Bylaws; (g) Acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a material portion of the assets of, or by any other manner, any business or any corporation, partnership interest, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets or enter into any joint ventures, strategic partnerships or alliances; (h) Sell, lease, license, encumber or otherwise dispose of any properties or assets that are material, individually or in the aggregate, to the business of ThermoSpectra; (i) Incur any indebtedness for borrowed money (other than ordinary course trade payables or pursuant to existing credit facilities in the ordinary course of business) or guarantee any such indebtedness or issue or sell any debt securities or warrants or guarantee any debt securities of others; (j) Adopt or amend any employee benefit or stock purchase or option plan, or enter into any employment contract, pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its officers or employees, except increases in amounts consistent with policies and past practices; (k) Pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business; (l) Make any grant of exclusive rights to any third party; or (m) Agree in writing or otherwise to take any of the actions described in this Section 4.2. ARTICLE V ADDITIONAL AGREEMENTS 5.1. SCHEDULE 13E-3; PROXY STATEMENT; OTHER FILINGS. (a) ThermoSpectra agrees that the information supplied by ThermoSpectra for inclusion or incorporation by reference in the Rule 13e-3 Transaction Statement on Schedule 13E-3 (such Schedule, as amended or supplemented, is referred to herein as the "Schedule 13E-3") or the proxy statement to be sent to the stockholders of ThermoSpectra in connection with the meeting of ThermoSpectra's stockholders to consider the adoption of this Agreement and approval of the Merger A-11 (the "ThermoSpectra Stockholders' Meeting") (such proxy statement, as amended or supplemented, is referred to herein as the "Proxy Statement") shall not, on the date the Proxy Statement is first mailed to ThermoSpectra's stockholders and at the time of the ThermoSpectra Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier written communication with respect to the solicitation of proxies for the ThermoSpectra Stockholders' Meeting or the Schedule 13E-3 that has become false or misleading. (b) Thermo Electron, Thermo Instrument and Merger Sub agree that the information supplied by Thermo Electron, Thermo Instrument and Merger Sub for inclusion in the Schedule 13E-3 and the Proxy Statement shall not, on the date the Proxy Statement is first mailed to ThermoSpectra's stockholders, and at the time of the ThermoSpectra Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier written communication with respect to the solicitation of proxies for the ThermoSpectra Stockholders' Meeting or the Schedule 13E-3 that has become false or misleading. (c) As promptly as practicable after the execution of this Agreement, Thermo Electron, Thermo Instrument and ThermoSpectra will jointly prepare and file with the SEC the Schedule 13E-3 and the Proxy Statement. Thermo Electron, Thermo Instrument and ThermoSpectra will cause the Schedule 13E-3 and the Proxy Statement to be mailed to stockholders of ThermoSpectra at the earliest practicable time. Each party will notify the other promptly upon the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Schedule 13E-3 or the Proxy Statement or any other filing or for additional information and will supply the other party with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Proxy Statement, the Schedule 13E-3 or the Merger. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Schedule 13E-3 or the Proxy Statement, the relevant party will promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of ThermoSpectra, such amendment or supplement. (d) The Proxy Statement will include the recommendation of the Board of Directors of ThermoSpectra in favor of approval of this Agreement (except that the Board of Directors of ThermoSpectra may withdraw, modify or refrain from making such recommendation to the extent that the Board determines in good faith on the written advice of outside legal counsel that the Board's fiduciary duties under applicable law require it to do so). 5.2. MEETING OF THERMOSPECTRA STOCKHOLDERS. Promptly after the date hereof, ThermoSpectra will take all action necessary in accordance with the DGCL and its Certificate of Incorporation and Bylaws to convene the ThermoSpectra Stockholders' Meeting to be held as promptly as practicable for the purpose of voting upon this Agreement. Unless otherwise required by the fiduciary duties of the ThermoSpectra Board of Directors, ThermoSpectra will use its best efforts to solicit from its stockholders proxies in favor of the approval of this Agreement and the Merger, and will take all other action necessary or advisable to secure the vote or consent of its stockholders required by the DGCL to obtain such approvals. Each of Thermo Instrument and Thermo Electron shall vote, or cause to be voted, all of the ThermoSpectra Common Stock then owned by it and any of its subsidiaries in favor of the approval of this Agreement and the Merger. A-12 5.3. ACCESS TO INFORMATION. ThermoSpectra will afford Thermo Instrument and its accountants, counsel and other representatives reasonable access during normal business hours to the properties, books, records and personnel of ThermoSpectra during the period prior to the Effective Time to obtain all information concerning the business, including the status of product development efforts, properties, results of operations and personnel of ThermoSpectra, as Thermo Instrument may reasonably request. Thermo Instrument agrees that it will, and will cause its representatives and agents to, keep all such information confidential and will not, and will cause its representatives or agents not to, use any information obtained pursuant to this Section 5.3 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing, Thermo Instrument shall not be required to keep confidential any information (i) which is or becomes generally available to the public, other than by wrongful disclosure by Thermo Instrument or Merger Sub in violation of this Agreement, (ii) which was available to Thermo Instrument on a nonconfidential basis prior to disclosure to Thermo Instrument, or (iii) which becomes available to Thermo Instrument on a nonconfidential basis from a source other than ThermoSpectra. 5.4. PUBLIC DISCLOSURE. Thermo Instrument and ThermoSpectra will consult with each other before issuing any press release or otherwise making any public statement with respect to the Merger or this Agreement and will not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange. 5.5. LEGAL REQUIREMENTS. Each of Thermo Instrument, Merger Sub and ThermoSpectra will take all reasonable actions necessary or desirable to comply promptly with all legal requirements that may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement (including furnishing all information required in connection with approvals of or filings with any Governmental Entity, and including using its reasonable best efforts to defend any litigation prompted hereby) and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon any of them or their respective subsidiaries in connection with the consummation of the transactions contemplated by this Agreement. 5.6. NOTIFICATION OF CERTAIN MATTERS. Thermo Instrument and Merger Sub will give prompt notice to ThermoSpectra, and ThermoSpectra will give prompt notice to Thermo Instrument, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be reasonably likely to cause (a) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time, or (b) any material failure of Thermo Instrument and Merger Sub or ThermoSpectra, as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the above, the delivery of any notice pursuant to this section will not limit or otherwise affect the remedies available hereunder to the party receiving such notice or the conditions to such party's obligation to consummate the Merger. 5.7. BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights and obligations of Thermo Instrument and ThermoSpectra under this Agreement, each of the parties to this Agreement will use its reasonable best efforts to effectuate the Merger and the other transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement, it being understood that such efforts shall not include any obligation to settle any litigation prompted hereby. Each party hereto, at the reasonable request of another party hereto, will execute and deliver such other instruments and do and perform such other acts and things as may be reasonably necessary or desirable for effecting completely the consummation of the transactions contemplated hereby. 5.8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS. (a) At the Effective Time, each outstanding option to purchase shares of ThermoSpectra Common Stock (each a "ThermoSpectra Stock Option") under the ThermoSpectra Stock Option Plans, whether or not exercisable, will be assumed by Thermo Instrument. Each ThermoSpectra Stock A-13 Option so assumed by Thermo Instrument under this Agreement will continue to have, and be subject to, the same terms and conditions set forth in the applicable ThermoSpectra Stock Option Plan immediately prior to the Effective Time (including, without limitation, any repurchase rights), except that (i) each ThermoSpectra Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Thermo Instrument Common Stock equal to the product of the number of shares of ThermoSpectra Common Stock that were issuable upon exercise of such ThermoSpectra Stock Option immediately prior to the Effective Time multiplied by a fraction (the "Exchange Ratio"), the numerator of which is the Exchange Price and the denominator of which is the closing price of the Thermo Instrument Common Stock on the day immediately preceding the Effective Date as reported by the American Stock Exchange, rounded down to the nearest whole number of shares of Thermo Instrument Common Stock, and (ii) the per share exercise price for the shares of Thermo Instrument Common Stock issuable upon exercise of such assumed ThermoSpectra Stock Option will be equal to the quotient determined by dividing the exercise price per share of ThermoSpectra Common Stock at which such ThermoSpectra Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. After the Effective Time, Thermo Instrument will issue to each holder of an outstanding ThermoSpectra Stock Option a notice describing the foregoing assumption of such ThermoSpectra Stock Option by Thermo Instrument. (b) At the Effective Time, each outstanding option to purchase shares of ThermoSpectra Common Stock (each, a "ThermoSpectra ESPP Stock Option") under the ThermoSpectra Employees' Stock Purchase Plan ("ThermoSpectra ESPP") will be assumed by Thermo Instrument. Each ThermoSpectra ESPP Stock Option so assumed by Thermo Instrument will continue to have, and be subject to, the same terms and conditions as are set forth in the ThermoSpectra ESPP immediately prior to the Effective Time except that (i) the assumed option shall be exercisable for shares of Thermo Instrument Common Stock; (ii) the purchase price per share of Thermo Instrument Common Stock shall be the lower of (A) eighty-five percent (85%) of (x) the per-share Market Value of ThermoSpectra Common Stock on the Grant Date divided by (y) the Exchange Ratio, with the resulting price rounded up to the nearest whole cent, and (B) eighty-five percent (85%) of the Market Value of Thermo Instrument Common Stock as of the Exercise Date; and (iii) the $25,000 limit under Section 9.2(i) of the ThermoSpectra ESPP shall be applied by taking into account Thermo Instrument's assumption of the ThermoSpectra ESPP Stock Options in accordance with Section 423(b)(8) of the Internal Revenue Code of 1986, as amended, and applicable regulations. For purposes of this subsection, "Market Value," "Grant Date," and "Exercise Date" shall have the meaning given them in the ThermoSpectra ESPP. (c) Thermo Instrument will reserve sufficient shares of Thermo Instrument Common Stock for issuance under this Section 5.8. 5.9. THERMO INSTRUMENT FORM S-8. Thermo Instrument agrees to file a registration statement on Form S-8 or, if required, an amendment to Thermo Instrument's then effective registration statement on Form S-8, for (i) the shares of Thermo Instrument Common Stock issuable with respect to the assumed ThermoSpectra Stock Options no later than the Closing Date and (ii) for the shares of Thermo Instrument Common Stock issuable with respect to the assumed ThermoSpectra ESPP Stock Options no later than October 31, 1999, and shall, in each case, keep such registration statement effective for so long as any such options remain outstanding. 5.10. INDEMNIFICATION; INSURANCE. (a) From and for a period of six (6) years after the Effective Time, Thermo Instrument will and will cause the Surviving Corporation to fulfill and honor in all respects the indemnification obligations of ThermoSpectra pursuant to the provisions of the Certificate of Incorporation and the Bylaws of ThermoSpectra as in effect immediately prior to the Effective Time. The Certificate of Incorporation A-14 and Bylaws of the Surviving Corporation will contain the provisions with respect to indemnification and elimination of liability for monetary damages set forth in the Certificate of Incorporation and Bylaws of ThermoSpectra, which provisions will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who, at the Effective Time, were directors or officers of ThermoSpectra, unless such modification is required by law. (b) For a period of six (6) years after the Effective Time, Thermo Instrument shall cause the Surviving Corporation to, either directly or through participation in Thermo Electron's umbrella policy, maintain in effect a directors' and officers' liability insurance policy covering those ThermoSpectra directors and officers currently covered by Thermo Electron's liability insurance policy with coverage providing substantially the same amount and scope as existing coverage for such ThermoSpectra directors and officers (which coverage may be an endorsement extending the period in which claims may be made under such existing policy); provided, however, that in no event shall the Surviving Corporation be required to expend to maintain or procure insurance coverage pursuant to this Section 5.10, directly or through participation in Thermo Electron's policy, an amount per annum in excess of 175% of the current annual premiums, as adjusted for inflation each year, allocable and payable by ThermoSpectra (the "Maximum Premium") with respect to such insurance, or, if the cost of such insurance exceeds the Maximum Premium, the maximum amount of coverage that can be purchased or maintained for the Maximum Premium. 5.11. DEFERRED COMPENSATION PLAN. At the Effective Time, the ThermoSpectra deferred compensation plan for directors (the "Deferred Compensation Plan") will terminate, and ThermoSpectra will distribute to each participant the sum in cash equal to the balance of stock units credited to his or her deferred compensation account under the Deferred Compensation Plan as of the Effective Time multiplied by the Exchange Price. ARTICLE VI CONDITIONS TO THE MERGER 6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) STOCKHOLDER APPROVAL. This Agreement shall have been approved and adopted by the requisite vote under the DGCL by the stockholders of ThermoSpectra. (b) NO ORDER. No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. 6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THERMOSPECTRA. The obligations of ThermoSpectra to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by ThermoSpectra: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Thermo Instrument and Merger Sub contained in this Agreement shall be true and correct on and as of the Effective Time, except for changes contemplated by this Agreement and except for those representations and warranties that address matters only as of a particular date (which shall remain true and correct as of such particular date), with the same force and effect as if made on and as of the Effective Time, except, in all such cases, where the failure to be so true and correct would not have a material adverse effect on Thermo Instrument; and ThermoSpectra shall have received a certificate to such effect A-15 signed on behalf of Thermo Instrument by the President, Chief Executive Officer or Vice President of Thermo Instrument; and (b) AGREEMENTS AND COVENANTS. Thermo Instrument and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and ThermoSpectra shall have received a certificate to such effect signed on behalf of Thermo Instrument by the President, Chief Executive Officer or Vice President of Thermo Instrument. 6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO INSTRUMENT AND MERGER SUB. The obligations of Thermo Instrument and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by Thermo Instrument: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of ThermoSpectra contained in this Agreement shall be true and correct on and as of the Effective Time, except for changes contemplated by this Agreement and except for those representations and warranties that address matters only as of a particular date (which shall remain true and correct as of such particular date), with the same force and effect as if made on and as of the Effective Time, except, in all such cases, where the failure to be so true and correct would not have a material adverse effect on ThermoSpectra; and Thermo Instrument and Merger Sub shall have received a certificate to such effect signed on behalf of ThermoSpectra by the President, Chief Executive Officer or Vice President of ThermoSpectra; and (b) AGREEMENTS AND COVENANTS. ThermoSpectra shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and Thermo Instrument shall have received a certificate to such effect signed on behalf of ThermoSpectra by the President, Chief Executive Officer or Vice President of ThermoSpectra. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.1. TERMINATION. This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after approval of this Agreement by the stockholders of ThermoSpectra: (a) by mutual written consent duly authorized by the Boards of Directors of Thermo Instrument and ThermoSpectra (upon approval of the Special Committee); (b) by either ThermoSpectra (upon approval of the Special Committee) or Thermo Instrument if the Merger shall not have been consummated by October 31, 1999; provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date if such action or failure to act constitutes a breach of this Agreement; (c) by either ThermoSpectra (upon approval of the Special Committee) or Thermo Instrument if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action (an "Order"), in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree or ruling is final and nonappealable; (d) by either ThermoSpectra (upon approval of the Special Committee) or Thermo Instrument if the required approval of the stockholders of ThermoSpectra contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote upon a vote taken at a meeting of stockholders duly convened therefor or at any adjournment thereof (provided that the A-16 right to terminate this Agreement under this Section 7.1(d) shall not be available to ThermoSpectra where the failure to obtain stockholder approval of ThermoSpectra shall have been caused by the action or failure to act of ThermoSpectra in breach of this Agreement and the right to terminate this Agreement under this Section 7.1(d) shall not be available to Thermo Instrument where the failure to obtain the requisite vote by the stockholders of ThermoSpectra shall have been caused by the failure of Thermo Instrument or Thermo Electron to vote their respective shares of ThermoSpectra Common Stock in favor of the Merger and this Agreement); (e) by ThermoSpectra if the ThermoSpectra Board of Directors (upon approval of the Special Committee) determines in good faith on the advice of outside legal counsel that the Board's fiduciary duties under applicable law require it to do so; (f) by ThermoSpectra (upon approval of the Special Committee), upon a breach of any representation, warranty, covenant or agreement on the part of Thermo Instrument set forth in this Agreement, if (i) as a result of such breach the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of such breach and (ii) such breach shall not have been cured by Thermo Instrument within ten (10) business days following receipt by Thermo Instrument of written notice of such breach from ThermoSpectra; or (g) by Thermo Instrument, upon a breach of any representation, warranty, covenant or agreement on the part of ThermoSpectra set forth in this Agreement, if (i) as a result of such breach the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such breach and (ii) such breach shall not have been cured by ThermoSpectra within ten (10) business days following receipt by ThermoSpectra of written notice of such breach from Thermo Instrument. 7.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this Agreement under Section 7.1 above will be effective immediately upon the delivery of written notice by the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except that (i) the confidentiality obligations of Thermo Instrument contained in Section 5.3 shall survive any such termination and (ii) nothing herein shall relieve any party from liability for any breach of this Agreement. 7.3. FEES AND EXPENSES. All fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated. 7.4. AMENDMENT. Subject to applicable law, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto; provided, however, that ThermoSpectra may not amend this Agreement without the approval of the Special Committee. 7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein; provided, however, that ThermoSpectra may not take any such actions without the approval of the Special Committee. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. A-17 ARTICLE VIII GENERAL PROVISIONS 8.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of ThermoSpectra, Thermo Instrument and Merger Sub contained in this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time shall survive the Effective Time. 8.2. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice): (a) if to Thermo Instrument or Merger Sub, to: Thermo Instrument Systems Inc. 860 West Airport Freeway, Suite 301 Hurst, TX 76054 Attention: President Telephone: (817) 485-6663 Facsimile: (817) 485-8256 with a copy to: Thermo Electron Corporation 81 Wyman Street Waltham, MA 02454 Attention: General Counsel Telephone: (781) 622-1000 Facsimile: (781) 622-1283 (b) if to ThermoSpectra, to: ThermoSpectra Corporation 8 East Forge Parkway Franklin, MA 02038 Attention: President Telephone: (508) 528-0551 Facsimile: (508) 520-9570 with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attention: Richard A. Soden, Esq. Telephone: (617) 570-1533 Facsimile: (617) 523-1231 8.3. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. A-18 8.4. ENTIRE AGREEMENT. This Agreement and the documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (b) are not intended to confer upon any other person any rights or remedies hereunder, except as set forth herein. 8.5. SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.6. OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.7. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof, except to the extent that the DGCL applies. 8.8. ASSIGNMENT. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties. [The rest of this page intentionally left blank.] A-19 IN WITNESS WHEREOF, Thermo Instrument, Merger Sub and ThermoSpectra have caused this Agreement to be signed by themselves or their duly authorized respective officers, all as of the date first written above. THERMO INSTRUMENT SYSTEMS INC. By: /s/ EARL R. LEWIS ----------------------------------------- Name: Earl R. Lewis Title: President and Chief Executive Officer
TS ACQUISITION CORPORATION By: /s/ EARL R. LEWIS ----------------------------------------- Name: Earl R. Lewis Title: President
THERMOSPECTRA CORPORATION By: /s/ THEO MELAS-KYRIAZI ----------------------------------------- Name: Theo Melas-Kyriazi Title: Chairman of the Board and Chief Financial Officer
Thermo Electron Corporation joins this Agreement for the specific purpose of consenting to the provisions of Section 1.6 hereof and agreeing to perform its obligations under Sections 5.1 and 5.2 hereof. THERMO ELECTRON CORPORATION By: /s/ SANDRA L. LAMBERT ----------------------------------------- Name: Sandra L. Lambert Title: Vice President and Secretary
A-20 APPENDIX B TUCKER CLEARY May 21, 1999 Special Committee of the Board of Directors ThermoSpectra Corporation 8 East Forge Parkway Franklin, MA 02038 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, of the consideration to be received by the minority shareholders of ThermoSpectra Corporation (the "Company" or "THS") pursuant to an Agreement and Plan of Merger (the "Merger Agreement") by and between the Company and Thermo Instrument Systems Inc. ("THI"). We understand that at the time of the merger (the "Merger") each share of common stock, par value $0.01 per share of the Company (the "Common Stock"), other than shares held by dissenting shareholders, if any, will be converted into the right to receive $16.00 per share in cash. Tucker Anthony Cleary Gull ("Tucker Cleary") as part of its investment banking business is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements and valuations for corporate and other purposes. In connection with the procedures outlined herein and in the preparation of this fairness opinion, Tucker Cleary was not authorized by the Company to solicit, nor have we solicited, third party indications of interest for the acquisition of the Company. Tucker Cleary has not evaluated any indications of interest for the Company other than the proposal submitted by THI. Tucker Cleary will receive fees for the rendering of this opinion and any subsequent opinions issued in connection with the Merger. In arriving at our opinion, we have among other things: (i) Reviewed a draft of the Merger Agreement; (ii) Reviewed certain historical financial and other information concerning the Company for the five fiscal years ended January 2, 1999 and the first quarter ending April 3, 1999; (iii) Held discussions with the senior management of the Company with respect to the Company's past and current financial performance, financial condition and future prospects; (iv) Reviewed certain internal financial and other data and other information of the Company, including financial projections prepared by management; (v) Reviewed historical trading activity and ownership data of the Common Stock and considered the prospects for dividends and price movement; (vi) Analyzed certain publicly available information of other companies that we deemed comparable or otherwise relevant to our inquiry, and compared the Company, from a financial point of view, with certain of these companies; B-1 (vii) Compared the consideration to be received by the holders of the Common Stock pursuant to the Merger Agreement with the consideration received by stockholders in other acquisitions of companies that we deemed comparable or otherwise relevant to our inquiry; and (viii) Conducted such other financial studies, analyses and investigations and reviewed such other information as we deemed appropriate to enable us to render our opinion. In our review, we have also taken into account an assessment of general economic, market and financial conditions and certain industry trends and related matters. In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all the financial information publicly available or provided to us by the Company and have not attempted to verify any of such information. We have assumed that (i) the financial projections of the Company provided to us have been prepared on a basis reflecting the best currently available estimates and judgments of the Company's management as to the future financial performance and results and (ii) that such financial projections will be realized in the amounts and in the time periods currently estimated by management. We did not make or obtain any independent evaluations or appraisals of any assets or liabilities of the Company, nor did we verify any of the Company's books or records. Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated as of the date of this letter. This opinion is being furnished for the use and benefit of the Special Committee of the Board of Directors of the Company and is not a recommendation to the shareholders of the Company. Tucker Cleary has advised the Special Committee that it does not believe any person other than the Special Committee has the legal right to rely on the opinion and, absent any controlling precedent, would resist any assertion otherwise. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the consideration to be received by the minority holders of the Common Stock pursuant to the Merger Agreement is fair to such stockholders from a financial point of view. Very truly yours, /s/ Tucker Anthony Cleary Gull TUCKER ANTHONY CLEARY GULL B-2 APPENDIX C SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE SECTION 262 APPRAISAL RIGHTS (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to Section 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to Section 251 (other than a merger effected pursuant to Section 251(g) of this title), Section 252, Section 254, Section 257, Section 258, Section 263 or Section 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of Section 251 of this title. (2) Notwithstanding paragraph(1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. C-1 (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to Section 228 or Section 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or C-2 assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, C-3 permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. C-4 APPENDIX D INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, THERMO INSTRUMENT, THE MERGER SUB AND THERMO ELECTRON The following individuals are executive officers or directors of the Company, Thermo Instrument, the Merger Sub or Thermo Electron. Unless otherwise noted, all such individuals are citizens of the United States. Unless otherwise noted, the business address of each executive officer and director (i) of the Company is 8 East Forge Parkway, Franklin, Massachusetts 02038; (ii) of Thermo Instrument is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046; (iii) of the Merger Sub is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046; and (iv) of Thermo Electron is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY CHRISTOPHER J. BARRON: Vice President Christopher J. Barron has been a vice president of the Company since its inception in August 1994 and president of Nicolet Instrument Technologies Inc. since August 1993. Mr. Barron held various positions within Nicolet Instrument Corporation from May 1988 to August 1993. Mr. Barron's business address is 5225 Verona Road, Building 4, Madison, Wisconsin 53711. JOSEPH A. BAUTE: Director Joseph A. Baute has been a director of the Company since December 1998. Mr. Baute has been a consultant to Markem Corporation, a manufacturer of marking and printing machinery, specialty inks and printing elements since 1993. Mr. Baute was the chairman and chief executive officer of Markem Corporation from 1977 and 1979, respectively, until his retirement in 1993. He is also a director of Houghton-Mifflin Company, INSO Corporation and Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument. DAVID J. BEAUBIEN: Director David J. Beaubien has been a director of the Company since December 1998. Since 1990, Mr. Beaubien has been the chairman of Yankee Environmental Systems Inc., a manufacturer of solar radiation monitoring instruments. From 1967 until his retirement in 1991, Mr. Beaubien was a senior vice president of EG&G Inc., a manufacturer of scientific instruments and manager of US government facilities. He served as director of the Kidder Peabody Family of Mutual Funds from 1983 to 1995 and of Oriel Instruments Corporation from 1990 to 1996. Mr. Beaubien is also a director of IEC Electronics, Inc., Paine Webber Pace Mutual Funds and ONIX Systems Inc., a majority-owned subsidiary of Thermo Instrument. Mr. Beaubien's business address is 101 Industrial Boulevard, Turner Falls, Massachusetts 01376. ROBERT E. FINNIGAN: Director Robert E. Finnigan has been a director of the Company since April 1997. Dr. Finnigan served in various executive roles at and was a director of Finnigan Corporation, an analytical instrument manufacturer, from 1967 to 1990, when it was acquired by Thermo Instrument. Since 1990, he has served as a consultant, from time to time, to Thermo Instrument on technology issues, and as an advisor to Hambrecht & Quist's Environmental Technology Fund, a venture capital fund. He is also a director of Strategic Diagnostics Inc. D-1 ELIAS P. GYFTOPOULOS: Director Elias P. Gyftopoulos has been a director of the Company since its inception in August 1994. He is Professor Emeritus at The Massachusetts Institute of Technology, where he was the Ford Professor of Mechanical Engineering and of Nuclear Engineering for more than 20 years until his retirement in 1996. Dr. Gyftopoulos is also a director of Thermo Electron and the following affiliates of Thermo Electron: Thermo BioAnalysis Corporation, Thermo Cardiosystems Inc., ThermoLase Corporation, ThermoRetec Corporation, Thermo Vision Corporation and Trex Medical Corporation. Dr. Gyftopoulos' business address is The Massachusetts Institute of Technology, Room 24-109, 77 Massachusetts Avenue, Cambridge, Massachusetts 02139. For further information, please see description under "Directors and Executive Officers of Thermo Electron," below. BARRY S. HOWE: President, Chief Executive Officer and Director Barry S. Howe has been the president, chief executive officer and a director of the Company since March 1998. Mr. Howe has been a vice president of Thermo Instrument since 1994. In March 1999, Mr. Howe was also named interim president of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and light for purposes of materials analysis, characterization and preparation. He was chief executive officer, president and a director of Thermo BioAnalysis Corporation, a majority-owned subsidiary of Thermo Instrument that manufactures products for biochemical research, drug discovery and clinical laboratories, from February 1995 to March 1998. From September 1989 to December 1995, he served as the president of Thermo Separation Products Inc. and its predecessor, a manufacturer of chromatography instruments and a subsidiary of ThermoQuest Corporation, which in turn is a majority-owned subsidiary of Thermo Instrument. Mr. Howe is also a director of Thermo Optek Corporation. For further information, please see description under "Directors and Executive Officers of Thermo Instrument," below. PAUL F. KELLEHER: Chief Accounting Officer Paul F. Kelleher has been the chief accounting officer of the Company since its inception in August 1994. He has been senior vice president, finance and administration, of Thermo Electron since June 1997, and served as its vice president, finance from 1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982 until January 1996. He is a director of ThermoLase Corporation, an affiliate of Thermo Electron. Mr. Kelleher also serves as the chief accounting officer of Thermo Instrument. Mr. Kelleher's business address is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046. For further information, please see descriptions under "Directors and Executive Officers of Thermo Instrument" and "Directors and Executive Officers of Thermo Electron," below. EARL R. LEWIS: Director Earl R. Lewis has been a director of the Company since its inception in August 1994. He was the chairman of the board from June 1995 until March 1998 and was vice chairman of the board from August 1994 to June 1995. Mr. Lewis has been president and chief executive officer of Thermo Instrument since March 1997 and January 1998, respectively, and was chief operating officer of Thermo Instrument from January 1996 to January 1998. Prior to that time, he was executive vice president of Thermo Instrument from January 1996 to March 1997, senior vice president of Thermo Instrument from January 1994 to January 1996 and vice president of Thermo Instrument from March 1992 to January 1994. Mr. Lewis has been chief operating officer, measurement and detection, of Thermo Electron since September 1998. Prior to his appointment as chief operating officer, Mr. Lewis served as senior vice president of Thermo Electron from June 1998 to September 1998 and vice president from September 1996 to June 1998. Mr. Lewis served as chief executive officer of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and D-2 light for purposes of materials analysis, characterization and preparation, from its inception in August 1995 to January 1998, and served as president of its predecessor, Thermo Jarrell Ash Corporation, for more than five years prior to 1995. Mr. Lewis is also the president and sole director of the Merger Sub. Mr. Lewis is also a director of SpectRx Inc. and the following affiliates of Thermo Electron: FLIR Systems, Inc., Metrika Systems Corporation, ONIX Systems Inc., Spectra-Physics Lasers, Inc., Thermo BioAnalysis Corporation, Thermo Instrument, Thermo Optek Corporation, ThermoQuest Corporation and Thermo Vision Corporation. Mr. Lewis' business address is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046. For further information, please see descriptions under "Directors and Executive Officers of Thermo Instrument," "Director and Executive Officer of the Merger Sub" and "Directors and Executive Officers of Thermo Electron," below. RONALD W. LINDELL: Vice President Ronald W. Lindell has been a vice president of the Company since its inception in August 1994 and president of Nicolet Imaging Systems, Inc. since January 1994. Mr. Lindell was a founder of Imaging Systems International, Inc. and its president from November 1992 to January 1994 when it was acquired by Thermo Instrument. From November 1989 to March 1992, he was senior vice president and general manager of the Industrial Products Division of IRT Corporation. Mr. Lindell's business address is 8221 Arjons Drive, Suite F, San Diego, California 92126. RICHARD S. MELANSON: Senior Vice President Richard S. Melanson joined the Company in October 1997 and was named senior vice president in December 1997. Mr. Melanson also served as president of NESLAB Instruments, Inc. from November 1997 to January 1999. From July 1996 to September 1997, Mr. Melanson was vice president and general manager of Philips Electroscan Corporation, a supplier of scanning and transmission electron microscopes, semiconductor defect review tools and focused ion beam systems, with offices located at 66 Concord Street, Wilmington, Massachusetts 01887. Prior to that time, Mr. Melanson held a variety of positions at Electroscan Corporation, a venture capital financed high technology start-up, also with offices at 66 Concord Street, Wilmington, Massachusetts 01887, including president and chief executive officer, executive vice president and chief operating officer, and vice president of manufacturing, since 1986. Mr. Melanson's business address is 245 Winter Street, Suite 300, Waltham, Massachusetts 02451. THEO MELAS-KYRIAZI: Chief Financial Officer and Chairman of the Board Theo Melas-Kyriazi has been a director of the Company since its inception in August 1994, chairman of the board since March 1998, and chief financial officer since January 1999. Mr. Melas-Kyriazi has also been vice president, corporate strategy of Thermo Electron since March 1998 and chief financial officer since January 1999, and chief financial officer of Thermo Instrument since January 1999. Prior to his appointment as a vice president at Thermo Electron, Mr. Melas-Kyriazi served as the Company's president and chief executive officer from its inception until March 1998. Mr. Melas-Kyriazi was treasurer of Thermo Instrument and Thermo Electron from 1988 to August 1994. Mr. Melas-Kyriazi is also a director of ThermoRetec Corporation, an affiliate of Thermo Electron. Mr. Melas-Kyriazi is a citizen of Greece. Mr. Melas-Kyriazi's business address is 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046. For further information, please see descriptions under "Directors and Executive Officers of Thermo Instrument" and "Directors and Executive Officers of Thermo Electron," below. DIRECTORS AND EXECUTIVE OFFICERS OF THERMO INSTRUMENT FRANK BORMAN: Director Frank Borman has been a director of Thermo Instrument since May 1986. Col. Borman has been the chairman of DBT Online, Inc. ("DBT"), a company engaged in the provision of integrated database D-3 services and related reports, and in the exploitation and enforcement of two laser patents, since August 1996. From September 1995 until August 1996, he served as the chief executive officer and a director of Patlex Corporation ("Patlex"), a company engaged in the exploitation and enforcement of two laser patents, which became a subsidiary of DBT in August 1996. Col. Borman served as the chairman and chief executive officer of Patlex from 1988 to December 1992, and as chairman of AutoFinance Group, Inc. ("AFG") from December 1992 to September 1995, during the period that Patlex was a subsidiary of AFG. Col. Borman is a member of the Board of Trustees of the National Geographic Society. He serves as a director of American Superconductor Corporation, The Home Depot, Inc. and Thermo Power Corporation, an affiliate of Thermo Electron. Col. Borman's business address is P.O. Box 1139, Fairacres, New Mexico 88033-1139. RICHARD W.K. CHAPMAN: Senior Vice President Richard W.K. Chapman, has been the chief executive officer, president and a director of ThermoQuest Corporation, a majority-owned subsidiary of Thermo Instrument, since its inception in June 1995. He served as president of Finnigan Corporation ("Finnigan"), a subsidiary of ThermoQuest Corporation, from 1992 to 1995, and as marketing director of Finnigan from 1989 to 1995. He has been senior vice president of Thermo Instrument since July 1998 and was a vice president of Thermo Instrument from 1992 until July 1998. Dr. Chapman's business address is 2215 Grand Avenue Parkway, Austin, Texas 78728. GEORGE N. HATSOPOULOS: Director George N. Hatsopoulos has been a director of Thermo Instrument since May 1986. From 1986 until March 1997, Dr. Hatsopoulos also served as chairman of the board of Thermo Instrument. Dr. Hatsopoulos has been the chairman of the board of directors of Thermo Electron since he founded Thermo Electron in 1956. He was also the chief executive officer and president of Thermo Electron from 1956 until June 1999 and January 1997, respectively. Dr. Hatsopoulos is also a director of Photoelectron Corporation and the following affiliates of Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Optek Corporation, ThermoQuest Corporation and ThermoTrex Corporation. Dr. Hatsopoulos is the brother of Mr. John N. Hatsopoulos, a director of Thermo Instrument and a director and vice chairman of the board of directors of Thermo Electron. For further information, please see description under "Directors and Executive Officers of Thermo Electron," below. JOHN N. HATSOPOULOS: Director John N. Hatsopoulos has been a director of Thermo Instrument since May 1986. He was its chief financial officer from 1988 until his retirement in December 1998. He was also vice president of Thermo Instrument from 1988 until 1997, and senior vice president from 1997 until 1998. Mr. Hatsopoulos has also been a director of Thermo Electron since September 1997 and the vice chairman of the board of directors of Thermo Electron since September 1998. He was the president of Thermo Electron from January 1997 until September 1998, its chief financial officer from 1988 until his retirement in December 1998, and an executive vice president from 1986 until 1997. Mr. Hatsopoulos is also a director of LOIS/USA Inc., US Liquids Inc. and the following affiliates of Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Power Corporation and Thermo TerraTech Inc. Mr. Hatsopoulos is the brother of Dr. George N. Hatsopoulos, a director of Thermo Instrument and the chairman of the board of directors of Thermo Electron. For further information, please see description under "Directors and Executive Officers of Thermo Electron," below. DENIS A. HELM: Executive Vice President Denis A. Helm has been executive vice president of Thermo Instrument since January 1999, and was a senior vice president of Thermo Instrument from 1994 to 1998, and a vice president from 1986 until 1994. From 1981 to 1998, Mr. Helm also served as president of Thermo Instrument's Thermo Environmental D-4 Instruments Inc. subsidiary, a manufacturer of instruments and systems for detecting and monitoring environmental pollutants. Mr. Helm has also been chairman of the board and a director of Metrika Systems Corporation, a majority-owned subsidiary of Thermo Instrument, since its inception in November 1996, and served as its chief executive officer from November 1996 until February 1998. Mr. Helm's business address is 8 East Forge Parkway, Franklin, Massachusetts 02038. BARRY S. HOWE: Vice President Barry S. Howe has been a vice president of Thermo Instrument since 1994. Mr. Howe has been the president, chief executive officer and a director of ThermoSpectra since March 1998. In March 1999, Mr. Howe was also named interim president of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and light for purposes of materials analysis, characterization and preparation. He was chief executive officer, president and a director of Thermo BioAnalysis Corporation, a majority-owned subsidiary of Thermo Instrument that manufactures products for biochemical research, drug discovery and clinical laboratories, from February 1995 to March 1998. From September 1989 to December 1995, he served as the president of Thermo Separation Products Inc. and its predecessor, a manufacturer of chromatography instruments and a subsidiary of ThermoQuest Corporation, which in turn is a majority-owned subsidiary of Thermo Instrument. Mr. Howe is also a director of Thermo Optek Corporation. Mr. Howe's business address is 8 East Forge Parkway, Franklin, Massachusetts 02038. For further information, please see description under "Directors and Executive Officers of the Company," above. PAUL F. KELLEHER: Chief Accounting Officer Paul F. Kelleher has been the chief accounting officer of Thermo Instrument since May 1986. He has been senior vice president, finance and administration, of Thermo Electron since June 1997, and served as its vice president, finance from 1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982 until January 1996. He is a director of ThermoLase Corporation, an affiliate of Thermo Electron. Mr. Kelleher also serves as the chief accounting officer of ThermoSpectra. For further information, please see descriptions under "Directors and Executive Officers of the Company," above, and "Directors and Executive Officers of Thermo Electron," below. EARL R. LEWIS: President, Chief Executive Officer and Director Earl R. Lewis has been president, and chief executive officer and a director, of Thermo Instrument since March 1997 and January 1998, respectively, and was chief operating officer of Thermo Instrument from January 1996 to January 1998. Prior to that time, he was executive vice president of Thermo Instrument from January 1996 to March 1997, senior vice president of Thermo Instrument from January 1994 to January 1996 and vice president of Thermo Instrument from March 1992 to January 1994. Mr. Lewis has been chief operating officer, measurement and detection, of Thermo Electron since September 1998. Prior to his appointment as chief operating officer, Mr. Lewis served as senior vice president of Thermo Electron from June 1998 to September 1998 and vice president from September 1996 to June 1998. Mr. Lewis is also a director of ThermoSpectra, was the chairman of the board of ThermoSpectra from June 1995 until March 1998, and was vice chairman of the board from August 1994 to June 1995. Mr. Lewis also served as chief executive officer of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument and a manufacturer of analytical instruments that measure energy and light for purposes of materials analysis, characterization and preparation, from its inception in August 1995 to January 1998, and served as president of its predecessor, Thermo Jarrell Ash Corporation, for more than five years prior to 1995. Mr. Lewis is also the president and sole director of the Merger Sub. Mr. Lewis is also a director of SpectRx Inc. and the following affiliates of Thermo Electron: FLIR Systems, Inc., Metrika Systems Corporation, ONIX Systems Inc., Spectra-Physics Lasers, Inc., Thermo BioAnalysis Corporation, Thermo Optek Corporation, ThermoQuest Corporation and Thermo Vision D-5 Corporation. For further information, please see descriptions under "Directors and Executive Officers of the Company," above, and "Director and Executive Officer of the Merger Sub" and "Directors and Executive Officers of Thermo Electron," below. THEO MELAS-KYRIAZI: Chief Financial Officer Theo Melas-Kyriazi has been chief financial officer of Thermo Instrument since January 1999. He has also been a director of ThermoSpectra since its inception in August 1994, chairman of the board since March 1998, and chief financial officer since January 1999. Mr. Melas-Kyriazi has also been vice president, corporate strategy of Thermo Electron since March 1998 and chief financial officer since January 1999. Prior to his appointment as a vice president at Thermo Electron, Mr. Melas-Kyriazi served as ThermoSpectra's president and chief executive officer from its inception in August 1994 until March 1998. Mr. Melas-Kyriazi was treasurer of Thermo Instrument and Thermo Electron from 1988 to August 1994. Mr. Melas-Kyriazi is also a director of ThermoRetec Corporation, an affiliate of Thermo Electron. Mr. Melas-Kyriazi is a citizen of Greece. For further information, please see descriptions under "Directors and Executive Officers of the Company," above, and "Directors and Executive Officers of Thermo Electron," below. ARVIN H. SMITH: Director Arvin H. Smith has been a director of Thermo Instrument since May 1986, and chairman of the board since March 1997. He was also president and chief executive officer of Thermo Instrument from 1986 to March 1997 and January 1998, respectively. Mr. Smith was the president of Thermo Electron from September 1998 until June 1999. He was executive vice president of Thermo Electron from 1991 until September 1998 and senior vice president from 1986 to 1991. Mr. Smith is also a director of ONIX Systems Inc. Mr. Smith's business address is 860 West Airport Freeway, Suite 301, Hurst, Texas 76054. RICHARD F. SYRON: Director Richard F. Syron has been a director of Thermo Instrument since June 1999. Dr. Syron has also been the president and chief executive officer of Thermo Electron since June 1999 and a director of Thermo Electron since September 1997. From April 1994 to May 1999, Dr. Syron was the chairman and chief executive officer of the American Stock Exchange, Inc., which has offices located at 86 Trinity Place, New York, New York 10006. From January 1989 through April 1994, he was the president and chief executive officer of the Federal Reserve Bank of Boston. Prior to that time, he held a variety of senior positions with the Federal Home Loan Bank of Boston, the Federal Reserve Bank of Boston, the Board of Governors of the Federal Reserve System and the U.S. Department of Treasury. Dr. Syron is also a director of Dreyfus Corporation, The John Hancock Corporation and the following affiliates of Thermo Electron: Thermedics Inc. and Thermo Fibertek Inc. For further information, please see description under "Directors and Executive Officers of Thermo Electron," below. POLYVIOS C. VINTIADIS: Director Polyvios C. Vintiadis has been a director of Thermo Instrument since July 1993. Mr. Vintiadis has been the chairman and chief executive officer of TowerMarc Corporation, a real estate development company, since 1984. Prior to joining TowerMarc, Mr. Vintiadis was a principal of Morgens, Waterfall & Vintiadis, Inc., a financial services firm, with whom he remains associated. For more than 20 years prior to that time, Mr. Vintiadis was employed by Arthur D. Little & Company, Inc. Mr. Vintiadis is also a director of The Randers Killam Group Inc. and Thermo TerraTech Inc. Mr. Vintiadis' business address is 2 Pickwick Plaza, 4th Floor, Greenwich, Connecticut 06830. D-6 DIRECTOR AND EXECUTIVE OFFICER OF THE MERGER SUB EARL R. LEWIS: President and Director Earl R. Lewis has been the Merger Sub's president and sole director since the Merger Sub's formation in May 1999. For further information, please see descriptions under "Directors and Executive Officers of the Company" and "Directors and Executive Officers of Thermo Instrument," above, and "Directors and Executive Officers of Thermo Electron," below. DIRECTORS AND EXECUTIVE OFFICERS OF THERMO ELECTRON JOHN M. ALBERTINE: Director John M. Albertine has been a director of Thermo Electron since 1986. Dr. Albertine serves as the chairman of the board and chief executive officer of Albertine Enterprises, Inc., an economic and public policy consulting and full-service mergers and acquisitions firm he founded in 1990. Dr. Albertine is also a director of American Precision Industries, Inc., Intermagnetics General Corp. and U.S. Cast Products Inc. Dr. Albertine's business address is Albertine Enterprises, Inc., 1156 15(th) Street N.W., Suite 505, Washington, DC 20005. SAMUEL W. BODMAN: Director Samuel W. Bodman has been a director of Thermo Electron since May 1999. Since 1988, Mr. Bodman has served as the chairman and chief executive officer of Cabot Corporation, a manufacturer of specialty chemicals and materials. Mr. Bodman is a director of Cabot Oil & Gas Corporation, John Hancock Mutual Life Insurance Company, Security Capital Group Incorporated and Westvaco Corporation. Mr. Bodman's business address is Cabot Corporation, 75 State Street, Boston, Massachusetts 02109. PETER O. CRISP: Director Peter O. Crisp has been a director of Thermo Electron since 1974. Mr. Crisp was a general partner of Venrock Associates, a venture capital investment firm, for more than five years until his retirement in September 1997. He has been vice chairman of Rockefeller Financial Services, Inc. since December 1997. Mr. Crisp is also a director of American Superconductor Corporation, Evans & Sutherland Computer Corporation, NovaCare Inc. and United States Trust Corporation, as well as the following affiliates of Thermo Electron: Thermo Power Corporation, Thermedics Inc. and ThermoTrex Corporation. Mr. Crisp's business address is Venrock, Inc., 30 Rockefeller Plaza, New York, New York 10112. ELIAS P. GYFTOPOULOS: Director Elias P. Gyftopoulos has been a director of Thermo Electron since 1976. Dr. Gyftopoulos is Professor Emeritus of the Massachusetts Institute of Technology, where he was the Ford Professor of Mechanical Engineering and of Nuclear Engineering for more than 20 years until his retirement in 1996. Dr. Gyftopoulos is also a director of the following affiliates of Thermo Electron: Thermo BioAnalysis Corporation, Thermo Cardiosystems Inc., ThermoLase Corporation, ThermoRetec Corporation, ThermoSpectra, Thermo Vision Corporation and Trex Medical Corporation. Dr. Gyftopoulos' business address is Massachusetts Institute of Technology, Room 24-109, 77 Massachusetts Avenue, Cambridge, Massachusetts 02139. For further information, please see description under "Directors and Executive Officers of the Company," above. GEORGE N. HATSOPOULOS: Chairman of the Board and Director George N. Hatsopoulos has been a director and the chairman of the board of directors of Thermo Electron since he founded Thermo Electron in 1956. He was also the chief executive officer and president of Thermo Electron from 1956 until June 1999 and January 1997, respectively. Dr. Hatsopoulos is also a D-7 director of Photoelectron Corporation and the following affiliates of Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Instrument, Thermo Optek Corporation, ThermoQuest Corporation and ThermoTrex Corporation. Dr. Hatsopoulos is the brother of Mr. John N. Hatsopoulos, a director of Thermo Instrument and a director and vice chairman of the board of directors of Thermo Electron. For further information, please see description under "Directors and Executive Officers of Thermo Instrument," above. JOHN N. HATSOPOULOS: Vice Chairman of the Board and Director John N. Hatsopoulos has been a director of Thermo Electron since September 1997 and the vice chairman of the board of directors since September 1998. He was the president of Thermo Electron from January 1997 until September 1998, its chief financial officer from 1988 until his retirement in December 1998, and an executive vice president from 1986 until 1997. Mr. Hatsopoulos is also a director of LOIS/ USA Inc., US Liquids Inc. and the following affiliates of Thermo Electron: Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Instrument, Thermo Power Corporation and Thermo TerraTech Inc. Mr. Hatsopoulos is the brother of Dr. George N. Hatsopoulos, a director of Thermo Instrument and a director and chairman of the board of directors of Thermo Electron. For further information, please see description under "Directors and Executive Officers of Thermo Instrument," above. BRIAN D. HOLT: Chief Operating Officer, Energy and Environment Brian D. Holt became the chief operating officer, energy and environment, of Thermo Electron in September 1998. Mr. Holt has been the president and chief executive officer of Thermo Ecotek Corporation, a majority-owned subsidiary of Thermo Electron, since February 1994, and has been a director of Thermo Ecotek Corporation since January 1995. For more than five years prior to his appointment as an officer of Thermo Ecotek Corporation, he was the president and chief executive officer of Pacific Generation Company, a financier, builder, owner and operator of independent power facilities. Mr. Holt is also a director of KFx, Inc. and the following affiliates of Thermo Electron: Thermo Power Corporation, ThermoRetec Corporation, The Randers Killam Group Inc. and Thermo TerraTech Inc. Mr. Holt's business address is 245 Winter Street, Waltham, Massachusetts 02451. FRANK JUNGERS: Director Frank Jungers has been a director of Thermo Electron since 1978. Mr. Jungers has been a consultant on business and energy matters since 1977. From 1974 through 1977, Mr. Jungers was employed by the Arabian American Oil Company as the chairman and chief executive officer. Mr. Jungers is also a director of The AES Corporation, Donaldson, Lufkin & Jenrette, Inc., Georgia-Pacific Corporation, Statia Terminals Group N.V. and the following affiliates of Thermo Electron: ONIX Systems Inc., Thermo Ecotek Corporation and ThermoQuest Corporation. Mr. Jungers' business address is 822 N.W. Murray, Suite 242, Portland, Oregon 97229. JOHN T. KEISER: Chief Operating Officer, Biomedical and Emerging Technologies John T. Keiser became the chief operating officer, biomedical and emerging technologies, of Thermo Electron in September 1998. Mr. Keiser has been president of Thermedics Inc., a majority-owned subsidiary of Thermo Electron, since March 1994, its chief executive officer since December 1998 and its senior vice president from 1994 until March 1998. Mr. Keiser was the president of the Eberline Instrument division of Thermo Instrument from 1985 to July 1994. Mr. Keiser is also a director of the following affiliates of Thermo Electron: Metrika Systems Corporation, Thermedics Detection Inc., ThermoTrex Corporation, ThermoLase Corporation, Trex Medical Corporation, Thermo Sentron Inc. and Thermo Cardiosystems Inc. He has also been the president of Thermo Biomedical Inc., a wholly owned subsidiary of Thermo Electron, since 1994. D-8 PAUL F. KELLEHER: Senior Vice President, Finance and Administration Paul F. Kelleher has been the senior vice president, finance and administration, of Thermo Electron since June 1997, and served as its vice president, finance from 1987 until 1997. Mr. Kelleher served as Thermo Electron's controller from 1982 until January 1996. Mr. Kelleher is also the chief accounting officer of ThermoSpectra and Thermo Instrument. For further information, please see descriptions under "Directors and Executive Officers of the Company" and "Directors and Executive Officers of Thermo Instrument," above. EARL R. LEWIS: Chief Operating Officer, Measurement and Detection Earl R. Lewis became the chief operating officer, measurement and detection of Thermo Electron in September 1998, and had been a vice president of Thermo Electron since September 1996. Mr. Lewis has been a director and chief executive officer of Thermo Instrument since January 1998, and has been president of Thermo Instrument since March 1997. He was the chief operating officer of Thermo Instrument from January 1996 to January 1998. Prior to that time, he was an executive vice president of Thermo Instrument from January 1996 to March 1997, a senior vice president from January 1994 to January 1996 and a vice president from March 1992 to January 1994. Prior to his appointment as Thermo Instrument's chief executive officer, Mr. Lewis was also the chief executive officer of Thermo Optek Corporation, a majority-owned subsidiary of Thermo Instrument, from its inception in August 1995 to January 1998 and was the president of its predecessor, Thermo Jarrell Ash Corporation for more than five years prior to 1995. He is also the president and sole director of the Merger Sub. Mr. Lewis is also a director of SpectRx Inc. and the following affiliates of Thermo Electron: FLIR Systems, Inc., Metrika Systems Corporation, ONIX Systems Inc., Spectra-Physics Lasers, Inc., Thermo BioAnalysis Corporation, Thermo Optek Corporation, ThermoQuest Corporation, ThermoSpectra and Thermo Vision Corporation. For further information, please see descriptions under "Directors and Executive Officers of the Company," "Director and Executive Officer of the Merger Sub" and "Directors and Executive Officers of Thermo Instrument," above. ROBERT A. MCCABE: Director Robert A. McCabe has been a director of Thermo Electron since 1962. He has been the chairman of Pilot Capital Corporation, which is engaged in private investments, since 1998. Mr. McCabe was president of Pilot Capital Corporation from 1987 to 1998. Prior to that time, Mr. McCabe was a managing director of Lehman Brothers Inc., an investment banking firm. Mr. McCabe is also a director of Atlantic Bank & Trust Company, Borg-Warner Security Corporation, Church & Dwight Company and Thermo Optek Corporation, an affiliate of Thermo Electron. Mr. McCabe's business address is Pilot Capital Corporation, 444 Madison Avenue, Suite 2103, New York, New York 10022. THEO MELAS-KYRIAZI: Chief Financial Officer and Vice President Theo Melas-Kyriazi has been the chief financial officer of Thermo Electron since January 1999 and a vice president since March 1998. In addition, Mr. Melas-Kyriazi was the treasurer of Thermo Electron from May 1988 to August 1994. From August 1994 through March 1998, he served as the president and chief executive officer of ThermoSpectra. Mr. Melas-Kyriazi is also the chief financial officer of ThermoSpectra and Thermo Instrument. Mr. Melas-Kyriazi is also a director of ThermoRetec Corporation and is the chairman of the board of directors of ThermoSpectra, both affiliates of Thermo Electron. Mr. Melas- Kyriazi is a citizen of Greece. For further information, please see descriptions under "Directors and Executive Officers of the Company" and "Directors and Executive Officers of Thermo Instrument," above. D-9 DONALD E. NOBLE: Director Donald E. Noble has been a director of Thermo Electron since 1983. Mr. Noble has announced his intention to retire from the board of directors in September 1999. For more than 20 years, from 1959 to 1980, Mr. Noble served as the chief executive officer of Rubbermaid, Incorporated, first with the title of president and then as the chairman of the board. Mr. Noble is also a director of the following affiliates of Thermo Electron: Thermo Fibertek Inc., Thermo Power Corporation, Thermo Sentron Inc. and Thermo TerraTech Inc. Mr. Noble's business address is 345 North Market Street, Suite G-05, Wooster, Ohio 44691. HUTHAM S. OLAYAN: Director Hutham S. Olayan has been a director of Thermo Electron since 1987. She has served since 1995 as the president and a director of Olayan America Corporation, a member of the Olayan Group, and as the president and a director of Competrol Real Estate Limited, another member of the Olayan Group, from 1986 until its merger into Olayan America Corporation in 1997. The surviving company is engaged in private investments, including real estate, and advisory services. In addition, from 1985 to 1994, Ms. Olayan served as the president and a director of Crescent Diversified Limited, another member of the Olayan Group engaged in private investments. Ms. Olayan is also a director of Trex Medical Corporation, an affiliate of Thermo Electron. Ms. Olayan is a citizen of Saudi Arabia. Ms. Olayan's business address is Suite 1100, 505 Park Avenue, New York, New York 10022. ROBERT W. O'LEARY: Director Robert W. O'Leary has been a director of Thermo Electron since June 1998. He has been the president and the chairman of Premier, Inc., a strategic alliance of not-for-profit health care and hospital systems, since 1995. From 1990 to 1995, Mr. O'Leary was the chairman of American Medical International, Inc., one of the three predecessor entities of Premier, Inc. Mr. O'Leary's business address is Premier, Inc., 12225 El Camino Real, San Diego, California 92130. WILLIAM A. RAINVILLE: Chief Operating Officer, Recycling and Resource Recovery William A. Rainville became the chief operating officer, recycling and resource recovery, of Thermo Electron in September 1998. Prior to that time, Mr. Rainville had been a senior vice president of Thermo Electron since March 1993 and was a vice president of Thermo Electron from 1986 to 1993. Mr. Rainville has been the president and chief executive officer of Thermo Fibertek Inc., a majority-owned subsidiary of Thermo Electron, since its inception in 1991 and a director since January 1992. From 1984 until January 1993, Mr. Rainville was the president and chief executive officer of Thermo Web Systems Inc., a subsidiary of Thermo Fibertek Inc. Mr. Rainville is also a director of the following affiliates of Thermo Electron: Thermo Ecotek Corporation, Thermo Fibergen Inc., ThermoRetec Corporation, and Thermo TerraTech Inc. Mr. Rainville's business address is 245 Winter Street, Waltham, Massachusetts 02451. RICHARD F. SYRON: President, Chief Executive Officer and Director Richard F. Syron has been the president and chief executive officer of Thermo Electron since June 1999 and a director of Thermo Electron since September 1997. From April 1994 to May 1999, Dr. Syron was the chairman and chief executive officer of the American Stock Exchange, Inc., which has offices located at 86 Trinity Place, New York, New York 10006. From January 1989 through April 1994, he was the president and chief executive officer of the Federal Reserve Bank of Boston. Prior to that time, he held a variety of senior positions with the Federal Home Loan Bank of Boston, the Federal Reserve Bank of Boston, the Board of Governors of the Federal Reserve System and the U.S. Department of Treasury. Dr. Syron is also a director of Dreyfus Corporation, The John Hancock Corporation and the following affiliates of Thermo Electron: Thermedics Inc., Thermo Fibertek Inc. and Thermo Instrument. For further D-10 information, please see description under "Directors and Executive Officers of Thermo Instrument," above. ROGER D. WELLINGTON: Director Roger D. Wellington has been a director of Thermo Electron since 1986. Mr. Wellington serves as the president and chief executive officer of Wellington Consultants, Inc. and of Wellington Associates Inc., international business consulting firms he founded in 1994 and 1989, respectively. Prior to 1989, Mr. Wellington served as the chairman of the board of Augat Inc., a manufacturer of electromechanical components and systems, for more than five years. Prior to 1988, Mr. Wellington also served as the chief executive officer and president of Augat Inc. for more than ten years. Mr. Wellington is also a director of Photoelectron Corporation and Thermo Fibergen Inc., an affiliate of Thermo Electron. To the knowledge of the Company, all of the above-listed officers and directors intend to vote to approve the Merger Agreement. D-11 APPENDIX E INFORMATION CONCERNING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY The following sets forth information with respect to purchases of Common Stock by ThermoSpectra, Thermo Instrument, the Merger Sub and Thermo Electron since the commencement of ThermoSpectra's second full fiscal year preceding the date of this Proxy Statement.
RANGE OF PRICES AVERAGE PURCHASE NUMBER OF PAID PER SHARE PRICE PER SHARE SHARES PURCHASED DURING QUARTER DURING QUARTER/YEAR PURCHASER DURING QUARTER ($)(1) QUARTER ($)(1) - ---------------------------------- ------------------ ----------------- -------------------- ------------------- 1st Quarter 1997.................. Thermo Electron 287,200 12.500--15.125 14.484 2nd Quarter 1997.................. Thermo Electron 216,400 11.625--14.500 12.983 3rd Quarter 1997.................. Thermo Electron 117,800 10.313--13.313 11.255 4th Quarter 1997.................. Thermo Electron 155,800 9.000--13.000 11.255 1st Quarter 1998.................. Thermo Electron 152,300 8.625--10.500 9.771 2nd Quarter 1998.................. Thermo Electron 272,400 9.375--11.375 10.478 3rd Quarter 1998.................. Thermo Electron 140,900 9.688--12.125 10.369 3rd Quarter 1998.................. Thermo Instrument 390,200 9.750--10.250 9.910 4th Quarter 1998.................. Thermo Electron 39,500 11.000--11.375 11.337 4th Quarter 1998.................. Thermo Instrument 490,700 8.500--11.750 10.385
- ------------------------ (1) Prices per share of Common Stock are net of commissions paid by the respective purchasers. The following chart sets forth information with respect to options granted by ThermoSpectra since the commencement of ThermoSpectra's second full fiscal year preceding the date of this Proxy Statement to directors and executive officers of ThermoSpectra, Thermo Instrument, the Merger Sub and Thermo Electron.
NUMBER OF SHARES DATE OF COVERED EXERCISE NAME RELATIONSHIP GRANT BY OPTIONS PRICE - ------------------------------------------- ------------------------------------------- --------- ----------- ----------- Christopher J. Barron...................... Vice President, ThermoSpectra 5/20/98 7,000 $ 10.68 Christopher J. Barron...................... Vice President, ThermoSpectra 9/25/98 1,000 $ 10.13 Joseph A. Baute............................ Director, ThermoSpectra 5/27/99 1,000 $ 15.33 David J. Beaubien.......................... Director, ThermoSpectra 5/27/99 1,000 $ 15.33 Robert E. Finnigan......................... Director, ThermoSpectra 4/28/97 10,000 $ 11.93 Robert E. Finnigan......................... Director, ThermoSpectra 5/27/99 1,000 $ 15.33 Elias P. Gyftopoulos....................... Director, ThermoSpectra 5/27/99 1,000 $ 15.33 Barry S. Howe.............................. President, Chief Executive Officer and Director, ThermoSpectra; Vice President, Thermo Instrument 5/20/98 100,000 $ 10.68 Ronald W. Lindell.......................... Vice President, ThermoSpectra 5/20/98 6,000 $ 10.68 Ronald W. Lindell.......................... Vice President, ThermoSpectra 9/25/98 1,000 $ 10.13 Richard S. Melanson........................ Senior Vice President, ThermoSpectra 12/04/97 35,000 $ 9.53 Richard S. Melanson........................ Senior Vice President, ThermoSpectra 9/25/98 2,100 $ 10.13 Theo Melas-Kyriazi......................... Chief Financial Officer and Chairman of the Board, ThermoSpectra; Chief Financial Officer, Thermo Instrument; Vice President and Chief Financial Officer, Thermo Electron 3/06/97 2,000 $ 14.98 Theo Melas-Kyriazi......................... Chief Financial Officer and Chairman of the Board, ThermoSpectra; Chief Financial Officer, Thermo Instrument; Vice President and Chief Financial Officer, Thermo Electron 3/11/98 7,200 $ 10.00
E-1 The following chart sets forth information with respect to options to purchase Common Stock that have been exercised by directors and executive officers of ThermoSpectra, Thermo Instrument, the Merger Sub and Thermo Electron since the commencement of ThermoSpectra's second full fiscal year preceding the date of this Proxy Statement.
NUMBER OF SHARES AVERAGE EXERCISE RECEIVED UPON EXERCISE NAME RELATIONSHIP DATE EXERCISE PRICE - ---------------------------------------- ---------------------------------------- ----------- ----------------- ----------- John N. Hatsopoulos..................... Director, Thermo Instrument; Vice Chairman of the Board, Thermo Electron 3/02/99 8,000 $ 10.00 John N. Hatsopoulos..................... Director, Thermo Instrument; Vice Chairman of the Board, Thermo Electron 3/02/99 4,400 $ 9.30
OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The following table sets forth the beneficial ownership of Common Stock, as of June 30, 1999, with respect to (i) each director and current executive officer of the Company and (ii) all directors and current executive officers as a group. While certain directors and executive officers of the Company are also directors and executive officers of Thermo Electron or its subsidiaries other than the Company, all such persons disclaim beneficial ownership of the shares of Common Stock owned by Thermo Instrument or by Thermo Electron, as the case may be.
THERMOSPECTRA CORPORATION(2) ---------------------------- NUMBER OF PERCENTAGE NAME(1) SHARES OF CLASS - ------------------------------------------------------------------------------------------ ----------- --------------- Christopher J. Barron..................................................................... 33,000 * Joseph A. Baute........................................................................... 1,103 * David J. Beaubien......................................................................... 1,000 * Robert E. Finnigan........................................................................ 12,000 * Elias P. Gyftopoulos...................................................................... 22,022 * Barry S. Howe............................................................................. 119,010 * Paul F. Kelleher.......................................................................... 5,000 * Earl R. Lewis............................................................................. 55,000 * Ronald W. Lindell......................................................................... 37,000 * Richard S. Melanson....................................................................... 42,100 * Theo Melas-Kyriazi........................................................................ 77,800 * All directors and current executive officers as a group (11 persons)...................... 405,035 2.6
- ------------------------ * Reflects ownership of less than 1.0% of the outstanding Common Stock. (1) Except as reflected in the footnotes to this table, shares beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children, and all share ownership includes sole voting and investment power. (2) The shares of Common Stock beneficially owned by Mr. Barron, Mr. Baute, Mr. Beaubien, Dr. Finnigan, Dr. Gyftopoulos, Mr. Howe, Mr. Kelleher, Mr. Lewis, Mr. Lindell, Mr. Melanson, Mr. Melas-Kyriazi and all directors and current executive officers as a group include 33,000, 1,000, 1,000, 11,000, 21,000, 104,000, 5,000, 50,000, 37,000, 37,100, 64,200 and 364,300 shares, respectively, that such person or group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. Shares beneficially owned by Mr. Baute, Dr. Gyftopoulos and all directors and current executive officers as a group include 103, 22 and 125 shares, respectively, allocated E-2 through April 3, 1999, to their respective accounts maintained under the Company's Deferred Compensation Plan. Shares beneficially owned by Dr. Finnigan include 1,000 shares held in a trust of which he and his spouse are the trustees. No director or current executive officer beneficially owned more than 1.0% of the Common Stock outstanding as of June 30, 1999; all directors and current executive officers as a group beneficially owned 2.6% of the Common Stock outstanding as of such date. OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THERMO INSTRUMENT The following table sets forth the beneficial ownership of Common Stock, as of June 30, 1999, with respect to (i) each director and current executive officer of Thermo Instrument and (iii) all directors and current executive officers of Thermo Instrument as a group. While certain directors and executive officers of Thermo Instrument are also directors and executive officers of Thermo Electron or its subsidiaries other than Thermo Instrument, all such persons disclaim beneficial ownership of the shares of Common Stock owned by Thermo Electron or Thermo Instrument, as the case may be.
THERMOSPECTRA CORPORATION(2) ---------------------------- NUMBER OF PERCENTAGE NAME(1) SHARES OF CLASS - ------------------------------------------------------------------------------------------ ----------- --------------- Frank Borman.............................................................................. 1,500 * Richard W.K. Chapman...................................................................... 4,000 * George N. Hatsopoulos..................................................................... 24,750 * John N. Hatsopoulos....................................................................... 12,000 * Denis A. Helm............................................................................. 4,000 * Barry S. Howe............................................................................. 119,010 * Paul F. Kelleher.......................................................................... 5,000 * Earl R. Lewis............................................................................. 55,000 * Theo Melas-Kyriazi........................................................................ 77,800 * Arvin H. Smith............................................................................ 20,000 * Richard F. Syron.......................................................................... 0 * Polyvios C. Vintiadis..................................................................... 1,500 * All directors and current executive officers as a group (12 persons)...................... 324,560 2.1
- ------------------------ * Reflects ownership of less than 1.0% of the outstanding Common Stock. (1) Except as reflected in the footnotes to this table, shares beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children, and all share ownership includes sole voting and investment power. (2) The shares of Common Stock beneficially owned by Col. Borman, Dr. Chapman, Dr. G. Hatsopoulos, Mr. J. Hatsopoulos, Mr. Helm, Mr. Howe, Mr. Kelleher, Mr. Lewis, Mr. Melas-Kyriazi, Mr. Smith, Mr. Vintiadis and all directors and current executive officers as a group include 1,500, 4,000, 24,750, 12,000, 4,000, 104,000, 5,000, 50,000, 64,200, 20,000, 1,500 and 290,950 shares, respectively, that such person or group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. No director or current executive officer beneficially owned more than 1.0% of the Common Stock outstanding as of June 30, 1999; all directors and current executive officers as a group beneficially owned 2.1% of the Common Stock outstanding as of such date. E-3 OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THERMO ELECTRON The following table sets forth the beneficial ownership of Common Stock, as of June 30, 1999, with respect to (i) each director and current executive officer of Thermo Electron and (ii) all directors and current executive officers as a group. While certain directors and executive officers of Thermo Electron are also directors and executive officers of majority-owned subsidiaries of Thermo Electron, all such persons disclaim beneficial ownership of the shares of Common Stock owned by Thermo Electron or by such majority-owned subsidiaries, as the case may be.
THERMOSPECTRA CORPORATION(2) ---------------------------- NUMBER OF PERCENTAGE NAME(1) SHARES OF CLASS - ------------------------------------------------------------------------------------------ ----------- --------------- John M. Albertine......................................................................... 1,000 * Samuel W. Bodman.......................................................................... 0 * Peter O. Crisp............................................................................ 1,000 * Elias P. Gyftopoulos...................................................................... 22,022 * George N. Hatsopoulos..................................................................... 24,750 * John N. Hatsopoulos....................................................................... 12,000 * Brian D. Holt............................................................................. 0 * Frank Jungers............................................................................. 1,500 * John T. Keiser............................................................................ 1,500 * Paul F. Kelleher.......................................................................... 5,000 * Earl R. Lewis............................................................................. 55,000 * Robert A. McCabe.......................................................................... 1,500 * Theo Melas-Kyriazi........................................................................ 77,800 * Donald E. Noble........................................................................... 4,000 * Hutham S. Olayan.......................................................................... 1,000 * Robert W. O'Leary......................................................................... 0 * William A. Rainville...................................................................... 10,000 * Richard F. Syron.......................................................................... 0 * Roger D. Wellington....................................................................... 1,000 * All directors and current executive officers as a group (19 persons)...................... 219,072 1.4
- ------------------------ * Reflects ownership of less than 1.0% of the outstanding Common Stock. (1) Except as reflected in the footnotes to this table, shares beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children, and all share ownership includes sole voting and investment power. (2) The shares of Common Stock beneficially owned by Dr. Albertine, Mr. Crisp, Dr. Gyftopoulos, Dr. G. Hatsopoulos, Mr. J. Hatsopoulos, Mr. Jungers, Mr. Keiser, Mr. Kelleher, Mr. Lewis, Mr. McCabe, Mr. Melas-Kyriazi, Mr. Noble, Ms. Olayan, Mr. Rainville, Mr. Wellington and all directors and current executive officers as a group include 1,000, 1,000, 21,000, 24,750, 12,000, 1,500, 1,500, 5,000, 50,000, 1,500, 64,200, 1,000, 1,000, 10,000, 1,000 and 196,450 shares, respectively, that such person or members of the group had the right to acquire within 60 days of June 30, 1999, through the exercise of stock options. Shares beneficially owned by Dr. Gyftopoulos and all directors and current executive officers as a group include 22 shares allocated through April 3, 1999 to his account maintained pursuant to the Company's Deferred Compensation Plan. No director or current executive officer beneficially owned more than 1.0% of the Common Stock outstanding as of June 30, 1999; all directors and current executive officers as a group beneficially owned 1.4% of the Common Stock outstanding as of such date. E-4 OWNERSHIP OF COMMON STOCK BY EXECUTIVE OFFICERS AND DIRECTORS OF THE MERGER SUB Please see "Ownership of Common Stock by Executive Officers and Directors of the Company," "Ownership of Common Stock by Executive Officers and Directors of Thermo Instrument" and "Ownership of Common Stock by Executive Officers and Directors of Thermo Electron," above, for information regarding the ownership of Common Stock by Earl R. Lewis, the sole director and executive officer of the Merger Sub. TRANSACTIONS IN THE COMMON STOCK There were no transactions in the Common Stock effected during the 60 days preceding the date of this Proxy Statement by ThermoSpectra, Thermo Instrument, the Merger Sub, Thermo Electron or, to the best knowledge of the Company, the directors and executive officers of any of ThermoSpectra, Thermo Instrument, the Merger Sub or Thermo Electron. E-5 EX-99.17(D)(4) 6 EXHIBIT 99.17(D)(4) [ATTACHMENT A TO PROXY STATEMENT] FORM OF PROXY THERMOSPECTRA CORPORATION PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD , 1999 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Barry S. Howe, Theo Melas-Kyriazi and Kenneth J. Apicerno, or any one of them in the absence of the others, as attorneys and proxies of the undersigned, with full power of substitution, for and in the name of the undersigned, to represent the undersigned at the Special Meeting of the stockholders of ThermoSpectra Corporation, a Delaware corporation (the "Company"), to be held on , , 1999, at 10:00 a.m., at the offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454-9046, and at any adjournment or adjournments thereof, and to vote all shares of common stock of the Company standing in the name of the undersigned on , 1999, with all of the powers the undersigned would possess if personally present at such meeting. (IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.) SPECIAL MEETING OF STOCKHOLDERS THERMOSPECTRA CORPORATION , 1999 1. To consider and vote on a proposal to approve an Agreement and Plan of Merger dated as of May 21, 1999 (the "Merger Agreement") pursuant to which TS Acquisition Corporation, a newly-formed company and wholly owned subsidiary of Thermo Instrument Systems Inc., will be merged (the "Merger") with and into the Company and each stockholder of the Company (other than stockholders who are entitled to and have perfected their dissenters' rights, shares held by the Company in treasury and shares held by Thermo Instrument Systems Inc. and Thermo Electron Corporation) will become entitled to receive $16.00 in cash, without interest, for each outstanding share of common stock, $.01 par value, of the Company owned by such stockholder immediately prior to the effective time of the Merger. A copy of the Merger Agreement is attached as Appendix A to and is described in the accompanying Proxy Statement. [ ] For [ ] Against [ ] Abstain 2. To consider and act in their discretion upon such other matters as may properly come before the Special Meeting or any adjournment or adjournments thereof. [ ] For [ ] Against [ ] Abstain THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO INSTRUCTION IS GIVEN. Copies of the Notice of Special Meeting and of the Proxy Statement have been received by the undersigned. PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. Signature(s) -------------------------------- Date --------------------------------------- Note: This proxy should be dated, signed by the stockholder(s) exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign. PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE! -----END PRIVACY-ENHANCED MESSAGE-----