-----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, EgLTU8amMxvHdoLDtLroiJ9Cw/l7ux6WNhsTaxSp5mOWp4hKiaL2s2Y8ItZwLZ3B DzbYBMMacAyA4EgZTw+O5A== 0000950135-96-003940.txt : 19960910 0000950135-96-003940.hdr.sgml : 19960910 ACCESSION NUMBER: 0000950135-96-003940 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960909 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO FIBERGEN INC CENTRAL INDEX KEY: 0001017921 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 043311544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07585 FILM NUMBER: 96627493 BUSINESS ADDRESS: STREET 1: 8 ALFRED CIRCLE CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-07585-01 FILM NUMBER: 96627494 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02254 BUSINESS PHONE: 6176221000 S-1/A 1 AMEND #2/THERMO FIBERGEN S-1/THERMO ELECTRON S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1996 FORM S-1 REGISTRATION NO. 333-07585 FORM S-3 REGISTRATION NO. 333-07585-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AS TO THE UNITS: AS TO THE GUARANTEES: AMENDMENT NO. 2 TO AMENDMENT NO. 2 TO FORM S-1 FORM S-3 REGISTRATION STATEMENT REGISTRATION STATEMENT UNDER UNDER THE SECURITIES ACT OF 1933 THE SECURITIES ACT OF 1933 ------------------------ ------------------------ THERMO FIBERGEN INC. THERMO ELECTRON CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CHARTER) DELAWARE DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) ORGANIZATION) ------------------------ ------------------------ 3554 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 04-3311544 04-2209186 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 81 WYMAN STREET 8 ALFRED CIRCLE P.O. BOX 9046 BEDFORD, MASSACHUSETTS 01730 WALTHAM, MASSACHUSETTS 02254-9046 (617) 275-3600 (617) 622-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------ SANDRA L. LAMBERT, SECRETARY THERMO FIBERGEN INC. AND THERMO ELECTRON CORPORATION 81 WYMAN STREET P.O. BOX 9046 WALTHAM, MA 02254-9046 (617) 622-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR BOTH REGISTRANTS) ------------------------ COPIES TO: SETH H. HOOGASIAN, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE GENERAL COUNSEL TESTA, HURWITZ & THIBEAULT, LLP THERMO FIBERGEN INC. 125 HIGH STREET VICE PRESIDENT AND GENERAL COUNSEL BOSTON, MASSACHUSETTS 02110 THERMO ELECTRON CORPORATION (617) 248-7000 81 WYMAN STREET WALTHAM, MASSACHUSETTS 02254-9046 (617) 622-1000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement has become effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(1) - ------------------------------------------------------------------------------------------------------------------------ Units................................................. $72,139,500 $24,876(2) - ------------------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value.......................... -- None(3) - ------------------------------------------------------------------------------------------------------------------------ Redemption Rights..................................... -- None(3) - ------------------------------------------------------------------------------------------------------------------------ Thermo Electron Corporation Guarantees................ -- None(3) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(o). (2) Of this amount, $18,809 was previously paid. (3) The Units are comprised of the Common Stock and the Redemption Rights. No separate consideration will be received for the Common Stock, the Redemption Rights or the Guarantees. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION -- DATED SEPTEMBER 9, 1996 PROSPECTUS 4,100,000 UNITS (EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEMPTION RIGHT) OF THERMO FIBERGEN INC. ------------------------ REDEMPTION PAYMENTS GUARANTEED ON A SUBORDINATED BASIS BY THERMO ELECTRON CORPORATION ------------------------ All of the units offered hereby (the "Units") are being sold by Thermo Fibergen Inc. ("Thermo Fibergen" or the "Company"), a wholly owned subsidiary of Thermo Fibertek Inc. ("Thermo Fibertek"), which is an 81.5%-owned subsidiary of Thermo Electron Corporation ("Thermo Electron"). Each Unit consists of one share of common stock, par value $.01 per share (the "Common Stock"), of the Company and one Redemption Right (the "Redemption Rights") (the Units, Common Stock, Redemption Rights and the Guarantees (as defined below) are hereinafter collectively referred to as the "Securities"). Each Redemption Right entitles the holder to sell one share of the Company's Common Stock to the Company during the month of September 2000 (the "First Redemption Period") and during the month of September 2001 (the "Second Redemption Period"), for an amount of cash equal to the initial public offering price (the "Redemption Price"). The Company's obligations with regard to the Redemption Rights are guaranteed on a subordinated basis by Thermo Electron. The Common Stock and the Redemption Rights will trade together as Units until the 90th day after the date of this Prospectus, after which date the Common Stock and the Redemption Rights will trade separately. The Redemption Rights will expire if at any time after the 90th day after the date of this Prospectus and (i) prior to the beginning of the First Redemption Period or (ii) after the end of the First Redemption Period and prior to the beginning of the Second Redemption Period, the closing price of the Common Stock as reported on the principal trading market for the Common Stock has been at least 150% of the Redemption Price, as adjusted, for 20 of any 30 consecutive trading days. See "Description of Securities." Following the offering, Thermo Fibertek will own approximately 70.9% of the outstanding shares of Common Stock of the Company (assuming no exercise of the Underwriters' over-allotment option). Prior to this offering, there has been no public market for the Units, the Common Stock or the Redemption Rights. It is currently estimated that the initial public offering price will be $12.75 per Unit. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made to list the Units, the Common Stock and the Redemption Rights on the American Stock Exchange. ------------------------ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PRICE TO PROCEEDS TO PUBLIC UNDERWRITING COMPANY(2) DISCOUNTS AND COMMISSIONS(1) - ----------------------------------------------------------------------------------------------------------- Per Unit.................................... $ $ $ - ----------------------------------------------------------------------------------------------------------- Total(3).................................... $ $ $ - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) The Company, Thermo Fibertek and Thermo Electron have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $375,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an additional 615,000 Units solely to cover over-allotments, if any. If this option is fully exercised, the total price to the public would be $ , the total underwriting discounts and commissions would be $ and the total proceeds to the Company before estimated expenses would be $ . See "Underwriting." ------------------------ The Securities offered by this Prospectus are offered by the Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of the Units will be made in New York, New York on or about , 1996. NATWEST SECURITIES LIMITED LEHMAN BROTHERS OPPENHEIMER & CO., INC. THE DATE OF THIS PROSPECTUS IS , 1996. 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------ FOR UNITED KINGDOM PURCHASERS: THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO THE PUBLIC (AS DEFINED IN THE COMPANIES ACT 1985) AND NO PROSPECTUS HAS BEEN OR WILL BE REGISTERED OR ISSUED IN THE UNITED KINGDOM IN RESPECT OF THE UNITS. CONSEQUENTLY, THE UNITS MUST NOT BE OFFERED FOR SALE OR SOLD IN THE UNITED KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESSES OR TO PERSONS WHO IT IS REASONABLE TO EXPECT WILL ACQUIRE, HOLD, MANAGE OR DISPOSE OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESS OR ARE OTHERWISE OFFERED TO PERSONS IN THE CONTEXT OF THEIR TRADES, PROFESSIONS OR OCCUPATIONS. THIS PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1995 OR WITHIN ARTICLE 8(1) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) (NO. 2) ORDER 1995. BIODAC IS A REGISTERED TRADEMARK OF THE COMPANY. ALL OTHER TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by Thermo Electron with the Securities and Exchange Commission (the "Commission") are incorporated in this Prospectus by reference: (a) Thermo Electron's Annual Report on Form 10-K for the year ended December 30, 1995, as amended (File No. 1-8002); (b) Thermo Electron's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996, as amended (File No. 1-8002); (c) Thermo Electron's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996, as amended (File No. 1-8002); (d) Thermo Electron's Current Report on Form 8-K filed with the Commission on January 9, 1996, with respect to the issuance of its 4 1/4% Convertible Subordinated Debentures due 2003 (File No. 1-8002); (e) Thermo Electron's Current Report on Form 8-K filed with the Commission on January 26, 1996, with respect to the adoption of a Shareholder Rights Plan on January 19, 1996 (File No. 1-8002); (f) Thermo Electron's Current Report on Form 8-K filed with the Commission on April 19, 1996, with respect to its guarantees of obligations under Thermo TerraTech Inc.'s 4 5/8% Convertible Subordinated Debentures due 2003 (File No. 1-8002); and (g) The description of Thermo Electron's common stock which is contained in Thermo Electron's Registration Statement on Form 8-A, filed under the Exchange Act, as amended (File No. 1-8002). All reports or proxy statements filed by Thermo Electron pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies, supersedes or replaces that statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Thermo Electron undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents that have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference therein). Requests for such copies should be directed to: Sandra L. Lambert, Secretary, Thermo Electron Corporation, 81 Wyman Street, P. O. Box 9046, Waltham, Massachusetts 02254-9046 (telephone number: (617) 622-1000). 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements and notes thereto appearing elsewhere in this Prospectus. Except as otherwise indicated, all information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY Thermo Fibergen Inc. (the "Company") was established as a subsidiary of Thermo Fibertek Inc. ("Thermo Fibertek") to develop and commercialize equipment and systems to recover valuable materials from increasing volumes of pulp residue generated by plants that produce recycled pulp and paper. The Company intends to finance, build and operate recovery plants on sites at, or immediately adjacent to, recycled pulp mills, employing a proprietary process to treat pulp residue. The Company's plants will recover and clean long cellulose fibers for resale to pulp mills, and will process the remaining recoverable components of pulp residue, such as fines (very short fibers not usable for papermaking) and minerals, into saleable products. On July 3, 1996, the Company's wholly owned GranTek Inc. subsidiary ("GranTek") acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. ("GT") and Biodac, a division of Edward Lowe Industries, Inc. (collectively, "GT/ELI"), for approximately $12,000,000 in cash, subject to a post-closing adjustment. GranTek employs patented technology to produce absorbent granules from pulp residue. These granules, marketed under the trade name BIODAC, are currently used as a carrier to deliver chemicals for agricultural, lawn and garden, and other needs. GranTek's Green Bay, Wisconsin, plant currently produces more than 30,000 tons of BIODAC per year. Environmental concerns and other factors have led to an increase in the use and production of recycled paper in recent years. However, paper companies that increase the use of recycled paper as a source of their papermaking fiber experience substantial increases in their pulp residue. These increases result from the pulp de-inking, filtering and cleaning process, in which approximately 25% of the recycled fiber entering a pulp mill is lost to the waste stream, and must be disposed of at a substantial cost. The Company believes the North American pulp and paper industry spent an estimated $900 million to treat and dispose of approximately 9 million tons of pulp residue in 1993. The Company believes that worldwide expenditures to treat and dispose of pulp residue in 1993 were approximately $2.5 billion. The Company's strategy is to generate revenues from several sources. First, the Company will seek to enter into long-term contracts with pulp and paper mills under which the Company will charge the customer a tipping fee to accept the customer's pulp residue. Second, the Company intends to sell much of the clean long fibers it recovers directly back to the customer for use in the papermaking process. The Company has not yet begun to recover long fibers; as described below, the Company expects to begin construction of its first commercial recovery plant employing its long fiber-recovery technology in 1997. Third, the Company will apply existing technologies, such as its granulation technologies, and expects to develop new technologies, to maximize the value of the other recoverable components of the pulp residue, such as fines and minerals, for sale into other markets. For example, the Company intends to further develop GranTek's technology to produce granules for oil and grease absorbents as well as for specialty absorbents, such as for the cat box filler market. The Company anticipates that the tipping fees it receives will generally be competitive with the pulp mills' current disposal costs. The Company believes that pulp mills will prefer to dispose of their residue streams by paying the Company a tipping fee for a number of reasons. Disposal of residue with the Company will provide pulp mills with a long-term disposal solution and will eliminate concerns over long-term capacity constraints at their landfills; will relieve the pulp mills of the responsibility for complying with changing treatment and disposal regulations; and will allow pulp mills to reduce their capital investments in dewatering and treatment equipment, and to focus their resources on the manufacture of paper. The Company is actively developing a process to recover long fibers from pulp residue, and has completed the construction of a mobile pilot recovery system which the Company is using for initial mill demonstrations of its fiber-recovery process. The Company expects that its first commercial plants will feature only GranTek's technology to process pulp residue into absorbent granules. The Company's strategy is to introduce this technology to pulp mill customers, to enter into long-term contracts with such customers and to construct its plants, and then, upon the completion of development, to retrofit existing GranTek plants with the Company's long fiber-recovery technology. The Company will also explore the construction of plants in certain niche markets that may feature only the Company's long fiber-recovery technology. The Company expects to begin construction of its first commercial recovery plant employing its long fiber-recovery technology before the end of 1997. 3 5 - -------------------------------------------------------------------------------- THE OFFERING Units Offered(1)..................... 4,100,000 Common Stock to be Outstanding after the Offering(1)(2)................. 14,100,000 Proposed AMEX Symbol for the Units... TFGU Proposed AMEX Symbol for the Common Stock.............................. TFG Proposed AMEX Symbol for the Redemption Rights.................. TFGR Scheduled Optional Redemptions....... The holder of a Redemption Right may require the Company to redeem one share of Common Stock for an amount of cash equal to the initial public offering price during the month of September 2000 (the "First Redemption Period") and the month of September 2001 (the "Second Redemption Period"). The Redemption Rights will expire if at any time after the 90th day after the date of this Prospectus and (i) prior to the beginning of the First Redemption Period or (ii) after the end of the First Redemption Period and prior to the beginning of the Second Redemption Period, the closing price of the Common Stock has been at least 150% of the Redemption Price, as adjusted, for 20 of any 30 consecutive trading days. Thermo Electron Guarantees........... Redemption payments have been guaranteed by Thermo Electron. The obligations represented by Thermo Electron's guarantees (the "Guarantees") will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined herein) of Thermo Electron, including Senior Indebtedness which may be incurred by Thermo Electron after the issuance of the Guarantees. Use of Proceeds...................... Funding the development and commercialization of the Company's fiber-recovery system, and general corporate purposes, including acquisitions. Federal Tax Consequences............. Special tax considerations may apply to an investment in the Units. Investors should read carefully "Certain Federal Income Tax Consequences" and are advised to consult with their own tax advisors regarding the consequences of an investment in the Units.
THERMO ELECTRON Thermo Electron develops, manufactures and markets environmental monitoring and analysis instruments, biomedical products including heart-assist systems, mammography systems and respiratory care products, paper-recycling and papermaking equipment, alternative-energy systems, industrial process equipment, and other specialized products. Thermo Electron also provides environmental and metallurgical services and conducts advanced technology research and development. Thermo Electron performs its business through its divisions and wholly owned subsidiaries, as well as majority-owned subsidiaries that are partially owned by the public or by private investors. - --------------- (1) Each Unit consists of one share of Common Stock and one Redemption Right. The Common Stock and the Redemption Rights will trade together as Units until the 90th day after the date of this Prospectus, after which date the Common Stock and the Redemption Rights will trade separately. (2) Does not include 825,000 shares of Common Stock reserved for issuance under the Company's stock-based compensation plans. As of August 31, 1996, options to purchase 338,000 shares of Common Stock had been granted and were outstanding under these plans. See "Capitalization," "Management -- Compensation of Directors" and "-- Compensation of Executive Officers" and Note 5 of Notes to Financial Statements of the Company. - -------------------------------------------------------------------------------- 4 6 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA COMBINED(1)(2) ----------------------- SIX MONTHS TWELVE SIX ENDED(1) MONTHS MONTHS FISCAL YEAR ------------------ ENDED ENDED ------------------------------------- JULY 1, JUNE 29, DECEMBER 30, JUNE 29, 1992(1) 1993 1994 1995 1995 1996 1995 1996 ------- ------- ------- ------- ------- -------- ------------ -------- STATEMENT OF OPERATIONS DATA: Revenues..................... $ -- $ -- $ -- $ -- $ -- $ -- $ 4,233 $ 3,154 Gross Profit................. -- -- -- -- -- -- 992 1,071 Research and Development Expenses................... 147 106 128 601 276 548 904 637 Patent Litigation Expenses... -- -- -- -- -- -- 1,654 290 Operating Loss............... (147) (106) (128) (601) (276) (548) (2,648) (842) Interest and Other Income (Expense).................. -- -- -- -- -- 267 (1,469) 704 Net Loss..................... (147) (106) (128) (601) (276) (281) (4,117) (138) Loss per Share(3)............ (.01) (.01) (.01) (.06) (.03) (.03) (.41) (.01) Weighted Average Shares(3)... 10,073 10,073 10,073 10,073 10,073 10,073 10,073 10,073
JUNE 29, 1996 ------------------------ PRO FORMA AS COMBINED(4) ADJUSTED(5) ------------ --------- BALANCE SHEET DATA: Working Capital........................................................................ $ 359 $48,861 Total Assets........................................................................... 13,659 62,161 Common Stock Subject to Redemption..................................................... -- 48,502 Shareholder's Investment............................................................... 12,313 12,313 - --------------- (1) Derived from unaudited financial statements. (2) The pro forma combined statement of operations data was derived from the pro forma combined condensed statements of operations included elsewhere in this Prospectus. The pro forma combined statement of operations data sets forth the results of operations for the twelve months ended December 30, 1995 and the six months ended June 29, 1996, as if the acquisition of substantially all of the assets, subject to certain liabilities, of GT/ELI had occurred on January 1, 1995. (3) Pursuant to Securities and Exchange Commission requirements, loss per share has been presented for all periods. Weighted average shares for all periods include 10,000,000 shares issued to Thermo Fibertek in connection with the initial capitalization of the Company and the effect of the assumed exercise of stock options issued within one year prior to the Company's proposed initial public offering. (4) The pro forma combined balance sheet data as of June 29, 1996 is derived from the pro forma combined condensed balance sheet included elsewhere in this Prospectus, which was prepared as if the acquisition of substantially all of the assets, subject to certain liabilities, of GT/ELI had occurred on June 29, 1996. (5) Adjusted to reflect the sale by the Company of 4,100,000 Units offered hereby at an assumed initial public offering price of $12.75 per Unit, after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company.
5 7 RISK FACTORS An investment in the Units offered hereby involves a high degree of risk. Accordingly, the following factors should be carefully considered in evaluating the Company and its business before purchasing any of such Units. Operating Losses. The Company has not been profitable since its inception as a division of Thermo Fibertek on December 29, 1991. As of June 29, 1996, the cumulative operating losses of the Company were approximately $1,530,000. The Company expects to continue to incur operating losses for at least the next several years. The Company had no revenues through the six months ended June 29, 1996. Uncertainty of Product Development; Dependence on Thermo Fibertek. The Company's fiber-recovery system incorporates new technology currently under development. Although the Company has completed the construction of its mobile pilot fiber-recovery system, it has not yet begun the commercial production of full-scale fiber-recovery systems. The Company's success will depend in part on Thermo Fibertek, which is developing a proprietary "scalping" technology that is a key component of the Company's fiber-recovery system. The principal development risk associated with the technology comprising the Company's mobile pilot system, including the "scalping" technology under development by Thermo Fibertek, is that such technology may not be readily scalable. Accordingly, further engineering will be required to adapt such technology to permit it to process pulp residue at volumes necessary for successful commercial operation. In addition, while pulp residues from all recycled pulp mills share certain defining principal characteristics, such technology must be further engineered to maximize its ability to scalp fibers from the residue streams of specific mills. No assurance can be given that the development efforts of the Company or of Thermo Fibertek will be successful. Failure to successfully develop the Company's recovery equipment and system would have a material adverse effect on the business of the Company. The Company's success will depend to some degree on its ability to identify and develop technologies to maximize the value of the components of pulp residue, such as minerals, for sale into other markets. There can be no assurance that the Company will succeed in obtaining or developing any such technologies. Failure of the Company to obtain or develop such technologies, or to develop active markets for the components of the pulp residue it processes, would both increase the Company's ultimate waste-disposal costs and reduce the Company's anticipated revenue stream. Accordingly, such a failure would have a material adverse effect on the business of the Company. Risks of Uncertain Market Acceptance. The Company's proposed fiber-recovery process and market approach are significantly different from processing and disposal methods that are currently available commercially. There is a substantial risk with any new technology that the marketplace may not accept or be receptive to the potential benefits of such technology. Market acceptance of the Company's proposed services and products will depend, in large part, upon the ability of the Company to demonstrate the economic advantage of its system over available alternatives. There can be no assurance that the Company's services will be accepted by the pulp and paper industry, that any products the Company may develop from the recoverable components of papermaking residues will be accepted in their respective markets or that the Company will be able to sell such products, if accepted, at commercially viable prices. Failure of either the Company's technology to gain market acceptance by the pulp and paper industry or of any such products to gain market acceptance generally would have a material adverse effect on the business of the Company. Lack of Operating History and Management. The Company has no operating history other than research and development relating to its fiber-recovery equipment and process and the business recently acquired by its GranTek subsidiary. The Company expects to hire several additional employees within the next year, all of whom are expected to be engaged in research and development and/or sales and marketing. No assurance can be given that management experienced in building a research and development or manufacturing organization, or additional skilled personnel necessary to successfully commercialize and expand the Company's business and operations, can be recruited and retained. Failure of the Company to achieve these objectives would have a material adverse effect on the business of the Company. See "Business -- Employees." Risks Associated with Protection, Defense and Use of Proprietary Technology and Intellectual Property. The Company holds several United States and foreign patents relating to various aspects of the processing and use of cellulose-based granular materials, including the processing and use of such materials as an agricultural carrier, and Thermo Fibertek holds two United States patents and several foreign patents, and expects to file additional United States patent applications in the near future, relating to the "scalping" technology that is a key component of the Company's fiber-recovery system. Although the Company has licensed the technology covered by Thermo 6 8 Fibertek's patents for use in pulp and paper industry applications, the Company does not itself hold any patents or patent applications with respect to its pilot fiber-recovery system. Proprietary rights relating to the Company's technology 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. Moreover, although the Company is developing methods to separate the various components of the residue stream for which it believes that it may be able to obtain patent protection, 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 services or products or gain access to its trade secrets and know-how. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company's patents, or that they will not use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company's products or technologies. The Company may need to acquire licenses to, or contest the validity of, any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. In addition, the Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. See "Business -- Intellectual Property." Commodity Price Risks. The Company expects to recover high quality long fibers from the residue streams of pulp and paper mills and to sell them back to mills under long-term contracts. The prices at which the Company may be able to sell such fibers will generally not be fixed over the term of the contracts and will depend on several factors, including the prevailing prices for both finished paper products and wastepaper from time to time. These prices tend to be cyclical and to vary according to paper type. The Company also anticipates that it will seek to sell other recoverable components of the residue streams, such as fines, wastewater and minerals. The Company will be exposed to commodity price risk during the period that it has title to these products held in inventory. Prices of these commodities can be volatile, and no assurance can be given that the Company will be able to sell recovered components at a profit. Future Capital Needs; Project Financing; Dependence on Capital Markets. The Company anticipates that the net proceeds of this offering, together with interest income earned on such net proceeds, will constitute a large percentage of the Company's development and initial commercialization budgets. To the extent that the interest income on the funds generated by this offering, together with the Company's future operating income, if any, are insufficient to fund the development and commercialization of the Company's fiber-recovery system, the Company may be required to raise additional funds through public or private financings. See "Use of Proceeds." The Company's future capital requirements will depend on many factors, including continued progress in its research and development program, the magnitude of such program, competing technological and market developments, the cost of manufacturing activities and the Company's ability to market its services and products successfully. Any equity or debt financings, if available at all, may be on terms that are not favorable to the Company and, in the case of equity financings, could result in dilution to the Company's stockholders. If adequate funds are not available, the Company may be required to curtail development and commercialization of its fiber-recovery technology. In addition, the Company expects to seek to finance each of its recovery plants in a manner that is substantially nonrecourse to the Company. To minimize its equity commitment, the Company will be required to borrow substantial amounts from third party lenders. These borrowings typically would be secured only by the recovery plant assets and/or by the capital stock of a subsidiary operating such plant. If the Company were unable to repay the principal of, and all interest on, such borrowings, the lender would have the right to foreclose on, and obtain title to, such assets or capital stock. The Company anticipates that it will require substantial financing to fund both the equity and debt components of future plants. The ability to finance the Company's recovery plants on a nonrecourse 7 9 basis will depend on a number of factors, including interest coverage ratios, the length and terms of the Company's contracts with pulp mill customers and the perception of technology risks by lenders. The Company has had no discussions with potential lenders, and no assurance can be given that financing for future plants will be available on acceptable terms, or at all. Any failure by the Company to obtain adequate amounts of project financing on acceptable terms would have a material adverse effect on the future growth of the Company. Competition. The Company expects to encounter intense competition in the sale of its services and products. The Company expects that its principal competitors will be landfills, which currently have a collective 70% market share in North America and approximately 40% in Europe. In addition, many pulp mills have already made substantial investments in dewatering and drying equipment to reduce their landfill costs. Mills are familiar with such methods and may be reluctant to switch to a new solution unless the Company demonstrates significant cost savings to them. Several large waste-management companies have increased their marketing activities to provide landfill disposal services to the pulp and paper industry. Certain competitors are seeking to develop similar technologies and services to treat and process pulp residues. No assurance can be given that these technologies may not be superior to those of the Company or that they may not make the Company's technology obsolete. Some of these competitors may have substantially greater financial, marketing and other resources than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their services and products than the Company. There can be no assurance that the Company's current technology, technology under development or ability to discover new technologies will be sufficient to enable it to compete effectively with its competitors. See "Business -- Competition." Risk of Dependence on Pulp Mill Customers. Each of the Company's fiber-recovery plants will rely upon long-term agreements with a single pulp mill customer for its pulp residue and tipping fee revenue. The failure of any one pulp mill customer to fulfill its contractual obligations could have a substantial negative impact on the Company. No assurance can be given that a particular pulp mill will not be unwilling or unable, at some time, to make required payments under, or to otherwise honor, its agreements with the Company. The Company expects that each of its commercial plants will generally occupy approximately two acres of land to be acquired at, or immediately adjacent to, a pulp mill. To date, the Company has not acquired any such sites, and no assurance can be given that the Company will be able to acquire any such sites on terms that are favorable to the Company or at all. GranTek's pulp residue is obtained from a single paper mill located near its Wisconsin plant, under which such mill has the exclusive right to supply such residue to GranTek's plant. The contract terminates on December 26, 1997, subject to successive mutual two-year extensions. Although the Company believes that GranTek's relationship with such mill is good, no assurance can be given that such mill will agree to renew the contract upon its termination in December 1997. Environmental and Regulatory Risks. Federal, state and local environmental laws govern air emissions and discharges into water, as well as the generation, transportation, storage, treatment and disposal of solid and hazardous waste. These laws establish standards governing most aspects of the construction and operation of the Company's facilities, and often require multiple governmental permits before these facilities can be constructed, modified or operated. There can be no assurance that all required permits will be issued for the Company's recovery plants, or that the requirements for continued permitting under environmental regulatory laws and policies governing their enforcement may not change, requiring new technology or stricter standards for the control of discharges of air or water pollutants or for solid or hazardous waste handling and disposal. Such future developments could affect the manner in which the Company constructs and operates its plants and could require significant additional expenditures to achieve compliance with such requirements. It is possible that compliance may not be technically or economically feasible. Changes in these regulations could also affect the characteristics of the waste generated by pulp and paper mills. As a result, it is possible that disposal of pulp residue could be accomplished in a manner that may not involve the Company's facilities or that would require the Company to purchase pulp residue. Federal, state and local laws also frequently impose liability on the present and former owners or operators of facilities that release hazardous substances into the environment. Furthermore, companies may be required by law to provide financial assurances for operating facilities in order to ensure their performance of obligations is in compliance with applicable laws and regulations. Similar liability may be imposed upon the generators and transporters of waste which contains hazardous substances. In the United States, such liability stems primarily from 8 10 the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state equivalents, the Federal Toxic Substances Control Act ("TSCA") and the Resource Conservation and Recovery Act of 1976 ("RCRA") and similar state equivalents. CERCLA imposes joint and several liability for the costs of remediation and natural resource damages on the owner or operator of a facility from which there is a release or a threat of a release of a hazardous substance into the environment and on the generators and transporters of those hazardous substances. Under RCRA and equivalent state laws, regulatory authorities may require, pursuant to administrative order or as a condition of an operating permit, that the owner or operator of a regulated facility take corrective action with respect to contamination resulting from past or present operations. TSCA imposes limitations on the presence in commercial products of polychlorinated biphenyls ("PCBs"), and on the generation, handling, storage and disposal of PCB-containing materials, byproducts and wastes. Such laws also require that the owner or operator of regulated facilities provide assurance that funds will be available for the closure and post-closure care of its facilities. GranTek emits into the atmosphere from its Green Bay, Wisconsin, facility approximately 4.5 pounds per year of PCBs, as well as certain other hazardous pollutants such as formaldehyde, benzene and volatile organic compounds ("VOCs"). Applicable Wisconsin regulations limit PCB emissions to 0.5 pounds per year unless the generator can demonstrate that it is using the best available control technology to limit emissions. GranTek has been issued an air operating permit by the Wisconsin Department of Natural Resources (the "WDNR"). GranTek's operating permit and its application for a new Title V operating permit both require GranTek to reduce PCB and VOC emissions and to file bi-annual reports on the amount of PCBs being emitted. In August 1995, GranTek submitted materials to the WDNR asserting that no technologically or economically feasible methods to reduce PCB or VOC emissions from its facility can be implemented at the present time and, accordingly, requesting that GranTek be relieved of its obligation to reduce emissions. As of the date of this Prospectus, GranTek has received no response from the WDNR. Although the Company believes that the WDNR will accept GranTek's findings, and although GranTek's facility is currently fully permitted by Wisconsin regulatory authorities, no assurance can be given that the WDNR will not require GranTek to reduce or eliminate its emissions, that such compliance will not require the Company to make significant expenditures or that such compliance will be technologically or economically feasible. Such compliance may have material adverse effects on the Company's capital expenditures, earnings and/or competitive position. The pulp residue processed by GranTek contains trace amounts of PCBs, dioxins, furans and other metals, residual amounts of which are also found in GranTek's BIODAC product. Although these substances are present in residual quantities below the maximum levels currently permitted under applicable federal and state regulations, no assurance can be given that such regulations may not be made more stringent in the future, that pulp residue containing such substances may not be regulated as a hazardous waste under RCRA or that federal or state regulations may not in the future prohibit the use of materials containing these substances in agricultural applications. Any such regulatory changes may have material adverse effects on the Company's capital expenditures, earnings and/or competitive position. The Company may be required as a practical matter to assume all environmental liabilities associated with the treatment and final disposal of all components of the pulp mills' residue stream that cannot be returned to mills or sold elsewhere. The Company will endeavor to operate its business to minimize its exposure to environmental liabilities. In entering into contracts with customers, the Company will seek to maximize its insulation from environmental liabilities associated with paper mill waste streams by controlling the content of the waste streams it will accept and by preventing customers from sending any waste streams containing hazardous components to the Company's facilities. Any such disposal of hazardous waste could cause the Company to be responsible for the clean-up or remediation of the disposal site in the future under CERCLA, TSCA, RCRA and similar state laws. No assurance can be given that claims for environmental liabilities may not be asserted against the Company. See "Business -- Government Regulation." Risk of Uncertain Tax Treatment. Due to the unique characteristics of the Securities offered hereby, the tax treatment of the Securities is uncertain. If, for example, the Common Stock is deemed to be indebtedness, rather than equity, for federal income tax purposes, distributions by the Company in respect of the Common Stock would be treated as interest and not as dividends. Investors are urged to consult their own tax advisors with regard to an investment in the Securities. See "Certain Federal Income Tax Consequences." 9 11 Potential Conflicts of Interest. The Company may be subject to potential conflicts of interest from time to time as a result of its relationship with Thermo Fibertek and Thermo Electron. For example, conflicts may arise in the development and licensing of technology by Thermo Fibertek to the Company and the manufacture of components of the Company's fiber-recovery systems by Thermo Fibertek for sale to the Company. Although it is the policy of Thermo Electron that all transactions among Thermo Electron and its subsidiaries be made on terms comparable to those that could be obtained in an arm's-length transaction, these negotiations will be subject to the potential conflicts associated with related party transactions. See "Relationship with Thermo Electron and Thermo Fibertek." For financial reporting purposes, the Company's financial results are included in Thermo Fibertek's and Thermo Electron's consolidated financial statements. Certain officers of the Company are also officers of Thermo Fibertek, Thermo Electron and/or other subsidiaries of Thermo Electron. Such officers will devote only a portion of their working time to the affairs of the Company. Further, it is an essential element of Thermo Electron's career development program that successful executives and managers be considered for positions of increased responsibility anywhere within the Thermo Electron family of companies. While the Company may also benefit from this policy, there can be no assurance that its current executives and managers will not assume other positions within the Thermo Electron family of companies, causing them to be unavailable to serve the Company, or to reduce the amount of time that they devote to the affairs of the Company. The members of the Board of Directors and officers of the Company who are also affiliated with Thermo Fibertek or Thermo Electron will consider not only the short-term and the long-term impact of operating decisions on the Company, but also the impact of such decisions on the consolidated financial results of Thermo Fibertek and Thermo Electron. In some cases the impact of such decisions could be disadvantageous to the Company while advantageous to Thermo Fibertek or Thermo Electron, or vice versa. Notwithstanding the foregoing, the Directors and officers of the Company have a fiduciary duty to the Company's shareholders under the General Corporation Law of the State of Delaware, under which the Company is organized. The Company is also a party to various agreements with Thermo Electron that may limit the Company's operating flexibility. The Company and Thermo Electron have entered into a Corporate Services Agreement under which Thermo Electron's corporate staff provides certain administrative services to the Company in consideration of an annual fee paid by the Company. The amount of services performed from time to time by Thermo Electron may not be necessarily related to the amount of such fee although management of Thermo Electron believes that such fees are representative of the expenses the Company would incur on a stand-alone basis. See "Relationship with Thermo Electron and Thermo Fibertek." Control by Thermo Fibertek. The Company's shareholders do not have the right to cumulate votes for the election of directors. Thermo Fibertek, which will own approximately 70.9% of the voting stock of the Company after this offering (68.0% if the Underwriters' over-allotment option is exercised in full) and which currently intends to maintain a majority interest in the Company in the future, has the power to elect the entire Board of Directors of the Company and to approve or disapprove any corporate actions submitted to a vote of the Company's shareholders. See "Relationship with Thermo Electron and Thermo Fibertek" and "Security Ownership of Certain Beneficial Owners and Management." No Prior Public Market; No Assurance of Active Trading Markets. Prior to this offering, there has been no public market for the Units, for the Common Stock or for the Redemption Rights, and there can be no assurance that active trading markets will develop or be sustained after this offering. The offering price for the Units will be determined by negotiations between the Company and the Representatives of the Underwriters and may not be indicative of future market prices. See "Underwriting" for a discussion of the factors to be considered in determining the offering price. Many factors, including the risk factors contained in this Prospectus and the volatility of the overall stock market, could have a significant impact on the future market prices of the Units, the Common Stock and the Redemption Rights, and there can be no assurance that the Units, the Common Stock and/or the Redemption Rights will trade at levels above the offering price. Shares Eligible for Future Sale and the Potential Adverse Impact on the Market Price for the Common Stock. The 10,000,000 shares of Common Stock owned by Thermo Fibertek will become eligible for sale under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act") commencing in February 1998. In addition, as long as Thermo Fibertek is able to elect a majority of the Company's Board of Directors, it will be able to cause the Company at any time to register all or a portion of the Common Stock owned by Thermo Fibertek under the Securities Act at any time. Thermo Fibertek and the Company have agreed not to sell any shares of Common Stock within a 180-day period after the date of this Prospectus without the consent of 10 12 the Representatives of the Underwriters, other than (i) shares of Common Stock to be sold to the Underwriters in this offering, (ii) the issuance of options and sales of shares of Common Stock pursuant to existing stock-based compensation plans, (iii) shares of Common Stock which may be sold to Thermo Fibertek, and (iv) the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses (provided that such Common Stock may not be resold prior to the expiration of the 180-day period referenced above). The Company has reserved 825,000 shares of Common Stock for issuance under its stock-based compensation plans. As of August 31, 1996, options to purchase 338,000 shares of Common Stock were outstanding. Additional shares of Common Stock issuable upon exercise of options which may be granted under the Company's stock-based compensation plans will become available for future sale in the public market at prescribed times. Sales of a significant number of shares of Common Stock in the public market following this offering could adversely affect the market price of the Common Stock. See "Shares Eligible for Future Sale," "Relationship with Thermo Electron and Thermo Fibertek" and "Underwriting." Immediate and Substantial Dilution. Purchasers of the Units offered hereby will incur an immediate and substantial dilution of $8.87 in the net tangible book value per share of the Common Stock from the offering price. See "Dilution." Lack of Dividends. The Company has never paid any cash dividends on its Common Stock. The Board of Directors anticipates that for the foreseeable future the Company's earnings, if any, will be retained for use in the business and that no cash dividends will be paid on the Common Stock. 11 13 THE COMPANY The Company operated as a division of Thermo Fibertek beginning on December 29, 1991 until its incorporation as a Delaware corporation in February 1996. In connection with the Company's incorporation, Thermo Fibertek transferred to the Company a license to use certain technology and its business relating to the development of the Company's fiber-recovery system for use in the pulp and paper industries, together with $12,500,000 in cash, in exchange for 10,000,000 shares of the Company's Common Stock. The Company's principal executive offices are located at 8 Alfred Circle, Bedford, Massachusetts 01730, and its telephone number is (617) 275-3600. USE OF PROCEEDS The net proceeds to the Company from the sale of the Units offered by the Company pursuant to this offering are estimated to be $48,502,000 ($55,834,000 if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $12.75 per Unit and after deducting estimated underwriting discounts and commissions and offering expenses. The Company currently intends to limit the pace and amount of its research and development on both its fiber-recovery system and on new products, if any, which may be developed from recovered fibers and other components of pulp residue so that its internally funded research and development expenditures will be approximately equivalent to the interest or dividend income earned on its cash balances, including the net proceeds of this offering, plus the Company's operating earnings, if any. To generate such income, and pending the use of such cash balances for other purposes described below, the Company expects to invest such net proceeds primarily in investment grade interest or dividend bearing instruments, either directly by the Company or pursuant to a repurchase agreement with Thermo Electron. See "Relationship with Thermo Electron and Thermo Fibertek." Based on current conditions, the Company estimates that it will spend between $2,500,000 and $3,500,000 on such research and development annually over the next four years. The Company currently expects that, in the future, it will use substantially all of the net proceeds of the offering to fund the commercialization of its fiber-recovery system. Although the Company expects to spend between $1,500,000 and $2,500,000 of such net proceeds to fund its equity contribution toward the construction of its first commercial recovery plant employing its fiber-recovery technology, which construction is expected to begin in late 1997, the Company has no specific plan to construct a particular number of such plants. The actual amount of such net proceeds which the Company will use to construct such plants will depend on, among other factors, the number of plants constructed, the rate at which such plants are constructed and the Company's success, if any, at obtaining financing for all or a portion of such plants from third party lenders. See "Risk Factors -- Future Capital Needs; Project Financing; Dependence on Capital Markets." Accordingly, no assurance can be given that the Company will not spend substantially more or less than it has estimated to commercialize its fiber recovery technology. While the Company will conduct research and development on several products that may in the future be produced from the components of pulp residues, the Company expects to fund the commercialization of such products from its cash flow, if any, or other sources, and does not currently expect to use any of the net proceeds of this offering to commericalize such products. See "Risk Factors -- Uncertainty of Product Development." However, depending on the Company's experience with respect to its research and development and in commercializing its fiber-recovery technology, no assurance can be given that the Company may not decide to accelerate the timing of such expenditures or that a portion of such expenditures may not be made from the net proceeds of this offering. The Company expects to use the balance of the net proceeds of this offering for general corporate purposes, including the possible acquisition of one or more technologies or businesses that complement the Company's strategy. The Company currently has no commitments or agreements in principle, and is not currently involved in any discussions, with respect to any such acquisition. DIVIDEND POLICY The Company anticipates that for the foreseeable future the Company's earnings, if any, will be retained for use in the business and that no cash dividends will be paid on the Common Stock. 12 14 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 29, 1996, (i) stated on a pro forma basis to reflect the July 3, 1996 acquisition of substantially all of the assets, subject to certain liabilities of GT/ELI, and (ii) as adjusted to reflect the issuance and sale of the Units offered hereby at an assumed initial public offering price of $12.75 per Unit, after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company.
JUNE 29, 1996 -------------------------- PRO FORMA COMBINED AS ADJUSTED ---------- ----------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Common Stock Subject to Redemption ($52,275 redemption value as adjusted); 4,100,000 shares issued and outstanding as adjusted........ $ -- $48,502 ------- ------- Shareholder's Investment: Common stock, $.01 par value, 25,000,000 shares authorized; 10,000,000 shares issued and outstanding(1)....................... 100 100 Capital in excess of par value..................................... 12,400 12,400 Deficit accumulated during the development stage subsequent to capitalization of the Company..................................... (187) (187) ------- ------- Total Shareholder's Investment................................ 12,313 12,313 ------- ------- Total Capitalization (Common Stock Subject to Redemption and Shareholder's Investment)........................... $12,313 $60,815 ======= ======= - --------------- (1) Does not include 825,000 shares of Common Stock reserved for issuance under the Company's stock-based compensation plans. As of August 31, 1996, options to purchase 338,000 shares of Common Stock had been granted and were outstanding under these plans. See "Management -- Compensation of Directors" and "-- Compensation of Executive Officers" and Note 5 of Notes to Financial Statements of the Company.
13 15 DILUTION As of June 29, 1996, the Company had a net tangible book value of $6,251,000, or $.63 per share, stated on a pro forma basis to reflect the July 3, 1996 acquisition of GT/ELI (see pro forma combined condensed balance sheet included elsewhere in this Prospectus). Net tangible book value per share is determined by dividing net tangible book value (total tangible assets less total liabilities) of the Company by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of 4,100,000 Units offered hereby at an assumed initial public offering price of $12.75 per Unit and the receipt of the estimated net proceeds therefrom, the pro forma net tangible book value of the Common Stock as of June 29, 1996 would have been $54,753,000, or $3.88 per share. This represents an immediate increase in net tangible book value of $3.25 per share to the existing shareholder and an immediate dilution in net tangible book value of $8.87 per share to investors purchasing Units in this offering. See "Risk Factors -- Immediate and Substantial Dilution." The following table illustrates this per share dilution: Assumed price to public............................................... $12.75 ------ Pro forma net tangible book value per share as of June 29, 1996, before offering................................................. $ .63 ------ Increase in net tangible book value per share attributable to payments by new investors....................................... 3.25 ------ Pro forma net tangible book value per share as of June 29, 1996, after offering(1)(2)(3)................................................... 3.88 ------ Dilution per share to new investors(1)................................ $ 8.87 ======
- --------------- (1) If the Underwriters' over-allotment option were exercised in full, the pro forma net tangible book value per share after the offering would be $4.22, resulting in an immediate dilution of $8.53 per share to investors purchasing Units in this offering. (2) If all options outstanding at August 31, 1996 to purchase an aggregate of 338,000 shares of Common Stock at $10.00 per share were exercised in full, in addition to the Underwriters' exercise of the overallotment option, the pro forma net tangible book value per share after the offering would be $4.35, resulting in an immediate dilution of $8.40 per share to investors purchasing shares in this Offering. (3) Pro forma net tangible book value per share after the offering is calculated assuming the redemption rights have expired and, therefore, assuming the Common Stock Subject to Redemption would be transferred to Shareholder's Investment. The following table sets forth on a pro forma basis as of June 29, 1996, the differences between Thermo Fibertek, the present shareholder, and new investors with respect to the number of shares of Common Stock acquired, the total consideration paid and the average consideration paid per share (at an assumed initial public offering price of $12.75 per share):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------------- ----------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ----------- ------- --------- Thermo Fibertek(1)......................... 10,000,000 70.9% $12,500,000 19.3% $ 1.25 New Investors.............................. 4,100,000 29.1 52,275,000 80.7 12.75 ---------- ----- ---------- ----- Total................................. 14,100,000 100.0% $64,775,000 100.0% ========== ===== ========== =====
- --------------- (1) Represents the book value of net assets, together with $12,500,000 in cash, transferred by Thermo Fibertek to the Company in exchange for 10,000,000 shares of the Company's Common Stock. 14 16 SELECTED FINANCIAL INFORMATION The selected financial information presented below for the fiscal year ended January 1, 1994 and as of and for the fiscal years ended December 31, 1994 and December 30, 1995 has been derived from the Company's Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere in this Prospectus. This information should be read in conjunction with the financial statements and related notes included elsewhere in this Prospectus. The selected financial information as of and for the fiscal year ended January 2, 1993, as of January 1, 1994, and as of and for the six-month periods ended July 1, 1995 and June 29, 1996, 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. Results for the six-month period ended June 29, 1996 are not necessarily indicative of results for the entire year.
PRO FORMA COMBINED(1)(2) -------------------- SIX MONTHS ENDED(1) TWELVE SIX MONTHS MONTHS FISCAL YEAR ------------------- ENDED ENDED ------------------------------------- JULY 1, JUNE 29, DEC. 30, JUNE 29, 1992(1) 1993 1994 1995 1995 1996 1995 1996 ------- ------ ------ ------ ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues................................... $ -- $ -- $ -- $ -- $ -- $ -- $ 4,233 $ 3,154 ------ ------ ------ ------ ------ ------- ------ ------ Costs and Operating Expenses: Cost of revenues......................... -- -- -- -- -- -- 3,241 2,083 Selling, general and administrative expenses............................... -- -- -- -- -- -- 1,082 986 Research and development expenses........ 147 106 128 601 276 548 904 637 Patent litigation expenses............... -- -- -- -- -- -- 1,654 290 ------ ------ ------ ------ ------ ------- ------ ------ 147 106 128 601 276 548 6,881 3,996 ------ ------ ------ ------ ------ ------- ------ ------ Operating Loss............................. (147 ) (106) (128) (601) (276 ) (548 ) (2,648 ) (842 ) Interest Income (Expense).................. -- -- -- -- -- 267 (1,469 ) 4 Other Income............................... -- -- -- -- -- -- -- 700 ------ ------ ------ ------ ------ ------- ------ ------ Loss Before Income Taxes................... (147 ) (106) (128) (601) (276 ) (281 ) (4,117 ) (138 ) Income Taxes............................... -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------- ------ ------ Net Loss................................... $ (147 ) $ (106) $ (128) $ (601) $ (276 ) $ (281 ) $(4,117 ) $ (138 ) ====== ====== ====== ====== ====== ======= ====== ====== Loss per Share(3).......................... $ (.01 ) $ (.01) $ (.01) $ (.06) $ (.03 ) $ (.03 ) $ (.41 ) $ (.01 ) ====== ====== ====== ====== ====== ======= ====== ====== Weighted Average Shares(3)................. 10,073 10,073 10,073 10,073 10,073 10,073 10,073 10,073 ====== ====== ====== ====== ====== ======= ====== ====== BALANCE SHEET DATA (AT END OF PERIOD): Working Capital.......................... $ -- $ -- $ -- $ -- $ -- $12,083 $ 359 Total Assets............................. -- -- -- -- -- 12,760 13,659 Shareholder's Investment................. -- -- -- -- -- 12,313 12,313
- --------------- (1) Derived from unaudited financial statements. (2) The pro forma combined statement of operations data was derived from the pro forma combined condensed statements of operations included elsewhere in this Prospectus. The pro forma combined statement of operations data sets forth the results of operations for the twelve months ended December 30, 1995 and the six months ended June 29, 1996, as if the acquisition of substantially all of the assets, subject to certain liabilities, of GT/ELI had occurred on January 1, 1995. The pro forma combined balance sheet data is derived from the pro forma combined condensed balance sheet included elsewhere in this Prospectus, which was prepared as if the acquisition of substantially all of the assets, subject to certain liabilities, of GT/ELI had occurred on June 29, 1996. (3) Pursuant to Securities and Exchange Commission requirements, loss per share has been presented for all periods. Weighted average shares for all periods include 10,000,000 shares issued to Thermo Fibertek in connection with the capitalization of the Company and the effect of the assumed exercise of stock options issued within one year prior to the Company's proposed initial public offering. 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THERMO FIBERGEN OVERVIEW The Company operated as a division of Thermo Fibertek beginning December 29, 1991 until its incorporation in February 1996. Prior to its acquisition of GT/ELI, the Company was in the development stage and its principal business consisted of conducting research and development for the development and commercialization of equipment and systems to recover valuable materials from pulp residue generated by plants that produce recycled pulp and paper. RESULTS OF OPERATIONS First Six Months Ended June 29, 1996 Compared With First Six Months Ended July 1, 1995 No revenues were recorded during either period as the Company was in the development stage, and its principal business consisted of conducting research and development associated with the development of the Company's fiber-recovery system. Research and development expenses increased to $548,000 in the first six months of 1996 from $276,000 in the corresponding period in 1995 due to the acceleration of the Company's research and development efforts associated with the development of the Company's fiber-recovery system. The Company expects that its spending on research and development will continue to increase. Interest income in the first six months of 1996 represents interest earned on cash received in connection with the initial capitalization of the Company in February 1996. 1995 Compared With 1994 No revenues were recorded during either period as the Company was in the development stage, and its principal business consisted of conducting research and development associated with the development of the Company's fiber-recovery system. Research and development expenses increased to $601,000 in 1995 from $128,000 in 1994 due to the acceleration of the Company's research and development efforts associated with the development of the Company's fiber-recovery system, increased personnel and higher engineering consulting expenses. 1994 Compared With 1993 No revenues were recorded during either period as the Company was in the development stage, and its principal business consisted of conducting research and development associated with the development of the Company's fiber-recovery system. Research and development expenses increased to $128,000 in 1994 from $106,000 in 1993 due to the acceleration of the Company's research and development efforts associated with the development of the Company's fiber-recovery system. LIQUIDITY AND CAPITAL RESOURCES Working capital was $12,083,000 at June 29, 1996, compared with no working capital at December 30, 1995. During the six months ended June 29, 1996, $260,000 was used in operating activities. In connection with the capitalization of the Company on February 12, 1996, Thermo Fibertek transferred $12,500,000 in cash to the Company. During the first six months of 1996, the Company expended $219,000 for purchases of machinery and equipment. In the remainder of 1996, the Company plans to make capital expenditures of approximately $900,000. On July 3, 1996, the Company's GranTek subsidiary acquired substantially all of the assets, subject to certain liabilities, of GT/ELI for approximately $12,000,000 in cash, subject to a post-closing adjustment based upon the net asset value of GT/ELI as of the closing date. 16 18 Working capital at June 29, 1996, on a pro forma basis, assuming the acquisition of the net assets of GT/ELI had occurred on that date, would have been $359,000. (See the pro forma combined condensed balance sheet included elsewhere in this Prospectus.) The Company anticipates it will require significant amounts of cash to complete the commercialization of its fiber-recovery system and to pursue the acquisition of complementary businesses and technologies. The Company expects that it will finance such acquired businesses through a combination of internal funds, including the net proceeds from the sale of Units offered hereby, additional debt or equity financing and/or short-term borrowings from Thermo Fibertek and Thermo Electron, although there is no agreement with Thermo Fibertek or Thermo Electron under which such parties would be obligated to lend funds to the Company. The Company believes that its existing resources, together with the proceeds from this offering, will be sufficient to meet the Company's capital requirements for at least the next 24 months. 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GT/ELI OVERVIEW GT/ELI was 100% owned by Henry Edward Lowe Amended and Restated Irrevocable Trust through July 2, 1996. Substantially all of the assets, subject to certain liabilities of GT and Biodac were acquired by Thermo Fibergen Inc. on July 3, 1996. GT produced, from paper mill residue, cellulosic based granules, sold under the trade name BIODAC, for agricultural, lawn and garden markets. Biodac, under an agreement with GT, was the sole distributor and marketer of GT manufactured products. RESULTS OF OPERATIONS Nine Months Ended June 30, 1996 Compared With Nine Months Ended June 30, 1995 Revenues increased 17% to $4,325,000 in the nine months ended June 30, 1996 from $3,711,000 in the nine months ended June 30, 1995. Revenues increased primarily due to an increase in sales volume in 1996, offset in part by the effect of a change in sales mix and a price decrease on sales to a significant customer resulting from the negotiation of a long-term contract (see Note 5 to Notes of GT/ELI Combined Financial Statements). The gross profit margin was 30% in the nine months ended June 30, 1996 compared with 35% in the nine months ended June 30, 1995. The decrease in margins was principally due to a change in sales mix and an unfavorable impact from an increase in natural gas rates in 1996. These decreases were offset in part by the effect of an increase in sales volume, as a substantial portion of production costs are fixed. Selling, general and administrative expenses as a percentage of revenues increased to 23% in the nine months ended June 30, 1996 from 15% in the nine months ended June 30, 1995. The increase resulted primarily from $313,000 in legal and accounting costs associated with the sale of GT/ELI, offset in part by the effect of an increase in revenues. Patent litigation expenses increased to $1,130,000 in the nine months ended June 30, 1996 from $654,000 in the nine months ended June 30, 1995. The patent infringement lawsuit was settled in 1996, and a gain of $700,000 from the settlement of the lawsuit was recorded as other income in the nine months ended June 30, 1996. See Note 6 of Notes to GT/ELI Combined Financial Statements. Research and development expenses decreased to $139,000 in the nine months ended June 30, 1996 from $217,000 in the nine months ended June 30, 1995, principally due to a decrease in design costs relating to equipment development expenses. Interest expense during the nine months ended June 30, 1995 related to shareholder debt which was contributed to additional paid-in capital in September 1995. GT/ELI is taxed as an S Corporation under the Internal Revenue Code and similar sections of state income tax laws (where applicable) and therefore, a provision for income taxes was not recorded. Twelve Months Ended September 30, 1995 Compared With Twelve Months Ended September 30, 1994 Revenues increased 15% to $4,233,000 in the twelve months ended September 30, 1995 from $3,670,000 in the twelve months ended September 30, 1994. Revenues increased due primarily to an increase in sales to a significant customer. In 1994, the customer had reduced its level of purchases as a result of the relocation of its production facility. The gross profit margin was 25% in the twelve months ended September 30, 1995 compared with 12% in the twelve months ended September 30, 1994. Increased margins resulted principally from the effect of an increase in sales volume, as a substantial portion of production costs are fixed, and a favorable impact from a decrease in natural gas rates in 1995, offset in part by a write-off of $150,000 of obsolete inventory in 1995. Selling, general and administrative expenses as a percentage of revenues decreased to 18% in the twelve months ended September 30, 1995 from 27% in the twelve months ended September 30, 1994, primarily due to the effect of 18 20 an increase in revenues. GT/ELI incurred patent infringement lawsuit expenses of $1,654,000 in 1995. Research and development expenses remained relatively unchanged at $303,000 in the twelve months ended September 30, 1995, compared with $281,000 in the twelve months ended September 30, 1994. Interest expense increased to $1,469,000 in the twelve months ended September 30, 1995 from $1,140,000 in the twelve months ended September 30, 1994 due to an increase in the interest rate on GT/ELI's note payable to shareholder from 1994 to 1995. Twelve Months Ended September 30, 1994 Compared With Twelve Months Ended September 30, 1993 Revenues decreased to $3,670,000 in the twelve months ended September 30, 1994 from $4,709,000 in the twelve months ended September 30, 1993. Revenues decreased due primarily to a decrease in sales to a significant customer. In 1994, the customer had reduced its level of purchases as a result of the relocation of its production facility. The gross profit margin was 12% in the twelve months ended September 30, 1994 compared with 30% in the twelve months ended September 30, 1993. Margins decreased primarily due to a decrease in sales volume, as a substantial portion of production costs are fixed. Selling, general and administrative expenses as a percentage of revenues increased to 27% in the twelve months ended September 30, 1994 from 21% in the twelve months ended September 30, 1993, due primarily to a decrease in revenues. Research and development expenses decreased to $281,000 in the twelve months ended September 30, 1994 from $367,000 in the twelve months ended September 30, 1993, due primarily to decreased expenditures for development of plant and equipment. Interest expense increased to $1,140,000 in the twelve months ended September 30, 1994 from $1,042,000 in the twelve months ended September 30, 1993 primarily due to an increase in the interest rate on GT/ELI's note payable to shareholder from 1993 to 1994. LIQUIDITY AND CAPITAL RESOURCES Combined working capital was $469,000 at June 30, 1996, compared with negative working capital of $197,000 at September 30, 1995. Included in working capital is cash of $50,000 at June 30, 1996, compared with $43,000 at September 30, 1995. During the nine months ended June 30, 1996, the Company used $73,000 of cash for operating activities. Cash provided by operating activities for the nine months ended June 30, 1996 was more than offset by a decrease in accrued legal expenses as the result of settlement of GT/ELI's patent infringement lawsuit and an increase in accounts receivable resulting primarily from a significant amount of sales occurring in June 1996. During the nine months ended June 30, 1996, the Company expended $77,000 for the purchase of property, plant and equipment. In July 1996, substantially all of the assets, subject to certain liabilities, of GT/ELI were acquired by Thermo Fibergen for approximately $12,000,000 in cash, subject to a post-closing adjustment. See Note 7 of Notes to GT/ELI Combined Financial Statements. 19 21 BUSINESS The Company was established as a subsidiary of Thermo Fibertek to develop and commercialize equipment and systems to recover valuable materials from increasing volumes of pulp residue generated by plants that produce recycled pulp and paper. The Company intends to finance, build and operate recovery plants on sites at, or immediately adjacent to, recycled pulp mills, employing a proprietary process to treat pulp residue. The Company's plants will recover and clean long cellulose fibers for resale to pulp mills and will process the remaining recoverable components of pulp residue, such as fines (very short fibers not usable for papermaking) and minerals, into saleable products. On July 3, 1996, the Company's wholly owned GranTek subsidiary acquired substantially all of the assets, subject to certain liabilities, of GT/ELI for approximately $12,000,000 in cash, subject to a post-closing adjustment. GranTek employs patented technology to produce absorbent granules from pulp residue. These granules, marketed under the trade name BIODAC, are currently used as a carrier to deliver chemicals for agricultural, lawn and garden, and other needs. GranTek's Green Bay, Wisconsin, plant currently produces more than 30,000 tons of BIODAC per year. The Company's strategy is to generate revenues from several sources. First, the Company will seek to enter into long-term contracts with pulp and paper mills under which the Company will charge the customer a tipping fee to accept the customer's pulp residue. Second, the Company intends to sell much of the clean long fibers it recovers directly back to the customer for use in the papermaking process. The Company has not yet begun to recover long fibers; as described below, the Company expects to begin construction of its first commercial recovery plant employing its long fiber-recovery technology in 1997. Third, the Company will apply existing technologies, such as its granulation technologies, and expects to develop new technologies, to maximize the value of the other recoverable components of the pulp residue, such as fines and minerals, for sale into other markets. For example, the Company believes that GranTek's technology can be used to produce granules for oil and grease absorbents as well as for specialty absorbents, such as for the cat box filler market. The Company is actively developing a process to recover long fibers from pulp residue, and has completed the construction of a mobile pilot recovery system which the Company is using for initial mill demonstrations of its fiber-recovery process. The Company expects that its first commercial plants will feature only GranTek's technology to process pulp residue into absorbent granules. The Company's strategy is to introduce this technology to pulp mill customers, to enter into long-term contracts with such customers and to construct its plants, and then, upon the completion of development, to retrofit existing GranTek plants with the Company's long fiber-recovery technology. The Company will also explore the construction of plants in certain niche markets that may feature only the Company's long fiber-recovery technology. The Company was established as a wholly owned subsidiary of Thermo Fibertek in February 1996. Following this offering, Thermo Fibertek will own approximately 70.9% of the outstanding Common Stock of the Company (approximately 68.0% if the Underwriters' over-allotment option is exercised in full). INDUSTRY BACKGROUND Paper is composed primarily of a mat of cellulose fibers. The fiber mat is created from a pulp of either virgin cellulose materials such as wood, or from recovered cellulose materials such as wastepaper. The principal goal of converting wastepaper into a fiber slurry that can be used in conventional papermaking machines is the removal of debris and impurities. This stock preparation process involves multiple steps, including screening, de-inking and washing. At the completion of the stock preparation process, the slurry is ready for introduction into a standard papermaking machine. Fiber that would otherwise be used to make recycled paper is lost at each step of the stock preparation process. In total, approximately 25% of the recycled fiber entering a pulp mill is lost in the process, contributing to approximately eight times more waste when using recycled pulp than when using virgin pulp, all of which must be disposed of at a substantial cost. Moreover, the substantial increase in the waste stream is expected to correspondingly reduce the useful life of pulp and paper mills' existing landfills. The Company believes, therefore, that the increasing use of recycled pulp will generate corresponding pressures on these mills to seek new solutions for their waste residue problems. Environmental concerns and other factors in recent years have resulted in the production of paper from recovered materials growing at a much faster rate than production from virgin pulp. The use of wastepaper as a raw 20 22 material has already surpassed the use of virgin cellulose in some parts of the world. The Company believes that in 1994 close to 35% of the world's paper contained recycled fibers, up from 25% in 1980. Pulp residue has historically been disposed of in landfills, particularly in North America. As it leaves the pulp machine, the residue is composed of approximately 98% water and 2% solids. After adding polymer flocculants to clarify the water content and forcing the residue through a belt press and other equipment to reduce the water content to approximately 65%, most pulp mills in the United States dispose of this residue in privately owned landfills at an average fully burdened cost of approximately $100 per ton. This figure includes the cost to operate the press and other equipment that removes water content; the cost of the polymer flocculant; transportation costs; and actual landfill costs. In certain parts of Europe and in Japan, landfill tipping fees and transportation costs are several times those in the United States, due to stricter regulations and limited landfill space. In addition, although some residue is incinerated, the Company believes that compliance with increasingly strict emissions standards under the United States Clean Air Act and similar state and local laws is making this alternative less attractive. Moreover, the ash resulting from incineration, which may weigh as much as one-half of the pre-incinerated residue, remains to be disposed of at an additional cost. The Company believes the North American pulp and paper industry spent an estimated $900 million to treat and dispose of approximately 9 million tons of pulp residue in 1993. This volume represented the equivalent of approximately 10% of all of the municipal solid waste generated in the United States in 1993. The Company believes that worldwide expenditures to treat and dispose of pulp residue in 1993 were approximately $2.5 billion. The Company believes that several factors will cause the costs of disposing of pulp residue in landfills, particularly in Europe and Asia, to increase in the future. First, as the demand for recycled fiber increases, mills are tending to use lower-quality wastepaper, while still attempting to produce the high-grade pulp necessary to make high-quality recycled paper with the strength and brightness of virgin paper. Lower-quality paper requires additional processing, which results in still further increases in the volume of residue generated to produce the same amount of recycled paper. Second, due to the relatively larger waste streams generated from using recycled fiber compared to those of virgin fiber, the Company believes that pulp and paper companies' existing landfill space will be consumed more rapidly than originally expected. Third, landfills are increasingly the subject of federal and state regulations, such as Subtitle D of the Federal Resource Conservation and Recovery Act of 1976 ("RCRA"), which imposes numerous requirements on new landfills, including the requirement that they be lined. These regulatory burdens, coupled with the difficulty in siting new landfills due to community opposition, will continue to make landfilling an increasingly expensive option for pulp and paper mills. As a result of these factors, pulp and paper mills are increasingly seeking alternative methods to solve their disposal problems. STRATEGY The Fibergen Process The Company's recovery and manufacturing process begins at the recycled pulp mill, which is expected to pump its residue to a plant owned and operated by the Company on a site at, or immediately adjacent to, the mill. To date, the Company has not acquired any such sites, and no assurance can be given that the Company will be able to acquire any such sites on terms that are favorable to the Company or at all. The Company expects that its commercial plants will generally consist of a single steel-shell building constructed on a concrete pad, occupying approximately two acres of land. The Company intends first to employ a proprietary process to recover and clean the long cellulose fibers, and to sell much of the clean long fibers it recovers directly back to the customer for use in the papermaking process. A key component of the Company's fiber-recovery system is a product that will utilize a proprietary "scalping" technology under development by Thermo Fibertek. Scalpers currently manufactured by Thermo Fibertek are already being used to recover reusable paper fibers from waste streams. At one mill, these scalpers recovered more than 15 tons per day of reusable fiber from a waste stream of approximately 50 tons per day. The principal component of the scalpers to be acquired from Thermo Fibertek is steel. The Company believes such steel, as well as the other components of such scalpers, to be widely available. The Company will then process the remaining fibers and minerals into saleable products, such as BIODAC, for use in the agricultural carrier, oil and grease absorbent, cat box filler and other markets. Employing GranTek's proprietary granulation technology, after the long fibers are removed, the remaining residue is dried and processed into granules of optimum bulk density for use in a variety of agricultural, lawn and garden, and industrial needs. 21 23 GranTek's granulation technology can also process long fibers into BIODAC at plants in which the Company elects not to deploy its long fiber-recovery technology. [GRAPHIC] THE FIBERGEN PROCESS Sources of Revenue The Company's strategy is to generate revenues from several sources. Tipping Fees. The Company will seek to enter into long-term contracts with pulp and paper mills under which the Company will charge the customer a tipping fee to accept the customer's pulp residue. The Company anticipates that the tipping fees it receives will generally be competitive with the mills' current disposal costs. The Company believes that pulp mills will prefer to dispose of their residue streams by paying the Company a tipping fee for a number of reasons. Disposal of residue with the Company will provide pulp mills with a long-term disposal solution and will eliminate concerns over long-term capacity constraints at their landfills; will relieve the pulp mills of the responsibility of complying with changing treatment and disposal regulations; and will allow pulp mills to reduce their capital investments in dewatering and treatment equipment, and to focus their resources on the actual manufacture of paper. Sale of Recovered Long Fibers. The Company intends to sell much of the clean long fibers it recovers directly back to the customer for use in the papermaking process. Long fibers may also be sold to mills other than those from which they originated, and may be sold for non-papermaking uses, such as for chip board and other composite building materials. The Company believes that the direct access to clean long fiber will benefit the customer by further reducing the customer's operating costs, and will benefit the Company by providing a second source of revenue and reducing the Company's final disposal costs. The prices at which the Company may be able to sell the clean long fibers to mills will depend on several factors, including the cleanliness of the recovered fiber and the prevailing prices for recycled pulp and wastepaper. These prices tend to be cyclical and to vary according to paper type. Sale of Other Recoverable Components. The Company will apply existing technologies, such as its granulation technologies, and expects to develop new technologies, to maximize the value of the other recoverable components of the pulp residue, such as fines and minerals, for sale into other markets. The business recently acquired by the Company's GranTek subsidiary complements the Company's approach of developing new markets for the components of pulp residue. GranTek has developed and patented a technology to produce premium absorbent granules from such residue. These granules, marketed under the trade name BIODAC, are sold in bulk to chemical companies for use as a carrier to deliver chemicals for agricultural, lawn and garden, and other needs. The Company intends to further develop GranTek's technology to produce granules for oil and grease absorbents as well as for specialty absorbents, such as for the cat box filler market. The Company's strategy is to integrate GranTek's process into its fiber-recovery plants, allowing the Company to recover long cellulose fibers and to granulate fibers and minerals into products to meet a variety of agricultural, lawn and garden, and industrial needs. 22 24 Site Development According to industry sources, there are approximately 100 recycled pulp mills in the United States. The Company believes that there are at least as many such mills in Europe and that the trend is for additional such mills to be built in the future. The Company intends to select sites for its first plants based on identified criteria, such as the volume, quality and composition of the customer's residue stream; the cost and availability of alternative disposal methods; regional disposal fees; access to markets for the recovered components; and the local regulatory environment and community concerns. The Company will tend to focus its efforts on niche areas in which disposal and/or transportation costs are relatively high. Although the Company will evaluate opportunities worldwide, it currently expects that its first plants will be located in selected areas of Europe and the United States. The Company expects to focus its development efforts in Germany, where landfill costs in certain areas can be as high as $560 per ton. Moreover, the federal government of Germany has recently enacted legislation that will prohibit, after 2005, the landfilling of any substance with a liquid or organic content in excess of 5%. This legislation, which is being replicated on an accelerated basis at the local level in several regions of Germany, would in effect prohibit the disposal of papermaking residue in landfills. The Company anticipates that it will construct subsequent plants in other European locations, where landfill costs are also higher, and the environmental laws more restrictive, than in the United States. The Company expects to seek to finance each of its recovery plants on a substantially nonrecourse basis through borrowings from third party lenders. These borrowings typically would be secured only by the recovery plant assets and/or by the capital stock of a subsidiary operating such plant. See "Risk Factors -- Future Capital Needs; Project Financing; Dependence on Capital Markets." The development of each site will require the Company to obtain numerous approvals, licenses and permits. Adverse decisions by governmental authorities with respect to permit applications submitted by the Company may result in abandonment or delay of proposed projects. Because the Company will generally be seeking permits to operate its facilities on or adjacent to permitted pulp and paper mills, however, and because the Company will be reducing or eliminating the pulp residue that would otherwise be landfilled or incinerated, the Company believes that it will generally be able to obtain such permits without undue difficulty. See " --Government Regulation," below, and "Risk Factors -- Environmental and Regulatory Risks." End-Use Markets The Company currently produces BIODAC, an agricultural carrier that is virtually dust-free and is uniform in particle size, absorptivity and bulk density. BIODAC is chemically neutral to a range of pesticides and breaks down into elements naturally occurring in the soil. BIODAC is sold in bulk to chemical companies for use as a carrier to deliver chemicals for agricultural, lawn and garden, and other needs. In 1995, one such chemical company, Monsanto Solaris Group ("Solaris"), accounted for 47% of the Company's sales of BIODAC. While the Company believes its relationship with Solaris to be good, the loss of this customer could have a material adverse effect on the Company's business and results of operations. The Company believes that the total United States market for agricultural carriers is in excess of $50 million and 400,000 tons per year. The Company intends to further develop GranTek's technology to produce granules for oil and grease absorbents as well as for specialty absorbents, such as for the cat box filler market. The Company believes that the total United States market for oil and grease absorbents is in excess of $37 million and 575,000 tons per year, and that the total United States market for cat box filler is in excess of $150 million and 1.5 million tons per year. The Company believes that the virtually dust-free and uniform nature of its BIODAC granules will be a competitive advantage as it enters these markets. Recovered minerals can currently also be sold in several low-value industrial markets, such as for cement kiln feedstock, landfill cover and composting filler. However, the Company expects to develop new technologies to maximize the value of inorganic mineral particles, such as calcium carbonate, kaolin clay and titanium dioxide, recovered from the pulp residue for sale into newly developed, higher-value markets. The Company believes that the market value of some of these mineral particles may be as high as $200 per ton for use as paper fillers, coatings and brighteners. However, since the process to separate and brighten these particles for paper fillers has not yet been developed, the cost to process these materials is not currently known. The Company also expects to process pulp plant waste water and to return the treated water to the plants for use in the papermaking process. See "Risk Factors -- Uncertainty of Product Development." 23 25 TECHNOLOGY; RESEARCH AND DEVELOPMENT The Company is developing a proprietary process to recover long cellulose fibers from pulp residue and has completed the construction of a mobile pilot recovery system which the Company is using for initial mill demonstrations of its fiber-recovery process. During this period, the Company will continue to modify its technology and will also determine where to build its first permanent facilities. However, until the Company obtains meaningful data from commercial operations, it will not be in a position to determine exactly what modifications may be necessary. The Company expects to begin construction of its first commercial recovery plant employing its long fiber-recovery technology before the end of 1997. Prior to its recent acquisition of the GT/ELI business by GranTek, substantially all of the Company's operations were related to research and development of the Company's fiber-recovery technology. The Company spent $106,000, $128,000, $601,000 and $548,000 on research and development of this technology in fiscal 1993, 1994 and 1995, and the first six months of fiscal 1996, respectively. The Company's research and development efforts are currently focused on developing and improving its fiber-recovery process. Modifications to existing equipment are also under consideration to improve washing and de-inking capability. The Company is also exploring cost-effective processes to produce higher value products from the separated fines and mineral residue. GranTek's Facility GranTek operates a fully permitted manufacturing plant in Green Bay, Wisconsin, at which it processes residue provided by a nearby paper mill into approximately 30,000 tons of BIODAC per year. The plant currently operates 24 hours per day, five days per week. A fully permitted pilot plant is located within GranTek's main manufacturing plant. This pilot plant is permitted to process 24 tons of material per day, and has been used to develop many of the innovations implemented in GranTek's main plant. The Company believes that this pilot plant will give the Company the ability to process waste streams from other paper mills under operating conditions in quantities sufficient to determine both final product and operating characteristics and costs, as well as to develop new technologies. Under GranTek's contract with the paper mill, and subject to certain de minimis exceptions, such mill has the exclusive right to supply pulp residue to GranTek's commercial plant. In exchange, such mill is required to use its best efforts to provide GranTek with GranTek's pulp residue requirements (up to a maximum of 250 tons per day). The contract permits such mill's pulp residue to contain up to 25 parts per million of polychlorinated biphenyls ("PCBs"). This amount is well below amounts of PCBs permitted by applicable regulations. GranTek is required to indemnify such mill against any environmental liability that may arise from GranTek's use of the residue in any consumer or agricultural product. However, GranTek may terminate the contract in the event that the residue is determined to contain hazardous waste in excess of amounts permitted by applicable regulations. The contract terminates on December 26, 1997, subject to successive mutual two-year extensions. GranTek is presently engaged in research and development of an absorbent product that, if successful, would provide an opportunity to enter the general oil and grease absorbent market, specialty absorbent market and the cat box filler market. INTELLECTUAL PROPERTY The Company's success will depend in part on the strength and protection of its proprietary methodologies and designs and other proprietary intellectual property rights. The Company relies on a combination of patent, trade secret, nondisclosure and other contractual arrangements, and copyright and trademark laws, to protect its proprietary rights. The Company seeks to limit access to and distribution of its proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information, that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights, or that competitors will not be able to develop similar technologies independently. 24 26 The Company currently holds seven issued United States patents, expiring at various dates ranging from 2004 to 2012, relating to various aspects of the processing of cellulose-based granular materials and the use of such materials in the agricultural, general absorbent, oil absorbent and cat box filler markets. The Company also has 11 foreign counterparts to its U.S. patents in Canada and in various European countries, and has five additional patents pending in three European countries. In addition, Thermo Fibertek holds two United States patents, expiring in 2011 and 2014, respectively, and expects to file additional United States patent applications in the near future, relating to the "scalping" technology that is a key component of the Company's fiber-recovery system. Although the Company has licensed the technology covered by Thermo Fibertek's patents for use in pulp and paper industry applications, the Company does not itself hold any patents or patent applications with respect to its pilot fiber-recovery system. In 1994, GranTek's newly acquired business, GT/ELI, initiated litigation in United States District Court against two companies after they announced their intent to jointly market a cellulose-based absorbent granule. This litigation, in which GT/ELI alleged that the defendants were infringing two of GT/ELI's patents, was resolved in February 1996, when the defendants agreed to enter a judgment holding that the two patents were valid and enforceable and enjoining the defendants from the manufacture, use or sale of particles that contain cellulosic fibrous materials of certain bulk density ranges for use as a carrier for any agricultural, row crop, home lawn and garden, professional turf, ornamental plant or horticultural purpose. GT/ELI has granted these companies nonexclusive licenses under these patents to sell cellulose-based granules produced at an existing site for sale in the oil and grease absorbent and cat box filler markets. The Company believes that its technology, services, products and other proprietary rights do not infringe on the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. See "Risk Factors -- Risks Associated with Protection, Defense and Use of Proprietary Technology and Intellectual Property." COMPETITION The Company expects that its principal competitors for access to pulp residues will be landfills, which currently have a collective 70% market share in North America and approximately 40% in Europe. The Company believes, however, that landfill costs will tend to increase over time and that regulations governing landfills will become more strict, particularly in Europe and Japan. The balance of the pulp residues produced in the United States and Europe are currently incinerated or are used to manufacture composting materials, egg cartons and other low-value, industrial products. Several large waste-management companies have increased their marketing activities to provide landfill disposal services to the pulp and paper industry. Although the Company does not believe that these companies are able to provide a residue processing capability, the Company can expect that, if its technology is successful, others will seek to develop similar technologies and products that may be superior to those of the Company. As other companies attempt to provide landfill services and/or residue processing capability to the pulp and paper industry, the Company expects to encounter increasing competition. The Company believes that its approach to the management of environmental problems associated with pulp residue from pulp and paper mills and its ability to take advantage of Thermo Fibertek's name recognition, financial strength and experience constitute significant competitive advantages. The Company believes that GranTek is currently the only producer of cellulose-based agricultural carriers. GranTek's principal competitors in the United States are producers of clay-based agricultural carriers for row crops and professional turf protection, including Oil-Dri Corporation of America, Floridin/Engelhard, Aimcor and American Colloid, and producers of corn cob granules traditionally used in the home, lawn and garden and professional turf markets, including The Andersons, Mt. Pulaski, Green Products, Independence Cob and Junior Weisner. GranTek's principal competitive advantages are that BIODAC contains virtually no dust and is more uniform in particle size distribution and bulk density than are clay-based and corn cob granular carriers. As the Company attempts to develop new markets for the components of the pulp residue it processes, the Company will encounter competition from established companies within those markets. Some of these competitors may have substantially greater financial, marketing and other resources than those of the Company, and the 25 27 Company expects that such competition may be intense. The Company believes that the absorbent products industry considers price to be a significant competitive factor and therefore expects that the demand for the Company's products in such markets will be significantly influenced by the Company's prices for such products. See "Risk Factors -- Competition." EMPLOYEES As of July 3, 1996, the Company had 29 employees, of whom six were engaged in research and development, 15 were engaged in residue processing and manufacturing, two were engaged in sales and marketing, and six were engaged in general management. Of these 29 employees, 21 were employed by GranTek. Several of the Company's employees were previously involved in product development for Thermo Fibertek. The Company expects to hire additional employees within the next year, all of whom are expected to be engaged in research and development and/or sales and marketing. No assurance can be given that management experienced in building a research and development or manufacturing organization, or additional skilled personnel necessary to successfully commercialize and expand the Company's business and operations, can be recruited and retained. See "Risk Factors -- Lack of Operating History and Management." None of the Company's employees is represented by a labor union, and the Company considers its relations with its employees to be good. FACILITIES The Company leases a 6,000-square foot, stand-alone building in Bedford, Massachusetts, at which it is developing its mobile pilot recovery system. This lease expires in April 2001, subject to the Company's option to extend the lease for two three-year terms. The Company also has the right to terminate the lease without penalty in April 1999. GranTek owns approximately 3.3 acres of land in Green Bay, Wisconsin, on which its processing plant is situated. GranTek's corporate office occupies 800 square feet in Cassopolis, Michigan, which is occupied under a lease expiring in October 1996. The Company expects to relocate GranTek's corporate office prior to or upon the expiration of such lease. The Company believes that its facilities are adequate for its current operations. GOVERNMENT REGULATION The Company's operations are subject to significant government regulation, including stringent environmental laws and regulations. Among other things, these laws and regulations impose requirements to control air, soil and water pollution, and regulate health, safety, zoning and land use and the handling and transportation of industrial by-products and waste materials. These requirements may also be imposed as conditions of operating permits or licenses that are subject to renewal, modification or revocation. This regulatory framework imposes significant compliance burdens and costs on the Company. Notwithstanding the burdens of this compliance, the Company believes that its business prospects are enhanced by the enforcement of environmental laws and regulations by government agencies. Among the principal laws governing the Company's operations are the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and its similar state equivalents, TSCA and RCRA. TSCA imposes limitations on the presence in commercial products of PCBs, and on the generation, handling, storage and disposal of PCB-containing materials and wastes. CERCLA imposes joint and several liability for the costs of remediation and natural resource damages on the owner or operator of a facility from which there is a release or a threat of a release of a hazardous substance into the environment and on the generators and transporters of those hazardous substances. RCRA provides a comprehensive framework for the regulation of the generation, transportation, treatment, storage and disposal of hazardous waste. Under TSCA, RCRA and equivalent state laws, regulatory authorities may require, pursuant to administrative order or as a condition of an operating permit, that the owner or operator of a regulated facility take corrective action with respect to contamination resulting from past or present operations. The intent of RCRA is to control hazardous wastes from the time they are generated until they are properly recycled or treated and disposed. Such laws also require that the owner or operator of regulated facilities provide assurance that funds will be available for the closure and post closure care of its facilities. Because 26 28 Subtitle D of RCRA imposes strict requirements on landfills, such as the requirement that new landfills must be lined, RCRA creates an incentive for pulp mills to use residue-management technologies such as those offered by the Company. GranTek emits into the atmosphere from its Green Bay, Wisconsin, facility approximately 4.5 pounds per year of PCBs, as well as certain other hazardous pollutants such as formaldehyde, benzene and volatile organic compounds ("VOCs"). Applicable Wisconsin regulations limit PCB emissions to 0.5 pounds per year unless the generator can demonstrate that it is using the best available control technology to limit emissions. GranTek has been issued an air operating permit by the Wisconsin Department of Natural Resources (the "WDNR"). GranTek's operating permit and its application for a new Title V operating permit both require GranTek to reduce PCB and VOC emissions and to file bi-annual reports on the amount of PCBs being emitted. In August 1995, GranTek submitted materials to the WDNR asserting that no technologically or economically feasible methods to reduce PCB or VOC emissions from its facility can be implemented at the present time and, accordingly, requesting that GranTek be relieved of its obligation to reduce emissions. As of the date of this Prospectus, GranTek has received no response from the WDNR. Although the Company believes that the WDNR will accept GranTek's findings, no assurance can be given that the WDNR will not require GranTek to comply with applicable emissions limitations, that such compliance will not require the Company to make significant expenditures or that such compliance will be technologically or economically feasible. Such compliance may have material adverse effects on the Company's capital expenditures, earnings and/or competitive position. The pulp residue processed by GranTek contains trace amounts of PCBs, dioxins, furans and other metals, residual amounts of which are also found in GranTek's BIODAC product. Although these substances are present in residual quantities below the maximum levels currently permitted under TSCA, RCRA and applicable federal and state regulations, no assurance can be given that such regulations may not be made more stringent in the future, that pulp residue containing such substances may not be regulated as hazardous under TSCA or RCRA or that federal or state regulations may not in the future prohibit the use of materials containing these substances in agricultural applications. Any such regulatory changes may have material adverse effects on the Company's capital expenditures, earnings and/or competitive position. Changes in these regulations could also affect the characteristics of the waste generated by pulp and paper mills. As a result, it is possible that disposal of pulp residue could be accomplished in a manner that may not involve the Company's facilities or that would require the Company to purchase pulp residue. GranTek's BIODAC agricultural carrier is subject to regulation under the Federal Insecticide, Fungicide and Rodenticide Act, which, among other things, empowers the Environmental Protection Agency to establish and enforce acceptable tolerance levels for agricultural chemicals. In 1989, however, at GranTek's request, the Environmental Protection Agency granted an exemption from the requirement that a tolerance level be established for de-inked paper fiber used as a carrier in pesticide formulations applied to growing crops. The governmental regulatory process requires the Company to obtain and retain numerous approvals, licenses and permits to conduct its operations, any of which may be subject to revocation, modification or denial. Operating permits need to be renewed periodically and may be subject to revocation, modification, denial or non-renewal for various reasons, including failure of the Company to satisfy regulatory concerns. Adverse decisions by governmental authorities on permit applications submitted by the Company may result in abandonment or delay of projects, substantially increased operating costs or capital expenditures, premature closure of facilities or restriction of operations, all of which could have a material adverse effect on the Company's business and prospects. See "Risk Factors -- Environmental and Regulatory Risks." 27 29 RELATIONSHIP WITH THERMO ELECTRON AND THERMO FIBERTEK The Company was organized in February 1996 as a wholly owned subsidiary of Thermo Fibertek. Thermo Fibertek contributed $12,500,000 in cash to the Company in exchange for 10,000,000 shares of the Company's Common Stock. As part of the organization of the Company, it also entered into a license and supply agreement with Thermo Fibertek whereby Thermo Fibertek granted to the Company a worldwide, perpetual, royalty-free license to use Thermo Fibertek's proprietary "scalping" technology in the pulp and paper industries only. The license agreement has an initial term of eight years and is subject to annual renewals thereafter. The Company's rights under the agreement are exclusive for a period of at least five years and such exclusivity will continue thereafter if the Company has purchased at least 35 scalping units from Thermo Fibertek within the first five years of the license and at least five such units in each subsequent year. The license agreement also provides that Thermo Fibertek will be the exclusive manufacturer of products based on the licensed technology. The purchase price paid by the Company to Thermo Fibertek for these products will be based on Thermo Fibertek's manufacturing cost plus a gross margin of 55%. The Company will not have the right to manufacture this component itself unless Thermo Fibertek ceases to manufacture it. Thermo Fibertek has agreed not to sell this component or any other technology or products proprietary to Thermo Fibertek for use in competition with the Company in the pulp and paper industries. See "Risk Factors - -- Potential Conflicts of Interest." The Company expects that other components for its recovery system can be purchased or licensed from third parties on commercially reasonable terms. Thermo Electron has adopted a strategy of selling a minority interest in subsidiary companies to outside investors as an important tool in its future development. As part of this strategy, Thermo Electron and certain of its subsidiaries have created publicly and/or privately held majority owned subsidiaries. (The Company and the other Thermo Electron subsidiaries are hereinafter referred to as the "Thermo Subsidiaries.") Thermo Fibertek develops, manufactures and markets a range of equipment and accessory products for the domestic and international paper and paper-recycling industries. Thermo Fibertek's products include de-inking systems, stock-preparation equipment, and water-management systems. For its fiscal years ended December 31, 1994 and December 30, 1995 and for the six months ended June 29, 1996, Thermo Fibertek had consolidated revenues of $162,625,000, $206,743,000 and $97,575,000, respectively, and consolidated net income of $10,894,000, $20,249,000 and $10,082,000, respectively. Thermo Electron and its subsidiaries develop, manufacture and market environmental monitoring and analysis instruments and manufacture biomedical products including heart-assist devices and mammography systems, paper-recycling and papermaking equipment, alternative-energy systems, industrial process equipment and other specialized products. Thermo Electron and its subsidiaries also provide environmental and metallurgical services and conduct advanced technology research and development. For its fiscal years ended December 31, 1994 and December 30, 1995 and for the six months ended June 29, 1996, Thermo Electron had consolidated revenues of $1,729,191,000, $2,270,291,000 and $1,398,144,000, respectively, and consolidated net income of $104,711,000, $139,582,000 and $85,942,000, respectively. THE THERMO ELECTRON CORPORATE CHARTER Thermo Electron and the Thermo Subsidiaries, including the Company, 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, has 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 28 30 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 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 each of the Thermo Subsidiaries. The Charter presently 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 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. However, 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. The General Corporation Law of the State of Delaware, under which the Company is organized, imposes a fiduciary duty on the Directors and officers of the Company to act in the best interests of the Company's shareholders. CORPORATE SERVICES AGREEMENT As provided in the Charter, the Company and Thermo Electron have entered into a Corporate Services Agreement (the "Services Agreement") under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, employee benefit administration, tax advice and preparation of tax returns, centralized cash management and certain financial and other services to the Company. Beginning in fiscal 1996, the Company will pay an annual fee for these services equal to 1.0% of the Company's revenues. The fee may be changed by mutual agreement of the Company and Thermo Electron. The Company was not charged for these services in fiscal 1992, 1993, 1994 or 1995 because the Company recorded no revenues during these periods and the amount of services received was not material. Management believes that the charges under the Services Agreement are reasonable and that the terms of the Services Agreement are representative of the expenses the Company would incur on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage and other identifiable costs, Thermo Electron charges the Company based on charges attributable to the Company. 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. 29 31 TAX ALLOCATION AGREEMENT The Tax Allocation Agreement between the Company and Thermo Fibertek outlines the terms under which the Company is to 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 Fibertek and Thermo Fibertek owns at least 80% of the outstanding Common Stock of the Company. Immediately following this offering, Thermo Fibertek will own less than 80% of the Company's outstanding Common Stock and the Company will not be included in Thermo Electron's consolidated federal and state income tax returns for periods commencing thereafter. MASTER GUARANTEE REIMBURSEMENT AGREEMENTS The Company has entered into a Master Guarantee Reimbursement Agreement with Thermo Electron which provides that the Company will reimburse Thermo Electron for any costs it incurs in the event it is required to pay third parties pursuant to any guarantees it issues on the Company's behalf, including the Guarantees of the Redemption Rights. Thermo Fibertek has entered into a similar agreement with Thermo Electron with regard to the Company's obligations which are guaranteed by Thermo Electron. The Company has also entered into a Master Guarantee Reimbursement Agreement with Thermo Fibertek which provides that the Company will reimburse Thermo Fibertek for any costs it incurs in the event that Thermo Fibertek is required to pay Thermo Electron or any other party pursuant to any guarantees or other commitments Thermo Fibertek issues or enters into on the Company's behalf. MISCELLANEOUS Currently, Thermo Fibertek beneficially owns 100% of the outstanding shares of Common Stock. Thermo Fibertek intends to maintain a majority ownership of the Company. This may require the purchase by Thermo Fibertek of additional shares of Common Stock from time to time as the number of outstanding shares issued by the Company increases. These purchases may be made either on the open market or directly from the Company. The Company's cash equivalents may be invested in a repurchase agreement with Thermo Electron, pursuant to which the Company in effect lends cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, United States government agency securities, money market funds, commercial paper, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement will be readily convertible into cash by the Company and have an original maturity of three months or less. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. 30 32 MANAGEMENT The Directors and executive officers of the Company are as follows:
NAME AGE POSITION - ---------------------------------------- --- ---------------------------------------------------- William A. Rainville.................... 54 Chairman of the Board and Director Dr. Yiannis A. Monovoukas............... 35 President, Chief Executive Officer and Director John N. Hatsopoulos..................... 61 Vice President, Chief Financial Officer and Director Paul F. Kelleher........................ 54 Chief Accounting Officer Jonathan W. Painter..................... 37 Treasurer and Director Anne T. Barrett(1)...................... 66 Director
- --------------- (1) Member of the Audit and Human Resources Committees. All of the Company's Directors are elected annually and hold office until their respective successors are elected and qualified. Executive officers are elected annually by the Board of Directors and serve at its discretion. Messrs. Hatsopoulos, Kelleher and Painter are employees of Thermo Electron and certain of its subsidiaries other than the Company, but devote such time to the affairs of the Company as the Company's needs reasonably require from time to time. Mr. Rainville is also President and Chief Executive Officer of Thermo Fibertek, and is responsible for certain operations within Thermo Fibertek that are not related to the Company's operations. Mr. William A. Rainville has been Chairman of the Board and a Director of the Company since its incorporation in February 1996. Mr. Rainville has been President and Chief Executive Officer of Thermo Fibertek since its inception in November 1991 and a Director of Thermo Fibertek since January 1992. From 1984 until January 1993, Mr. Rainville was President and Chief Executive Officer of Thermo Electron Web Systems Inc., a subsidiary of Thermo Fibertek. He has been a Senior Vice President of Thermo Electron since March 1993 and a Vice President since 1986. Mr. Rainville is also a director of Thermo Fibertek, Thermo Ecotek Corporation, Thermo TerraTech Inc. and Thermo Remediation Inc. Dr. Yiannis A. Monovoukas has been President, Chief Executive Officer and a Director of the Company since its incorporation in February 1996. Dr. Monovoukas has been a Corporate Business Analyst since he joined Thermo Electron in July 1995. From 1993 through June 1995, Dr. Monovoukas was a graduate student at the Harvard Business School. From 1990 until 1993 he was a staff scientist/engineer with Raychem Corporation, a materials science company, which he joined upon completion of a Ph.D. program in chemical engineering at Stanford University. John N. Hatsopoulos has been a Vice President, Chief Financial Officer and a Director of the Company since its incorporation in February 1996. Mr. Hatsopoulos has been a Vice President and Chief Financial Officer of Thermo Fibertek since its inception in November 1991, the Chief Financial Officer of Thermo Electron since 1988 and an Executive Vice President of Thermo Electron since 1986. He is also a Director of Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek, Thermo Instrument Systems Inc., Thermo Power Corporation, Thermo TerraTech Inc., ThermoTrex Corporation, Thermo Optek Corporation, ThermoQuest Corporation, Thermo Sentron Inc., Trex Medical Corporation and Lehman Brothers Funds, Inc., an open-end investment management company. Paul F. Kelleher has been the Chief Accounting Officer of the Company since its incorporation in February 1996. Mr. Kelleher has been Vice President, Finance of Thermo Electron since 1987 and served as its Controller from 1982 to January 1996. He is a director of ThermoLase Corporation. Jonathan W. Painter has been Treasurer and a Director of the Company since its inception in February 1996. Mr. Painter has been Treasurer of Thermo Electron since August 1994 and Treasurer of Thermo Fibertek since October 1994. Mr. Painter had served as Director of Strategic Planning of Thermo Fibertek from February 1993 through August 1994. Prior to that time, Mr. Painter was Associate General Counsel of Thermo Electron and its subsidiaries. 31 33 Anne T. Barrett has been a Director of the Company since July 1996. Ms. Barrett has been an independent consultant on investor relations and communications matters since her retirement in November 1993. Prior to that time, Ms. Barrett was Director of Corporate Communications for Thermo Electron for more than five years. COMPENSATION OF DIRECTORS Directors who are not employees of the Company, Thermo Fibertek or Thermo Electron receive an annual retainer of $2,000 and a fee of $1,000 per day for attending meetings of the Board of Directors and $500 per day for participating in meetings of the Board of Directors held by means of conference telephone and for participating in certain meetings of committees of the Board of Directors. Payment of Directors fees is made quarterly. Messrs. Rainville, Monovoukas, Hatsopoulos and Painter are all employees of Thermo Electron companies and do not receive any cash compensation from the Company for their services as Directors. Directors are also reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. Directors Deferred Compensation Plan. Under the Company's Deferred Compensation Plan for Directors (the "Deferred Compensation Plan"), a Director has the right to defer receipt of his fees until he ceases to serve as a Director, dies or retires from his principal occupation. In the event of a change in control or proposed change in control of the Company that is not approved by the Board of Directors, deferred amounts become payable immediately. Either of the following is deemed to be a change of control: (a) the occurrence, without the prior approval of the Board of Directors, of the acquisition, directly or indirectly, by any person of 50% or more of the outstanding Common Stock or the outstanding common stock of Thermo Electron; or (b) the failure of the persons serving on the Board of Directors immediately prior to any contested election of directors or any exchange offer or tender offer for the Common Stock or the common stock of Thermo Electron to constitute a majority of the Board of Directors at any time within two years following any such event. Amounts deferred pursuant to the Deferred Compensation Plan are valued at the end of each quarter as units of Common Stock. When payable, amounts deferred may be disbursed solely in shares of Common Stock accumulated under the Deferred Compensation Plan. The Company has reserved 25,000 shares under this plan. The Deferred Compensation Plan will not become effective until completion of an initial public offering. No units have been accumulated under this plan. Directors Stock Option Plan. The Company has adopted a directors stock option plan (the "Plan") providing for the grant of stock options to purchase shares of the Common Stock to outside Directors (Directors who are not employees of the Company or any of its affiliates) as additional compensation for their service as Directors. The Plan provides for the grant of stock options upon a Director's initial appointment and, beginning in 2000, awards options to purchase 1,000 shares annually to eligible Directors, provided the Company's Common Stock is then publicly traded. A total of 200,000 shares of Common Stock have been reserved for issuance under the Plan. Under the Plan, each eligible Director will be granted an option to purchase 20,000 shares of Common Stock upon the later of the Director's appointment or election, or the completion of an initial public offering or private placement of shares of Common Stock of the Company primarily to independent investors. In addition, each new director initially joining the Board of Directors in 1996 will be granted an option to purchase 20,000 shares of Common Stock. The size of the award to new Directors appointed to the Board of Directors after 1996 is reduced by 5,000 shares in each subsequent year. Directors initially joining the Board of Directors after 1999 would not receive an option grant upon their appointment or election to the Board of Directors, but would be eligible to participate in the annual option awards described below. Options evidencing initial grants to Directors vest and are exercisable upon the fourth anniversary of the grant date, unless the Common Stock underlying the option grant is registered under Section 12 of the Securities Exchange Act of 1934, as amended ("Section 12 Registration") prior to the fourth anniversary of the grant date. In the event that the effective date of Section 12 Registration occurs prior to the fourth anniversary of the grant date, then the option becomes exercisable (on the later of 90 days after Section 12 Registration or six months after the grant date) and the shares acquired upon exercise will be subject to restrictions on transfer and the right of the Company to repurchase such shares at the exercise price in the event the Director ceases to serve as a Director of the Company or any other Thermo Electron company. In such event, the restrictions and repurchase rights shall lapse or be deemed to have lapsed in equal annual installments of 5,000 shares, starting with the first anniversary of the grant date, provided the Director has continuously served as a Director of the Company or any other Thermo Electron company since the grant date. These options expire on the fifth anniversary of the grant date, unless the Director dies or otherwise ceases to serve as a Director of the Company or any other Thermo Electron company prior to that date. 32 34 Commencing in 2000, eligible Directors will also receive an annual grant of options to purchase 1,000 shares of Common Stock provided the Common Stock is then publicly traded. The annual grant would be made at the close of business on the date of each annual meeting of stockholders of the Company to each Director then holding office, commencing with the annual meeting to be held in 2000. Options evidencing annual grants may be exercised at any time from and after the six-month anniversary of the grant date of the option and prior to the expiration of the option on the third anniversary of the grant date. Shares acquired upon exercise of the options would be subject to repurchase by the Company at the exercise price if the recipient ceased to serve as a Director of the Company or any other Thermo Electron company prior to the first anniversary of the grant date. The exercise price for options granted under the Plan is determined by the average of the closing prices reported by the American Stock Exchange (or other principal exchange in which the Common Stock is then traded) for the five trading days immediately preceding and including the date the option is granted or, if the shares underlying the option are not so traded, at the last price paid per share by independent investors in an arms-length transaction with the Company prior to the option grant. As of August 31, 1996, no options to purchase Common Stock had been granted under the Plan. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table summarizes compensation for services to the Company in all capacities awarded to, earned by or paid to the Company's chief executive officer for the fiscal year ended December 30, 1995. No other executive officer of the Company who held office at the end of fiscal 1995 met the definition of "highly compensated" within the meaning of the Securities and Exchange Commission's executive compensation disclosure rules for this period. The Company is required to appoint certain executive officers and full-time employees of Thermo Electron as executive officers of the Company, in accordance with the Thermo Electron Corporate Charter. The compensation for these executive officers is determined and paid entirely by Thermo Electron. The time and effort devoted by these individuals to the Company's affairs is provided to the Company under the Services Agreement between the Company and Thermo Electron. Accordingly, the compensation for these individuals is not reported in the following table. See "Relationship with Thermo Electron and Thermo Fibertek." SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------- SECURITIES UNDERLYING ANNUAL COMPENSATION OPTIONS (NO. OF FISCAL ------------------- SHARES AND NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPANY)(1) --------------------------- ---- -------- -------- --------------- Yiannis A. Monovoukas President and Chief Executive Officer(2).................. 1995 $39,583(2) -- 80,000(TFG) 11,250(TMO) - --------------- (1) All options to purchase shares of the Company's Common Stock shown in the table were granted after the end of fiscal 1995, but are included in the table for clarity of presentation. In addition to grants of options to purchase Common Stock of the Company (designated in the table as TFG), Dr. Monovoukas has been granted options to purchase shares of common stock of Thermo Electron (designated in the table as TMO) as part of Thermo Electron's stock option program. Information with respect to options to purchase such stock reflects a three-for-two split in the form of a 50% stock dividend paid on June 1996. (2) Dr. Monovoukas was appointed President and Chief Executive Officer of the Company in February 1996. Prior to that time, he served as a Corporate Business Analyst for Thermo Electron since joining Thermo Electron in July 1995. Reported in the table under "Salary" is the salary paid in 1995 to Dr. Monovoukas for his service as Corporate Business Analyst of Thermo Electron, which was paid at an annualized rate of $95,000 and is representative of the salary to be paid in 1996 for his service as President and Chief Executive Officer of the Company. None of the bonus paid to Dr. Monovoukas with respect to 1995 performance was attributable to his service as President and Chief Executive Officer of the Company.
33 35 Stock Options Granted During Fiscal 1995 The following table sets forth information concerning individual grants of stock options made during fiscal 1995 to the Company's chief executive officer. It has not been the Company's policy in the past to grant stock appreciation rights, and no rights were granted during fiscal 1995. OPTION GRANTS IN FISCAL 1995
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL NUMBER OF PERCENT OF RATES OF STOCK PRICE SHARES TOTAL OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE TERM(2) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------- NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10% - -------------------------- ----------- ------------- --------- ---------- -------- ---------- Yiannis A. Monovoukas..... 80,000(TFG) 23.7%(1) $ 10.00 8/14/08 $636,800 $1,710,400 11,250(TMO) 0.9%(3) $ 28.23 7/24/02 $129,263 $ 301,391
- --------------- (1) All options to purchase shares of the Common Stock of the Company (designated in the table as TFG) were granted after the end of fiscal 1995, but are included in the table for clarity of presentation. In addition, options to purchase shares of the common stock of Thermo Electron (designated in the table as TMO) were granted in 1995 to Dr. Monovoukas. The options to purchase shares of Thermo Electron are immediately exercisable, while the options to purchase shares of the Common Stock of the Company are not exercisable until the earlier of (i) 90 days after the effective date of the registration of the Company's Common Stock under Section 12 of the Securities Exchange Act of 1934 and (ii) nine years after the grant date. In all cases, the shares acquired upon exercise are subject to repurchase by the granting corporation at the exercise price if Dr. Monovoukas ceases to be employed by such corporation or another Thermo Electron company. The granting corporation may exercise its repurchase rights within six months after the termination of Dr. Monovoukas' employment. For publicly traded companies, the repurchase rights generally lapse ratably over a five- to ten-year period, depending on the option term which may vary from seven to twelve years, provided that the optionee continues to be employed by Thermo Electron or another Thermo Electron company. For companies that are not publicly traded, the repurchase rights lapse in their entirety on the ninth anniversary of the grant date. The granting corporation may permit Dr. Monovoukas to exercise options and satisfy tax withholding obligations by surrendering shares equal in fair market value to the exercise price or withholding obligation. The options to purchase shares of common stock of Thermo Electron have been adjusted to reflect a three-for-two stock split in the form of a 50% stock dividend paid on June 5, 1996. (2) The amounts shown on this table represent hypothetical gains that could be achieved for the options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of common stock underlying the options, the optionholder's continued employment through the option period and the date on which the options are exercised. (3) These options were granted under a stock option plan maintained by Thermo Electron and accordingly are reported as a percentage of total options granted to employees of Thermo Electron and its subsidiaries. 34 36 Stock Options Exercised During Fiscal 1995 and Fiscal Year-end Option Values The following table reports certain information regarding stock option exercises during fiscal 1995 and outstanding stock options held at the end of fiscal 1995 by the Company's chief executive officer. No stock options were exercised, and no stock appreciation rights were exercised or were outstanding during fiscal 1995. AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL 1995 YEAR-END OPTION VALUES
NUMBER OF VALUE OF SHARES UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS AT OPTIONS AT FISCAL FISCAL YEAR-END YEAR-END ----------------- ------------ EXERCISABLE/ EXERCISABLE/ NAME COMPANY UNEXERCISABLE(1) UNEXERCISABLE - --------------------------------------------- ----------------- ----------------- ------------ Yiannis A. Monovoukas........................ Thermo Fibergen -/80,000 -/-(2) Thermo Electron 11,250/- $ 72,413/-
- --------------- (1) All options to purchase shares of the Common Stock of the Company were granted after the end of fiscal 1995, but are included in the table for clarity of presentation. All of the options reported in the table were immediately exercisable at the end of the fiscal year, except for options to purchase shares of the Common Stock of the Company, which are not exercisable until the earlier of (i) 90 days after the effective date of the registration of the Company's Common Stock under Section 12 of the Securities Exchange Act of 1934 and (ii) nine years after the grant date. In all cases, the shares acquired upon exercise of the options reported in the table are subject to repurchase by the granting corporation at the exercise price if the optionee ceases to be employed by such corporation or another Thermo Electron company. The granting corporation may exercise its repurchase rights within six months after the termination of the optionee's employment. For companies whose shares are not publicly traded, the repurchase rights lapse in their entirety on the ninth anniversary of the grant date. For publicly traded companies, the repurchase rights generally lapse ratably over a five- to ten-year period, depending on the option term which may vary from seven to twelve years, provided that the optionee continues to be employed by the granting corporation or another Thermo Electron company. The options to purchase shares of common stock of Thermo Electron have been adjusted to reflect a three-for-two stock split in the form of a 50% stock dividend paid on June 5, 1996. (2) No public market existed for the shares underlying these options as of December 30, 1995. Accordingly, no value in excess of the exercise price has been attributed to those options. CERTAIN TRANSACTIONS The Company has adopted a program under which it may make interest-free loans to certain key employees, including certain of the named executive officers, to enable such employees to purchase the Company's Common Stock in the open market. The Company has made no such loans as of the date of this Prospectus. 35 37 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 August 31, 1996 with respect to each person who was known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock.
NAME AND ADDRESS AMOUNT AND NATURE OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS ------------------- ----------------------- ---------------- Thermo Fibertek Inc.(1)......................................... 10,000,000 shares 100% 81 Wyman Street Waltham, Massachusetts 02254-9046
- --------------- (1) Thermo Fibertek is an 81.5%-owned subsidiary of Thermo Electron and, therefore, Thermo Electron may be deemed to be a beneficial owner of the shares of Common Stock beneficially owned by Thermo Fibertek. Thermo Electron disclaims beneficial ownership of these shares. After the sale of the Common Stock in this offering, Thermo Fibertek will own approximately 70.9% of the outstanding Common Stock (68.0% if the Underwriters' over-allotment option is exercised in full). MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of March 30, 1996 as well as information regarding the beneficial ownership of the Common Stock and the common stock of Thermo Fibertek and Thermo Electron, as of March 30, 1996, with respect to (i) each Director, (ii) each executive officer named in the summary compensation table above, and (iii) all Directors and current executive officers as a group.
THERMO THERMO THERMO ELECTRON NAME(1) FIBERGEN INC.(2) FIBERTEK INC.(3) CORPORATION(4) ------- ---------------- ---------------- --------------- William A. Rainville.................................. 0 506,713 300,893 Dr. Yiannis A. Monovoukas............................. 0 31,500 11,450 John N. Hatsopoulos................................... 0 173,655 646,317 Jonathan W. Painter................................... 0 103,515 35,673 Anne T. Barrett....................................... 0 3,450 10,187 All Directors and current executive officers as a group (6 persons)................................... 0 902,608 1,145,777
- --------------- (1) Except as reflected in the footnotes to this table, shares of Common Stock and common stock of Thermo Fibertek and Thermo Electron 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) No Director or executive officer beneficially owned more than 1% of the Common Stock outstanding as of such date, and all Directors and executive officers as a group beneficially owned less than 1% of the Common Stock outstanding as of such date. (3) The shares of common stock of Thermo Fibertek have been adjusted to reflect a three-for-two stock split effected in the form of a 50% stock dividend paid on June 26, 1996. Shares of the common stock of Thermo Fibertek beneficially owned by Mr. Rainville, Dr. Monovoukas, Mr. Hatsopoulos, Mr. Painter and all Directors and executive officers as a group include 495,000, 30,000, 97,200, 103,500 and 799,950 shares, respectively, that such person or group has the right to acquire within 60 days of March 30, 1996, through the exercise of stock options. Shares beneficially owned by Ms. Barrett consist of shares held by a trust of which Ms. Barrett is a trustee. No Director or executive officer beneficially owned more than 1% of the common stock of Thermo Fibertek outstanding as of March 30, 1996; all Directors and executive officers as a group beneficially owned 1.5% of such common stock outstanding as of such date. (4) The shares of common stock of Thermo Electron have been adjusted to reflect a three-for-two stock split in the form of a 50% stock dividend paid on June 5, 1996. Shares of the common stock of Thermo Electron beneficially owned by Mr. Rainville, Dr. Monovoukas, Mr. Hatsopoulos, Mr. Painter and all Directors and 36 38 executive officers as a group include 199,198, 11,250, 342,735, 31,495 and 677,302 shares, respectively, that such person or group has the right to acquire within 60 days of March 30, 1996, through the exercise of stock options. Shares beneficially owned by Mr. Hatsopoulos, Mr. Painter and all Directors and executive officers as a group include 18,375, 391 and 19,994 full shares, respectively, allocated through March 30, 1996 to their respective accounts maintained pursuant to Thermo Electron's employee stock ownership plan ("ESOP"). The trustees of the ESOP, who have investment power over its assets, are Mr. Hatsopoulos and Mr. Peter Pantazelos (an executive officer of Thermo Electron). Shares beneficially owned by Mr. Hatsopoulos include 168,750 shares held by a QTIP trust of which Mr. Hatsopoulos is a trustee. Shares beneficially owned by Ms. Barrett include 4,847 shares held by a trust of which Ms. Barrett is a trustee. No Director or executive officer nor all Directors and executive officers as a group beneficially owned more than 1% of the common stock of Thermo Electron outstanding as of March 30, 1996. 37 39 INFORMATION CONCERNING THERMO ELECTRON Thermo Electron develops, manufactures and markets environmental monitoring and analysis instruments, biomedical products including heart-assist systems, mammography systems and respiratory care products, paper-recycling and papermaking equipment, alternative-energy systems, industrial process equipment, and other specialized products. Thermo Electron also provides environmental and metallurgical services and conducts advanced technology research and development. Thermo Electron performs its business through its divisions and wholly owned subsidiaries, as well as majority-owned subsidiaries that are partially owned by the public or by private investors. Thermo Electron has developed leading market positions in many lines of business, including environmental monitoring and analysis instruments, mammography systems, biomass power plants, and paper-recycling equipment and papermaking accessories. Thermo Electron is currently seeking to establish leading market positions in the fields of left ventricular-assist devices, explosives-detection systems, thermal soil-remediation services and dedicated natural gas engines. Thermo Electron is developing new products in its Advanced Technologies segment, as well as other segments. A key element in Thermo Electron's growth has been its ability to commercialize innovative products and services emanating from research and development activities conducted at Thermo Electron's various subsidiaries and divisions. Thermo Electron's strategy has been to identify business opportunities arising from social, economic and regulatory issues and to seek a leading market share through the application of proprietary technology. As part of this strategy, Thermo Electron continues to focus on the acquisition of complementary businesses that can be integrated into existing core businesses to leverage Thermo Electron's access to new markets. Thermo Electron believes that maintaining an entrepreneurial atmosphere is essential to continuing its growth and development. In order to preserve this environment, Thermo Electron adopted the strategy of having certain subsidiaries sell a minority interest to outside investors. Thermo Electron believes that this strategy provides additional motivation and incentives for the management of the subsidiaries through the establishment of subsidiary-level stock options, as well as capital to support the subsidiaries' growth. Thermo Electron's wholly owned and majority-owned subsidiaries are provided with centralized strategic planning, corporate development, administrative, financial and other services that would not be available to many independent companies of similar size. As of June 29, 1996, Thermo Electron had 20 subsidiaries that have sold minority equity interests, 16 of which are publicly traded. Thermo Electron, a Delaware corporation, was incorporated in 1956, completed its initial public offering in 1967, and was listed on the New York Stock Exchange in 1980. The principal executive office of Thermo Electron is located at 81 Wyman Street, Waltham, Massachusetts 02254-9046 (telephone: 617-622-1000). 38 40 DESCRIPTION OF SECURITIES The following is a brief description of the principal terms applicable to the Units, the authorized shares of the Company's Common Stock, $.01 par value, and the Redemption Rights, as well as a description of the Guarantees. UNITS Each Unit being offered by the Company consists of one share of Common Stock and one Redemption Right. The Common Stock and the Redemption Rights will trade together as Units on the American Stock Exchange until the 90th day after the date of this Prospectus, after which date the Common Stock and the Redemption Rights will trade separately. The value of the Redemption Rights will generally have an inverse relationship to the value of the Common Stock. As the market price of the Common Stock rises, the value represented by the Redemption Rights generally will decrease, reflecting generally the increased spread between the market price of a share of Common Stock deliverable upon exercise of a Redemption Right and the price at which the Company is obligated to redeem the Common Stock pursuant to the Redemption Rights. Conversely, decreases in the market price of the Common Stock generally will increase the value of the Redemption Rights. COMMON STOCK The Company has 25,000,000 shares of Common Stock authorized for issuance, of which 10,000,000 are issued and outstanding. Each share of Common Stock is entitled to pro rata participation in distributions upon liquidation and to one vote on all matters submitted to a vote of stockholders. Dividends may be paid to the holders of Common Stock when and if declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock have no preemptive or similar rights. The outstanding shares of Common Stock are, and the shares offered hereby when issued will be, legally issued, fully paid and nonassessable. The shares of Common Stock have noncumulative voting rights, which means that the holders of more than 50% of the shares voting can elect all the Directors if they so choose, and in such event, the holders of the remaining shares cannot elect any Directors. Prior to this offering, Thermo Fibertek owned 10,000,000 shares of Common Stock, which represented 100% of the outstanding Common Stock. Upon completion of this offering, Thermo Fibertek (and Thermo Electron through its majority ownership of Thermo Fibertek) will continue to beneficially own a majority of the outstanding Common Stock, and will have the power to elect all of the members of the Company's Board of Directors. The Company's Certificate of Incorporation contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of Directors. The provisions eliminate a Director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts or omissions, which involve intentional misconduct or a knowing violation of law. The Company's Certificate of Incorporation also contains provisions to indemnify the Directors and officers of the Company to the fullest extent permitted by the General Corporation Law of Delaware. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as Directors and officers. REDEMPTION RIGHTS General The holder of a Redemption Right may require the Company to redeem one share of Common Stock for an amount of cash equal to the initial public offering price (the "Redemption Price") during the month of September 2000 (the "First Redemption Period") and during the month of September 2001 (the "Second Redemption Period"). The First Redemption Period and the Second Redemption Period are collectively referred to herein as the "Redemption Periods." Exercise of Rights Notice of commencement of each Redemption Period will be published in the Wall Street Journal, and will be mailed to holders of record of the Redemption Rights, not less than 15 nor more than 45 days prior to the commencement of such Redemption Period. To be redeemed, certificates for shares of Common Stock must be 39 41 received at the office of the Company or its agent, as specified in the notice, along with certificates for Redemption Rights duly executed indicating the number of shares being tendered for redemption during the Redemption Period. The Company or its agent after the end of the Redemption Period will promptly return to each shareholder a certificate for all shares and Redemption Rights surrendered but not redeemed and will mail to each shareholder a check in consideration for the shares that were redeemed. Shareholders who elect to redeem their shares will be entitled to revoke their election by delivering a written notice of such revocation to the agent or to the Company as specified in the notice prior to the end of the Redemption Period. The Company's obligation to make such redemptions would be deferred to the extent that such redemptions are made at a time when the Company's capital is impaired or when such redemptions would cause any impairment of the Company's capital or if such redemptions are otherwise prohibited by law. These provisions do not affect the guarantee by Thermo Electron of the Company's redemption obligations. Adjustments Both the consideration payable by the Company upon redemption of the shares of Common Stock and the number of shares of Common Stock which are subject to redemption are subject to adjustment upon the occurrence of certain events, including (i) the issuance of Common Stock as a dividend or the distribution of a security or right convertible into or exchangeable for shares of Common Stock to all of the holders of Common Stock, (ii) a subdivision or combination of the Company's outstanding Common Stock and (iii) the issuance by reclassification or reorganization of the outstanding shares of Common Stock. Expiration of Redemption Rights The Redemption Rights will expire and become worthless in the event that, at any time after the 90th day after the date of this Prospectus and (i) prior to the beginning of the First Redemption Period or (ii) after the end of the First Redemption Period and prior to the beginning of the Second Redemption Period, the closing price of the Common Stock as reported on the principal trading market for the Common Stock has been at least 150% of the Redemption Price, as adjusted as provided above, for 20 of any 30 consecutive trading days, provided that neither Thermo Electron nor any of its subsidiaries have purchased any shares of Common Stock on any of such days. Covenants of the Company and Thermo Electron Pursuant to the Guarantee Agreement described below, the Company and Thermo Electron have covenanted that they will not, without the consent of the holders of a majority of the Redemption Rights other than Thermo Electron and its subsidiaries, take any voluntary action to avoid or seek to avoid the observance or performance of any of the terms of the redemption obligations described in this Prospectus. While any Redemption Rights are outstanding, the Company may (i) reorganize or reclassify its Common Stock, (ii) merge or consolidate with another corporation or other legal entity or (iii) sell or transfer all or substantially all of its business or assets only if adequate provision is made so that the Redemption Rights are adjusted so as to preserve the economic benefits thereof to the holders, as determined by the Board of Directors of the Company in its reasonable discretion, which benefits shall include the right to receive cash. THE GUARANTEES The Company, Thermo Electron and the Representatives of the Underwriters (as defined below) have entered into a Guarantee Agreement, pursuant to which Thermo Electron has agreed to guarantee, on a subordinated basis, the due and punctual performance by the Company of its redemption obligations described above. The text of the Guarantees will be endorsed on each certificate representing Redemption Rights offered hereby. Thermo Electron will be obligated to honor the Guarantees upon the failure of the Company to perform its redemption obligations, including any failure due to the impairment or potential impairment of the Company's capital. The Guarantee Agreement may not be amended in a way that will dilute or impair the Redemption Rights described above without the consent of the holders of two-thirds of the then-outstanding Redemption Rights other than Thermo Electron and its subsidiaries. 40 42 Subordination of Guarantees The obligations represented by the Guarantees will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness of Thermo Electron, whether outstanding at the date of execution of the Guarantee Agreement or thereafter incurred or created. There are no limitations, in the Guarantee Agreement or otherwise, on Thermo Electron's ability to incur or create additional Senior Indebtedness in the future. Senior Indebtedness of Thermo Electron is defined for this purpose as the principal of, premium, if any, and interest and other amounts due on or with respect to the following, whether outstanding at the date of execution of the Guarantee Agreement or thereafter incurred or created: (a) indebtedness of Thermo Electron for money borrowed by Thermo Electron (including, without limitation, purchase money obligations), whether or not evidenced by debentures, bonds, notes or other corporate debt securities or similar instruments issued by Thermo Electron (including the principal of, premium, if any, and interest on Thermo Electron's 5% Senior Convertible Debentures due 2001 and 4 5/8% Senior Convertible Debentures due 1997); (b) obligations to reimburse any bank or other person in respect of amounts paid under letters of credit; (c) leases of real property, equipment or other assets, which leases are capitalized in Thermo Electron's financial statements in accordance with generally accepted accounting principles; (d) commitment, standby and other fees due and payable to financial institutions with respect to credit facilities available to Thermo Electron; (e) obligations of Thermo Electron under interest rate or currency swaps, floors, caps or other similar arrangements intended to hedge interest rates or currency exposure; (f) indebtedness secured by any mortgage, pledge, lien or other encumbrance on property which is owned or held by Thermo Electron subject to such mortgage, pledge, lien or encumbrance, whether or not the indebtedness secured thereby shall have been assumed by Thermo Electron; (g) obligations of Thermo Electron constituting guarantees of indebtedness of or joint obligations with another or others which would be included in the preceding clauses (a), (b), (c), (d), (e) or (f) (including Thermo Electron's guarantee of the principal of, premium, if any, and interest on the 3 3/4% Senior Convertible Debentures due 2000 of Thermo Instrument Systems Inc.); and (h) modifications, renewals, extensions or refundings of any of the indebtedness, leases, fees or obligations referred to in the preceding clauses (a), (b), (c), (d), (e), (f) or (g) or debentures, notes or other evidences of indebtedness issued in exchange therefor; provided that Senior Indebtedness shall not include any particular indebtedness, lease, fee or obligation, modification, renewal, extension or refunding or exchanged securities if, under the express provisions of the instrument creating or evidencing the same, or pursuant to which the same is outstanding, such indebtedness, lease, fee or obligation or such modification, renewal, extension or refunding thereof or exchanged securities are stated to be not superior in right of payment to the Guarantees. Most of Thermo Electron's assets are owned by its subsidiaries. Thermo Electron's rights as a shareholder and the rights of its creditors, including holders of the Redemption Rights, to participate in the assets of any subsidiary upon the latter's liquidation or recapitalization will be subject to the prior claims of the subsidiary's creditors. At June 29, 1996, the aggregate amount of Senior Indebtedness and indebtedness of subsidiaries not constituting Senior Indebtedness (but to which the Guarantees are effectively subordinated) was approximately $517,680,000. The obligations represented by the Guarantees will rank pari passu with Thermo Electron's obligations with respect to its outstanding 4 1/4% Convertible Subordinated Debentures due 2003 and the 4 7/8% Convertible Subordinated Debentures due 1997. In addition, the obligations represented by the Guarantees will rank pari passu with Thermo Electron's subordinated guarantees of the principal, premium, if any, and interest on the Non-Interest Bearing Convertible Subordinated Debentures due 2003 issued by Thermedics Inc., the Non-Interest Bearing Convertible Subordinated Debentures due 2001 issued by Thermo Ecotek Corporation, the 6 1/2% Convertible Subordinated Debentures due 1997 and the 4 5/8% Convertible Subordinated Debentures due 2003 issued by Thermo TerraTech Inc., the 6 5/8% Convertible Subordinated Debentures due 2001 issued by Thermo Instrument Systems Inc., the Non-Interest Bearing Convertible Subordinated Debentures due 1997 issued by Thermo Cardiosystems Inc., the 3 3/4% Convertible Subordinated Debentures due 2000 issued by Thermo Voltek Corp., the 4 7/8% Convertible Subordinated Debentures due 2000 issued by Thermo Remediation Inc., the 5% Convertible Subordinated Debentures due 2000 issued by ThermoQuest Corporation and the 5% Convertible Subordinated Debentures due 2000 issued by Thermo Optek Corporation. In addition, the obligations represented by the Guarantees will rank pari passu with Thermo Electron's subordinated guarantee of the obligations to redeem the common stock of ThermoLyte Corporation. The obligation of ThermoLyte Corporation to redeem its common stock requires ThermoLyte Corporation at the option of the holders to redeem up to an aggregate of approximately 41 43 1,845,000 shares of its common stock for $10.00 per share at the end of 1998 and 1999. As of June 29, 1996, the aggregate outstanding principal amount of the above obligations was approximately $1,100,289,000. In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection herewith, relative to Thermo Electron or to its creditors as such, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up, of Thermo Electron, or in the event of any assignment for the benefit of creditors of Thermo Electron or any marshaling of assets of Thermo Electron, the holders of all Senior Indebtedness of Thermo Electron will be entitled to receive payment in full of the principal of and premium, if any, and interest, including interest accruing after the commencement of any such proceeding, on all Senior Indebtedness of Thermo Electron, before holders of the Common Stock offered hereby will be entitled to receive any payment in respect of the Guarantees. Upon the maturity of any Senior Indebtedness of Thermo Electron by lapse of time, acceleration or otherwise, such Senior Indebtedness of Thermo Electron shall first be paid in full (to the same extent as provided in the preceding sentence) or provided for before any payment is made by Thermo Electron, directly or indirectly, with respect to the Redemption Rights. Upon the occurrence of any event of default with respect to any Senior Indebtedness of Thermo Electron, as defined therein or in the instrument under which it is outstanding, permitting the holders to accelerate the maturity thereof, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by Thermo Electron, directly or indirectly, with respect to the Redemption Rights. By reason of such subordination, in the event of insolvency, creditors of Thermo Electron that are not holders of Senior Indebtedness of Thermo Electron may recover less, ratably, than holders of Senior Indebtedness of Thermo Electron and may recover more, ratably, than the holders of the Guarantees. 42 44 CERTAIN FEDERAL INCOME TAX CONSEQUENCES Because of the unique features of the Units, it is not possible to provide a definitive discussion of the characterization of the Common Stock for federal income tax purposes, or of the federal income tax consequences of the purchase, ownership and disposition of Units, Common Stock and Redemption Rights. The discussion below represents the Company's view of the possible federal income tax consequences of the purchase, ownership and disposition of the Securities based on what the Company believes are the most likely characterizations of the Common Stock and is provided for general information purposes only. The Company has not sought a ruling from the Internal Revenue Service, or an opinion of counsel, with respect to such matters. It is possible that characterizations other than those discussed might apply and that the federal income tax consequences may accordingly be different than those discussed. Purchasers are urged to consult their own tax advisors with regard to an investment in the Units and as to the particular tax consequences to them (including the effect and applicability of state, local, foreign and other tax laws) of the purchase, ownership and disposition (including a disposition pursuant to exercise of a Redemption Right) of Common Stock. The following discussion does not address the tax consequences of the ownership of Units to purchasers based on their particular tax situations, and is not intended to be applicable to all categories of purchasers, some of whom, such as dealers in securities, insurance companies, tax-exempt organizations, and foreign persons, will be subject to special rules. TREATMENT OF COMMON STOCK AS EQUITY The Company intends to treat the Common Stock as equity for federal income tax purposes. For financial accounting purposes the Common Stock will be treated as Common Stock subject to redemption until the expiration of the Redemption Rights. Whether the Common Stock is in fact determined to be equity for federal income tax purposes during the period prior to the expiration of the Redemption Rights is a question of fact, and no one factor is conclusive. Although no definitive set of relevant factors exists, Section 385 of the Internal Revenue Code of 1986, as amended (the "Code"), lists five factors that "may" be taken into account in regulations, yet to be issued, setting forth rules for determining whether an interest in a corporation is to be treated as equity or debt for federal income tax purposes. These factors are (1) whether there is a written unconditional promise to pay on demand or on a specified date a sum certain in money in return for an adequate consideration in money or money's worth, and to pay a fixed rate of interest, (2) whether there is a subordination to or preference over any indebtedness of the corporation, (3) the ratio of debt to equity of the corporation, (4) whether there is convertibility into the stock of the corporation, and (5) the relationship between holdings of stock in the corporation and the holdings of the interest in question. The Internal Revenue Service has indicated that the intent of the parties in creating the instrument is a factor that may be taken into account as well. An analysis of these factors indicates that it is likely, although not certain, that the Common Stock will, in fact, be treated as equity for tax purposes even prior to the expiration of the Redemption Rights. The Company is obliged to redeem the Common Stock for a fixed amount of money upon exercise of Redemption Rights at essentially predetermined dates, raising the possibility that the Common Stock will during that time period be treated as convertible debt. However, no provisions for interest payments or guaranteed dividends of any sort are made. The Company is also prohibited from redeeming the Common Stock to the extent that such redemptions are made at a time when the Company's capital is impaired or when such redemptions would cause any impairment of the Company's capital or if such redemptions are otherwise prohibited by law. Under those circumstances, the Common Stock may be purchased by Thermo Electron pursuant to the Guarantee in what will generally not be a redemption. Furthermore, the Common Stock will be subordinated to all indebtedness of the Company, the stock is voting stock, there are no "conversion" rights other than a possible "deemed" conversion at the time of expiration of the Redemption Periods, and, finally, the parties intend to create an equity interest notwithstanding the contrary treatment for financial accounting purposes. 43 45 The discussion that follows is premised on the characterization of the Common Stock as equity and not as convertible debt. Section 385 of the Code provides that the issuer's characterization of an interest in a corporation as debt or equity will be binding on the issuer and all holders, but will not be binding on the Internal Revenue Service. Accordingly, because the Company intends to treat the Common Stock as equity for federal income tax purposes, holders will not be able to treat the Common Stock as debt for such purposes. If the Common Stock were to be treated as debt by the Internal Revenue Service or a court, certain other considerations would apply. For example, distributions of property by the Company with respect to the Common Stock would be treated as interest, and not dividends, and so would not be eligible for the dividends received deduction. Similarly, redemptions by the Company of the Common Stock would not be subject to the rules of Section 302 of the Code, as discussed below, but would instead be treated as payments of principal and interest. SALE OF COMMON STOCK AND REDEMPTION RIGHTS In general, gain or loss will be recognized upon a sale of a share of Common Stock or a Redemption Right. When the Common Stock and the associated Redemption Right are "decoupled" and may be sold or otherwise disposed of separately, the event of "decoupling" will not by itself cause the holder to recognize gain or loss. The sale of Common Stock or Redemption Rights, whether as a Unit or separately, will cause gain or loss to be recognized only with respect to the Common Stock or Redemption Rights sold. The amount of such gain or loss will be the difference between the amount received in exchange for the Common Stock or Redemption Rights sold and the holder's adjusted basis in the Common Stock or Redemption Rights sold. The holder's tax basis in a share of Common Stock and the associated Redemption Right will be determined by allocating the purchase price paid per Unit between the Common Stock and the associated Redemption Right on the basis of the fair market value of each on the date of issuance. Where the Common Stock and the associated Redemption Right are sold together (e.g., as a Unit within the 90-day period before they are "decoupled"), the precise allocation of basis would not generally alter the net amount of gain or loss to the holder. Such gain or loss will generally be treated as capital gain or loss if the Common Stock or Redemption Right sold was held as a capital asset. Such gain or loss will be long term capital gain or loss if the Common Stock or Redemption Right sold was held for more than one year, and short term capital gain or loss if it has been held for one year or less. To the extent applicable, the straddle rules, summarized below, will likely defer the commencement of a holder's holding period for this purpose, resulting in short term capital gain or loss. Upon the lapse of a Redemption Right acquired on the same day as a share of Common Stock identified as intended to be used in exercising such Redemption Right, the cost of the Redemption Right (determined as described above with respect to allocation of basis) will be added to the tax basis of such Common Stock. Upon the lapse of a Redemption Right acquired at any other time, the holder thereof will be treated as if the Redemption Right were sold or exchanged on the date of such lapse. Under the straddle rules, summarized below, a risk exists that all or part of any loss that may arise on a lapse of a Redemption Right, or that arises from the sale of either the Common Stock or the Redemption Right, while a holder holds the other component of the Unit, may not be recognized until a sale or other disposition of the other component. SHORT SALE AND STRADDLE RULES While the holding period of a share of Common Stock normally commences on the date that it is acquired, under certain circumstances the holding period may be suspended. It is possible that the right to cause the Company to redeem the Common Stock will be characterized for federal income tax purposes as an option to sell the Common Stock. In that case, it is possible that the short sale rules of Section 1233 of the Code would apply, resulting in, among other possible results, suspension of the holding period of each share of Common Stock until the expiration of the Second Redemption Period (i.e., September 30, 2001) with respect to that share. However, Section 1233(c) of the Code and Treas. Reg. sec. 1.1233-1(c)(3) provide that, if the Common Stock is identified by appropriate entries in the holder's records within fifteen days after the date of its acquisition as subject to such option, the rules of Section 1233(b), including the holding period suspension rules, will not apply. It is also possible that the Common Stock may also be considered to be a tax straddle subject to the rules of Section 1092 of the Code, if the equity aspect of the Common Stock and the Redemption Rights were considered to be "offsetting positions" for this purpose. The tax straddle rules would apply only if both (a) the Common Stock is 44 46 considered to be actively traded, and (b) the Redemption Rights are considered to be either (i) "options" with respect to the Common Stock or substantially identical stock or securities or (ii) a position with respect to substantially similar or related property (other than stock). If the Common Stock is considered to be a tax straddle, Temporary Treasury Regulations provide that the holding period of a share of Common Stock generally will not begin earlier than the expiration of the Second Redemption Period with respect to that share. In addition, under Section 263(g) of the Code, interest and carrying charges relating to a tax straddle are not deductible and must be capitalized and added to basis. DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION The Company has never paid any cash dividends on its Common Stock, and anticipates that no dividends will be paid in the foreseeable future. See "Risk Factors -- Lack of Dividends." A distribution of property by the Company to its shareholders will be treated as a dividend only to the extent of its accumulated earnings and profits or its earnings and profits in the taxable year in which such distributions occur. Any distribution of property by the Company that is not a dividend would be treated first as a return of basis to the shareholder, and then as gain from the sale or exchange of property. To the extent that the Company does have earnings and profits and does make dividend distributions with respect to shares of Common Stock, corporate holders would generally be eligible for the dividends received deduction. This deduction generally equals 70% of the amount received as dividends, although corporations owning 20% or more of the stock of the Company are eligible for an 80% deduction. Corporate holders would be eligible for the dividends received deduction only if, among other things, the Common Stock is held for more than 45 days. Under Section 246(c) of the Code, the holding period of Common Stock will be suspended for any periods for which the holder has, among other things, (i) an option to sell such Common Stock or (ii) under regulations to be prescribed by the Treasury a diminished risk of loss by holding one or more other positions with respect to substantially similar or related property. It is possible that the Redemption Rights would be considered an option or other position triggering the suspension of the holding period under Section 246(c) of the Code. For corporate holders of Common Stock, Section 246A of the Code reduces the dividends received deduction in the case of "debt-financed portfolio stock." Debt-financed portfolio stock is defined as portfolio stock, such as the Common Stock, acquired or carried by the corporate holder with indebtedness that is "directly attributable" to the investment in such stock. The reduction is generally a fraction, the numerator of which is the amount of the holder's indebtedness attributable to such stock and the denominator of which is the holder's adjusted tax basis in the stock. In addition, any such dividends received by corporate holders would be subject to the provisions of Section 1059 of the Code relating to "extraordinary dividends" if the Common Stock with respect to which the dividend is considered paid has not been held for more than two years and the amount of the dividend is considered extraordinary. For this purpose, the holding period of the Common Stock will be considered suspended under rules similar to those applicable to the determination of the availability of the dividends received deduction. In general, a dividend paid with respect to common stock is treated as an extraordinary dividend if it equals or exceeds ten percent of the shareholder's adjusted basis in the stock. Dividends that have ex-dividend dates within 85 consecutive days are aggregated for this purpose. An aggregation period of one year applies if the aggregated dividends exceed 20 percent of the shareholder's basis. In addition, except as may be provided in regulations yet to be proposed or promulgated, Section 1059(e)(1) of the Code provides that the extraordinary dividend rules of Section 1059 will apply to any redemption of Common Stock of the Company that is not pro rata as to all shareholders. If a dividend is subject to the rules of Section 1059, the tax basis of the holder's remaining Common Stock will be reduced by the "non-taxed portion" of the dividend. If the non-taxed portion exceeds the tax basis, such excess will be treated as gain from the sale of Common Stock upon disposition of that Common Stock. CONSEQUENCES OF THE REDEMPTION OF COMMON STOCK The amount of cash received by a holder of Common Stock on the redemption of that Common Stock by the Company will be treated either (i) as a distribution by the Company in exchange for its stock, in which case the holder will recognize gain or loss measured by the difference between the amount realized and the holder's tax basis for the Common Stock surrendered or (ii) as a distribution of property to which Section 301 applies (that is, as a dividend, to the extent of the Company's earnings and profits; see "Dividends; Dividends Received Deduction," 45 47 above). For this purpose, the determination of whether the distribution will be treated as an exchange for stock or as a Section 301 distribution will be made in accordance with the provisions of Section 302 of the Code, as explained below. Under Section 302 of the Code, a holder will not be treated as having received a Section 301 distribution upon the redemption of Common Stock if (1) the redemption results in the complete termination of the holder's interest in the Company, (2) the holder's percentage ownership of the outstanding Common Stock of the Company (and voting stock if any voting stock other than Common Stock is outstanding) immediately after such redemption is less than 80% of such holder's percentage ownership of the total of such outstanding stock immediately before the redemption, or (3) the distribution from the Company upon such redemption is not "essentially equivalent to a dividend" based on the individual holder's particular facts and circumstances. For purposes of making these determinations, the holder's percentage ownership will in general be calculated by taking into account all shares owned by him, including those deemed to be owned by him pursuant to Section 318 of the Code. Section 318 of the Code provides that in applying the above rules, a holder is considered to own shares directly or indirectly owned by certain members of his family or certain related entities and to own shares with respect to which he holds options. For a redemption of Common Stock to qualify as "not essentially equivalent to a dividend," it must result in a "meaningful reduction" in the holder's percentage interest in the Company. The Internal Revenue Service has indicated in a published ruling that any reduction in percentage interest of a small stockholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a "meaningful reduction," although in another ruling the Internal Revenue Service has indicated that under circumstances that may correspond to certain redemptions made under the terms of this offering no "meaningful reduction" will be found despite a reduction in a shareholder's percentage interest in the Company. Specifically, an actual reduction in percentage interest is required, and if a distribution results in no reduction or an increase in percentage interest, the distribution proceeds will, in general, be treated as a dividend. In applying these rules, other transactions that are part of an overall plan may be taken into account. In view of the terms of this offering, a redemption can result in an increase in a holder's percentage interest in the Company by reason of redemptions effected simultaneously by other holders of the Company's Common Stock. This result could occur, for example, if a shareholder owning a small number of shares tendered a relatively small percentage (e.g., 1%) of his Common Stock during the Redemption Period while other shareholders, in the aggregate, tendered a much larger percentage (e.g., 30%). Although, in such cases, holders could avoid dividend treatment by selling Common Stock rather than redeeming it, there can be no assurance that there will be a market for the Common Stock or that if such a market exists the proceeds received will not be substantially less than those that would be received by redemption. In the event that, upon the tendering of Common Stock during a Redemption Period, Thermo Electron is required to acquire the tendered Common Stock pursuant to the terms of the Guarantee, it is probable that no redemption of the tendered Common Stock will be deemed to have occurred (absent circumstances in which the selling holder is deemed to be in control of the Company and Thermo Electron). If Thermo Electron is the purchaser, the holder will probably be deemed to have disposed of the Common Stock through a sale or exchange, the consequences of which are discussed in "Sale of Common Stock and Redemption Rights" above. If a redemption is not treated as a Section 301 distribution, any gain or loss recognized will be capital gain or loss if the redeemed Common Stock is held as a capital asset. Such gain or loss will be long term or short term depending on the holding period of such Common Stock. See "Sale of Common Stock and Redemption Rights" above. If (i) redemptions during a Redemption Period are treated as dividends, (ii) the redemptions are considered to be part of a plan of periodic redemptions and not as isolated transactions within the meaning of Treas. Reg. sec.1.305- 3(b)(3), and (iii) the Common Stock is not considered to be part of a security arrangement within the meaning of Treas. Reg. sec.1.305-3(e) Example (14), then the holders of Common Stock whose proportionate interests in the earnings and profits of the Company increase as the result of the redemptions would be treated as having received deemed dividend income under the rules of Sections 305(b)(2) and 305(c) of the Code. The amount of such deemed distribution to each such holder would be measured by the fair market value of the number of shares that would have been distributed to such holder had the Company sought to increase that holder's interest by the actual 46 48 amount of the increase, assuming that the other shareholders' interests in the Company remained constant. See Treas. Reg. sec.1.305-3(e) Examples (8) and (9). President Clinton has recently introduced legislation which, if enacted into law, could change the federal income tax consequences attributable to the purchase, ownership and/or disposition of Units, Common Stock or Redemption Rights as described herein. Specifically, the legislation proposes, among other things, certain rules regarding the basis of substantially identical securities; constructive sales treatment for appreciated financial positions, if taxpayers enter into certain transactions which substantially eliminate risk of loss and opportunity for gain with respect to such appreciated financial positions (including short sales and options); and the characterization of interest as equity versus debt. It is possible that this legislation, if enacted into law, could require holders to recognize gain in connection with the ownership of Common Stock prior to the date that the Common Stock is sold, if the Redemption Rights are treated as substantially eliminating the holder's risk of loss and opportunity for gain with respect to the Common Stock. If the Redemption Rights are substantially certain to be exercised then the holder's opportunity for gain may be eliminated. Since the legislation currently provides for retroactive effective dates, there can be no assurance that this legislation or any other legislation would not materially change the federal income tax consequences described herein. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, there will be 14,100,000 shares of Common Stock of the Company outstanding (assuming no exercise of the Underwriters' over-allotment option). The shares issued in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by affiliates of the Company, as that term is defined in Rule 144 under the Securities Act, may generally only be resold in compliance with applicable provisions of Rule 144. Of such 14,100,000 outstanding shares, 10,000,000 shares will be owned by Thermo Fibertek. Thermo Fibertek has agreed that, without the prior written consent of the Representatives (as defined below under the caption "Underwriters"), it will not offer, sell, grant any option to purchase or otherwise dispose of any shares of the Common Stock within 180 days after the date of this Prospectus, other than (i) shares of Common Stock to be sold to the Underwriters in this offering, (ii) the issuance of options and sales of shares of Common Stock pursuant to existing stock-based compensation plans, (iii) shares of Common Stock which may be sold to Thermo Fibertek, and (iv) the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses (provided that such Common Stock may not be resold prior to the expiration of the 180-day period referenced above). Upon expiration of this lock-up agreement, Thermo Fibertek may sell its shares of Common Stock in an offering registered under the Securities Act or pursuant to an exemption from such registration. So long as Thermo Fibertek is able to elect a majority of the Board of Directors it will be able to cause the Company at any time to register under the Securities Act all or a portion of the Common Stock owned by Thermo Fibertek or its affiliates, in which case it would be able to sell such shares without restriction upon effectiveness of the registration statement. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date of the notice filed pursuant to Rule 144. Sales under Rule 144 are also subject to certain manner of sale restrictions and notice requirements and to the availability of current public information about the Company. In addition, a person who is deemed an "affiliate" of the Company must comply with Rule 144 in any sale of shares of Common Stock not covered by a registration statement (except, in the case of registered shares acquired by the affiliate on the open market, for the holding period requirement). A person (or person whose shares are aggregated) who is not deemed an "affiliate" of the Company and who has beneficially owned restricted shares for at least three years is entitled to sell such shares under Rule 144(k) without regard to the volume, notice and other limitations of Rule 144. In meeting the two and three year holding periods described above, a holder of restricted shares can include the holding periods of a prior owner who was not an affiliate. The Company has reserved 825,000 shares for grants under its existing stock-based compensation plans. As of August 31, 1996, the Company had options outstanding to purchase 338,000 shares of Common Stock to certain of 47 49 its employees, officers and directors at an exercise price of $10.00 per share. None of such options are currently exercisable. Ninety days after the completion of the Company's initial public offering, such options will become immediately exercisable, subject to the right of the Company to repurchase the underlying shares over a five to ten year period depending upon the term of the option. As of August 31, 1996, the repurchase right had not lapsed as to any shares issuable upon exercise of outstanding options. The Company has reserved 487,000 shares for future grant under plans. The Company intends to file registration statements under the Securities Act to register all shares of Common Stock issuable under such plans. Shares covered by these registration statements will be eligible for sale in the public market after the effective date of such registration statements. Each of the Company, Thermo Fibertek and Thermo Electron has agreed that it will not offer, sell, grant any option to purchase or otherwise dispose of any shares of Common Stock (except for the grant of options and the sale of shares of Common Stock pursuant to stock-based compensation plans, sales to Thermo Fibertek and the issuance of shares as consideration for the acquisition of one or more businesses (provided that such shares may not be resold prior to the expiration of 180 days after the date of this Prospectus)) within 180 days after the date of this Prospectus, without the prior consent of the Representatives of the Underwriters. Prior to this offering there has been no public market for the Common Stock. The effect, if any, of public sales or the availability of shares for sale at prevailing market prices cannot be predicted. Nevertheless, sales of substantial amounts of shares in the public market could adversely affect prevailing market prices. 48 50 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, each of the Underwriters named below, for whom NatWest Securities Limited, Lehman Brothers Inc. and Oppenheimer & Co., Inc. are acting as Representatives (the "Representatives"), has severally agreed to purchase from the Company the following respective number of Units at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
UNDERWRITER NUMBER OF UNITS ----------- --------------- NatWest Securities Limited...................................... Lehman Brothers Inc............................................. Oppenheimer & Co., Inc.......................................... --------- Total...................................................... 4,100,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent. The nature of the Underwriters' obligations is that they are committed to purchase all Units offered hereby if any such Units are purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the Units directly to the public at the public offering price set forth on the cover page of this Prospectus, and to certain selected dealers (who may include the Underwriters) at such price less a selling concession not in excess of $ per Unit. The Underwriters may allow and such dealers may re-allow a concession not in excess of $ per Unit to certain other dealers (who may include the Underwriters). After commencement of the offering to the public, the public offering price and other selling terms may be changed by the Representatives. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of Units to any accounts over which they exercise discretionary authority. The Company has granted to the several Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 615,000 additional Units at the public offering price, less the aggregate underwriting discounts and commissions, set forth on the cover page of this Prospectus, solely to cover over-allotments. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of such Units proportionate to such Underwriter's initial commitment. The Underwriting Agreement provides that the Company, Thermo Fibertek and Thermo Electron will indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the Underwriters may be required to make in respect thereof. The Company, Thermo Fibertek and Thermo Electron have also agreed that they will not, without the Representatives' prior written consent, offer, sell, grant any options to purchase or otherwise dispose of any shares of Common Stock within 180 days after the date of this Prospectus, other than (i) the shares of Common Stock to be sold to the Underwriters in this offering, (ii) the issuance of options and sales of Common Stock pursuant to currently existing stock-based compensation plans, (iii) sales of shares to Thermo Fibertek, and (iv) the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses (provided that such Common Stock may not be resold prior to the expiration of the 180-day period referenced above). See "Shares Eligible for Future Sale" and "Risk Factors -- Shares Eligible for Future Sale." Certain of the Underwriters from time to time have performed various investment banking services for Thermo Electron and its subsidiaries. 49 51 NatWest Securities Limited, a United Kingdom broker-dealer and a member of the Securities and Futures Authority Limited, has agreed that, as part of the distribution of the Units offered hereby and subject to certain exceptions, it will not offer or sell any Units within the United States, its territories or possessions or to persons who are citizens thereof or residents therein. The Underwriting Agreement does not limit sales of Units offered hereby outside of the United States. NatWest Securities Limited has also represented and agreed that (i) it has not offered or sold and will not offer or sell any Units to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, managing, holding or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the Financial Services Act 1986 (the "Act"), (ii) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the Units in, from or otherwise involving the United Kingdom; (iii) it has only issued or passed on and will only issue or pass on, in the United Kingdom any document received by it in connection with the issue of the Units, other than any document which consists of or any part of listing particulars, supplementary listing particulars or any other document or instrument required or permitted to be published by listing rules under Part IV of the Act, to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 or is a person to whom the document may otherwise be lawfully issued or passed on. Prior to this offering there has been no public market for the Units, the Common Stock or the Redemption Rights. The initial public offering price for the Units will be determined by negotiation among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price will be prevailing market and economic conditions, estimates of the business potential and prospects of the Company, the state of the Company's business operations, an assessment of the Company's management, the consideration of the above factors in relation to market valuations of companies in related businesses and other factors deemed relevant. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL OPINIONS The validity of the issuance of the Securities offered hereby will be passed upon for the Company and Thermo Electron by Seth H. Hoogasian, Esq., General Counsel of the Company, Thermo Fibertek and Thermo Electron, and certain legal matters will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Mr. Hoogasian is a full-time employee of Thermo Electron and owns or has the right to acquire 5,000 shares of Common Stock, 51,750 shares of common stock of Thermo Fibertek and 115,927 shares of common stock of Thermo Electron. EXPERTS The financial statements of the Company and Thermo Electron included or incorporated by reference in this Prospectus and the financial statement schedule incorporated by reference in the Registration Statement of which this Prospectus forms a part have been audited by Arthur Andersen LLP, independent public accountants, to the extent and for the periods as indicated in their reports with respect thereto, and are included or incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Reference is made to said report with respect to Thermo Electron's financial statements which includes an explanatory fourth paragraph with respect to the change in method of accounting for investments in debt and marketable equity securities in 1994 as discussed in Note 2 to the financial statements. The financial statements of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc., included in this Prospectus have been audited by Crowe, Chizek and Company LLP, independent public accountants, to the extent and for the periods as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. REPORTS TO SECURITY HOLDERS The Company intends to furnish holders of the Units, the Common Stock and/or the Redemption Rights offered hereby with annual reports containing financial statements audited by an independent public accounting firm 50 52 and with quarterly reports containing unaudited summary financial statements for each of the first three quarters of each fiscal year. ADDITIONAL INFORMATION The Company and Thermo Electron have filed with the Securities and Exchange Commission (the "Commission") a combined registration statement on Form S-1 and S-3 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended, with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company, Thermo Electron, the Units and the Guarantees, reference is made to the Registration Statement, copies of which may be obtained upon payment of the fees prescribed by the Commission from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7 World Trade Center, New York, New York 10048 and at 500 West Madison Street, Chicago, Illinois 60661. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company and Thermo Electron. The address of such site is http://www.sec.gov. Thermo Electron is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7 World Trade Center, New York, New York 10048 and at 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The common stock of Thermo Electron is listed on the New York Stock Exchange, and the reports, proxy statements and other information filed by Thermo Electron with the Commission can be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. 51 53 INDEX TO FINANCIAL STATEMENTS
PAGE ---- THERMO FIBERGEN INC. Report of Independent Public Accountants.............................................. F-2 Statement of Operations for the years ended January 1, 1994, December 31, 1994 and December 30, 1995, Inception through December 30, 1995 and the six months ended July 1, 1995 and June 29, 1996............................................................ F-3 Balance Sheet as of December 31, 1994, December 30, 1995 and June 29, 1996............ F-4 Statement of Cash Flows for the years ended January 1, 1994, December 31, 1994 and December 30, 1995, Inception through December 30, 1995 and the six months ended July 1, 1995 and June 29, 1996............................................................ F-5 Statement of Shareholder's Investment for the years ended January 1, 1994, December 31, 1994 and December 30, 1995 and the six months ended June 29, 1996................ F-6 Notes to Financial Statements......................................................... F-7 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. Report of Independent Auditors........................................................ F-11 Combined Statement of Operations for the years ended September 30, 1993, 1994 and 1995 and for the nine months ended June 30, 1995 and 1996................................. F-12 Combined Balance Sheet as of September 30, 1994 and 1995 and June 30, 1996............ F-13 Combined Statement of Cash Flows for the years ended September 30, 1993, 1994 and 1995 and for the nine months ended June 30, 1995 and 1996................................. F-14 Combined Statement of Shareholder's Equity (Deficit) for the years ended September 30, 1993, 1994 and 1995 and for the nine months ended June 30, 1996...................... F-15 Notes to Combined Financial Statements................................................ F-16 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF THERMO FIBERGEN INC. AND GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. (UNAUDITED) Pro Forma Combined Condensed Statement of Operations for the twelve months ended December 30, 1995.................................................................... F-20 Pro Forma Combined Condensed Statement of Operations for the six months ended June 29, 1996....................................................................... F-21 Pro Forma Combined Condensed Balance Sheet as of June 29, 1996........................ F-22 Notes to Pro Forma Combined Condensed Financial Statements............................ F-23
F-1 54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermo Fibergen Inc.: We have audited the accompanying balance sheet of Thermo Fibergen Inc. (a Delaware corporation in the development stage and 100%-owned subsidiary of Thermo Fibertek Inc.) as of December 31, 1994 and December 30, 1995, and the related statements of operations, shareholder's investment, and cash flows for each of the three years in the period ended December 30, 1995, and the statements of operations and cash flows for the period from inception (December 29, 1991) through December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Thermo Fibergen Inc. as of December 31, 1994 and December 30, 1995, and the results of its operations and cash flows for each of the three years in the period ended December 30, 1995 and for the period from inception through December 30, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts July 3, 1996 F-2 55 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCEPTION SIX MONTHS ENDED THROUGH ---------------------- DECEMBER 30, JULY 1, JUNE 29, 1993 1994 1995 1995 1995 1996 ------- ------- ------- ------------ ------- ----------- (UNAUDITED) Costs and Operating Expenses: Research and development expenses....................... $ 106 $ 128 $ 601 $ 982 $ 276 $ 548 ------- ------- ------- ------- ------- ------- Operating Loss...................... (106) (128) (601) (982) (276) (548) Interest Income..................... -- -- -- -- -- 267 ------- ------- ------- ------- ------- ------- Loss Before Income Taxes............ (106) (128) (601) (982) (276) (281) Income Taxes (Note 3)............... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- NET LOSS............................ $ (106) $ (128) $ (601) $ (982) $ (276) $ (281) ======= ======= ======= ======= ======= ======= LOSS PER SHARE...................... $ (.01) $ (.01) $ (.06) $ (.10) $ (.03) $ (.03) ======= ======= ======= ======= ======= ======= WEIGHTED AVERAGE SHARES............. 10,073 10,073 10,073 10,073 10,073 10,073 ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. F-3 56 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 29, 1994 1995 1996 ------- ------- ----------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents...................................... $ -- $ -- $12,513 Other current assets........................................... -- -- 17 ------- ------- -- -- 12,530 ------- ------- Machinery and Equipment, at Cost................................. -- -- 219 Less: Accumulated depreciation................................. -- -- -- ------- ------- -- -- 219 ------- ------- Other Assets..................................................... -- -- 11 ------- ------- $ -- $ -- $12,760 ======= ======= LIABILITIES AND SHAREHOLDER'S INVESTMENT Current Liabilities: Other accrued liabilities...................................... $ -- $ -- $ 38 Due to parent company.......................................... -- -- 409 ------- ------- -- -- 447 ------- ------- Shareholder's Investment (Notes 4 and 5): Net parent company investment.................................. -- -- -- Common stock, $.01 par value, 25,000,000 shares authorized; 10,000,000 shares issued and outstanding.................... -- -- 100 Capital in excess of par value (includes deficit accumulated during the development stage through capitalization of the Company of $1,076).......................................... -- -- 12,400 Deficit accumulated during the development stage subsequent to capitalization of the Company............................... -- -- (187) ------- ------- -- -- 12,313 ------- ------- $ -- $ -- $12,760 ======= =======
The accompanying notes are an integral part of these financial statements. F-4 57 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS INCEPTION ENDED THROUGH ------------------- DECEMBER 30, JULY 1, JUNE 29, 1993 1994 1995 1995 1995 1996 ----- ----- ----- ------------ ------- -------- (UNAUDITED) Operating Activities: Net loss.................................. $(106) $(128) $(601) $ (982) $ (137) $ (281) Adjustments to reconcile net loss to net cash used in operating activities: Changes in current accounts: Other current assets................. -- -- -- -- -- (17) Other current liabilities............ -- -- -- -- -- 38 ----- ----- ----- ----- ----- ----- Net cash used in operating activities...................... (106) (128) (601) (982) (137) (260) ----- ----- ----- ----- ----- ----- Investing Activities: Purchases of machinery and equipment...... -- -- -- -- -- (219) Due to parent company and affiliates...... -- -- -- -- -- 409 Other..................................... -- -- -- -- -- (11) ----- ----- ----- ----- ----- ----- Net cash provided by investing activities...................... -- -- -- -- -- 179 ----- ----- ----- ----- ----- ----- Financing Activities: Transfers from parent company............. 106 128 601 982 137 94 Cash transfer from parent company in connection with capitalization of the Company................................ -- -- -- -- -- 12,500 ----- ----- ----- ----- ----- ----- Net cash provided by financing activities...................... 106 128 601 982 137 12,594 ----- ----- ----- ----- ----- ----- Increase in Cash and Cash Equivalents....... -- -- -- -- -- 12,513 Cash and Cash Equivalents at Beginning of Period................................. -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- Cash and Cash Equivalents at End of Period................................. $-- $-- $-- $-- $-- $ 12,513 ===== ===== ===== ===== ===== =====
The accompanying notes are an integral part of these financial statements. F-5 58 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDER'S INVESTMENT (IN THOUSANDS)
DEFICIT ACCUMULATED CAPITAL DURING THE NET COMMON IN DEVELOPMENT STAGE PARENT STOCK, EXCESS SUBSEQUENT TO COMPANY $.01 PAR OF PAR CAPITALIZATION INVESTMENT VALUE VALUE OF THE COMPANY -------- -------- -------- ------------------- BALANCE JANUARY 2, 1993....................... $ -- $ -- $ -- $-- Net loss...................................... (106) -- -- -- Net transfer from parent company.............. 106 -- -- -- ------- ---- ------- ------- BALANCE JANUARY 1, 1994....................... -- -- -- -- Net loss...................................... (128) -- -- -- Net transfer from parent company.............. 128 -- -- -- ------- ---- ------- ------- BALANCE DECEMBER 31, 1994..................... -- -- -- -- Net loss...................................... (601) -- -- -- Net transfer from parent company.............. 601 -- -- -- ------- ---- ------- ------- BALANCE DECEMBER 30, 1995..................... -- -- -- -- (UNAUDITED) Net loss prior to capitalization of the Company..................................... (94) -- -- -- Net transfer from parent company.............. 94 -- -- -- Cash transfer from parent company in connection with capitalization of the Company..................................... 12,500 -- -- -- Capitalization of the Company................. (12,500) 100..... 12,400 -- Net loss after capitalization of the Company..................................... -- -- -- (187) ------- ---- ------- ------- BALANCE JUNE 29, 1996......................... $ -- $ 100 $ 12,400 $ (187) ======= ==== ======= =======
The accompanying notes are an integral part of these financial statements. F-6 59 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Thermo Fibergen Inc. (the "Company") was established as a subsidiary of Thermo Fibertek Inc. ("Thermo Fibertek") to develop and commercialize equipment and systems to recover valuable materials from pulp residue generated by plants that produce recycled pulp and paper. The Company is in the development stage, has yet to generate any revenues, and has no assurance of future revenues. To the Company's knowledge, no Company has yet developed commercially stable products using the proposed technology. Even if successful, substantial time will pass before significant revenues might be realized. Further, during the period required to develop the commercial product, the Company may require additional funds that may not be available to it. Research and development began on December 29, 1991 (the date of inception). Relationship with Thermo Fibertek and Thermo Electron Corporation The Company was incorporated on February 12, 1996 as a wholly owned subsidiary of Thermo Fibertek, at which time Thermo Fibertek was an 81%-owned subsidiary of Thermo Electron Corporation ("Thermo Electron"). Thermo Fibertek transferred to the Company a license to use certain technology and its business relating to the development of its fiber-recovery system in the paper and pulp industries, together with $12,500,000 in cash, in exchange for 10,000,000 shares of the Company's common stock, representing all of such stock outstanding. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1993, 1994 and 1995 are for the fiscal years ended January 1, 1994, December 31, 1994 and December 30, 1995, respectively. Income Taxes The Company and Thermo Fibertek entered into a tax allocation agreement under which the Company and Thermo Fibertek are included in Thermo Electron's consolidated federal and state income tax returns. If Thermo Fibertek's equity ownership of the Company were to drop below 80%, the Company would be required to file its own income tax returns. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Loss per Share Pursuant to Securities and Exchange Commission requirements loss per share have been presented for all periods. Weighted average shares for all periods represent 10,000,000 shares issued to Thermo Fibertek in connection with the capitalization of the Company and the effect of the assumed exercise of stock options issued within one year prior to the Company's proposed initial public offering. Cash and Cash Equivalents Prior to its incorporation in February 1996, the Company's cash disbursements were combined with other Thermo Fibertek corporate cash balances. Subsequent to the Company's incorporation, the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the F-7 60 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of U.S. government agency securities, corporate notes, 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 and have an original maturity of three months or less. 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. Cash equivalents are carried at cost, which approximates market value. Machinery 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 using the straight-line method over the estimated useful life of its machinery and equipment, which is five years. 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 and 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. Interim Financial Statements The financial statements as of June 29, 1996 and for the six-month periods ended July 1, 1995 and June 29, 1996, 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 June 29, 1996 are not necessarily indicative of the results to be expected for the entire year. 2. EMPLOYEE BENEFIT PLAN Substantially all of the Company's employees are eligible to participate in an employee stock purchase plan sponsored by Thermo Fibertek. Prior to the November 1995 plan year, shares of Thermo Fibertek's and Thermo Electron's common stock could be purchased at the end of a 12-month plan year at 85% of the fair market value at the beginning of the plan year, and the shares purchased were subject to a one-year resale restriction. Effective November 1, 1995, the applicable shares of common stock may be purchased at 95% of the fair market value at the beginning of the plan year, and the shares purchased will be subject to a six-month resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Prior to November 1993, the Company's eligible employees participated in an employee stock purchase plan sponsored by Thermo Electron. F-8 61 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. INCOME TAXES The income tax benefit differs from the amounts calculated by applying the statutory federal income tax rate of 35% to loss before income taxes due to the following:
INCEPTION THROUGH DECEMBER 30, 1993 1994 1995 1995 ------- ------- ------- ------------ (IN THOUSANDS) Income tax benefit at statutory rate..................... $ 37 $ 45 $ 210 $ 342 Differences resulting from: Net operating loss valuation allowance provided.......... (37) (45) (210) (342) ------- ------- ------- ------- $ -- $ -- $ -- $ -- ======= ======= ======= =======
Prepaid income taxes consist of the following:
1994 1995 ------- ------- (IN THOUSANDS) Net operating loss carryforwards.................................. $ 132 $ 342 Less: Valuation allowance......................................... (132) (342) ----- $ -- $ -- =====
Due to cumulative losses, a valuation allowance equal to total net deferred tax assets has been established. 4. RELATED PARTY TRANSACTION 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. Thermo Electron will assess the Company an annual fee based upon the Company's revenues. The Company was not charged for these services in 1993, 1994 and 1995 since no revenues were recorded by the Company during these periods and the amount of services received was not material. Beginning in fiscal 1996, the Company will pay an annual fee equal to 1.0% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would incur 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. 5. SUBSEQUENT EVENTS Acquisition On July 3, 1996, the Company's newly formed GranTek subsidiary acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. (collectively "GT/ELI") for approximately $12,000,000 in cash, subject to a post-closing adjustment based upon the net asset value of GT/ELI as of the closing date. The Company will account for the acquisition using the purchase method of accounting. The cost of this acquisition exceeded the estimated F-9 62 THERMO FIBERGEN INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) fair value of the acquired net assets by approximately $5,062,000, which will be amortized over 20 years. The allocation of the purchase price will be based on an estimate of the fair value of net assets acquired. Pro forma information for the Company and GT/ELI is available elsewhere in this Prospectus. GT/ELI converts the residue produced by recycled pulp and paper mills into granules that can be used as absorbents for oil and grease, as cat-box fillers and as carriers for agricultural chemicals. GT/ELI produces an agricultural carrier marketed as BIODAC(R), which is sold exclusively by GT/ELI. Stock-based Compensation Plans On July 2, 1996, the Company adopted a stock-based compensation plan for its key employees, directors, and others, which permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares or performance-based shares. The option recipients and the terms of options granted under this plan are determined by the Board Committee. Options generally vest and become immediately exercisable on the ninth anniversary of the grant date, unless the Company's common stock becomes publicly traded prior to such date. In such an event options become exercisable 90 days after the Company becomes subject to the Securities Exchange Act of 1934, 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 are deemed to have lapsed ratably over periods ranging from five to ten years after the first anniversary of the grant date, depending on the term of the option, which generally ranges from ten 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. As of August 14, 1996, options to purchase 338,000 shares of the Company's common stock, exercisable at $10.00 per share, were outstanding under this plan. As of August 14, no options have been exercised and no options are exercisable under the stock-based compensation plan described above. The Company also has a directors' stock option plan, adopted on July 2, 1996, 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 will have the same general terms as options granted under the stock-based compensation plan described above, except that the restrictions and repurchase rights generally are deemed to have lapsed ratably over a four-year period and the option term is five years. As of August 14, 1996, no options to purchase shares of the Company's common stock have been granted under this plan. 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 or its majority-owned subsidiaries. In addition to participating in the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron or its other majority-owned subsidiaries. No accounting recognition is given to options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Reserved Shares At August 14, 1996, the Company had reserved 825,000 unissued shares of its common stock for possible issuance under stock-based compensation plans. F-10 63 REPORT OF INDEPENDENT AUDITORS Board of Trustees Edward Lowe Foundation, Inc., Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc.: We have audited the accompanying combined balance sheet of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. as of September 30, 1994 and 1995, and the related combined statements of operations and shareholder's equity (deficit) and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined 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 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. as of September 30, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. CROWE, CHIZEK AND COMPANY LLP South Bend, Indiana July 2, 1996 F-11 64 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER NINE MONTHS ENDED 30, JUNE 30, --------------------------- --------------------- 1993 1994 1995 1995 1996 ------- ------- ------- --------- --------- (UNAUDITED) Revenues........................................... $ 4,709 $ 3,670 $ 4,233 $ 3,711 $ 4,325 ------- ------- ------- ------- Costs and Operating Expenses: Cost of revenues................................. 3,287 3,234 3,188 2,409 3,035 Selling, general and administrative expenses..... 995 988 756 542 1,006 Research and development expenses................ 367 281 303 217 139 Patent litigation expenses....................... -- -- 1,654 654 1,130 ------- ------- ------- ------- 4,649 4,503 5,901 3,822 5,310 ------- ------- ------- ------- Operating Income (Loss)............................ 60 (833) (1,668) (111) (985) Other Income (Note 6).............................. -- -- -- -- 700 Interest Expense (Note 3).......................... (1,042) (1,140) (1,469) (1,078) -- ------- ------- ------- ------- Net Loss (Note 4).................................. $ (982) $(1,973) $(3,137) $(1,189) $ (285) ======= ======= ======= =======
See accompanying notes to combined financial statements. F-12 65 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. COMBINED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, 1994 1995 1996 ------------- ------------- ----------- (UNAUDITED) ASSETS Current Assets: Cash........................................................ $ -- $ 43 $ 50 Accounts receivable......................................... 305 298 757 Inventories................................................. 683 695 361 Federal income tax deposit.................................. 163 -- -- Other current assets........................................ 11 1 -- -------- -------- -------- Total current assets..................................... 1,162 1,037 1,168 -------- -------- -------- Property, Plant and Equipment: Land and improvements....................................... 267 267 267 Buildings and improvements.................................. 4,412 4,375 4,533 Machinery and equipment..................................... 7,419 7,282 7,200 Office furniture and equipment.............................. 53 59 51 -------- -------- -------- 12,151 11,983 12,051 Accumulated depreciation and amortization................... 4,512 5,513 6,389 -------- -------- -------- 7,639 6,470 5,662 -------- -------- -------- Other Assets: Cash surrender value of life insurance...................... 28 37 44 Patents, net of accumulated amortization of $146, $182 and $175................................................. 152 116 123 -------- -------- -------- 180 153 167 -------- -------- -------- $ 8,981 $ 7,660 $ 6,997 ======== ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) Current Liabilities: Notes payable -- shareholder (Note 3)....................... $ 16,048 $ -- $ -- Accounts payable............................................ 137 81 302 Salaries, wages and bonus payable........................... 57 54 113 Accrued property taxes...................................... 121 100 41 Accrued legal expenses (Note 6)............................. -- 999 193 Other accrued expenses...................................... -- -- 50 Interest payable (Note 3)................................... 1,663 -- -- -------- -------- -------- Total current liabilities................................ 18,026 1,234 699 -------- -------- -------- Shareholder's Equity (Deficit): Common stock, $1.00 par value: 20,000 shares authorized and 10,000 shares outstanding................................ 10 10 10 Additional paid-in capital (Note 3)......................... 1,386 20,565 20,565 Accumulated deficit......................................... (11,292) (12,844) (13,472) Divisional equity (deficit)................................. 851 (1,305) (805) -------- -------- -------- (9,045) 6,426 6,298 -------- -------- -------- $ 8,981 $ 7,660 $ 6,997 ======== ======== ========
See accompanying notes to combined financial statements. F-13 66 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. COMBINED STATEMENT OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30, ------------------------------- ------------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (UNAUDITED) Cash Flows from Operating Activities: Net loss............................................. $ (982) $(1,973) $(3,137) $(1,189) $ (285) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.................... 1,168 1,231 1,242 945 876 Provision for obsolete inventory................. -- -- 150 -- -- Provision for warranty reserve................... -- -- -- -- 50 Increase in cash surrender value of life insurance..................................... (9) (9) (9) (6) (7) Loss on disposal of equipment.................... -- -- 38 -- 2 Changes in current accounts: Accounts receivable........................... 978 (32) 7 (712) (459) Inventories................................... (289) 112 (162) (76) 334 Due from related party........................ 96 -- -- -- -- Federal income tax deposit.................... -- (163) 163 -- -- Other current assets.......................... 7 -- 10 1 1 Accounts payable.............................. (385) (51) (56) (26) 221 Salaries, wages and bonus payable............. (47) (26) (3) (42) 59 Accrued property taxes........................ 17 (1) (21) 415 (59) Accrued legal fees............................ -- -- 999 -- (806) Interest payable.............................. (558) 1,140 1,469 1,076 -- ------ ------- ------- ----- ----- Net cash provided by (used in) operating activities................................ (4) 228 690 386 (73) ------ ------- ------- ----- ----- Cash Flows from Investing Activities: Proceeds from sale of equipment...................... -- -- 7 -- -- Capital expenditures................................. (452) (336) (83) (79) (77) ------ ------- ------- ----- ----- Net cash used in investing activities....... (452) (336) (76) (79) (77) ------ ------- ------- ----- ----- Cash Flows from Financing Activities: Borrowings from shareholder.......................... 200 -- -- -- -- Net transfer (to) from parent company................ 238 76 (571) (282) 157 ------ ------- ------- ----- ----- Net cash provided by (used in) financing activities................................ 438 76 (571) (282) 157 ------ ------- ------- ----- ----- Increase (Decrease) in Cash............................ (18) (32) 43 25 7 Cash at Beginning of Period............................ 50 32 -- -- 43 ------ ------- ------- ----- ----- Cash at End of Period.................................. $ 32 $ -- $ 43 $ 25 $ 50 ====== ======= ======= ===== ===== Supplemental disclosure of cash flow information: Cash paid during the period for interest............. $ 1,600 $ -- $ -- $ -- $ -- During the year ended September 30, 1995, debt of $16,048 and accrued interest of $3,131 was contributed to equity.
See accompanying notes to combined financial statements. F-14 67 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. COMBINED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK ADDITIONAL DIVISIONAL ---------------- PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (DEFICIT) TOTAL ------ ------ ---------- ----------- ---------- ------- BALANCE AT SEPTEMBER 30, 1992.......... 10,000 $ 10 $ 1,386 $ (8,024) $ 224 $(6,404) Net loss -- -- -- (1,134) 152 (982) Net transfer from parent company....... -- -- -- -- 238 238 ------ --- ------ ------- ------ ------ BALANCE AT SEPTEMBER 30, 1993.......... 10,000 10 1,386 (9,158) 614 (7,148) Net loss -- -- -- (2,134) 161 (1,973) Net transfer from parent company....... -- -- -- -- 76 76 ------ --- ------ ------- ------ ------ BALANCE AT SEPTEMBER 30, 1994.......... 10,000 10 1,386 (11,292) 851 (9,045) Net loss............................... -- -- -- (1,552) (1,585) (3,137) Net transfer to parent company......... -- -- -- -- (571) (571) Contributed debt to equity............. -- -- 19,179 -- -- 19,179 ------ --- ------ ------- ------ ------ BALANCE AT SEPTEMBER 30, 1995.......... 10,000 10 20,565 (12,844) (1,305) 6,426
(UNAUDITED) Net income (loss)...................... -- -- -- (628) 343 (285) Net transfer from parent company....... -- -- -- -- 157 157 ------ ------ ---------- ----------- ---------- ------- BALANCE AT JUNE 30, 1996............... 10,000 $ 10 $ 20,565 $ (13,472) $ (805) $ 6,298 ====== ====== ======= ========= ======= =======
See accompanying notes to combined financial statements. F-15 68 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Combination The combined financial statements include the operations of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. ("parent company"). Both GranTech and Edward Lowe Industries, Inc. are owned 100% by the Henry Edward Lowe Amended and Restated Irrevocable Trust. The financial statements include the complete operations of GranTech and the divisional activity of Biodac which includes accounts receivable, inventory, patents, accounts payable, divisional equity (deficit) and all related operations and expenses associated with the selling and marketing of the product manufactured by GranTech. Divisional equity (deficit) represents the parent company's net investment in Biodac. Material intercompany accounts and transactions have been eliminated. GranTech and Biodac collectively will be referred to as the Company. Nature of Operations Granulation Technology, Inc. ("GranTech") produces, from paper mill residue, cellulosic based granules, sold under the BIODAC(R) trademark, for the agricultural, lawn and garden markets. The main manufacturing plant is located in Green Bay, Wisconsin. The corporate office is located in Cassopolis, Michigan. After the product is manufactured, it is stored in the facility in Green Bay until shipment. Biodac, a division of Edward Lowe Industries, Inc., is a related company and under an agreement with GranTech, is the sole distributor and marketer of GranTech manufactured products. The Company's products are primarily sold in the United States. The patents and trademarks which encompass both the manufacturing process and the use of such products are owned by Biodac. Market Concentration Products are sold primarily in the agricultural, lawn and garden markets and the Company has four major customers with large concentrations of revenue and accounts receivable. Management does not believe that this concentration of credit risk has or will have a significant negative impact on the Company. Revenue for fiscal years ended September 30:
CUSTOMER 1993 1994 1995 -------- ---- ---- ---- A 52% 45% 47% B 20% 25% 18% C 12% 11% 12% D 6% 10% 11%
Accounts receivable as of September 30:
CUSTOMER 1994 1995 -------- ---- ---- A 1% 6% B 29% --% C 20% 20% D 22% 35%
Use of Estimates in the Preparation of Financial Statements 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 F-16 69 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) liabilities and 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. Accounts Receivable The financial statements contain no allowance for doubtful accounts since management expects that receivables are fully collectible. Inventory Inventory is recorded at the lower of cost (on a first-in, first-out basis determined on average cost of production) or market method. Property, Plant and Equipment Maintenance and repair expenditures that are normal and recurring are charged against income in the period incurred. Expenditures which materially improve or extend the useful lives of existing properties are capitalized and depreciated over their useful lives. Depreciation is provided on the various classes of depreciable assets using straight-line and accelerated methods based on their estimated useful lives as follows: Land improvements 15 years Buildings and improvements 40 years Machinery and equipment 5-7 years Office furniture and equipment 5-7 years
Patents Patent costs are included in other assets and are amortized on a straight line basis over the life of the patents. Two patents expire in 2003, while the other patent expires in 2002. Interim Financial Statements The financial statements as of June 30, 1996 and for the nine-month periods ended June 30, 1995 and 1996, 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 nine-month period ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire year. 2. INVENTORY Inventory is comprised of the following as of September 30, 1994 and 1995:
1994 1995 ---- ----- (IN THOUSANDS) Supplies....................................................... $ 6 $ 6 Finished goods................................................. 677 689 ---- ----- $683 $ 695 ==== =====
F-17 70 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 3. NOTE PAYABLE -- SHAREHOLDER As of September 30, 1994, GranTech had unsecured promissory notes with the Company's shareholder totaling $16,048,000. The notes, which were dated from January 27, 1989 through October 27, 1992, were payable upon demand with interest due monthly at fifty basis points over the CitiBank prime money rate. As of September 29, 1995, the outstanding debt of $16,048,000 plus accrued interest of $3,131,000 was contributed to paid in capital. 4. INCOME TAXES Granulation Technology, Inc. and Edward Lowe Industries, Inc. have both individually elected, with the consent of its shareholder, to be taxed as S corporations under the Internal Revenue Code and similar sections of state income tax laws (where applicable) which provide that, in lieu of corporation income taxes, the shareholder will be taxed on the Company's taxable income. There is no provision for income taxes for the years ended September 30, 1993, 1994 and 1995. 5. CONTRACTS AND COMMITMENTS GranTech has entered into the following agreements with various parties: A multiple year supply agreement with a nearby paper mill, dated November 2, 1988 and amended March 5, 1990 and August 17, 1995, whereby the mill will supply paper sludge to GranTech, at no cost to GranTech other than the mill's incremental disposal costs. These incremental expenses are defined in the contract to represent expenses in excess of current landfill disposal costs. The agreement expires December 26, 1997, subject to successive, mutual, two-year extensions. An employment agreement with GranTech's president effective January 1, 1989 through September 30, 1996 with extension options available. The agreement specifies the president's salary, discretionary bonus, benefits, severance and noncompete aspects of his employment. The agreement includes certain provisions relative to the sale or disposition of the business of GranTech, which would require GranTech to pay additional compensation of 2 1/2 times his base salary. No provision for this liability has been recorded as of September 30, 1995. A September 1992 supply agreement with American Cyanamid Company ("American Cyanamid") was renewed through December 31, 1996 and is renewable from year to year thereafter until either party terminates the agreement. The BIODAC(R) products are sold to American Cyanamid, at a fixed price, for its exclusive use as a granular carrier with certain chemicals and cannot be sold to others for use with the same chemicals. Effective October 1, 1995, GranTech and Biodac entered into a four year supply agreement with The Solaris Group, a unit of Monsanto Company. The Company is to supply a specific product, known as BIODAC(R) HLG-SR, to The Solaris Group for use in the consumer home, lawn and garden markets in the United States and Canada. The price per ton is fixed for the period October 1, 1995 through September 30, 1997 and thereafter adjusted based upon changes in natural gas and electricity prices. The contract is subject to a one year extension. The Company uses certain sales agents and employees to sell its products. Biodac division has a sales agency agreement with Ontario 361267 Ltd. d/b/a The Consulting Group dated October 1, 1995, to pay a 5% commission on gross sales as the exclusive sales agent for the Canadian provinces. Sales are subject to the commission if the products are shipped into Canada or sold to a U.S. customer having a presence in Canada. F-18 71 GRANULATION TECHNOLOGY, INC. AND BIODAC, A DIVISION OF EDWARD LOWE INDUSTRIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONCLUDED) The agreement is for a one year term and includes an automatic renewal for additional terms of one year until either party terminates the agreement. 6. GAIN CONTINGENCY In December 1994, Biodac filed suit against a company for patent infringement. On February 21, 1996, this matter was resolved. A consent decree and settlement agreement were executed by all parties. Settlement of $700,000 was received in February 1996 and has been recorded as of the date of receipt. As of September 30, 1995, no contingent gain was recorded. Legal and professional fees incurred relative to the suit for the year ended September 30, 1995 were approximately $1,654,000. No fees were incurred relative to this suit prior to the year ended September 30, 1995. 7. SUBSEQUENT EVENT On July 2, 1996, an asset purchase agreement was signed to sell substantially all of the assets of the Company, subject to certain liabilities, to Thermo Fibergen Inc., for approximately $12,000,000 in cash, subject to a post-closing adjustment based upon the net asset value of the Company as of the closing date. F-19 72 THERMO FIBERGEN INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 30, 1995 (UNAUDITED) On July 3, 1996, Thermo Fibergen Inc. (the "Company") acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc. (collectively "GT/ELI") for approximately $12,000,000 in cash, subject to a post-closing adjustment. The Company will account for this acquisition using the purchase method of accounting. The following unaudited pro forma combined condensed statement of operations sets forth the results of operations for the twelve months ended December 30, 1995, as if the acquisition of GT/ELI, which is assumed to be financed with the $12,500,000 in cash received by the Company in connection with its capitalization, had occurred on January 1, 1995. GT/ELI has a fiscal year end which differs from the Company's fiscal year end. The pro forma combined condensed statement of operations below combines the historical September 30 fiscal year end financial statements of GT/ELI and the calendar year end financial statements of the Company. The results of operations of GT/ELI for the three months ended December 31, 1995 have not been included in the pro forma combined condensed statement of operations. GT/ELI revenues and net loss were $1,171,000 and $855,000, respectively, for the three months ended December 31, 1995. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of GT/ELI been made on January 1, 1995. This statement should be read in conjunction with the accompanying notes, the pro forma combined condensed balance sheet and the respective historical financial statements and related notes of the Company and GranTech and Biodac appearing elsewhere in this Prospectus.
HISTORICAL ------------------- PRO FORMA THERMO ----------------------- FIBERGEN GT/ELI ADJUSTMENTS COMBINED -------- ------- ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................................. $ -- $ 4,233 $ -- $ 4,233 ------- ------- ----- ------- Costs and Operating Expenses: Cost of revenues....................................... -- 3,188 53 3,241 Selling, general and administrative expenses........... -- 756 326 1,082 Research and development expenses...................... 601 303 -- 904 Patent litigation expenses............................. -- 1,654 -- 1,654 ------- ------- ----- ------- 601 5,901 379 6,881 ------- ------- ----- ------- Operating Loss........................................... (601) (1,668) (379) (2,648 ) Interest Expense......................................... -- (1,469) -- (1,469 ) ------- ------- ----- ------- Loss Before Income Taxes................................. (601) (3,137) (379) (4,117 ) Income Taxes............................................. -- -- -- -- ------- ------- ----- ------- Net Loss................................................. $ (601) $(3,137) $ (379) $(4,117 ) ======= ======= ===== ======= Loss per Share........................................... $ (.06) $ (.41 ) ======= ======= Weighted Average Shares.................................. 10,073 10,073 ======= =======
F-20 73 THERMO FIBERGEN INC. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 29, 1996 (UNAUDITED) The following unaudited pro forma combined condensed statement of operations sets forth the results of operations for the six months ended June 29, 1996, as if the acquisition of GT/ELI, which is assumed to be financed with the $12,500,000 in cash received by the Company in connection with its initial capitalization, had occurred on January 1, 1995. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of GT/ELI been made on January 1, 1995. This statement should be read in conjunction with the accompanying notes, the pro forma combined condensed balance sheet and the respective historical financial statements and related notes of the Company and GT/ELI appearing elsewhere in this Prospectus.
HISTORICAL ---------------------- PRO FORMA THERMO ----------------------- FIBERGEN GT/ELI ADJUSTMENTS COMBINED -------- ---------- ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues................................................ $ -- $ 3,154 $ -- $ 3,154 ------- ------- ----- ------- Costs and Operating Expenses: Cost of revenues...................................... -- 2,083 -- 2,083 Selling, general and administrative expenses.......... -- 822 164 986 Research and development expenses..................... 548 89 -- 637 Patent litigation expenses............................ -- 290 -- 290 ------- ------- ----- ------- 548 3,284 164 3,996 ------- ------- ----- ------- Operating Loss.......................................... (548) (130) (164) (842 ) Interest Income......................................... 267 -- (263) 4 Other Income............................................ -- 700 -- 700 ------- ------- ----- ------- Income (Loss) Before Income Taxes....................... (281) 570 (427) (138 ) Income Taxes............................................ -- -- -- -- ------- ------- ----- ------- Net Income (Loss)....................................... $ (281) $ 570 $ (427) $ (138 ) ======= ======= ===== ======= Loss per Share.......................................... $ (.03) $ (.01 ) ======= ======= Weighted Average Shares................................. 10,073 10,073 ======= =======
F-21 74 THERMO FIBERGEN INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET JUNE 29, 1996 (UNAUDITED) The following unaudited pro forma combined condensed balance sheet sets forth the financial position as of June 29, 1996, to reflect the acquisition of GT/ELI as if the acquisition had occurred on June 29, 1996. This statement should be read in conjunction with the accompanying notes, the pro forma combined condensed statements of operations and the respective historical financial statements and related notes of the Company and GranTech and Biodac appearing elsewhere in this Prospectus.
HISTORICAL ---------------------- PRO FORMA THERMO ----------------------- FIBERGEN GT/ELI ADJUSTMENTS COMBINED -------- ---------- ----------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents........................... $ 12,513 $ 50 $ (12,046) $ 517 Accounts receivable................................. -- 757 -- 757 Inventories......................................... -- 361...... 53 414 Other current assets................................ 17 -- -- 17 ------- ------- ----- ------- 12,530 1,168 (11,993) 1,705 ------- ------- ----- ------- Property, Plant and Equipment, Net.................... 219 5,662 -- 5,881 ------- ------- ----- ------- Patents and Other Assets.............................. 11 167 833 1,011 ------- ------- ----- ------- Cost in Excess of Net Assets of Acquired Company...... -- -- 5,062 5,062 ------- ------- ----- ------- $ 12,760 $ 6,997 $ (6,098) $ 13,659 ======= ======= ===== ======= LIABILITIES AND SHAREHOLDER'S INVESTMENT Current Liabilities: Accounts payable.................................... $ -- $ 302 $ -- $ 302 Other accrued expenses.............................. 38 397 200 635 Due to parent company and affiliates................ 409 -- -- 409 ------- ------- ----- ------- 447 699 200 1,346 ------- ------- ----- ------- Shareholder's Investment: Common stock........................................ 100 10 (10) 100 Capital in excess of par value...................... 12,400 20,565 (20,565) 12,400 Deficit accumulated during the development stage subsequent to capitalization of the Company...... (187) -- -- (187) Accumulated deficit................................. -- (13,472) 13,472 -- Divisional deficit.................................. -- (805) 805 -- ------- ------- ----- ------- 12,313 6,298 (6,298) 12,313 ------- ------- ----- ------- $ 12,760 $ 6,997 $ (6,098) $ 13,659 ======= ======= ===== =======
F-22 75 THERMO FIBERGEN INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1995 (In thousands, except in text)
TWELVE MONTHS ENDED DECEMBER 30, 1995 ------------------- DEBIT (CREDIT) COST OF REVENUES Increase in the finished goods inventory of GT/ELI to the estimated selling price, less the sum of the costs of disposal and a reasonable profit allowance for the Company's selling efforts............................... $ 53 ----- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Amortization over 12 years of the increase in the recorded amount of patents as a result of the acquisition of GT/ELI.................................. 73 Amortization over 20 years of cost in excess of net assets of acquired company created by the acquisition of GT/ELI.............................. 253 ----- 326 -----
NOTE 2 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 29, 1996 (In thousands, except in text)
SIX MONTHS ENDED JUNE 29, 1996 ------------------- DEBIT (CREDIT) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Amortization over 12 years of the increase in the recorded amount of patents as a result of the acquisition of GT/ELI.................................. $ 37 Amortization over 20 years of cost in excess of net assets of acquired company created by the acquisition of GT/ELI.............................. 127 ----- 164 ----- INTEREST INCOME Decrease in interest income attributable to the lower cash position as a result of the acquisition of GT/ELI....................................... (263) -----
F-23 76 THERMO FIBERGEN INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONCLUDED) (UNAUDITED) NOTE 3 -- PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED BALANCE SHEET (In thousands)
DEBIT (CREDIT) -------------- CASH AND CASH EQUIVALENTS Cash payment to acquire GT/ELI.................................................... $(12,000) Elimination of cash of GT/ELI not acquired........................................ (46) -------- (12,046) -------- INVENTORIES Increase in the finished goods inventory of GT/ELI to the estimated selling price, less the sum of the costs of disposal and a reasonable profit allowance for the Company's selling efforts...................................................... 53 -------- PATENTS AND OTHER ASSETS Elimination of asset of GT/ELI not acquired....................................... (44) Increase in the patents of GT/ELI to appraised fair market value.................. 877 -------- 833 -------- COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANY Excess of cost over the fair value of the net assets acquired of GT/ELI........... 5,062 -------- OTHER ACCRUED EXPENSES Estimated accrued acquisition expenses for exit costs............................. (200) -------- SHAREHOLDER'S INVESTMENT Elimination of equity accounts of GT/ELI.......................................... 6,298 --------
F-24 77 ============================================================================== NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THERMO ELECTRON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Incorporation of Certain Documents by Reference................................ 2 Prospectus Summary......................... 3 Risk Factors............................... 6 The Company................................ 12 Use of Proceeds............................ 12 Dividend Policy............................ 12 Capitalization............................. 13 Dilution................................... 14 Selected Financial Information............. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations of Thermo Fibergen............ 16 Management's Discussion and Analysis of Financial Condition and Results of Operations of GT/ELI..................... 18 Business................................... 20 Relationship with Thermo Electron and Thermo Fibertek.......................... 28 Management................................. 31 Security Ownership of Certain Beneficial Owners and Management.................... 36 Information Concerning Thermo Electron..... 38 Description of Securities.................. 39 Certain Federal Income Tax Consequences.... 43 Shares Eligible for Future Sale............ 47 Underwriting............................... 49 Legal Opinions............................. 50 Experts.................................... 50 Reports to Security Holders................ 50 Additional Information..................... 51 Index to Financial Statements.............. F-1 ------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ============================================================================== ============================================================================== 4,100,000 UNITS (EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEMPTION RIGHT) THERMO FIBERGEN INC. ------------------ REDEMPTION PAYMENTS GUARANTEED ON A SUBORDINATED BASIS BY THERMO ELECTRON CORPORATION ------------------ NATWEST SECURITIES LIMITED LEHMAN BROTHERS OPPENHEIMER & CO., INC. , 1996 ============================================================================== 78 PART II INFORMATION NOT REQUIRED IN PROSPECTUS FORM S-1 ITEM 13. FORM S-3 ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions. All amounts shown are estimates except for the Securities and Exchange Commission (the "Commission") registration fee and the NASD filing fee. Securities and Exchange Commission registration fee............ $ 24,876 NASD filing fee................................................ 7,714 American Stock Exchange listing fee............................ 45,000 Legal fees and expenses........................................ 20,000 Accounting fees and expenses................................... 60,000 Blue Sky fees and expenses (including legal fees).............. 10,000 Printing and engraving expenses................................ 120,000 Transfer agent fees............................................ 5,000 Miscellaneous.................................................. 82,410 -------- Total................................................ $375,000 ========
FORM S-1 ITEM 14. FORM S-3 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Registrants' Certificates of Incorporation and By-Laws limit the monetary liability of directors to the Company, Thermo Electron and their respective stockholders and provide for indemnification of the their respective officers and directors for liabilities and expenses that they may incur in such capacities. In general, officers and directors are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company or Thermo Electron, as the case may be, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. The Registrants also have indemnification agreements with their respective directors and officers that provide for the maximum indemnification allowed by law. Reference is made to the Company's Certificate of Incorporation, By-Laws and form of Indemnification Agreement for Officers and Directors set forth as Exhibits 3.1, 3.2 and 10.14 hereto, respectively. Thermo Electron has an insurance policy which insures the directors and officers of Thermo Electron and its subsidiaries, including the Company, against certain liabilities which might be incurred in connection with the performance of their duties. Under Section 6 of the Underwriting Agreement, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrants against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). Reference is made to the form of Underwriting Agreement filed as Exhibit 1 hereto. FORM S-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES On February 12, 1996, the Company issued 1,000 shares (10,000,000 shares after giving effect to a 10,000-for-one stock split effected on June 26, 1996) of Common Stock to Thermo Fibertek in consideration of the contribution of certain assets to the capital of the Company at the time of the incorporation of the Company. Exemption from registration of this transaction is claimed under Section 4(2) of the Securities Act. II-1 79 FORM S-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES FORM S-3 ITEM 16. EXHIBITS (A) EXHIBITS See the Exhibit Indexes included immediately preceding the exhibits to this Registration Statement. (B) FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not applicable or are not required under Regulation S-X. FORM S-1 ITEM 17. FORM S-3 ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates for the Securities in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) The undersigned Registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Thermo Electron hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of Thermo Electron's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned Registrants hereby undertake that, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the provisions contained in the Certificates of Incorporation and By-Laws of the Registrants and the laws of the State of Delaware, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by either of the Registrants of expenses incurred or paid by a director, officer or controlling person of the respective Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 80 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Amendment No. 2 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on this 9th day of September, 1996. THERMO FIBERGEN INC. By: /s/ JONATHAN W. PAINTER ---------------------------------- JONATHAN W. PAINTER Treasurer Pursuant to the requirements of the Securities Act of 1933, the undersigned registrant hereby certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on this 9th day of September, 1996. THERMO ELECTRON CORPORATION By: /s/ JONATHAN W. PAINTER ---------------------------------- JONATHAN W. PAINTER Treasurer II-3 81 Pursuant to the requirements of the Securities Act, this Amendment No. 2 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- YIANNIS A. MONOVOUKAS* President, Chief Executive September 9, 1996 - ------------------------------------------ Officer and Director YIANNIS A. MONOVOUKAS (Principal Executive Officer) JOHN N. HATSOPOULOS* Vice President, Chief September 9, 1996 - ------------------------------------------ Financial Officer and JOHN N. HATSOPOULOS Director (Principal Financial Officer) PAUL F. KELLEHER* Chief Accounting Officer September 9, 1996 - ------------------------------------------ (Principal Accounting PAUL F. KELLEHER Officer) WILLIAM A. RAINVILLE* Chairman of the Board and September 9, 1996 - ------------------------------------------ Director WILLIAM A. RAINVILLE JONATHAN W. PAINTER* Director September 9, 1996 - ------------------------------------------ JONATHAN W. PAINTER ANNE T. BARRETT* Director September 9, 1996 - ------------------------------------------ ANNE T. BARRETT * The undersigned, Sandra L. Lambert, by signing her name hereto, does hereby execute this Amendment No. 2 to Registration Statement on behalf of each of the above-named persons pursuant to powers of attorney executed by such persons and filed with the Securities and Exchange Commission.
/s/ SANDRA L. LAMBERT -------------------------------- SANDRA L. LAMBERT ATTORNEY-IN-FACT II-4 82 AS TO THERMO ELECTRON: Pursuant to the requirements of the Securities Act, this Amendment No. 2 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- GEORGE N. HATSOPOULOS* President, Chief Executive September 9, 1996 - ------------------------------------------ Officer, Chairman of the GEORGE N. HATSOPOULOS Board and Director (Principal Executive Officer) JOHN N. HATSOPOULOS* Executive Vice President and September 9, 1996 - ------------------------------------------ Financial Officer (Principal JOHN N. HATSOPOULOS Financial Officer) PAUL F. KELLEHER* Vice President, Finance September 9, 1996 - ------------------------------------------ (Principal Accounting PAUL F. KELLEHER Officer) JOHN M. ALBERTINE* Director September 9, 1996 - ------------------------------------------ JOHN M. ALBERTINE PETER O. CRISP* Director September 9, 1996 - ------------------------------------------ PETER O. CRISP ELIAS P. GYFTOPOULOS* Director September 9, 1996 - ------------------------------------------ ELIAS P. GYFTOPOULOS FRANK JUNGERS* Director September 9, 1996 - ------------------------------------------ FRANK JUNGERS ROBERT A. MCCABE* Director September 9, 1996 - ------------------------------------------ ROBERT A. MCCABE FRANK E. MORRIS* Director September 9, 1996 - ------------------------------------------ FRANK E. MORRIS DONALD E. NOBLE* Director September 9, 1996 - ------------------------------------------ DONALD E. NOBLE HUTHAM S. OLAYAN* Director September 9, 1996 - ------------------------------------------ HUTHAM S. OLAYAN ROGER D. WELLINGTON* Director September 9, 1996 - ------------------------------------------ ROGER D. WELLINGTON - --------------- * The undersigned, Sandra L. Lambert, by signing her name hereto, does hereby execute this Amendment No. 2 to Registration Statement on behalf of each of the above-named persons pursuant to powers of attorney executed by such persons and filed with the Securities and Exchange Commission.
/s/ SANDRA L. LAMBERT ------------------------------------ SANDRA L. LAMBERT ATTORNEY-IN-FACT II-5 83 EXHIBIT INDEX TO THERMO FIBERGEN INC.'S REGISTRATION STATEMENT ON FORM S-1
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE - ------- ----------------------------------------------------------------------------- ---- +1 Form of Underwriting Agreement............................................... 3.1 Certificate of Incorporation of the Company, as amended...................... 3.2 By-Laws of the Company....................................................... 4.1 Form of Guarantee of Thermo Electron......................................... 4.2 Guarantee Agreement among the Company, Thermo Electron and the Representatives of the Underwriters.......................................... 4.3 Form of Common Stock Certificate............................................. 4.4 Form of Redemption Right Certificate......................................... +5 Opinion of Seth H. Hoogasian with respect to the validity of the Units, Common Stock and Redemption Rights being offered............................. 10.1 Asset Transfer Agreement dated as of July 2, 1996 between Thermo Fibertek Inc. and the Company......................................................... +10.2 License and Supply Agreement dated as of July 2, 1996 between Thermo Fibertek Inc. and the Company......................................................... 10.3 Corporate Services Agreement dated July 2, 1996, between Thermo Electron and the Company.................................................................. 10.4 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference)............................................ 10.5 Tax Allocation Agreement dated as of July 2, 1996 between Thermo Fibertek Inc. and the Company......................................................... 10.6 Master Repurchase Agreement dated as of July 2, 1996 between Thermo Electron and the Company.............................................................. 10.7 Master Guarantee Reimbursement Agreement dated as of July 2, 1996 among Thermo Electron, Thermo Fibertek and the Company............................. 10.8 Master Guarantee Reimbursement Agreement dated as of July 2, 1996 between Thermo Fibertek Inc. and the Company......................................... 10.9 Lease dated as of April 12, 1996, by and between Al and Lee Realty and the Company...................................................................... 10.10 [Reserved]................................................................... 10.11 Equity Incentive Plan of the Company......................................... 10.12 Deferred Compensation Plan for Directors of the Company...................... 10.13 Directors Stock Option Plan of the Company................................... 10.14 Form of Indemnification Agreement for Officers and Directors of the Company. In addition to the stock-based compensation plans of the Company, the executive officers of the Company may be granted awards under stock-based compensation plans of Thermo Electron and its subsidiaries, for services rendered to the Company or to such affiliated corporations. Such plans were filed as Exhibits 10.19 through 10.21 and 10.24 through 10.47 to the Annual Report on Form 10-K of Thermo Fibertek for the fiscal year ended December 30, 1995 [File No. 11406] and are incorporated herein by reference............... 11 Statement Re: Computation of Earnings per Share.............................. 21 Subsidiaries of the Company.................................................. +23.1 Consent of Arthur Andersen LLP............................................... +23.2 Consent of Arthur Andersen LLP............................................... +23.3 Consent of Crowe, Chizek and Company LLP..................................... 23.4 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5)................... 24 Power of Attorney (See Signature Page of this Registration Statement)........ 27 Financial Data Schedule......................................................
- --------------- + Filed herewith. All other exhibits previously filed. 84 EXHIBIT INDEX TO THERMO ELECTRON CORPORATION'S REGISTRATION STATEMENT ON FORM S-3
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE - -------- ---------------------- ---- **1 Form of Underwriting Agreement.............................................. **4.1 Form of Guarantee of Thermo Electron........................................ **4.2 Guarantee Agreement between the Company, Thermo Electron and the Representatives of the Underwriters......................................... *5 Opinion of Seth H. Hoogasian with respect to the validity of the Guarantees being offered............................................................... *23.2 Consent of Arthur Andersen LLP.............................................. 23.3 Consent of Seth H. Hoogasian, Esq. (included in Exhibit 5).................. 24 Power of Attorney (See Signature Page of this Registration Statement)....... - --------------- * Filed as an exhibit with the corresponding exhibit number to Thermo Fibergen Inc.'s Registration Statement on Form S-1 combined with this Registration Statement on Form S-3. ** Previously filed as an exhibit with the corresponding exhibit number to Thermo Fibergen Inc.'s Registration Statement on Form S-1 combined with this Registration Statement on Form S-3.
EX-1 2 UNDERWRITING AGREEMENT 1 Exhibit 1 TH&T DRAFT 9/9/96 4,100,000 Units THERMO FIBERGEN INC. (Each Unit Consisting of One Share of Common Stock and One Redemption Right) UNDERWRITING AGREEMENT _____________, 1996 NATWEST SECURITIES LIMITED LEHMAN BROTHERS INC. OPPENHEIMER & CO., INC. As Representatives of the several Underwriters named in Schedule I hereto c/o NatWest Securities Limited 135 Bishopsgate London EC2M3UR England Dear Sirs: Thermo Fibergen Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") 4,100,000 Units (the "Firm Units"), each Unit consisting of one share of Common Stock, $0.01 par value, of the Company (such class of stock being herein called the "Common Stock") and one redemption right to require the Company to repurchase one share of Common Stock, as further described in the Prospectus referred to below. In addition, for the sole purpose of covering over-allotments in connection with the sale of the Firm Units, the Company proposes to grant to the Underwriters an option to purchase up to an additional 615,000 Units (the "Option Units"). The Company currently is a wholly owned subsidiary of Thermo Fibertek Inc., a Delaware corporation ("Fibertek"), which is, in turn, a majority-owned subsidiary of Thermo Electron Corporation, a Delaware corporation ("Thermo Electron"). The Redemption Rights are guaranteed on a subordinated basis by Thermo Electron (such guarantees being referred to herein 2 as the "Guarantees"). To the extent provided herein and for good and valuable consideration, each of Fibertek and Thermo Electron has become a party to this Underwriting Agreement. The Firm Units and any Option Units purchased pursuant to this Agreement are referred to herein as the "Units"; the shares of Common Stock which issuable as part of the Units are referred to herein as the "Shares"; the redemption rights which are issuable as part of the Units are referred to herein as the "Redemption Rights"; and the Units, the Shares, the Redemption Rights and the Guarantees are referred to herein together as the "Securities". This is to confirm the agreement concerning the purchase of the Units from the Company by the Underwriters. You represent and warrant that you are acting as the representatives (the "Representatives") of the Underwriters and that you have been authorized by each of the other Underwriters to enter into this Underwriting Agreement on its behalf and to act for it in the manner herein provided. 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, FIBERTEK AND THERMO ELECTRON. The Company, Fibertek and Thermo Electron jointly and severally represent and warrant to, and agree with, each Underwriter as follows. The following representations, warranties and agreements shall be deemed to apply to each Subsidiary (as defined in Section 13) of the Company, if any, unless the context does not permit: (a) A joint registration statement of the Company and Thermo Electron on Form S-1 (File No. 333- ) and Form S-3 (File No. 333- ) with respect to the Securities (i) has been prepared by the Company and Thermo Electron in material conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, (ii) has been filed with the Commission under the Securities Act and (iii) has become effective under the Securities Act. If any post-effective amendment to such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent such amendment has been declared effective by the Commission. Copies of such registration statement as amended to date have been delivered by the Company to the Representatives, and, to the extent applicable, were identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. For purposes of this Agreement, "Effective Time" means the date and the time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "Effective Date" means the date of the Effective Time; "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereof, before it became effective under the Securities Act and any prospectus filed with the Commission by the Company pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement" means such registration statement, as amended at the Effective Time, and including all information deemed to be a part thereof as of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and 2 3 Regulations together with any registration statement filed by the Company and Thermo Electron pursuant to Rule 462(b) of the Rules and Regulations; and "Prospectus" means (i) the form of prospectus relating to the Units, as first filed pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations, or (ii) the term sheet or abbreviated term sheet described in Rule 434(b) of the Rules and Regulations, as first filed pursuant to paragraph (7) of Rule 424(b) of the Rules and Regulations together with the last preliminary prospectus included in the Registration Statement filed prior to the Effective Time or filed pursuant to Rule 424(a) of the Rules and Regulations that is delivered by the Company to the Underwriters for delivery to purchasers of the Units. Reference made herein to any Preliminary Prospectus or to the Prospectus or to the Registration Statement, or to any amendment or supplement to any of the foregoing, shall be deemed to refer to and include any documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date of such Preliminary Prospectus or the Prospectus or the Registration Statement (or amendment or supplement), as the case may be, and any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any document filed under the Securities Exchange Act of 1934 (the "Exchange Act") after the date of such Preliminary Prospectus or the Prospectus, as the case may be, and incorporated by reference in such Preliminary Prospectus or the Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to include any annual report of the Company filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act after the Effective Time that is incorporated by reference in the Registration Statement. Reference made herein to any statement or document "given" or "included", or words of similar meaning, in any of the foregoing documents shall be deemed to include the documents incorporated by reference therein. In addition, for purposes of this Agreement, all references to the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include the respective copies thereof filed with the Commission pursuant to EDGAR. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus (b) The Registration Statement contains, and any post-effective amendment to the Registration Statement filed with the Commission after the Effective Time, the Prospectus and the Prospectus as amended or supplemented will contain, all statements which are required by the Securities Act and the Rules and Regulations; at the time of filing thereof, any Preliminary Prospectus did not, and on the Effective Date, the Registration Statement did not, and any post-effective amendment to the Registration Statement filed with the Commission after the Effective Time, the Prospectus and the Prospectus as amended or supplemented will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that the Company, Fibertek and Thermo Electron make no representation or warranty as to information contained in or omitted from the Registration Statement, the Preliminary Prospectus or the Prospectus in reliance upon, and in conformity with, written information furnished to the Company by you, or by any Underwriter through you, specifically for inclusion therein. The documents incorporated by reference in the 3 4 Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; and any further documents so filed and incorporated by reference in the Prospectus, when such documents are filed with the Commission will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. There is no contract or document required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (c) The accounting firms whose reports appear in the Prospectus are independent certified public accountants as required by the Securities Act and the Rules and Regulations. The historical and pro forma financial statements and schedules (including the related notes) included in the Registration Statement, any Preliminary Prospectus or the Prospectus present fairly, in all material respects, the financial condition, results of operations and cash flows of the entities purported to be shown thereby, on a historical or pro forma basis as applicable, at the dates and for the periods indicated and have been prepared in accordance with generally accepted accounting principles and in accordance with Regulation S-X of the Rules and Regulations. (d) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary except where the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its Subsidiaries taken as a whole; and, except as described in the Prospectus, the Company holds all material licenses, certificates and permits from governmental authorities necessary for the conduct of its business as described in the Prospectus. (e) All of the outstanding shares of Common Stock have been, and the Shares, upon issuance and delivery and payment therefor in the manner herein described, will be, duly authorized, validly issued, fully paid and nonassessable. The Redemption Rights have been duly and validly authorized, and, when duly executed, issued and delivered as contemplated hereby and upon payment for the Units as provided herein, will be validly issued and outstanding, and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equity principles and except as described in the Prospectus (with respect to certain provisions of Delaware law). Other than as described in the Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any Securities pursuant to the Company's corporate charter, by-laws or other governing documents or any agreement or 4 5 other instrument to which the Company is a party or by which it may be bound. Neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied and other than as described in the Prospectus, for or relating to the registration of any shares of Common Stock or other securities of the Company. The capitalization of the Company is as set forth in the Prospectus as of the date shown, and the Units, the Shares and the Redemption Rights conform to the description thereof contained in the Prospectus. All of the outstanding shares of capital stock of each Subsidiary (as defined in Section 13) of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are owned directly or indirectly by the Company, free and clear of any claim, lien, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party. (f) Except as described in or contemplated by the Registration Statement and the Prospectus, there has not been any material adverse change in, or any adverse development which materially affects, the condition (financial or other), results of operations, business or prospects of the Company and its Subsidiaries on a consolidated basis from the date as of which information is given in the Prospectus. (g) The Company is not, and would not be with the giving of notice or lapse of time or both, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of the Company, or any material agreement, indenture or other instrument to which the Company is a party or by which it is bound, or to which any of its properties is subject, nor will the performance by the Company of its obligations hereunder violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over the Company or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company, which would be material to the Company and its Subsidiaries taken as a whole. Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any U.S. court, governmental agency or body or any financial institution is required in connection with the consummation by the Company of the transactions contemplated by this Agreement. (h) This Agreement has been duly authorized, executed and delivered by the Company. (i) The Company owns, or has valid rights to use, all items of real and personal property which are material to the business of the Company and its Subsidiaries taken as a whole, free and clear of all liens, encumbrances and claims which may materially interfere with the business, properties, financial condition or results of operations of the Company and its Subsidiaries on a consolidated basis. 5 6 (j) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or Fibertek or Thermo Electron is a party or to which any property of the Company is subject or which is pending or, to the knowledge of the Company, Fibertek or Thermo Electron, contemplated against the Company, Fibertek or Thermo Electron that is required to be disclosed in the Prospectus and that is not so disclosed. (k) The Company is not in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject, which violation could have a material adverse effect on the condition (financial or other), results of operations, business or prospects of the Company and its Subsidiaries on a consolidated basis. (l) Except as disclosed in the Prospectus, the Company owns or possesses adequate licenses or other rights to use all intellectual property rights, including patents and trademarks, necessary to conduct its business as described or referred to in the Prospectus, except where such failure, singularly or in the aggregate, would not have a material adverse effect on the Company and its Subsidiaries on a consolidated basis, and, except as disclosed in the Prospectus, neither Thermo Electron, Fibertek nor the Company has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) rights or claims of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how, that if the subject of an unfavorable decision, ruling or finding, would result in a material adverse effect upon the Company and its Subsidiaries on a consolidated basis, and, except as disclosed in the Prospectus, all products or processes referred to in the Prospectus and relating to the business of the Company now conducted by it do not infringe upon or conflict with any right or patent, or with any discovery, invention, product or process which is the subject of any patent application known to the Company, Fibertek or Thermo Electron, in a manner which would materially and adversely affect the Company and its Subsidiaries on a consolidated basis. (m) Each of the Corporate Services Agreement between the Company and Thermo Electron (the "Services Agreement"), and the other agreements between the Company and Fibertek or Thermo Electron pursuant to which the Company was initially organized and capitalized (collectively, the "Organization Agreements"), and the Tax Allocation Agreement between Thermo Electron and the Company (all of the foregoing agreements being referred to herein as the "Inter-corporate Agreements") has been duly and validly authorized, executed and delivered by the Company and is the valid and binding agreement of the Company enforceable in accordance with its terms, except as provided by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) (collectively, "applicable bankruptcy laws"). The execution, delivery and performance of the Inter-corporate Agreements by the Company, the consummation of the transactions therein contemplated and compliance with the terms thereof do not and will not result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of the Company, or any agreement, indenture or other instrument to which the Company is a party or by which it is 6 7 bound, or to which any of its properties is subject, and do not and will not violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over the Company or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company, which would be material to the Company and its Subsidiaries taken as a whole. No consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation of the transactions contemplated by such Inter-corporate Agreements. (n) Neither the Company nor Thermo Electron nor Fibertek or any other Subsidiary of Thermo Electron has taken and none of such companies shall take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any of the Securities to facilitate the sale or resale of the Units. (o) The Units, the Shares and the Redemption Rights have been approved for listing on the American Stock Exchange, subject only to official notice of issuance. 1A. REPRESENTATIONS AND WARRANTIES OF FIBERTEK AND THERMO ELECTRON. Fibertek and Thermo Electron each represent and warrant to, and agree with, each Underwriter that: (a) Each of Fibertek and Thermo Electron has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full power and authority (corporate and other) to own or lease its properties and conduct its business, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on Thermo Electron and its Subsidiaries taken as a whole. (b) There has not been any material adverse change in, or any adverse development which materially affects, the condition (financial or other), results of operations, business or prospects of Thermo Electron and its Subsidiaries taken as a whole, from the date as of which information is given in the most recent quarterly or annual report filed by Thermo Electron pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except any as may have been disclosed to the public. (c) Except as may be described in their filings under the Exchange Act, neither Fibertek nor Thermo Electron is, nor with the giving of notice or lapse of time or both would be, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby, including the issuance of the Guarantees by Thermo Electron, result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of Fibertek or Thermo Electron, or any material agreement, indenture or other instrument to which Fibertek or Thermo Electron is a party or by which any of them is bound, or to which any of their properties is subject, 7 8 nor will the performance by Fibertek or Thermo Electron of its obligations hereunder, including the issuance of the Guarantees by Thermo Electron, violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Fibertek or Thermo Electron or any of their respective properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of Fibertek or Thermo Electron, which would be material to Thermo Electron and its Subsidiaries taken as a whole. Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation by Fibertek and Thermo Electron of the transactions contemplated by this Agreement, including the issuance by Thermo Electron of the Guarantees. (d) This Agreement has been duly authorized, executed and delivered by Fibertek and Thermo Electron. (e) Fibertek owns, and will own as of each Closing Date (as defined below), of record and beneficially, the number of shares of Common Stock of the Company set forth in the Prospectus, free and clear of any liens, encumbrances, claims or restrictions, except that certain of such shares are reserved for issuance pursuant to stock option and other benefit plans under which options to purchase Common Stock of the Company owned by Fibertek are granted to certain employees, directors or consultants of Thermo Electron and its Subsidiaries. (f) The most recent Annual Report on Form 10-K of Fibertek and of Thermo Electron and any subsequent reports filed pursuant to the Exchange Act complied as of the date thereof in all material respects with the Exchange Act and the rules and regulations thereunder. (g) The transfer by Fibertek to the Company of certain stock and/or assets, as described in the Prospectus and in the Organization Agreements, has been completed by all required corporate and other action. Each of the Inter-corporate Agreements to which Fibertek is a party has been duly and validly authorized, executed and delivered by Fibertek and is the valid and binding agreement of Fibertek enforceable in accordance with its terms, except as provided by applicable bankruptcy laws. The execution, delivery and performance of each of the Inter-corporate Agreements to which Fibertek is a party by Fibertek, the consummation of the transactions therein contemplated and compliance with the terms thereof do not and will not result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of Fibertek, or any agreement, indenture or other instrument to which Fibertek is a party or by which it is bound, or to which any of its properties is subject, and do not and will not violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Fibertek or any of its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of Fibertek, which would 8 9 be material to Fibertek. No consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation by Fibertek of the transactions contemplated by the Inter-corporate Agreements to which Fibertek is a party, except such as have been obtained. (h) The Guarantees have been duly and validly authorized, and, when duly executed, issued and delivered as contemplated hereby and upon payment for the Units as provided herein, will be validly issued and outstanding, and will constitute valid and legally binding obligations of Thermo Electron enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equity principles. The Guarantees conform in all material respects to the description thereof contained in the Prospectus. The Services Agreement and the Tax Allocation Agreement have been duly and validly authorized, executed and delivered by Thermo Electron and are the valid and binding agreements of Thermo Electron, enforceable in accordance with their terms. 1B. REPRESENTATIONS AND WARRANTIES OF NATWEST SECURITIES LIMITED. NatWest Securities Limited represents and agrees that (i) it has not offered or sold and will not offer or sell any Units to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the Financial Services Act 1986 (the "Act"), (ii) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the Units in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on, and will only issue or pass on, in the United Kingdom any document received by it in connection with the issue of the Units, other than any document which consists of or any part of listing particulars, supplementary listing particulars or any other document required or permitted to be published by listing rules under Part IV of the Act, to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 or is a person to whom the document may otherwise lawfully be issued or passed on. 2. PURCHASE OF THE UNITS BY THE UNDERWRITERS. (a) Subject to the terms and conditions and upon the basis of the representations and warranties herein set forth, the Company agrees to issue and sell to the Underwriters the Firm Units and each of the Underwriters agrees, severally and not jointly, to purchase at a price of ______ per Unit, the number of Firm Units set forth opposite such Underwriter's name in Schedule I hereto. The Underwriters agree to offer the Firm Units to the public as set forth in the Prospectus. (b) The Company hereby grants to the Underwriters an option to purchase from the Company, solely for the purpose of covering over-allotments in the sale of Firm Units, all or any portion of the Option Units for a period of thirty (30) days from the date hereof at the purchase price per Unit set forth above. Option Units shall be purchased from the Company, 9 10 severally and not jointly, for the accounts of the several Underwriters in proportion to the number of Firm Units set forth opposite such Underwriter's name in Schedule I hereto, except that the respective purchase obligations of each Underwriter shall be adjusted by the Representatives so that no Underwriter shall be obligated to purchase Option Units other than in 100-share quantities. 3. DELIVERY OF AND PAYMENT FOR THE UNITS. Delivery of certificates for the Shares and the Redemption Rights comprising the Firm Units and certificates for the Shares and the Redemption Rights comprising the Option Units, if the option to purchase the same is exercised on or before the second Business Day (as defined in Section 13 hereof) prior to the First Closing Date (as defined below), to be purchased by the Underwriters from the Company and payment therefor shall be made at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 (or such other place as mutually may be agreed upon), at 10:00 A.M., Eastern time, on the third business day after the date of this Agreement (the "First Closing Date"). The option to purchase Option Units from the Company granted in Section 2 hereof may be exercised during the term thereof by written notice to the Company from the Representatives. Such notice shall set forth the aggregate number of Option Units as to which the option is being exercised and the time and date, not earlier than either the First Closing Date or the second Business Day after the date on which the option shall have been exercised nor later than the third Business Day after the date of such exercise, as determined by the Representatives, when the Option Units are to be delivered (the "Option Closing Date"). Delivery and payment for such Option Units are to be at the offices set forth above for delivery and payment of the Firm Units. (The First Closing Date and the Option Closing Date are herein individually referred to as a "Closing Date" and collectively referred to as the "Closing Dates.") Delivery of certificates for the Units shall be made by or on behalf of the Company to you, for the respective accounts of the Underwriters, against payment by you, for the several accounts of the Underwriters, of the purchase price therefor by certified or official bank check payable in New York Clearing House funds to the order of the Company. The certificates for the Units shall be registered in such names and denominations as you shall have requested at least two full Business Days prior to the applicable Closing Date, and shall be made available for checking and packaging at a location in New York, New York as may be designated by you at least one full Business Day prior to such Closing Date. Time shall be of the essence and delivery at the time and place specified in this Agreement is a further condition to the obligations of each Underwriter. 4. COVENANTS OF THE COMPANY, FIBERTEK AND THERMO ELECTRON. The Company, Fibertek and Thermo Electron, jointly and severally, covenant and agree with each Underwriter that: (a) The Company and Thermo Electron shall comply with the provisions of, and make all requisite filings with the Commission pursuant to, Rule 430A and Rule 424(b) of the Rules and Regulations and shall notify you promptly (in writing, if requested) of all 10 11 such filings. The Company shall notify you promptly of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for additional information; the Company and Thermo Electron shall prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or the Prospectus which, in your opinion, may be necessary or advisable in connection with the distribution of the Units; and the Company and Thermo Electron shall not file any amendment or supplement to the Registration Statement or the Prospectus, which filing is not consented to by you after reasonable notice thereof, such consent not to be unreasonably withheld or delayed. The Company shall advise you promptly of its receipt of notice of the issuance by the Commission or any state or other regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement, suspending or preventing the use of any Preliminary Prospectus or the Prospectus or suspending the qualification of the Units for offering or sale in any jurisdiction, or of the institution of any proceedings for any such purpose; and the Company and Thermo Electron shall use their best efforts to prevent the issuance of any stop order or other such order and, should a stop order or other such order be issued, to obtain as soon as possible the lifting thereof. (b) The Company shall furnish to each of the Representatives and to counsel for the Underwriters a signed copy of the Registration Statement as originally filed and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith, and shall furnish to the Underwriters such number of conformed copies of the Registration Statement, as originally filed and each amendment thereto (excluding exhibits other than this Agreement), the Prospectus and all amendments and supplements to any of such documents and any document incorporated by reference in the Prospectus, in each case as soon as available and in such quantities as the Representatives may from time to time reasonably request. To the extent applicable, the copies of the Registration Statement and each amendment thereto (including all exhibits filed therewith), any Preliminary Prospectus or Prospectus (in each case, as amended or supplemented) furnished to the Representative and counsel to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (c) Within the time during which a prospectus relating to the Units is required to be delivered under the Securities Act, the Company and Thermo Electron shall comply with all requirements imposed upon them by the Securities Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as is necessary to permit the continuance of sales of or dealings in the Units as contemplated by the provisions hereof and by the Prospectus. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or to supplement the Prospectus in order to comply with the Securities Act or to file any document under the Securities Act or the 11 12 Exchange Act, the Company shall promptly notify you and the Company and Thermo Electron shall amend the Registration Statement or supplement the Prospectus or file such document (at their expense) so as to correct such statement or omission or to effect such compliance. (d) The Company and Thermo Electron shall take or cause to be taken all necessary action and furnish to whomever you may direct such information as may be required in qualifying the Units for sale under the laws of such jurisdictions as you shall designate, and to continue such qualifications in effect for as long as may be necessary for the distribution of the Units; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. (e) The Company and Thermo Electron shall make generally available to their security holders (and shall deliver to the Representatives), in the manner contemplated by Rule 158(b) of the Rules and Regulations or otherwise, as soon as practicable but in any event not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the Effective Date occurs, an earnings statement satisfying the requirements of Section 11(a) of the Securities Act and covering a period of at least 12 consecutive months beginning after the Effective Date. (f) The Company, Fibertek and Thermo Electron shall not, during the 180-day period following the date of the Prospectus, except with your prior written consent, offer for sale, sell or otherwise dispose of, directly or indirectly, any shares of Common Stock (except for the issuance of shares of Common Stock pursuant to existing stock option, purchase and compensation plans, or upon conversion of any currently outstanding convertible securities described in the Prospectus, sales of shares of Common Stock by the Company to Fibertek or the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses provided that such Common Stock may not be resold prior to the expiration of such 180-day period), or sell or grant options, rights or warrants with respect to any shares of Common Stock (other than the grant of options pursuant to existing stock option, purchase and compensation plans), otherwise than in accordance with this Agreement or as contemplated in the Prospectus. The Company, Fibertek and Thermo Electron will not permit any employee stock option, director stock option or other stock option to purchase Common Stock of the Company granted by it to be exercised, and the Common Stock issued upon exercise of the stock option to be sold, prior to the expiration of the 180-day period following the date of this Prospectus, without your prior written consent. (g) The Company shall take such steps as shall be necessary to ensure that neither the Company nor any Subsidiary shall become an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (h) Whether or not this Agreement is terminated or the sale of the Units to the Underwriters is consummated, the Company shall pay or cause to be paid (A) all expenses (including stock transfer taxes) incurred in connection with the delivery to the several 12 13 Underwriters of the Units, (B) all fees and expenses (including, without limitation, fees and expenses of the Company's and Thermo Electron's accountants and counsel, but excluding fees and expenses of counsel for the Underwriters) in connection with the preparation, printing, filing, delivery and shipping of the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), each Preliminary Prospectus, the Prospectus and any amendments or supplements of the foregoing and the printing, delivery and shipping of this Agreement and other underwriting documents, including, but not limited to, any Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements Among Underwriters and Selected Dealer Agreements, (C) all filing fees and fees and disbursements of counsel to the Underwriters incurred in connection with qualification of the Units under state securities laws as provided in Section 4(d) hereof, (D) the filing fee of the National Association of Securities Dealers, Inc., (E) any applicable listing or other fees, (F) the cost of printing certificates representing the Shares and the Redemption Rights comprising the Units (including the Guarantees endorsed thereon), (G) the cost and charges of any transfer agent or registrar, and (H) all other costs and expenses incident to the performance of its obligations hereunder for which provision is not otherwise made in this Section. It is understood, however, that, except as provided in this Section, Section 6 and Section 8 hereof, the Underwriters shall pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes due upon resale of any of the Units by them and any advertising expenses incurred in connection with any offers they may make. If the sale of the Units provided for herein is not consummated by reason of any failure, refusal or inability on the part of the Company, Fibertek or Thermo Electron to perform any agreement on its part to be performed or because any other condition of the Underwriters' obligations hereunder is not fulfilled or if the Underwriters shall decline to purchase the Units for any reason permitted under this Agreement, the Company shall reimburse the several Underwriters for all reasonable out-of-pocket disbursements (including fees and disbursements of counsel) incurred by the Underwriters in connection with any investigation or preparation made by them in respect of the marketing of the Units or in contemplation of the performance by them of their obligations hereunder. (i) The Company shall on or prior to each Closing Date use its best efforts to cause the Units (and the Shares and Redemption Rights comprising the Units) to be purchased on such date by the Underwriters to be approved for listing on the American Stock Exchange, subject only to official notice of issuance, and shall take such action as shall be necessary to comply with the rules and regulations of the American Stock Exchange with respect to such Securities. (j) During a period of five years from the Effective Date, the Company and Thermo Electron shall furnish to the Representatives copies of all reports or other communications furnished to shareholders and copies of any reports or financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company or Thermo Electron is listed. To the extent applicable, such reports or documents shall be identical to the electronically transmitted copies thereof filed 13 14 with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters hereunder are subject to the accuracy, as of the date hereof and each Closing Date (as if made at such Closing Date), of the representations and warranties of the Company, Fibertek and Thermo Electron contained herein, to the performance by the Company, Fibertek and Thermo Electron of their respective obligations hereunder and to the following additional conditions: (a) The Prospectus shall have been filed with the Commission in a timely fashion in accordance with Section 4(a) hereof, all post-effective amendments to the Registration Statement shall have become effective, all filings required by Rule 430A and Rule 424 of the Rules and Regulations shall have been made and no such filings shall have been made without the consent of the Representatives; no stop order suspending the effectiveness of the Registration Statement or any amendment or supplement thereto shall have been issued; no proceedings for the issuance of any such order shall have been initiated or threatened; and any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been disclosed to you and complied with to your satisfaction. (b) No Underwriter shall have been advised by the Company, Fibertek or Thermo Electron or shall have discovered and disclosed to the Company that the Registration Statement, or the Prospectus or any amendment or supplement thereto, contains an untrue statement of fact which in your reasonable opinion, or in the reasonable opinion of counsel for the Underwriters, is material, or omits to state a fact which, in your reasonable opinion, or in the reasonable opinion of counsel to the Underwriters, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) On or prior to each Closing Date, you shall have received from Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or opinions with respect to corporate proceedings by the Company, Fibertek and Thermo Electron, the form of the Registration Statement and Prospectus (other than financial statements and other financial or statistical data), the validity of the Securities, and other related matters as you may reasonably request and such counsel shall have received such documents and information as they reasonably request to enable them to pass upon such matters. (d) On each Closing Date there shall have been furnished to you the opinion (addressed to the Underwriters) of Seth H. Hoogasian, Esq., General Counsel of Thermo Electron, Fibertek and the Company, dated such Closing Date and in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and its Significant Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified to do business and 14 15 is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. (ii) Each of Thermo Electron and its Significant Subsidiaries (as defined in Section 13) has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on Thermo Electron and its Subsidiaries taken as a whole. (iii) All of the outstanding shares of Common Stock have been and the Shares, upon issuance and delivery and payment therefor in the manner herein described, will be, duly authorized, validly issued, fully paid and nonassessable. The authorized, issued and outstanding Common Stock is as set forth in the Prospectus. The Redemption Rights have been duly and validly authorized, and, when duly executed, issued and delivered as contemplated hereby and upon payment for the Units as provided herein, will be validly issued and outstanding, and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equity principles, and subject to the restrictions under Section 160 of the General Corporation Law of the State of Delaware. The Guarantees have been duly and validly authorized, and, when duly executed, issued and delivered as contemplated hereby and upon payment for the Units as provided herein, will be validly issued and outstanding, and will constitute valid and legally binding obligations of Thermo Electron enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by general equity principles. There are no preemptive or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any of the Securities pursuant to the Company's corporate charter, by-laws, other governing documents, or any agreement or other instrument known to such counsel to which the Company or a Subsidiary thereof is a party or by which the Company or a Subsidiary thereof may be bound or to which any of their respective properties is subject; and, to the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offering or sale of the Units as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock except such as have been waived or satisfied, other than as described in the Prospectus. The Securities conform in all material respects to the description thereof contained in the Prospectus. All of the outstanding shares of capital stock of each Subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are owned directly or indirectly by the Company free and clear of any 15 16 claim, lien, encumbrance or security interest known to such counsel (except for certain obligations of the Company pursuant to stock and employee benefit plans maintained for the benefit of employees, officers, directors and consultants of the Company and its Subsidiaries). (iv) Each of the Company and its Subsidiaries is not, nor with the giving of notice or lapse of time or both would be, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of the Company or any of its Subsidiaries or, to the best knowledge of such counsel, any material agreement, indenture or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries may be bound, or to which any of the properties of the Company or any of its Subsidiaries is subject, nor, to best of such counsel's knowledge, will the performance by the Company of its obligations hereunder violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or the properties of the Company or any of its Subsidiaries, or, to the best knowledge of such counsel, result in the creation or imposition of any lien, charge, claim or encumbrance upon the properties or assets of the Company or any of its Subsidiaries which would be material to the Company and its Subsidiaries taken as a whole. Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with the consummation by the Company, Fibertek or Thermo Electron of the transactions contemplated by this Agreement. (v) Each of Thermo Electron and its Significant Subsidiaries is not, nor with the giving of notice or lapse of time or both would be, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the corporate charter, by-laws or other governing documents of Thermo Electron or any of its Significant Subsidiaries or, except as described in the Exchange Act filings of Fibertek and Thermo Electron, to the best knowledge of such counsel, any material agreement, indenture, or other instrument to which Thermo Electron or any of its Significant Subsidiaries is a party or by which Thermo Electron or any of it Significant Subsidiaries may be bound, or to which any of the properties of Thermo Electron or any of its Significant Subsidiaries is subject, nor will the performance by Thermo Electron of its obligations hereunder, including the issuance of the Guarantees, violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Thermo Electron or any of its Significant Subsidiaries or the properties of Thermo Electron or any of its Significant Subsidiaries, or, to the best knowledge of such counsel, result in the creation or imposition of any lien, charge, claim or encumbrance upon the properties or assets of Thermo Electron or any of its Significant Subsidiaries, which would be material to Thermo Electron and its Subsidiaries taken as a whole. 16 17 (vi) This Agreement has been duly authorized, executed and delivered by the Company, Fibertek and Thermo Electron. (vii) Each of the Inter-corporate Agreements has been duly authorized, executed and delivered by Fibertek and Thermo Electron, as the case may be, and is the valid and binding agreement of each of Fibertek and Thermo Electron, enforceable in accordance with its terms except as provided by applicable bankruptcy laws. The execution, delivery and performance of each of the Inter-corporate Agreements by each of the parties thereto, the consummation of the transactions therein contemplated and compliance with the terms thereof do not and will not result in a violation of, or constitute a default under the corporate charter, by-laws or other governing documents of Fibertek or Thermo Electron, or any material agreement, indenture or other instrument known to such counsel to which Fibertek or Thermo Electron is a party or by which either of them is bound, or to which any of their properties is subject and do not and will not violate any existing law, rule, administrative regulation or decree of any court or any governmental agency or body having jurisdiction over Fibertek or Thermo Electron or any of their properties, or, to the best of such counsel's knowledge, result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of Fibertek or Thermo Electron, which would be material to Fibertek or Thermo Electron and their respective Subsidiaries taken as a whole. Except for permits and similar authorizations required under the Securities Act and the securities or "Blue Sky" laws of certain jurisdictions and for such permits and authorizations as have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or, to the knowledge of such counsel, financial institution is required in connection with the consummation by Fibertek and Thermo Electron of the transactions contemplated by the Inter-corporate Agreements. (viii) The Registration Statement and all post-effective amendments thereto have become effective under the Securities Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending before or contemplated by the Commission. All filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; the Registration Statement as of the Effective Date, and the Prospectus and any amendment or supplement thereto as of their respective dates, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations (it being understood that such counsel need express no opinion on the financial statements or other financial and statistical data included therein); and the documents incorporated by reference in the Prospectus, when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (it being understood that such counsel need express no opinion on the financial statements or other financial and statistical data included therein). Such counsel has no reason to believe that (i) the Registration Statement, as of its Effective Date, or any amendment thereto, at the time it became effective contained any untrue statement of a material fact or omitted to state any 17 18 material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (ii) the Prospectus or any supplement or amendment thereto, on such Closing Date or at the time such Prospectus or supplement or amendment thereto was issued, contains or contained any untrue statement of a material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements or other financial and statistical data included in the Registration Statement and the Prospectus). (ix) To the best knowledge of such counsel, all descriptions in the Prospectus of statutes, regulations, legal or governmental proceedings, contracts and other documents are accurate in all material respects, and fairly present in all material respects the information required to be shown and such counsel does not know of any contracts or documents of a character required to be summarized or described therein or to be filed as exhibits thereto that are not so summarized, described or filed, nor does such counsel know of any pending or threatened litigation or any governmental proceeding, statute or regulation required to be described in the Prospectus that is not so described. In rendering the foregoing opinion, counsel may rely, as to matters of fact, upon certificates of officers of the Company, Fibertek and Thermo Electron and certificates of public officials. Certificates so relied upon shall be furnished to you and shall be satisfactory to you and your counsel. (e) There shall have been furnished to you a certificate, dated such Closing Date and addressed to you, signed by the President or a Vice President and by the Treasurer or Secretary of the Company to the effect that: (i) the representations and warranties of the Company contained in this Agreement are true and correct, as if made at and as of such Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been initiated or, to the knowledge of the signers of such certificate, threatened; (iii) all filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; (iv) the signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments or supplements thereto and such documents contain all statements and information required to be included therein, and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (v) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been so set forth. (f) There shall have been furnished to you certificates, dated such Closing Date and addressed to you, signed by the President or a Vice President and by the Treasurer or Secretary of each of Fibertek and Thermo Electron to the effect that: (i) the representations and warranties of Thermo Electron or Fibertek (as applicable) contained in this Agreement are true 18 19 and correct, as if made at and as of such Closing Date, and Thermo Electron and Fibertek (as applicable) has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; (ii) the signers of said certificate have carefully examined the Registration Statement and the Prospectus, and any amendments or supplements thereto, and such documents contain all statements and information required to be included therein and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been so set forth. (g) Since the Effective Time, neither the Company nor any of the Subsidiaries of the Company shall have sustained any loss by fire, flood, accident or other calamity, or shall have become a party to or the subject of any litigation, which is material to the Company and its Subsidiaries taken as a whole, nor shall there have been a material adverse change in the general affairs, operations, business, prospects, key personnel, capitalization, financial condition or net worth of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, which loss, litigation or change, in your judgment, shall render it inadvisable to proceed with the payment for and delivery of the Units. (h) On the date of this Agreement and on each Closing Date you shall have received a letter from each accounting firm whose report appears in the Prospectus, dated the date of this Underwriting Agreement or such Closing Date, as the case may be, and addressed to you, confirming that they are independent certified public accountants within the meaning of the Securities Act and the applicable published Rules and Regulations, and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of each such letter), the conclusions and findings of each such firm with respect to the financial information and other matters covered by its letter delivered to you concurrently with the execution of this Agreement, and with respect to each letter delivered on a Closing Date confirming the conclusions and findings set forth in such prior letter. (i) You shall have been furnished with such additional documents and certificates as you or counsel for the Underwriters may reasonably request. (j) The Units (and the Shares and Redemption Rights comprising the Units) to be purchased on such Closing Date by the Underwriters shall be approved for listing on the American Stock Exchange, subject only to official notice of issuance. All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and to counsel for the Underwriters. The Company, Fibertek and Thermo Electron shall furnish to you such conformed copies of such opinions, certificates, letters and other documents as you shall reasonably request. If any of the conditions specified in this Section 5 shall not have been fulfilled when and as required by this Agreement, this Agreement and all obligations of the 19 20 Underwriters hereunder may be canceled at, or at any time prior to, such Closing Date, by you. Any such cancellation shall be without liability of the Underwriters to the Company, Fibertek or Thermo Electron. Notice of such cancellation shall be given to the Company in writing, or by telegraph or telephone and confirmed in writing. 6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company, Fibertek and Thermo Electron, jointly and severally, shall indemnify and hold harmless each Underwriter against any loss, claim, damage or liability (or any action in respect thereof), joint or several, to which such Underwriter may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement made by the Company, Fibertek or Thermo Electron in Section 1 hereof or by Fibertek or Thermo Electron in Section 1A hereof, or (ii) any untrue statement or alleged untrue statement of a material fact contained (A) in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or (B) in any "Blue Sky" application or other document executed by the Company specifically for that purpose or based upon any written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Securities under the securities laws thereof (any such application, document or information being hereinafter called "Blue Sky Information"), or (iii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or in any Blue Sky Information a material fact required to be stated therein or necessary to make the statements therein not misleading or (iv) any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Securities or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (ii) or (iii) above (provided that the Company, Fibertek and Thermo Electron shall not be liable under this clause (iv) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly or indirectly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct); and shall reimburse each Underwriter promptly after receipt of invoices from such Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case the person receiving them shall promptly refund them; provided, however, that the Company, Fibertek and Thermo Electron shall not be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of any Underwriter specifically for use in the preparation of the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or any Blue Sky Information; and provided, further, that as to any Preliminary Prospectus this indemnity agreement shall not inure to the benefit of any Underwriter on account of any loss, 20 21 claim, damage, liability or action arising from the sale of Units to any person by that Underwriter if that Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Securities Act and the Rules and Regulations, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 4(b). (b) Each Underwriter severally, but not jointly, shall indemnify and hold harmless the Company, Fibertek and Thermo Electron against any loss, claim, damage or liability (or action in respect thereof) to which the Company, Fibertek or Thermo Electron may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained (A) in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or (B) in any Blue Sky Information, or (ii) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any thereof, or in any Blue Sky Information a material fact required to be stated therein or necessary to make the statements therein not misleading; and shall reimburse any legal or other expenses reasonably incurred by the Company, Fibertek or Thermo Electron promptly after receipt of invoices from the Company, Fibertek or Thermo Electron in connection with investigating or defending against any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case the Company, Fibertek and Thermo Electron shall promptly refund them; provided, however, that such indemnification shall be available in each such case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of such Underwriter specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent it has been prejudiced in any material respect by such failure or from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it or they wish, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under such subsection for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation, except that the Representatives shall have the right to employ counsel to 21 22 represent you and those other Underwriters who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Underwriters against the Company, Fibertek or Thermo Electron under such subsection if, in your reasonable judgment, it is advisable for you and those Underwriters to be represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party or parties; provided, however, in no event, shall the indemnifying party or parties be responsible for the expenses of more than one separate counsel for all such indemnified parties. (d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, Fibertek and Thermo Electron on the one hand and the Underwriters on the other from the offering of the Units or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, Fibertek and Thermo Electron on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, Fibertek and Thermo Electron on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Units (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by one of the parties and such parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company, Fibertek, Thermo Electron and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to in the first sentence of this subsection (d). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject of this subsection (d), subject to the proviso in the last sentence of subsection (c). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Units underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their 22 23 respective underwriting obligations and not joint. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect of which contribution may be sought, it shall promptly give written notice of such service to the party or parties from whom contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought from any obligation it may have hereunder or otherwise (except as specifically provided in subsection (c) hereof). (f) The obligations of the Company, Fibertek and Thermo Electron under this Section 6 shall be in addition to any liability which the Company, Fibertek and Thermo Electron may otherwise have, and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Securities Act or the Exchange Act; and the obligations of the Underwriters under this Section 6 shall be in addition to any liability that the respective Underwriters may otherwise have, and shall extend, upon the same terms and conditions, to each director of the Company (including any person who, with his consent, is named in the Registration Statement as about to become a director of the Company), to each officer of the Company who has signed the Registration Statement and to Fibertek and Thermo Electron, and each other person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 7. SUBSTITUTION OF UNDERWRITERS. If any Underwriter defaults in its obligation to purchase the number of Units which it has agreed to purchase under this Agreement, the non-defaulting Underwriters shall be obligated to purchase (in the respective proportions which the number of Units set forth opposite the name of each non-defaulting Underwriter in Schedule I hereto bears to the total number of Units set forth in Schedule I hereto) the Units which the defaulting Underwriter agreed but failed to purchase; except that the non-defaulting Underwriters shall not be obligated to purchase any of the Units if the total number of Units which the defaulting Underwriter or Underwriters agreed but failed to purchase exceed 9.09% of the total number of Units, and any non-defaulting Underwriters shall not be obligated to purchase more than 110% of the number of Units set forth opposite its name in Schedule I hereto plus the total number of Option Units purchasable by it pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the non-defaulting Underwriters, and any other underwriters satisfactory to you that so agree, shall have the right, but shall not be obligated, to purchase (in such proportions as may be agreed upon among them) all of the Units. If the non-defaulting Underwriters or the other underwriters satisfactory to you do not elect to purchase the Units which the defaulting Underwriter or Underwriters agreed but failed to purchase, the Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company, Fibertek or Thermo Electron except for the payment of expenses to be borne by the Company, Fibertek and Thermo Electron and the Underwriters as provided in Section 4(h) hereof and the indemnity and contribution agreements of the Company, Fibertek, Thermo Electron and the Underwriters contained in Section 6 hereof. Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have for damages caused by its default. If the other underwriters satisfactory to you are obligated or agree to purchase the Units of a defaulting Underwriter, either you or the Company may 23 24 postpone the First Closing Date for up to seven full Business Days in order to effect any changes that may be necessary in the Registration Statement or the Prospectus or in any other document or agreement, and to file promptly any amendments or any supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. 8. TERMINATION. (a) Until the First Closing Date, this Agreement may be terminated by you by giving notice as hereinafter provided to the Company, if (i) the Company, Fibertek or Thermo Electron shall have failed, refused or been unable, at or prior to the First Closing Date, to perform any agreement on its part to be performed hereunder, (ii) any other condition of the obligations of the Underwriters hereunder is not fulfilled, (iii) trading in securities generally on the New York Stock Exchange or the American Stock Exchange or the International Stock Exchange of the United Kingdom or the over-the-counter market shall have been suspended or minimum prices shall have been established on any of such exchanges or such market by the Commission or by such exchange or other regulatory body or governmental authority having jurisdiction, (iv) a banking moratorium shall have been declared by Federal, New York, United Kingdom or Massachusetts authorities, or (v) the United States or the United Kingdom is or becomes engaged in hostilities which result in the declaration of a national emergency or war, or (vi) there shall have been such a material adverse change in general economic, political or financial conditions, or the effect of international conditions on the financial markets in the United States or the United Kingdom shall be such, as to, in the judgment of a majority in interest of the several Underwriters, make it inadvisable or impracticable to proceed with the delivery of the Units. Any termination of this Agreement pursuant to this Section 8 shall be without liability on the part of the Company, Fibertek, Thermo Electron or any Underwriter, except as otherwise provided in Sections 4(h) and 6 hereof. Any notice referred to above may be given at the address specified in Section 10 hereof in writing or by telegraph or telephone, and if by telegraph or telephone, shall be immediately confirmed in writing. 9. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND REPRESENTATIONS. The agreements contained in Section 6 and the representations, warranties and agreements of the Company, Fibertek and Thermo Electron in Sections 1, 1A and 4 shall survive the delivery of the Units to the Underwriters hereunder and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 10. NOTICES. Except as otherwise provided in this Agreement, (a) whenever notice is required by the provisions of this Agreement to be given to the Company, Fibertek or Thermo Electron, such notice shall be in writing addressed to the Company, Fibertek or Thermo Electron at 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, Attention: Chief Financial Officer; and (b) whenever notice is required by the provisions of the Agreement to be given to the several Underwriters, such notice shall be in writing addressed to you in care of 24 25 NatWest Securities Limited, 135 Bishopsgate, London EC2M3UR, England, Attention: Syndicate Department. 11. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth in the last paragraph on the outside cover page, the paragraph containing stabilization information on the inside front cover page and the statements under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus, constitute the only written information furnished by or on behalf of any Underwriter referred to in paragraph (b) of Section 1 hereof and in paragraphs (a) and (b) of Section 6 hereof. 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon the several Underwriters, the Company, Fibertek and Thermo Electron, and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company, Fibertek and Thermo Electron contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Underwriter within the meaning of the Securities Act or the Exchange Act and (b) the indemnity agreement of the Underwriters contained in Section 6 hereof shall be deemed to be for the benefit of directors of the Company, officers of the Company who signed the Registration Statement, and any person controlling the Company, including Fibertek and Thermo Electron. Nothing in this Agreement shall be construed to give any person, other than the persons referred to in this paragraph, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 13. DEFINITION OF "BUSINESS DAY", "SUBSIDIARY" AND "SIGNIFICANT SUBSIDIARY". For purposes of this Agreement, (a) "Business Day" means any day on which the American Stock Exchange is open for trading, (b) "Subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations and (c) "Significant Subsidiary" has the meaning set forth in Item 1-02(v) of the Regulation S-X of the Rules and Regulations. 14. PERFORMANCE BY THE COMPANY. Thermo Electron and Fibertek agree to cause the Company to perform each of the agreements and obligations of the Company contained in this Agreement. 15. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of law or conflict of law principles thereof. 16. COUNTERPARTS. This agreement may be signed in one or more counterparts, each of which together shall constitute one and the same agreement. 25 26 Please confirm, by signing and returning to us eight counterparts of this Agreement, that you are acting on behalf of yourselves and the other several Underwriters and that the foregoing correctly sets forth the agreement among the Company, Fibertek, Thermo Electron and the several Underwriters. Very truly yours, THERMO FIBERGEN INC. By: ------------------------------------- Title: THERMO FIBERTEK INC. By: ------------------------------------- Title: THERMO ELECTRON CORPORATION By: ------------------------------------- Title: Confirmed and accepted as of the date first above mentioned: NATWEST SECURITIES LIMITED LEHMAN BROTHERS INC. OPPENHEIMER & CO., INC. as Representatives of the several Underwriters named in Schedule I hereto By: NATWEST SECURITIES LIMITED By: ------------------------------------- Authorized Signatory 26 27 SCHEDULE I
Number of Firm Units To be Underwriter Purchased ----------- --------- NatWest Securities Limited Lehman Brothers Inc. ..................................... Oppenheimer & Co., Inc. .................................. Total ........................................... 4,100,000 =========
27 EX-5 3 OPINION OF SETH H. HOOGASIAN 1 EXHIBIT 5 THERMO ELECTRON CORPORATION 81 Wyman Street Waltham, MA 02254-9046 September 9, 1996 Thermo Fibergen Inc. 8 Alfred Circle Bedford, Massachusetts 01730 Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254-9046 Re: Combined Registration Statement on Form S-1 and Form S-3 Relating to 4,715,000 Units of Thermo Fibergen Inc. and Guarantees by Thermo Electron Corporation Ladies and Gentlemen: I am Vice President and General Counsel to Thermo Electron Corporation, a Delaware corporation (the "Guarantor"), and am General Counsel to its subsidiary, Thermo Fibergen Inc., a Delaware corporation (the "Company"). I have acted as counsel in connection with the filing of a combined registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), (i) on Form S-1, with respect to 4,715,000 units (the "Units"), each of which consists of one share of the Company's common stock, $.01 par value per share (the "Common Stock"), and the right to sell one share of Common Stock to the Company during certain periods in the future (the "Redemption Rights"); and (ii) on Form S-3, with respect to the Guarantor's guarantees of the Company's obligations under the Redemption Rights (the "Guarantees"). The Units, the shares of Common Stock registered pursuant to the Registration Statement (the "Shares"), the Redemption Rights and the Guarantees, together with any Units, Shares, Redemption Rights and Guarantees registered under a registration statement related to the offering contemplated by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act (a "462(b) Registration Statement"), are collectively referred to herein as the "Securities." I or a member of my legal staff have reviewed the corporate proceedings taken by the Company and/or by the Guarantor with respect to the authorization of the issuance of the Securities. I or a member of my legal staff have also examined and relied upon originals or copies, certified or otherwise authenticated to my satisfaction, of all corporate records, documents, agreements or other instruments of the Company and/or of the Guarantor and have 2 made all investigations of law and have discussed with representatives of the Company and of the Guarantor all questions of fact that I have deemed necessary or appropriate. Based upon and subject to the foregoing, I am of the opinion that: 1. The Company and the Guarantor are each corporations duly organized, validly existing and in corporate good standing under the laws of the State of Delaware. 2. The issuance and sale of the Securities registered pursuant to the Registration Statement have been duly authorized by the Company or by the Guarantor, as the case may be, and the issuance and sale of the Securities registered pursuant to a 462(b) Registration Statement will have been duly authorized by the Company or by the Guarantor, as the case may be, prior to their issuance and sale. 3. The Shares, when issued and sold in accordance with the provisions of the Underwriting Agreement between the Company and the several Underwriters named on Schedule I thereto (in the form of Exhibit 1 to the Registration Statement) will be validly issued, fully paid and non-assessable. 4. The Redemption Rights have been duly authorized on behalf of the Company and, when issued and countersigned by the Company or on its behalf by its transfer agent and registrar, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the rights and remedies of creditors, (ii) general principles of equity regardless of whether such enforcement is considered in a proceeding in equity or at law and (iii) compliance with Section 160 of the Delaware General Corporation Law. 5. The Guarantees have been duly authorized on behalf of the Guarantor and, when issued and countersigned by the Guarantor or on its behalf by its transfer agent and registrar, will constitute valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the rights and remedies of creditors and (ii) general principles of equity regardless of whether such enforcement is considered in a proceeding in equity or at law. I hereby consent to the filing of this opinion as Exhibit 5 to the Registration Statement or any 462(b) Registration Statement. Very truly yours, Seth H. Hoogasian Vice President and General Counsel EX-10.2 4 LICENSE AND SUPPLY AGREEMENT 1 Exhibit 10.2 ------------ LICENSE AND SUPPLY AGREEMENT THIS AGREEMENT dated as of July 2, 1996 is made by and between Thermo Fibertek Inc., a Delaware corporation having its principal place of business at 81 Wyman Street, Waltham, Massachusetts 02254 ("TFT"), and Thermo Fibergen Inc., a Delaware corporation having its principal place of business at 8 Alfred Circle, Bedford, Massachusetts 01730 ("TFG"). WHEREAS, TFT is the owner of one or more inventions, patent rights and other intellectual property rights covering a device developed by its AES Engineered Systems Division to wash, thicken and classify solids (the "AES Washer"); WHEREAS, the AES Washer is suitable for use in washing, thickening and classifying fibers used for paper making as well as for separating cellulosic fibers from the rejected residue from deinked fiber pulping systems and other pulp and paper systems; WHEREAS, TFG is engaged in the design of systems for processing pulp and paper mill residue, which systems include the separation of useful fibers from post-clarifier pulp and paper mill residue; WHEREAS, TFG desires to obtain an exclusive license from TFT, and TFT is willing to grant such a license to TFG; NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants set forth below, and of other good and valuable consideration, receipt of which is hereby acknowledged, the Parties hereby agree as follows: ARTICLE 1 DEFINITIONS ----------- As used in this Agreement, the following terms, whether used in the singular or plural, have the meanings set forth below: 1.1. "TFT PATENT RIGHTS" mean all patents and patent applications (which for all purposes of this Agreement shall be deemed to include certificates of invention, applications for certificates of invention and utility models), including but not limited to those set forth on Schedule A, throughout the world, covering or relating to the AES Washer (or its components or replacement parts) developed by TFT's AES Engineered Systems Division prior to and during the term of this Agreement, including any substitutions, extensions, reissues, reexaminations, renewals, divisions, continuations or continuations-in-part, which TFT owns or controls, and under which TFT has the right to grant licenses or sublicenses to TFG, as of the date of this Agreement and thereafter during the term of this Agreement. 2 1.2. "TFT KNOW-HOW" means any designs, specifications, research data and other information relating to the AES Washer which is owned or controlled by TFT as of the date of this Agreement or which TFT acquires in connection with its activities under this Agreement. 1.3. "TFT INTELLECTUAL PROPERTY RIGHTS" means the TFT Patent Rights and the TFT Know-How. 1.4. "FIELD" means all applications for and in the pulp and paper industry. 1.5. "LICENSED PRODUCT" means a product (i) which, or the manufacture, use, offer for sale or sale of which, is covered by a Valid Claim of any of the TFT Patent Rights in the country where the product is manufactured, offered for sale, sold or used or (ii) which embodies any TFT Know-How. 1.6. "PARTY" means TFT or TFG; "PARTIES" means TFT and TFG. 1.7. "VALID CLAIM" means a claim of any unexpired United States or foreign patent or patent application which shall not have been withdrawn, canceled or disclaimed, nor held invalid by a court of competent jurisdiction in an unappealed or unappealable decision. 1.8. "INITIAL TERM" means the eight-year period commencing on the date of this Agreement and ending on the eighth anniversary hereof. ARTICLE 2 LICENSE GRANT ------------- Subject to the terms of this Agreement, including but not limited to Section 5.1 hereof, TFT hereby grants to TFG a worldwide, royalty-free, paid-up, exclusive (against TFT and against all third parties) license under the TFT Intellectual Property Rights, including the right to sublicense any or all of such rights, to use, have used, sell, have sold, offer to sell and import Licensed Products for use in the Field. ARTICLE 3 REPRESENTATIONS, WARRANTIES AND LIMITATIONS OF LIABILITY -------------------------------------------------------- 3.1. REPRESENTATIONS OF BOTH PARTIES. Each Party represents and warrants that it has the full authority to enter into this Agreement. 3.2. REPRESENTATIONS OF TFT. TFT hereby represents and warrants that it owns or has the right to license all of the TFT Patent Rights set forth in Schedule A and the other TFT Intellectual Property Rights licensed hereunder. TFT hereby represents and warrants that the exercise of the license granted pursuant to Article 2 hereof does not infringe any patent or 2 3 copyright or misappropriate any trade secret of any third party. TFT also hereby represents and warrants that any use, sale, offer to sell or importation of any improvements, modifications or enhancements to the AES Washer made by TFT will not infringe any patent or copyright or misappropriate any trade secret of any third party. 3.3. REPRESENTATIONS OF TFG. TFG hereby represents and warrants that any use, sale, offer to sell or importation of any improvements, modifications or enhancements to the AES Washer made by TFG will not infringe any patent or copyright or misappropriate any trade secret of any third party. 3.4. DISCLAIMER OF WARRANTY. EXCEPT AS SET FORTH IN SECTION 3.2 OR IN ANY OTHER WRITTEN AGREEMENT, PURCHASE ORDER OR OTHER DOCUMENT EXECUTED BY TFT, TFT HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE AES WASHER AND ANY OTHER LICENSED PRODUCTS, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 3.5. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT DAMAGES ARISING OUT OF THIS AGREEMENT. ARTICLE 4 INTELLECTUAL PROPERTY RIGHTS ---------------------------- 4.1. OWNERSHIP. Except as otherwise provided in this Agreement, TFT shall retain the entire right, title and interest in and to all TFT Patent Rights. TFT shall be responsible for filing, prosecuting and maintaining the TFT Patent Rights at its sole expense. In the event that TFT fails to take any action which is necessary to file, prosecute and/or maintain the TFT Patent Rights, TFG shall have the right to take such action, and TFT shall reimburse TFG for all expenses incurred in connection therewith. To enable TFG to take such action, TFT shall provide TFG with copies of all substantive communications to and from patent offices regarding each patent and patent application covering the TFT Patent Rights, and shall furnish TFG notice of any election by TFT not to maintain any TFT Patent Rights not less than 30 days prior to the due date of an action. 4.2. IMPROVEMENTS. Any patents or other intellectual property rights in any modifications, improvements or enhancements to the AES Washer made by either Party shall be owned by the Party making such modifications, improvements or enhancements; PROVIDED, HOWEVER, that TFT shall have a worldwide, royalty-free, paid-up, exclusive right to make, use, offer to sell and sell products outside the Field (and, after the expiration or termination of this Agreement, in the Field), and, except as otherwise provided in this Agreement, to make and have made AES Washers and their components and replacement parts, incorporating modifications, improvements or enhancements made by TFG to the AES Washer during the term of this 3 4 Agreement. In the event that the Parties jointly develop any modifications, improvements or enhancements, any patent applications and resulting patents covering such modifications, improvements or enhancements shall be jointly owned by the Parties. TFT, however, shall have the exclusive right, at its expense but in the joint names of the Parties, to file, prosecute or maintain any such jointly-owned patent applications and the resulting patents. Copies of all substantive communications to and from patent offices regarding such patent applications shall be provided to TFG for comment by TFG. In the event that TFT fails to take any action which is necessary to file, prosecute and/or maintain such patent applications or patents, TFT shall furnish TFG notice as set forth in Section 4.1 and TFG shall have the right to take such action in the joint name of the Parties, and TFT shall reimburse TFG for all expenses incurred in connection therewith. 4.3. INFRINGEMENT. (a) Each Party shall promptly report in writing to the other Party during the term of this Agreement any (i) known infringement or suspected infringement of any of the TFT Intellectual Property Rights in the Field by any third party of which it becomes aware, and shall provide the other Party with all available evidence supporting such infringement or suspected infringement. Within 90 days after TFG becomes, or is made, aware of any of the foregoing, TFG shall decide whether or not to initiate an infringement suit or other appropriate litigation and shall advise TFT of its decision in writing. The inability of TFG to decide on a course of action within such 90-day period shall for purposes of this Agreement be deemed a decision not to initiate an infringement suit or other appropriate litigation. TFG shall not have any rights to enforce TFT Intellectual Property Rights outside the Field. (b) Except as provided in paragraph (d) below, TFG shall have the right to initiate an infringement suit or other appropriate litigation anywhere in the world against any third party who at any time has infringed, or is suspected of infringing, any of the TFT Intellectual Property Rights in the Field. TFG shall give TFT sufficient advance notice of its intent to commence such action and the reasons therefor, and shall provide TFT with an opportunity to make suggestions and comments with respect thereto. TFG shall keep TFT promptly informed of, and shall from time to time consult with TFT regarding, the status of any such action and shall provide TFT with copies of all documents filed therein, and all written communications relating thereto. (c) Any damages, settlement fees or other consideration for past infringement received as a result of any such litigation in the Field shall be retained by TFG. If necessary, TFT shall join as a party to the litigation but shall be under no obligation to participate except to the extent that such participation is required as the result of being named a party to the litigation. TFT shall offer reasonable assistance to TFG in connection therewith at no charge to TFG except for reimbursement of reasonable expenses, including out-of-pocket expenses and salaries of TFT personnel, incurred in rendering such assistance. TFG shall not settle any such litigation which diminishes the rights of TFT outside the Field without obtaining the prior written consent of TFT, which consent shall not be unreasonably withheld. 4 5 (d) TFG shall promptly advise TFT of its intent not to initiate an infringement suit or other appropriate litigation pursuant to paragraph (b) above. In the event that TFG does not initiate an infringement suit or other appropriate litigation pursuant to paragraph (b) above within 180 days of becoming aware of any infringement or suspected infringement of any of the TFT Intellectual Property Rights in the Field or if TFG shall have advised TFT of its intent not to initiate such litigation, TFT shall have the right, at its expense, to initiate an infringement or other appropriate litigation with respect to infringements of the TFT Intellectual Property Rights in the Field. TFT shall pay all attorneys' fees and court costs, and TFT shall retain all amounts recovered in such litigation. If necessary, TFG shall join as a party to the litigation but shall be under no obligation to participate except to the extent that such participation is required as the result of being named a party to the litigation. ARTICLE 5 SUPPLY OF AES WASHERS, COMPONENTS AND REPLACEMENT PARTS ------------------------------------------------------- 5.1. PURCHASE AND SALE COMMITMENTS. Except as otherwise provided in this Agreement, TFG hereby agrees to purchase from TFT, and TFT hereby agrees to sell to TFG, all of TFG's requirements of AES Washers (and all components and replacement parts thereof manufactured from time to time by TFT) during the term of this Agreement. TFG agrees not to purchase any equipment for washing, thickening and classifying solids in pulp and paper residue from any other vendor during the term of this Agreement. 5.2. PRICING. Such AES Washers, components and replacement parts will be sold to TFG at TFT's cost plus an amount sufficient to yield to TFT a Gross Margin of 55% thereon. For purposes of this Agreement, "Gross Margin" shall mean the difference between the prices TFT receives upon the sale of AES Washers, components and/or replacement parts to TFG and the costs thereof. For purposes of the two preceding sentences, TFT's costs shall include its manufacturing costs and overhead related thereto, but shall not include selling, general or administrative costs. TFT agrees to use reasonable efforts to minimize such costs over the term of this Agreement. 5.3. MANUFACTURING RIGHTS. If TFT fails to sell AES Washers, components and/or replacement parts to TFG on reasonable terms and conditions, other than the pricing terms set forth in Section 5.2, which the Parties agree to be reasonable, then TFG shall have the right to manufacture or have manufactured such AES Washers, components and/or replacement parts, as the case may be, and the exclusive license granted in Section 2.1 shall be extended to make or have made such Licensed Products in the Field. 5.4 CONVERSION TO NON-EXCLUSIVE LICENSE. (a) If TFG fails to purchase at least 35 AES Washers from TFT prior to the end of the fifth year of the Initial Term, then the exclusive license granted in Article 2 shall be modified to be non-exclusive for the remainder of the Initial Term and during any subsequent 5 6 renewal term unless, prior to the end of such fifth year, TFG shall have paid to TFT an amount equal to the aggregate Gross Margin which TFT would have received with respect to the unpurchased AES Washers had TFG actually purchased such unpurchased AES Washers prior to the end of such fifth year. (b) If TFG fails to purchase at least five AES Washers from TFT during each of the sixth, seventh and eighth years of the Initial Term, then the exclusive license granted in Article 2 shall be modified to be non-exclusive for the remainder of the Initial Term and during any subsequent renewal term unless, prior to the end of such sixth, seventh or eighth year, as the case may be, TFG shall have paid to TFT an amount equal to the aggregate Gross Margin which TFT would have received with respect to the unpurchased AES Washers had TFG actually purchased such unpurchased AES Washers prior to the end of such year. ARTICLE 6 TERMINATION ----------- 6.1. TERM. This Agreement shall remain in effect until the earlier of (i) the expiration of the Initial Term or (ii) termination of this Agreement in accordance with the provisions of this Article 6. In the event that this Agreement has not been terminated in accordance with Section 6.2 hereof prior to the expiration of the Initial Term (or any applicable renewal term), then this Agreement shall be automatically renewed for successive one-year renewal terms unless, not later than 90 days prior to the expiration of the Initial Term (or such applicable renewal term), either Party shall have delivered notice in writing to the other Party that it elects not to renew this Agreement. 6.2. TERMINATION FOR DEFAULT. Either Party may terminate this Agreement upon default by the other Party of any material obligation hereunder if, within 60 days after written notice of such default to the defaulting Party, such defaulting Party has not remedied such default. Upon termination of this Agreement pursuant to this Section 6.2, neither Party shall be relieved of any obligations incurred prior to such termination. 6.3. SURVIVAL OF OBLIGATIONS. Notwithstanding any termination of this Agreement, the obligations of the Parties with respect to infringement indemnification pursuant to Article 7, as well as any other provisions which by their nature are intended to survive such termination (including without limitation the licenses with respect to AES Washers purchased by TFG prior to such termination) shall survive and continue to be enforceable. Upon any termination by TFG for default of a material obligation of TFT pursuant to Section 6.2, TFG shall have the right to manufacture or have manufactured the AES Washer and all components and replacement parts thereof then manufactured by TFT, and the exclusive license granted in Article 2 shall be extended to make or have made Licensed Products in the Field. 6 7 ARTICLE 7 INFRINGEMENT INDEMNIFICATION ---------------------------- TFT shall defend and indemnify TFG from and against any damages, liabilities, costs and expenses (including reasonable attorneys' fees) arising out of any claim that any Licensed Product infringes any patent or copyright or misappropriates a trade secret of a third party and such claim relates to the use in the Licensed Product of either TFT Intellectual Property Rights or devices or products supplied by TFT, PROVIDED, HOWEVER, that (i) TFG shall have promptly provided TFT with written notice thereof and reasonable cooperation, information and assistance in connection therewith and (ii) TFT shall have sole control and authority with respect to the defense, settlement or compromise thereof. Should any Licensed Product become or, in TFT's opinion, be likely to become the subject of an infringement claim, TFT may, at its option and at its expense, (i) procure for TFG the right to continue using such Licensed Product, (ii) replace or modify such Licensed Product so that it becomes non-infringing, or, if the preceding remedies are not reasonably available to TFG, (iii) demand that TFG return to TFT the Licensed Products supplied by TFT and TFT shall refund to TFG the amount paid to TFT for such Licensed Products; PROVIDED, HOWEVER, that option (iii) shall be available to TFT only with respect to Licensed Products supplied by TFT and which are within the possession or control of TFG. TFT shall have no liability or obligation to TFG hereunder with respect to any patent, copyright or trade secret infringement or claim thereof based upon (i) use or sale by TFG or its customers of Licensed Products in combination with devices or products not designed by TFT unless such Licensed Products would be infringing absent their use in such combinations, or (ii) modifications, alterations or enhancements of the Licensed Products created by TFG. TFG shall indemnify and hold TFT harmless from all costs, damages and expenses (including reasonable attorneys' fees) arising from any claim enumerated in clauses (i) and (ii) above in the preceding sentence. ARTICLE 8 COVENANTS OF TFG ---------------- 8.1. PROPRIETARY INFORMATION. TFG hereby covenants that it will not, during the term of this Agreement or at any time thereafter, disclose to others, or use for its own benefit or the benefit of others (except as contemplated by this Agreement), any Proprietary Information. For purposes of this Agreement, "Proprietary Information" shall mean all trade secrets or other confidential or proprietary information owned, possessed or used by TFT that is communicated to, learned of or otherwise acquired by TFG in the course of this Agreement. TFG's obligations under this Agreement shall not apply to Proprietary Information that (i) is or becomes known to the general public without any wrongful act or omission by TFG, (ii) is made available to TFG as a matter of right by any third party, (iii) is independently developed by TFG, (iv) is required to be disclosed by TFG under compulsion of law, rule or judicial process, (v) is generally disclosed to third parties by TFT without restriction on such third parties or (vi) is approved for release by written authorization from TFT. 7 8 8.2. REFERRALS BY TFG. TFG hereby covenants that it shall promptly refer to TFT's AES Engineered Systems Division all inquiries it receives from third parties during the term of this Agreement regarding the possible application of the Licensed Products and/or the AES Washers outside of the Field. ARTICLE 9 MISCELLANEOUS ------------- 9.1. NO AGENCY. Nothing herein shall be deemed to constitute either Party as the agent of the other, or the Parties as joint venturers or partners of one another for any purpose. Neither Party shall be responsible for the acts or omissions of the other. Neither Party has any authority to speak for, represent or obligate the other Party in any way without prior written authority from such other Party. 9.2. NOTICES. Any notice or other communication shall be in writing and shall be personally delivered, or sent by overnight or second day courier or by first class mail, return receipt requested, to the Party to whom such notice or other communication is to be given or made at such Party's address set forth below, or to such other address as such Party shall designate by written notice to the other Party as follows: If to TFT: Thermo Fibertek Inc. 81 Wyman Street Waltham, Massachusetts 02254 Attention: President If to TFG: Thermo Fibergen Inc. 8 Alfred Circle Bedford, Massachusetts 01730 Attention: President PROVIDED, HOWEVER, that any notice of change of address, and any notice or other communication given otherwise than as specified above shall be effective only upon receipt; and further that any presumption of receipt by the addressee shall be inoperable during the period of any interruption in Postal Service. 9.3. ENTIRE AGREEMENT. This Agreement, including Schedule A hereto, sets forth the entire agreement between the Parties with respect to its subject matter, and supersedes all prior agreements, written or oral, with respect thereto. 8 9 9.4. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Parties or, in the case of a waiver, by the Party waiving compliance. No delay on the part of either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any waiver on the part of either Party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that either Party may otherwise have at law or in equity. 9.5. ASSIGNMENT. Neither Party shall assign its rights or obligations hereunder without the prior written consent of the other Party; PROVIDED, HOWEVER, that notwithstanding the foregoing, a Party may assign its rights and obligations hereunder without the prior written consent of the other Party in connection with the sale to any person or entity of all or substantially all of the business or assets of the assigning Party relating to the development, manufacture, use or sale of Licensed Products; PROVIDED, HOWEVER, that such person or entity shall first have agreed with the other Party to assume and perform the obligations of such Party hereunder. 9.6. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Parties, their permitted assigns and their respective successors and legal representatives. 9.7. SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 9.8. COUNTERPARTS. This Agreement may be executed by the Parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 9.9. HEADINGS. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 9.10. FORCE MAJEURE. Neither Party shall be responsible to the other Party for nonperformance or delay in performance of the terms or conditions of this Agreement due to acts of God, acts of governments, war, riots, strikes, accidents in transportation, or other causes beyond the reasonable control of such Party. 9.11. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 9 10 IN WITNESS WHEREOF, the Parties have executed this Agreement under seal as of the date first above written. THERMO FIBERTEK INC. THERMO FIBERGEN INC. By: /s/ William A. Rainville By: /s/ Yiannis A. Monovoukas ----------------------------- ----------------------------- Name: William A. Rainville Name: Yiannis A. Monovoukas --------------------------- ---------------------------- Title: President and Chief Title: President and Chief -------------------------- --------------------------- Executive Officer Executive Officer 10 11 SCHEDULE A List of Patent Rights --------------------- US Patent No. 5,259,955 and all foreign counterparts, including without limitation, patents issued by, and patents pending in, Australia, Brazil, Canada, the European Union, Finland, Japan and Mexico US Patent No. 5,453,193 and all foreign counterparts, including without limitation, patents issued by, and patents pending in, Brazil, Canada, the European Union and Japan 11 EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermo Fibergen Inc.: As independent public accountants, we hereby consent to the use of our report dated July 3, 1996 (and to all references to our Firm) included in or made part of this Registration Statement on Form S-1 and related Prospectus of Thermo Fibergen Inc. ARTHUR ANDERSEN LLP Boston, Massachusetts September 5, 1996 EX-23.2 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Thermo Electron Corporation: As independent public accountants, we hereby consent to the incorporation by reference in the Registration Statements and related prospectuses of Thermo Fibergen Inc. and Thermo Electron Corporation on Forms S-1 and S-3, respectively, of our report dated February 15, 1996 (except with respect to matters discussed in Note 16 as to which the date is June 28, 1996) included or incorporated by reference in Thermo Electron Corporation's Amendment No. 1 on Form 10-K/A for the year ended December 30, 1995 and to all references to our Firm included in these Registration Statements. ARTHUR ANDERSEN LLP Boston, Massachusetts September 5, 1996 EX-23.3 7 CONSENT OF CROWE, CHIZEK & COMPANY LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Trustees of Edward Lowe Foundation, Inc., Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc.: We hereby consent to the use of our report, dated July 2, 1996 on the combined financial statements of Granulation Technology, Inc. and Biodac, a division of Edward Lowe Industries, Inc., as of September 30, 1994 and 1995 and for the years ended September 30, 1993, 1994 and 1995 in this Registration Statement on Form S-1 and the Prospectus of Thermo Fibergen, Inc. We also consent to the use of our name and the statements with respect to us appearing under the heading "Experts" in the Prospectus. CROWE, CHIZEK AND COMPANY LLP South Bend, Indiana September 5, 1996 -----END PRIVACY-ENHANCED MESSAGE-----