SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1 ON FORM 10-K/A
TO FORM 10-K
(mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
- ------ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its character)
Delaware 04-2925807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. X No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of April 30, 1999, was approximately $9,493,354.
As of April 30, 1999, the Registrant had 19,049,354 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended April 3, 1999, are incorporated by reference into Parts I and II.
Items 10, 11, 12 & 13 of Part III of the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 3, 1999 are hereby amended and restated in their
entirety as follows:
Part III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Set forth below are the names of the directors, their ages, their offices
in Thermo TerraTech Inc. ("Thermo TerraTech" or the "Company"), if any, their
principal occupation or employment for the past five years, the length of their
tenure as directors and the names of other public companies in which such
persons hold directorships. Information regarding their beneficial ownership of
the Company's Common Stock and of the common stock of its parent company, Thermo
Electron Corporation ("Thermo Electron"), a provider of products and services in
measurement instrumentation, biomedical devices, energy, resource recovery, and
emerging technologies, and of its majority-owned subsidiaries, ThermoRetec
Corporation ("ThermoRetec") and The Randers Killam Group Inc. ("Randers"), is
reported in Item 12 - Security Ownership of Certain Beneficial Owners and
Management.
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John P. Appleton Dr. Appleton, 64, has been president, chief executive
officer and a director of the Company since September 1993.
Dr. Appleton has served as a vice president of Thermo
Electron since 1975 in various managerial capacities. He was
the chief executive officer of ThermoRetec from September
1993 until May 1997. Dr. Appleton also serves as the
chairman of the board and a director of Randers and
ThermoRetec.
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John N. Hatsopoulos Mr. Hatsopoulos, 65, has been a director of the Company
since 1986. He served as a vice president of the Company and
its chief financial officer from 1988 until December 1997
and December 1998, respectively. Mr. Hatsopoulos was the
senior vice president of the Company from December 1997
until his retirement in December 1998. Mr. Hatsopoulos was
the president of Thermo Electron from 1997 to 1998 and its
chief financial officer from 1988 to 1998. Prior to his
appointment as president of Thermo Electron, he served as an
executive vice president from 1986 until 1998. Mr.
Hatsopoulos is also a director of LOIS/USA Inc., Thermedics
Inc., Thermo Electron, Thermo Fibertek Inc., Thermo
Instrument Systems Inc., Thermo Power Corporation and US
Liquids Inc.
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Brian D. Holt Mr. Holt, 50, has been a director of the Company since 1997.
Mr. Holt has been the president and chief executive officer
of Thermo Ecotek Corporation, a majority-owned subsidiary of
Thermo Electron that is involved in clean-power resources,
clean fuels, and naturally derived products for protecting
crops since February 1994. He has been the chief operating
officer, environmental and energy, of Thermo Electron since
September 1998. From March 1996 to September 1998, he was a
vice president of Thermo Electron. For more than five years
prior to his appointment as an officer of Thermo Ecotek
Corporation, he was president and chief executive officer of
Pacific Generation Company, a financier, builder, owner and
operator of independent power facilities. Mr. Holt is also a
director of KFx, Inc., Randers, Thermo Ecotek Corporation,
Thermo Power Corporation and ThermoRetec.
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Donald E. Noble Mr. Noble, 84, has been a director of the Company since 1986
and served as chairman of the board from 1992 to November
1994. For more than 20 years, from 1959 to 1980, Mr. Noble
served as the chief executive officer of Rubbermaid
Incorporated, first with the title of president and then as
the chairman of the board. Mr. Noble is also a director of
Thermo Electron, Thermo Fibertek Inc., Thermo Power
Corporation and Thermo Sentron Inc.
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William A.
Rainville Mr. Rainville, 57, has been a director of the Company since
February 1993 and was chairman of the board from November
1994 through February 1997. Mr. Rainville has been president
and chief executive officer of Thermo Fibertek Inc., a
majority-owned subsidiary of Thermo Electron that develops
and manufactures equipment and products for the papermaking
and paper-recycling industries, since its inception in 1991
and has been the chief operating officer, recycling and
recovery, of Thermo Electron since September 1998. Prior to
that time, Mr. Rainville was a senior vice president of
Thermo Electron from March 1993 to September 1998; and a
vice president of Thermo Electron from 1986 to 1993. Mr.
Rainville is also a director of Thermo Ecotek Corporation,
Thermo Fibergen Inc., Thermo Fibertek Inc. and ThermoRetec.
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Polyvios C.
Vintiadis Mr. Vintiadis, 63, has been a director of the Company since
September 1992 and chairman of the board since February
1997. Mr. Vintiadis has been the chairman and chief
executive officer of Towermarc Corporation, a real estate
development company, since 1984. Prior to joining Towermarc,
Mr. Vintiadis was a principal of Morgens, Waterfall &
Vintiadis, Inc., a financial services firm, with whom he
remains associated. For more than 20 years prior to that
time, Mr. Vintiadis was employed by Arthur D. Little &
Company, Inc. Mr. Vintiadis is also a director of
Spectra-Physics Lasers, Inc. and Thermo Instrument Systems
Inc.
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Committees of the Board of Directors and Meetings
The board of directors has established an audit committee and a human
resources committee, each consisting solely of directors who are not employees
of the Company, of Thermo Electron or of any other companies affiliated with
Thermo Electron (also referred to as "outside directors"). The present members
of the audit committee are Mr. Vintiadis (Chairman) and Mr. Noble. The audit
committee reviews the scope of the audit with the Company's independent public
accountants and meets with them for the purpose of reviewing the results of the
audit subsequent to its completion. The present members of the human resources
committee are Mr. Noble (Chairman) and Mr. Vintiadis. The human resources
committee reviews the performance of senior members of management, recommends
executive compensation and administers the Company's stock option and other
stock-based compensation plans. The Company does not have a nominating committee
of the board of directors. The board of directors met four times, the audit
committee met twice and the human resources committee met four times during
fiscal 1999. Each director attended at least 75% of all meetings of the board of
directors and committees on which he served held during fiscal 1999, except for
Mr. Rainville, who attended 50% of such meetings. Mr. Rainville is also the
president and chief executive officer of Thermo Fibertek Inc., another
majority-owned subsidiary of Thermo Electron, and is required to travel
extensively in his position. Mr. Rainville missed two meetings due to travel on
company business.
The board of directors has also established a special committee (the
"Special Committee") consisting solely of one outside director for the purpose
of evaluating the merits and negotiating the terms of the proposed transaction
with Thermo Electron pursuant to which the Company would be taken private,
considering such alternatives as the Special Committee deems appropriate and
making a recommendation to the full board of directors on whether or not to
approve any such proposed transaction. See Item 13 - Certain Relationships and
Related Transactions. The sole member of the Special Committee is Mr. Vintiadis.
Compensation of Directors
Cash Compensation
Outside directors receive an annual retainer of $4,000 and a fee of $1,000
per day for attending regular 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. The non-employee chairman of the board, Mr. Vintiadis,
receives an additional meeting fee for his services equal to $1,000 per day for
attending regular 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. Payment of directors' fees is made quarterly. Dr. Appleton, Mr. Holt
and Mr. Rainville are all employees of Thermo Electron or its subsidiaries and
do not receive any cash compensation from the Company for their services as
directors. Mr. Hatsopoulos, who is a consultant to Thermo Electron, does not
receive any cash compensation from the Company for his services as a director
during the term of his consulting agreement, which terminates December 2003.
Directors are also reimbursed for out-of-pocket expenses incurred in attending
such meetings.
In addition, the member of the Special Committee receives a one-time retainer
of $20,000 and a fee of $1,000 per day for attending regular meetings of the
Special Committee and $500 per day for participating in meetings of the Special
Committee held by means of conference telephone.
Deferred Compensation Plan for Directors
Under the Company's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash 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 acquisition, without the prior approval of the board
of directors, directly or indirectly, by any person of 50% or more of the
outstanding Common Stock or 25% or more of 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 the
Company's Common Stock. When payable, amounts deferred may be disbursed solely
in shares of Common Stock accumulated under the Deferred Compensation Plan. A
total of 41,416 shares of Common Stock have been reserved for issuance under the
Deferred Compensation Plan. As of April 3, 1999, deferred units equal to
approximately 32,352 full shares of Common Stock were accumulated for current
directors under the Deferred Compensation Plan.
Directors Stock Option Plan
The Company's directors stock option plan (the "Directors Plan") provides
for the grant of stock options to purchase shares of Common Stock of the Company
and its majority-owned subsidiaries to outside directors as additional
compensation for their service as directors. Under the Directors Plan, outside
directors are automatically granted options to purchase 1,000 shares of Common
Stock annually and are also automatically granted every five years options to
purchase 1,500 shares of the common stock of a majority-owned subsidiary of the
Company that is "spun out" to outside investors.
Pursuant to the Directors Plan, outside directors receive an annual grant
of options to purchase 1,000 shares of Common Stock pursuant to the Directors
Plan at the close of business on the date of each Annual Meeting of the
Stockholders of the Company. 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. Options granted under this
provision before 1995 expire after seven years; commencing in 1995, the option
term was shortened to three years. Shares acquired upon exercise of the options
are subject to repurchase by the Company at the exercise price if the recipient
ceases to serve as a director of the Company or any other Thermo Electron
company prior to the first anniversary of the grant date.
In addition, under the Directors Plan, outside directors are automatically
granted every five years options to purchase 1,500 shares of common stock of
each majority-owned subsidiary of the Company that is "spun out" to outside
investors. The grant occurs on the close of business on the date of the first
Annual Meeting of the Stockholders next following the subsidiary's spinout,
which is the first to occur of either an initial public offering of the
subsidiary's common stock or a sale of such stock to third parties in an
arms-length transaction, and also as of the close of business on the date of
every fifth Annual Meeting of the Stockholders of the Company that occurs
thereafter during the duration of the Plan. The options granted vest and become
exercisable on the fourth anniversary of the date of grant, unless prior to such
date the subsidiary's common stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended ("Section 12 Registration"). In the
event that the effective date of Section 12 Registration occurs before the
fourth anniversary of the grant date, the option will become immediately
exercisable 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 the event of Section 12
Registration, the restrictions and repurchase rights shall lapse or be deemed to
lapse at the rate of 25% per year, starting with the first anniversary of the
grant date. These options expire after five years.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of May 31, 1999, options to purchase 27,700 shares of Common Stock had been
granted under the Director's Plan, of which 16,900 were outstanding, 5,000 had
lapsed, 5,800 had been exercised; and options to purchase 52,300 shares of
Common Stock were reserved and available for future grant.
Discretionary Grants of Stock Options to Directors
In addition to stock options granted pursuant to the Directors Plan, the
Company may also make discretionary grants of stock options to directors.
Beginning in fiscal 1997, the non-employee chairman of the board has received
annually a discretionary grant of options to purchase an additional 1,000 shares
of Common Stock of the Company. The exercise price for discretionary option
grants is calculated in the same manner as for options granted pursuant to the
Director's Plan, and the grant is awarded at the first regular meeting of the
board of directors following the Annual Meeting of the Stockholders in
conjunction with the chairman's annual appointment as chairman of the board.
Stock Ownership Policies for Directors
The human resources committee of the board of directors (the "Committee")
has established a stock holding policy for directors. The stock holding policy
requires each director to hold a minimum of 1,000 shares of Common Stock.
Directors are requested to achieve this ownership level within a three-year
period. The chief executive officer of the Company is required to comply with a
separate stock holding policy established by the Committee, which is described
in Item 11 - Executive Compensation - Stock Ownership Policies.
In addition, the Committee has adopted a policy requiring directors to
hold shares of the Company's Common Stock equal to one-half of their net option
exercises over a period of five years. The net option exercise is determined by
calculating the number of shares acquired upon exercise of a stock option, after
deducting the number of shares that could have been traded to exercise the
option and the number of shares that could have been surrendered to satisfy tax
withholding obligations attributable to the exercise of the option. This policy
is also applicable to executive officers and is described in Item 11 - Executive
Compensation - Stock Ownership Policies.
Executive Officers
Reference is made to Item 1(e) of this Report for information regarding
the Executive Officers of the Registrant.
Item 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
NOTE: All share data for the common stock of Randers has been adjusted to
reflect a one-for-five reverse stock split effected in February 1999.
The following table summarizes compensation during the last three fiscal
years for services to the Company in all capacities awarded to, earned by or
paid to the Company's chief executive officer and its two other most highly
compensated executive officers. These executive officers are together referred
to as the "named executive officers." No other executive officer of the Company
met the definition of "highly compensated" within the meaning of the Securities
and Exchange Commission's executive compensation disclosure rules.
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 Corporate Services Agreement between the
Company and Thermo Electron. See Item 13 - Certain Relationships and Related
Transactions. Accordingly, the compensation for these individuals is not
reported in the following table.
Summary Compensation Table
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Annual Compensation (1) Long Term Compensation
---------------------- ----------------------
Name and Restricted Securities
Principal Fiscal Other Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Award (2) Options (3) Compensation (4)
- ---------- ------- ------ ----- ------------ ---------- ---------- ----------------
John P. Appleton (4) 1999 $189,000 $103,500 -- -- -- $17,455 (6)
President and Chief 1998 $175,500 $0 (5) -- -- 60,000(TTT) $5,762 (6)
Executive Officer 120,000 (RGI)
1997 $165,375 $90,000 -- -- -- $6,919
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Emil C. Herkert 1999 $214,000 $65,000 $37,391(7) $109,125 8,000 (TTT) $26,202
Vice President 6,100 (TMO)
10,000 (RGI)
1998 $207,000 $0 (5) $48,188(7) -- 300 (TMO) $18,325
2,000 (MKA)
2,000 (ONX)
240,00 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $200,000 $100,000 $37,186 (7) -- 300 (TMO) $4,189
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Jeffrey L. Powell 1999 $145,000 $44,000 -- $49,500 5,000 (TTT) $8,237 (8)
Vice President 1,000 (TMO)
1998 $145,000 $0 (5) -- -- 700 (TMO) $60,304 (8)
2,000 (MKA)
2,000 (ONX)
24,000 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $122,000 $40,000 -- -- 600 (TMO) $7,023
2,000 (TFG)
6,000 (TOC)
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(1) In fiscal 1999, Mr. Herkert and Mr. Powell were awarded 19,400 and 8,800
shares, respectively, of restricted stock of the Company with a value of
$109,125 and $49,500, respectively, on the grant date. The restricted
stock awards vest in their entirety on January 2, 2002. Dividends are
payable on restricted stock. At the end of fiscal 1999, Mr. Herkert and
Mr. Powell held 19,400 and 8,800 shares, respectively, of restricted stock
with an aggregate value of $97,000 and $44,000, respectively.
(2) Options to purchase Common Stock granted by the Company are designated in
the table as "TTT". In addition, the named executive officers have also
been granted options to purchase the common stock of the following Thermo
Electron companies during the last three fiscal years as part of Thermo
Electron's stock option program: Thermo Electron (designated in the table
as TMO), Metrika Systems Corporation (designated in the table as MKA),
ONIX Systems Inc. (designated in the table as ONX), Randers (designated in
the table as RGI), Thermedics Detection Inc. (designated in the table as
TDX), Thermo Fibergen Inc. (designated in the table as TFG), Thermo
Information Solutions Inc. (designated in the table as TISI), Thermo Optek
Corporation (designated in the table as TOC), Thermo Trilogy Corporation
(designated in the table as TRIL), Thermo Vision Corporation (designated
in the table as VIZ) and Trex Communications Corporation (designated in
the table as TRCC).
(3) Represents the amount of matching contributions made by the individual's
employer on behalf of the named executive officers participating in Thermo
Electron's 401(k) plan or, in the case of Mr. Herkert, the Elson T. Killam
Savings and Investment Plan.
(4) Dr. Appleton has served in various management capacities for the Company
and its subsidiaries and has served as an officer of Thermo Electron
during the past three fiscal years. A portion of Dr. Appleton's annual
cash compensation (salary and bonus) has been allocated to and paid by
Thermo Electron over each of the past three fiscal years as compensation
for the services provided to Thermo Electron. The annual cash compensation
reported in the table for Dr. Appleton represents the amounts paid by the
Company and its subsidiaries solely for Dr. Appleton's services as an
officer of the Company or its subsidiaries. Approximately 90% of Dr.
Appleton's annual cash compensation (salary and bonus) earned in all
capacities throughout the Thermo Electron organization was paid by the
Company and its subsidiaries for his services to the Company and its
subsidiaries in each of fiscal 1999, 1998 and 1997. These percentages
include the allocation to ThermoRetec of 20% of Dr. Appleton's annual cash
compensation (salary and bonus) in each of fiscal 1998 and 1997 for Dr.
Appleton's services as ThermoRetec's chief executive officer. Salary and
bonus paid to Dr. Appleton in 1997 reflect compensation decisions based on
calendar year performance, in accordance with Thermo Electron's
compensation practices for its officers. The salary and bonuses paid to
Dr. Appleton for periods after 1998 reflect compensation decisions based
on fiscal year performance. From time to time in the past, Dr. Appleton
has been, and in the future may be, granted options to purchase common
stock of Thermo Electron and certain of its subsidiaries other than the
Company. These options are not reported in this table as they were granted
as compensation for services to other Thermo Electron companies in
capacities other than in his capacity as the president and chief executive
officer of the Company.
(5) Dr. Appleton, Mr. Herkert and Mr. Powell elected to forego their bonuses
for fiscal 1998 in light of the Company's operating and stock price
performance in fiscal 1998.
(6) In addition to the matching contribution referred to in footnote (3), such
amount includes $10,086 and $2,262, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest-free loans provided to Dr. Appleton pursuant to the stock holding
assistance plans of the Company and ThermoRetec. See Item 13 - Certain
Relationships and Related Transactions - Stock Holding Assistance Plans.
(7) This amount includes payments of $20,000 plus an additional gross-up
amount of $17,186 to compensate for the federal and state income tax
liability attributable to such payments in fiscal 1999, 1998 and 1997 made
to Mr. Herkert pursuant to the terms of a certain Deferred Compensation
Agreement with Elson T. Killam Associates.
(8) In addition to the matching contribution referred to in footnote (3), such
amount includes the reimbursement by the Company of $50,000 in expenses
associated with Mr. Powell's relocation to Concord, Massachusetts in
fiscal 1998 and $3,218 and $932, which represents the amount of
compensation in fiscal 1999 and 1998, respectively, attributable to
interest-free loans provided to Mr. Powell pursuant to the stock holding
assistance plan of ThermoRetec. See Item 13 - Certain Relationships and
Related Transactions Stock Holding Assistance Plans.
Stock Options Granted During Fiscal 1999
The following table sets forth information concerning individual grants of
stock options made during fiscal 1999 to the Company's named executive officers.
It has not been the Company's policy in the past to grant stock appreciation
rights, and no such rights were granted during fiscal 1999.
Dr. Appleton has served as a vice president of Thermo Electron since 1975
and from time to time has been granted options to purchase common stock of
Thermo Electron and certain of its subsidiaries other than the Company and its
majority-owned subsidiaries. These options are not reported in this table as
they were granted as compensation for services to other Thermo Electron
companies in capacities other than in his capacity as the chief executive
officer of the Company.
Option Grants in Fiscal 1999
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Potential
Percent of Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees Price Appreciation
Granted and in Fiscal Per Expiration for Option
Name Company (1) Year Share Date Term (2)
----- ----------- ------- ------- ------- ---------------
5% 10%
John P. -- -- -- -- -- --
Appleton
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Emil C. 8,000 (TTT) 1.02% $5.03 2/24/04 $11,120 $24,560
Herkert
300 (TMO) 0.01% (3) $34.50 6/2/03 $2,859 $6,318
5,800 (TMO) 0.14% (3) $16.20 9/23/03 $25,984 $57,362
10,000 (RGI) 2.33% (3) $2.50 2/24/04 $6,900 $15,300
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Jeffrey L. 5,000 (TTT) 0.64% $5.03 2/24/04 $6,950 $15,350
Powell
1,000 (TMO) 0.02% (3) $34.50 6/2/03 $9,530 $21,060
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(1) All of the options granted during the fiscal year are immediately
exercisable at the date of grant. In all cases, the shares acquired upon
exercise are subject to repurchase by the granting company at the exercise
price if the optionee ceases to be employed by such company or any other
Thermo Electron company. The granting company may exercise its repurchase
rights within six months after the termination of the optionee's
employment. The repurchase rights generally lapse ratably over a one- to
five-year period, depending on the option term, which may vary from five
to ten years, provided the optionee continues to be employed by the
granting company or any other Thermo Electron company. The granting
company may permit the holder of options to exercise options and to
satisfy tax withholding obligations by surrendering shares equal in fair
market value to the exercise price or withholding obligation. Please see
footnote (2) under Summary Compensation Table above for the company
abbreviations used in this table.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective 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 respective 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 the common stock of the
applicable corporation, the optionee's continued employment through the
option period and the date on which the options are exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron or its subsidiaries other than the Company as part of Thermo
Electron's compensation program and accordingly are reported as a
percentage of total options granted to employees of Thermo Electron and
its subsidiaries.
Stock Options Exercised During Fiscal 1999 and Fiscal Year-End Option Values
The following table reports certain information regarding stock option
exercises during fiscal 1999 and outstanding stock options held at the end of
fiscal 1999 by the Company's named executive officers. No stock appreciation
rights were exercised or were outstanding during fiscal 1999.
Aggregated Option Exercises In Fiscal 1999 And
Fiscal 1999 Year-End Option Values
- -------------------------------------------------------------------------------
Number of
Unexercised
Shares Options at Value of
Acquired Fiscal Unexercised
on Value Year-End In-the-Money
Name Company(1) Exercise Realized (Exercisable/ Options at
(2) Unexercisable) (1) Fiscal Year-End
(Exercisable/
Unexercisable)
John P. Appleton (3)TTT -- -- 275,000 /0(4) $0 /--
RGI -- -- 120,000 /0 $0 /--
THN -- -- 63,000 /0 $0 /--
- --------------------------------------------------------------------------------
Emil C. Herkert TTT -- -- 8,000 /0 $0 /--
TMO -- -- 43,900 /0(5) $0 /--
MKA -- -- 2,000 /0 $0 /--
ONX -- -- 2,000 /0 $0 /--
RGI -- -- 250,000 /0 $3,310 /--
TDX -- -- 2,000 /0 $0 /--
TISI -- -- 0 /1,000 -- /$0(7)
TRIL -- -- 0 /2,000 -- /$0(7)
VIZ -- -- 1,500 /0 $0 /--
TRCC -- -- 0 /2,000 -- /$0(7)
- --------------------------------------------------------------------------------
Jeffrey L. Powell TTT -- -- 28,000 /0 $0 /--
TMO 300 $3,101 35,112 /0(6) $4,860 /--
MKA -- -- 2,000 /0 $0 /--
ONX -- -- 2,000 /0 $0 /--
RGI -- -- 24,000 /0 $0 /--
TDX -- -- 2,000 /0- $0 /--
TBA -- -- 2,000 /0 $17,500 /--
TFG -- -- 2,000 /0 $0 /--
TFT 4,500 $34,875 0 /0 $0 /--
TISI -- -- 0 /1,000 -- /$0(7)
TLZ -- -- 5,000 /0 $0 /--
TLT -- -- 0 /2,000 -- /$0(7)
TOC -- -- 6,000 /0 $0 /--
TMQ -- -- 6,000 /0 $0 /--
THN -- -- 111,000 /0 $0 /--
TSR -- -- 2,000 /0 $0 /--
TRIL -- -- 0 /2,000 -- /$0(7)
VIZ -- -- 1,500 /0 $0 /--
TRCC -- -- 0 /2,000 -- /$0(7)
TXM -- -- 4,000 /0 $0 /--
- --------------------------------------------------------------------------------
(1) All of the options reported outstanding at the end of the fiscal year are
immediately exercisable as of fiscal year-end, except options to purchase
the common stock of Thermo Information Solutions Inc., ThermoLyte
Corporation, Thermo Trilogy Corporation and Trex Communications
Corporation, which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common
stock under Section 12 of the Exchange Act or (ii) nine years from 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 company at
the exercise price if the optionee ceases to be employed by such company
or any other Thermo Electron company. The granting company may exercise
its repurchase rights within six months after the termination of the
optionee's employment. For publicly-traded companies, the repurchase
rights generally lapse ratably over a one- to ten-year period, depending
on the option term, which may vary from five to twelve years, provided
that the optionee continues to be employed by the granting company 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 company may permit the
holder of options to exercise options and to satisfy tax withholding
obligations by surrendering shares equal in fair market value to the
exercise price or withholding obligation Please see footnote (2) under
Summary Compensation Table above for the company abbreviations used in
this table. In addition, company abbreviations used in this table and not
defined in footnote (2) are defined as follows: Thermo BioAnalysis
Corporation (designated in the table as TBA), Thermo Fibertek Inc.
(designated in the table as TFT), ThermoLase Corporation (designated in
the table as TLZ), ThermoLyte Corporation (designated in the table as
TLT), ThermoQuest Corporation (designated in the table as TMQ), Thermo
Sentron Inc. (designated in the table as TSR) and Trex Medical Corporation
(designated in the table as TXM)
(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(3) Dr. Appleton has served as a vice president of Thermo Electron since 1975
and has been granted options to purchase shares of the common stock of
Thermo Electron and certain of its subsidiaries other than the Company
from time to time by Thermo Electron or such other subsidiaries. These
options are not reported here as they were granted as compensation for
service to other Thermo Electron companies in capacities other than in his
capacity as the chief executive officer of the Company.
(4) In addition to the terms described in footnote (2) above, 60,000 of the
shares subject to option are, if acquired through exercise, restricted
from resale until Dr. Appleton's retirement.
(5) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Herkert are subject to the same terms as described in
footnote (1), except that the repurchase rights of the granting
corporation generally do not lapse until the tenth anniversary of the
grant date. In fiscal 1997 and 1998, the human resources committee of the
board of directors of Thermo Electron accelerated the vesting of 1,800
shares and 1,350 shares, respectively.
(6) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Powell are subject to the same terms as described in
footnote (1), except that the repurchase rights of the granting
corporation generally do not lapse until the tenth anniversary of the
grant date. In the event of the employee's death or involuntary
termination prior to the tenth anniversary of the grant date, the
repurchase rights of the granting corporation shall be deemed to lapse
ratably over a five-year period commencing with the fifth anniversary of
the grant date.
(7) No public market existed for the shares underlying these options as of
April 3, 1999. Accordingly, no value in excess of exercise price has been
attributed to these options.
Defined Benefit Retirement Plan
Killam Associates, a subsidiary of Randers, maintains a Defined Benefit
Retirement Plan (the "Plan") for eligible U.S. employees. Accrued benefits under
the Plan were frozen as of March 31, 1995. Mr. Herkert is a participant in the
Plan. The following table sets forth the estimated annual benefits payable under
the Plan upon retirement in specified compensation and years-of-service
classifications. The estimated benefits reflect the statutory limits on
compensation that can be recognized for Plan purposes. The limit at March 31,
1995 was $150,000 per year.
Annual Years of Service
Compensation
15 20 25 30 35
-- -- -- -- --
$100,000 $20,064 $26,752 $33,440 $40,128 $46,817
125,000 25,427 33,902 42,378 50,853 59,329
150,000 20,789 41,052 51,315 61,578 71,842
Each eligible employee receives a monthly retirement benefit, beginning at
normal retirement age (65, although benefits are not reduced if the employee
retires after reaching 62). Before the benefit was frozen, it provided 1.05% of
an employee's Average Final Compensation (as defined below) in excess of the
average of the Social Security wage bases, multiplied by his years of service
(up to a maximum of 35 years). Benefits are reduced for retirement before age
62. Average Final Compensation is the average total compensation for the 5
consecutive years out of the last 15 years prior to 1995 which produce the
highest average. The frozen annual accrued benefit for Mr. Herkert is $93,332
(based on the compensation limit of $235,840 that was in effect in 1993). The
Plan benefits shown are payable during the employee's lifetime unless the
employee elects another form of benefit that provides death protection.
Executive Retention Agreements
Thermo Electron has entered into agreements with certain executive
officers and key employees of Thermo Electron and its subsidiaries that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by Thermo Electron "without cause" or by the individual
for "good reason", as those terms are defined therein, within 18 months
thereafter. For purposes of these agreements, a change in control exists upon
(i) the acquisition by any person of 40% or more of the outstanding common stock
or voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
Dr. Appleton and Mr. Herkert. This agreement provides that in the event the
individual's employment is terminated under the circumstances described above,
the individual would be entitled to a lump sum payment equal to the sum of (a)
in the case of Dr. Appleton, two times, and in the case of Mr. Herkert, one
times his highest annual base salary in any 12 month period during the prior
five-year period, plus (b) in the case of Dr. Appleton, two times , and in the
case of Mr. Herkert, one times his highest annual bonus in any 12 month period
during the prior five-year period. In addition, the individual would be provided
benefits for a period of, in the case of Dr. Appleton, two years, and in the
case of Mr. Herkert, one year after such termination substantially equivalent to
the benefits package the individual would have been otherwise entitled to
receive if the individual was not terminated. Further, all repurchase rights of
Thermo Electron and its subsidiaries shall lapse in their entirety with respect
to all options that the individual holds in Thermo Electron and its
subsidiaries, including the Company, as of the date of the change in control.
Finally, the individual would be entitled to a cash payment equal to, in the
case of Dr. Appleton, $20,000, and in the case of Mr. Herkert, $15,000, to be
used toward outplacement services. These executive retention agreements
supercede and replace any and all prior severance arrangements which these
individuals had with Thermo Electron.
Assuming that the severance benefits would have been payable as of April
5, 1999, the lump sum salary and bonus payment under such agreement to Dr.
Appleton and Mr. Herkert would have been approximately $680,000 and $343,000,
respectively. In the event that payments under these agreements are deemed to be
so called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individual would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by him with respect to such payment, plus the amount
of all other additional taxes imposed on him attributable to the receipt of such
gross-up payment.
Stock Ownership Policies
The human resources committee of the board of directors (the "Committee")
established a stock holding policy for executive officers of the Company that
required executive officers to own a multiple of their compensation in shares of
Common Stock. For the chief executive officer, the multiple is one times his
base salary and reference incentive compensation for the fiscal year. For all
other officers, the multiple was one times the officer's base salary. The
Committee deemed it appropriate to permit officers to achieve these ownership
levels over a three-year period. The policy has been amended to apply only to
the chief executive officer.
In order to assist executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the Company
is authorized to make interest-free loans to executive officers to enable them
to purchase shares of Common Stock in the open market. This plan was also
amended to apply only to the chief executive officer. The loans are required to
be repaid upon the earlier of demand or the tenth anniversary of the date of the
loan, unless otherwise determined by the Committee.
The Committee also has a policy requiring its executive officers to hold
shares of Common Stock equal to one-half of their net option exercises over a
period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the option.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock,
as well as the common stock of Thermo Electron and each majority-owned
subsidiary of the Company, as of May 31, 1999, with respect to (i) each
director, (ii) each executive officer named in the summary compensation table
set forth in Item 11 Executive Compensation (the "named executive officers") and
(iii) all directors and current executive officers as a group. In addition, the
following table sets forth the beneficial ownership of Common Stock, as of May
31, 1999, with respect to each person who was known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock.
While certain directors or executive officers of the Company are also
directors and executive officers of ThermoRetec, Randers, or Thermo Electron,
all such persons disclaim beneficial ownership of the shares of Common Stock
owned by Thermo Electron and of the shares of the common stock of ThermoRetec
and Randers owned by the Company.
Thermo The Randers
Thermo Electron ThermoRetec Killam Group
Name (1) TerraTech Inc.(2) Corporation (3) Corporation (4) Inc. (5)
- ---------- ---------------- -------------- -------------- ---------
Thermo Electron 16,638,220 N/A N/A N/A
Corporation (6)
Loomis, Sayles & 2,738,581 N/A N/A N/A
Company L.P. (7)
John P. Appleton 305,939 154,363 73,000 120,000
John N. Hatsopoulos 60,357 851,454 61,282 48,000
Emil C. Herkert 89,900 46,400 0 252,000
Brian D. Holt 250,000 286,943 0 4,000
Donald E. Noble 53,377 59,117 10,500 300
Jeffrey L. Powell 56,635 36,831 121,000 24,000
William A. Rainville 60,000 352,959 24,000 24,000
Polyvios C. Vintiadis 16,593 2,500 3,000 52,809
All directors and
current executive
officers as a 957,616 2,303,515 338,282 537,109
group (10 persons)
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person
for the benefit of minor children and all share ownership includes sole
voting and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Appleton, Mr.
Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr. Powell, Mr. Rainville,
Mr. Vintiadis and all directors and current executive officers as a group
include 275,000, 40,000, 8,000, 250,000, 8,300, 28,000, 60,000, 7,300 and
734,600 shares, respectively, that such person or group has the right to
acquire within 60 days of May 31, 1999, through the exercise of stock
options. Shares beneficially owned by Dr. Appleton, Mr. Hatsopoulos and
all directors and current executive officers as a group include 305, 315
and 1,222 shares, respectively, allocated through May 31, 1999, to their
respective accounts maintained pursuant to Thermo Electron's employee
stock ownership plan ("ESOP"), of which the trustees, who have investment
power over its assets are officers of Thermo Electron. Shares beneficially
owned by Mr. Noble, Mr. Vintiadis and all directors and current executive
officers as a group include 22,037, 9,293 and 31,330 full shares,
respectively, allocated through April 3, 1999, to their respective
accounts maintained under the Deferred Compensation Plan. Shares
beneficially owned by Mr. Hatsopoulos and all directors and current
executive officers as a group include 12,500 shares that Mr. Hatsopoulos
has the right to acquire within 60 days after May 31, 1999, through the
exercise of a stock purchase warrant. Except for Dr. Appleton, who
beneficially owned 1.58% and Mr. Holt who beneficially owned 1.3% of the
Common Stock outstanding as of May 31, 1999, no director or named
executive officer beneficially owned more than 1% of the Common Stock
outstanding as of such date; all directors and current executive officers
as a group beneficially owned 4.98% of the Common Stock outstanding as of
May 31, 1999.
(3) Shares of the common stock of Thermo Electron beneficially owned by Dr.
Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr. Powell,
Mr. Rainville and all directors and current executive officers as a group
include 116,902, 805,535, 43,900, 283,950, 7,625, 30,050, 286,837, and
2,018,597 shares, respectively, that such person or members of the group
have the right to acquire within 60 days of May 31, 1999, through the
exercise of stock options. Shares beneficially owned by Dr. Appleton, Mr.
Hatsopoulos and all directors and current executive officers as a group
include 1,615, 2,036 and 6,148 shares, respectively, allocated through May
31, 1999, to their respective accounts maintained pursuant to the ESOP.
Shares beneficially owned by Mr. Noble and all directors and current
executive officers as a group each include 45,827 shares allocated through
April 3, 1999, to Mr. Noble's account maintained pursuant to Thermo
Electron's deferred compensation plan for directors. No director or named
executive officer beneficially owned more than 1% of the common stock of
Thermo Electron outstanding as of May 31, 1999; all directors and current
executive officers as a group beneficially owned 1.45% of the common stock
of Thermo Electron outstanding as of such date.
(4) Shares of the common stock of ThermoRetec beneficially owned by Dr.
Appleton, Mr. Hatsopoulos, Mr. Noble, Mr. Powell, Mr. Rainville, Mr.
Vintiadis and all directors and current executive officers as a group
include 63,000, 22,500, 6,000, 111,000, 22,500, 1,500 and 264,000 shares,
respectively, that such person or group has the right to acquire within 60
days after May 31, 1999, through the exercise of stock options. No
director or named executive officer beneficially owned more than 1% of the
common stock of ThermoRetec outstanding as of May 31, 1999; all directors
and current executive officers as a group beneficially owned 2.48% of the
common stock of ThermoRetec outstanding as of such date.
(5) Shares of the common stock of Randers beneficially owned by Dr. Appleton,
Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr. Powell, Mr.
Rainville, Mr. Vintiadis and all directors and current executive officers
as a group include 120,000, 48,000, 250,000, 4,000, 300, 24,000, 24,000,
48,300 and 530,600 shares, respectively, that such person or group has the
right to acquire within 60 days after May 31, 1999, through the exercise
of stock options. Shares beneficially owned by Mr. Vintiadis and all
directors and current executive officers as a group each include 4,509
shares allocated through April 3, 1999 to Mr. Vintiadis' account
maintained pursuant to Randers' deferred compensation plan for directors.
No director or named executive officer beneficially owned more than 1% of
the common stock of Randers outstanding as of May 31, 1999; all directors
and current executive officers as a group beneficially owned 2.10% of the
common stock of Randers outstanding as of such date.
(6) Shares beneficially owned by Thermo Electron include 32,389 shares of
Common Stock issuable upon the conversion of a 4 5/8% convertible
debenture due in 2003. As of May 31, 1999, Thermo Electron beneficially
owned approximately 87.2% of the outstanding Common Stock. Thermo
Electron's address is 81 Wyman Street, Waltham, Massachusetts 02454-9046.
As of May 31, 1999, Thermo Electron had the power to elect all of the
members of the Company's board of directors.
(7) Information regarding the number of shares of Common Stock beneficially
owned by Loomis, Sayles & Company L.P. is based upon the most recent
Schedule 13G of Loomis, Sayles & Company L.P. received by the Company,
which reported such ownership as of March 10, 1999. The address of Loomis,
Sayles & Company L.P. is One Financial Center, Boston, Massachusetts
02111. As of March 10, 1999, Loomis, Sayles & Company L.P. beneficially
owned approximately 12.39% of the outstanding Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, such as Thermo Electron,
to file with the Securities and Exchange Commission initial reports of ownership
and periodic reports of changes in ownership of the Company's securities. Based
upon a review of such filings, all Section 16(a) filing requirements applicable
to such persons were complied with during fiscal 1999, except in the following
instances. Thermo Electron filed five Form 4s late, reporting a total of 33
transactions, including 11 open market purchases of shares of Common Stock and
22 transactions associated with the grant, exercise and lapse of options to
purchase Common Stock granted to employees under its stock option program.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thermo Electron has, from time to time, caused its subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. Thermo Electron has created the Company as a
majority-owned, publicly-held subsidiary. The Company and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Company, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others, and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning and providing other banking and credit services. Pursuant to
the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Company, can withdraw from participation in the Charter upon 30
days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Company and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and financial and other services to the Company. The Company was
assessed an annual fee equal to 0.8% of the Company's revenues for these
services in fiscal 1999. The annual fee will remain at 0.8% of the Company's
revenues for fiscal 2000. The fee is reviewed annually and may be changed by
mutual agreement of the Company and Thermo Electron. During fiscal 1999, Thermo
Electron assessed the Company $2,480,000 in fees under the Services Agreement.
Management believes that the charges under the Services Agreement are reasonable
and that the terms of the Services Agreement are fair to the Company. In fiscal
1999, the Company was billed an additional $157,000 by Thermo Electron for
certain administrative services required by the Company that were not covered by
the Services Agreement. The Services Agreement automatically renews for
successive one-year terms, unless canceled by the Company upon 30 days' prior
notice. In addition, the Services Agreement terminates automatically in the
event the Company ceases to be a member of the Thermo Group or ceases to be a
participant in the Charter. In the event of a termination of the Services
Agreement, the Company will be required to pay a termination fee equal to the
fee that was paid by the Company for services under the Services Agreement for
the nine-month period prior to termination. Following termination, Thermo
Electron may provide certain administrative services on an as-requested basis by
the Company or as required in order to meet the Company's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Company a fee equal to the market rate for comparable services if such services
are provided to the Company following termination.
The Company has entered into a Tax Allocation Agreement with Thermo
Electron that outlines the terms under which the Company will be included in
Thermo Electron's consolidated Federal and state income tax returns. Under
current law, the Company will be included in such tax returns so long as Thermo
Electron owns at least 80% of the Company's outstanding Common Stock. In years
in which the Company has taxable income, it will pay to Thermo Electron amounts
comparable to the taxes the Company would have paid if it had filed its own
separate company tax returns. If Thermo Electron's equity ownership of the
Company were to drop below 80%, the Company would file its own tax returns. In
fiscal 1999, the Company paid Thermo Electron $1,217,000 under the Tax
Allocation Agreement.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company, and its publicly traded subsidiaries, ThermoRetec and Randers would be
merged into Thermo Electron. As a result, all three companies would become
wholly owned subsidiaries of Thermo Electron. The public shareholders of all
three companies would receive common stock in Thermo Electron in exchange for
their shares. The completion of these transactions is subject to numerous
conditions, including the establishment of prices and exchange ratios;
confirmation of anticipated tax consequences; the approval of the Board of
Directors of ThermoRetec and Randers; the negotiation and execution of
definitive merger agreements; the receipt of fairness opinions from investment
banking firms that the transactions are fair to the Company's and subsidiaries'
shareholders (other than the Company and Thermo Electron) from a financial point
of view; the approval of the Company's Board of Directors, including its
independent directors; and completion of review by the Securities and Exchange
Commission of any necessary documents regarding the proposed transactions.
From time to time the Company may transact business with other companies
in the Thermo Group.
The Company leases an office and operating facility from Thermo Electron.
The total rental payments made to Thermo Electron during fiscal year 1999 under
this agreement were $166,000.
The Company and Thermo Electron entered into a development agreement under
which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect
costs of the Company's development of soil-remediation centers. In exchange for
this funding, the Company granted Thermo Electron a royalty equal to
approximately 3% of net revenues from soil-remediation services performed at the
centers developed under this agreement. The royalty payments may cease if the
amounts paid by the Company yield a certain internal rate of return to Thermo
Electron on the funds advanced to the Company under this agreement. The Company
paid Thermo Electron royalties of $186,000 in fiscal 1999.
The Company purchases and sells products and services in the ordinary
course of business to Thermo Electron and Thermo Electron's other subsidiaries.
In fiscal 1999, the Company sold a total of $379,000 of products to Thermo
Electron and its other subsidiaries and purchased a total of $231,000 of
products and/or services from such companies.
Until mid-December 1998, the Company's Thermo EuroTech N.V. subsidiary,
along with certain other Thermo Subsidiaries, participated in a notional pool
arrangement with ABN AMRO, which included a $29,719,000 credit facility. The
Company had access to $9,553,000 under this credit facility. Only European-based
Thermo Subsidiaries participated in this arrangement. Under this arrangement the
Bank notionally combined the positive and negative cash balances held by the
participants to calculate the net interest yield/expense for the group. The
benefit derived from this arrangement was then allocated based on balances
attributable to the respective participants. Thermo Electron guaranteed all of
the obligations of each participant in this arrangement. For 1998, the average
annual interest rate earned on NLG deposits by participants in this credit
arrangement was approximately 5.00% and the average annual interest rate paid on
overdrafts was approximately 5.00%.
As of mid-December 1998, the Company's Thermo EuroTech N.V. subsidiary,
along with certain other Thermo Subsidiaries, has entered into a modification of
the above-described arrangement with ABN AMRO. Only European-based Thermo
Subsidiaries participate in this arrangement. The new arrangement with ABN AMRO
consists of a zero balance arrangement, which includes a $22,780,000 credit
facility. The Company has access to $8,818,000 under this credit facility. Funds
borrowed by the Company under this arrangement pay interest at a rate set by
Thermo Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the
beginning of each month, based on Netherlands market rates. Funds invested by
the Company under the arrangement earn a rate set by Thermo Finance B.V. at the
beginning of each month, based on Netherlands market rates. Such invested funds
are collateralized with investments principally consisting of corporate notes,
U.S. government-agency securities, commercial paper, money market funds, and
other marketable securities, in the amount of at least 103% of such obligation.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. As of April 3, 1999, the Company had a negative cash balance of
approximately $8,186,000 based on an exchange rate of $0.4899/NLG 1.00. As of
April 3, 1999, the average annual interest rate earned on NLG deposits by
participants in this credit arrangement was approximately 3.6% and the average
annual interest rate paid on overdrafts was approximately 4.2%.
At April 3, 1999, the Company owed Thermo Electron and its other
subsidiaries an aggregate of $2,522,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items, net of amounts owed to the Company by Thermo
Electron and its other subsidiaries for products, services and other
miscellaneous items. The largest amount of such net indebtedness owed by the
Company to Thermo Electron and its other subsidiaries since April 4, 1998 was
$3,128,000. These amounts do not bear interest and are expected to be paid in
the normal course of business.
As of April 3, 1999, approximately $40,625,000 of the Company's cash
equivalents was invested in a repurchase agreement with Thermo Electron. Under
this agreement, the Company in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally consisting of
corporate notes, U.S. government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. The Company's funds subject to the repurchase agreement are
readily convertible into cash by the Company. 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. This agreement was terminated effective
June 1, 1999 in connection with the adoption of a new domestic cash management
agreement.
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
Stock Holding Assistance Plan
The human resources committee of the board of directors (the "Committee"),
established a stock holding policy that requires the chief executive officer to
acquire and hold a minimum number of shares of Common Stock. In order to assist
the chief executive officer in complying with the policy, the Committee also
adopted a stock holding assistance plan under which the Company may make
interest-free loans to the chief executive officer, to enable him to purchase
the Common Stock in the open market. The stock holding policy and the stock
holding assistance plan were both subsequently amended to apply only to the
chief executive officer. In fiscal 1998 and 1999, Dr. Appleton received loans in
the principal amount of $137,607 under this plan to purchase 20,000 shares, the
entire amount of which was outstanding as of May 31, 1999. The loan is repayable
upon the earlier of demand or the tenth anniversary of the date of the loan,
unless otherwise determined by the Committee.
Each of the Company's publicly-traded, majority owned subsidiaries have
adopted similar stock holding policies and stock holding assistance plans, which
were applicable to their executive officers prior to their amendment to make
them applicable only to their chief executive officers. Certain executive
officers of the Company are also the chief executive officers of these
subsidiaries and are required to comply with the subsidiary's stock holding
policies. Dr. Appleton, the Company's president and chief executive officer, was
also the chief executive officer of ThermoRetec until May 14, 1997. Mr. Powell,
a vice president of the Company, was also the chief executive officer of
ThermoRetec until April 30, 1998. In fiscal 1998, Dr. Appleton received loans in
the principal amount of $61,867.50 under the plan to purchase 10,000 shares of
the common stock of ThermoRetec, of which the entire amount is still
outstanding. In fiscal 1998, Mr. Powell received loans in the principal amount
of $59,940.50 under the plan to purchase 10,000 shares of the common stock of
ThermoRetec, of which the entire amount is still outstanding. Each of these
loans is repayable upon the earlier of demand or the fifth anniversary of the
date of the loan, unless otherwise determined by the human resources committee
of the board of directors of ThermoRetec.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 1 on form 10-K/A
to be signed by the undersigned, duly authorized.
THERMO TERRATECH INC.
By: / s / Sandra L. Lambert
----------------------------
Sandra L. Lambert
Secretary