SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
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Check the appropriate box:
/X/
Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
THE RANDERS GROUP INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock
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2) Aggregate number of securities to which transaction applies:113,031,051
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $14,129 represents 1/50 of 1% of $70,644,407, which amount is
the value of the securities to be issued by the registrant as
consideration in the transaction (as calculated by multiplying the
average of the high and low prices of the registrant's common stock on
June 23, 1998 by the number of shares to be issued (without giving
effect to a proposed reverse stock split)).
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4) Proposed maximum aggregate value of transaction: $70,644,407.
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5) Total fee paid: $14,129.
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO]
570 W. Seminole Road
Muskegon, Michigan 49444
June 30, 1998
Dear Stockholder:
The enclosed Notice calls a Special Meeting of the Stockholders of The
Randers Group Incorporated. I respectfully request all Stockholders to attend
this Meeting, if possible.
Enclosed with this letter is a proxy authorizing three officers of the
Company to vote your shares for you if you do not attend the meeting. Whether or
not you are able to attend the meeting, I urge you to complete your proxy and
return it to our transfer agent, First Union National Bank, in the enclosed
addressed, postage-paid envelope, as a quorum of the Stockholders must be
present at the meeting, either in person or by proxy.
I would appreciate your immediate attention to the mailing of this proxy.
Yours very truly,
EMIL C. HERKERT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
[LOGO]
570 W. Seminole Road
Muskegon, Michigan 49444
NOTICE OF SPECIAL MEETING
June 30, 1998
To the Holders of the Common Stock of
THE RANDERS GROUP INCORPORATED
A Special Meeting of the Stockholders (the "Meeting") of The Randers Group
Incorporated (the "Company") will be held on Friday, July 31, 1998, at 10:00
a.m. local time at the offices of Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts 02254. The purpose of the Meeting is to consider and take
action on the following matters:
1. A proposal to amend the Company's Certificate of Incorporation to effect
a reverse stock split (the "Reverse Stock Split") of one share for every
five shares (1:5) outstanding of the Company's Common Stock, $.0001 par
value per share ("Common Stock");
2. A proposal to approve the listing on the American Stock Exchange's
Emerging Company Marketplace of 22,606,210 shares of Common Stock (after
giving effect to the Reverse Stock Split) to be issued in connection with
the acquisition by the Company of all of the outstanding shares of The
Killam Group Inc., a wholly owned subsidiary of Thermo TerraTech Inc.;
and
3. A proposal to further amend the Company's Certificate of Incorporation to
change the Company's name to "The Randers Killam Group Inc."
The transfer books of the Company will not be closed prior to the Meeting,
but, pursuant to appropriate action by the Board of Directors, the record date
for the determination of the Stockholders entitled to receive notice of and to
vote at the Meeting (the "Record Date") is June 24, 1998.
The By-laws require that the holders of a majority of the stock issued and
outstanding and entitled to vote be present or represented by proxy at the
Meeting in order to constitute a quorum for the transaction of business. It is
important that your stock be represented at the Meeting regardless of the number
of shares you may hold. Whether or not you are able to be present in person,
please sign and return promptly the enclosed proxy in the accompanying envelope,
which requires no postage if mailed in the United States.
This Notice, the proxy and proxy statement enclosed herewith are sent to you
by order of the Board of Directors.
SANDRA L. LAMBERT
SECRETARY
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of The Randers
Group Incorporated (the "Company") for use at the Special Meeting of the
Stockholders (the "Meeting") to be held on Friday, July 31, 1998, at 10:00 a.m.
local time at the offices of Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts 02254, and any adjournment thereof. The mailing address
of the executive office of the Company is 570 W. Seminole Road, Muskegon,
Michigan 49444, and its telephone number (616) 733-0036. This proxy statement
and the enclosed proxy were first furnished to Stockholders of the Company on or
about July 1, 1998.
VOTING PROCEDURES
The Board of Directors intends to present to the Meeting three proposals:
(i) a proposal to amend the Company's Certificate of Incorporation to effect a
reverse stock split (the "Reverse Stock Split") of one share for every five
shares (1:5) outstanding of the Company's Common Stock, $.0001 par value per
share ("Common Stock"); (ii) a proposal to approve the listing on the American
Stock Exchange's Emerging Company Marketplace ("AMEX-EC") of 22,606,210 shares
of Common Stock (after giving effect to the Reverse Stock Split) (the
"Acquisition Shares") to be issued in connection with the acquisition by the
Company of all of the outstanding shares of The Killam Group Inc. ("The Killam
Group"), a wholly owned subsidiary of Thermo TerraTech Inc. ("Thermo
TerraTech"); and (iii) a proposal to further amend the Company's Certificate of
Incorporation to change the Company's name to "The Randers Killam Group Inc."
The representation in person or by proxy of a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting is necessary to provide a
quorum for the transaction of business at the Meeting. Shares can only be voted
if the Stockholder is present in person or is represented by returning a
properly signed proxy. Each Stockholder's vote is very important. Whether or not
you plan to attend the Meeting in person, please sign and promptly return the
enclosed proxy card, which requires no postage if mailed in the United States.
All signed and returned proxies will be counted towards establishing a quorum
for the Meeting, regardless of how the shares are voted.
Shares represented by proxy will be voted in accordance with your
instructions. You may specify your choices by marking the appropriate boxes on
the proxy card. If your proxy card is signed and returned without specifying
choices, your shares will be voted FOR each proposal and as the individuals
named as proxy holders on the proxy deem advisable on all other matters as may
properly come before the Meeting.
For the proposals to effect the Reverse Stock Split and the proposal to
change the name of the Company, the affirmative vote of a majority of the
Company's outstanding Common Stock is necessary for approval. For the proposal
to list the Acquisition Shares on the AMEX-EC, the affirmative vote of a
majority of the Company's outstanding Common Stock present or represented by
proxy and entitled to vote on the matter is necessary for approval. An
instruction to abstain from voting on a proposal will be treated as shares
present and entitled to vote and, for purposes of determining the outcome of the
vote, will have the same effect as a vote against the proposal. A broker
"non-vote" occurs when a nominee holding shares for a beneficial holder does not
have discretionary voting power and does not receive voting instructions from
the beneficial owner. Broker "non-votes" will not be treated as shares present
and entitled to vote on a voting matter and will have no effect on the outcome
of the vote.
Thermo TerraTech has agreed to vote all of the shares of the Common Stock
held by it as of the Record Date in favor of each of the proposals and all
matters related thereto. As of the Record Date (without giving effect to the
issuance of the Acquisition Shares), Thermo TerraTech beneficially owned
approximately 53.3% of the outstanding Common Stock. In addition, Thermo
Electron Corporation, Thermo TerraTech's parent company, has indicated its
intention to vote all of the shares of the Common Stock held by it as of the
Record Date in favor of each of the proposals and all matters related thereto.
As of the Record Date (without giving effect to the issuance of the Acquisition
Shares), Thermo Electron
1
beneficially owned approximately 8.9% of such outstanding Common Stock.
ACCORDINGLY, APPROVAL OF THE ACQUISITION PROPOSAL BY THE STOCKHOLDERS OF THE
COMPANY IS ASSURED.
A Stockholder who returns a proxy may revoke it at any time before the
Stockholder's shares are voted at the Meeting by written notice to the Secretary
of the Company received prior to the Meeting, by executing and returning a
later-dated proxy or by voting by ballot at the Meeting. Representatives of
Arthur Andersen LLP, the Company's independent public accountants, are not
expected to be present at the Meeting.
The outstanding stock of the Company entitled to vote (excluding shares held
in treasury by the Company) as of the Record Date consisted of 14,115,682 shares
of Common Stock. Only Stockholders of record at the close of business on June
24, 1998 are entitled to vote at the Meeting. Each share is entitled to one
vote.
PROPOSAL 1
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
OF ONE SHARE FOR EVERY FIVE SHARES OF
OUTSTANDING COMMON STOCK
PURPOSE OF THE PROPOSED REVERSE STOCK SPLIT
The Board of Directors has unanimously approved, and recommends that the
Stockholders approve, a proposal to effect a reverse stock split (the "Reverse
Stock Split") of the Company's Common Stock on a one-for-five ratio. A reverse
stock split is the opposite of a conventional stock split. In a reverse stock
split, instead of splitting its outstanding stock or decreasing the par value of
the stock to provide for more shares of stock authorized and outstanding, a
company consolidates its outstanding shares into a lesser number, thereby
reducing the number of shares outstanding. The Reverse Stock Split will not
alter the number of shares of Common Stock authorized for issuance or affect par
value, but will simply reduce the number of shares of Common Stock issued and
outstanding.
The Company's Common Stock has traded in the range of $ 5/16 to $1 5/16
since January 1994. From June 1997 through the Record Date, it has traded in the
range of from $ 1/2 to $1 1/8 . The Board of Directors believes that the current
per share price of the Common Stock limits the marketability of the Common Stock
because of the reluctance of many brokerage firms and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. In addition, certain policies and practices of the securities
industry may tend to discourage individual brokers within those firms from
dealing in lower-priced stocks. Some of those policies and practices involve
time-consuming procedures that make the handling of lower-priced stocks
economically unattractive. The Board of Directors believes that a decrease in
the number of shares of Common Stock outstanding without any material
alterations of the proportionate economic interest in the Company represented by
individual stockholdings may increase the trading price of such shares, although
no assurance can be given that the market price of the Common Stock will rise in
proportion to the reduction in the number of outstanding shares resulting from
the Reverse Stock Split. If, as a result of the Reverse Stock Split and other
factors, the market price per share of the Common Stock is increased
sufficiently, the Company believes that the marketability of the Common Stock
may be enhanced. However, no assurance can be given that such will indeed be the
effect.
The market price of the Common Stock also will be based on the Company's
performance and other factors, some of which may be unrelated to the number of
shares outstanding. Accordingly, there can be no assurance that the market price
of the Common Stock after the Reverse Stock Split will actually increase in an
amount proportionate to the decrease in the number of outstanding shares.
2
In addition, as originally executed, the Stock Purchase Agreement would have
required the Company to issue in excess of 100,000,000 new shares of Common
Stock to Thermo TerraTech in consideration of the acquisition by the Company of
The Killam Group. See "Acquisition Proposal -- Calculation of the Purchase
Price." The Board of Directors believes that by reducing the number of shares to
be issued by giving effect to the Reverse Stock Split, the Company will save
substantial expenses associated with the increase in the Company's authorized
capital as well as substantial Delaware franchise tax payments that are based on
the number of shares of stock outstanding. However, the Reverse Stock Split
would still leave the Company with 5,065,818 shares of authorized but unissued
and unreserved shares of Common Stock available for issuance by the Company in
the future, at the discretion of the Board of Directors of the Company, for
acquisitions, stock splits, stock dividends, equity financings, employee benefit
plans and other corporate purposes. Except for the shares to be issued in
connection with the acquisition of The Killam Group, however, there are no
proposals for any such issuances of additional shares of Common Stock pending
before the Board of Directors.
EFFECTS OF THE PROPOSED REVERSE STOCK SPLIT ON STOCKHOLDERS
The Company currently has 30,000,000 shares of Common Stock authorized. On
the Record Date, there were 14,115,682 shares of Common Stock issued and
outstanding. Giving effect to the issuance of the Acquisition Shares but not to
the Reverse Stock Split, approximately 127,146,733 shares of Common Stock would
be outstanding as of the Record Date. Giving effect to the issuance of the
Acquisition Shares and to the Reverse Stock split, approximately 25,429,347
shares would be outstanding as of the Record Date. The par value per share will
be unaffected by the Reverse Stock Split and will remain at $.0001 per share. As
a consequence, the aggregate par value of the outstanding Common Stock will be
reduced, while the aggregate capital in excess of par value attributable to the
outstanding Common Stock for statutory and accounting purposes will be
correspondingly increased. The resolution approving the Reverse Stock Split
provides that this increase in capital in excess of par value will be treated as
capital for statutory purposes. However, under the General Corporation Law of
the State of Delaware, the Board of Directors of the Company will have the
authority, subject to various limitations, to transfer some or all of such
increased capital in excess of par value from capital to surplus, which
additional surplus could be distributed to Stockholders as dividends or used by
the Company to repurchase outstanding stock. The Company currently has no plans
to use any surplus so created to pay any such dividend or to repurchase stock.
Subject to the provisions for elimination of fractional shares as described
below, consummation of the Reverse Stock Split will not result in a change in
the relative equity position or voting power of the holders of Common Stock.
No fractional shares of Common Stock will be issued to any Stockholder.
Accordingly, Stockholders of record who would otherwise be entitled to receive
fractional shares of Common Stock will, upon surrender of their certificates
representing shares of Common Stock, receive a cash payment in lieu thereof
equal to the value of such fractional share determined by reference to the
closing price as reported by the AMEX-EC (as adjusted by the Reverse Stock
Split) of the Common Stock on the date (the "Effective Date") the Reverse Stock
Split becomes effective. Holders of less than one share of Common Stock as a
result of the Reverse Stock Split no longer will be Stockholders of the Company
as of the Effective Date. As of the Record Date, only Stockholders of
record held fewer than five shares of Common Stock. As of the Effective Date,
the Company will continue to have more than Stockholders of record.
Stockholders should be aware that as a general rule, a stock split will, in
and of itself, neither increase nor decrease the intrinsic value of a
Stockholder's investment. Except for holders who receive cash in lieu of a
fractional share, the smaller number of shares resulting from a reverse split
generally leaves shareholders with approximately the same proportionate
ownership as before the reverse split. The issuance of cash in lieu of a
fractional share will increase the proportionate interest of some Stockholders
and decrease the proportionate interest of others.
3
The greatest possible increase in ownership will accrue to any Stockholder
holding a number of shares evenly divisible by five, if any so exist. Those
current holders of a number of shares of Common Stock not evenly divisible by
five will receive cash in lieu of fractional shares, and will correspondingly
suffer a dilution in ownership. The difference in the ownership interest of each
Stockholder resulting from the Reverse Stock Split will generally be inversely
proportional to the number of shares held by such Stockholder, with large
Stockholders generally affected the least.
The Company believes that the Reverse Stock Split will have no detrimental
effect on the total value of the Company's Common Stock. However, the Reverse
Stock Split may leave Stockholders with one or more "odd lots" of Common Stock,
i.e., stock holdings in amounts of fewer than 100 shares. These shares may be
more difficult to sell, or require a greater brokerage commission per share to
sell, than shares in lots of 100.
To prevent the enlargement of the rights of stock option holders, the number
of shares covered by and the exercise price of all outstanding stock options
will be adjusted on the same basis as the Common Stock. The number of shares
subject to outstanding options will be rounded down to the next nearest whole
number of shares after giving effect to the Reverse Stock Split.
MECHANICS OF THE REVERSE STOCK SPLIT; PROCEDURES FOR EXCHANGE OF STOCK
CERTIFICATES
The Reverse Stock Split will be effected by the filing with the Secretary of
State of the State of Delaware, subsequent to the approval of the Reverse Stock
Split by the Stockholders, a certificate of amendment to the Company's
Certificate of Incorporation deleting Article FOURTH thereof and replacing it
with substantially the following:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Thirty Million (30,000,000) of which Thirty
Million (30,000,000) of the par value of one one-hundredths of a cent
($.0001) shall be designated as Common Stock. Each share of Common Stock,
$.0001 par value, issued at the close of business on the date (the
"Effective Date") this Amendment to the corporation's Certificate of
Incorporation, as previously amended, becomes effective shall automatically
be converted into one-fifth (1/5) of a validly issued, fully paid and
nonassessable share of Common Stock, $.0001 par value. On the Effective
Date, each share of Common Stock, $.0001 par value, immediately prior to the
Effective Date, shall represent one fifth (1/5) of a share of Common Stock,
$.0001 par value, from and after the Effective Date. No fractional shares of
Common Stock or scrip representing fractional shares of Common Stock shall
be issued upon this Amendment to the corporation's Certificate of
Incorporation becoming effective. Any stockholder who would otherwise be
entitled to receive a fractional share will be paid cash equal to such
stockholder's fractional interest multiplied by the closing price as
reported by the American Stock Exchange, Inc.'s Emerging Company Marketplace
(as adjusted by the reverse stock split) of the Common Stock on the
Effective Date in lieu of such fractional share."
On the Effective Date, each five shares of the Common Stock held prior to
the Reverse Stock Split ("Old Common Stock") will automatically be combined and
changed into one share of "new" Common Stock ("New Common Stock"). No additional
action on the part of the Company or any Stockholder will be required in order
to effect the Reverse Stock Split. Stockholders will be requested to exchange
their certificates representing shares of Old Common Stock for new certificates
representing shares of New Common Stock issued as a result of the Reverse Stock
Split. Stockholders will be furnished the necessary materials and instructions
to effect such exchange promptly following the Effective Date by the Company's
transfer agent. Please do not return your certificates until you receive these
instructions. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
CERTIFICATES REPRESENTING SHARES OF OLD COMMON STOCK SUBSEQUENTLY PRESENTED
FOR TRANSFER WILL NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF THE COMPANY
UNTIL THE CERTIFICATES REPRESENTING THE SHARES OF
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OLD COMMON STOCK HAVE BEEN EXCHANGED FOR CERTIFICATES REPRESENTING SHARES OF NEW
COMMON STOCK.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following information is based upon existing law, which is subject to
change by legislation, administrative action and judicial decision, and is
necessarily general. Therefore, Stockholders are advised to consult with their
own tax advisors for more detailed information regarding their individual tax
circumstances. While no ruling as to the federal income tax consequences of the
Reverse Stock Split has been requested from the Internal Revenue Service, the
Company expects the following federal income tax consequences will result:
1. The Reverse Stock Split will be a tax-free recapitalization, in which
neither the Company nor its Stockholders recognize gain or loss for federal
income tax purposes (apart from Stockholders receiving cash in lieu of
fractional shares, discussed below).
2. The shares of Common Stock in the hands of a Stockholder immediately
after the Reverse Stock Split will have an aggregate tax basis equal to the
Stockholder's aggregate tax basis of shares of Common Stock immediately prior to
the Reverse Stock Split (apart from any basis allocated to fractional shares,
discussed below).
3. A Stockholder's holding period for the shares of Common Stock after the
Reverse Stock Split will include the holding period of shares of Common Stock
before the Reverse Stock Split.
4. A Stockholder receiving cash in lieu of fractional shares in the Reverse
Stock Split will be treated as if the Stockholder had received the fractional
shares, and the fractional shares had been redeemed by the Company. For most
Stockholders receiving cash in lieu of fractional shares, that cash will be
treated for federal income tax purposes as a dividend paid by the Company, in
which case none of the Stockholder's basis would be allocated to the fractional
shares. For some Stockholders, however, it is possible that the cash received in
lieu of a fractional share will be treated as gain (or loss) from the sale or
exchange of the fractional shares, in which case such gain or loss would be a
capital gain or loss if the stock was a capital asset in the Stockholder's
hands, and basis would be allocated to the fractional shares as outlined above
(unless the fractional shares represented less than 15% of the fair market value
of the Company stock held by the Stockholder before the Reverse Stock Split and
the Stockholder does not elect to allocate basis to the fractional shares).
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RECOMMENDATION
The Board of Directors believes that the Reverse Stock Split is in the best
interests of the Company and the Stockholders and recommends that the
Stockholders vote FOR adoption of the proposal to effect the Reverse Stock
Split. If not otherwise specified, proxies will be voted FOR approval of this
proposal. Thermo TerraTech and Thermo Electron, which beneficially own an
aggregate of approximately 62.2% of the outstanding Common stock as of the
Record Date, have sufficient votes to approve the proposal and have indicated
their intention to vote for the proposal.
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5
PROPOSAL 2
ACQUISITION PROPOSAL
SUMMARY OF TRANSACTIONS CONTEMPLATED BY THE STOCK PURCHASE AGREEMENT
On September 19, 1997, the Company and Thermo TerraTech entered into a
definitive agreement (as amended effective April 4, 1998, the "Stock Purchase
Agreement"), in which the Company agreed to acquire (the "Acquisition") the
capital stock of The Killam Group from Thermo TerraTech in exchange for
22,606,210 shares of Common Stock (after giving effect to the Reverse Stock
Split) (the "Acquisition Shares"). A copy of the Stock Purchase Agreement is
attached hereto as Appendix A.
Approval of the Acquisition by the Stockholders of the Company is not
required by the General Corporation Law of the State of Delaware or by the
Company's Certificate of Incorporation or By-Laws, as amended. However, the
Company's Common Stock is listed for trading on the American Stock Exchange
Inc.'s Emerging Company Marketplace ("AMEX-EC"). The rules of the American Stock
Exchange Inc. ("AMEX") require that the holders of a majority of the Company's
outstanding shares present and voting at a Stockholders' meeting approve the
listing of the Acquisition Shares to be issued pursuant to the Stock Purchase
Agreement prior to their issuance. This approval is required pursuant to Section
712 of the AMEX Company Guide, which requires shareholder approval prior to the
listing of shares issued as partial consideration in an acquisition if (i) any
substantial stockholder of the listed company has a five percent or greater
interest in the company to be acquired and (ii) the issuance of the new shares
as consideration could result in an increase in the outstanding shares of the
listed company of five percent or more. Thermo TerraTech is a "substantial
shareholder" of the Company and also has a greater than five percent interest in
The Killam Group. Moreover, the issuance of the Acquisition Shares would result
in an increase in the Company's outstanding shares of Common Stock of more than
five percent. Thermo TerraTech has agreed to vote all of the shares of the
Common Stock held by it as of the Record Date in favor of the listing of the
Acquisition Shares and all matters related thereto. As of the Record Date
(without giving effect to the issuance of the Acquisition Shares), Thermo
TerraTech beneficially owned approximately 53.3% of the outstanding Common
Stock. In addition, Thermo Electron Corporation, Thermo TerraTech's parent
company, has indicated its intention to vote all of the shares of the Common
Stock held by it as of the Record Date in favor of the listing of the
Acquisition Shares and all matters related thereto. As of the Record Date
(without giving effect to the issuance of the Acquisition Shares), Thermo
Electron beneficially owned approximately 8.9% of such outstanding Common Stock.
Giving effect to the issuance of the Acquisition Shares would increase Thermo
TerraTech's ownership percentage to approximately 94.8%.
BACKGROUND OF THE STOCK PURCHASE AGREEMENT
On May 12, 1997, Thermo TerraTech purchased 7,100,000 shares of Common Stock
from certain members of the management of the Company and 420,000 shares of
Common Stock from Thermo Power Corporation, a publicly held subsidiary of Thermo
Electron. Thermo TerraTech paid a purchase price of $.625 per share for an
aggregate of $4,437,500 to the members of management and $262,500 to Thermo
Power Corporation, respectively. Upon the consummation of those transactions,
Thermo TerraTech owned a controlling interest in the Company. Simultaneously,
the Company and Thermo TerraTech executed a non-binding letter of intent with
respect to the sale by Thermo TerraTech to the Company of the engineering and
consulting businesses of Thermo TerraTech known as The Killam Group at a
purchase price to be mutually determined by the parties, but, in any event, not
less than the book value of The Killam Group as of the closing date, to be paid
by delivery to Thermo TerraTech by the Company of that number of newly issued
shares equal to such agreed price divided by $.625.
The proposed purchase and sale of The Killam Group was presented to the
Boards of Directors of the Company and Thermo TerraTech for their consideration.
On , 1997, the Boards of Directors of the Company and of Thermo TerraTech
both unanimously resolved to transfer The Killam Group to the
6
Company. On September 19, 1997, the Company and Thermo TerraTech entered into a
definitive agreement (as amended effective April 4, 1998, the "Stock Purchase
Agreement") to complete the sale of The Killam Group.
CALCULATION OF THE PURCHASE PRICE
Under the terms of the Stock Purchase Agreement, the Company originally
agreed to issue 103,569,600 new shares of its Common Stock (without giving
effect to the Reverse Stock Split) to Thermo TerraTech in consideration of the
acquisition of The Killam Group. That number shares equaled the audited book
value of The Killam Group as of March 29, 1997, divided by $.625, the per share
purchase price paid by Thermo TerraTech in connection with its May 12, 1997
acquisition of a controlling interest of the Company. However, the actual number
of shares to be so issued would be either (i) increased by the amount, if any,
by which the book value of The Killam Group as of the closing date exceeded such
book value as of March 29, 1997 or (ii) decreased by the amount, if any, by
which the book value of The Killam Group as of March 29, 1997 exceeded such book
value as of the closing date. The consideration to be paid for The Killam Group
was based on the Company's determination of the fair market value of The Killam
Group's business. In addition, prior to the execution of the Stock Purchase
Agreement, the Board of Directors retained Cazenove Incorporated, an investment
banking firm, to render an opinion that the book value of The Killam Group
approximates fair market value. See "Opinion of Financial Advisor". Effective
April 4, 1998 (the end of The Killam Group's most recent fiscal year), the
Company and Thermo TerraTech amended the Stock Purchase Agreement to provide
that the number of shares of the Company's Common Stock to be issued to Thermo
TerraTech would equal (i) $70,644,407, the audited book value of The Killam
Group as of April 4, 1998, divided by (ii) $.625, without subsequent adjustment
other than that the number of shares to be so issued would be calculated and
issued after giving effect to the Reverse Stock Split.
REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors believes that the acquisition of The Killam
Group complements the Company's existing business. The Company presently offers
design, engineering, development, construction and consulting services primarily
to the manufacturing, chemical and pharmaceutical industries. The Killam Group
also engages in a variety of engineering, design, consulting and construction
businesses, primarily focusing on wastewater collection and treatment; water
supply, treatment and distribution; stormwater and flood control; solid and
hazardous waste management; and similar environmental services, primarily for
municipalities in the Northeast and Florida. The Company's Board of Directors
believes that the Company's acquisition of The Killam Group will enable the
Company to enter into new markets for its engineering and consulting services in
which it is not well represented and to strengthen its presence in markets in
which it already operates.
In making the decision to engage in the Acquisition, the Company's Board of
Directors considered the following factors, which were considered to have a
material bearing on the Board's decision: the types of services offered by The
Killam Group; the potential to integrate those services with those offered by
the Company; the ability to expand the Company's existing engineering, design
and consulting capabilities; the geographic location of The Killam Group's
facilities as compared with the existing geographic presence of the Company;
perceived strengths of the management, technical and other personnel of The
Killam Group; the financial history and financial projections of The Killam
Group; and the Company's ability to expand its market share, research
capabilities and technological capacity through integration of The Killam Group
with the Company's existing operations.
As with any acquisition, however, there can be no assurance that the Company
will be successful in integrating The Killam Group's business with its current
operations, nor that the benefits that the Company's Board of Directors expects
from the Acquisition, as described above, will be achieved. If the
7
Company were unsuccessful in achieving such integration, such failure could
adversely affect the Company's performance. See "Forward-Looking Statements --
Risks Associated with Acquisition Strategy."
The Board of Directors has unanimously approved the Stock Purchase Agreement
and the transactions contemplated thereby and believes that the Acquisition is
fair to and in the best interests of the Company and its Stockholders. In
addition, Cazenove Incorporated, an investment banking firm, has delivered its
opinion to the Board of Directors of the Company that, based on the various
considerations set forth in its opinion, as of September 12, 1997, the book
value of Killam approximates its fair market value. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE LISTING OF THE SHARES TO BE
ISSUED IN CONNECTION WITH THE ACQUISITION.
ACCOUNTING TREATMENT OF THE ACQUISITION
The Acquisition has been accounted for in accordance with Staff Accounting
Bulletin Topic 2-A2, pursuant to which The Killam Group has been treated as the
"accounting acquiror" of the Company because Thermo TerraTech owns the larger
portion of the voting rights of the Company. Accordingly, the historical
financial information of the Company has been restated to solely reflect the
financial information of The Killam Group for periods prior to May 12, 1997, the
date on which Thermo TerraTech acquired a majority interest in the Company.
Results from May 12, 1997, reflect the combined results of The Killam Group and
the Company.
OPINION OF FINANCIAL ADVISOR
The determination of the number of shares of Common Stock to be issued to
Thermo TerraTech in connection with the Acquisition was determined by the
Company's Board of Directors in consultation with the Company's management.
However, because the Acquisition involves parties affiliated with the Company,
before giving its final approval to the terms of the Acquisition, the Board of
Directors retained Cazenove Incorporated, an investment banking firm (the
"Financial Advisor"), to render to the Board of Directors an opinion (the
"Opinion") that, as of the date of the Opinion, the book value of The Killam
Group approximates fair market value. In rendering its Opinion, dated as of
September 12, 1997, the Financial Advisor was engaged to and did (1) review the
proposed form of the Stock Purchase Agreement; (2) review the agreements
relating to Thermo TerraTech's May 12, 1997 acquisition of shares of the Company
from certain members of management of the Company; (3) review certain historical
and prospective financial, operating and other information concerning The Killam
Group; (4) meet with the senior management of The Killam Group to discuss the
business and operations of The Killam Group, as well as prospects for The Killam
Group's industry; (5) visit the principal operations and facilities of The
Killam Group; (6) review publicly available financial and market data for
companies which the Financial Advisor deemed comparable to The Killam Group; (7)
review the financial terms of recent business combinations deemed comparable by
the Financial Advisor for which information was publicly available; and (8)
conduct such other financial studies, analyses and investigations as the
Financial Advisor deemed appropriate for purposes of its Opinion. A more
detailed description of these items is set forth below.
The Financial Advisor was not engaged to render an opinion as to whether or
not the Acquisition is fair, from a financial point of view, to the Company or
to make an independent evaluation or appraisal of any particular asset of The
Killam Group and was not furnished with any such appraisal. Its Opinion was
based on its assessment of market, economic and other conditions as they existed
and could be evaluated as of the date of the Opinion. The Financial Advisor's
Opinion was not intended to confer rights or remedies upon the Stockholders of
the Company or any other persons.
The analyses performed by the Financial Advisor must be considered as a
whole, and selecting portions of its analyses and of the factors considered by
the Financial Advisor, without considering all of the factors and analyses,
could create a misleading view of the process underlying the Financial Advisor's
Opinion. The preparation of an opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its Opinion, the Financial Advisor did not attribute any
8
particular weight to any single analysis or factor, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, the
Financial Advisor selected six publicly traded companies that were deemed to
possess general business, operating and financial characteristics representative
of the industry in which The Killam Group operates. The Financial Advisor
reviewed the financial terms of recent business combinations deemed to be
comparable for which information was publicly available and determined the
acquisition premium. By applying the acquisition premium and using the closing
share prices of the comparable companies for August 27, 1997, the Financial
Advisor calculated the multiples for The Killam Group for the latest twelve
months for EBIT (earnings before interest and taxes), pretax earnings and net
earnings. The comparable company analysis resulted in a range of implied values
from $65.5 million to $83.6 million.
COMPARABLE TRANSACTIONS ANALYSIS. The Financial Advisor reviewed publicly
available financial information on four comparable transactions of similar size
and within the same general industry. Applying the average multiples paid for
EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT
and net income, a range of implied values of $68.7 million to $80.8 million was
derived for The Killam Group.
DISCOUNTED CASH FLOW ANALYSES. The Financial Advisor analyzed The Killam
Group based on discounted cash flow analyses of the projections provided by
Thermo TerraTech and The Killam Group. The discounted cash flow analyses
determined the present value of The Killam Group's projected unleveraged,
after-tax cash flows and then added to such discounted value the present value
of the estimated terminal valuation at the end of fiscal year 2002 to provide a
total value. The terminal value method calculated the valuation based on
multiples of EBIT ranging from 7 to 8 and a discount rate of 10.49%. The
terminal value method resulted in a range in implied values from $81.1 million
to $89.3 million. Employing the cash flow in perpetuity method, the Financial
Advisor utilized perpetual growth rates ranging from 3% to 4%, which resulted in
a range of implied values from $82.3 million to $94.9 million.
A copy of the Financial Advisor's Opinion is attached as Appendix B, and the
summary of its contents provided below is qualified in its entirety by reference
thereto. Stockholders are advised to read the opinion in its entirety.
The Opinion states that, based upon and subject to the qualifications set
forth therein, it is the opinion of the Financial Advisor that, as of the date
of the Opinion, the book value of The Killam Group approximates fair market
value. The Opinion is qualified by the Financial Advisor's statements therein
that (a) the Financial Advisor assumed that the Stock Purchase Agreement was in
the form executed by the parties and did not differ from the proposed form of
agreement reviewed by the Financial Advisor in any material respect; (b) the
Financial Advisor relied upon and assumed the accuracy, genuineness,
completeness and fairness of the financial or other information provided by the
Company or otherwise made available to the Financial Advisor and did not attempt
to independently verify such information; (c) the Financial Advisor was not
engaged to make any independent evaluation or appraisal of any particular asset
of The Killam Group; and (d) the Financial Advisor expresses no opinion
regarding The Killam Group's liquidation value. The Opinion also states that it
is based on the Financial Advisor's assessment of market, economic and other
conditions as they existed and could be evaluated on the date of the Opinion.
Stockholders are advised that the Financial Advisor's Opinion does not
constitute a recommendation that any Stockholder of the Company vote either for
or against approval of the Acquisition. The Company has paid the Financial
Advisor a fee of $50,000 in connection with the rendering of its Opinion, and
has agreed, with certain exceptions, to indemnify the Financial Advisor and its
affiliates against losses suffered by them which relate to or arise out of the
Financial Advisor's engagement to render the Opinion.
The Financial Advisor was chosen by the Board of Directors to render the
Opinion with regard to the Acquisition, as it and several of its affiliates, as
part of their investment banking services, are regularly
9
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Financial Advisor has performed investment banking and financial advisory
services for Thermo Electron, the parent of Thermo TerraTech, and its affiliates
from time to time for which it has received customary compensation. In the
ordinary course of business, affiliates of the Financial Advisor actively trade
the securities of the Company, Thermo TerraTech, Thermo Electron and their
affiliates for their own account and the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities.
The Financial Advisor may provide investment banking and financial advisory
services to the Company, Thermo TerraTech, Thermo Electron and their affiliates
in the future.
SUMMARY OF THE STOCK PURCHASE AGREEMENT
A COPY OF THE STOCK PURCHASE AGREEMENT IS ATTACHED AS APPENDIX A, AND THE
SUMMARY OF ITS CONTENTS PROVIDED BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
THERETO. STOCKHOLDERS ARE ADVISED TO READ THE STOCK PURCHASE AGREEMENT IN ITS
ENTIRETY.
GENERAL
On September 19, 1997, the Company agreed to acquire the capital stock of
The Killam Group from Thermo TerraTech. Under the terms of the Stock Purchase
Agreement, the Company originally agreed to issue 103,569,600 new shares of its
Common Stock (without giving effect to the Reverse Stock Split) to Thermo
TerraTech in consideration of the acquisition of The Killam Group. That number
shares equaled $64,731,000, the audited book value of The Killam Group as of
March 29, 1997, divided by $.625, the per share purchase price paid by Thermo
TerraTech in connection with its May 12, 1997 acquisition of a controlling
interest of the Company. However, the actual number of shares to be so issued
would be either (i) increased by the amount, if any, by which the book value of
The Killam Group as of the closing date exceeded such book value as of March 29,
1997 or (ii) decreased by the amount, if any, by which the book value of The
Killam Group as of March 29, 1997 exceeded such book value as of the closing
date. The consideration to be paid for The Killam Group was based on the
Company's determination of the fair market value of The Killam Group's business.
In addition, prior to the execution of the Stock Purchase Agreement, the Board
of Directors retained Cazenove Incorporated, an investment banking firm, to
render an Opinion that, as of the date of the Opinion, the book value of The
Killam Group approximates fair market value. See "Opinion of Financial Advisor".
Effective April 4, 1998 (the end of The Killam Group's most recent fiscal year),
the Company and Thermo TerraTech amended the Stock Purchase Agreement to provide
that the number of shares of the Company's Common Stock to be issued to Thermo
TerraTech would equal (i) $70,644,407, the audited book value of The Killam
Group as of April 4, 1998, divided by (ii) $.625, without subsequent adjustment
other than that the number of shares to be so issued would be calculated and
issued after giving effect to the Reverse Stock Split.
ISSUANCE OF THE ACQUISITION SHARES
The consummation of the transactions contemplated by the Stock Purchase
Agreement (the "Closing") is conditioned on the prior listing of the Acquisition
Shares for trading upon the AMEX-EC. In the Stock Purchase Agreement, the
Company agreed to take all action necessary in accordance with applicable law to
convene a meeting of its Stockholders for the purpose of approving the listing
of the Acquisition Shares for trading upon AMEX-EC and to recommend to the
Stockholders the approval of such listing. Thermo TerraTech has agreed to vote
all of the shares of the Common Stock held by it as of the Record Date in favor
of the listing of the Acquisition Shares and all matters related thereto. As of
the Record Date (without giving effect to the issuance of the Acquisition
Shares), Thermo TerraTech beneficially owned approximately 53.3% of the
outstanding Common Stock. In addition, Thermo Electron Corporation, Thermo
TerraTech's parent company, has indicated its intention to vote all of the
shares of the Common Stock held by it as of the Record Date in favor the listing
of the Acquisition Shares and all matters related thereto. As of the Record Date
(without giving effect to the issuance of the Acquisition Shares), Thermo
10
Electron beneficially owned approximately 8.9% of such outstanding Common Stock.
Giving effect to the issuance of the Acquisition Shares would increase Thermo
TerraTech's ownership percentage to approximately 94.8%.
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
In the Stock Purchase Agreement, the Company and Thermo TerraTech made
certain representations and warranties to one another with respect to certain
customary matters, such as their respective organization, their respective
authority to enter into the Stock Purchase Agreement and the enforceability of
the Stock Purchase Agreement. In addition, Thermo TerraTech made certain
representations and warranties to the Company with respect to (i) the
capitalization of The Killam Group, (ii) environmental conditions with respect
to The Killam Group's properties, and (iii) The Killam Group's (a) audited
balance sheets and statements of income, changes in stockholder's equity, and
cash flow as of and for the fiscal years ended April 1, 1995, March 30, 1996,
and March 29, 1997 and (b) unaudited balance sheets and statements of income,
changes in stockholder's equity, and cash flow as of and for the three months
ended June 28, 1997. The representations and warranties made by Thermo TerraTech
with respect to environmental conditions at The Killam Group's properties
include statements regarding the absence of activity on premises occupied by The
Killam Group involving use, handling, storage, or disposal of hazardous or toxic
wastes in violation of common law or any applicable environmental law. In
addition, the representations and warranties of Thermo TerraTech with respect to
The Killam Group's consolidated financial statements state that such financial
statements present fairly the financial condition of The Killam Group as of such
dates and the results of operations of The Killam Group for such periods are
correct and complete, and are consistent with the books and records of The
Killam Group (which books and records are correct and complete), in each case in
accordance with generally accepted accounting principles consistently applied.
Each of these representations and warranties survives the Closing for a period
of two years from the date of the Closing.
AMENDMENTS; WAIVERS
Any provision of the Stock Purchase Agreement may be amended or waived by
the mutual consent of the parties at any time. The Company does not expect that
any material provisions of the Stock Purchase Agreement will be further amended
or waived. However, as any amendment or waiver of any provision of the Stock
Purchase Agreement requires the consent of both the Company and Thermo
TerraTech, any changes made will be the result of negotiation between and
agreement by both parties.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Acquisition is intended to be treated as a tax-free reorganization in
which The Killam Group is acquired by the Company in exchange for shares of the
Company's Common Stock. No gain or loss will be recognized by the Company in
connection with the Acquisition or the issuance of the Acquisition Shares. No
ruling as to the federal income tax consequences of the Acquisition has been
requested from the Internal Revenue Service.
REGULATORY APPROVALS
No federal or state regulatory approvals are required in connection with the
Acquisition, the Reverse Stock Split, the listing of the Acquisition Shares, or
any other transaction described in this proxy statement.
NO DISSENTERS' APPRAISAL RIGHTS
Under applicable provisions of the General Corporation Law of the State of
Delaware, holders of the Company's Common Stock will not have any dissenters'
appraisal rights in connection with the Acquisition, the Reverse Stock Split,
the listing of the Acquisition Shares, or any other transaction described in
this proxy statement.
11
INFORMATION CONCERNING THE ACQUIRED COMPANY
BUSINESS
GENERAL
Under the terms of the Stock Purchase Agreement, the Company will acquire
all of the issued and outstanding shares of The Killam Group in exchange for
22,606,210 shares of Common Stock (after giving effect to the Reverse Stock
Split). The principal executive office of Killam is located at 21 and 27 Bleeker
Street, Millburn, New Jersey, 07041-1008. The phone number is (973) 379-3400.
PRINCIPAL SERVICES
The Killam Group is a holding company that operates its businesses through
several wholly owned subsidiaries. The following is a brief description of the
business of The Killam Group.
ELSON T. KILLAM ASSOCIATES, INC., which conducts business under the name
Killam Associates, offers comprehensive planning, investigation, design and
management services in the engineering disciplines and environmental sciences.
Killam Associates, headquartered in Millburn, New Jersey, provides services in
the areas of wastewater collection and treatment; water supply, treatment and
distribution; stormwater and flood control; solid and hazardous waste
management; environmental site assessments; hydrogeology and storage tank
management; wetland assessment and ecological studies; coastal resources and
risk management; site development engineering; municipal engineering; mining
environmental studies; and hydraulic infrastructure evaluation.
KILLAM MANAGEMENT & OPERATIONAL SERVICES ("KMOS"), headquartered in
Millburn, New Jersey, provides contract operation and management services for
water, wastewater and hazardous-waste treatment facilities for both public and
private sector clients. Contract operations help relieve the administrative
burden normally associated with operating these types of facilities. KMOS
assists in lowering operating costs through more efficient utilization for
labor, chemicals, energy and other resources.
E-3 KILLAM, INC., headquartered in Millburn, New Jersey, offers a range of
air-quality services to the public and private sectors, including stack and
fugitive testing; air-quality program management; regulatory review and
permitting; emissions quantification and modeling; engineering evaluations and
design; site assessments; compliance plan development; data management and
tracking; pollution prevention; and indoor air/asbestos monitoring and
consulting services.
CARLANKILLAM CONSULTING GROUP, INC., headquartered in Pensacola, Florida,
offers engineering, architectural and surveying services throughout Florida and
in neighboring states. The company specializes in infrastructure planning and
design and well as providing architecture, interior design and site development
services. CarlanKillam is also a leader in the design of innovative solutions to
traffic problems and transportation needs.
BACKILLAM INC., headquartered in New York City with regional offices
throughout the Northeast and in Florida, provides a broad range of professional
engineering services to both public and private clients, primarily in the area
of bridge and highway engineering. Projects include bridge inspection, rating
and rehabilitation; new bridge design; highway corridor planning studies for new
route alignment of major state highways; design of the reconstruction and
widening of existing major roads; and construction inspection on both highway
and bridge projects.
KILLAM ASSOCIATES, NEW ENGLAND, INC., headquartered in Hadley,
Massachusetts, is a New England-based consulting engineering business
emphasizing environmental engineering services and providing civil and building
engineering services to a mix of public and private clients. Projects include
municipal and industrial wastewater treatment; environmental site assessments;
solid waste management; landfill design
12
and closure; water supply, treatment and distribution; site development and
planning; land surveying; and professional construction management.
PRINCIPAL CUSTOMERS
The principal customers for The Killam Group's services are municipalities,
state governments, government utility authorities, investor-owned utilities and
private sector industrial and commercial companies. A substantial portion of The
Killam Group's consulting and design services are made to existing customers on
a repeat basis. In addition to federal, state and local governments, customers
include public utilities, consulting and construction engineers, architectural
and engineering firms, waste management companies, oil refineries, mining
companies, chemical manufacturers, and a variety of service companies involved
with real estate transactions.
COMPETITION
The Killam Group's consulting and design businesses are engaged in highly
competitive markets in all of its service areas. These markets tend to be
regional. In its geographic service area, competition consists of small, one- to
three-person firms offering a limited scope of services, as well as much larger
firms that may be regional, national, or international in the scope of services
they offer. Larger competitors include Camp, Dresser & McKee; Metcalf & Eddy;
Malcolm Pirnie Inc.; Hazen & Sawyer, P.C.; Parsons, Brinckerhoff Inc.; URS
Greiner; Howard Needles Tammen & Bergendoff; United Water Resources;
Professional Services Group; United Water; US Water; Envirotech Operating
Services (a division of US Filter); OMI; and Servern Trent. The principal
competitive factors for the The Killam Group are: reputation; experience; price;
breadth and quality of services offered; and technical, managerial, and business
proficiency.
MANAGEMENT
The following sets forth information concerning the executive officers and
directors of The Killam Group:
Emil C. Herkert, P.E., age 60, has been President and a director of The
Killam Group since its organization in September 1997. Mr. Herkert also served
as president of The Killam Group's Killam Associates subsidiary from 1977
through May 1998. Mr. Herkert has served in various positions at Killam
Associates and other subsidiaries of The Killam Group since 1963.
Dr. John P. Appleton, age 63, has been Vice President and a director of The
Killam Group since its organization in September 1997. Dr. Appleton has been
president, chief executive officer and a director of Thermo TerraTech since
September 1993. Dr. Appleton has been chairman, chief executive officer and a
director of Thermo Remediation Inc., a majority owned subsidiary of Thermo
TerraTech, since September 1993 and has served as a vice president of Thermo
Electron since 1975 in various managerial capacities.
EMPLOYEES
As of April 4, 1998, The Killam Group has employed 711 people, of whom
approximately 607 are engaged in providing consulting and engineering services,
40 of whom are engaged in contract operations and 64 of whom are engaged in
general administration.
PROPERTIES
The Killam Group is headquartered in 49,000 square feet of office space in
Millburn, New Jersey in buildings owned by Killam Associates. Killam Associates
also leases 21,322 square feet of office space in Warrendale, Pennsylvania
pursuant to a lease expiring in October 2001. BACKillam Inc.'s headquarters
occupy 10,000 square feet of office space in New York City pursuant to a lease
expiring in December 2002.
13
BACKillam Inc. also occupies 9,200 square feet of Killam Associates' Millburn,
New Jersey headquarters. E3-Killam Inc.'s regional office occupies 5,250 square
feet in Buffalo, New York, pursuant to a lease expiring in September 2000.
CarlanKillam Consulting Group, Inc.'s headquarters, located in Pensacola,
Florida, occupy 18,666 square feet pursuant to a lease expiring in June 2000.
Killam Associate, New England Inc.'s headquarters in Hadley, Massachusetts,
occupy 3,060 square feet pursuant to a lease expiring in July 1998. In addition
to these primary facilities, The Killam Group and its subsidiaries lease
additional office space in approximately 18 other locations. The Company
believes that these facilities are adequate for The Killam Group's present
operations and that other suitable space is readily available if any of these
leases are not extended.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS)
FISCAL YEAR ENDED APRIL 4, 1998
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
Revenues.............................................................. $ 15,534 $ 15,526 $ 15,010 $ 14,359
Gross Profit.......................................................... 4,109 4,003 3,990 3,497
Net Income............................................................ 763 796 718 212
FISCAL YEAR ENDED MARCH 29, 1997
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
Revenues.............................................................. $ 17,722 $ 15,893 $ 15,346 $ 15,413
Gross Profit.......................................................... 4,283 4,256 3,999 3,788
Net Income............................................................ 1,029 1,048 792 711
14
SELECTED FINANCIAL INFORMATION -- THE KILLAM GROUP INC.
The selected financial information presented below as of and for the fiscal
years ended April 4, 1998 and March 29, 1997, and for the fiscal year ended
March 30, 1996, has been derived from The Killam Group Inc.'s Combined Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this Proxy
Statement. This information should be read in conjunction with The Killam Group
Inc.'s Combined Financial Statements and related notes included elsewhere in
this Proxy Statement. The selected financial information as of March 30, 1996,
and for the fiscal year ended April 1, 1995, have been derived from The Killam
Group Inc.'s Combined Financial Statements, which have been audited by Arthur
Andersen LLP, but have not been included in this Proxy Statement. The selected
financial information as of April 1, 1995, and as of and for the calendar year
ended January 1, 1994, has not been audited but, in the opinion of management,
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.
CALENDAR
FISCAL YEAR ENDED YEAR ENDED
---------------------------------------------- -----------
APRIL 4, MARCH 29, MARCH 30, APRIL 1, JANUARY 1,
1998 1997 (1) 1996 1995 (2) 1994
--------- ----------- ----------- --------- -----------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 60,429 $ 64,374 $ 58,515 $ 27,735 $ 21,009
--------- ----------- ----------- --------- -----------
Costs and Operating Expenses:
Cost of revenues..................................... 44,830 48,048 45,012 22,095 17,751
Selling, general and administrative expenses......... 10,751 9,555 8,131 4,125 3,020
--------- ----------- ----------- --------- -----------
55,581 57,603 53,143 26,220 20,771
--------- ----------- ----------- --------- -----------
Operating Income....................................... 4,848 6,771 5,372 1,515 238
Interest Income........................................ 156 110 173 5 --
Interest Expense....................................... (119) (184) (257) (38) --
Loss on Sale of Assets................................. -- -- (569) -- --
--------- ----------- ----------- --------- -----------
Income Before Provision for Income Taxes............... 4,885 6,697 4,719 1,482 238
Provision for Income Taxes............................. 2,396 3,117 2,340 789 245
--------- ----------- ----------- --------- -----------
Net Income (Loss)...................................... $ 2,489 $ 3,580 $ 2,379 $ 693 $ (7)
--------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital........................................ $ 22,621 $ 16,038 $ 13,084 $ 14,348 $ 4,253
Total Assets........................................... 81,474 75,434 71,893 71,886 18,069
Long-term Obligations.................................. 1,064 1,260 1,883 2,511 2
Parent Company Investment.............................. 70,644 64,731 58,725 60,278 15,200
- ------------------------
(1) Includes the November 1996 acquisition of CarlanKillam Consulting Group,
Inc. by Thermo TerraTech Inc., subsequently transferred to The Killam Group
Inc.
(2) Includes the February 1995 acquisition of Engineering, Technology and
Knowledge Corporation by Thermo TerraTech Inc., subsequently transferred to
The Killam Group Inc.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Results of Operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of The Killam
Group to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements" included elsewhere in this Proxy Statement.
OVERVIEW
The Killam Group provides a wide range of comprehensive environmental
consulting and professional engineering services to private- and public-sector
clients. Through its Killam Associates subsidiary, The Killam Group specializes
in the design, planning, and construction management of municipal and privately
owned water-treatment plants, waste treatment plants, and hazardous-wastewater
facilities. Through its BACKillam subsidiary, The Killam Group provides a broad
range of bridge and highway engineering services. Through its CarlanKillam
subsidiary, The Killam Group provides transportation and environmental
consulting and professional engineering and architectural services.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues were $60,429,000 in fiscal 1998, compared with $64,374,000 in
fiscal 1997. Revenues declined primarily due to the completion of two major
contracts in fiscal 1997 at Killam Associates and BACKillam, offset in part by
the inclusion of $3,875,000 in revenues from Carlan (see Note 2 to Combined
Financial Statements of The Killam Group Inc.).
The gross profit margin increased to 26% in fiscal 1998 from 25% in fiscal
1997, primarily due to a change in sales mix to higher-margin contracts at
Killam Associates.
Selling, general, and administrative expenses as a percentage of revenues
increased to 18% in fiscal 1998 from 15% in fiscal 1997, primarily due to
increased marketing costs at Killam Associates.
Interest income increased to $156,000 in fiscal 1998 from $110,000 in fiscal
1997, primarily due to interest earned on larger average cash balances. Interest
expense decreased in fiscal 1998 from fiscal 1997, primarily due to lower
average debt during fiscal 1998.
The effective tax rates were 49% and 47% in fiscal 1998 and 1997,
respectively. The effective tax rates exceeded the statutory federal income tax
rate primarily due to nondeductible amortization of cost in excess of net assets
of acquired companies and the impact of state income taxes. The tax rate
increased in fiscal 1998 as a result of the greater relative effect of
nondeductible amortization of cost in excess of net assets of acquired companies
due to lower pre-tax income in fiscal 1998.
The Killam Group is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the company's
computerized information systems as well as products purchased by the company.
The Killam Group believes that its internal information systems are either year
2000 compliant or will be so prior to the year 2000 without incurring material
costs. There can be no assurance, however, that The Killam Group will not
experience unexpected costs and delays in achieving year 2000 compliance for its
internal information systems, which could result in a material adverse effect on
its future results of operations.
The Killam Group is presently assessing whether its key suppliers are
adequately addressing the year 2000 issue and the effect this might have on the
company. The Killam Group has not completed its analysis
16
and is unable to conclude at this time that the year 2000 problem as it relates
to products purchased from key suppliers is not reasonably likely to have a
material adverse effect on its future results of operations.
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues increased 10% to $64,374,000 in fiscal 1997 from $58,515,000 in
fiscal 1996. This increase was due to the inclusion of $2,608,000 of revenues
from Carlan, acquired in November 1996, an increase in subcontract revenues and,
to a lesser extent, revenues from a large contract, which began in December 1995
and ended in December 1996.
The gross profit margin increased to 25% in fiscal 1997 from 23% in fiscal
1996, primarily due to a change in sales mix to higher-margin contracts in
fiscal 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased to 15% in fiscal 1997 from 14% in fiscal 1996 due primarily to
increased marketing efforts.
Interest income decreased to $110,000 in fiscal 1997 from $173,000 in fiscal
1996, primarily due to the timing of cash transfers to parent company, offset in
part by interest income received in fiscal 1997 from a long-term note
receivable. Interest expense decreased to $184,000 in fiscal 1997 from $257,000
in fiscal 1996, primarily due to lower average outstanding debt during fiscal
1997.
During fiscal 1996, The Killam Group sold the assets of an engineering
office and wrote off an intangible asset of $569,000 in connection with the sale
(see Note 8 to Combined Financial Statements of The Killam Group Inc.).
The effective tax rates were 47% and 50% in fiscal 1997 and 1996,
respectively. The effective tax rates exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies. The tax rate
decreased in fiscal 1997 as a result of the smaller relative effect of
nondeductible amortization of cost in excess of net assets of acquired companies
due to higher pre-tax income in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Combined working capital was $22,621,000 at April 4, 1998, compared with
$16,038,000 at March 29, 1997. Included in working capital were cash and cash
equivalents of $8,262,000 at April 4, 1998, compared with $1,737,000 at March
29, 1997. During fiscal 1998, $3,965,000 of cash was provided by operating
activities. The Killam Group funded an increase in accounts receivable of
$1,229,000 during fiscal 1998, primarily related to the timing of cash
collections at Killam Associates.
The Killam Group's investing activities in fiscal 1998 primarily consisted
of capital additions. The Killam Group expended $1,144,000 for purchases of
property, plant, and equipment in fiscal 1998.
In fiscal 1998, The Killam Group's financing activities provided cash of
$3,730,000, primarily due to transfers from parent company through September
1997.
17
INFORMATION CONCERNING THE COMPANY
For purposes of the discussion of the business of the Company in this
section of this Proxy Statement, references to the "Company" refer to The
Randers Group Incorporated, without giving effect to the acquisition of The
Killam Group Inc. The selected financial information and the management's
discussion and analysis thereof included in this section are set forth giving
effect to such acquisition. See "Acquisition Proposal--Accounting Treatment of
the Acquisition." For additional information on The Killam Group Inc., see
"Information Concerning the Acquired Company."
BUSINESS
GENERAL
The Company and its subsidiaries provide design, engineering, project
management, general contracting and development services primarily to industrial
and commercial clients throughout the United States. The Company and its
subsidiaries' primary market areas are Michigan, Ohio, Illinois, Massachusetts
and West Virginia. A substantial portion of the Company and its subsidiaries'
revenues is derived from clients in the chemical or process related industries.
The Company currently has several wholly owned subsidiaries, including Randers
Engineering, Inc.; Clark-Trombley Consulting Engineers, Inc.; Redeco
Incorporated; Randers Group Property Corporation; and Viridian Technology, Inc.
PRINCIPAL SERVICES
SERVICE/CONSULTING OPERATIONS. Randers Engineering, Inc. and Clark-Trombley
Consulting Engineers, Inc. provide design, engineering and construction
management services. Randers Engineering, Inc. has offices in Muskegon and
Detroit, Michigan; Cincinnati, Ohio; Springfield, Massachusetts; and South
Charleston, West Virginia. Clark-Trombley Consulting Engineers, Inc. is located
in Lansing, Michigan.
CONSTRUCTION OPERATIONS. Redeco Incorporated provides general contracting
and development services. The design/build method employed by Redeco
Incorporated provides clients a single focus of responsibility for the success
of a project by combining the design, engineering and general contracting
services into one entity. Redeco Incorporated's services are provided out of all
of the Company's offices.
RENTAL OPERATIONS. Randers Group Property Corporation owns and operates the
Company's real estate business. The properties include two office buildings that
are held as rental properties. All of the Company's properties are located in
the Muskegon, Michigan area. The Company's headquarters are located in one of
such buildings.
MODULAR OPERATIONS. Viridian Technology, Inc. designs and manufactures
modular process equipment systems for the chemical and process related
industries.
COMPETITION
The Company competes with many local, regional, and national architectural,
engineering, general contractors and development firms that offer similar types
of services. However, a substantial portion of the Company's revenues are
derived from clients in the chemical and process-related industries. These
industries are highly technical in nature and are served by a relatively limited
number of firms. Most of the Company's competitors are private companies.
Competitive factors include pricing, technical expertise, scope of services,
local presence and management experience. The markets for the Company's services
are highly competitive. In each of the markets it serves, the Company competes
with a number of companies, some of which may have greater capitalization and
other resources than the Company.
CUSTOMERS
The Company's principal customers are in the chemical, pharmaceutical,
pigment, solvent, and steel industries. A substantial amount of the Company's
revenue is derived from companies in the chemical industry. For the three years
ended December 31, 1997, 1996, and 1995, approximately 57%, 71% and 67%,
respectively, of the Company's revenues were from customers related to the
chemical industry. In the years ended December 31, 1997, 1996 and 1995, services
provided to a chemical producer in Massachusetts and Michigan accounted for
28.8%, 30.1% and 27.8% of the Company's revenues, respectively. In the year
ended December 31, 1996, services provided to a chemical producer in Illinois
and West Virginia accounted for 20.4% of the Company's revenues.
18
EMPLOYEES
As of April 4, 1998 (without giving effect to the acquisition of The Killam
Group), the Company had approximately 118 full-time employees. The Company also
hires contract employees on a temporary basis to meet staffing needs.
PROPERTIES
The Company's headquarters and principal office are located at 570 Seminole
Road, Muskegon, Michigan 49444. The office occupies approximately 9,200 square
feet in a building that is owned by the Company. The Company leases 7,428 and
3,535 additional square feet of office space in Detroit, Michigan and
Charleston, West Virginia, respectively, pursuant to leases expiring in October
2001 and September 1999, respectively, and the Company occupies 4,274 square
feet of office space in Lansing, Michigan on a month-to-month basis. The Company
also leases 2,500 square feet pursuant to a month-to-month lease in Cincinnati,
Ohio. The Company believes that these facilities are in good condition and are
adequate for its present operations and that other suitable space is readily
available if any of such leases are not extended.
In addition, 11,021 square feet of Randers' headquarters in Muskegon,
Michigan, and a 9,300 square foot office building in Muskegon Heights, Michigan
are held as rental property. These buildings are used as collateral for a
mortgage loan of approximately $954,000. The mortgage is due in 2003, bears
interest at the prime rate (8.5% at April 4, 1998), and is payable in monthly
installments of $12,097. The balance at maturity is estimated to be $470,000. To
satisfy the debt retirement, the Company anticipates that the current agreement
will be extended or a new source of financing will be secured.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is publicly traded on the AMEX-EC. The following
table sets forth, for the periods indicated, the high and low sales prices as
reported in the consolidated reporting system.
HIGH LOW
------- -------
FISCAL 1997
First Quarter..... $ 15/16 $ 9/16
Second Quarter.... 5/8 3/8
Third Quarter..... 1/2 3/8
Fourth Quarter.... 7/8 5/16
HIGH LOW
------- -------
FISCAL 1998
First Quarter..... $ 1 1/8 $ 1/2
Second Quarter.... 1 13/16
Third Quarter..... 1 1/2
Fourth Quarter.... 7/8 5/8
HIGH LOW
------- -------
FISCAL 1999
First Quarter
(through June
24, 1998).......
The high, low and closing prices of the Company's Common Stock on the
AMEX-EC on September 19, 1997, the date preceding the public announcement of the
Stock Purchase Agreement, were $ 7/8, $ 13/16 and $ 7/8, respectively. On June
24, 1998, the closing price of the Common Stock on the AMEX-EC was $ per
share. There were holders of Common Stock of record as of June 24, 1998.
Holders of Common Stock do not have any preemptive rights to subscribe for
additional issuances of Common Stock or securities convertible into Common
Stock.
The Company has never paid cash dividends to its Stockholders and does not
expect to pay cash dividends in the future because its policy has been to use
earnings to finance expansion and growth.
SELECTED FINANCIAL INFORMATION--THE RANDERS GROUP INCORPORATED
The selected financial information presented below as of and for the fiscal
years ended April 4, 1998, and March 29, 1997, and for the fiscal year ended
March 30, 1996, has been derived from The Randers Group Incorporated's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere in this Proxy Statement. This information should be read in
conjunction with The Randers Group Incorporated's
19
Consolidated Financial Statements and related notes included elsewhere in this
Proxy Statement. The selected financial information as of March 30, 1996, and
for the fiscal year ended April 1, 1995, has been derived from The Randers Group
Incorporated's Consolidated Financial Statements, which have been audited by
Arthur Andersen LLP, but have not been included in this Proxy Statement. The
selected financial information as of April 1, 1995, and as of and for the
calendar year ended January 1, 1994, has not been audited but, in the opinion of
management, 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.
CALENDAR
FISCAL YEAR ENDED YEAR ENDED
---------------------------------------------- -----------
APRIL 4, MARCH 29, MARCH 30, APRIL 1, JANUARY 1,
1998 (1) 1997 (2) 1996 1995 (3) 1994
--------- ----------- ----------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 71,583 $ 64,374 $ 58,515 $ 27,735 $ 21,009
--------- ----------- ----------- --------- -----------
Costs and Operating Expenses:
Cost of revenues...................................... 52,838 48,048 45,012 22,095 17,751
Selling, general and administrative expenses.......... 12,788 9,555 8,131 4,125 3,020
--------- ----------- ----------- --------- -----------
65,626 57,603 53,143 26,220 20,771
--------- ----------- ----------- --------- -----------
Operating Income........................................ 5,957 6,771 5,372 1,515 238
Interest Income......................................... 195 110 173 5 --
Interest Expense........................................ (196) (184) (257) (38) --
Loss on Sale of Assets.................................. -- -- (569) -- --
--------- ----------- ----------- --------- -----------
Income Before Provision for Income Taxes................ 5,956 6,697 4,719 1,482 238
Provision for Income Taxes.............................. 2,803 3,117 2,340 789 245
--------- ----------- ----------- --------- -----------
Net Income (Loss)....................................... $ 3,153 $ 3,580 $ 2,379 $ 693 $ (7)
--------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- -----------
Basic and Diluted Earnings per Share.................... $ .03 $ .03 $ .02 $ .01 $ --
--------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- -----------
Weighted Average Shares (4):
Basic................................................. 125,557 113,031 113,031 113,031 113,031
--------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- -----------
Diluted............................................... 126,009 113,031 113,031 113,031 113,031
--------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital......................................... $ 25,822 $ 16,038 $ 13,084 $ 14,348 $ 4,253
Total Assets............................................ 93,193 75,434 71,893 71,886 18,069
Long-term Obligations................................... 1,948 1,260 1,883 2,511 2
Shareholders' Investment................................ 79,998 64,731 58,725 60,278 15,200
- ------------------------
(1) Includes the results of The Killam Group Inc. for the fiscal year ending
April 4, 1998, combined with the results of Randers for the period from May
12, 1997, the date Thermo TerraTech Inc. acquired a majority interest in the
Company, through April 4, 1998.
(2) Includes the November 1996 acquisition of Carlan Consulting Group, Inc. by
Thermo TerraTech Inc., subsequently transferred to The Killam Group Inc.
(3) Includes the February 1995 acquisition of Engineering, Technology and
Knowledge Corporation by Thermo TerraTech Inc., subsequently transferred to
The Killam Group Inc.
(4) Weighted average shares outstanding for all periods include 113,031,051
shares issuable in connection with the acquisition of The Killam Group.
Weighted average shares for fiscal 1998 include the 14,115,682 shares
outstanding as of May 12, 1997, the date on which Thermo TerraTech acquired
a majority interest in the Company.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements" included elsewhere in this Proxy Statement.
OVERVIEW
The Randers Group Incorporated ("Randers") provides comprehensive
engineering and outsourcing services in such areas as water and wastewater
treatment, highway and bridge projects, process engineering, construction
management, and inspection and operational services.
In May 1997, Thermo TerraTech purchased a controlling interest in Randers
(see Note 2 to the Consolidated Financial Statements of the Company), a provider
of design, engineering, project management, and construction services for
industrial clients in the manufacturing, pharmaceutical, and chemical-processing
industries. Subsequently, Thermo TerraTech entered into a definitive agreement
to transfer The Killam Group to Randers in exchange for additional shares of
Randers' common stock. As a result of these transactions (as more fully
described in this Proxy Statement, including Note 2 to the Consolidated
Financial Statements of the Company), The Killam Group is deemed to be the
"accounting acquiror" and historical results for Randers have been restated to
solely reflect the financial information of The Killam Group for periods prior
to May 12, 1997, and to reflect the combined results of The Killam Group and
Randers (collectively, the "Company") from May 12, 1997, the date on which
Thermo TerraTech became the majority owner of Randers. The Company's Killam
Associates, Inc. subsidiary provides environmental consulting and engineering
services and specializes in wastewater treatment and water resources management.
The Company's BACKillam subsidiary provides both private- and public-sector
clients with a range of consulting services that address transportation planning
and design. In November 1996, Thermo TerraTech acquired Carlan Consulting Group,
Inc., a provider of transportation and environmental consulting and professional
engineering and architectural services, and subsequently transferred it to the
Company.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues increased 11% to $71,583,000 in fiscal 1998 from $64,374,000 in
fiscal 1997, primarily due to the inclusion of $15,030,000 of revenues from
Carlan and Randers (see Note 2 to the Consolidated Financial Statements of the
Company), acquired in November 1996 and May 1997, respectively, offset in part
by a decrease in revenues due to the completion of two major contracts in fiscal
1997 at Killam Associates and BACKillam.
The gross profit margin increased to 26% in fiscal 1998 from 25% in fiscal
1997, primarily due to a change in sales mix to higher-margin contracts at
Killam Associates, and the inclusion of higher-margin revenues from Randers.
Selling, general, and administrative expenses as a percentage of revenues
increased to 18% in fiscal 1998 from 15% in fiscal 1997, primarily due to the
inclusion of Randers in May 1997, which has higher expenses as a percentage of
revenues and, to a lesser extent, increased marketing costs at Killam
Associates.
21
Interest income increased to $195,000 in fiscal 1998 from $110,000 in fiscal
1997, primarily due to interest earned on larger cash balances. Interest expense
remained relatively unchanged in fiscal 1998 and 1997.
The effective tax rates were 47% in fiscal 1998 and 1997. The effective tax
rates exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired companies
and the impact of state income taxes.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems as well as products purchased by the Company. The Company
believes that its internal information systems are either year 2000 compliant or
will be so prior to the year 2000 without incurring material costs. There can be
no assurance, however, that the Company will not experience unexpected costs and
delays in achieving year 2000 compliance for its internal information systems,
which could result in a material adverse effect on the Company's future results
of operations.
The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect this might have on the Company.
The Company has not completed its analysis and is unable to conclude at this
time that the year 2000 problem as it relates to products purchased from key
suppliers is not reasonably likely to have a material adverse effect on the
Company's future results of operations.
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues increased 10% to $64,374,000 in fiscal 1997 from $58,515,000 in
fiscal 1996. This increase was due to the inclusion of $2,608,000 of revenues
from Carlan, acquired in November 1996, an increase in subcontract revenues and,
to a lesser extent, revenues from a large contract, which began in December 1995
and ended in December 1996.
The gross profit margin increased to 25% in fiscal 1997 from 23% in fiscal
1996, primarily due to a change in sales mix to higher-margin contracts in
fiscal 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased to 15% in fiscal 1997 from 14% in fiscal 1996 due primarily to
increased marketing efforts.
Interest income decreased to $110,000 in fiscal 1997 from $173,000 in fiscal
1996, primarily due to the timing of cash transfers to parent company, offset in
part by interest income received in fiscal 1997 from a long-term note
receivable. Interest expense decreased to $184,000 in fiscal 1997 from $257,000
in fiscal 1996, primarily due to lower average outstanding debt during fiscal
1997.
During fiscal 1996, the Company sold the assets of an engineering office and
wrote off an intangible asset of $569,000 in connection with the sale (see Note
9 to the Consolidated Financial Statements of the Company).
The effective tax rates were 47% and 50% in fiscal 1997 and 1996,
respectively. The effective tax rates exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies. The tax rate
decreased in fiscal 1997 as a result of the smaller relative effect of
nondeductible amortization of cost in excess of net assets of acquired companies
due to higher pre-tax income in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $25,822,000 at April 4, 1998, compared with
$16,038,000 at March 29, 1997. Included in working capital were cash and cash
equivalents of $9,763,000 at April 4, 1998, compared with $1,737,000 at March
29, 1997. During fiscal 1998, $4,480,000 of cash was provided by operating
activities. The Company funded increases of $1,338,000 and $874,000 in unbilled
contract costs
22
and fees and accounts receivable, respectively. The increase in unbilled
contract costs and fees is primarily due to costs incurred under a $6,200,000
design contract for which work began during the fourth quarter. The increase in
accounts receivable is primarily related to the timing of cash collections at
Killam Associates.
The Company's investing activities in fiscal 1998 primarily consisted of
capital additions. The Company expended $1,531,000 for purchases of property,
plant, and equipment in fiscal 1998. The Company expects to expend approximately
$1,600,000 on purchases of property, plant, and equipment in fiscal 1999.
In fiscal 1998, the Company's financing activities provided cash of
$5,086,000, primarily due to transfers from parent company through September
1997.
The Company expects to have positive cash flow from its existing operations.
Although the Company does not presently intend to actively seek to acquire
additional businesses in the near future, it may acquire one or more
complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds, additional debt or equity financing
from the capital markets, or short-term borrowings from Thermo TerraTech Inc. or
Thermo Electron Corporation, although it has no agreement with these companies
to ensure that funds will be available on acceptable terms, or at all. The
Company believes that its existing resources are sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
23
FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in fiscal 1998 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
DEPENDENCE ON SALES TO GOVERNMENT ENTITIES. A significant portion of the
Company's revenues is derived from municipalities, state governments, and
government utility authorities. Any decreases in purchases by these entities,
including, without limitation, decreases resulting from shifts in priorities or
overall budgeting limitations, could have a material adverse effect on the
Company's business, financial condition, and results of operations. In addition,
most of the Company's contracts require the Company to perform specific services
for a fixed fee. Contracts with governmental entities often permit the purchaser
to cancel the agreement at any time. A significant overrun in the Company's
expenses or cancellation of a significant contract could also result in a
material adverse effect on the Company's business, financial condition, and
results of operations. The Company's contracts with governmental entities are
also subject to other risks, including contract suspensions; protests by
disappointed bidders of contract awards, which can result in the re-opening of
the bidding process; and changes in government policies or regulations.
COMPETITION. The markets for many of the Company's services are regional
and are characterized by intense competition from numerous local competitors.
Some of the Company's competitors have greater technical and financial resources
than those of the Company. As a result, they may be able to adapt more quickly
to changes in customer requirements and new or emerging technologies, or to
devote greater resources to the promotion and sale of their services than the
Company. Competition could increase if new companies enter the market or its
existing competitors expand their service lines. There can be no assurance that
the Company's current technology, technology under development or ability to
develop new technologies will be sufficient to enable it to compete effectively
with its competitors.
DEPENDENCE ON ENVIRONMENTAL REGULATION. Federal, state and local
environmental laws govern most of the markets in which the Company conducts
business, as well as many of the Company's operations. The markets for many of
the Company's services, including water supply design and inspection services,
wastewater treatment facility design and inspection services, solid and
hazardous waste management services, environmental testing services, natural
resource management, and air pollution testing and management services, were
directly or indirectly created by, and are dependent on, the existence and
enforcement of those laws. There can be no assurance that these laws and
regulations will not change in the future, requiring new technologies or
stricter standards with which the Company must comply. In addition, there can be
no assurance that these laws and regulations will not be made more lenient in
the future, thereby reducing the size of the markets addressed by the Company.
Any such change in such federal, state, and local environmental laws and
regulations may have a material adverse effect on the Company's business.
POTENTIAL ENVIRONMENTAL AND REGULATORY LIABILITY. The Company's operations
are subject to comprehensive laws and regulations related to the protection of
the environment. Among other things, these laws and regulations impose
requirements to control air, soil, and water pollution, and regulate health,
safety, zoning, land use, and the handling and transportation of hazardous and
nonhazardous materials. Such laws and regulations also impose liability for
remediation and cleanup of environmental contamination, both on-site and
off-site, resulting from past and present operations. These requirements may
also be imposed as conditions of operating permits or licenses that are subject
to renewal, modification, or revocation. Existing laws and regulations, and new
laws and regulations, may require the Company to modify, supplement, replace, or
curtail its operating methods, facilities or equipment at costs which may be
substantial without any corresponding increase in revenue. The Company's water,
wastewater, and hazardous waste-treatment management services operations may
expose the Company to liabilities to
24
clients and third parties. In addition, the Company is also potentially subject
to monetary fines, penalties, remediation, cleanup or stop orders, injunctions,
or orders to cease or suspend certain of its practices. The outcome of any
proceedings and associated costs and expenses could have a material adverse
impact on the Company's business. In addition, the Company is subject to
numerous laws and regulations related to the protection of human health and
safety. Such laws and regulations may pose liability on the Company for exposure
of its employees to radiation or other hazardous contamination.
The Company endeavors to operate its business to minimize its exposure to
environmental and other regulatory liabilities. Although no claims giving rise
to such liabilities have been asserted by the Company's customers or employees
to date, there can be no assurance that such claims cannot or will not be
asserted against the Company.
POTENTIAL PROFESSIONAL LIABILITY. The Company's business exposes it to
potential liability for the negligent performance of its services and, as such,
the Company may face substantial liability to clients and third parties for
damages resulting from faulty designs or other professional services. The
Company currently maintains professional errors and omissions insurance, but
there can be no assurance that this insurance will provide sufficient coverage
in the event of a claim, that the Company will be able to maintain such coverage
on acceptable terms, if at all, or that a professional liability claim would not
result in a material adverse effect on the Company's business, financial
condition, and results of operations.
SEASONAL INFLUENCES. A majority of the Company's businesses experience
seasonal fluctuations. Site investigation work and certain environmental testing
services may decline in winter months as a result of severe weather conditions.
RISKS ASSOCIATES WITH ACQUISITION STRATEGY. The Company's strategy has
included the acquisition of businesses that complement or augment the Company's
existing services. The Company does not presently intend to actively seek to
make additional acquisitions in the near future, and expects instead to
concentrate its resources on strengthening its core businesses. The Company may,
however, acquire one or more additional businesses if they are presented to the
Company on terms the Company believes to be attractive. Promising acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals. Any
acquisitions completed by the Company may be made at substantial premiums over
the fair value of the net assets of the acquired companies. There can be no
assurance that the Company will be able to complete future acquisitions or that
the Company will be able to successfully integrate any acquired businesses. In
order to finance such acquisitions, it may be necessary for the Company to raise
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms that are not favorable to the
Company and, in the case of equity financing, may result in dilution to the
Company's shareholders.
POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE
INFORMATION. The Company is currently assessing the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems as well as products purchased by the Company.
The Company believes that its internal information systems are either year 2000
compliant or will be so prior to the year 2000 without incurring material costs.
There can be no assurance, however, that the Company will not experience
unexpected costs and delays in achieving year 2000 compliance for its internal
information systems, which could result in a material adverse effect on the
Company's future results of operations.
The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect this might have on the Company.
The Company has not completed its analysis and is unable to conclude at this
time that the year 2000 problem as it relates to products purchased from key
suppliers is not reasonably likely to have a material adverse effect on the
Company's future results of operations.
25
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo TerraTech, the Company's parent company, and
of Thermo Electron, Thermo TerraTech's parent company, as of April 30, 1998,
with respect to (i) each person who was known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) the chief executive officer of the Company and other
executive officers of the Company who, during the last completed fiscal year of
the Company, met the definition of "highly compensated" within the meaning of
the Securities and Exchange Commission's executive compensation disclosure
rules, and (iv) all directors and current executive officers of the Company as a
group.
While certain directors and executive officers of the Company are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Company, all such persons disclaim beneficial ownership of the shares
of Common Stock owned by Thermo TerraTech or by Thermo Electron, as the case may
be.
THE RANDERS GROUP THERMO THERMO ELECTRON
INCORPORATED(2) TERRATECH INC.(3) CORPORATION(4)
----------------------- ------------------------- -------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME(1) OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS
- ------------------------------------- ---------- ----------- ------------ ----------- ---------- -------------
Thermo Electron Corporation(5)....... 8,775,000 62.16 15,935,435 81.66 N/A N/A
John P. Appleton..................... 600,000 4.08 287,039 1.45 157,806 *
Nicholas M. DeNicholo................ 300,000 2.08 33,000 * 10,175 *
Thomas R. Eurich..................... 1,017,506 7.07 0 * 0 *
Emil C. Herkert...................... 1,200,000 7.84 187,500 * 39,600 *
Susan F. Tierney..................... 246,678 1.72 0 * 0 *
Polyvios C. Vintiadis................ 246,678 1.72 13,454 * 2,500 *
All directors and current executive
officers together as a group (8
persons)........................... 3,890,862 22.54 594,547 2.99 1,059,908 *
- ------------------------
* Reflects ownership of less than 1% of the outstanding common stock.
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Appleton, Mr. DeNicholo,
Mr. Eurich, Mr. Herkert, Ms. Tierney, Mr. Vintiadis and all directors and
executive officers as a group include 600,000, 300,000, 270,000, 1,200,000,
240,000 240,000 and 3,130,000 shares, respectively, that such person or
group had the right to acquire within 60 days after April 30, 1998, through
the exercise of stock options. Shares beneficially owned by Mr. Eurich
include 146,876 shares held by a trust of which Mr. Eurich is a trustee.
Shares beneficially owned by Ms. Tierney, Mr. Vintiadis and all directors
and executive officers as a group include 6,678, 6,678 and 13,356 full
shares, respectively, allocated to accounts maintained pursuant to the
Company's deferred compensation plan for directors.
(3) Shares of the common stock of Thermo TerraTech beneficially owned by Dr.
Appleton, Mr. DeNicholo, Mr. Vintiadis and all directors and executive
officers as a group include 275,000, 33,000, 7,300 and 360,300 shares,
respectively, that such person or group had the right to acquire within 60
days after April 30, 1998, through the exercise of stock options. Shares of
the common stock of Thermo TerraTech beneficially owned by Dr. Appleton and
all directors and executive officers as a group include 305 and 923 shares,
respectively, allocated through April 30, 1998, to accounts maintained
pursuant to Thermo Electron's employee stock ownership plan ("ESOP"), of
which the trustees, who have investment power over its assets, are executive
officers of Thermo Electron. Shares
26
beneficially owned by Mr. Vintiadis and all directors and executive officers
as a group include 6,154 full shares allocated to Mr. Vintiadis's account
maintained pursuant to the Company's deferred compensation plan for
directors.
(4) The shares of the common stock of Thermo Electron shown in the table reflect
a three-for-two split of such stock distributed in June 1996 in the form of
a 50% stock dividend. Shares of the common stock of Thermo Electron
beneficially owned by Dr. Appleton, Mr. DeNicholo, Mr. Herkert and all
directors and executive officers as a group include 113,532, 9,750, 38,100
and 916,854 shares, respectively, that such person or group had the right to
acquire within 60 days after April 30, 1998, through the exercise of stock
options. Shares of the common stock of Thermo Electron beneficially owned by
Dr. Appleton and all directors and executive officers as a group include
1,615 and 5,077 shares, respectively, allocated through April 30, 1998, to
accounts maintained pursuant to Thermo Electron's ESOP.
(5) As of April 30, 1998 (without giving effect to the issuance of the
Acquisition Shares), Thermo Electron beneficially owned 62.16% of the
outstanding Common Stock, of which approximately 53.27% is owned through
Thermo TerraTech, which is a majority-owned subsidiary of Thermo Electron.
Thermo Electron's address is 81 Wyman Street, Waltham, Massachusetts 02254.
Thermo Electron may be deemed the beneficial owner of the shares of Common
Stock beneficially owned by Thermo TerraTech. Thermo TerraTech's address is
81 Wyman Street, Waltham, Massachusetts 02254.
RELATIONSHIP WITH AFFILIATES
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 several privately and publicly held subsidiaries.
Thermo TerraTech has created Thermo Remediation Inc. as a publicly held
subsidiary and Thermo EuroTech as a privately held subsidiary, and has acquired
the majority interest in the Company, which until 1997 was an unaffiliated
public company. From time to time, Thermo Electron and its subsidiaries will
create other majority-owned subsidiaries as part of its spinout strategy. (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 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
27
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 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, for which the
Company pays Thermo Electron annually an amount equal to 0.8% of the Company's
revenues. Prior to January 1, 1998, the Company paid an annual fee equal to 1.0%
of the Company's revenues. Prior to January 1, 1996, the Company paid an annual
fee equal to 1.2% of the Company's revenues. The fee is reviewed annually and
may be changed by mutual agreement of the Company and Thermo Electron. During
fiscal 1998, Thermo Electron assessed the Company $679,000 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. For 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.
As of April 4, 1998, $8,713,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lends excess cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of corporate
notes, commercial paper, U.S. government-agency securities, 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 a maturity of three
28
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.
From time to time, the Company may transact business with other companies in
the Thermo Group.
Dr. John P. Appleton, Mr. Emil C. Herkert, Mr. Polyvios C. Vintiadis, Mr.
John N. Hatsopoulos and Mr. Paul F. Kelleher, directors and/or executive
officers of the Company, are also directors and/or executive officers of Thermo
TerraTech and/or Thermo Electron.
STOCK HOLDING ASSISTANCE PLAN
In May 1998, the Company adopted a stock holding policy which requires its
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 Company also adopted a stock holding assistance plan under which it
may make interest-free loans to certain key employees, including the chief
executive officer, to enable such employees to purchase the Common Stock in the
open market. Loans are generally repayable upon the earlier of demand or the
fifth anniversary of the date of the loan, unless otherwise authorized by the
human resources committee of the Company's Board of Directors. No such loans had
been made or are outstanding as of the date of this Proxy Statement.
PROPOSAL 3
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE CORPORATION
The Company's Board of Directors has proposed an amendment to the Company's
Certificate of Incorporation to change the name of the Company to "The Randers
Killiam Group Inc." and has recommended that the Stockholders approve the
amendment. The Board of Directors has recommended this change to the Company's
Certificate of Incorporation to reflect and communicate the combination of the
businesses of The Killiam Group and the Company. The Company proposes to retain
the ticker symbol "RGI" if the name change is approved by the Stockholders.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
It is proposed that the name change be effected by amending Article First of
the Company's Certificate of Incorporation to read as follows:
"The name by which the corporation shall be known is The Randers Killiam
Group Inc."
RECOMMENDATION
The Board of Directors believes that the name change to The Randers Killiam
Group Inc. is in the best interests of the Company and the Stockholders and
recommends that the Stockholders vote FOR adoption of the proposed name change.
If not otherwise specified, proxies will be voted FOR approval of this proposal.
Thermo TerraTech and Thermo Electron, which beneficially own an aggregate of
approximately % of the outstanding Common Stock as of the Record Date, have
sufficient votes to approve the proposal and have indicated their intention to
vote for the proposal.
OTHER ACTION
Management is not aware at this time of any other matters that will be
presented for action at the Meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of such proxy holders.
29
STOCKHOLDER PROPOSALS
The 1998 Annual Meeting of the Stockholders of the Company will be held on
September 15, 1998. Pursuant to Securities and Exchange Commission Rule 14a-8,
proposals of Stockholders intended to be presented at such meeting must be
received by the Company a reasonable time before the solicitation for such
meeting is made.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily by mail, but regular employees of the
Company may solicit Proxies personally or by telephone or telegram. Brokers,
nominees, custodians and fiduciaries are requested to forward solicitation
materials to obtain voting instructions from beneficial owners of stock
registered in their names, and the Company will reimburse such parties for their
reasonable charges and expenses in connection therewith.
Muskegon, Michigan
June 30, 1998
30
INDEX TO FINANCIAL STATEMENTS
THE RANDERS GROUP INCORPORATED
Report of Independent Public Accountants........................................... F-2
Consolidated Statement of Income for the the years ended April 4, 1998, March 29,
1997, and March 30, 1996......................................................... F-3
Consolidated Balance Sheet as of April 4, 1998, and March 29, 1997................. F-4
Consolidated Statement of Cash Flows for the years ended April 4, 1998, March 29,
1997, and March 30, 1996......................................................... F-5
Consolidated Statement of Shareholders' Investment for the years ended April 4,
1998, March 29, 1997, and March 30, 1996......................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
THE KILLAM GROUP INC.
Report of Independent Public Accountants........................................... F-21
Combined Statement of Income for the years ended April 4, 1998, March 29, 1997, and
March 30, 1996................................................................... F-22
Combined Balance Sheet as of April 4, 1998, and March 29, 1997..................... F-23
Combined Statement of Cash Flows for the years ended April 4, 1998, March 29, 1997,
and March 30, 1996............................................................... F-24
Combined Statement of Parent Company Investment for the years ended April 4, 1998,
March 29, 1997, and March 30, 1996............................................... F-25
Notes to Combined Financial Statements............................................. F-26
F-1
THE RANDERS GROUP INCORPORATED
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
THE RANDERS GROUP INCORPORATED:
We have audited the accompanying consolidated balance sheet of The Randers
Group Incorporated (a Delaware Corporation and a 53%-owned subsidiary of Thermo
TerraTech Inc.) as of April 4, 1998, and March 29, 1997, and the related
consolidated statements of income, cash flows and shareholders' investment for
each of the three years in the period ended April 4, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Randers
Group Incorporated as of April 4, 1998, and March 29, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended April 4, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 12, 1998
F-2
THE RANDERS GROUP INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
----------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
---------- ---------- ----------
Revenues..................................................................... $ 71,583 $ 64,374 $ 58,515
---------- ---------- ----------
Costs and Operating Expenses:
Cost of revenues........................................................... 52,838 48,048 45,012
Selling, general, and administrative expenses (Note 7)..................... 12,788 9,555 8,131
---------- ---------- ----------
65,626 57,603 53,143
---------- ---------- ----------
Operating Income............................................................. 5,957 6,771 5,372
Interest Income.............................................................. 195 110 173
Interest Expense............................................................. (196) (184) (257)
Loss on Sale of Assets (Note 9).............................................. -- -- (569)
---------- ---------- ----------
Income Before Provision for Income Taxes..................................... 5,956 6,697 4,719
Provision for Income Taxes (Note 4).......................................... 2,803 3,117 2,340
---------- ---------- ----------
Net Income................................................................... $ 3,153 $ 3,580 $ 2,379
---------- ---------- ----------
---------- ---------- ----------
Basic and Diluted Earnings per Share (Note 10)............................... $ .03 $ .03 $ .02
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Shares (Note 10):
Basic...................................................................... 125,557 113,031 113,031
---------- ---------- ----------
---------- ---------- ----------
Diluted.................................................................... 126,009 113,031 113,031
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
THE RANDERS GROUP INCORPORATED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
APRIL 4, MARCH 29,
1998 1997
--------- -----------
ASSETS
Current Assets:
Cash and cash equivalents (includes $8,713 under repurchase agreement with related party
in 1998)............................................................................... $ 9,763 $ 1,737
Accounts receivable, less allowances of $760 and $706.................................... 14,304 11,613
Unbilled contract costs and fees......................................................... 9,333 8,113
Prepaid income taxes (Note 4)............................................................ 1,359 1,431
Prepaid expenses......................................................................... 373 478
--------- -----------
35,132 23,372
--------- -----------
Property, Plant, and Equipment, at Cost, Net............................................... 11,664 9,035
--------- -----------
Other Assets (Note 3)...................................................................... 1,177 1,373
--------- -----------
Cost in Excess of Net Assets of Acquired Companies (Note 2)................................ 45,220 41,654
--------- -----------
$ 93,193 $ 75,434
--------- -----------
--------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term obligations (Note 5)................... $ 187 $ 648
Accounts payable......................................................................... 3,809 2,023
Accrued payroll and employee benefits.................................................... 3,254 3,124
Accrued income taxes..................................................................... 1,016 78
Other accrued expenses................................................................... 725 1,425
Due to parent company.................................................................... 319 36
--------- -----------
9,310 7,334
--------- -----------
Deferred Income Taxes (Note 4)............................................................. 888 1,096
--------- -----------
Other Deferred Items....................................................................... 1,049 1,013
--------- -----------
Long-term Obligations (Note 5)............................................................. 1,948 1,260
--------- -----------
Commitments and Contingencies (Note 6)
Shareholders' Investment (Notes 2, 3, and 8):
Common stock, $.0001 par value, 30,000,000 shares authorized; 127,146,733 pro forma
shares issued and outstanding.......................................................... 13 --
Capital in excess of par value........................................................... 79,321 --
Retained earnings........................................................................ 664 --
Parent company investment................................................................ -- 64,731
--------- -----------
79,998 64,731
--------- -----------
$ 93,193 $ 75,434
--------- -----------
--------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
THE RANDERS GROUP INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
-----------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
--------- ----------- -----------
Operating Activities:
Net income.................................................................... $ 3,153 $ 3,580 $ 2,379
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,675 2,137 2,010
Loss on sale of assets (Note 9)........................................... -- -- 569
Provision for losses on accounts receivable............................... 293 149 208
Other noncash items....................................................... (200) (193) (155)
Increase (decrease) in deferred income taxes.............................. (208) (109) 52
Changes in current accounts, excluding the effects of transfers of
businesses from parent company:
Accounts receivable................................................... (874) 590 (1,125)
Unbilled contract costs and fees...................................... (1,338) (764) (1,110)
Other current assets.................................................. 369 523 296
Accounts payable...................................................... 1,246 (896) 774
Other current liabilities............................................. (636) (1,487) 1,797
--------- ----------- -----------
Net cash provided by operating activities....................................... 4,480 3,530 5,695
--------- ----------- -----------
Investing Activities:
Purchases of property, plant, and equipment................................... (1,531) (1,003) (1,303)
Proceeds from sale of property, plant, and equipment.......................... 18 106 134
Other......................................................................... (27) -- --
--------- ----------- -----------
Net cash used in investing activities........................................... (1,540) (897) (1,169)
--------- ----------- -----------
Financing Activities:
Repayment of note payable..................................................... (170) (671) (628)
Net transfer (to) from parent company......................................... 3,424 (1,304) (3,932)
Cash acquired from transfer of businesses from parent company................. 1,442 285 --
Repayment (issuance) of note receivable....................................... 390 -- (390)
--------- ----------- -----------
Net cash provided by (used in) financing activities............................. 5,086 (1,690) (4,950)
--------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents................................ 8,026 943 (424)
Cash and Cash Equivalents at Beginning of Year.................................. 1,737 794 1,218
--------- ----------- -----------
Cash and Cash Equivalents at End of Year........................................ $ 9,763 $ 1,737 $ 794
--------- ----------- -----------
--------- ----------- -----------
Cash Paid For:
Interest...................................................................... $ 224 $ 205 $ 259
Income taxes.................................................................. $ 642 $ -- $ --
Noncash Activities:
Transfer of acquired businesses from parent company (Note 2).................. $ 4,700 $ 3,460 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THE RANDERS GROUP INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(IN THOUSANDS)
YEAR ENDED
------------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
---------- ----------- -----------
Common Stock, $.0001 Par Value
Balance at beginning of period............................................. $ -- $ -- $ --
Pro forma shares issuable to parent company (Note 2)....................... 12 --
Transfer of Randers from parent company (Note 2)........................... 1 -- --
---------- ----------- -----------
Balance at end of period................................................. 13 -- --
---------- ----------- -----------
Capital in Excess of Par Value
Balance at beginning of period............................................. -- -- --
Pro forma shares issuable to parent company (Note 2)....................... 70,632 -- --
Transfer of Randers from parent company (Note 2)........................... 8,597 -- --
Tax benefit related to employees' and directors' stock plans............... 92 -- --
---------- ----------- -----------
Balance at end of period................................................. 79,321 -- --
---------- ----------- -----------
Retained Earnings
Balance at beginning of period............................................. -- -- --
Net income after May 12, 1997.............................................. 2,752 -- --
Additional pro forma shares issuable to parent company (Note 2)............ (2,088) -- --
---------- ----------- -----------
Balance at end of period................................................. 664 -- --
---------- ----------- -----------
Parent Company Investment
Balance at beginning of period............................................. 64,731 58,725 60,278
Net income prior to May 12, 1997........................................... 401 3,580 2,379
Transfer of Carlan from parent company (Note 2)............................ -- 3,730 --
Net transfer (to) from parent company...................................... 3,424 (1,304) (3,932)
Pro forma shares issuable to parent company (Note 2)....................... (68,556) -- --
---------- ----------- -----------
Balance at end of period................................................. -- 64,731 58,725
---------- ----------- -----------
Total Shareholders' Investment............................................... $ 79,998 $ 64,731 $ 58,725
---------- ----------- -----------
---------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Randers Group Incorporated (the Company) provides comprehensive
engineering and outsourcing services in such areas as water and wastewater
treatment, highway and bridge projects, process engineering, construction
management, and inspection and operational services.
RELATIONSHIP WITH THERMO TERRATECH INC. AND PRINCIPLES OF CONSOLIDATION
As of April 4, 1998, Thermo TerraTech Inc. owned 120,551,051 pro forma
shares of the Company's common stock, representing 95% of such pro forma shares
outstanding. Thermo TerraTech is an 82%-owned subsidiary of Thermo Electron
Corporation. As of April 4, 1998, Thermo Electron owned 1,255,000 shares of the
Company's common stock, representing 1% of such pro forma shares outstanding
(Note 2).
The accompanying financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest March 31.
References to fiscal 1998, 1997, and 1996 are for the fiscal years ended April
4, 1998, March 29, 1997, and March 30, 1996, respectively. Fiscal year 1998
included 53 weeks; fiscal 1997 and 1996 each included 52 weeks.
REVENUE RECOGNITION
Substantially all revenues are earned under contracts. Revenues and profits
on contracts are recognized using the percentage-of-completion method. The
percentage of completion is determined by relating the actual costs incurred to
date to management's estimate of total costs to be incurred on each contract. If
a loss is indicated on any contract in process, a provision is made currently
for the entire loss. Revenues earned on contracts in process in excess of
billings are classified as unbilled contract costs and fees in the accompanying
balance sheet. There are no significant amounts included in the accompanying
balance sheet that are not expected to be recovered from existing contracts at
current contract values, or that are not expected to be collected within one
year, including amounts that are billed but not paid under retainage provisions.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
INCOME TAXES
The Company and Thermo TerraTech have a tax allocation agreement under which
the Company will be included in Thermo TerraTech's consolidated federal and
certain state income tax returns upon Thermo TerraTech's ownership of the
Company exceeding 80% as a result of the transactions contemplated in Note 2.
The agreement provides that in years in which the Company has taxable income, it
will pay to Thermo
F-7
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
TerraTech amounts comparable to the taxes the Company would have paid had it
filed separate tax returns. If Thermo TerraTech's equity ownership of the
Company were to subsequently 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.
EARNINGS PER SHARE
During the quarter ended January 3, 1998, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 10). As a result, all previously reported earnings
per share have been restated. Basic earnings per share have been computed by
dividing net income by the weighted average number of pro forma shares
outstanding during the year (Note 2). Diluted earnings per share have been
computed assuming the exercise of stock options, as well as their related income
tax effects. Shares issuable in connection with the transactions contemplated in
Note 2 have been shown as outstanding for all periods presented for purposes of
computing earnings per share.
CASH AND CASH EQUIVALENTS
At April 4, 1998, $8,713,000 of the Company's cash equivalents were invested
in a repurchase agreement with Thermo Electron. Under this agreement, the
Company in effect lends excess cash to Thermo Electron, which Thermo Electron
collateralizes with investments principally consisting of corporate notes,
commercial paper, U.S. government-agency securities, 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 Company's 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.
At fiscal year-end 1998, the Company's cash equivalents also included
investments in commercial paper which have an original maturity of three months
or less. Cash equivalents are carried at cost, which approximates market value.
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings and improvements, 30 to 40
F-8
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
years; machinery and equipment, 3 to 10 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:
1998 1997
--------- ---------
(IN THOUSANDS)
Land..................................................................... $ 1,044 $ 674
Buildings................................................................ 7,157 5,334
Machinery, Equipment, and Leasehold Improvements......................... 7,515 5,855
--------- ---------
15,716 11,863
Less: Accumulated Depreciation and Amortization.......................... 4,052 2,828
--------- ---------
$ 11,664 $ 9,035
--------- ---------
--------- ---------
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired businesses
is amortized using the straight-line method over 40 years. Accumulated
amortization was $6,574,000 and $5,405,000 at fiscal year-end 1998 and 1997,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired businesses in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as a
loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receiv-
able, notes payable, accounts payable, and long-term obligations. Their
respective carrying amounts in the accompanying balance sheet, excluding
long-term obligations, approximated fair value due to their short-term nature.
The fair value of the Company's long-term obligations at fiscal year-end 1998
and 1997 approximated carrying value based on borrowing rates available to the
Company at the respective year ends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS AND BASIS OF ACCOUNTING
On May 12, 1997, Thermo TerraTech purchased a controlling interest in
Randers. Thermo TerraTech purchased 7,100,000 shares of Randers common stock
from certain members of Randers' management, and 420,000 shares from Thermo
Power Corporation, an affiliate of Thermo TerraTech, at a price of $0.625 per
share, for an aggregate cost of $4,700,000. Following these transactions and
currently, Thermo TerraTech owns 53.3% of Randers' actual outstanding common
stock. In addition, Thermo Electron owns 8.9% of Randers' actual outstanding
common stock.
F-9
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND BASIS OF ACCOUNTING (CONTINUED)
Subsequently, in September 1997, Thermo TerraTech and Randers entered into a
definitive agreement to transfer Thermo TerraTech's wholly owned engineering and
consulting businesses (known as The Killam Group) to Randers, in exchange for
newly issued shares of Randers' common stock. Effective April 4, 1998, the
agreement was amended to provide that the price for these businesses would be
equal to $70,644,407, the book value of the transferred businesses as of April
4, 1998. The number of new shares of Randers' common stock to be issued to
Thermo TerraTech would equal such book value on April 4, 1998, divided by
$0.625, or 113,031,051 shares. The shares to be issued to Thermo TerraTech
include 3,341,800 shares related to the increase in value resulting from the
earnings of The Killam Group from May 12, 1997, through April 4, 1998, which
totaled approximately $2,088,000. Upon such issuance, Thermo TerraTech and
Thermo Electron would own approximately 94.8% and 1.0% of Randers' outstanding
common stock, respectively. The transfer is subject to approval of the
transaction by Randers' shareholders and continued listing of Randers' common
stock on the American Stock Exchange following the transaction. However, because
Thermo TerraTech currently owns 53.3% of Randers' actual outstanding common
stock, approval by Randers' shareholders is assured. For purposes of computing
weighted average shares, the 113,031,051 shares of Randers' common stock to be
issued in connection with the acquisition of The Killam Group are considered to
be outstanding for all periods presented, and the 14,115,682 shares of Randers'
common stock that were outstanding as of May 12, 1997, the date on which Thermo
TerraTech acquired a majority interest in Randers, are considered outstanding as
of that date.
This transaction has been accounted for in accordance with Staff Accounting
Bulletin Topic 2-A2, pursuant to which The Killam Group has been treated as the
"accounting acquiror" because Thermo TerraTech owns the larger portion of the
voting rights of Randers as a result of the above mentioned transactions.
Accordingly, the historical financial information of Randers has been restated
to solely reflect the financial information of The Killam Group for periods
prior to May 12, 1997, the date on which Thermo TerraTech acquired a majority
interest in Randers. Results from May 12, 1997, reflect the combined results of
The Killam Group and Randers. Consequently, references to the Company prior to
May 12, 1997, refer solely to The Killam Group.
Based on unaudited data, the following table presents selected financial
information for The Killam Group and Randers on a pro forma basis, assuming the
companies had been combined since the beginning of fiscal 1997.
1998 1997
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Revenues.................................................................................... $ 72,720 $ 76,775
Net Income.................................................................................. 3,150 4,213
Earnings per Share:
Basic..................................................................................... .03 .03
Diluted................................................................................... .02 .03
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the businesses been combined
from the beginning of fiscal 1997.
In November 1996, Thermo TerraTech acquired Carlan Consulting Group, Inc., a
provider of transportation and environmental consulting and professional
engineering and architectural services for $3,460,000. Immediately subsequent to
Thermo TerraTech's acquisition of Carlan, Thermo TerraTech
F-10
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND BASIS OF ACCOUNTING (CONTINUED)
contributed this business to the Company. Pro forma results have not been
presented as the results of Carlan were not material to the Company's results of
operations.
These transactions have been accounted for using the purchase method of
accounting, and their results of operations have been included in the
accompanying financial statements from the respective dates of acquisition by
Thermo TerraTech. The aggregate cost of Randers and Carlan exceeded the
estimated fair value of the acquired net assets by $7,760,000, which is being
amortized over 40 years. Allocation of the purchase price was based on estimates
of the fair value of the net assets acquired and, for the Randers transaction,
is subject to adjustment, although the Company has no information which
indicates that the final allocation of purchase price will be different than the
preliminary estimate.
3. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
STOCK OPTION PLANS
In November 1997, the Company adopted a stock-based compensation plan for
its key employees, directors and others, which permits the grant 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. Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five- to ten-year period, depending on the term
of the option, which generally ranges from seven 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 stock on the date of grant. To date, all options
have been granted at fair market value.
In connection with the transfer of Randers in fiscal 1998, the Company
assumed certain outstanding options granted under Randers' incentive stock
option plan. The Randers' options become exercisable over the vesting period.
Options vest 50% in the first year after the date of grant and 25% in each of
the second and third years after the date of grant. These options expire 10
years from the date of grant.
In addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based compensation
plans of Thermo Electron and Thermo TerraTech.
F-11
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the Company's stock option information is as follows:
1998
------------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
----------- -----------
(SHARES IN THOUSANDS)
Options Outstanding, Beginning of Year................................... -- $ --
Granted................................................................ 6,860 .65
Forfeited.............................................................. (120) .65
Randers' options outstanding at time of transfer....................... 694 .72
----- -----------
Options Outstanding, End of Year......................................... 7,434 $ .66
----- -----------
----- -----------
Options Exercisable...................................................... 7,283 $ .65
----- -----------
----- -----------
Options Available for Grant.............................................. 3,260
-----
-----
As of April 4, 1998, the options outstanding were exercisable at prices
ranging from $0.63 to $0.88 and had a weighted average remaining contractual
life of 6.5 years. The information for options outstanding as of April 4, 1998,
does not differ materially for options exercisable.
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by Thermo TerraTech
and Thermo Electron. Under this program, shares of Thermo TerraTech's and Thermo
Electron's common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period, and the shares
purchased are subject to a six-month resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's gross
wages.
PRO FORMA STOCK-BASED COMPENSATION PLANS EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB 25 in accounting
for its stock-based compensation plans. Had compensation cost for awards in
fiscal 1998 under the Company's stock-based compensation plans been determined
based on the fair value at the
F-12
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Company's net income and earnings per share would have been as follows:
1998
-------------------
(IN THOUSANDS
EXCEPT
PER SHARE AMOUNTS)
Net Income:
As reported............................................................ $ 3,153
Pro forma.............................................................. 2,786
Basic and Diluted Earnings per Share:
As reported............................................................ .03
Pro forma.............................................................. .02
Pro forma compensation expense for options granted is reflected over the
vesting period; therefore future pro forma compensation expense may be greater
as additional options are granted.
The weighted average fair value per share of options granted was $0.65 in
fiscal 1998. The fair value of each option grant is estimated on the grant date
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998
-----
Volatility............................................................................. 27%
Risk-free Interest Rate................................................................ 5.7%
Expected Life of Options............................................................... 5.0years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
401(K) SAVINGS PLANS
The majority of the Company's full-time employees are eligible to
participate in 401(k) savings plans. Contributions to the 401(k) savings plans
are made by both the employee and the Company. Company contributions are based
upon the level of employee contributions. For these plans, the Company
contributed and charged to expense $1,272,000, $1,130,000, and $1,100,000 in
fiscal 1998, 1997, and 1996, respectively.
PENSION PLAN
One of the Company's divisions has a noncontributory defined benefit
retirement plan for salaried employees. This plan has been frozen and all
participants who had not been credited with the maximum years of service
continue to receive such credit up to the allowable maximum based on continued
service. Benefits under the plan are based on years of service and employees'
compensation during the last years of employment. Funds are contributed to a
trustee as necessary to provide for current service and for any unfunded
projected benefit obligation over a reasonable period.
F-13
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension income includes the following components:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Interest Cost on Projected Benefit Obligation...................... $ (711) $ (677) $ (613)
Return on Plan Assets.............................................. 928 964 1,689
Amortization of Unrecognized Obligation............................ -- (97) (955)
--------- --------- ---------
Net periodic pension income........................................ $ 217 $ 190 $ 121
--------- --------- ---------
--------- --------- ---------
The funded status of the Company's defined benefit pension plan is as
follows:
1998 1997
---------- ----------
(IN THOUSANDS)
Actuarial Present Value of Benefit Obligations:
Vested benefits..................................................... $ 10,025 $ 9,543
Nonvested benefits.................................................. 3 20
---------- ----------
Projected Benefit Obligation.......................................... 10,028 9,563
Plan Assets at Fair Value............................................. (12,756) (10,456)
---------- ----------
Plan Assets Greater Than Projected Benefit
Obligation.......................................................... (2,728) (893)
Unrecognized Net Gain................................................. 1,639 21
---------- ----------
Prepaid pension costs................................................. $ (1,089) $ (872)
---------- ----------
---------- ----------
Actuarial assumptions used to determine the net periodic pension costs are:
1998 1997 1996
----- ----- -----
Discount Rate............................................................ 7.5% 7.5% 8%
Rate of Increase in Salary Levels........................................ 0% 0% 5%
Expected Long-term Rate of Return on Assets.............................. 9% 9% 9%
OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, one of the Company's divisions
provided other postretirement benefits for employees who met certain age and
length-of-service requirements. Under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," the expected cost of these
postretirement benefits must be charged to expense during the years that the
employees render service. This postretirement benefit plan has been frozen and
the Company recorded the accumulated postretirement obligation calculated as of
that date.
F-14
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net postretirement healthcare cost includes the following components:
1998 1997 1996
----- ----- -----
(IN THOUSANDS)
Interest Cost on Accumulated
Postretirement Benefit Obligation...................................... $ 66 $ 91 $ 69
Amortization of Transition Obligation Over 20 Years...................... (16) (11) (29)
--- --- ---
Net postretirement health care cost...................................... $ 50 $ 80 $ 40
--- --- ---
--- --- ---
For measurement purposes, the following table illustrates the annual rate of
increase in the per capita cost of covered healthcare claims:
ANNUAL RATE
----------------------------
PRE-65 POST-65
------ -------------
1998............................................................................ 8% 6%
1997............................................................................ 8% 6%
1996............................................................................ 9% 7%
The pre-65 rate decreases gradually to 6% until the year 2000 and remains at
that level thereafter. The healthcare cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of April 4, 1998,
by $71,000 and the aggregate of the service and interest cost components of net
postretirement health care cost for the year then ended by $5,000. The discount
rates used in determining the accumulated postretirement benefit obligations
were 7.5% and 8% in fiscal 1998 and 1997, respectively.
The following table reconciles the plan's funded status to the accrued
postretirement healthcare cost liability as reflected on the balance sheet:
1998 1997
--------- ---------
(IN THOUSANDS)
Accumulated Postretirement Benefit Obligation:
Retirees................................................................... $ 495 $ 350
Other fully eligible participants.......................................... 191 575
--------- ---------
686 925
Unrecognized Net Gain........................................................ 324 70
--------- ---------
Accrued postretirement healthcare cost liability........................... $ 1,010 $ 995
--------- ---------
--------- ---------
F-15
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
The components of the provision for income taxes are as follows:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Currently Payable:
Federal............................................................................ $ 2,398 $ 2,306 $ 1,360
State.............................................................................. 617 654 386
--------- --------- ---------
3,015 2,960 1,746
--------- --------- ---------
Net Deferred:
Federal............................................................................ (180) 121 460
State.............................................................................. (32) 36 134
--------- --------- ---------
(212) 157 594
--------- --------- ---------
$ 2,803 $ 3,117 $ 2,340
--------- --------- ---------
--------- --------- ---------
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the Company's stock on the date of exercise. The provision for
income taxes that is currently payable does not reflect $92,000 of such benefits
the Company allocated to capital in excess of par value in fiscal 1998.
Provision for income taxes in the accompanying statement of income differs
from the provision calculated by applying the statutory federal income tax rate
of 34% to income before provision for income taxes due to the following:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Provision for Income Taxes at Statutory Rate......................................... $ 2,025 $ 2,277 $ 1,604
Increases (Decreases) Resulting From:
State income taxes, net of federal tax............................................. 386 455 343
Amortization of cost in excess of net assets of acquired companies................. 412 363 366
Other, net......................................................................... (20) 22 27
--------- --------- ---------
$ 2,803 $ 3,117 $ 2,340
--------- --------- ---------
--------- --------- ---------
F-16
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
1998 1997
--------- ---------
(IN THOUSANDS)
Prepaid Income Taxes:
Reserves and other accruals.................................................................. $ 706 $ 924
Accrued compensation......................................................................... 759 507
Other........................................................................................ (106) --
--------- ---------
$ 1,359 $ 1,431
--------- ---------
--------- ---------
Deferred Income Taxes:
Depreciation................................................................................. $ 1,078 $ 1,096
Intangible assets............................................................................ (82) --
State net operating loss carryforward........................................................ (108) --
--------- ---------
$ 888 $ 1,096
--------- ---------
--------- ---------
5. SHORT- AND LONG-TERM OBLIGATIONS
SHORT-TERM OBLIGATIONS
The Company had a $500,000 installment note payable outstanding at fiscal
year-end 1997, which bore interest at 6.7% and was repaid in September 1997.
LONG-TERM OBLIGATIONS
Long-term obligations of the Company are as follows:
1998 1997
--------- ---------
(IN THOUSANDS)
6.75% Mortgage loan, payable in monthly installments of $9,
with final payment in 2008................................................................. $ 1,173 $ 1,293
Mortgage loan, payable in monthly installments of $12,
with final payment in 2003(a).............................................................. 949 --
Other........................................................................................ 13 115
--------- ---------
2,135 1,408
Less: Current maturities of long-term obligations............................................ 187 148
--------- ---------
$ 1,948 $ 1,260
--------- ---------
--------- ---------
- ------------------------
(a) Bears interest at Prime Rate, which was 8.5% at April 4, 1998.
The annual requirements for long-term obligations as of April 4, 1998, are
$187,000 in fiscal 1999; $181,000 in fiscal 2000; $188,000 in fiscal 2001;
$195,000 in fiscal 2002; $760,000 in fiscal 2003; and $624,000 in fiscal 2004
and thereafter. Total requirements of long-term obligations are $2,135,000.
F-17
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $2,498,000, $2,068,000, and
$1,593,000 in fiscal 1998, 1997, and 1996, respectively. Future minimum payments
due under noncancelable operating leases at April 4, 1998, are $2,142,000 in
fiscal 1999; $1,677,000 in fiscal 2000; $1,180,000 in fiscal 2001, $851,000 in
fiscal 2002; $570,000 in fiscal 2003; and $16,000 in fiscal 2004 and thereafter.
Total future minimum lease payments are $6,436,000.
CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
7. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues in calendar 1998. In calendar 1997 and 1996 the Company paid
an amount equal to 1.0% of the Company's revenues. Prior to January 1, 1996, the
Company paid an annual fee equal to 1.20% of the Company's revenues. The annual
fee is reviewed and adjusted annually by mutual agreement of the parties. For
these services, the Company was charged $679,000, $644,000, and $589,000 in
fiscal 1998, 1997, and 1996, respectively. Management believes that the service
fee charged by Thermo Electron is reasonable and that such fees are
representative of the expenses the Company would have incurred on a stand-alone
basis. The corporate services agreement is renewed annually but can be
terminated upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron
Corporate Charter defines the relationship among Thermo Electron and its
majority-owned subsidiaries). For additional items such as employee benefit
plans, insurance coverage and other identifiable costs, Thermo Electron charges
the Company based upon costs attributable to the Company.
REPURCHASE AGREEMENT
The Company invests cash in a repurchase agreement with Thermo Electron as
discussed in Note 1.
8. COMMON STOCK
In January 1998, the Company's Board of Directors voted to effect a
one-for-five reverse stock split. The proposal is subject to approval by the
Company's shareholders. A special shareholders' meeting is expected to be held
at which a vote will occur. Pro forma common shares outstanding as of April 4,
1998,
F-18
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK (CONTINUED)
on a restated basis to reflect the reverse stock split, would have been
25,429,347 shares. The following table presents other selected financial data on
a restated basis to reflect the reverse stock split.
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
Basic and Diluted Earnings per Share $ .13 $ .16 $ .11
Weighted Average Shares:
Basic.............................................................................. 25,111 22,606 22,606
Diluted............................................................................ 25,202 22,606 22,606
At April 4, 1998, the Company had reserved 10,818,500 unissued shares of its
common stock for possible issuance under stock-based compensation plans.
9. LOSS ON SALE OF ASSETS
In fiscal 1996, the Company sold to a management group the assets of a small
civil engineering design office in Williston, Vermont, that was no longer
included in the geographic expansion plans of the Company. An intangible asset
of $569,000 associated with this office was not recovered in the sale price and,
accordingly, was written off. This noncash expense is nondeductible for tax
purposes. Sales and earnings of this office were not material to the Company.
10. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
BASIC
Net Income....................................................................... $ 3,153 $ 3,580 $ 2,379
--------- --------- ---------
Shares Issuable in Connection With the Acquisition of The Killam Group (Note
2)............................................................................. 113,031 113,031 113,031
Randers' Weighted Average Shares Outstanding From May 12, 1997, Date of
Acquisition by Thermo TerraTech (Note 2)....................................... 12,526 -- --
--------- --------- ---------
Pro Forma Weighted Average Shares................................................ 125,557 113,031 113,031
--------- --------- ---------
Basic Earnings per Share......................................................... $ .03 $ .03 $ .02
--------- --------- ---------
--------- --------- ---------
DILUTED
Net Income....................................................................... $ 3,153 $ 3,580 $ 2,379
--------- --------- ---------
Pro Forma Weighted Average Shares................................................ 125,557 113,031 113,031
Effect of Stock Options.......................................................... 452 -- --
--------- --------- ---------
Pro Forma Weighted Average Shares, as Adjusted................................... 126,009 113,031 113,031
--------- --------- ---------
Diluted Earnings per Share....................................................... $ .03 $ .03 $ .02
--------- --------- ---------
--------- --------- ---------
F-19
THE RANDERS GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EARNINGS PER SHARE (CONTINUED)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of April 4, 1998, there were 212,000 shares of such
options outstanding, with an exercise price of $.88 per share.
11. UNAUDITED QUARTERLY INFORMATION
1998 FIRST(A) SECOND THIRD FOURTH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues.............................................................. $ 16,844 $ 18,231 $ 18,269 $ 18,239
Gross Profit.......................................................... 4,492 4,745 5,024 4,484
Net Income............................................................ 841 984 906 422
Basic and Diluted Earnings per Share.................................. .01 .01 .01 --
1997 FIRST SECOND THIRD(B) FOURTH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
Revenues.............................................................. $ 17,722 $ 15,893 $ 15,346 $ 15,413
Gross Profit.......................................................... 4,283 4,256 3,999 3,788
Net Income............................................................ 1,029 1,048 792 711
Basic and Diluted Earnings per Share.................................. .01 .01 .01 .01
- ------------------------
(a) Reflects the May 1997 acquisition of Randers by Thermo TerraTech (Note 2),
subsequently transferred to the Company.
(b) Reflects the November 1996 acquisition of Carlan by Thermo TerraTech (Note
2), subsequently transferred to the Company.
F-20
THE KILLAM GROUP INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE KILLAM GROUP INC.:
We have audited the accompanying combined balance sheet of The Killam Group
Inc. (Note 1) as of April 4, 1998, and March 29, 1997, and the related combined
statements of income, cash flows, and parent company investment for each of the
three years in the period ended April 4, 1998. These combined 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 The Killam Group
Inc. as of April 4, 1998, and March 29, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
April 4, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
May 12, 1998
F-21
THE KILLAM GROUP INC.
COMBINED STATEMENT OF INCOME
YEAR ENDED
-----------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
--------- ----------- -----------
(IN THOUSANDS)
Revenues....................................................................... $ 60,429 $ 64,374 $ 58,515
--------- ----------- -----------
Costs and Operating Expenses:
Cost of revenues............................................................. 44,830 48,048 45,012
Selling, general, and administrative expenses (Note 7)....................... 10,751 9,555 8,131
--------- ----------- -----------
55,581 57,603 53,143
--------- ----------- -----------
Operating Income............................................................... 4,848 6,771 5,372
Interest Income................................................................ 156 110 173
Interest Expense............................................................... (119) (184) (257)
Loss on Sale of Assets (Note 8)................................................ -- -- (569)
--------- ----------- -----------
Income Before Provision for Income Taxes....................................... 4,885 6,697 4,719
Provision for Income Taxes (Note 4)............................................ 2,396 3,117 2,340
--------- ----------- -----------
Net Income..................................................................... $ 2,489 $ 3,580 $ 2,379
--------- ----------- -----------
--------- ----------- -----------
The accompanying notes are an integral part of these combined financial
statements.
F-22
THE KILLAM GROUP INC.
COMBINED BALANCE SHEET
APRIL 4, MARCH 29,
1998 1997
--------- -----------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents (includes $7,604 under repurchase agreement
with related party in 1998)............................................................ $ 8,262 $ 1,737
Accounts receivable, less allowances of $722 and $706.................................... 12,587 11,613
Unbilled contract costs and fees......................................................... 8,049 8,113
Prepaid income taxes (Note 4)............................................................ 1,302 1,431
Prepaid expenses......................................................................... 318 478
--------- -----------
30,518 23,372
--------- -----------
Property, Plant, and Equipment, at Cost, Net............................................... 9,045 9,035
--------- -----------
Other Assets (Note 3)...................................................................... 1,173 1,373
--------- -----------
Cost in Excess of Net Assets of Acquired Companies (Note 2)................................ 40,738 41,654
--------- -----------
$ 81,474 $ 75,434
--------- -----------
--------- -----------
LIABILITIES AND PARENT COMPANY INVESTMENT
Current Liabilities:
Notes payable and current maturities of long-term obligations (Note 5)................... $ 122 $ 648
Accounts payable......................................................................... 3,072 2,023
Accrued payroll and employee benefits.................................................... 2,726 3,124
Accrued income taxes..................................................................... 1,054 78
Other accrued expenses................................................................... 623 1,425
Due to parent company.................................................................... 300 36
--------- -----------
7,897 7,334
--------- -----------
Deferred Income Taxes (Note 4)............................................................. 820 1,096
--------- -----------
Other Deferred Items....................................................................... 1,049 1,013
--------- -----------
Long-term Obligations (Note 5)............................................................. 1,064 1,260
--------- -----------
Commitments and Contingencies (Note 6)
Parent Company Investment.................................................................. 70,644 64,731
--------- -----------
$ 81,474 $ 75,434
--------- -----------
--------- -----------
The accompanying notes are an integral part of these combined financial
statements.
F-23
THE KILLAM GROUP INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED
-----------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
--------- ----------- -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.................................................................... $ 2,489 $ 3,580 $ 2,379
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,363 2,137 2,010
Loss on sale of assets (Note 8)........................................... -- -- 569
Provision for losses on accounts receivable............................... 255 149 208
Other noncash items....................................................... (200) (193) (155)
Increase (decrease) in deferred income taxes.............................. (276) (109) 52
Changes in current accounts, excluding the effects of transfer of business
from parent company:
Accounts receivable..................................................... (1,229) 590 (1,125)
Unbilled contract costs and fees........................................ (131) (764) (1,110)
Other current assets.................................................... 354 523 296
Accounts payable........................................................ 1,049 (896) 774
Other current liabilities............................................... (709) (1,487) 1,797
--------- ----------- -----------
Net cash provided by operating activities....................................... 3,965 3,530 5,695
--------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment................................... (1,144) (1,003) (1,303)
Proceeds from sale of property, plant, and equipment.......................... 1 106 134
Other......................................................................... (27) -- --
--------- ----------- -----------
Net cash used in investing activities........................................... (1,170) (897) (1,169)
--------- ----------- -----------
FINANCING ACTIVITIES:
Repayment of note payable..................................................... (84) (671) (628)
Net transfer (to) from parent company......................................... 3,424 (1,304) (3,932)
Cash acquired from transfer of CarlanKillam from parent company............... -- 285 --
Repayment (issuance) of note receivable....................................... 390 -- (390)
--------- ----------- -----------
Net cash provided by (used in) financing activities............................. 3,730 (1,690) (4,950)
--------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents................................ 6,525 943 (424)
Cash and Cash Equivalents at Beginning of Year.................................. 1,737 794 1,218
--------- ----------- -----------
Cash and Cash Equivalents at End of Year........................................ $ 8,262 $ 1,737 $ 794
--------- ----------- -----------
--------- ----------- -----------
CASH PAID FOR:
Interest...................................................................... $ 147 $ 205 $ 259
Income taxes.................................................................. $ 267 $ -- $ --
NONCASH ACTIVITIES:
Transfer of CarlanKillam from parent company.................................. $ -- $ 3,460 $ --
The accompanying notes are an integral part of these combined financial
statements.
F-24
THE KILLAM GROUP INC.
COMBINED STATEMENT OF PARENT COMPANY INVESTMENT
YEAR ENDED
------------------------------------
APRIL 4, MARCH 29, MARCH 30,
1998 1997 1996
---------- ----------- -----------
(IN THOUSANDS)
Parent Company Investment:
Balance at beginning of period................................................... $ 64,731 $ 58,725 $ 60,278
Net income....................................................................... 2,489 3,580 2,379
Transfer of CarlanKillam from parent company (Note 2)............................ -- 3,730 --
Net transfer (to) from parent company............................................ 3,424 (1,304) (3,932)
---------- ----------- -----------
Balance at end of period......................................................... $ 70,644 $ 64,731 $ 58,725
---------- ----------- -----------
---------- ----------- -----------
The accompanying notes are an integral part of these combined financial
statements.
F-25
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Killam Group Inc. ("the Company") is comprised of several business units
of Thermo TerraTech Inc., an 82%-owned subsidiary of Thermo Electron
Corporation. Through its Killam Associates, Inc. subsidiary, the Company
specializes in the design, planning, and construction management of municipal
and privately owned water-treatment plants, waste treatment plants, and
hazardous-wastewater facilities. Through its BACKillam Inc. subsidiary, the
Company provides a broad range of bridge and highway engineering services.
Through its CarlanKillam Consulting Group, Inc. subsidiary, which was
transferred from Thermo TerraTech in fiscal 1997, the Company provides
transportation and environmental consulting and professional engineering and
architectural services.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
The accompanying combined financial statements include the assets,
liabilities, income and expenses of the Company as included in Thermo
TerraTech's consolidated financial statements. The accompanying financial
statements do not include Thermo TerraTech's general corporate debt, which is
used to finance the operations of all of its respective businesses, or an
allocation of Thermo TerraTech's interest expense.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest March 31.
References to fiscal 1998, 1997, and 1996 are for the fiscal years ended April
4, 1998, March 29, 1997, and March 30, 1996, respectively. Fiscal year 1998
included 53 weeks; fiscal 1997 and 1996 each included 52 weeks.
REVENUE RECOGNITION
Substantially all revenues are earned under contracts. Revenues and profits
on contracts are recognized using the percentage-of-completion method. The
percentage of completion is determined by relating the actual costs incurred to
date to management's estimate of total costs to be incurred on each contract. If
a loss is indicated on any contract in process, a provision is made currently
for the entire loss. Revenues earned on contracts in process in excess of
billings are classified as unbilled contract costs and fees in the accompanying
balance sheet. There are no significant amounts included in the accompanying
balance sheet that are not expected to be recovered from existing contracts at
current contract values, or that are not expected to be collected within one
year, including amounts that are billed but not paid under retainage provisions.
INCOME TAXES
The Company and Thermo TerraTech have a tax allocation agreement under which
the Company is included in Thermo TerraTech's consolidated federal and certain
state income tax returns. The agreement provides that in years in which the
Company has taxable income, it will pay to Thermo TerraTech amounts comparable
to the taxes the Company would have paid had it filed separate tax returns. If
Thermo TerraTech's equity ownership of the Company were to drop below 80%, the
Company would be required to file its own income tax returns.
F-26
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
CASH AND CASH EQUIVALENTS
At April 4, 1998, $7,604,000 of the Company's cash equivalents were invested
in a repurchase agreement with Thermo Electron. Under this agreement, the
Company in effect lends excess cash to Thermo Electron, which Thermo Electron
collateralizes with investments principally consisting of corporate notes,
commercial paper, U.S. government-agency securities, 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 Company's 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.
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings and improvements, 30 to 40
years; machinery and equipment, 3 to 10 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:
1998 1997
--------- ---------
(IN THOUSANDS)
Land........................................................................................... $ 674 $ 674
Buildings...................................................................................... 5,466 5,334
Machinery, Equipment, and Leasehold Improvements............................................... 6,701 5,855
--------- ---------
12,841 11,863
Less: Accumulated Depreciation and Amortization................................................ 3,796 2,828
--------- ---------
$ 9,045 $ 9,035
--------- ---------
--------- ---------
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of acquired businesses
is amortized using the straight-line method over 40 years. Accumulated
amortization was $6,518,000 and $5,405,000 at fiscal year-end 1998 and 1997,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired businesses in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as a
loss.
F-27
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receiv-
able, notes payable, accounts payable, and long-term obligations. Their
respective carrying amounts in the accompanying balance sheet, excluding
long-term obligations, approximated fair value due to their short-term nature.
The fair value of the Company's long-term obligations at fiscal year-end 1998
and 1997 approximated carrying value based on borrowing rates available to the
Company at the respective year ends.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITION
In November 1996, Thermo TerraTech acquired Carlan Consulting Group, Inc.
(renamed CarlanKillam Consulting Group Inc.), a provider of transportation and
environmental consulting and professional engineering and architectural services
for $3,460,000. Immediately subsequent to Thermo TerraTech's acquisition of
CarlanKillam, Thermo TerraTech contributed this business to the Company. Pro
forma results have not been presented as the results of CarlanKillam were not
material to the Company's results of operations.
This transaction has been accounted for using the purchase method of
accounting, and its results of operations have been included in the accompanying
financial statements from the date of acquisition by Thermo TerraTech. The
aggregate cost exceeded the estimated fair value of the acquired net assets by
$3,222,000, which is being amortized over 40 years. Allocation of the purchase
price was based on an estimate of the fair value of the net assets acquired.
3. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by Thermo TerraTech
and Thermo Electron. Under this program, shares of Thermo TerraTech's and Thermo
Electron's common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period, and the shares
purchased are subject to a six-month resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's gross
wages.
401(K) SAVINGS PLANS
The majority of the Company's full-time employees are eligible to
participate in 401(k) savings plans. Contributions to the 401(k) savings plans
are made by both the employee and the Company. Company
F-28
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
contributions are based upon the level of employee contributions. For these
plans, the Company contributed and charged to expense $1,233,000, $1,130,000,
and $1,100,000 in fiscal 1998, 1997, and 1996, respectively.
PENSION PLAN
One of the Company's divisions has a noncontributory defined benefit
retirement plan for salaried employees. This plan has been frozen and all
participants who had not been credited with the maximum years of service
continue to receive such credit up to the allowable maximum based on continued
service. Benefits under the plan are based on years of service and employees'
compensation during the last years of employment. Funds are contributed to a
trustee as necessary to provide for current service and for any unfunded
projected benefit obligation over a reasonable period.
Net periodic pension income includes the following components:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Interest Cost on Projected Benefit Obligation....................................... $(711) $(677) $(613)
Return on Plan Assets............................................................... 928 964 1,689
Amortization of Unrecognized Obligation............................................. -- (97) (955)
--------- --------- ---------
Net periodic pension income....................................................... $ 217 $ 190 $ 121
--------- --------- ---------
--------- --------- ---------
The funded status of the Company's defined benefit pension plan is as
follows:
1998 1997
--------- ---------
(IN THOUSANDS)
Actuarial Present Value of Benefit Obligations:
Vested benefits................................................................... $ 10,025 $ 9,543
Nonvested benefits................................................................ 3 20
--------- ---------
Projected Benefit Obligation........................................................ 10,028 9,563
Plan Assets at Fair Value........................................................... (12,756) (10,456)
--------- ---------
Plan Assets Greater Than Projected Benefit Obligation............................... (2,728) (893)
Unrecognized Net Gain............................................................... 1,639 21
--------- ---------
Prepaid pension costs............................................................. $ (1,089) $ (872)
--------- ---------
--------- ---------
Actuarial assumptions used to determine the net periodic pension costs are:
1998 1997 1996
--------- --------- ---------
Discount Rate....................................................................... 7.5% 7.5% 8%
Rate of Increase in Salary Levels................................................... 0% 0% 5%
Expected Long-term Rate of Return on Assets......................................... 9% 9% 9%
F-29
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, one of the Company's divisions
provided other postretirement benefits for employees who met certain age and
length-of-service requirements. Under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," the expected cost of these
postretirement benefits must be charged to expense during the years that the
employees render service. This postretirement benefit plan has been frozen and
the Company recorded the accumulated postretirement obligation calculated as of
that date.
Net postretirement healthcare cost includes the following components:
1998 1997 1996
----------- ----------- ---------
(IN THOUSANDS)
Interest Cost on Accumulated Postretirement Benefit Obligation......................... $ 66 $ 91 $ 69
Amortization of Transition Obligation Over 20 Years.................................... (16 ) (11 ) (29)
----- ----- ---------
Net postretirement health care cost.................................................. $ 50 $ 80 $ 40
----- ----- ---------
----- ----- ---------
For measurement purposes, the following table illustrates the annual rate of
increase in the per capita cost of covered healthcare claims:
ANNUAL RATE
------------------------
PRE-65 POST-65
----------- -----------
1998......................................................................... 8% 6%
1997......................................................................... 8% 6%
1996......................................................................... 9% 7%
The pre-65 rate decreases gradually to 6% until the year 2000 and remains at
that level thereafter. The healthcare cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of April 4, 1998,
by $71,000 and the aggregate of the service and interest cost components of net
postretirement health care cost for the year then ended by $5,000. The discount
rates used in determining the accumulated postretirement benefit obligations
were 7.5% and 8% in fiscal 1998 and 1997, respectively.
The following table reconciles the plan's funded status to the accrued
postretirement healthcare cost liability as reflected on the balance sheet:
1998 1997
--------- -----------
(IN THOUSANDS)
Accumulated Postretirement Benefit Obligation:
Retirees.................................................................... $ 495 $ 350
Other fully eligible participants........................................... 191 575
--------- -----
686 925
Unrecognized Net Gain......................................................... 324 70
--------- -----
Accrued postretirement healthcare cost liability............................ $ 1,010 $ 995
--------- -----
--------- -----
F-30
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
The components of the provision for income taxes are as follows:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Currently Payable:
Federal............................................................................ $ 1,976 $ 2,306 $ 1,360
State.............................................................................. 567 654 386
--------- --------- ---------
2,543 2,960 1,746
--------- --------- ---------
Net Deferred (Prepaid):
Federal............................................................................ (114) 121 460
State.............................................................................. (33) 36 134
--------- --------- ---------
(147) 157 594
--------- --------- ---------
$ 2,396 $ 3,117 $ 2,340
--------- --------- ---------
--------- --------- ---------
Provision for income taxes in the accompanying statement of income differs
from the provision calculated by applying the statutory federal income tax rate
of 34% to income before provision for income taxes due to the following:
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Provision for Income Taxes at Statutory Rate......................................... $ 1,661 $ 2,277 $ 1,604
Increases (Decreases) Resulting From:
State income taxes, net of federal tax............................................. 352 455 343
Amortization of cost in excess of net assets of acquired companies................. 393 363 366
Other, net......................................................................... (10) 22 27
--------- --------- ---------
$ 2,396 $ 3,117 $ 2,340
--------- --------- ---------
--------- --------- ---------
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
1998 1997
--------- ---------
(IN THOUSANDS)
Prepaid Income Taxes:
Reserves and other accruals.............................................. $ 805 $ 924
Accrued compensation..................................................... 603 507
Other.................................................................... (106) --
--------- ---------
$ 1,302 $ 1,431
--------- ---------
--------- ---------
Deferred Income Taxes:
Depreciation............................................................. $ 1,010 $ 1,096
Intangible assets........................................................ (82) --
State net operating loss carryforward.................................... (108) --
--------- ---------
$ 820 $ 1,096
--------- ---------
--------- ---------
F-31
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. SHORT- AND LONG-TERM OBLIGATIONS
SHORT-TERM OBLIGATIONS
The Company had a $500,000 installment note payable outstanding at fiscal
year-end 1997, which bore interest at 6.7% and was repaid in September 1997.
LONG-TERM OBLIGATIONS
Long-term obligations of the Company are as follows:
1998 1997
--------- ---------
(IN THOUSANDS)
6.75% Mortgage loan, payable in monthly installments of $9,
with final payment in 2008............................................... $ 1,173 $ 1,293
Other...................................................................... 13 115
--------- ---------
1,186 1,408
Less: Current maturities of long-term obligations.......................... 122 148
--------- ---------
$ 1,064 $ 1,260
--------- ---------
--------- ---------
The annual requirements for long-term obligations as of April 4, 1998, are
$122,000 in fiscal 1999; $110,000 in fiscal 2000 through fiscal 2003; and
$624,000 in fiscal 2004, and thereafter. Total requirements of long-term
obligations are $1,186,000.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $2,177,000, $2,068,000, and
$1,593,000 in fiscal 1998, 1997, and 1996, respectively. Future minimum payments
due under noncancelable operating leases at April 4, 1998, are $1,885,000 in
fiscal 1999; $1,443,000 in fiscal 2000; $961,000 in fiscal 2001, $627,000 in
fiscal 2002; $387,000 in fiscal 2003 and thereafter. Total future minimum lease
payments are $5,303,000.
CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
7. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues in calendar 1998. In
F-32
THE KILLAM GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
calendar 1997 and 1996 the Company paid an amount equal to 1.0% of the Company's
revenues. Prior to January 1, 1996, the Company paid an annual fee equal to
1.20% of the Company's revenues. The annual fee is reviewed and adjusted
annually by mutual agreement of the parties. For these services, the Company was
charged $576,000, $644,000, and $589,000 in fiscal 1998, 1997, and 1996,
respectively. Management believes that the service fee charged by Thermo
Electron is reasonable and that such fees are representative of the expenses the
Company would have incurred on a stand-alone basis. The corporate services
agreement is renewed annually but can be terminated upon 30 days' prior notice
by the Company or upon the Company's withdrawal from the Thermo Electron
Corporate Charter (the Thermo Electron Corporate Charter defines the
relationship among Thermo Electron and its majority-owned subsidiaries). For
additional items such as employee benefit plans, insurance coverage and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.
REPURCHASE AGREEMENT
The Company invests cash in a repurchase agreement with Thermo Electron as
discussed in Note 1.
8. LOSS ON SALE OF ASSETS
In fiscal 1996, the Company sold to a management group the assets of a small
civil engineering design office in Williston, Vermont, that was no longer
included in the geographic expansion plans of the Company. An intangible asset
of $569,000 associated with this office was not recovered in the sale price and,
accordingly, was written off. This noncash expense is nondeductible for tax
purposes. Sales and earnings of this office were not material to the Company.
F-33
APPENDIX A
STOCK PURCHASE AGREEMENT
by and among
THE RANDERS GROUP INCORPORATED,
a Delaware corporation
(as "Buyer")
AND
THERMO TERRATECH INC.,
a Delaware corporation
(as "Seller")
regarding the purchase and sale of
THE KILLAM GROUP INC.,
a Delaware corporation
("Killam Group")
Entered into September 19, 1997
A-1
STOCK PURCHASE AGREEMENT
Agreement entered on September 19, 1997, by and among by and between THERMO
TERRATECH INC., a Delaware corporation (the "Seller") and THE RANDERS GROUP
INCORPORATED, a Delaware corporation (the "Buyer"). The Buyer and the Seller are
referred to collectively herein as the "Parties."
RECITALS:
WHEREAS, the Seller owns in the aggregate 100% of the issued and outstanding
shares of the capital stock of The Killam Group Inc., a Delaware corporation
("Killam Group");
WHEREAS, Killam Group owns 100% of the issued and outstanding shares of the
capital stock of Thermo Consulting & Design Inc., a Delaware corporation, and
100% of the issued and outstanding shares of the capital stock of CarlanKillam
Consulting Group Inc., a Florida corporation;
WHEREAS, this Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of Killam Group for shares of stock in the Buyer.
AGREEMENT:
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Sec. 1504, or any similar group defined under a similar provision of state,
local or foreign law.
"AMEX" means the American Stock Exchange.
"APPLICABLE RATE" means the corporate base rate of interest announced from
time to time by First Chicago NBD Corporation, One First National Plaza,
Chicago, IL 60670.
"BASE PURCHASE PRICE" has the meaning set forth in Section2.2 below.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" means The Randers Group Incorporated, a Delaware corporation.
"CLOSING" has the meaning set forth in Section2.3 below.
"CLOSING DATE" has the meaning set forth in Section2.3 below.
"CLOSING BALANCE SHEET" has the meaning set forth in Section2.2 below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMISSION FILINGS" has the meaning set forth in Section3.2.7 below.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of Killam Group and its Subsidiaries that is not already generally
available to the public.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code Sec.
1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section4 below.
"EMPLOYEE BENEFIT PLAN" means any (A) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (B)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (C) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (D) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section4.7 below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section8.4 below.
"INDEMNIFYING PARTY" has the meaning set forth in Section8.4 below.
"INTELLECTUAL PROPERTY" means (A) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (B) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (C) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (D) all mask works and all
applications, registrations, and renewals in connection therewith, (E) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical
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data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (F) all
computer software (including data and related documentation), (G) all other
proprietary rights, and (H) all copies and tangible embodiments thereof (in
whatever form or medium).
"KILLAM GROUP" means The Killam Group Inc., a Delaware corporation.
"KILLAM GROUP SHARE" means any share of the voting common stock, non-voting
common stock and preferred stock of Killam Group.
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section4.7
below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section4.7
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section4.7 below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"RGI CONVERTIBLE SECURITIES" has the meaning set forth in Section3.2.6
below.
"RGI OPTIONS" has the meaning set forth in Section3.2.6 below.
"RGI SHARES" means the shares of RGI Stock being issued to Seller pursuant
to this Agreement.
"RGI STOCK" means the common stock, $0.0001 par value per share, of The
Randers Group Incorporated, a Delaware corporation.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (A) mechanic's, materialmen's, and
similar liens, (B) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (C)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (D) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SELLER" means Thermo TerraTech Inc., a Delaware corporation.
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"SUBSIDIARY" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section8.4 below.
2. PURCHASE AND SALE OF KILLAM GROUP SHARES.
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of its Killam Group Shares for the consideration
specified below in Section2.2.
2.2 PURCHASE CONSIDERATION. The Buyer shall deliver to the Seller at the
Closing 103,569,600 fully paid and non-assessable shares of RGI Stock as the
"Base Purchase Price." The parties acknowledge and agree that the number of
shares of RGI Stock to be delivered at the Closing in payment of the Base
Purchase Price represents the audited book value of Killam Group as of March 29,
1997, divided by $0.625 per share of RGI Stock so issued. Promptly following the
Closing Date, but in any event no later than 45 days thereafter, Buyer will
prepare a draft combined balance sheet for Killam Group and its Subsidiaries as
of the Closing Date (the "Closing Balance Sheet"). Seller will review the
Closing Balance Sheet and provide Buyer with any objections thereto within 30
days after Seller's receipt thereof. If Seller does not object within such
30-day period, then the Closing Balance Sheet shall be deemed to be accepted by
Seller and shall become final. If Seller does object to the Closing Balance
Sheet, then the Parties will use best efforts to resolve any such objections
within 30 days. If the Parties are unable to resolve such objections within such
30-day period, then any disputed items will be resolved by an accounting firm
designated jointly by the Parties and the Closing Balance Sheet shall be
finalized in accordance with the determination of such firm. Upon finalization
of the Closing Balance Sheet as provided above, the Base Purchase Price shall
either be (a) increased by the amount, if any, by which the book value of Killam
Group and its Subsidiaries as shown on the Closing Balance Sheet exceeds such
book value as of March 29, 1997; or (b) decreased by the amount, if any, by
which the book value of Killam Group and its Subsidiaries as of March 29, 1997
exceeds such book value as of March 29, 1997. Any such adjustment to the Base
Purchase Price shall be settled in shares of RGI Stock, valued, in either case,
at $0.625 per share.
2.3 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of McShane & Bowie,
PLC, in Grand Rapids, MI, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Seller may
mutually determine (the "Closing Date").
2.4 DELIVERIES AT THE CLOSING. At the Closing, (A) the Seller will deliver
to the Buyer the various certificates, instruments, and documents referred to in
Section7.1 below, (B) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section7.2 below, (C)
the Seller will deliver to the Buyer stock certificates representing all of its
Killam Group Shares, endorsed in blank or accompanied
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by duly executed assignment documents, and (D) the Buyer will deliver to the
Seller the RGI Stock specified in Section2.2 above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this Section3.1 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section3.1)
with respect to itself, except as set forth in Annex I attached hereto.
3.1.1 ORGANIZATION OF SELLER. The Seller is a corporation, the Seller
is duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation.
3.1.2 AUTHORIZATION OF TRANSACTION. The Seller has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
3.1.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or,
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
it is bound or to which any of its assets is subject. The transactions
contemplated by this Agreement have been approved by all requisite corporate
action of the Seller.
3.1.4 BROKERS' FEES. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.1.5 INVESTMENT. The Seller (A) understands that the RGI Stock has
not been, and will not be, registered under the Securities Act, or under any
state securities laws, and is being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the RGI Stock solely for its own account for
investment purposes, and not with a view to the distribution thereof, (C) is
a sophisticated investor with knowledge and experience in business and
financial matters, (D) has received certain information concerning the Buyer
and has had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding the RGI
Stock, (E) is able to bear the economic risk and lack of liquidity inherent
in holding the RGI Stock, and (F) is an Accredited Investor.
3.1.6 KILLAM GROUP SHARES. The Seller holds of record and owns
beneficially 100 Killam Group Shares, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The Killam
Group Shares owned by Seller represent 100% of the issued and outstanding
capital stock of Killam Group. The Seller is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
the Seller to sell, transfer, or otherwise dispose of any capital stock of
Killam Group (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Killam Group.
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3.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this Section3.2 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this
Section3.2), except as set forth in Annex II attached hereto.
3.2.1 ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
3.2.2 AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder except that
the approval of Buyer's shareholders is required to list the RGI Shares to
be issued to the Seller on AMEX. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions. The Buyer need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
3.2.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
3.2.4 BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
3.2.5 INVESTMENT. The Buyer (A) understands that the Killam Group
Shares have not been, and will not be, registered under the Securities Act,
or under any state securities laws, and is being offered and sold in
reliance upon federal and state exemptions for transactions not involving
any public offering, (B) is acquiring the Killam Group Shares solely for its
own account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning Killam Group and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks
inherent in holding the Killam Group Shares, (E) is able to bear the
economic risk, and (F) is an Accredited Investor.
3.2.6 CAPITALIZATION OF BUYER. The authorized capital stock of the
Buyer consists of (i) 30,000,000 shares of RGI Stock, of which 14,115,682
shares are issued and outstanding. Section3.2 of the Disclosure Schedule
sets forth a complete and accurate list of (i) all holders of options,
warrants and other rights to purchase shares of RGI Stock (collectively,
"RGI Options"), indicating the type and number of shares subject to each
such RGI Option, and the exercise price, vesting status and termination date
of each such RGI Option, and (ii) all holders of any notes or other
securities that are or may be convertible into RGI Stock (collectively, "RGI
Convertible Securities"). All of the issued and outstanding shares of RGI
Stock are, and all shares of RGI Stock that may be issued in connection with
this Agreement, upon the exercise of any RGI Options, or upon the exercise
or conversion of any RGI Convertible Securities, will be, upon such
issuance, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. Except as set forth in Section3.2 of the
Disclosure Schedule, there are no outstanding or authorized shares of
capital stock or other securities or options, warrants, rights, agreements
or commitments to which the Buyer is a party or which are binding upon the
Buyer providing for the issuance, disposition or acquisition of any of its
capital stock
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or other securities. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Buyer.
There are no agreements, voting trusts, proxies, or understandings with
respect to the voting or registration under the Securities Act, of any
shares of any capital stock of the Buyer to which the Buyer is party. The
Buyer is not party to any agreements, voting trusts, proxies, or
understandings with respect to the voting or registration under the
Securities Act of any shares of any capital stock of the Buyer. All of the
issued and outstanding shares of RGI Stock and other outstanding securities
of the Buyer were issued in compliance with applicable federal and state
securities laws. No repurchase of capital stock by the Buyer (i) violated
the Buyer's Certificate of Incorporation or Bylaws or any laws, rules or
regulations applicable to the Buyer or (ii) caused any breach of any
agreement to which the Buyer is or was a party. The RGI Stock is listed for
trading in the Emerging Company Marketplace of AMEX and, to the Knowledge of
the Buyer, no proceedings to delist such RGI Stock have been commenced or
are contemplated by AMEX.
3.2.7 BUYER'S SEC DOCUMENTS. Buyer has provided Seller with access to
true and complete copies of each document (including exhibits, but excluding
exhibits incorporated by reference) filed by Buyer with the Commission since
January 1, 1995 (as such documents have since the time of their filing been
amended, the "Commission Filings"), which are all documents (other than
preliminary material) that the Buyer was required to file with the
Commission since such date. As of their respective dates, the Commission
Filings complied in all material respects with the requirements of the
Securities Act and/or the Exchange Act, as the case may be, and the rules
and regulations of the Commission thereunder applicable to such Commission
Filings and none of the Commission Filings when filed contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, at the time
in light of the circumstances under which they were made, not misleading.
The financial statements of the Buyer included in the Commission Filings
complied as to form in all material respects with applicable accounting
requirements and with published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto or, in
the case of the unaudited statements, as permitted by the rules of the
Commission) and fairly present (subject, in the case of the unaudited
statements, to normal recurring audit adjustments) the consolidated
financial position of the Buyer and its consolidated subsidiaries as at the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
3.2.8 PRIOR REPRESENTATIONS OF BUYER. Except as expressly modified
hereby, all representations and warranties made by Buyer to Seller in an
agreement dated May 12, 1997, regarding the purchase of certain shares of
RGI Stock from certain shareholders of Buyer remain true and correct in all
material respects as of the date of this Agreement.
4. REPRESENTATIONS AND WARRANTIES CONCERNING KILLAM GROUP AND ITS
SUBSIDIARIES. The Seller represents and warrants to the Buyer that the
statements contained in this Section4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section4), except as set forth in the disclosure
schedule delivered by the Seller to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section4.
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4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of Killam Group
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
Killam Group and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification is
required. Each of Killam Group and its Subsidiaries has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. The Seller has
made available to the Buyer correct and complete copies of the charter and
bylaws of each of Killam Group and its Subsidiaries (as amended to date). The
minute books (containing the records of meetings of the stockholders, the board
of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of each of Killam Group and its
Subsidiaries are correct and complete. None of Killam Group and its Subsidiaries
is in default under or in violation of any provision of its charter or bylaws.
4.2 CAPITALIZATION. The authorized capital stock of Killam Group consists
of 1,000 shares of common stock, par value of $0.01 per share. There is no other
capital stock of Killam Group authorized for issuance and these shares
collectively constitute the total issued and outstanding share capital of the
Killam Group. All of the issued and outstanding Killam Group Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Seller. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require either Killam Group
or its Subsidiaries to issue, sell, or otherwise cause to become outstanding any
of its capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to Killam
Group or its Subsidiaries. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
Killam Group or its Subsidiaries.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Killam Group and its Subsidiaries
is subject or any provision of the charter or bylaws of any of Killam Group and
its Subsidiaries or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any of Killam Group and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). None of Killam Group and its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
4.4 BROKERS' FEES. None of Killam Group and its Subsidiaries has any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
4.5 TITLE TO ASSETS. Killam Group and its Subsidiaries have good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by them, located on their premises, or shown on the Most Recent Balance
Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.
4.6 SUBSIDIARIES. Section4.6 of the Disclosure Schedule sets forth for
each Subsidiary of Killam Group its name and jurisdiction of incorporation. All
of the issued and outstanding shares of capital stock of each Subsidiary of
Killam Group have been duly authorized and are validly issued, fully paid, and
nonassessable. One of Killam Group and its Subsidiaries holds of record and owns
beneficially all of the outstanding shares of each Subsidiary of Killam Group,
free and clear of any restrictions on transfer (other than
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restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, conversion rights, exchange rights, or other
contracts or commitments that could require any of Killam Group and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its Subsidiaries or that could require any Subsidiary of Killam Group to
issue, sell, or otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to any Subsidiary of Killam Group.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of Killam Group.
None of Killam Group and its Subsidiaries controls directly or indirectly or has
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary of Killam Group.
4.7 FINANCIAL STATEMENTS. Prior to the date hereof, Seller has delivered
to Buyer the following financial statements (collectively the "Financial
Statements"): (A) audited consolidated and unaudited consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal years ended April 1, 1995, March 30, 1996, and March
29, 1997 (the "Most Recent Fiscal Year End") for Killam Group and its
Subsidiaries; and (B) unaudited consolidated and consolidating balance sheets
and statements of income, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") as of and for the three months ended June
28, 1997 (the "Most Recent Fiscal Month End") for Killam Group and its
Subsidiaries. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of Killam Group
and its Subsidiaries as of such dates and the results of operations of Killam
Group and its Subsidiaries for such periods, are correct and complete, and are
consistent with the books and records of Killam Group and its Subsidiaries
(which books and records are correct and complete); provided, however, that the
Most Recent Financial Statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and lack footnotes
and other presentation items.
4.8 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of any of Killam Group and its Subsidiaries. Without limiting the
generality of the foregoing, since that date:
(i) none of Killam Group and its Subsidiaries has sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other
than for a fair consideration in the Ordinary Course of Business;
(ii) none of Killam Group and its Subsidiaries has entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $50,000 and outside the
Ordinary Course of Business;
(iii) no party (including any of Killam Group and its Subsidiaries) has
accelerated, terminated, modified, or canceled any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than $50,000 to which any of Killam Group and its
Subsidiaries is a party or by which any of them is bound;
(iv) none of Killam Group and its Subsidiaries has imposed any Security
Interest upon any of its assets, tangible or intangible;
(v) none of Killam Group and its Subsidiaries has made any capital
expenditure (or series of related capital expenditures) involving more than
$50,000 and outside the Ordinary Course of Business;
(vi) none of Killam Group and its Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the securities or assets
of, any other Person (or series of related capital investments, loans, and
acquisitions) involving more than $50,000;
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(vii) none of Killam Group and its Subsidiaries has issued any note,
bond, or other debt security or created, incurred, assumed, or guaranteed
any indebtedness for borrowed money or capitalized lease obligation either
involving more than $25,000 singly or $50,000 in the aggregate;
(viii) none of Killam Group and its Subsidiaries has delayed or
postponed the payment of accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) none of Killam Group and its Subsidiaries has canceled,
compromised, waived, or released any right or claim (or series of related
rights and claims) either involving more than $50,000 or outside the
Ordinary Course of Business;
(x) none of Killam Group and its Subsidiaries has granted any license or
sublicense of any rights under or with respect to any Intellectual Property
outside the Ordinary Course of Business;
(xi) there has been no change made or authorized in the charter or
bylaws of any of Killam Group and its Subsidiaries;
(xii) except in connection with the issuance of 100 Killam Group Shares
to Seller upon the incorporation of the Killam Group in September of 1997,
none of Killam Group and its Subsidiaries has issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) none of Killam Group and its Subsidiaries has declared, set
aside, or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xiv) none of Killam Group and its Subsidiaries has experienced any
material damage, destruction, or loss (whether or not covered by insurance)
to its property;
(xv) none of Killam Group and its Subsidiaries has made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi) none of Killam Group and its Subsidiaries has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) none of Killam Group and its Subsidiaries has granted any
increase in the base compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xviii) none of Killam Group and its Subsidiaries has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) none of Killam Group and its Subsidiaries has made any other
change in employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) none of Killam Group and its Subsidiaries has made or pledged to
make any charitable or other capital contribution outside the Ordinary
Course of Business;
(xxi) there has not been any other material occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving any of Killam Group and its Subsidiaries; and
(xxii) none of Killam Group and its Subsidiaries has committed to any of
the foregoing.
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4.9 UNDISCLOSED LIABILITIES. None of Killam Group and its Subsidiaries has
any Liability (and, to the Knowledge of Seller, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability),
except for (A) Liabilities set forth in the Most Recent Financial Statements,
including the notes thereto, and (B) Liabilities which have arisen after the
date of the Most Recent Financial Statements in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
4.10 LEGAL COMPLIANCE. Each of Killam Group, its Subsidiaries, and their
respective predecessors, has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
4.11 TAX MATTERS.
4.11.1 Each of Killam Group and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by any of Killam Group and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None
of Killam Group and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where any of Killam Group and
its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of the
assets of any of Killam Group and its Subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax.
4.11.2 Each of Killam Group and its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
4.11.3 The Seller does not expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There
is no dispute or claim concerning any Tax Liability of any of Killam Group
and its Subsidiaries either (A) claimed or raised by any authority in
writing or (B) as to the Seller and the directors and officers (and
employees responsible for Tax matters) of Killam Group and its Subsidiaries
has Knowledge based upon personal contact with any agent of such authority.
The Seller has made available to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of Killam Group and its
Subsidiaries since April 1, 1995.
4.11.4 None of Killam Group and its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
4.11.5 None of Killam Group and its Subsidiaries has filed a consent
under Code Sec. 341(f) concerning collapsible corporations. None of Killam
Group and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under
Code Sec. 280G. None of Killam Group and its Subsidiaries has been a United
States real property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code Sec.
897(c)(1)(A)(ii). Each of Killam Group and its Subsidiaries has disclosed on
its federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Code Sec. 6662. None of Killam Group and its Subsidiaries is a
party to any Tax allocation or sharing agreement. None of Killam Group and
its Subsidiaries (A) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent
of which was Killam Group) or (B) has any Liability for the Taxes of any
Person (other than any of Killam Group and its Subsidiaries) under Treas.
Reg. Section1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
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4.11.6 The unpaid Taxes of Killam Group and its Subsidiaries (A) did
not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (B) do not
exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Killam Group and its
Subsidiaries in filing their Tax Returns.
4.12 REAL PROPERTY.
4.12.1 Section4.12.1 of the Disclosure Schedule lists and describes
briefly all real property that any of Killam Group and its Subsidiaries
owns. With respect to each such parcel of owned real property:
(i) the identified owner has good and marketable title to the parcel
of real property, free and clear of any Security Interest, easement,
covenant, or other restriction, except for installments of special
assessments not yet delinquent and recorded easements, covenants, and
other restrictions which do not impair the current use, occupancy, or
value, or the marketability of title, of the property subject thereto;
(ii) there are no pending or, to the Knowledge of Seller, threatened
condemnation proceedings, lawsuits, or administrative actions relating to
the property or other matters affecting materially and adversely the
current use, occupancy, or value thereof;
(iii) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described
parcels of land, are not in violation of applicable setback requirements,
zoning laws, and ordinances (and none of the properties or buildings or
improvements thereon are subject to "permitted non-conforming use" or
permitted non-conforming structure" classifications), and do not encroach
on any easement which may burden the land, and the land does not serve
any adjoining property for any purpose inconsistent with the use of the
land, and the property is not located within any flood plain or subject
to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained;
(iv) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection with
the ownership or operation thereof and have been operated and maintained
in accordance with applicable laws, rules, and regulations;
(v) there are no leases, subleases, licenses, concessions, or other
agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the parcel of real property;
(vi) there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or interest
therein;
(vii) there are no parties (other than Killam Group and its
subsidiaries) in possession of the parcel of real property, other than
tenants under any leases disclosed in Section4.12.1 of the Disclosure
Schedule who are in possession of space to which they are entitled;
(viii) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation of
such facilities, including gas, electricity, water, telephone, sanitary
sewer, and storm sewer, all of which services are adequate in accordance
with all applicable laws, ordinances, rules, and regulations and are
provided via public roads or via permanent, irrevocable, appurtenant
easements benefiting the parcel of real property; and
(ix) each parcel of real property abuts on and has direct vehicular
access to a public road, or has access to a public road via a permanent,
irrevocable, appurtenant easement benefiting the parcel of real property,
and access to the property is provided by paved public right-of-way with
adequate curb cuts available.
4.12.2 Section4.12.2 of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to any of Killam Group and its
Subsidiaries. The Seller has made available to the Buyer
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correct and complete copies of the leases and subleases listed in
Section4.12.2 of the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in Section4.12.2 of the Disclosure
Schedule:
(i) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or default, and
no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has repudiated any provision
thereof;
(v) there are no disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(vi) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (v) above are true and
correct with respect to the underlying lease;
(vii) none of Killam Group and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(viii) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
(ix) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(x) to the Knowledge of the Seller, the owner of the facility leased
or subleased has good and marketable title to the parcel of real
property, free and clear of any Security Interest, easement, covenant, or
other restriction, except for installments of special easements not yet
delinquent and recorded easements, covenants, and other restrictions
which do not impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto.
4.13 INTELLECTUAL PROPERTY.
4.13.1 Killam Group and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary or desirable for the operation of the businesses of
Killam Group and its Subsidiaries as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used
by any of Killam Group and its Subsidiaries immediately prior to the Closing
hereunder will be owned or available for use by Killam Group or the
Subsidiary on identical terms and conditions immediately subsequent to the
Closing hereunder. Each of Killam Group and its Subsidiaries has taken all
action deemed reasonably necessary or desirable to maintain and protect each
item of Intellectual Property that it owns or uses.
4.13.2 None of Killam Group and its Subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the Seller,
Killam Group, or its Subsidiaries has ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of Killam Group
and its Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of any of Seller, no
third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of any of
Killam Group and its Subsidiaries.
4.13.3 The Seller has made available to the Buyer correct and complete
copies of each patent or registration which is pending or which has been
issued to any of Killam Group and its Subsidiaries
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with respect to any of its Intellectual Property, and each license,
agreement, or other permission which any of Killam Group and its
Subsidiaries has granted to any third party other than in the Ordinary
Course of Business with respect to any of its Intellectual Property. The
Seller has made available to the Buyer correct and complete copies of all
written documentation evidencing ownership and prosecution (if applicable)
of each such item. Section4.13.3 of the Disclosure Schedule identifies each
trade name or unregistered trademark used by any of Killam Group and its
Subsidiaries in connection with any of its businesses. With respect to each
item of Intellectual Property:
(i) Killam Group and its Subsidiaries possess all right, title, and
interest in and to the item, free and clear of any Security Interest,
license, or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Seller is
threatened which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(iv) none of Killam Group and its Subsidiaries has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
4.13.4 Section4.13.4 of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that any of Killam Group
and its Subsidiaries uses pursuant to license, sublicense, agreement, or
permission granted other than in the Ordinary Course of Business. The Seller
has made available to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be identified
in Section4(m)(iv) of the Disclosure Schedule:
(i) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the Closing;
(iii) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true and
correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Seller, is
threatened which challenges the legality, validity, or enforceability of
the underlying item of Intellectual Property; and
(viii) none of Killam Group and its Subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
4.13.5 To the Knowledge of Seller, none of the transactions
contemplated by this Agreement will interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its business as presently conducted and as presently proposed to be
conducted.
4.13.6 The Seller has no Knowledge of any new products, inventions,
procedures, or methods of manufacturing or processing that any competitors
or other third parties have developed which
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reasonably could be expected to supersede or make obsolete any product or
process of any of Killam Group and its Subsidiaries.
4.14 TANGIBLE ASSETS. Killam Group and its Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted. Each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used and presently is proposed to be used.
4.15 [NOT USED.]
4.16 CONTRACTS. The Seller has made available to the Buyer a correct and
complete copy of each written agreement identified below to which Killam Group
and its Subsidiaries is a party and a written summary setting forth the terms
and conditions of each oral agreement that would be required to be identified
below were such agreement in written form:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a material loss to any of Killam Group and its Subsidiaries, or
involve consideration in excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $10,000
or under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Seller and its Affiliates (other
than Killam Group and its Subsidiaries);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $10,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of any of Killam Group and its Subsidiaries; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
With respect to each such agreement listed above: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or
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lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
4.17 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
Killam Group and its Subsidiaries are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Killam Group and its Subsidiaries.
4.18 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of any of Killam Group and its Subsidiaries.
4.19 INSURANCE. Section4.19 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of Killam Group and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past three years, other than insurance coverage provided to
Killam Group and its Subsidiaries by the umbrella coverage of Thermo Electron
Corporation, the ultimate parent entity of Seller:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate)
of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy to which any of Killam Group and
its Subsidiaries is a party, a named insured or a beneficiary: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither any of Killam Group and its Subsidiaries nor
any other party to the policy is in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy;
and (D) no party to the policy has repudiated any provision thereof. Each of
Killam Group and its Subsidiaries has been covered during the past five years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Section4.19 of the
Disclosure Schedule describes any self-insurance arrangements affecting any of
Killam Group and its Subsidiaries.
4.20 LITIGATION. Neither Killam Group nor any of its Subsidiaries is a
party to any action, suit, proceeding, hearing, or investigation which, to the
Knowledge of Seller, could result in any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of Killam Group and its Subsidiaries, taken as a whole. The Seller has
no reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against any of Killam Group and its
Subsidiaries.
4.21 CONTRACTUAL COMMITMENTS. The services Killam Group and its
Subsidiaries have provided their customers have been in conformity with all
applicable contractual commitments, and none of Killam Group and its
Subsidiaries has any Liability (and, to the Knowledge of Seller, there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand
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against any of them giving rise to any Liability) for damages in connection
therewith, subject only to the reserve for claims set forth in the Most Recent
Financial Statements, including the notes thereto, as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of Killam Group and its Subsidiaries.
4.22 [NOT USED.]
4.23 EMPLOYEES. To the Knowledge of Seller, no executive, key employee, or
group of employees has any plans to terminate employment with any of Killam
Group and its Subsidiaries. None of Killam Group and its Subsidiaries is a party
to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. None of Killam Group and its Subsidiaries has
committed any unfair labor practice. The Seller has no Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of any of Killam Group and its
Subsidiaries.
4.24 EMPLOYEE BENEFITS.
4.24.1 Section4.24.1 of the Disclosure Schedule lists each Employee
Benefit Plan that any of Killam Group and its Subsidiaries maintains or to
which any of Killam Group and its Subsidiaries contributes. With respect to
each such Employee Benefit Plan:
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice
of Killam Group and its Subsidiaries. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
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4.24.2 With respect to each Employee Benefit Plan that any of Killam
Group, its Subsidiaries, and the Controlled Group of Corporations which
includes Killam Group and its Subsidiaries maintains or ever has maintained
or to which any of them contributes, ever has contributed, or ever has been
required to contribute:
(i) No such Employee Benefit Plan which is in Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No proceeding
by the PBGC to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the Knowledge of
Seller, threatened.
(ii) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with
the administration or investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending
or, to the Knowledge of Seller, threatened. The Seller has no Knowledge
of any Basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) None of Killam Group and its Subsidiaries has incurred, and
none of the Seller and the directors and officers (and employees with
responsibility for employee benefits matters) of Killam Group and its
Subsidiaries has any reason to expect that any of Killam Group and its
Subsidiaries will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including any
withdrawal Liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
4.24.3 None of Killam Group, its Subsidiaries, and the other members of
the Controlled Group of Corporations that includes Killam Group and its
Subsidiaries contributes to, ever has contributed to, or ever has been
required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan.
4.24.4 None of Killam Group and its Subsidiaries maintains or ever has
maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B).
4.25 GUARANTIES. None of Killam Group and its Subsidiaries is a guarantor
or otherwise is liable for any Liability or obligation (including indebtedness)
of any other Person.
4.26 ENVIRONMENT, HEALTH, AND SAFETY.
4.26.1 Each of Killam Group, its Subsidiaries, and their respective
predecessors and Affiliates has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure so to comply. Without limiting the
generality of the preceding sentence, each of Killam Group, its
Subsidiaries, and their respective predecessors and Affiliates has obtained
and been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and has
complied with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.
4.26.2 None of Killam Group and its Subsidiaries has any Liability (and
none of Killam Group, its Subsidiaries, and their respective predecessors
and Affiliates has handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other individual to
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any substance or condition, or owned or operated any property or facility in
any manner that could form the Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of Killam Group and its Subsidiaries giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
4.26.3 All properties and equipment used in the business of Killam
Group, its Subsidiaries, and their respective predecessors and Affiliates
have been free of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
4.26.4 Seller has made available to Buyer:
(i) all industrial hygiene surveys prepared by or on behalf of Killam
Group and its Subsidiaries since January 1, 1992, to the extent
reasonably available from the records of Killam Group and its
Subsidiaries;
(ii) summaries of all epidemiological or toxicological studies
conducted by or on behalf of Killam Group and its Subsidiaries since
January 1, 1992, to the extent reasonably available from the records of
Killam Group and its Subsidiaries;
(iii) all occupational safety and health reports filed with
governmental agencies or instrumentalities by or on behalf of Killam
Group and its Subsidiaries since January 1, 1992, to the extent
reasonably available from the records of Killam Group and its
Subsidiaries;
(iv) annual summaries of workers compensation liabilities of Killam
Group and its Subsidiaries since January 1, 1992, to the extent
reasonably available from the records of Killam Group and its
Subsidiaries;
(v) all citations, notices of violations, orders, consent orders,
administrative or judicial enforcement proceedings from governmental
agencies or instrumentalities with respect to health or safety matters
currently pending against Killam Group and its Subsidiaries;
(vi) all medical surveillance programs currently provided for
employees involved with raw materials and products (including waste
products) used or produced, to the extent reasonably available from the
records of Killam Group and its Subsidiaries;
(vii) a list of each accident or event which has resulted in, or may
result in, a claim against Killam Group and its Subsidiaries that
personal injury, property damage or economic loss was caused by Killam
Group or its Subsidiaries or involved any employee of Killam Group or its
Subsidiaries in his or her capacity as an employee, to the extent
reasonably available from the records of Killam Group and its
Subsidiaries; and
(viii) a list of all claims (other than health and dental claims)
filed and currently pending under the insurance policies listed pursuant
to Schedule 4.19 (including, in their aggregate amount, employee benefit
claims other than health or dental insurance claims).
4.27 BACKLOG. As of June 30, 1997, Killam Group's and its Subsidiaries'
backlog of binding purchase orders was at least $47,196,926. To the Knowledge of
any of the Seller, Killam Group and its Subsidiaries, such orders and
commitments, together with any quotations for work which are outstanding at this
time, contain, in the aggregate, terms and conditions that are consistent with
the practices of Killam Group and its Subsidiaries in the ordinary course of
business prior to the Closing Date.
4.28 GOVERNMENT CONTRACTS. None of Killam Group or its Subsidiaries has
been suspended or debarred from bidding on contracts or subcontracts with any
Governmental Entity and no such suspension or debarment has been initiated or,
to the Knowledge of Seller, threatened. The consummation of the
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transactions contemplated by this Agreement will not result in any such
suspension or debarment. To the Knowledge of Seller, none of Killam Group or its
Subsidiaries has been audited or investigated and is not now being audited or
investigated by the U.S. Government Accounting Office, the U.S. Department of
Defense or any of its agencies, the Defense Contract Audit Agency, the U.S.
Department of Justice, the Inspector General of any U.S. Governmental Entity,
any similar agencies or instrumentalities of any foreign Governmental Entity, or
any price contractor with a Governmental Entity nor has any such audit or
investigation been threatened. To the Knowledge of Seller, there is no valid
basis for (A) the suspension or debarment of Killam Group or any of its
Subsidiaries from bidding on contracts or subcontracts with any Governmental
Entity or (B) any claim pursuant to an audit or investigation by any of the
entities named in the foregoing sentence. Killam Group and its Subsidiaries have
no agreements, contracts or commitments which require it to obtain or maintain a
security clearance with any Governmental Entity.
4.29 BANKING FACILITIES. Seller has made available to Buyer a true,
correct and complete list of: (A) each bank, savings and loan or similar
financial institution at which Killam Group and its Subsidiaries has an account,
safety deposit box, line of credit or credit facility and the numbers of the
accounts or safety deposit boxes maintained by Killam Group and its Subsidiaries
thereat and details, including terms, of any line of credit or credit facility;
and (B) the names of all persons authorized to draw on each such account or to
have access to any such safety deposit box facility, together with a description
of the authority (and conditions thereof, if any) of each such person with
respect thereto.
4.30 CERTAIN BUSINESS RELATIONSHIPS WITH KILLAM GROUP AND ITS
SUBSIDIARIES. Neither the Seller nor any of its Affiliates has been involved in
any business arrangement or relationship with any of Killam Group and its
Subsidiaries within the past 12 months (other than in the Ordinary Course of
Business), and none of the Seller and its Affiliates owns any asset, tangible or
intangible, which is used in the business of any of Killam Group and its
Subsidiaries.
4.31 DISCLOSURE. The representations and warranties contained in this
Section4 do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this Section4 not misleading.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
5.1 GENERAL. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section7 below).
5.2 COVENANTS OF SELLER.
5.2.1 NOTICES AND CONSENTS. The Seller will cause each of Killam Group
and its Subsidiaries to give any notices to third parties, and will cause
each of Killam Group and its Subsidiaries to use its best efforts to obtain
any third-party consents, that the Buyer reasonably may request in
connection with the matters referred to in Section4.3 above. Each of the
Parties will (and the Seller will cause each of Killam Group and its
Subsidiaries to) give any notices to, make any filings with, and use its
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters
referred to in Section3.1.2, and Section4.3 above.
5.2.3 OPERATION OF BUSINESS. The Seller will not cause or permit any
of Killam Group and its Subsidiaries to engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller will
not cause or permit any of Killam Group and its Subsidiaries to (A) declare,
set aside, or pay any dividend or make any distribution with respect to its
capital stock or redeem, purchase, or otherwise acquire any of its capital
stock, or (B) otherwise engage in any practice, take any action, or enter
into any transaction of the sort described in Section4.8 above.
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5.2.4 PRESERVATION OF BUSINESS. The Seller will cause each of Killam
Group and its Subsidiaries to keep its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers,
and employees.
5.2.5 FULL ACCESS. The Seller will permit, and the Seller will cause
each of Killam Group and its Subsidiaries to permit, representatives of the
Buyer to have full access at all reasonable times, and in a manner so as not
to interfere with the normal business operations of Killam Group and its
Subsidiaries, to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to each
of Killam Group and its Subsidiaries.
5.2.6 NOTICE OF DEVELOPMENTS. The Seller will give prompt written
notice to the Buyer of any material adverse development causing a breach of
any of the representations and warranties in Section4 above. The Seller will
cause each of Killam Group and its Subsidiaries will give prompt written
notice to the others of any material adverse development causing a breach of
any of his or its own representations and warranties in Section3 above. No
disclosure by Seller, Killam Group or its Subsidiaries pursuant to this
Section5.2.6, however, shall be deemed to amend or supplement Annex I, Annex
II, or the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant, unless specifically agreed to in
writing by Buyer.
5.2.7 EXCLUSIVITY. The Seller will not (and the Seller will not cause
or permit any of Killam Group and its Subsidiaries to) (A) solicit,
initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, any of Killam Group
and its Subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange) or (B) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by
any Person to do or seek any of the foregoing. The Seller will vote its
Killam Group Shares in favor of any such acquisition structured as a merger,
consolidation, or share exchange. The Seller will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
5.3 COVENANTS OF BUYER.
5.3.1 NOTICES AND CONSENTS. The Buyer will give any notices to third
parties, and will obtain any third-party consents, that the Seller
reasonably may request in connection with the matters referred to in
Section3.2.3 above. Buyer will give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Section3.2.2.
5.3.3 OPERATION OF BUSINESS. The Buyer and its Subsidiaries will not
engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of
the foregoing, the Buyer and its Subsidiaries will not (A) declare, set
aside, or pay any dividend or make any distribution with respect to its
capital stock or redeem, purchase, or otherwise acquire any of its capital
stock, or (B) otherwise engage in any practice, take any action, or enter
into any transaction of the sort described in Section4.8 above.
5.3.4 PRESERVATION OF BUSINESS. The Buyer and its Subsidiaries will
keep their business and properties substantially intact, including their
present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
5.3.5 FULL ACCESS. The Buyer will permit representatives of the Seller
to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of Buyer and its Subsidiaries,
to all premises, properties, personnel, books, records (including Tax
records), contracts, and documents of or pertaining to each of Buyer and its
Subsidiaries.
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5.3.6 NOTICE OF DEVELOPMENTS. The Buyer will give prompt written
notice to the Seller of any material adverse development causing a breach of
any of the representations and warranties in Section3.2 above. No disclosure
by Buyer pursuant to this Section5.3.6, however, shall be deemed to amend or
supplement any Annex, Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant, unless
specifically agreed to in writing by Seller.
5.3.7 LISTING OF RGI STOCK. Promptly after the date hereof, the Buyer
shall take all action necessary in accordance with applicable law to convene
a meeting of its shareholders to be held for the purpose of approving the
listing of the shares of RGI Stock to be issued to the Seller for trading
upon AMEX in accordance with Section712 of AMEX's Listing Standards,
Policies and Requirements (or any other applicable provisions thereof). In
connection with such meeting, the Buyer's Board of Directors shall recommend
to the Buyer's shareholders the approval of the listing of such shares of
RGI Stock pursuant to this Agreement. The Buyer shall use all reasonable
efforts to obtain all votes and approvals of its shareholders necessary for
the listing of such shares of RGI Stock and all related matters required
under the Delaware Business Corporation Act, and its Certificate of
Incorporation and By-laws. The Seller hereby agrees to vote all of the
shares of RGI Stock held by it as of the record date of any such meeting in
favor of the listing of such share of RGI Stock and all such related
matters.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
6.1 GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section8 below).
6.2 LITIGATION SUPPORT. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (A) any
transaction contemplated under this Agreement or (B) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any of Killam Group and its Subsidiaries, each of the other Parties
will cooperate with him or it and his or its counsel in the contest or defense,
make available their personnel, and provide such testimony and access to their
books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section8 below).
6.3 TRANSITION. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of any of Killam Group and its
subsidiaries from maintaining the same business relationships with Killam Group
and its Subsidiaries after the Closing as it maintained with Killam Group and
its Subsidiaries prior to the Closing. The Seller will refer all customer
inquiries relating to the businesses of Killam Group and its Subsidiaries to the
Buyer from and after the Closing.
6.4 CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in its possession. In the
event that the Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section6.4. If, in the absence
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of a protective order or the receipt of a waiver hereunder, the Seller is, on
the advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, the Seller may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
Seller shall use his or its best efforts to obtain, at the request of the Buyer,
an order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
6.5 RGI STOCK. Each certificate of RGI Stock delivered to Seller will be
imprinted with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE ONLY PURSUANT TO APPLICABLE EXEMPTIONS (IF ANY) UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
7. CONDITIONS TO OBLIGATION TO CLOSE.
7.1 CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section3.1 and
Section4 above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) Killam Group and its Subsidiaries shall have procured all of the
third party consents specified in Section5.2 above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Buyer to own Killam Group Shares and to control Killam Group and its
Subsidiaries, or (D) affect adversely the right of any of Killam Group and
its Subsidiaries to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section7.1(i)-7.1(iv)
is satisfied in all respects;
(vi) the Parties, Killam Group, and its Subsidiaries shall have received
all authorizations, consents, and approvals of governments and governmental
agencies, if any, referred to in Section3.1.2, Section3.2, and Section4.3
above; and
(vii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
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The Buyer may waive any condition specified in this Section7.1 if it executes a
writing so stating at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section3.2 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate to the
effect that each of the conditions specified above in Section7.2(i)-7.2(iii)
is satisfied in all respects;
(v) the Parties, Killam Group, and its Subsidiaries shall have received
all authorizations, consents, and approvals of governments and governmental
agencies, if any, referred to in Section3.1.2, Section3.2.2, and Section4.3
above; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section7.2 if they execute
a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Seller contained in Section4.1-4.10 and Section4.12-4.31
shall survive the Closing hereunder (even if the Buyer knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of two years thereafter. All of
the other representations and warranties of the Parties contained in this
Agreement (including the representations and warranties of the Seller contained
in Section4.11 above) shall survive the Closing (even if the damaged Party knew
or had reason to know of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
8.2.1 In the event the Seller breaches (or in the event any third party
alleges facts that, if true, would mean the Seller has breached) any of its
representations, warranties, and covenants contained herein (other than the
covenants in Section2.1 above and the representations and warranties in
Section3.1 above), and, if there is an applicable survival period pursuant
to Section8.1 above, provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section10.8 below within such
survival period, then the Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the
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alleged breach); provided, however, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by
the breach (or alleged breach) of any representation or warranty of the
Seller contained in Section4.1-4.10 and Section4.12-4.31 above until the
Buyer has suffered Adverse Consequences by reason of all such breaches (or
alleged breaches) in excess of a $100,000 aggregate threshold (at which
point the Seller will be obligated to indemnify the Buyer from and against
all such Adverse Consequences relating back to the first dollar).
8.2.2 In the event Seller breaches (or in the event any third party
alleges facts that, if true, would mean the Seller has breached) any of its
covenants in Section2.1 above or any of its representations and warranties
in Section3.1 above, and, if there is an applicable survival period pursuant
to Section8.1 above, provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section10.8 below within such
survival period, then the Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach).
8.2.3 The Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability of
any of Killam Group and its Subsidiaries for the unpaid Taxes of any Person
(other than any of Killam Group and its Subsidiaries) under Treas. Reg.
Section1.1502-6 (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the event the
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section8.1 above, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to Section10.8 below within such
survival period, then the Buyer agrees to indemnify the Seller from and against
the entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
8.4 INDEMNIFICATION CEILING AMOUNT. In no event will the total amount
payable by either Seller or Buyer pursuant to Section8.2 or Section8.3 exceed an
amount equal to the Base Purchase Price for the Killam Shares.
8.5 MATTERS INVOLVING THIRD PARTIES.
8.5.1 If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
8.5.2 Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against
the entirety of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party provides the Indemnified
Party with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial
A-26
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party,
likely to establish a precedential custom or practice materially adverse to
the continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
8.5.3 So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section8.5.2 above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably),
and (C) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
8.5.4 In the event any of the conditions in Section8.5.2 above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section8.
8.6 DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section8.
9. TERMINATION.
9.1 TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing in the event the Seller has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Buyer has notified the Seller of
the breach, and the breach has continued without cure for a period of 15
days after the notice of breach; and
(iii) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing in the event the Buyer has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Seller has notified the Buyer of
the breach, and the breach has continued without cure for a period of 15
days after the notice of breach.
9.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section9.1 above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
A-27
10. MISCELLANEOUS.
10.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure).
10.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
10.3 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller.
10.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
10.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 NOTICES. All notices, requests, demands, consents and other
communications which are required or permitted hereunder shall be in writing,
and shall be deemed given when actually received or if earlier, two days after
deposit with the U.S. postal authorities, certified or registered mail, return
receipt requested, postage prepaid or two days after deposit with an
internationally recognized air courier or express mail, charges prepaid,
addressed as follows:
If to the Buyer:
The Randers Group Incorporated
570 W. Seminole Road
Muskegon, Michigan 49444
Attention: Thomas R. Eurich
With a copy to:
McShane & Bowie, P.L.C.
1100 Campau Square Plaza
99 Monroe Avenue, NW
Grand Rapids, Michigan 49501-0360
Attention: John F. Shape, Esq.
If to the Seller:
Thermo TerraTech Inc.
81 Wyman Street
Waltham, Massachusetts 02254-9046
Attention: President
With a copy to:
A-28
Thermo Electron Corporation
81 Wyman Street
Waltham, Massachusetts 02254
Attention: General Counsel
or to such other address as any party hereto may designate in writing to the
other parties, specifying a change of address for the purpose of this Agreement.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
10.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11 EXPENSES. Each of the Parties, Killam Group, and its Subsidiaries
will bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Seller agrees that none of Killam Group and its Subsidiaries has
borne or will bear any of the Seller's costs and expenses (including any of
their legal fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
10.12 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
10.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
10.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
A-29
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
THE RANDERS GROUP INCORPORATED,
a Delaware corporation
By: /s/ THOMAS R. EURICH
-----------------------------------------
Thomas R. Eurich,
ITS PRESIDENT
the "Buyer"
THERMO TERRATECH INC.,
a Delaware corporation
By: /s/ JOHN P. APPLETON
-----------------------------------------
John P. Appleton,
ITS PRESIDENT AND CEO
the "Seller"
A-30
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
WHEREAS, THERMO TERRATECH INC., a Delaware corporation (the "Seller"), and
THE RANDERS GROUP INCORPORATED, a Delaware corporation (the "Buyer"), have
entered into that certain Stock Purchase Agreement (the "Agreement") on
September 19, 1997 providing for the sale of the capital stock of The Killam
Group Inc. ("Killam") by the Seller to the Buyer;
WHEREAS, the Agreement contemplated that in consideration of such sale, the
Buyer would issue to the Seller 103,569,600 fully paid and non-assessable shares
of the Buyer's common stock, subject to a post-closing adjustment as described
in Section 2.2 of the Agreement;
WHEREAS, as of April 4, 1998 (the end of the Buyer's and the Seller's most
recently completed fiscal year), the post-closing adjustment mechanism set forth
in Section 2.2 of the Agreement would have resulted in the issuance of
113,031,051 shares of the Buyer's common stock to the Seller in consideration of
the sale of Killam to the Buyer;
WHEREAS, the Buyer and the Seller wish to stabilize the number of shares of
the Buyer's common stock to be issued in consideration of the sale of Killam to
the Buyer as of April 4, 1998;
WHEREAS, the Buyer's Board of Directors has recommended, subject to the
approval of the Buyer's shareholders, that Buyer effect a one-for-five reverse
split of its common stock (the "Reverse Stock Split"); and
WHEREAS, the Buyer and the Seller wish to give effect to the Reverse Stock
Split prior to the issuance of the shares of Buyer's common stock to Seller as
contemplated by the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements and provisions herein contained, the parties hereto, intending to be
legally bound, agree as follows:
1. Section 1 of the Agreement is hereby amended by deleting the definition
of "Base Purchase Price" and by adding the following definition in alphabetical
order within such Section:
"'PURCHASE PRICE' has the meaning set forth in Section2.2 below."
2. Section 1 of the Agreement is hereby further amended by deleting the
definition of "Closing Balance Sheet."
3. Section 1 of the Agreement is hereby further amended by adding the
following definition in alphabetical order within such Section:
"'REVERSE STOCK SPLIT' has the meaning set forth in Section7.2(i) below."
4. Section 2.2 of the Agreement is hereby amended and restated in its
entirety as follows:
"2.2 PURCHASE CONSIDERATION. The Buyer shall deliver to the Seller at the
Closing 22,606,210 fully paid and non-assessable shares (after giving effect
to the Reverse Stock Split) of RGI Stock (the "Purchase Price"). The parties
acknowledge and agree that the number of shares of RGI Stock to be delivered
at the Closing in payment of the Purchase Price represents the audited book
value of Killam Group as of April 4, 1998, divided by $3.125 (or $0.625
multiplied by 5, to take into account the Reverse Stock Split) per share of
RGI Stock so issued."
5. Section 7.2 of the Agreement is amended by inserting the following new
clause (i) therein and by renumbering all subsequent clauses accordingly:
"(i) the Seller shall have effected a reverse stock split of one
share of RGI Stock for every five shares outstanding of such RGI
Stock (the "Reverse Stock Split") in accordance with the laws of the
State of Delaware;"
A-31
6. Section 8.4 of the Agreement is hereby amended and restated in its
entirety as follows:
"8.4 INDEMNIFICATION CEILING AMOUNT. In no event will the total amount
payable by either Seller or Buyer pursuant to Section8.2 or Section8.3
exceed an amount equal to the Purchase Price for the Killam Shares."
7. Except as set forth herein, the Agreement shall remain in full force and
effect in accordance with its terms.
8. This Amendment may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the 4th day of April, 1998.
THE RANDERS GROUP INCORPORATED THERMO TERRATECH INC.
By: /s/ Thomas R. Eurich By: /s/ John P. Appleton
Thomas R. Eurich John P. Appleton
Vice President President and CEO
A-32
APPENDIX B
[LOGO]
September 12, 1997
Board of Directors
The Randers Group Incorporated
570 Seminole Road
Norton Shores, Michigan 494
Attention: Mr. Thomas R. Eurich, President
Gentleman:
On May 12, 1997 Thermo TerraTech Inc. ("Thermo") acquired 7,100,000 shares
of the common stock of The Randers Group Incorporated (the "Company") from
certain members of the Company's management and 420,000 shares from Thermo Power
Corporation, an affiliate of Thermo, for cash consideration of $4,700,000. On
the same date, Thermo and the Company entered into a letter of intent pursuant
to which: (i) Thermo agreed to sell to the Company its wholly owned engineering
and consulting businesses, The Killam Group ("Killam"), and (ii) the Company
agreed to issue to Thermo approximately 103,569,600 shares of the Company's
common stock, subject to adjustments as described in the definitive acquisition
agreement (all of the foregoing hereinafter referred to as the "Transactions").
Following the Transactions, Thermo will own approximately 94.4 percent of the
Company's outstanding common stock. Thermo Electron Corporation, the parent of
Thermo, will own approximately 1.1 percent of the Company's common stock.
The terms of the Transactions are set forth in the agreements between the
selling shareholders and Thermo dated May 12, 1997 and the definitive
acquisition agreement between the Company and Thermo. We have been provided with
and have reviewed the agreements between selling shareholders and Thermo and a
proposed form of the definitive acquisition agreement. We have assumed for the
purposes of this opinion (the "Opinion") that the definitive acquisition
agreement in the form executed by the parties will not differ from such proposed
form in any material respect.
You have asked Cazenove Incorporated ("Cazenove") to advise you as to
whether or not the book value of Killam approximates Fair market value. The
Board of Directors of the Company is not engaging Cazenove to render an opinion
as to whether or not the Transactions, whether taken individually or as a
B-1
whole, are fair, from a financial point of view, to the Company. With respect to
such Opinion, we have, among other things:
(i) reviewed the proposed form of the definitive acquisition agreement;
(ii) reviewed the agreements between the selling shareholders and Thermo dated
May 12, 1997;
(iii) reviewed certain historical and prospective financial, operating and
other information furnished to us by Thermo concerning the Company and
Killam;
(iv) met with the senior management of Killam to discuss the business and
operations of Killam, as well as the prospects for the industry;
(v) visited the principal operations and facilities of Killam;
(vi) reviewed publicly available financial and market data for public companies
which we deemed comparable to Killam;
(vii) reviewed the financial terms of recent business combinations deemed
comparable by us for which information was publicly available; and
(viii) conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this Opinion.
Cazenove has, in the past, provided financing and financial advisory
services to Thermo Electron Corporation, the parent of Thermo, and has received
fees for rendering such services.
In rendering our Opinion we have relied upon and assumed the accuracy,
genuineness, completeness and fairness of the financial and other information
provided by Thermo, Killam and the Company or otherwise made available to us and
have not attempted independently to verify such information. We have relied upon
the assurances of the managements of Thermo, Killam and the Company that they
are not aware of any information or facts that would make the information
provided to us misleading. We have not made an independent evaluation or
appraisal of any particular asset, nor have we been furnished with such
appraisals, and express no opinion regarding Killam's liquidation value. Our
Opinion is necessarily based upon market economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
It is understood that our Opinion has been prepared solely for the
confidential use of the Board of Directors of the Company. This letter, except
as otherwise required by law, is not to be reproduced, summarized, described,
quoted, referred to, or given to any other person, except Thermo, or made
available, in whole or in part, in any registration statement, prospectus, proxy
statement, or in any other written document used in connection with these
Transactions, nor shall this letter be used for any other purpose without our
prior written consent.
Based upon and subject to the foregoing, we are of the Opinion that, as of
the date hereof, the book value of Killam approximates fair market value.
Yours faithfully,
[SIGNATURE]
Cazenove Incorporated
B-2
FORM OF PROXY ATTACHMENT A
THE RANDERS GROUP INCORPORATED
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 31, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Emil C. Herkert, Thomas R. Eurich and
Melissa F. Riordan, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Special
Meeting of the Stockholders of The Randers Group Incorporated, a Delaware
corporation (the "Company"), to be held on Friday, July 31, 1998 at 10:00 a.m.
at Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02254,
and at any adjournment or postponement thereof, and to vote all shares of common
stock of the Company standing in the name of the undersigned on June 24, 1998,
with all of the powers the undersigned would possess if personally present at
such meeting:
SPECIAL MEETING OF STOCKHOLDERS OF
THE RANDERS GROUP INCORPORATED
JULY 31, 1998
1. Approve an amendment to the Company's Certificate of Incorporation to
effect a one-for-five reverse stock split of the Company's Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
2. Approve a management proposal to list 22,606,210 shares of Common Stock,
(after giving effect to the reverse stock split) to be issued in
connection with an acquisition, on the American Stock Exchange, Inc.
/ / FOR / / AGAINST / / ABSTAIN
(IMPORTANT--TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
3. Approve an amendment to the Company's Certificate of Incorporation to
change the name of the Company to "The Randers Killam Group Inc."
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion on such other matters as may properly come before
the Meeting.
/ / FOR / / AGAINST / / ABSTAIN
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET
FORTH ABOVE IF NO INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO
INSTRUCTION IS GIVEN.
Copies of the Notice of Meeting and of the Proxy Statement have been
received by the undersigned.
Date ______________________________
___________________________________
___________________________________
Signature(s)
NOTE: THIS PROXY SHOULD BE DATED,
SIGNED BY THE SHAREHOLDER(S)
EXACTLY AS HIS OR HER NAME APPEARS
HEREON, AND RETURNED PROMPTLY IN
THE ENCLOSED ENVELOPE. PERSONS
SIGNING IN A FIDUCIARY CAPACITY
SHOULD SO INDICATE. IF SHARES ARE
HELD BY JOINT TENANTS OR AS
COMMUNITY PROPERTY, BOTH SHOULD
SIGN.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.