-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LhbLpkgruoy2dY6zkFBSLP66bzbDHDuUhRBbFJnpen2bX8JcwhBPzTrc3khmZfSv twMhB2KqFcdm6M9sRQiD2Q== 0001017921-97-000002.txt : 19970317 0001017921-97-000002.hdr.sgml : 19970317 ACCESSION NUMBER: 0001017921-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970314 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO FIBERGEN INC CENTRAL INDEX KEY: 0001017921 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 043311544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12137 FILM NUMBER: 97556293 BUSINESS ADDRESS: STREET 1: 8 ALFRED CIRCLE CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 28, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-12137 THERMO FIBERGEN INC. (Exact name of Registrant as specified in its charter) Delaware 04-3311544 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8 Alfred Circle Bedford, Massachusetts 01730 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ---------------------------- ----------------------------------------- Common Stock, $.01 par value American Stock Exchange Redemption Rights Units Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 24, 1997, was approximately $42,291,000. As of January 24, 1997, the Registrant had 14,715,000 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 28, 1996, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1997, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business Thermo Fibergen Inc. (the Company or the Registrant) was established as a subsidiary of Thermo Fibertek Inc. (Thermo Fibertek) to develop and commercialize equipment and systems to recover materials from papermaking sludge generated by plants that produce virgin and recycled pulp and paper. The Company intends to finance, build, own, and operate recovery plants on sites at, or immediately adjacent to, virgin and recycled pulp mills. Employing a proprietary process, the Company's plants will recover and clean long cellulose fibers for sale to paper mills, clarify water for reuse by mills, and process the remaining recoverable components of papermaking sludge, such as short fibers, fines, and minerals, into commercial products. In July 1996, the Company's wholly owned subsidiary GranTek Inc. (GranTek), acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. (Granulation Technology) and Biodac, a division of Edward Lowe Industries, Inc., for approximately $12.1 million in cash. GranTek employs patented technology to produce absorbing granules from papermaking sludge. These granules, marketed under the trade name BIODAC(R), are currently used as a carrier to deliver agricultural chemicals for professional turf, home lawn and garden, and mosquito control applications. Prior to its July 1996 acquisition of Granulation Technology and Biodac, the Company was in the development stage. The Company's strategy is to generate revenues from several sources. First, the Company will seek to enter into long-term contracts with pulp and paper mills under which the Company will charge the customer a fee to accept the customer's papermaking sludge. Second, the Company intends to sell much of the clean long fibers it recovers directly back to the customer for use in the papermaking process. Third, the Company will apply existing technologies, such as its granulation process, and expects to develop new technologies to maximize the value of the other recoverable components of the papermaking sludge for sale into other markets. The Company is actively developing a process to recover long fibers from papermaking sludge, and has completed the construction of a mobile pilot recovery system, which the Company is using for initial mill demonstrations of its fiber-recovery process. The Company's strategy is to target the United States and European virgin and recycling mills that have the highest papermaking sludge-disposal costs, enter into long-term contracts with these mills, and construct plants that feature the Company's granulation technology, its fiber-recovery technology, or both. The Company was incorporated in Delaware in February 1996 as a wholly owned subsidiary of Thermo Fibertek. In September 1996 the Company sold 4,715,000 units, each unit consisting of one share of Company common stock and one redemption right, in an initial public offering at $12.75 per unit for net proceeds of approximately $55.8 million. The common stock and redemption rights began trading separately on December 13, 1996. Holders of a redemption right have the option to require the 2PAGE Company to redeem, in September 2000 and 2001, one share of Thermo Fibergen common stock at $12.75 per share. The redemption rights carry terms that generally provide for their expiration if the closing price of the Company's common stock exceeds $19 1/8 for 20 of any 30 consecutive trading days prior to September 2001. The redemption rights are guaranteed, on a subordinated basis, by Thermo Electron Corporation (Thermo Electron). As of December 28, 1996, Thermo Fibertek owned 10,000,000 shares of the Company's common stock, representing 68% of such stock outstanding. A publicly traded subsidiary of Thermo Electron, Thermo Fibertek develops, manufactures, and markets a range of equipment and products for the paper and paper-recycling industries. Thermo Electron is a world leader in environmental monitoring and analysis instruments, biomedical products such as heart-assist devices and mammography systems, papermaking and paper-recycling equipment, biomass electric power generation, and other specialized products and technologies. Thermo Electron also provides a range of services related to environmental quality. Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. 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" in the Registrant's 1996* Annual Report to Shareholders incorporated herein by reference. (b) Information About Industry Segments The Company is engaged in one business segment. (c) Description of Business (i) Principal Products and Services The Company currently produces BIODAC, an agricultural carrier that is virtually dust-free and is uniform in particle size, absorptivity, and bulk density. BIODAC is chemically neutral to a range of pesticides and breaks down into elements naturally occurring in the soil. BIODAC is sold in bulk to chemical companies for use as a carrier to deliver agricultural chemicals for professional turf, home lawn and garden, and mosquito control applications. The Company intends to further develop GranTek's technology to produce granules for the oil- and grease-absorption and the cat-box filler markets. *References to 1996, 1995, and 1994 herein are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. 3PAGE (ii) and (xi) New Products; Research and Development The Company is developing a proprietary process to recover long cellulose fibers from papermaking sludge and has completed the construction of a mobile pilot recovery system that the Company is using for initial mill demonstrations of its fiber-recovery process. During this period, the Company will continue to modify its technology and will also determine where to build its first permanent facilities. However, until the Company obtains meaningful data from commercial operations, it will not be in a position to determine exactly what modifications may be necessary. The Company's research and development efforts are currently focused on developing and improving its fiber-recovery process. Modifications to existing equipment are also under consideration to improve washing and de-inking capabilities. The Company is also exploring cost-effective processes to produce higher-value products from papermaking sludge. GranTek operates a manufacturing plant in Green Bay, Wisconsin, at which it processes sludge provided by a nearby paper mill into BIODAC. A pilot plant is located within GranTek's main manufacturing plant. This pilot plant is permitted to process 24 tons of material per day, and has been used to develop many of the innovations implemented in GranTek's main plant. The Company believes that this pilot plant will give the Company the ability to process waste streams from other paper mills under operating conditions and in quantities sufficient to determine final product and operating characteristics and costs, as well as to develop new technologies. GranTek is presently engaged in research and development of absorbing granular products that, if successful, would provide an opportunity to enter the oil- and grease-absorption and cat-box filler markets. The Company currently intends to limit the pace and amount of its research and development on both its fiber-recovery system and on new products, if any, that may be developed so that its internally funded research and development expenditures will be approximately equivalent to the interest or dividend income earned on its cash balances, plus the Company's operating earnings, if any. Research and development expenses for the Company were $1,300,000, $601,000, and $128,000 in 1996, 1995, and 1994, respectively. (iii) Raw Materials Under GranTek's contract with a paper mill, the mill has the exclusive right to supply papermaking sludge to GranTek's commercial plant. In exchange, the mill is required to use its best efforts to provide GranTek with up to a maximum of 250 tons of sludge per day, required for the recovery process. The contract terminates on December 26, 1997, subject to successive mutual two-year extensions. The inability of the Company to obtain papermaking sludge from this paper mill would have a material adverse effect upon the Company's operations. 4PAGE (iv) Patents, Licenses, and Trademarks The Company currently holds several issued U.S. patents, expiring at various dates ranging from 2004 to 2012, relating to various aspects of the processing of cellulose-based granular materials and the use of such materials in the agricultural, general absorption, oil- and grease-absorption, and cat-box filler markets. The Company also has foreign counterparts to its U.S. patents in Canada and in various European countries, and has additional patents pending in three European countries. In addition, Thermo Fibertek holds two U.S. patents, expiring in 2011 and 2014, respectively, and expects to file additional U.S. patent applications relating to the "scalping" technology that is a key component of the Company's fiber-recovery system. Although the Company has licensed the technology covered by Thermo Fibertek's patents for use in pulp and paper industry applications, the Company does not itself hold any patents or patent applications with respect to its pilot fiber-recovery system. GranTek has granted two companies nonexclusive licenses under two of its patents to sell cellulose-based granules produced at an existing site for sale in the oil- and grease-absorption and cat-box filler markets. The Company believes that its technology, services, products, and other proprietary rights do not infringe on the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. (v) Seasonal Influences In 1996, the Company's sales were exclusively in the agricultural- carrier market. The Company's primary customers in this market, chemical formulators, typically purchase carriers during the winter and spring for the cultivation and planting season. As a result, the Company expects to earn a disproportionately high share of its revenues for its agricultural- carrier products during the first two quarters of the year. The Company believes that its planned entrance into the oil and grease absorption and cat box filler markets if successful, may mitigate the seasonality of the Company's sales. (vi) Working Capital Requirements There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. (vii) Dependency on a Single Customer The Company derived 56% and 21% of its revenues during 1996 from Monsanto Solaris Group and Rhone-Poulenc AG Company, respectively. (viii) Backlog The Company's backlog of firm orders was $106,000 as of December 28, 1996. The Company had no backlog of firm orders as of December 30, 1995. 5PAGE The Company believes that substantially all of the backlog at December 28, 1996, will be shipped or completed during the next twelve months. The Company does not believe that the size of its backlog is necessarily indicative of intermediate or long-term trends in its business. (xi) Government Contracts Not applicable. (x) Competition The Company expects that its principal competitors for access to papermaking sludge will be landfills, which currently have a collective 70% market share in North America, and approximately 40% market share in Europe. The Company believes, however, that landfill costs will tend to increase over time and that regulations governing landfills will become more strict, particularly in Europe and Japan. The balance of the papermaking sludge produced in the U.S. and Europe is currently incinerated or used to manufacture composting materials, egg cartons, and other low-value industrial products. Several large waste-management companies have increased their marketing activities to provide landfill disposal services to the pulp and paper industry. Although the Company does not believe that these companies are able to provide a sludge processing capability, the Company can expect that if its technology is successful, others will seek to develop similar technologies and products that may be superior to those of the Company. As other companies attempt to provide landfill services, sludge processing capability to the pulp and paper industry, or both, the Company expects to encounter increasing competition. The Company believes that its approach to the management of environmental problems associated with papermaking sludge and its ability to take advantage of Thermo Fibertek's name recognition, financial strength, and experience constitute significant competitive advantages. The Company believes that GranTek is currently the only producer of cellulose-based agricultural carriers. GranTek's principal competitors in the U.S. are producers of clay-based agricultural carriers for row crops and professional turf protection, including Oil-Dri Corporation of America, Floridin/Engelhard, Aimcor, and American Colloid, and producers of corncob granules traditionally used in the home, lawn and garden, and professional turf markets, including The Andersons, Mt. Pulaski, Green Products, Independence Cob, and Junior Weisner. GranTek's principal competitive advantages are that BIODAC contains virtually no dust and is more uniform in absorptivity and particle-size distribution than are clay-based and corncob granular carriers, and is chemically neutral, requiring little or no chemical deactivation. As the Company attempts to develop new markets for the components of the papermaking sludge it processes, the Company will encounter competition from established companies within those markets. Some of these competitors may have substantially greater financial, marketing, and other resources than those of the Company, and the Company expects that such competition may be intense. The Company believes that the 6PAGE absorbing-products industry considers price to be a significant competitive factor and therefore, expects that the demand for the Company's products in such markets will be significantly influenced by the Company's prices for such products. (xii) Environmental Protection Regulations The Company's operations are subject to significant government regulation, including stringent environmental laws and regulations. Among other things, these laws and regulations impose requirements to control air, soil, and water pollution, and regulate health, safety, zoning, and land use, as well as the handling and transportation of industrial byproducts and waste materials. These requirements may also be required as conditions of operating permits or licenses that are subject to renewal, modification, or revocation. This regulatory framework imposes significant compliance burdens and costs on the Company. Notwithstanding the burdens of this compliance, the Company believes that its business prospects are enhanced by the enforcement of environmental laws and regulations by government agencies. Among the principal laws governing the Company's operations are the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and its similar state equivalents, the Federal Toxic Substances Control Act (TSCA), and the Resource Conservation and Recovery Act of 1976 (RCRA). TSCA imposes limitations on the presence in commercial products of polychlorinated biphenyls (PCBs), and on the generation, handling, storage, and disposal of PCB-containing materials and wastes. CERCLA imposes joint and several liability for the costs of remediation and natural resource damages on the owner or operator of a facility from which there is a release, or a threat of a release, of a hazardous substance into the environment, and on the generators and transporters of those hazardous substances. RCRA provides a comprehensive framework for the regulation of the generation, transportation, treatment, storage, and disposal of hazardous waste. Under TSCA, RCRA, and equivalent state laws, regulatory authorities may require, pursuant to administrative order or as a condition of an operating permit, that the owner or operator of a regulated facility take corrective action with respect to contamination resulting from past or present operations. The intent of RCRA is to control hazardous wastes from the time they are generated until they are properly recycled or treated and disposed. Such laws also require that the owner or operator of regulated facilities provide assurance that funds will be available for the closure and post-closure care of its facilities. Because Subtitle D of RCRA imposes strict requirements on landfills, such as the requirement that new landfills must be lined, RCRA creates an incentive for pulp mills to use sludge-management technologies such as those offered by the Company. GranTek currently uses papermaking sludge from a nearby mill in Green Bay, Wisconsin, to make its granules. The papermaking sludge GranTek receives from the mill contains trace amounts of PCBs, dioxins, and furans, as well as residual amounts of other regulated compounds. During the granulation process, GranTek evaporates approximately 95 percent of the water contained in the papermaking sludge. Approximately 1.6 pounds per year of PCBs, as well as other compounds such as formaldehyde, benzene, and volatile organic compounds (VOCs), are thus emitted into the 7PAGE atmosphere from its Green Bay facility. Applicable Wisconsin regulations limit PCB emissions to de minimis amounts unless the generator can demonstrate that it is using the best available control technology to limit emissions. GranTek has been issued an air operating permit by the Wisconsin Department of Natural Resources (the WDNR). GranTek's current operating permit and its application for a new Title V operating permit each require GranTek to reduce PCB and VOC emissions, and to file bi-annual reports on the amounts of PCBs being emitted. In August 1995, GranTek submitted materials to the WDNR requesting that GranTek be relieved of its obligation to reduce emissions, asserting that there are presently no technologically or economically feasible methods to reduce PCB or VOC emissions from its facility that can be implemented. GranTek has received no response from the WDNR to date. Although the Company believes that the WDNR will accept GranTek's findings, and although GranTek's facility is currently fully permitted by Wisconsin regulatory authorities, no assurance can be given that the WDNR will not require GranTek to reduce or eliminate its emissions, that such compliance will not require the Company to make significant expenditures, or that such compliance will be technologically or economically feasible. Such compliance may have material adverse effects on the Company's capital expenditures, earnings, and/or competitive position. GranTek's BIODAC agricultural carrier is subject to regulation under the Federal Insecticide, Fungicide, and Rodenticide Act, which, among other things, empowers the U.S. Environmental Protection Agency (EPA) to establish and enforce acceptable tolerance levels for agricultural chemicals. In 1989, however, at GranTek's request, the EPA granted an exemption from the requirement that a tolerance level be established for de-inked paper fiber used as a carrier in pesticide formulations applied to growing crops. The governmental regulatory process requires the Company to obtain and retain numerous approvals, licenses, and permits to conduct its operations, any of which may be subject to revocation, modification, or denial. Operating permits need to be renewed periodically and may be subject to revocation, modification, denial, or nonrenewal for various reasons, including failure of the Company to satisfy regulatory concerns. Adverse decisions by governmental authorities on permit applications submitted by the Company may result in abandonment or delay of projects, substantially increased operating costs or capital expenditures, and premature closure of facilities or restriction of operations, all of which could have a material adverse effect on the Company's business and prospects. (xiii) Number of Employees As of December 28, 1996, the Company employed 34 people. None of the Company's employees is represented by a union. The Company believes that relations with its employees are good. (d) Financial Information About Exports by Domestic Operations and About Foreign Operations Not applicable. 8PAGE (e) Executive Officers of the Registrant Present Title Name Age (Year First Became Executive Officer) ------------------------ --- ------------------------------------- Dr. Yiannis A. Monovoukas 36 President, Chief Executive Officer, and Director (1996) John N. Hatsopoulos 62 Vice President, Chief Financial Officer, and Director (1996) Paul F. Kelleher 54 Chief Accounting Officer (1996) Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until his earlier resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have held comparable positions for at least five years with Thermo Fibertek and Thermo Electron. Dr. Monovoukas has been President, Chief Executive Officer, and Director of the Company since its incorporation in February 1996. Dr. Monovoukas was a Corporate Business Analyst at Thermo Electron from July 1995 through February 1996. From 1993 through June 1995, Dr. Monovoukas was a graduate student at the Harvard Business School. From 1990 until 1993, he was a staff scientist and engineer with Raychem Corporation, a materials science company, which he joined upon completion of a Ph.D. program in chemical engineering at Stanford University. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties The Company leases a 6,000-square foot, stand-alone building in Bedford, Massachusetts, which holds its administrative offices and research laboratory. This lease expires in April 2001, subject to the Company's option to extend the lease for two three-year terms. The Company also has the right to terminate the lease without penalty in April 1999. GranTek owns approximately 3.3 acres of land in Green Bay, Wisconsin, on which its 26,000 square foot processing plant is situated. The Company believes that these facilities are adequate for its current operations. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 9PAGE PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information concerning the market and market price for the Registrant's common equity securities and redemption rights and dividend policy is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information required under this item is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements and Supplementary Data are included in the Registrant's 1996 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 10PAGE PART III Item 10. Directors and Executive Officers of the Registrant The information concerning directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 11PAGE PART IV Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a,d) Financial Statements and Schedules (1)The consolidated financial statements set forth in the list below are filed as part of this Report. (2)The consolidated financial statement schedule set forth in the list below is filed as part of this Report. (3)Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14 Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Statement Schedules filed herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto. (b) Reports on Form 8-K During the Company's quarter ended December 28, 1996, the Company was not required to file, and did not file, any Current Report on Form 8-K. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 12PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 12, 1997 THERMO FIBERGEN INC. By: Yiannis A. Monovoukas ------------------------------- Yiannis A. Monovoukas President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, as of March 12, 1997. Signature Title --------- ----- By: Dr. Yiannis A. Monovoukas President, Chief Executive Officer, ------------------------- Dr. Yiannis A. Monovoukas and Director By: John N. Hatsopoulos Vice President, Chief Financial ------------------------- John N. Hatsopoulos Officer, and Director By: Paul F. Kelleher Chief Accounting Officer ------------------------- Paul F. Kelleher By: William A Rainville Chairman of the Board and Director ------------------------- William A Rainville By Anne T. Barrett Director ------------------------- Anne T. Barrett By Jonathan W. Painter Director ------------------------- Jonathan W. Painter 13PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo Fibergen Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Fibergen Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 3, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 12 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 14PAGE SCHEDULE II THERMO FIBERGEN INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Accounts Provision Recovered Balance at Charged and Balance Beginning to Written at End of Year Expense Off Other(a) of Year ---------- ---------- --------- -------- -------- Year Ended December 28, 1996 Allowance for Doubtful Accounts $ - $ - $ - $ 30 $ 30 (a)Allowance of business acquired during the year as described in Note 2 to Consolidated Financial Statements in the Registrant's 1996 Annual Report to Shareholders. 15PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 3.1 Certificate of Incorporation of the Company, as amended (filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 4.1 Form of Guarantee of Thermo Electron (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 4.2 Guarantee Agreement among the Company, Thermo Electron, and the Representatives of the Underwriters (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 4.3 Form of Common Stock Certificate (filed as Exhibit 4.3 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 4.4 Form of Redemption Right Certificate (filed as Exhibit 4.4 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.1 Asset Transfer Agreement dated as of July 2, 1996, between Thermo Fibertek Inc. and the Company (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.2 License and Supply Agreement dated as of July 2, 1996, between Thermo Fibertek and the Company (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.3 Corporate Services Agreement dated July 2, 1996, between Thermo Electron and the Company (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.4 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). 16PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.5 Tax Allocation Agreement dated as of July 2, 1996, between Thermo Fibertek and the Company (filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.6 Amended and Restated Master Repurchase Agreement dated as of December 28, 1996, between Thermo Electron and the Company. 10.7 Master Guarantee Reimbursement Agreement dated as of July 2, 1996, among Thermo Electron, Thermo Fibertek, and the Company (filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.8 Master Guarantee Reimbursement Agreement dated as of July 2, 1996, between Thermo Fibertek and the Company (filed as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.9 Lease dated as of April 12, 1996, by and between Al and Lee Realty and the Company (filed as Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.10 Equity Incentive Plan of the Company (filed as Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.11 Deferred Compensation Plan for Directors of the Company (filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.12 Directors Stock Option Plan of the Company (filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 10.13 Form of Indemnification Agreement for Officers and Directors of the Company (filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 [Reg. No. 333-07585] and incorporated herein by reference). 17PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron and Thermo Fibertek Inc. for services rendered to the Registrant or to such affiliated corporations. Thermo Electron's plans were filed as Exhibits 10.21 through 10.44 to the Annual Report on Form 10-K of Thermo Electron for the year ended December 30, 1995 [File No. 1-8002] and as Exhibit 10.19 to the Annual Report on Form 10-K of Trex Medical Corporation for the fiscal year ended September 28, 1996 [File No. 1-11827] and Thermo Fibertek's plans were filed as Exhibits 10.19 through 10.24 to the Annual Report on Form 10-K of Thermo Fibertek for the fiscal year ended December 28, 1996 [File No. 1-11406] and are incorporated herein by reference. 11 Statement re: Computation of Loss per Share. 13 Annual Report to Shareholders for the year ended December 28, 1996 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. EX-10.6 2 Exhibit 10.6 AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT The Master Repurchase Agreement dated as of July 2, 1996 between Thermo Electron Corporation, a Delaware corporation ("Seller"), and Thermo Fibergen Inc., a Delaware corporation (the "Buyer"), is hereby amended and restated in its entirety as follows on and as of December 28, 1996. 1. Applicability From time to time Buyer and Seller may enter into transactions in which Seller agrees to transfer to Buyer certain securities and/or financial instruments ("Securities") against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Securities on demand, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement, unless otherwise agreed in writing. 2. Definitions (a) "Act of Insolvency", with respect to either party (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or such party seeking the appointment of a receiver, trustee, custodian or similar official for such party or any substantial part of its property; or (ii) the commencement of any such case or proceeding against such party, or another seeking such an appointment, which (A) is consented to or not timely contested by such party, (B) results in the entry of an order for relief, such an appointment or the entry of an order having a similar effect, or (C) is not dismissed within 15 days; or (iii) the making by a party of a general assignment for the benefit of creditors; or (iv) the admission in writing by a party of such party's inability to pay such party's debts as they become due; (b) "Additional Purchased Securities", Securities provided by Seller to Buyer pursuant to Paragraph 4(a) hereof; (c) "Income", with respect to any Security at any time, any principal thereof then payable and all interest, dividends or other distributions thereon; (d) "Market Value", with respect to any Securities as of any date, the price for such Securities on such date obtained from a generally recognized source agreed to by the parties or the most recent closing bid quotation from such a source, plus accrued Income to the extent not included therein (other than any Income transferred to Seller pursuant to Paragraph 6 hereof) as of such date (unless contrary to market practice for such Securities); PAGE (e) "Other Buyers", third parties that have entered into an agreement with Seller that is substantially similar to this Agreement; (f) "Pricing Rate", a rate equal to the Commercial Paper Composite rate for 90-day maturities provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated (or, if such rate is not available, a substantially equivalent rate agreed to by Buyer and Seller) plus 25 basis points, which rate shall be adjusted on the first business day of each fiscal quarter and shall be in effect for the entirety such fiscal quarter; (g) "Purchase Price", the price at which Purchased Securities are transferred by Seller to Buyer; (h) "Purchased Securities", the Securities transferred by Seller to Buyer in a Transaction hereunder, and any Securities substituted therefor in accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect to any Transaction at any time also shall include Additional Purchase Securities transferred pursuant to Paragraph 4(a) and shall exclude Securities returned pursuant to Paragraph 4(b); (i) "Repurchase Collateral Account", a book account maintained by Seller containing, among other Securities, the Purchased Securities; and (j) "Repurchase Price", for any Purchased Security, an amount equal to the Purchase Price paid by Buyer to Seller for such Purchased Security. 3. Transactions (a) A Transaction may be initiated by Buyer upon the transfer of the Purchase Price to Seller's account. Upon such transfer, Seller shall transfer to Buyer Purchased Securities having a Market Value equal to 103% of the Purchase Price. (b) Purchased Securities shall be held in custody for Buyer by Seller in the Repurchase Collateral Account. Seller shall indicate on its books for such account Buyer's ownership of the Purchased Securities. Upon reasonable request from Buyer, Seller shall provide Buyer with a complete list of Purchased Securities owned by Buyer. (c) Upon demand by Buyer or Seller, Seller shall repurchase from Buyer, and Buyer shall sell to Seller, for the Repurchase Price all or any part of the Purchased Securities then owned by Buyer. 2PAGE 4. Margin Maintenance (a) If at any time the aggregate Market Value of all Purchased Securities then owned by Buyer is less than 103% of the aggregate Repurchase Price for such Purchased Securities, then Seller shall transfer to Buyer additional Securities ("Additional Purchased Securities"), so that the aggregate Market Value of such Purchased Securities, including any such Additional Purchased Securities, will thereupon equal or exceed 103% of such aggregate Repurchase Price. (b) If at any time the aggregate Market Value of all Purchased Securities then owned by Buyer exceeds 103% of the aggregate Repurchase Price for such Purchased Securities, then Seller may transfer Purchased Securities to Seller, so that the aggregate Market Value of such Purchased Securities will thereupon not exceed 103% of such aggregate Repurchase Price. 5. Interest Payments If during any fiscal month Buyer owned Purchased Securities, then on the first day of the next following fiscal month Seller shall pay to Buyer an amount equal to the sum of the aggregate Repurchase Prices of the Purchased Securities owned by Buyer at the close of each day during the preceding fiscal month divided by the number of days in such month and the product multiplied by the Pricing Rate times the number of days in such month divided by 360. 6. Income Payments and Voting Rights Where a particular Transaction's term extends over an Income payment date on the Purchased Securities subject to that Transaction, Buyer shall, on the date such Income is payable, transfer to Seller an amount equal to such Income payment or payments with respect to any Purchased Securities subject to such Transaction. Seller shall retain all voting rights with respect to Purchased Securities sold to Buyer under this Agreement. 7. Security Interest Although the parties intend that all Transactions hereunder be sales and purchases and not loans, in the event any such Transactions are deemed to be loans, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under each such Transaction and this Agreement, and shall be deemed to have granted to Buyer a security interest in, all of the Purchased Securities with respect to all Transactions hereunder and all proceeds thereof. 3PAGE 8. Payment and Transfer Unless otherwise mutually agreed, all transfers of funds hereunder shall be in immediately available funds. As used herein with respect to Securities, "transfer" is intended to have the same meaning as when used in Section 8-313 of the Massachusetts Uniform Commercial Code or, where applicable, in any federal regulation governing transfers of the Securities. 9. Substitution Buyer hereby grants Seller the authority to manage, in Seller's sole discretion, the Purchased Securities held in custody for Buyer by Seller in the Repurchase Collateral Account. Buyer expressly agrees that Seller may (i) substitute other Securities for any Purchased Securities and (ii) commingle Purchased Securities with other Securities held in the Repurchase Collateral Account. Substitutions shall be made by transfer to Buyer of such other Securities and transfer to Seller of the Purchased Securities for which substitution is being made. After substitution, the substituted Securities shall be deemed to be Purchased Securities. Securities which are substituted for Purchased Securities shall have a Market Value at the time of substitution equal to or greater than the Market Value of the Purchase Securities for which such Securities were substituted. 10. Representations Each of Buyer and Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance, (ii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf, (iii) it has obtained all authorizations of any governmental body required in connection with this Agreement and the Transactions hereunder and such authorizations are in full force and effect and (iv) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any law, ordinance, charter, by-law or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected. On the date for any Transaction Buyer and Seller shall each be deemed to repeat all the foregoing representations made by it. 11. Events of Default In the event that (i) Seller fails to repurchase or Buyer fails to transfer Purchased Securities upon demand for repurchase from either Buyer or Seller, (ii) Seller or Buyer fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii) Buyer fails to make payment to Seller pursuant to Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with respect to Seller or Buyer, 4PAGE (vi) any representation made by Seller or Buyer shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or (vii) Seller or Buyer shall admit to the other its inability to, or its intention not to, perform any of its obligations hereunder (each an "Event of Default"): (a) At the option of the nondefaulting party, exercised by written notice to the defaulting party (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of any Act of Insolvency), Seller shall become obligated to repurchase, and Buyer shall become obligated to sell, all Purchased Securities then owned by Buyer for the Repurchase Price of such Purchased Securities. (b) If Seller is the defaulting party and Buyer exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, (i) the Seller's obligations hereunder to repurchase all Purchased Securities in such Transactions shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by Buyer and applied to the aggregate unpaid Repurchase Prices owed by Seller, and (iii) Seller shall immediately deliver to Buyer any Purchased Securities subject to such Transactions then in Seller's possession. (c) In all Transactions in which Buyer is the defaulting party, upon tender by Seller of payment of the aggregate Repurchase Prices for all such Transactions, Buyer's right, title and interest in all Purchased Securities subject to such Transactions shall be deemed transferred to Seller, and Buyer shall deliver all such Purchased Securities to Seller. (d) After one business day's notice to the defaulting party (which notice need not be given if an Act of Insolvency shall have occurred, and which may be the notice given under subparagraph (a) of this Paragraph or the notice referred to in clause (ii) of the first sentence of this Paragraph), the nondefaulting party may: (i) as to Transactions in which Seller is the defaulting party, (A) immediately sell, in a recognized market at such price or prices as Buyer may reasonably deem satisfactory, any or all Purchased Securities subject to such Transactions and apply the proceeds thereof to the aggregate unpaid Repurchase Prices and any other amounts owing by Seller hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Securities, to give Seller credit for such Purchased Securities in an amount equal to the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source, against the aggregate unpaid Repurchase Prices and any other amounts owing by Seller hereunder; and 5PAGE (ii) as to Transactions in which Buyer is the defaulting party, (A) purchase securities ("Replacement Securities") of the same class and amount as any Purchased Securities that are not delivered by Buyer to Seller as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Securities, to be deemed to have purchased Replacement Securities at the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source. (e) As to Transactions in which Buyer is the defaulting party, Buyer shall be liable to Seller (i) with respect to Purchased Securities (other than Additional Purchased Securities), for any excess of the price paid (or deemed paid) by Seller for Replacement Securities therefor over the Repurchase Price for such Purchased Securities and (ii) with respect to Additional Purchased Securities, for the price paid (or deemed paid) by Seller for the Replacement Securities therefor. (g) The defaulting party shall be liable to the nondefaulting party for the amount of all reasonable legal or other expenses incurred by the nondefaulting party in connection with or as a consequence of an Event of Default. (h) The nondefaulting party shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law. 12. Single Agreement Buyer and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted. 6PAGE 13. Entire Agreement; Severability This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. Each provision and agreement and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 14. Non-assignability; Termination The rights and obligations of the parties under this Agreement and under any Transactions shall not be assigned by either party without the prior written consent of the other party. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. This Agreement may be canceled by either party upon giving written notice to the other, except that this Agreement shall, notwithstanding such notice, remain applicable to any Transactions then outstanding. 15. Governing Law This Agreement shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the conflict of law principles thereof. 16. No Waivers, Etc. No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a wavier of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. 17. Intent (a) The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except insofar as the type of Securities subject to such Transaction or the term of such Transaction would render such definition inapplicable), and a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended. (b) It is understood that either party's right to liquidate Securities delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Paragraph 11 hereof, is a contractual right to liquidate such Transaction 7PAGE as described in Sections 555 and 559 of Title 11 of the United States Code, as amended. IN WITNESS WHEREOF, the parties have executed this Agreement as of December 28, 1996. THERMO ELECTRON CORPORATION THERMO FIBERGEN INC. By: Jonathan W. Painter By: Yiannis A. Monovoukas Name: Jonathan W. Painter Name: Yiannis A. Monovoukas Title: Treasurer Title: President EX-11 3 Exhibit 11 THERMO FIBERGEN INC. Computation of Loss per Share 1996 1995 1994 ------------ ------------ ----------- Computation of Primary Loss per Share: Net Loss (a) $ (367,000) $ 601,000 $ (128,000) ----------- ----------- ----------- Shares: Weighted average shares outstanding 11,321,236 10,000,000 10,000,000 Add: Shares issuable from assumed exercise of options (as determined by the application of the treasury stock method) 36,451 72,902 72,902 ----------- ----------- ----------- Weighted average shares outstanding, as adjusted (b) 11,357,687 10,072,902 10,072,902 ----------- ----------- ----------- Primary Loss per Share (a) / (b) $ (.03) $ (.06) $ (.01) =========== =========== =========== EX-13 4 Exhibit 13 THERMO FIBERGEN INC. Consolidated Financial Statements 1996 PAGE Thermo Fibergen Inc. 1996 Financial Statements Consolidated Statement of Operations (In thousands except per share amounts) 1996 1995 1994 ----------------------------------------------------------------------- Revenues (Note 8) $ 2,223 $ - $ - ------- ------- ------- Costs and Operating Expenses: Cost of revenues 1,388 - - Selling, general, and administrative expenses (Note 6) 1,126 - - Research and development expenses 1,300 601 128 ------- ------- ------- 3,814 601 128 ------- ------- ------- Operating Loss (1,591) (601) (128) Interest Income 1,224 - - ------- ------- ------- Loss Before Income Taxes (367) (601) (128) Income Taxes (Note 5) - - - ------- ------- ------- Net Loss $ (367) $ (601) $ (128) ======= ======= ======= Loss Per Share $ (.03) $ (.06) $ (.01) ======= ======= ======= Weighted Average Shares 11,358 10,073 10,073 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Fibergen Inc. 1996 Financial Statements Consolidated Balance Sheet (In thousands except share amounts) 1996 1995 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $58,388 $ - Accounts receivable, less allowance of $30 in 1996 (Note 8) 738 - Inventories 312 - Other current assets 64 - ------- ------- 59,502 - ------- ------- Property, Plant, and Equipment, at Cost, Net 5,821 - ------- ------- Patents and Other Assets 969 - ------- ------- Cost in Excess of Net Assets of Acquired Company (Note 2) 4,741 - ------- ------- $71,033 $ - ======= ======= Liabilities and Shareholders' Investment Current Liabilities: Accounts payable $ 429 $ - Accrued payroll and employee benefits 181 - Other accrued liabilities 649 - Due to parent company and affiliated companies 1,766 - ------- ------- 3,025 - ------- ------- Commitments (Note 7) Common Stock Subject to Redemption ($60,116 redemption value), 4,715,000 shares issued and outstanding (Note 1) 56,087 - ------- ------- Shareholders' Investment (Notes 3 and 4): Common stock, $.01 par value, 25,000,000 shares authorized; 10,000,000 shares issued and outstanding in 1996 100 - Capital in excess of par value 12,094 - Accumulated deficit (273) - ------- ------- 11,921 - ------- ------- $71,033 $ - ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Thermo Fibergen Inc. 1996 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Operating Activities: Net loss $ (367) $ (601) $ (128) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 701 - - Changes in current accounts, excluding the effects of acquisition: Accounts receivable (11) - - Inventories (73) - - Other current assets (64) - - Accounts payable 281 - - Other current liabilities 568 - - -------- -------- -------- Net cash provided by (used in) operating activities 1,035 (601) (128) -------- -------- -------- Investing Activities: Acquisition, net of cash acquired (Note 2) (12,066) - - Purchases of property, plant, and equipment (711) - - Other (11) - - -------- -------- -------- Net cash used in investing activities (12,788) - - -------- -------- -------- Financing Activities: Net proceeds from issuance of Company common stock (Note 1) 55,781 - - Cash transfer from parent company in connection with capitalization of the Company (Note 1) 12,500 - - Net transfer from parent company prior to capitalization of the Company 94 601 128 Increase in due to parent company 1,766 - - -------- -------- -------- Net cash provided by financing activities 70,141 601 128 -------- -------- -------- Increase in Cash and Cash Equivalents 58,388 - - Cash and Cash Equivalents at Beginning of Year - - - -------- -------- -------- Cash and Cash Equivalents at End of Year $ 58,388 $ - $ - ======== ======== ======== 4PAGE Thermo Fibergen Inc. 1996 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Noncash Activities: Fair value of assets of acquired company $ 12,480 $ - $ - Cash paid for acquired company (12,070) - - -------- -------- -------- Liabilities assumed of acquired company $ 410 $ - $ - ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE Thermo Fibergen Inc. 1996 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1996 1995 1994 ------------------------------------------------------------------------ Common Stock, $.01 Par Value Balance at beginning of year $ - $ - $ - Capitalization of the Company 100 - - -------- -------- -------- Balance at end of year 100 - - -------- -------- -------- Capital in Excess of Par Value Balance at beginning of year - - - Capitalization of the Company 12,400 - - Accretion of common stock subject to redemption (Note 1) (306) - - -------- -------- -------- Balance at end of year 12,094 - - -------- -------- -------- Accumulated Deficit Balance at beginning of year - - - Net loss after capitalization of the Company (273) - - -------- -------- -------- Balance at end of year (273) - - -------- -------- -------- Net Parent Company Investment Balance at beginning of year - - - Net loss prior to capitalization of the Company (94) (601) (128) Net transfer from parent company prior to capitalization of the Company 94 601 128 Cash transfer from parent company in connection with capitalization of the Company (Note 1) 12,500 - - Capitalization of the Company (12,500) - - -------- -------- -------- Balance at end of year - - - -------- -------- -------- Total Shareholders' Investment $ 11,921 $ - $ - ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Fibergen Inc. (the Company) was established as a subsidiary of Thermo Fibertek Inc. (Thermo Fibertek) to develop and commercialize equipment and systems to recover materials from papermaking sludge generated by plants that produce virgin and recycled pulp and paper. In July 1996, the Company's wholly owned subsidiary, GranTek Inc. (GranTek), acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. (Granulation Technology) and Biodac, a division of Edward Lowe Industries, Inc. GranTek employs patented technology to produce absorbing granules from papermaking sludge. These granules, marketed under the trade name BIODAC(R), are currently used as a carrier to deliver agricultural chemicals for professional turf, home lawn and garden, and mosquito control applications. Prior to GranTek's July 1996 acquisition of Granulation Technology and Biodac, the Company was in the development stage. Relationship with Thermo Fibertek and Thermo Electron Corporation The Company was incorporated in February 1996 as a wholly owned subsidiary of Thermo Fibertek. In connection with the capitalization of the Company, Thermo Fibertek transferred to the Company a license to use certain technology and its business relating to the development of its fiber-recovery system in the paper and pulp industries, together with $12,500,000 in cash, in exchange for 10,000,000 shares of the Company's common stock. As of December 28, 1996, Thermo Fibertek owned 10,000,000 shares of the Company's common stock, representing 68% of such stock outstanding. Thermo Fibertek is an 84%-owned subsidiary of Thermo Electron Corporation (Thermo Electron). Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly owned subsidiary. All material intercompany accounts have been eliminated. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1996, 1995, and 1994 are for the fiscal years ended December 28, 1996, December 30, 1995, and December 31, 1994, respectively. 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 In the period prior to its initial public offering, the Company and Thermo Fibertek were included in Thermo Electron's consolidated federal and certain state income tax returns. Subsequent to the Company's initial 7PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) public offering in September 1996, Thermo Fibertek's equity ownership of the Company was reduced below 80%, and as a result, the Company is required to file its own federal income tax returns. In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Loss per Share Loss per share has been computed based on the weighted average number of shares outstanding during the year. Pursuant to Securities and Exchange Commission requirements, loss per share has been presented for all periods. Weighted average shares for all periods includes the 10,000,000 shares issued to Thermo Fibertek in connection with the capitalization of the Company, and for periods prior to the Company's initial public offering, the effect of the assumed exercise of stock options issued within one year prior to the Company's initial public offering. Because the effect of the assumed exercise of stock options would be anti-dilutive, they have been excluded from weighted average shares subsequent to the Company's initial public offering. Cash and Cash Equivalents Prior to its incorporation in February 1996, the Company's cash disbursements were combined with other Thermo Fibertek corporate cash balances. As of December 28, 1996, $58,366,000 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 U.S. government agency securities, corporate notes, commercial paper, money market funds, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Cash equivalents are carried at cost, which approximates market value. Inventories Inventories, which represent finished goods, are stated at the lower of cost (on a first-in, first-out basis) or market value and include labor and manufacturing overhead. 8PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 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, 15 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: (In thousands) 1996 1995 ---------------------------------------------------------------------- Land $ 87 $ - Buildings 4,077 - Machinery, equipment, and leasehold improvements 2,195 - ------ ------ 6,359 Less: Accumulated depreciation and amortization 538 - ------ ------ $5,821 $ - ====== ====== Patents and Other Assets Patents and other assets in the accompanying balance sheet includes the cost of patents acquired in 1996 that are amortized using the straight-line method over an estimated useful life of 12 years. The carrying value of patents was $958,000, net of accumulated amortization of $42,000, at year-end 1996. Cost in Excess of Net Assets of Acquired Company The excess of cost over the fair value of net assets of acquired company is amortized using the straight-line method over 20 years. Accumulated amortization was $121,000 at year-end 1996. 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 company in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Common Stock Subject to Redemption In September 1996, the Company sold 4,715,000 units, each unit consisting of one share of the Company's common stock and one redemption right, in an initial public offering at $12.75 per unit for net proceeds of $55,781,000. The common stock and redemption rights began trading separately on December 13, 1996. Holders of a redemption right have the option to require the Company to redeem, in September 2000 and 2001, one share of the Company's common stock at $12.75 per share. The redemption rights carry terms that generally provide for their expiration if the closing price of the Company's common stock exceeds $19 1/8 for 20 of any 9PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) 30 consecutive trading days prior to September 2001. The redemption rights are guaranteed, on a subordinated basis, by Thermo Electron. The difference between the redemption value and the original carrying amount of common stock subject to redemption is accreted over the period ending September 2000, which corresponds with the first redemption period. The accretion is charged to capital in excess of par value in the accompanying balance sheet. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and due to parent company and affiliated companies. Their respective carrying amounts in the accompanying balance sheet approximate fair value due to their short-term nature. 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 July 1996, the Company acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology and Biodac for $12,070,000 in cash. The acquisition has been accounted for using the purchase method of accounting and the combined results of operations of Granulation Technology and Biodac have been included in the accompanying financial statements from the date of acquisition. The cost of the acquisition exceeded the estimated fair value of the acquired net assets by $4,862,000, which is being amortized over 20 years. Allocation of the purchase price for the acquisition was based on the estimated fair value of net assets acquired and is subject to adjustment upon finalization of the purchase price allocation. Based upon unaudited data, the following table presents selected financial information for the Company and Granulation Technology and Biodac on a pro forma basis, assuming the companies had been combined since the beginning of 1995. (In thousands except per share amounts) 1996 1995 ----------------------------------------------------------------------- Revenues $ 5,377 $ 4,233 Net loss (471) (4,107) Loss per share (.04) (.41) 10PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 2. Acquisition (continued) The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of Granulation Technology and Biodac been made at the beginning of 1995. 3. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ In July 1996, the Company adopted a stock-based compensation plan for its key employees, directors, and others, which permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. The option recipients and the terms of options granted under this plan are determined by the Board Committee. Options granted to date became exercisable in December 1996, and 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 may range from ten to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's common stock on the date of grant. To date, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in July 1996, that provides for the grant of stock options, at fair market value, to outside directors pursuant to a formula approved by the Company's shareholders. Options granted under this plan have the same general terms as options granted under the stock-based compensation plan described above, except that the restrictions and repurchase rights generally lapse ratably over a four-year period and the option term is five years. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron and Thermo Fibertek. Employee Stock Purchase Program ------------------------------- Substantially all of the Company's employees are eligible to participate in an employee stock purchase program sponsored by Thermo Fibertek and Thermo Electron. Under this program, shares of Thermo Fibertek's and Thermo Electron's common stock may 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. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. 11PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 3. Employee Benefit Plans (continued) Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards granted in 1996 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net loss and loss per share would have been as follows: (In thousands except per share amounts) 1996 ----------------------------------------------------------------------- Net loss: As reported $(367) Pro forma (479) Loss per share: As reported (.03) Pro forma (.04) 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 fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1996 ---------------------------------------------------------------------- Volatility 29% Risk-free interest rate 6.6% Expected life of options 8.3 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 12PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 3. Employee Benefit Plans (continued) Stock Option Activity A summary of the Company's 1996 stock option activity is as follows: Weighted Number Average of Exercise (In thousands except per share amounts) Shares Price ---------------------------------------------------------------------- Options outstanding, beginning of year - $ - Granted 340 10.16 ---- Options outstanding, end of year 340 $10.16 ==== ====== Options exercisable 340 $10.16 ==== ====== Options available for grant 485 ==== Weighted average fair value per share of $ 5.19 options granted during year ====== As of December 28, 1996, the options outstanding were exercisable at prices ranging from $10.00 to $12.75 and had a weighted-average remaining contractual life of 11.4 years. 401(k) Savings Plan Substantially all of the Company's full-time employees are eligible to participate in Thermo Electron's 401(k) savings plan. Contributions to the plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For this plan, the Company contributed and charged to expense $17,000 in 1996. 4. Common Stock At December 28, 1996, the Company had reserved 825,000 unissued shares of its common stock for possible issuance under stock-based compensation plans. 13PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 5. Income Taxes The income taxes in the accompanying statement of operations differs from the amounts calculated by applying the statutory federal income tax rate of 34% to loss before income taxes due to the following: (In thousands) 1996 1995 1994 --------------------------------------------------------------------- Income tax benefit at statutory rate $ 125 $ 204 $ 44 Decreases resulting from: Losses not benefited (125) (204) (44) ----- ----- ----- $ - $ - $ - ===== ===== ===== Prepaid income taxes consists of the following: (In thousands) 1996 1995 ------------------------------------------------------------ Net operating loss carryforwards $ 447 $ 334 Reserves and accruals 110 - ----- ----- 557 334 Less: Valuation allowance (557) (334) ----- ----- $ - $ - ===== ===== Due to cumulative losses, a valuation allowance equal to the total net deferred tax asset has been established. Of the 1996 valuation allowance, $84,000 will be used to reduce cost in excess of net assets of acquired company when the underlying asset becomes realizable. 6. 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 1.0% of the Company's revenues. For these services, the Company was charged $22,000 in 1996. The Company was not charged for these services in 1995 and 1994 since no revenues were recorded by the Company during these periods and the amount of services received was not material. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. 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 14PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 6. Related Party Transactions (continued) the relationships among Thermo Electron and its majority-owned subsidiaries). 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. 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 excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. License Agreement In July 1996, the Company entered into a supply and license agreement with Thermo Fibertek in which Thermo Fibertek granted to the Company a worldwide, perpetual, royalty-free license to use Thermo Fibertek's proprietary fiber "scalping" technology in the pulp and paper industries. The agreement has an initial term of eight years and is subject to annual renewals thereafter. The Company's rights under the agreement are exclusive for a period of at least five years and such exclusivity will continue thereafter if the Company has purchased at least 35 scalping units from Thermo Fibertek within the first five years of the license and at least five such units in each subsequent year. The agreement also provides that Thermo Fibertek will be the exclusive manufacturer of products based on the licensed technology. The purchase price to be paid by the Company to Thermo Fibertek for these products will be based on Thermo Fibertek's manufacturing cost plus a gross profit margin of 55%. Thermo Fibertek has agreed not to sell these components or any other technology or products proprietary to Thermo Fibertek for use in competition with the Company in the pulp and paper industries. 7. Commitments The Company occupies office space under various operating leases. The accompanying statement of operations includes expense from operating leases of $43,000 in 1996. The future minimum payments due under a noncancelable operating lease as of December 28, 1996, are $60,000 in 1997 and 1998 and $20,000 in 1999. Total future minimum lease payments are $140,000. 15PAGE Thermo Fibergen Inc. 1996 Financial Statements Notes to Consolidated Financial Statements 8. Significant Customers and Concentrations of Risk Revenues from two customers accounted for 56% and 21% of the Company's total revenues in 1996. At year-end 1996, substantially all accounts receivable due to the Company were from three customers. The Company does not normally require collateral or other security to support its accounts receivable. Management does not believe that this concentration of credit risk has or will have a significant negative impact on the Company. The Company's product is sold exclusively as an agricultural carrier and therefore, the Company is dependent upon the agricultural market. Papermaking sludge, the raw material used in the manufacture of the Company's BIODAC product, is obtained from a single paper mill. The mill has the exclusive right to supply papermaking sludge to the Company under a contract which expires in December 1997, subject to successive mutual two-year extensions. Although the Company believes that its relationship with the mill is good, no assurance can be given that the mill will agree to renew the contract upon its termination. The inability of the Company to obtain papermaking sludge from this paper mill would have a material adverse effect upon the Company's operations. 9. Unaudited Quarterly Information (In thousands except per share amounts) 1996 First Second Third(a) Fourth ---------------------------------------------------------------------- Revenues $ - $ - $ 984 $1,239 Gross profit - - 298 537 Net income (loss) (104) (177) (380) 294 Earnings (loss) per share (.01) (.02) (.04) .02 1995 First Second Third Fourth ---------------------------------------------------------------------- Revenues $ - $ - $ - $ - Gross profit - - - - Net loss (137) (139) (123) (202) Loss per share (.01) (.01) (.01) (.02) (a) Reflects the July 1996 acquisition of Granulation Technology and Biodac and the net proceeds from the Company's September 1996 initial public offering. 16PAGE Thermo Fibergen Inc. 1996 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Fibergen Inc.: We have audited the accompanying consolidated balance sheet of Thermo Fibergen Inc. (a Delaware corporation and 68%-owned subsidiary of Thermo Fibertek Inc.) and subsidiary as of December 28, 1996, and December 30, 1995, and the related consolidated statements of operations, shareholders' investment, and cash flows for each of the three years in the period ended December 28, 1996. 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 Thermo Fibergen Inc. and subsidiary as of December 28, 1996, and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 3, 1997 17PAGE Thermo Fibergen Inc. 1996 Financial Statements 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 immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Forward-looking Statements." Overview The Company was established as a subsidiary of Thermo Fibertek Inc. (Thermo Fibertek) to develop and commercialize equipment and systems to recover materials from papermaking sludge generated by plants that produce virgin and recycled pulp and paper. In July 1996, the Company's wholly owned subsidiary, GranTek Inc. (GranTek), acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology, Inc. (Granulation Technology) and Biodac, a division of Edward Lowe Industries, Inc. GranTek employs patented technology to produce absorbing granules from papermaking sludge. These granules, marketed under the trade name BIODAC(R), are currently used as a carrier to deliver agricultural chemicals for professional turf, home lawn and garden, and mosquito control applications. Prior to GranTek's July 1996 acquisition of Granulation Technology and Biodac, the Company was in the development stage. The Company currently intends to limit the pace and amount of its research and development on both its fiber-recovery system and on new products, if any, which may be developed from recovered fibers and other components of pulp residue, so that its internally funded research and development expenditures will be approximately equivalent to the interest or dividend income earned on its cash balances, plus the Company's operating earnings, if any. Results of Operations 1996 Compared With 1995 Revenues of $2,223,000 in 1996 represent revenues from GranTek, which acquired Granulation Technology and Biodac in July 1996. No revenues were recorded during 1995 as the Company was in the development stage, and its principal business consisted of conducting research and development associated with the Company's fiber-recovery system. The gross profit margin was 38% in 1996. Selling, general, and administrative expenses as a percentage of revenues were 51% in 1996. Research and development expenses increased to $1,300,000 in 1996 from $601,000 in 1995. This increase was primarily due to the acceleration of the Company's research and development efforts 18PAGE Thermo Fibergen Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) associated with the Company's fiber-recovery system, expenditures on research and development relating to the extraction and purification of minerals, and the inclusion of $188,000 of expenses at GranTek. The Company expects that its spending on research and development will continue to increase in 1997. Interest income in 1996 resulted primarily from interest earned on cash received in connection with the initial capitalization of the Company in February 1996, and the invested proceeds from the Company's September 1996 initial public offering. 1995 Compared With 1994 No revenues were recorded during either period as the Company was in the development stage, and its principal business consisted of conducting research and development associated with the Company's fiber-recovery system. Research and development expenses increased to $601,000 in 1995 from $128,000 in 1994 due to the acceleration of the Company's research and development efforts associated with the development of the Company's fiber-recovery system, increased personnel, and higher engineering consulting expenses. Liquidity and Capital Resources Consolidated working capital was $56,477,000 at December 28, 1996, compared with no working capital at December 30, 1995. Included in working capital at December 28, 1996, are cash and cash equivalents of $58,388,000. Operating activities provided $1,035,000 of cash in 1996. During 1996, the Company expended $12,788,000 for investing activities. In July 1996, the Company acquired substantially all of the assets, subject to certain liabilities, of Granulation Technology and Biodac for $12,070,000 in cash (Note 2). During 1996, the Company expended $711,000 for purchases of property, plant, and equipment. During 1996, $70,141,000 of cash was provided by financing activities. In September 1996, the Company sold units, each unit consisting of one share of the Company's common stock and one redemption right, in an initial public offering for net proceeds of $55,781,000 (Note 1). The common stock and redemption rights began trading separately on December 13, 1996. Holders of a redemption right have the option to require the Company to redeem, in September 2000 and 2001, one share of the Company's common stock at $12.75 per share. The rights are guaranteed, on a subordinated basis, by Thermo Electron Corporation (Thermo Electron). In connection with the capitalization of the Company in February 1996, Thermo Fibertek transferred $12,500,000 in cash to the Company (Note 1). In 1997, the Company plans to make capital expenditures of approximately $10,000,000, which includes expenditures for the construction of one or more fiber-recovery plants. Construction of fiber-recovery plants is dependent upon the Company entering into long-term contracts with paper mills, under which the Company will charge fees to accept the mills' pulp sludge. The Company does not currently 19PAGE Thermo Fibergen Inc. 1996 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) have such agreements in place nor is there any assurance that the Company will be able to obtain such contracts. The Company anticipates it will require significant amounts of cash to complete the commercialization of its fiber-recovery system. The Company expects to finance commercialization of its fiber-recovery system through a combination of internal funds, including the net proceeds from its initial public offering, additional debt or equity financing, and/or short-term borrowings from Thermo Fibertek and Thermo Electron, although there is no agreement with Thermo Fibertek or Thermo Electron under which such parties would be obligated to lend funds to the Company. The Company believes that its existing resources will be sufficient to meet the Company's capital requirements for the foreseeable future. 20PAGE Thermo Fibergen Inc. 1996 Financial Statements 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 1997 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Operating Losses. The Company has not been profitable since its inception as a division of Thermo Fibertek Inc. (Thermo Fibertek) on December 29, 1991. As of December 28, 1996, the cumulative operating losses of the Company were approximately $1,349,000. The Company expects to continue to incur operating losses for at least the next several years. Uncertainty of Product Development; Dependence on Thermo Fibertek. The Company's fiber-recovery system incorporates new technology currently under development. Although the Company has completed the construction of its mobile pilot fiber-recovery system, it has not yet begun the commercial production of full-scale fiber-recovery systems. The Company's success will depend in part on Thermo Fibertek, which has licensed to the Company a proprietary "scalping" technology currently under development that is a key component of the Company's fiber-recovery system. The principal development risk associated with the technology comprising the Company's mobile pilot system, including the "scalping" technology under development by Thermo Fibertek, is that such technology may not be readily scaleable. Accordingly, further engineering will be required to adapt such technology to allow it to process papermaking sludge at volumes necessary for successful commercial operation. In addition, while papermaking sludge from all recycled pulp mills share certain defining principal characteristics, such technology must be further engineered to maximize its ability to scalp fibers from the sludge streams of specific mills. No assurance can be given that the development efforts of the Company or of Thermo Fibertek will be successful. Failure to successfully develop the Company's recovery equipment and system would have a material adverse effect on the business of the Company. The Company's success will depend to some degree on its ability to identify and develop technologies to maximize the value of the components of papermaking sludge, such as minerals, for sale into other markets. There can be no assurance that the Company will succeed in obtaining or developing any such technologies. Failure of the Company to obtain or develop such technologies, or to develop active markets for the components of the papermaking sludge it processes, would both increase the Company's ultimate waste-disposal costs, and reduce the Company's anticipated revenue stream. Accordingly, such a failure would have a material adverse effect on the business of the Company. Risks of Uncertain Market Acceptance. The Company's proposed fiber-recovery process and market approach are significantly different from processing and disposal methods that are currently available commercially. There is a substantial risk with any new technology that the marketplace may not accept or be receptive to the potential benefits of such technology. Market acceptance of the Company's proposed services and products will depend, in large part, upon the ability of the Company to demonstrate the economic advantage of its system over available alternatives. There can be no assurance that the Company's services will 21PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements be accepted by the pulp and paper industry, that any products the Company may develop from the recoverable components of papermaking sludge will be accepted in their respective markets, or that the Company will be able to sell such products, if accepted, at commercially viable prices. Failure of either the Company's technology to gain market acceptance by the pulp and paper industry, or of any such products to gain market acceptance, generally would have a material adverse effect on the business of the Company. Lack of Operating History and Management. The Company has no operating history other than research and development relating to its fiber-recovery equipment and process, and the business recently acquired by its GranTek Inc. (GranTek) subsidiary. No assurance can be given that management experienced in building a research and development or manufacturing organization, or additional skilled personnel necessary to successfully commercialize and expand the Company's business and operations, can be recruited and retained. Failure of the Company to achieve these objectives would have a material adverse effect on the business of the Company. Risks Associated with Protection, Defense, and Use of Proprietary Technology and Intellectual Property. The Company holds several United States and foreign patents relating to various aspects of the processing and use of cellulose-based granular materials, including the processing and use of such materials as an agricultural carrier. Thermo Fibertek holds two United States patents and several foreign patents, and expects to file additional United States patent applications relating to the "scalping" technology licensed to the Company. Proprietary rights relating to the Company's technology are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. Moreover, although the Company is developing methods to separate the various components of the sludge stream for which it believes that it may be able to obtain patent protection, there can be no assurance that patents will issue from any pending or future patent applications owned by or licensed to the Company, or that the claims allowed under any issued patents will be sufficiently broad to protect the Company's technology. In the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company's services or products, or gain access to its trade secrets and know-how. Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company's patents, or that they will not use their resources to design comparable products that do not infringe on the Company's patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company's products or technologies. The Company may need to acquire licenses to, or contest the validity of, any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its 22PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company's business and results of operations could be materially adversely affected. In addition, the Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. Commodity Price Risks. The Company expects to recover high quality long fiber from the sludge streams of pulp and paper mills and to sell it back to mills under long-term contracts. The prices at which the Company may be able to sell such fiber will generally not be fixed over the term of the contracts and will depend on several factors, including the prevailing prices for both finished paper products and wastepaper. These prices tend to be cyclical and to vary according to paper type. The Company also anticipates that it will seek to sell other recoverable components of the sludge streams, such as fines, wastewater, and minerals. The Company will be exposed to commodity price risk during the period that it has title to these products held in inventory. Prices of these commodities can be volatile, and no assurance can be given that the Company will be able to sell recovered components at a profit. Future Capital Needs; Project Financing; Dependence on Capital Markets. The Company's future capital requirements will depend on many factors, including continued progress in its research and development program, the magnitude of such program, competing technological and market developments, the cost of manufacturing activities, and the Company's ability to market its services and products successfully. Any equity or debt financings, if available at all, may be on terms that are not favorable to the Company and, in the case of equity financings, could result in dilution to the Company's stockholders. If adequate funds are not available, the Company may be required to curtail development and commercialization of its fiber-recovery technology. In addition, the Company expects to seek to finance each of its recovery plants in a manner that is substantially nonrecourse to the Company. To minimize its equity commitment, the Company will be required to borrow substantial amounts from third party lenders. These borrowings typically would be secured only by the recovery plant assets and/or by the capital stock of a subsidiary operating such plant. If the Company were unable to repay the principal of, and all interest on, such borrowings, the lender would have the right to foreclose on, and obtain title to, such assets or capital stock. The Company anticipates that it will require substantial financing to fund both the equity and debt components of future plants. The ability to finance the Company's recovery plants on a nonrecourse basis will depend on a number of factors, including interest coverage ratios, the length and terms of the Company's contracts with pulp mill customers, and the perception of technology risks by lenders. The Company has had no discussions with potential lenders, and no assurance can be given that financing for future plants will be available on acceptable terms, or at all. Any failure by the Company to obtain adequate amounts of project financing on 23PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements acceptable terms would have a material adverse effect on the future growth of the Company. Competition. The Company expects to encounter intense competition in the sale of its services and products. The Company expects that its principal competitors will be landfills, which currently have a collective 70% market share in North America, and approximately 40% in Europe. In addition, many pulp mills have already made substantial investments in de-watering and drying equipment to reduce their landfill costs. Mills are familiar with such methods and may be reluctant to switch to a new solution unless the Company demonstrates significant cost savings to them. Several large waste-management companies have increased their marketing activities to provide landfill disposal services to the pulp and paper industry. Certain competitors are seeking to develop similar technologies and services to treat and process papermaking sludge. No assurance can be given that these technologies may not be superior to those of the Company or that they may not make the Company's technology obsolete. Some of these competitors may have substantially greater financial, marketing, and other resources than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their services and products than the Company. There can be no assurance that the Company's current technology, technology under development, or ability to discover new technologies will be sufficient to enable it to compete effectively with its competitors. Risk of Dependence on Pulp and Paper Mill Customers. Each of the Company's fiber-recovery plants will rely upon long-term agreements with a single pulp or paper mill customer, or a cluster of mills within a small geographic area, for its papermaking sludge and tipping fee revenue. The failure of any one mill customer to fulfill its contractual obligations could have a substantial negative impact on the Company. No assurance can be given that a particular mill will not be unwilling or unable, at some time, to make required payments under, or to otherwise honor, its agreements with the Company. The Company expects that each of its commercial plants will generally occupy approximately two acres of land to be acquired at, or immediately adjacent to, a pulp or paper mill. To date, the Company has not acquired any such sites, and no assurance can be given that the Company will be able to acquire any such sites on terms that are favorable to the Company or at all. The Company's GranTek subsidiary obtains its papermaking sludge from a single paper mill located near its Wisconsin plant, under a contract that provides the mill with the exclusive right to supply papermaking sludge to GranTek. The contract terminates on December 26, 1997, subject to successive mutual two-year extensions. Although the Company believes that GranTek's relationship with the mill is good, no assurance can be given that the mill will agree to renew the contract upon its termination in December 1997. Environmental and Regulatory Risks. Federal, state, and local environmental laws govern air emissions and discharges into water, as well as the generation, transportation, storage, treatment, and disposal of solid and hazardous waste. These laws establish standards governing most aspects of the construction and operation of the Company's facilities, and often require multiple governmental permits before these 24PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements facilities can be constructed, modified, or operated. There can be no assurance that all required permits will be issued for the Company's recovery plants, or that the requirements for continued permitting under environmental regulatory laws and policies governing their enforcement may not change, requiring new technology or stricter standards for the control of discharges of air or water pollutants, or for solid or hazardous waste handling and disposal. Such future developments could affect the manner in which the Company constructs and operates its plants and could require significant additional expenditures to achieve compliance with such requirements. It is possible that compliance may not be technically or economically feasible. Changes in these regulations could also affect the characteristics of the waste generated by pulp and paper mills. As a result, it is possible that disposal of papermaking sludge could be accomplished in a manner that may not involve the Company's facilities or that would require the Company to purchase papermaking sludge. Federal, state, and local laws also frequently impose liability on the present and former owners or operators of facilities that release hazardous substances into the environment. Furthermore, companies may be required by law to provide financial assurances for operating facilities in order to ensure their performance of obligations is in compliance with applicable laws and regulations. Similar liability may be imposed upon the generators and transporters of waste which contains hazardous substances. In the United States, such liability stems primarily from the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and similar state equivalents, the Federal Toxic Substances Control Act (TSCA), and the Resource Conservation and Recovery Act of 1976 (RCRA), and similar state equivalents. TSCA imposes limitations on the presence in commercial products of polychlorinated biphenyls (PCBs), and on the generation, handling, storage, and disposal of PCB-containing materials, byproducts, and wastes. CERCLA imposes joint and several liability for the costs of remediation and natural resource damages on the owner or operator of a facility from which there is a release, or a threat of a release, of a hazardous substance into the environment, and on the generators and transporters of those hazardous substances. RCRA provides a comprehensive framework for the regulation of the generation, transportation, treatment, storage, and disposal of hazardous waste. Under TSCA, RCRA, and equivalent state laws, regulatory authorities may require, pursuant to administrative order or as a condition of an operating permit, that the owner or operator of a regulated facility take corrective action with respect to contamination resulting from past or present operations. The intent of RCRA is to control hazardous wastes from the time they are generated until they are properly recycled or treated and disposed. Such laws also require that the owner or operator of regulated facilities provide assurance that funds will be available for the closure and post-closure care of its facilities. Because Subtitle D of RCRA imposes strict requirements on landfills, such as the requirement that new landfills must be lined, RCRA creates an incentive for pulp mills to use sludge-management technologies such as those offered by the Company. 25PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements GranTek currently uses papermaking sludge from a nearby paper mill in Green Bay, Wisconsin, to make its granules. The papermaking sludge GranTek receives from the mill contains trace amounts of PCBs, dioxins, and furans, as well as residual amounts of other regulated compounds. During the granulation process, GranTek evaporates approximately 95% of the water contained in the papermaking sludge. Approximately 1.6 pounds per year of PCBs, as well as other compounds, such as formaldehyde, benzene, and volatile organic compounds (VOCs), are thus emitted into the atmosphere from its Green Bay facility. Applicable Wisconsin regulations limit PCB emissions to de minimis amounts unless the generator can demonstrate that it is using the best available control technology to limit emissions. GranTek has been issued an air operating permit by the Wisconsin Department of Natural Resources (the WDNR). GranTek's current operating permit and its application for a new Title V operating permit each require GranTek to reduce PCB and VOC emissions, and to file bi-annual reports on the amounts of PCBs being emitted. In August 1995, GranTek submitted materials to the WDNR requesting that GranTek be relieved of its obligation to reduce emissions, asserting that there are presently no technologically or economically feasible methods to reduce PCB or VOC emissions from its facility that can be implemented. GranTek has received no response from the WDNR to date. Although the Company believes that the WDNR will accept GranTek's findings, and although GranTek's facility is currently fully permitted by Wisconsin regulatory authorities, no assurance can be given that the WDNR will not require GranTek to reduce or eliminate its emissions, that such compliance will not require the Company to make significant expenditures, or that such compliance will be technologically or economically feasible. Such compliance may have material adverse effects on the Company's capital expenditures, earnings, and/or competitive position. Because the papermaking sludge contains trace amounts of PCBs, dioxins, furans, and other compounds when GranTek receives it from the mill, residual amounts of these compounds are also found in GranTek's Biodac product. Although these substances are present in residual quantities well below the maximum levels currently permitted under TSCA, RCRA, and applicable federal and state regulations, no assurance can be given that such regulations may not be made more stringent in the future that papermaking sludge containing such substances may not be regulated as hazardous under TSCA or RCRA, or that federal or state regulations may not in the future prohibit the use of materials containing these substances in agricultural applications. Any such regulatory changes may have material adverse effects on the Company's capital expenditures, earnings, and/or competitive position. Changes in these regulations could also affect the characteristics of the waste generated by pulp and paper mills. As a result, it is possible that disposal of papermaking sludge could be accomplished in a manner that may not involve the Company's facilities or that would require the Company to purchase papermaking sludge. The Company may be required as a practical matter to assume all environmental liabilities associated with the treatment and final disposal of all components of the pulp mills' residue stream that cannot be returned to mills or sold elsewhere. The Company will endeavor to 26PAGE Thermo Fibergen Inc. 1996 Financial Statements Forward-looking Statements operate its business to minimize its exposure to environmental liabilities. In entering into contracts with customers, the Company will seek to maximize its insulation from environmental liabilities associated with paper mill waste streams by controlling the content of the waste streams it will accept, and by preventing customers from sending any waste streams containing hazardous components to the Company's facilities. Any such disposal of hazardous waste could cause the Company to be responsible for the clean-up or remediation of the disposal site in the future under CERCLA, TSCA, RCRA, and similar state laws. No assurance can be given that claims for environmental liabilities may not be asserted against the Company. 27PAGE Thermo Fibergen Inc. 1996 Financial Statements Selected Financial Information (In thousands except per share amounts) 1996(a) 1995 1994 1993 1992 ------------------------------------------------------------------------ (Unaudited) Statement of Operations Data: Revenues $ 2,223 $ - $ - $ - $ - Net loss (367) (601) (128) (106) (147) Loss per share (.03) (.06) (.01) (.01) (.01) Balance Sheet Data: Working capital $56,477 $ - $ - $ - $ - Total assets 71,033 - - - - Common stock subject to redemption 56,087 - - - - Shareholders' investment 11,921 - - - - (a) Reflects the February 1996 transfer of $12,500,000 in cash to the Company from Thermo Fibertek in connection with the initial capitalization of the Company, the July 1996 acquisition of Granulation Technology and Biodac, and the net proceeds from the Company's September 1996 initial public offering. 28PAGE Thermo Fibergen Inc. 1996 Financial Statements Common Stock Market Information The Company's common stock and redemption rights traded together as units until December 12, 1996, after which the Company's common stock and redemption rights traded separately. The following table shows the market range for the Company's equity securities based on reported sales prices on the American Stock Exchange (symbols TFG-U, TFG, and TFG-R) for 1996. Units Common Stock Redemption Rights ----------------- ------------------ ----------------- Quarter High Low High Low High Low ------------------------------------------------------------------------ Fourth $14 1/8 $11 3/4 $11 3/4 $10 3/4 $2 5/16 $1 3/4 As of January 24, 1997, the Company had 37, 5, and 4 holders of record of its units, common stock, and redemption rights, respectively. This does not include holdings in street or nominee names. The closing market price on the American Stock Exchange for the Company's common stock on January 24, 1997, was $9.00 per share. Transfer Agent American Stock Transfer & Trust Company is the transfer agent for the Company's common stock and redemption rights and maintains holders' activity records. The agent will respond to questions on issuance of stock and redemption right certificates, change of ownership, lost stock and redemption right certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 Security Holder Services Holders of Thermo Fibergen Inc. units, common stock, and redemption rights who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo Fibergen Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to enable holders whose units, stock, and redemption rights are held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Beginning in 1997, quarterly distribution will be limited to the second quarter report only. All quarterly reports and press releases are available through the Internet from Thermo Electron's home page on the World Wide Web (http://www.thermo.com/subsid/tfg.html). Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. 29PAGE Thermo Fibergen Inc. 1996 Financial Statements Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended December 28, 1996, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Fibergen Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Monday, June 2, 1997, at 8:00 a.m. at the Hyatt Regency Hotel, Hilton Head, South Carolina. EX-21 5 Exhibit 21 THERMO FIBERGEN INC. Subsidiaries of the Registrant At February 28, 1997, Thermo Fibergen Inc. owned the following companies: State or Registrant's Jurisdiction % of Name of Incorporation Ownership --------------------------------- ---------------- ------------ GranTek Inc. Wisconsin 100% EX-23 6 Exhibit 23 THERMO FIBERGEN INC. Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the use of our reports, dated February 3, 1997, included in or incorporated by reference into this Annual Report on Form 10-K. Arthur Andersen LLP Boston, Massachusetts March 12, 1997 EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO FIBERGEN INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1996 DEC-28-1996 58,388 0 768 30 312 59,502 6,359 538 71,033 3,025 0 0 0 100 11,821 71,033 2,223 2,223 1,388 1,388 1,300 0 0 (367) 0 (367) 0 0 0 (367) (.03) 0
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