Exhibit 10.38


                              THERMO TERRATECH INC.

           THERMORETEC CORPORATION. NONQUALIFIED STOCK OPTION PLAN

               As amended and restated effective as of 9/10/99


1.    Purpose

      This Nonqualified  Stock Option Plan (the "Plan") is intended to encourage
ownership of Common  Stock (the  "Common  Stock"),  of  ThermoRetec  Corporation
("Subsidiary"),  a subsidiary  of Thermo  TerraTech  Inc.  (the  "Company"),  by
persons selected by the Board of Directors (or a committee  thereof) in its sole
discretion,   including  directors,   executive  officers,   key  employees  and
consultants  of the  Company  and its  subsidiaries,  and to provide  additional
incentive  for them to promote  the  success of the  business of the Company and
Subsidiary. The Plan is intended to be a nonstatutory stock option plan.

2.    Effective Date of the Plan

      The Plan shall become  effective when adopted by the Board of Directors of
the Company.

3.    Stock Subject to Plan

      Subject to  adjustment  as  provided  in Section  11, the total  number of
shares of Common Stock  reserved and available for issuance under the Plan shall
be 150,000  shares.  Shares to be issued upon the  exercise  of options  granted
under the Plan shall be shares of Subsidiary  beneficially owned by the Company.
If any option expires or terminates for any reason without having been exercised
in full, the  unpurchased  shares  subject  thereto shall again be available for
options thereafter to be granted.

4.    Administration

      The Plan will be  administered  by the Board of  Directors  of the Company
(the  "Board").  Subject to the  provisions  of the Plan,  the Board  shall have
complete authority, in its discretion, to make the following determinations with
respect to each option to be granted by the  Company:  (a) the person to receive
the option (the "Optionee"); (b) the time of granting the option; (c) the number
of shares subject thereto;  (d) the option price; (e) the option period; and (f)
the terms and conditions of options granted under the Plan (including  terms and
conditions  relating  to  events  of  merger,  consolidation,   dissolution  and
liquidation, change of control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts); (g) waive compliance by an optionee with
any obligation to be performed by him or her under an option; (h) waive any term
or  condition  of an option;  (i) cancel an existing  option in whole or in part


                                       1
<PAGE>

with the consent of an Optionee;  (j) grant replacement  options; (k) accelerate
the vesting or lapse of any  restrictions of any option;  and (l) adopt the form
of instruments evidencing options under the Plan and change such forms from time
to time..  In making such  determinations,  the Board may take into  account the
nature of the services  rendered by the  Optionees,  their present and potential
contributions  to  the  success  of  the  Company  and/or  one  or  more  of its
subsidiaries,  and such other factors as the Board in its discretion  shall deem
relevant.  Subject  to the  provisions  of the Plan,  the Board  shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and  regulations  relating to it, to determine  the terms and  provisions of the
respective  option  agreements  (which need not be  identical),  and to make all
other determinations  necessary or advisable for the administration of the Plan.
Any  interpretation  by the Board of the terms and provisions of the Plan or any
Award  thereunder and the  administration  thereof,  and all action taken by the
Board,  shall be final,  binding  and  conclusive  on all parties and any person
claiming under or through any party.  No Director shall be liable for any action
or determination made in good faith. The Board may, to the full extent permitted
by  law,  delegate  any or  all of its  responsibilities  under  the  Plan  to a
committee (the "Committee") appointed by the Board and consisting of two or more
members of the  Board,  each of whom  shall be deemed a  "disinterested  person"
within  the  meaning  of Rule 16b-3 (or any  successor  rule) of the  Securities
Exchange Act of 1934 (the "Exchange Act").

5.    Eligibility

      An option may be granted to any person  selected  by the Board in its sole
discretion.

6.    Time of Granting Options

      The  granting of an option  shall take place at the time  specified by the
Board.  Only if  expressly  so provided  by the Board  shall the  granting of an
option be regarded as taking place at the time when a written  option  agreement
shall have been duly  executed and  delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted.  The agreement shall provide,
among  other  things,  that it does not  confer  upon an  Optionee  any right to
continue in the employ of the Company and/or one or more of its  subsidiaries or
to continue as a director or  consultant  of the  Company,  and that it does not
interfere  in any way with the right of the  Company or any such  subsidiary  to
terminate  the  employment  of the  Optionee  at any time if the  Optionee is an
employee, to remove the Optionee as a director of the Company if the Optionee is
a director,  or to  terminate  the services of the Optionee if the Optionee is a
consultant.

7.    Option Period

      An option  may become  exercisable  immediately  or in such  installments,
cumulative or noncumulative, as the Board may determine.

8.    Exercise of Option

      An option may be exercised in accordance  with its terms by written notice
of intent to exercise the option,  specifying the number of shares of stock with
respect  to which the  option  is then  being  exercised.  The  notice  shall be


                                       2
<PAGE>

accompanied by payment in the form of cash or shares of Subsidiary  Common Stock
(the  "Tendered  Shares")  with a then current  market value equal to the option
price of the  shares to be  purchased;  provided,  however,  that such  Tendered
Shares shall have been  acquired by the  Optionee  more than six months prior to
the date of  exercise,  unless  such  requirement  is waived in  writing  by the
Company. Against such payment the Company shall deliver or cause to be delivered
to the  Optionee a  certificate  for the number of shares then being  purchased,
registered in the name of the Optionee or other person exercising the option. If
any law or applicable  regulation of the Securities  and Exchange  Commission or
other body having  jurisdiction  in the  premises  shall  require  the  Company,
Subsidiary  or the Optionee to take any action in  connection  with shares being
purchased  upon  exercise of the option,  exercise of the option and delivery of
the  certificate  or  certificates  for such  shares  shall be  postponed  until
completion  of the  necessary  action,  which  shall be  taken at the  Company's
expense.

9.    Transferability

      Except as may be  authorized  by the  Board,  in its sole  discretion,  no
Option  may be  transferred  other  than  by will or the  laws  of  descent  and
distribution,  and during a Optionee's lifetime an option requiring exercise may
be exercised  only by him or her (or in the event of  incapacity,  the person or
persons properly  appointed to act on his or her behalf).  The Board may, in its
discretion,  determine the extent to which options  granted to an Optionee shall
be transferable,  and such provisions permitting or acknowledging transfer shall
be set  forth in the  written  agreement  evidencing  the  option  executed  and
delivered by or on behalf of the Company and the Optionee.

10.   Vesting, Restrictions and Termination of Options

      The  Board,  in its sole  discretion,  may  determine  the manner in which
options shall vest,  the rights of the Company to  repurchase  the shares issued
upon the exercise of any option and the manner in which such rights shall lapse,
and the terms upon which any option  granted  shall  terminate.  The Board shall
have the right to  accelerate  the date of  exercise  of any  installment  or to
accelerate the lapse of the Company's repurchase rights. All of such terms shall
be  specified in a written  option  agreement  executed  and  delivered by or on
behalf of the Company and the Optionee to whom such option shall be granted.

11.   Adjustments in the Event of Certain Transactions

      (a) In the  event  of a stock  dividend,  stock  split or  combination  of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends,  the Board will make (i)  appropriate  adjustments to the
maximum  number of shares that may be delivered  under the Plan under  Section 3
above,  and (ii)  appropriate  adjustments  to the  number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any  exercise  prices  relating  to Options and any other  provisions  of Awards
affected by such change.


                                       3
<PAGE>



      (b)  In  the  event  of  any  recapitalization,  merger  or  consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company,  any transaction  which results in Thermo Electron
Corporation   ceasing  to  be  the  beneficial   owner  of  a  majority  of  the
then-outstanding  shares  of  Common  Stock,  or  any  similar  transaction,  as
determined  by the  Board,  the  Board in its  discretion  may make  appropriate
adjustments to outstanding  Options to avoid  distortion in the operation of the
Plan.

12.   Change in Control

      12.1  Impact of Event

      In the event of a "Change in  Control"  as defined  in Section  12.2,  the
following  provisions  shall apply,  unless the agreement  evidencing the Option
otherwise  provides (by specific explicit reference to Section 12.2 below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control,  (i) each outstanding stock option granted under the Plan
that  was  not  previously  exercisable  and  vested  shall  become  immediately
exercisable  in full and will no longer be subject to a right of  repurchase  by
the Company,  (ii) each  outstanding  Option subject to restrictions  and to the
extent  not  fully  vested,  shall  be  deemed  to  be  fully  vested,  free  of
restrictions and no longer subject to a right of repurchase by the Company,  and
(iii) performance of other conditions (other than conditions  relating solely to
the passage of time, continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the Option or in any other
agreement  between the Optioneet and the Company or unless  otherwise  agreed by
the Board.

      12.2  Definition of "Change in Control"

      "Change in Control"  means an event or occurrence  set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes  a  Change  in  Control  under  one  of  such   subsections  but  is
specifically exempted from another such subsection):

      (a) the acquisition by an individual,  entity or group (within the meaning
of Section  13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership  of  any  capital  stock  of  Thermo  Electron   Corporation  ("Thermo
Electron") if, after such acquisition, such Person beneficially owns (within the
meaning of Rule 13d-3  promulgated under the Exchange Act) 40% or more of either
(i) the  then-outstanding  shares  of  common  stock  of  Thermo  Electron  (the
"Outstanding  TMO  Common  Stock")  or (ii)  the  combined  voting  power of the
then-outstanding securities of Thermo Electron entitled to vote generally in the
election of  directors  (the  "Outstanding  TMO Voting  Securities");  provided,
however,  that for purposes of this subsection  (a), the following  acquisitions
shall  not  constitute  a Change  in  Control:  (i) any  acquisition  by  Thermo
Electron,  (ii) any acquisition by any employee  benefit plan (or related trust)
sponsored or  maintained  by Thermo  Electron or any  corporation  controlled by
Thermo  Electron,  or (iii) any  acquisition  by any  corporation  pursuant to a
transaction  which  complies with clauses (i) and (ii) of subsection (c) of this
definition; or

                                       4
<PAGE>

      (b) such  time as the  Continuing  Directors  (as  defined  below)  do not
constitute a majority of the Board of Directors of Thermo  Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo  Electron),  where  the term  "Continuing  Director"  means at any date a
member of the Thermo  Board (i) who was a member of the Thermo  Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the  directors who were  Continuing  Directors at the time of such
nomination or election or whose election to the Thermo Board was  recommended or
endorsed by at least a majority of the directors who were  Continuing  Directors
at the time of such nomination or election;  provided, however, that there shall
be excluded from this clause (ii) any  individual  whose  initial  assumption of
office  occurred as a result of an actual or  threatened  election  contest with
respect to the election or removal of  directors  or other actual or  threatened
solicitation of proxies or consents,  by or on behalf of a person other than the
Thermo Board; or

      (c)  the   consummation  of  a  merger,   consolidation,   reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or  other  disposition  of all or  substantially  all of the  assets  of  Thermo
Electron in one or a series of transactions (a "Business Combination"),  unless,
immediately  following  such  Business  Combination,  each of the  following two
conditions is satisfied:  (i) all or  substantially  all of the  individuals and
entities who were the beneficial  owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly,  more than 60% of the then-outstanding
shares of common  stock and the combined  voting  power of the  then-outstanding
securities   entitled  to  vote   generally  in  the   election  of   directors,
respectively,  of the  resulting  or  acquiring  corporation  in  such  Business
Combination (which shall include,  without limitation,  a corporation which as a
result of such transaction  owns Thermo Electron or substantially  all of Thermo
Electron's  assets either  directly or through one or more  subsidiaries)  (such
resulting  or  acquiring  corporation  is referred  to herein as the  "Acquiring
Corporation")  in  substantially   the  same  proportions  as  their  ownership,
immediately  prior to such Business  Combination,  of the Outstanding TMO Common
Stock and Outstanding TMO Voting  Securities,  respectively;  and (ii) no Person
(excluding the Acquiring  Corporation  or any employee  benefit plan (or related
trust)   maintained  or  sponsored  by  Thermo  Electron  or  by  the  Acquiring
Corporation) beneficially owns, directly or indirectly,  40% or more of the then
outstanding  shares  of common  stock of the  Acquiring  Corporation,  or of the
combined  voting power of the  then-outstanding  securities of such  corporation
entitled to vote generally in the election of directors; or

      (d)  approval  by  the  stockholders  of  Thermo  Electron  of a  complete
liquidation or dissolution of Thermo Electron.

13.   Limitation of Rights in Option Stock

      The Optionees shall have no rights as stockholders in respect of shares as
to which their options shall not have been  exercised,  certificates  issued and
delivered and payment as herein  provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan.

                                       5
<PAGE>



14.   Stock Reserved

      The Company shall at all times during the term of the options  reserve and
keep  available  such number of shares of the Common Stock as will be sufficient
to  satisfy  the  requirements  of this Plan and  shall  pay all other  fees and
expenses necessarily incurred by the Company in connection therewith.

15.   Securities Laws Restrictions

      Each Optionee exercising an option, at the request of the Company, will be
required  to give a  representation  in form  satisfactory  to  counsel  for the
Company  that he will not  transfer,  sell or  otherwise  dispose  of the shares
received upon exercise of the option at any time purchased by him, upon exercise
of any portion of the option, in a manner which would violate the Securities Act
of  1933,  as  amended,  and the  regulations  of the  Securities  and  Exchange
Commission  thereunder  and the Company  may, if required or at its  discretion,
make a notation  on any  certificates  issued  upon  exercise  of options to the
effect that such certificate may not be transferred  except after receipt by the
Company  of an opinion of  counsel  satisfactory  to it to the effect  that such
transfer will not violate such Act and such regulations.

16.   Tax Withholding

      The  Company  shall  have the right to deduct  from  payments  of any kind
otherwise  due to an  Optionee  any  federal,  state or local  taxes of any kind
required by law to be withheld  with respect to any shares  issued upon exercise
of options under the Plan (the "withholding requirements").  The Board will have
the right to require that the Optionee or other appropriate  person remit to the
Company an amount  sufficient to satisfy the withholding  requirements,  or make
other  arrangements  satisfactory to the Board with regard to such requirements,
prior to the delivery of any Common Stock pursuant to exercise of an option.  If
and to the extent that such  withholding  is required,  the Board may permit the
Optionee  or such other  person to elect at such time and in such  manner as the
Board provides to have the Company hold back from the shares to be delivered, or
to deliver to the Company, Common Stock having a value calculated to satisfy the
withholding requirements.

17.   Termination and Amendment

      The Plan shall  remain in full force and effect  until  terminated  by the
Board.  Subject to the last  sentence  of this  Section 17, the Board may at any
time or times amend the Plan or any outstanding  Option for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Options. No amendment of the Plan or any agreement  evidencing
Options under the Plan may adversely affect the rights of any participant  under
any Option previously granted without such participant's consent.


                                       6