Exhibit 13






















                              THERMO FIBERGEN INC.

                        Consolidated Financial Statements

                                      1996
PAGE
<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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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
<PAGE>
    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.