UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
THERMO QUEST CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[THERMO QUEST LOGO APPEARS HERE]
2215 Grand Avenue Parkway
Austin, Texas 78728-3812
April 14, 1999
Dear Stockholder:
The enclosed Notice calls the 1999 Annual Meeting of the Stockholders of
ThermoQuest Corporation. I respectfully request that all Stockholders attend
this meeting, if possible.
Our Annual Report for the year ended January 2, 1999 is enclosed. I hope
you will read it carefully. Feel free to forward any questions you may have if
you are unable to be present at the meeting.
Enclosed with this letter is a proxy authorizing three officers of the
Corporation to vote your shares for you if you do not attend the meeting.
Whether or not you are able to attend the meeting, I urge you to complete your
proxy and return it to our transfer agent, American Stock Transfer & Trust
Company, in the enclosed addressed, postage-paid envelope, as a quorum of the
Stockholders must be present at the meeting, either in person or by proxy.
I would appreciate your immediate attention to the mailing of this proxy.
Yours very truly,
/s/ Richard W. K. Chapman
RICHARD W. K. CHAPMAN
President and Chief Executive Officer
[THERMO QUEST LOGO APPEARS HERE]
2215 Grand Avenue Parkway
Austin, Texas 78728-3812
April 14, 1999
To the Holders of the Common Stock of
THERMOQUEST CORPORATION
NOTICE OF ANNUAL MEETING
The 1999 Annual Meeting of the Stockholders of ThermoQuest Corporation (the
"Corporation") will be held on Thursday, May 27, 1999 at 11:00 a.m. at The
Westin Hotel, 70 Third Avenue, Waltham, Massachusetts. The purpose of the
meeting is to consider and take action upon the following matters:
1. Election of six directors.
2. Such other business as may properly be brought before the meeting and
any adjournment thereof.
The transfer books of the Corporation will not be closed prior to the
meeting, but, pursuant to appropriate action by the board of directors, the
record date for the determination of the Stockholders entitled to receive notice
of and to vote at the meeting is March 30, 1999.
The By-laws require that the holders of a majority of the stock issued and
outstanding and entitled to vote be present or represented by proxy at the
meeting in order to constitute a quorum for the transaction of business. It is
important that your shares be represented at the meeting regardless of the
number of shares you may hold. Whether or not you are able to be present in
person, please sign and return promptly the enclosed proxy in the accompanying
envelope, which requires no postage if mailed in the United States.
This Notice, the proxy and proxy statement enclosed herewith are sent to
you by order of the board of directors.
SANDRA L. LAMBERT
Secretary
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of ThermoQuest
Corporation (the "Corporation") for use at the 1999 Annual Meeting of the
Stockholders (the "Meeting") to be held on Thursday, May 27, 1999 at 11:00 a.m.
at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts, and any
adjournment thereof. The mailing address of the executive office of the
Corporation is 2215 Grand Avenue Parkway, Austin, Texas 78728-3812. This proxy
statement and the enclosed proxy were first furnished to Stockholders of the
Corporation on or about April 16, 1999.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election of
six directors, constituting the entire board of directors.
The representation in person or by proxy of a majority of the outstanding
shares of the common stock, $.01 par value of the Corporation ("Common Stock")
entitled to vote at the meeting is necessary to provide a quorum for the
transaction of business at the meeting. Shares can only be voted if the
Stockholder is present in person or is represented by returning a properly
signed proxy. Each Stockholder's vote is very important. Whether or not you plan
to attend the meeting in person, please sign and promptly return the enclosed
proxy card, which requires no postage if mailed in the United States. For
purposes of the quorum, votes of Stockholders of record who are present at the
meeting in person or by proxy, abstentions, and broker non-votes (as defined
below) are counted as present or represented at the meeting for purposes of
determining whether a quorum exists.
Shares represented by proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on the
proxy card. If your proxy card is signed and returned without specifying
choices, your shares will be voted FOR the management nominees for directors,
and as the individuals named as proxy holders on the proxy deem advisable on all
other matters as may properly come before the meeting.
Nominees for election as directors at the meeting will be elected by a
plurality of votes of the shares present in person or represented by proxy at
the meeting. If you hold your shares of Common Stock through a broker, bank or
other nominee, generally the nominee may only vote the Common Stock that it
holds for you in accordance with your instructions. However, if it has not
timely received your instructions, the nominee may vote on certain matters for
which it has discretionary voting authority. If a nominee cannot vote on a
particular matter because it does not have discretionary voting authority, this
is a `broker non-vote" on that matter. With respect to the election of
directors, broker "non-votes" and withholdings of authority to vote will have no
effect on the outcome of the election.
A Stockholder who returns a proxy may revoke it at any time before the
Stockholder's shares are voted at the meeting by written notice to the Secretary
of the Corporation received prior to the meeting, by executing and returning a
later-dated proxy or by voting by ballot at the meeting.
The outstanding stock of the Corporation entitled to vote (excluding shares
held in treasury by the Corporation) as of March 30, 1999 consisted of
50,649,305 shares of Common Stock. Only Stockholders of record at the close of
business on March 30, 1999, are entitled to vote at the meeting. Each share is
entitled to one vote.
- PROPOSAL 1 -
ELECTION OF DIRECTORS
Six directors are to be elected at the meeting, each to hold office until
his successor is chosen and qualified or until his earlier resignation, death or
removal.
Nominees For Directors
Set forth below are the names of the persons nominated as directors, their
ages, their offices in the Corporation, if any, their principal occupation or
employment for the past five years, the length of their tenure as directors and
the names of other public companies in which such persons hold directorships.
Information regarding
their beneficial ownership of the Corporation's Common Stock and of the common
stock of its parent company, Thermo Instrument Systems Inc. ("Thermo
Instrument"), a manufacturer of measurement and detection instruments and Thermo
Instrument's parent company, Thermo Electron Corporation ("Thermo Electron"), a
provider of products and services in measurement instrumentation, biomedical
devices, energy, resource recovery, and emerging technologies is reported under
the caption "Stock Ownership." All of the nominees are currently directors of
the Corporation.
Richard W. K. Chapman Dr. Chapman, 54, has been the chief executive
officer, president and a director of the Corporation
since its inception in June 1995. He served as
president of Finnigan Corporation ("Finnigan"), a
subsidiary of the Corporation, from 1992 to 1995,
and as marketing director of Finnigan from 1989 to
1995. He has been senior vice president of Thermo
Instrument since July 1998 and was a vice president
of Thermo Instrument from 1992 until July 1998.
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George N. Hatsopoulos Dr. Hatsopoulos, 72, has been a director of the
Corporation since its inception in June 1995. He has
served as chairman and chief executive officer of
Thermo Electron since he founded that company in
1956 and as president of Thermo Electron from 1956
to January 1997. Effective June 1, 1999,
Dr. Hatsopoulos will step down as the chief
executive officer of Thermo Electron and will remain
as non-executive chairman of the board.
Dr. Hatsopoulos is also a director of Photoelectron
Corporation, Thermedics Inc., Thermo Ecotek
Corporation, Thermo Electron, Thermo Fibertek Inc.,
Thermo Instrument, Thermo Optek Corporation and
ThermoTrex Corporation.
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Frank Jungers Mr. Jungers, 72, has been a director of the
Corporation since January 1996. Mr. Jungers has been
a self-employed consultant on business and energy
matters since 1977. Mr. Jungers was employed by the
Arabian American Oil Company from 1974 through 1977
as chairman and chief executive officer. Mr. Jungers
is also a director of The AES Corporation,
Donaldson, Lufkin & Jenrette, Georgia-Pacific
Corporation, ONIX Systems Inc., Statia Terminals
Group N.V., Thermo Ecotek Corporation and Thermo
Electron.
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Earl R. Lewis Mr. Lewis, 55, has been a director of the
Corporation since its inception in June 1995.
Mr. Lewis has been president and chief executive
officer of Thermo Instrument since March 1997 and
January 1998, respectively, and was chief operating
officer of Thermo Instrument from January 1996 to
January 1998. Prior to that time, he was executive
vice president of Thermo Instrument from January
1996 to March 1997, senior vice president of Thermo
Instrument from January 1994 to January 1996, and
vice president of Thermo Instrument from March 1992
to January 1994. Mr. Lewis has been chief operating
officer, measurement and detection, of Thermo
Electron since September 1998. Prior to his
appointment as chief operating officer, measurement
and detection, Mr. Lewis served as senior vice
president of Thermo Electron from June 1998 to
September 1998 and vice president from September
1996 to June 1998. Mr. Lewis served as chief
executive officer of Thermo Optek Corporation, a
majority-owned subsidiary of Thermo Instrument, that
manufactures analytical instruments that measure
energy and light for purposes of materials analysis,
characterization and preparation, from its inception
in August 1995 to January 1998, and served as
president of its predecessor, Thermo Jarrell Ash
Corporation, for more than five years prior to 1995.
Mr. Lewis is also a director of Metrika Systems
Corporation, ONIX Systems Inc., SpectRx Inc., Thermo
BioAnalysis Corporation, Thermo Instrument, Thermo
Optek Corporation, ThermoSpectra Corporation. And
Thermo Vision Corporation.
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Anthony J. Pellegrino Mr. Pellegrino, 58, has been a director of the
Corporation since its inception in June 1995.
Mr. Pellegrino has been director of corporate
development of ThermoTrex Corporation, a Thermo
Electron subsidiary which, among other things,
manufactures mammography and needle-biopsy systems
and supplies general x-ray equipment, since March
1997 and was a senior vice president of that company
from July 1995 to March 1997. For more than five
years prior to 1995, Mr. Pellegrino served as the
chief executive officer and chairman of LORAD
Corporation, a company acquired in 1992 by
ThermoTrex Corporation.
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Michael E. Porter Dr. Porter, 51, has been a director of the
Corporation since November 1995. He has been the
C. Roland Christensen Professor of Business
Administration at the Harvard Business School since
1990, and has held various teaching positions at the
Harvard Business School since 1973. Dr. Porter is
also a director of Alpha-Beta Technologies Inc. and
Parametric Technologies Corporation.
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Committees of the Board of Directors and Meetings
The board of directors has established an audit committee and a human
resources committee, each consisting solely of directors who are not employees
of the Corporation, of Thermo Electron or of any other companies affiliated with
Thermo Electron ("outside directors"). The present members of the audit
committee are Dr. Porter (Chairman) and Mr. Jungers. The audit committee
reviews the scope of the audit with the Corporation's independent public
accountants and meets with them for the purpose of reviewing the results of the
audit subsequent to its completion. The present members of the human resources
committee are Mr. Jungers (Chairman) and Dr. Porter. The human resources
committee reviews the performance of senior members of management, approves
executive compensation and administers the Corporation's stock option and other
stock-based compensation plans. The Corporation does not have a nominating
committee of the board of directors. The board of directors met four times, the
audit committee met twice and the human resources committee met five times
during fiscal 1998. Each director attended at least 75% of all meetings of the
board of directors and committees on which he served that were held during
fiscal 1998.
Compensation of Directors
Cash Compensation
Outside directors receive an annual retainer of $4,000 and a fee of $1,000
per meeting for attending regular meetings of the board of directors and $500
per meeting for participating in meetings of the board of directors held by
means of conference telephone and for participating in certain meetings of
committees of the board of directors. Payment of directors' fees is made
quarterly. Dr. Chapman, Dr. Hatsopoulos, Mr. Lewis and Mr. Pellegrino are all
employees of Thermo Electron or its subsidiaries and do not receive any cash
compensation from the Corporation for their services as directors. Directors
are also reimbursed for out-of-pocket expenses incurred in attending such
meetings.
Deferred Compensation Plan
Under the Corporation's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change of control or proposed change of
control of the Corporation that is not approved by the board of directors,
deferred amounts become payable immediately. Either of the following is deemed
to be a change of control: (a) the acquisition, without the prior approval of
the board of directors, directly or indirectly, by any person of 50% or more of
the outstanding Common Stock or the outstanding common stock of Thermo
Instrument or 25% or more of the outstanding common stock of Thermo Electron; or
(b) the failure of the persons serving on the board of directors immediately
prior to any contested election of directors or any exchange offer or tender
offer for Common Stock or the common stock of Thermo Instrument or Thermo
Electron to constitute a majority of the board of directors at any time within
two years following any such event. Amounts deferred pursuant to the Deferred
Compensation Plan are valued at the end of each quarter as units of Common
Stock. When payable, amounts deferred may be disbursed solely in shares of
Common Stock accumulated under the
3
Deferred Compensation Plan. A total of 75,000 shares of Common Stock has been
reserved for issuance under the Deferred Compensation Plan. As of January 2,
1999, deferred units equal to approximately 3,879 shares of Common Stock were
accumulated under the Deferred Compensation Plan.
Directors Stock Option Plan
The Corporation's directors stock option plan (the "Directors Plan")
provides for the grant of stock options to purchase shares of Common Stock to
outside directors as additional compensation for their service as directors.
The Directors Plan provides for the grant of stock options upon a director's
initial appointment and, beginning in 2000, awards options to purchase 1,000
shares annually to outside directors. A total of 225,000 shares of Common Stock
has been reserved for issuance under the Directors Plan.
Under the Directors Plan, each outside director was granted an option to
purchase 45,000 shares of Common Stock upon the effective date of the
Corporation's initial public offering. The size of awards to new directors
appointed to the board of directors after 1996 was reduced by 11,250 shares in
each subsequent year. Outside directors who join the board of directors after
1999 would not receive an option grant upon their appointment or election to the
board of directors, but would be eligible to participate in the annual option
awards described below. Options evidencing initial grants to directors are
exercisable six months after the date of grant. The shares acquired upon
exercise are subject to restrictions on transfer and the right of the
Corporation to repurchase such shares at the exercise price in the event the
director ceases to serve as a director of the Corporation or any other Thermo
Electron company. The restrictions and repurchase rights lapse or are deemed to
have lapsed in equal annual installments of 11,250 shares per year, starting
with the first anniversary of the grant date, provided the director has
continuously served as a director of the Corporation or any other Thermo
Electron company since the grant date. These options expire on the fifth
anniversary of the grant date, unless the director dies or otherwise ceases to
serve as a director of the Corporation or any other Thermo Electron company
prior to that date in which case they expire upon the occurrence of such event.
Outside directors will also receive an annual grant of options to purchase
1,000 shares of Common Stock, commencing with the annual meeting of the
Stockholders to be held in 2000. The annual grant will be made at the close of
business on the date of each annual meeting of the Stockholders of the
Corporation to each outside director then holding office. Options evidencing
annual grants may be exercised at any time from and after the six-month
anniversary of the grant date of the option and prior to the expiration of the
option on the third anniversary of the grant date. Shares acquired upon
exercise of the options would be subject to repurchase by the Corporation at the
exercise price if the recipient ceased to serve as a director of the Corporation
or any other Thermo Electron company prior to the first anniversary of the grant
date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of January 31, 1999, options to purchase 90,000 shares of Common Stock had
been granted to directors and were outstanding under the Directors Plan, no
options had lapsed or been exercised, and options to purchase 135,000 shares of
Common Stock were available for future grant.
Stock Ownership Policies for Directors
The human resources committee of the board of directors (the "Committee")
has established a stock holding policy for directors. . The stock holding
policy requires each director to hold a minimum of 1,000 shares of Common Stock.
Directors are requested to achieve this ownership within a three-year period.
The chief executive officer of the Corporation is required to comply with a
separate stock holding policy established by the Committee, which is described
in "Committee Report on Executive Compensation - Stock Ownership Policies."
In addition, the Committee has a policy requiring directors to hold shares
of the Corporation's Common Stock equal to one-half of their net option
exercises over a period of five years. The net option exercise is determined by
calculating the number of shares acquired upon exercise of a stock option, after
deducting the number of shares that could have been traded to exercise the
option and the number of shares that could have been surrendered to satisfy tax
withholding obligations attributable to the exercise of the option. This policy
is also
4
applicable to executive officers and is described in "Committee Report on
Executive Compensation - Stock Ownership Policies."
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo Instrument, the Corporation's parent company,
and of Thermo Electron, Thermo Instrument's parent company, as of January 31,
1999, with respect to (i) each director, (ii) each executive officer named in
the summary compensation table set forth below under the heading "Executive
Compensation" ("named executive officers") and (iii) all directors and current
executive officers as a group. In addition, the following table sets forth the
beneficial ownership of Common Stock, as of January 31, 1999, with respect to
each person who was known by the Corporation to own beneficially more than 5% of
the outstanding shares of Common Stock.
While certain directors and executive officers of the Corporation are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Corporation, all such persons disclaim beneficial ownership of the
shares of Common Stock beneficially owned by Thermo Electron.
ThermoQuest Thermo Instrument Thermo Electron
Name (1) Corporation (2) Systems Inc. (3) Corporation (4)
-------- --------------- ---------------- ---------------
Thermo Electron Corporation (5)...... 45,699,466 N/A N/A
Richard W. K. Chapman................ 342,350 189,905 90,357
George N. Hatsopoulos................ 92,600 179,141 3,600,811
Frank Jungers........................ 47,852 19,993 175,754
Earl R. Lewis........................ 135,000 338,250 204,878
Anthony J. Pellegrino................ 91,000 0 31,500
Michael E. Porter.................... 95,427 0 3,710
Philip L. Warren..................... 10,000 39,796 2,879
All directors and current executive
officers as a group (9 persons)...... 863,730 829,796 4,643,836
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Chapman, Dr. Hatsopoulos,
Mr. Jungers, Mr. Lewis, Mr. Pellegrino, Dr. Porter and all directors and
executive officers as a group include 325,000, 92,600, 45,000, 125,000,
90,000, 90,000 and 815,100 shares, respectively, that such person or group
has the right to acquire within 60 days of January 31, 1999, through the
exercise of stock options. Shares of Common Stock owned by Mr. Jungers, Dr.
Porter and all directors and current executive officers as a group include
1,852, 2,027 and 3,880 shares allocated through January 2, 1999, to their
respective accounts maintained pursuant to the Deferred Compensation Plan.
No director or named executive officer beneficially owned more than 1% of
the Common Stock outstanding as of January 31, 1999. All directors and
current executive officers as a group beneficially owned 1.69% of the
Common Stock outstanding as of such date.
(3) Shares of the common stock of Thermo Instrument beneficially owned by
Dr. Chapman, Dr. Hatsopoulos, Mr. Jungers, Mr. Lewis and all directors and
executive officers as a group include 160,624, 117,187, 13,587, 322,085 and
668,559 shares, respectively, that such person or group had the right to
acquire within 60 days of January 31, 1999, through the exercise of stock
options. Shares of the common stock of Thermo Instrument beneficially owned
by Dr. Hatsopoulos and all directors and executive officers as a group
include 598 and 1,561 shares, respectively, allocated through January 31,
1999, to their respective accounts maintained pursuant to Thermo Electron's
employee stock ownership plan (the "ESOP"), of which the trustees, who have
investment power over its assets, are executive officers of Thermo
Electron. Shares of
5
the common stock of Thermo Instrument beneficially owned by Dr. Hatsopoulos
includes 26,710 shares held by his spouse and 63 shares allocated to the
account of his spouse maintained pursuant to the ESOP. Shares of the common
stock of Thermo Instrument beneficially owned by Mr. Lewis include 2,987
shares held by his spouse. Shares of the common stock beneficially owned by
Thermo Electron Corporation include 10,334,620 shares that Thermo Electron
has the right to acquire within 60 days of January 31, 1999 through the
conversion of certain 3 3/4% convertible debentures of the corporation due
2000. The directors and named executive officers of the Corporation did not
individually or as a group beneficially own more than 1% of the common
stock of Thermo Instrument outstanding as of January 31, 1999.
(4) Shares of common stock of Thermo Electron beneficially owned by
Dr. Chapman, Dr. Hatsopoulos, Mr. Jungers, Mr. Lewis, Mr. Pellegrino and
all directors and executive officers as a group include 88,034, 1,899,500,
9,125, 202,350, 31,500 and 2,695,481 shares, respectively, that such person
or group has the right to acquire within 60 days of January 31, 1999,
through the exercise of stock options. Shares of the common stock of Thermo
Electron beneficially owned by Dr. Hatsopoulos and all directors and
executive officers as a group include 2,266 and 4,763 shares, respectively,
allocated to accounts maintained pursuant to the ESOP. Shares beneficially
owned by Dr. Hatsopoulos include 158,351 shares held by his spouse, 408,664
shares held by a family trust of which his spouse is the trustee, 500,000
shares held by a trust of which Dr. Hatsopoulos is the trustee, and 153
shares allocated to the account of his spouse maintained pursuant to the
ESOP. Shares beneficially owned by Dr. Hatsopoulos also include 50,000
shares that a family trust, of which his spouse is the trustee, has the
right to acquire within 60 days of January 31, 1999 through the exercise of
stock options. Shares of common stock of Thermo Electron owned by
Mr. Jungers and all directors and executive officers as a group include
80,427 allocated to Mr. Jungers' account maintained pursuant to Thermo
Electron's deferred compensation plan for directors. Shares of the common
stock of Thermo Electron beneficially owned by Mr. Jungers include 4,500
shares held by his spouse. No director or named executive officer
beneficially owned more than 1% of the common stock of Thermo Electron
outstanding as of January 31, 1999, except for Dr. Hatsopoulos, who
beneficially owned 2.25% of such stock as of such date; all directors and
current executive officers as a group beneficially owned approximately
2.91% of the common stock of Thermo Electron outstanding as of January 31,
1999.
(5) As of January 31, 1999, Thermo Electron, primarily through its majority-
owned subsidiary Thermo Instrument, beneficially owned 89.66 % of the
outstanding Common Stock. Thermo Electron's address is 81 Wyman Street,
Waltham, Massachusetts 02454-9046. As of January 31, 1999, Thermo
Electron had the power to elect all of the members of the Corporation's
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Corporation's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, such as Thermo Electron,
to file with the Securities and Exchange Commission initial reports of ownership
and periodic reports of changes in ownership of the Corporation's securities.
Based upon a review of such filings, all Section 16(a) filing requirements
applicable to such persons were complied with during 1998, except in the
following instances. Mr. Lewis H. Rosenblum, an officer of the Corporation,
filed his initial report of ownership on Form 3 late. Thermo Electron filed six
Form 4s late, reporting a total of 18 transactions associated with the grant,
exercise and lapse of options to purchase Common Stock granted to employees
under its stock option program.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation during the last three fiscal
years for services to the Corporation in all capacities awarded to, earned by or
paid to the Corporation's chief executive officer and the next most highly
compensated executive officer. These executive officer are together referred to
as the "named executive officers." No other executive officer of the Corporation
met the definition of "highly compensated" within the meaning of the Securities
and Exchange Commission's executive compensation disclosure rules.
The Corporation is required to appoint certain executive officers and full-
time employees of Thermo Electron as executive officers of the Corporation, in
accordance with the Thermo Electron Corporate Charter. The
6
compensation for these executive officers is determined and paid entirely by
Thermo Electron. The time and effort devoted by these individuals to the
Corporation's affairs is provided to the Corporation under the corporate
services agreement between the Corporation and Thermo Electron. See
"Relationship with Affiliates." Accordingly, the compensation for these
individuals is not reported in the following table.
Summary Compensation Table
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Long Term Compensation
----------------------
Securities Underlying
Annual Compensation Options (No. of Shares
Name and Fiscal ----------------------- ---------------------- All Other
Principal Position Year Salary Bonus and Company) (1) Compensation (2)
------------------ ---- ------ ----- ---------------- ----------------
Richard W. K. Chapman 1998 $190,000 $110,000 100,000(TMQ) $19,488(3)
President and 7,600(TMO)
Chief Executive Officer 7,500(MKA)
7,500(ONX)
4,000(RGI)
2,000(TDX)
1,000TISI)
20,000(THI)
2,000TRIL)
7,500(VIZ)
2,000TRCC)
1997 $180,000 $153,000 300(TMO) $42,782(3)
1996 $170,000 $125,000 225,000(TMQ) $ 6,130(3)
150(TMO)
30,000(TBA)
2,000(TFG)
2,000(TLT)
15,000(TOC)
2,000(TSR)
4,000(TXM)
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Philip L. Warren 1998 $111,044 $ 0 500(TMO) $40,398(5)
Former Vice President (4) 1997 $158,625 $ 70,000 10,000(TMQ) $10,159(5)
1996 $152,817 $ 80,000 75,000(TMQ) $ 3,849(5)
11,250(TOC)
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(1) Options granted by the Corporation are designated in the table as "TMQ."
In addition, the named executive officers have also been granted options to
purchase common stock of the following Thermo Electron companies during the
last three fiscal years as part of Thermo Electron's stock option program:
Thermo Electron (designated in the table as TMO), Metrika Systems
Corporation (designated in the table as MKA), ONIX Systems Inc. (designated
in the table as ONX), The Randers Killam Group Inc. (designated in the
table as RGI), Thermedics Detection Inc. (designated in the table as TDX),
Thermo BioAnalysis Corporation (designated in the table as TBA), Thermo
Fibergen Inc. (designated in the table as TFG), Thermo Information
Solutions Inc. (designated in the table as TISI), Thermo Instrument Systems
Inc. (designated in the table as THI), ThermoLyte Corporation (designated
in the table as TLT), Thermo Optek Corporation (designated in the table as
TOC), Thermo Sentron Inc. (designated in the table as TSR), Thermo Trilogy
Corporation (designated in the table as TRIL), Thermo Vision Corporation
(designated in the table as VIZ), Trex Communications Corporation
(designated in the table as TRCC) and Trex Medical Corporation (designated
in the table as TXM).
(2) Represents the amount of matching contributions made by the individual's
employer on behalf of executive officers participating in the Thermo
Electron 401(k) plan.
7
(3) In addition to the matching contribution referred to in footnote (2), such
amounts include $9,448, $10,480 and $3,443, which represents the amount of
compensation attributable to interest-free loans provided to Dr. Chapman
pursuant to the Corporation's stock holding assistance plan in fiscal 1998,
1997 and 1996, respectively. See "Relationship with Affiliates - Stock
Holding Assistance Plan." The amount reported for 1997 for Dr. Chapman
includes $28,147 for relocation expenses reimbursed to Dr. Chapman.
(4) Mr. Warren resigned as a vice president of the Corporation on September 4,
1998.
(5) In addition to the matching contribution referred to in footnote (2), such
amounts include $6,300, $6,959 and $1,853, respectively, which represent
the amount of compensation attributable to interest-free loans provided to
Mr. Warren pursuant to the Corporation's stock holding assistance plan in
fiscal 1998, 1997 and 1996, See "Relationship with Affiliates - Stock
Holding Assistance Plan", as well as $31,035 of accrued vacation pay which
was paid upon his resignation.
Stock Options Granted During Fiscal 1998
The following table sets forth information concerning individual grants of
stock options made during fiscal 1998 to the Corporation's chief executive
officer and the other named executive officer. It has not been the
Corporation's policy in the past to grant stock appreciation rights, and no such
rights were granted during fiscal 1998.
Option Grants in Fiscal 1998
- --------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Total Options Price Appreciation for
Number of Securities Granted to Exercise Option Term (2)
Underlying Options Employees in Price Per Expiration ---------------------
Name Granted and Company (1) Fiscal Year Share Date 5% 10%
---- ----------------------- ----------- ----- ---- -------- --------
Richard W. K. Chapman 100,000(TMQ) 10.3% $ 9.44 09/25/03 $261,000 $576,000
400(TMO) 0.01%(3) $34.50 06/02/03 $ 3,812 $ 8,424
7,200(TMO) 0.2%(3) $16.20 09/23/03 $ 32,256 $ 71,208
7,500(MKA)(4) 2.6%(3) $15.86 03/10/10 $ 94,650 $254,400
7,500(ONX)(4) 0.8%(3) $14.25 03/10/10 $ 85,050 $228,525
4,000(RGI) 0.8%(3) $ 4.00 01/21/05 $ 6,520 $ 15,160
2,000(TDX) 0.2%(3) $ 9.56 01/21/05 $ 7,780 $ 18,140
1,000(TISI) 1.7%(3) $10.00 01/21/08 $ 6,290 $ 15,940
20,000(THI) 2.7%(3) $13.54 09/25/03 $ 74,800 $165,400
2,000(TRIL) 1.1%(3) $ 8.25 01/21/08 $ 10,380 $ 26,300
7,500(VIZ)(4) 1.8%(3) $ 7.15 03/10/10 $ 42,675 $114,675
2,000(TRCC) 0.2%(3) $ 4.00 01/21/08 $ 5,040 $ 12,740
- --------------------------------------------------------------------------------------------------------------------
Philip L. Warren 500(TMO) 0.02%(3) $34.50 (5) (5) (5)
- --------------------------------------------------------------------------------------------------------------------
(1) All of the options granted during fiscal 1998 were immediately exercisable
as of the end of fiscal 1998 except options to purchase Thermo Information
Solutions Inc., Thermo Trilogy Corporation and Trex Communications
Corporation which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common stock
under Section 12 of the Exchange Act or (ii) nine years after the grant
date. In all cases, the shares acquired upon exercise are subject to
repurchase by the granting company at the exercise price if the optionee
ceases to be employed by, or serve as a director of, such company or any
other Thermo Electron company. The granting company may exercise its
repurchase rights within six months after the termination of the optionee's
employment or cessation of directorship, as the case may be. For publicly-
traded companies, the repurchase rights generally lapse ratably over a one-
to ten-year period, depending on the option term, which may vary from five
to twelve years, provided that the optionee continues to be employed by, or
serve as a director of, the company or another Thermo
8
Electron company. For companies that are not publicly-traded, the
repurchase rights lapse in their entirety on the ninth anniversary of the
grant date. Certain options granted as part of Thermo Electron's stock
option program have three-year terms, and the repurchase rights lapse in
their entirety on the second anniversary of the grant date. The granting
company may permit the holder of options to exercise options and to satisfy
tax withholding obligations by surrendering shares equal in fair market
value to the exercise price or withholding obligation. Please see footnote
(1) on page 7 for the company abbreviations used in this table.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock of the
granting company, the optionee's continued employment or service as a
director through the option period and the date on which the options are
exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron companies other than the Corporation and, accordingly, are
reported as a percentage of total options granted to employees of Thermo
Electron and its subsidiaries.
(4) Options to purchase 7,500 shares of Metrika Systems Corporation, 7,500
shares of ONIX Systems Inc. and 7,500 shares of Thermo Vision Corporation
common stock granted to Dr. Chapman are subject to the same terms as
described in footnote (2), except that the repurchase rights are deemed to
lapse 20% per year commencing on the fifth anniversary of the grant date.
(5) Mr. Warren resigned as a vice president of the Corporation on September 4,
1998. Therefore, options granted in fiscal 1998 have lapsed and do not
have a potential realizable value.
Stock Options Exercised During Fiscal 1998 and Fiscal Year-End Values
The following table reports certain information regarding stock option
exercises during fiscal 1998 and outstanding stock options held at the end of
fiscal 1998 by the Corporation's chief executive officer and the other named
executive officer. No stock appreciation rights were exercised or were
outstanding during fiscal 1998.
9
Aggregated Option Exercises In Fiscal 1998
And Fiscal 1998 Year-End Option Values
- --------------------------------------------------------------------------------
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Year-End Year-End
Acquired on Value (Exercisable/ (Exercisable/
Name Company (2) Exercise Realized (1) Unexercisable) (2) Unexercisable)
---- ----------- -------- ------------ ------------------ --------------
Richard W. K. Chapman (3) (TMQ) -- -- 325,000/0 $457,725/--
(TMO) 150 $ 2,423 88,034/0 (4) $ 55,531/--
(MKA) -- -- 7,500/0 (5) $ 0/--
(ONX) -- -- 7,500/0 (5) $ 0/--
(RGI) -- -- 4,000/0 $ 0/--
(TDX) -- -- 2,000/0 $ 0/--
(TBA) -- -- 30,000/0 $ 80,640/--
(TFG) -- -- 2,000/0 $ 0/--
(TFT) -- -- 6,750/0 $ 27,425/--
(TISI) -- -- 0/1,000 --/$0 (6)
(THI) 10,983 $278,474 160,624/0 $285,020/--
(TLZ) -- -- 5,000/0 $ 0/-- (6)
(TLT) -- -- 0/2,000 --/$0 (6)
(TOC) -- -- 15,000/0 $ 0/--
(TSR) -- -- 2,000/0 $ 0/--
(THS) -- -- 4,000/0 $ 5,500/--
(TKN) 270 $ 4,975 --/-- --/--
(TRIL) -- -- 0/2,000 --/$0 (6)
(VIZ) -- -- 7,500/0 (5) $ 0/--
(TRCC) -- -- 0/2,000 --/$0 (6)
(TXM) -- -- 4,000/0 $ 0/--
- ----------------------------------------------------------------------------------------------------------------------
Philip L. Warren (TMO) 2,699 $ 11,084 --/-- --/--
(TBA) 400 $ 3,150 --/-- --/--
(TFT) 3,375 $ 18,353 --/-- --/--
(THI) 19,452 $323,981 --/-- --/--
- ----------------------------------------------------------------------------------------------------------------------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) All of the options reported outstanding at the end of fiscal 1998 were
immediately exercisable as of the end of fiscal 1998, except options to
purchase the common stock of Thermo Information Solutions Inc., ThermoLyte
Corporation, Thermo Trilogy Corporation and Trex Communications
Corporation, which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common stock
under Section 12 of the Exchange Act or (ii) nine years after the grant
date. In all cases, the shares acquired upon exercise of the options
reported in the table are subject to repurchase by the granting company at
the exercise price if the optionee ceases to be employed by, or serve as a
director of, such company or any other Thermo Electron company. The
granting company may exercise its repurchase rights within six months after
the termination of the optionee's employment or cessation of directorship,
as the case may be. For publicly-traded companies, the repurchase rights
generally lapse ratably over a one- to ten-year period, depending on the
option term, which may vary from five to twelve years, provided that the
10
optionee continues to be employed by or serve as a director of the
Corporation or another Thermo Electron company. For companies that are not
publicly-traded, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date. Certain options have three-year terms and
the repurchase rights lapse in their entirety on the second anniversary of
the grant date. The granting company may permit the holder of options to
exercise options and to satisfy tax withholding obligations by surrendering
shares equal in fair market value to the exercise price or withholding
obligation. Please see footnote (1) on page 7 for the company abbreviations
used in this table.
(3) Dr. Chapman also holds other unexercised options to purchase common stock
of Thermo Electron and its subsidiaries other than the Corporation. These
options are not reported here as they were granted as compensation for
service to other Thermo Electron companies in capacities other than in his
capacity as chief executive officer of the Corporation.
(4) Options to purchase 45,000 shares, of the common stock of Thermo Electron
granted to Dr. Chapman are subject to the same terms as described in
footnote (2), except that the repurchase rights of Thermo Electron
generally do not lapse until the tenth anniversary of the grant date.
In the event of his death or involuntary termination prior to the tenth
anniversary of the grant date, the repurchase rights of Thermo Electron
shall be deemed to have lapsed ratably over a five-year period, commencing
with the fifth anniversary of the grant date.
(5) Options to purchase 7,500 shares of the common stock of Metrika Systems
Inc., 7,500 shares of the common stock of ONIX Systems Inc. and 7,500
shares of the common stock of Thermo Vision Corporation granted to
Dr. Chapman are subject to the same terms as described in footnote (2),
except that the repurchase rights are deemed to lapse 20% per year
commencing on the fifth anniversary of the grant date..
(6) No public market for the shares underlying these options existed at fiscal
year-end. Accordingly, no value in excess of the exercise price has been
attributed to these options.
Executive Retention Agreements
Thermo Electron has entered into agreements with certain executive officers
and key employees of Thermo Electron and its subsidiaries that provide severance
benefits if there is a change in control of Thermo Electron and their employment
is terminated by Thermo Electron "without cause" or by the individual "for good
reason", as those terms are defined therein, within 18 months thereafter.
For purposes of these agreements, a change in control exists upon (i) the
acquisition by any person of 40% or more of the outstanding common stock or
voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election;
(iii) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or the
sale or other disposition of all or substantially all of the assets of Thermo
Electron unless immediately after such transaction (a) all holders of Thermo
Electron common stock immediately prior to such transaction own more than 60% of
the outstanding voting securities of the resulting or acquiring corporation in
substantially the same proportions as their ownership immediately prior to such
transaction and (b) no person after the transaction owns 40% or more of the
outstanding voting securities of the resulting or acquiring corporation; or
(iv) approval by stockholders of a complete liquidation or dissolution of Thermo
Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
Dr. Chapman. This agreement provides that in the event Dr. Chapman's employment
is terminated under circumstances described above, Dr. Chapman would be entitled
to a lump sum payment equal to the sum of (a) one times her highest annual base
salary in any 12 month period during the prior five-year period, plus (b) one
times his highest annual bonus in any 12 month period during the prior five-year
period. In addition, Dr. Chapman would be provided benefits for a period one
year after such termination substantially equivalent to the benefits package she
would have been otherwise entitled to receive if he was not terminated.
Further, all repurchase rights of Thermo Electron and its subsidiaries shall
lapse in their entirety with respect to all options that Dr. Chapman holds in
Thermo Electron and its subsidiaries, including the Corporation, as of the date
of the change in control. Finally, Dr. Chapman would be entitled to a cash
payment equal to $15,000 to be used toward outplacement services.
11
Assuming that the severance benefits would have been payable as of
January 1, 1999, the lump sum salary and bonus payment under such agreement to
Dr. Chapman would have been approximately $373,000. In the event that payments
under this agreement are deemed to be so called "excess parachute payments"
under the applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), Dr. Chapman would be entitled to receive a gross-
up payment equal to the amount of any excise tax payable by him with respect to
such payment plus the amount of all other additional taxes imposed on him
attributable to the receipt of such gross-up payment.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
Decisions on compensation for the Corporation's executive officers are made
by the human resources committee of the board of directors (the "Committee").
The Committee follows guidelines established by the human resources committee of
the board of directors of its ultimate parent company, Thermo Electron.
The compensation policies followed by the Committee are designed to reward and
motivate executives in achieving long-term value for Stockholders and other
business objectives, to attract and retain dedicated, talented individuals to
accomplish the Corporation's objectives, to recognize individual contributions
as well as the performance of the Corporation and its subsidiaries, and to
encourage stock ownership by executives through stock-based compensation and
stock retention programs in order to link executive and Stockholder interests.
The Committee evaluates the competitiveness of its compensation practices
through the use of market surveys and competitive analyses prepared by its
outside compensation consultants and by participating in annual compensation
surveys, primarily "Project 777", an executive compensation survey prepared by
Management Compensation Services, a division of Hewitt Associates. The majority
of firms represented in the Project 777 survey are included in the Standard &
Poor's 500 Index but do not necessarily correspond to the companies included in
the Corporation's peer group index, the Dow Jones Total Return Index for the
Diversified Technology Industry Group. Internal fairness of compensation within
the organization is also an important element of the Committee's compensation
philosophy. Compensation of executives is evaluated by comparing it to the
compensation of other executives within the Thermo Electron organization who
have responsibility to manage businesses of comparable size and complexity.
The compensation program of the Corporation consists of annual cash
compensation and long-term incentive compensation. Annual cash compensation is
composed of base salary and performance-based incentive compensation, which is
reviewed and determined annually. Long-term incentive compensation is in the
form of stock-based compensation such as stock options and restricted stock
awards. The process for determining the components of executive compensation
for the executive officers is described below.
Components of Executive Compensation
Annual Cash Compensation
Annual cash compensation consists of base salary and performance-based
incentive compensation. The cash incentive compensation paid to an executive
varies from year to year based on the performance of the Corporation and the
executive.
The Committee assesses the competitiveness of annual cash compensation by
establishing for each executive position at the beginning of each fiscal year a
salary and reference incentive compensation for the position that together are
intended to approximate the mid-point of competitive total annual cash
compensation for organizations that are of comparable size and complexity as the
Corporation.
Base Salary. Generally, executive salaries are adjusted gradually over
time to reflect competitive salary levels or other considerations, such as
geographic or regional market data, industry trends or internal fairness within
the Corporation. The Committee may also adjust individual salaries to reflect
the assumption of increased responsibilities. The salary increases in fiscal
1998 for the named executive officers generally reflect this practice of gradual
adjustment and moderation.
12
Performance-based Incentive Compensation. The amount of incentive
compensation actually earned by an executive from year to year varies with the
performance of the Corporation and the executive. The Committee evaluates
performance (1) by formula using financial measures of profitability and
contribution to Stockholder value and (2) by subjectively evaluating the
executive's contribution to the achievement of the Corporation's long-term
objectives. In fiscal 1998, the formula used by the Committee measured return
on net assets, return on sales, earnings improvement over a three-year period
for the Corporation and, to a lesser extent, the Corporation's parent companies,
and three-year growth in earnings per share for the same companies. The
financial measures are not financial targets that are met, not met or exceeded,
but assess the financial performance relative to the financial performance of
comparable companies and are designed to penalize below-average performance and
reward above-average performance. The relative weighting of the financial
measures and subjective evaluation varies depending on the executive's role and
responsibilities within the organization.
Long-term Incentive Compensation
The primary goal of the Corporation and its parent companies is to excel in
the creation of long-term value for the Stockholders. The principal incentive
tool used to achieve this goal is the periodic award to key employees of stock-
based compensation in shares of Common Stock and the common stock of other
Thermo Electron companies.
The Committee and management believe that awards of stock-based
compensation in both the Corporation and other companies within the Thermo
Electron group of companies accomplish many objectives. The grant of stock-based
compensation to key employees encourages equity ownership in the Corporation,
and closely aligns management's interests to the interests of all the
Stockholders. The emphasis on stock-based compensation also results in
management's compensation being closely linked to stock performance. In
addition, because the employee's rights in stock-based compensation vest over
periods of varying durations and are subject to forfeiture if the employee
leaves the Corporation prematurely, stock-based compensation is an incentive for
key employees to remain with the Corporation long-term. The Committee believes
stock-based compensation awards in its parent companies, Thermo Electron and
Thermo Instrument, and the other majority-owned subsidiaries of Thermo Electron
and Thermo Instrument, are an important tool in providing incentives for
performance within the entire organization.
In determining awards, the Committee considers for each executive officer
the annual value of stock-based compensation in the Corporation and other
companies within the Thermo Electron organization that vest in the next year and
compares the individual's total compensation using this value to competitive
data. The Committee uses a modified Black-Scholes option pricing model to
determine the value of an award. In addition, the Committee considers the
aggregate amount of outstanding awards granted to all employees to monitor the
number of outstanding awards under the Corporation's stock-based compensation
programs. In determining the appropriate number of outstanding awards, the
Committee considers such factors as the size of the company, its stage of
development, and its growth strategy, as well as the aggregate awards and
compensation practices of comparable companies.
The Committee periodically awards stock-based compensation in the form of
stock options or restricted stock based on an assessment of the total
compensation of the executive, the actual and anticipated contributions of the
executive (which includes a subjective assessment by the Committee of the
executive's future potential within the organization), as well as the value of
previously awarded stock-based compensation, as described above.
Stock Ownership Policies
The Corporation's compensation program is also designed to encourage
executives to own shares of the Corporation's Common Stock. The Committee
believes that encouraging executives to own and retain stock acquired through
its stock-based compensation program or otherwise provides additional incentive
for executive officers to follow strategies designed to maximize long-term value
to Stockholders.
The Committee has established a stock holding policy for executive officers
of the Corporation that requires the executive officers to own a multiple of
their compensation in shares of the Corporation's Common Stock. For the chief
executive officer, the multiple is one times her base salary and reference
incentive compensation for the fiscal year. For all other executive officers,
the multiple was one times the officer's base salary. The policy was amended to
apply only to the chief executive officer. The Committee deemed it appropriate
to permit the chief executive officer to achieve this ownership level over a
three-year period.
13
In order to assist officers in complying with the policy, the Committee
adopted a stock holding assistance plan under which the Corporation is
authorized to make interest-free loans to officers to enable them to purchase
shares of the Common Stock in the open market. This plan was also amended to
apply only to the chief executive officer. See "Relationship with Affiliates -
Stock Holding Assistance Plan." The loans are required to be repaid upon the
earlier of demand or the fifth anniversary of the date of the loan, unless
otherwise determined by the Committee. During 1996, Dr. Richard W. K. Chapman,
the Corporation's chief executive officer, and Mr. Philip L. Warren, the
Corporation's former vice president, received loans in the principal amounts of
$210,653 and $139,881, respectively, under this plan, of which amounts $168,522
and $111,905, respectively, were outstanding as of January 31, 1999
The Committee also has adopted a policy requiring its executive officers to
hold shares of Common Stock equal to one-half of their net option exercises over
a period of five years. The net option exercise is determined by calculating
the number of shares acquired upon exercise of a stock option, after deducting
the number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the options.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction
available to public companies for annual compensation paid to executive officers
in excess of $1 million unless the compensation qualifies as "performance-based"
or is otherwise exempt under Section 162(m). The Committee considers the
potential effect of Section 162(m) in designing its compensation program, but
reserves the right to use its independent judgment to approve nondeductible
compensation, while taking into account the financial effects such action may
have on the Corporation. From time to time, the Committee reexamines the
Corporation's compensation practices and the potential effect of Section 162(m).
1998 CEO Compensation
The compensation of Dr. Chapman is established using the same criteria as
described above for all executive officers. The Committee approved a salary
increase for Dr. Chapman for fiscal 1998 that reflected its practice of gradual
adjustment, taking into account the factors described above under "Components of
Executive Compensation - Annual Cash Compensation - Base Salary". In
determining Dr. Chapman's performance-based incentive compensation for fiscal
1998, the Committee considered the financial performance of the Corporation and,
to a lesser extent, its parent company, Thermo Instrument, using the measures
described above for all executive officers under "Components of Executive
Compensation - Annual Cash Compensation - Performance-based Incetive." The
Committee's subjective evaluation of Dr. Chapman's performance considered, among
other things, his effectiveness in furthering the Corporation's business and
financial objectives.
Awards to Dr. Chapman of stock-based compensation in Common Stock are
reviewed and determined periodically by the Committee using the criteria
described above under the caption "Long-term Incentive Compensation." An award
of stock options to purchase 100,000 shares of Common Stock was made by the
Committee to Dr. Chapman in fiscal 1998 based on the Committee's assessment of
Dr. Chapman's total compensation. The awards to Dr. Chapman in fiscal 1998 of
options to purchase 7,600 shares of the common stock of Thermo Electron, 20,000
shares of the common stock of Thermo Instrument, 7,500 shares of the common
stock of Metrika Systems Corporation, 7,500 shares of the common stock of ONIX
Systems Inc. and 7,500 shares of the common stock of Thermo Vision Corporation
were made by the human resources committees of the board of directors of the
granting companies using a methodology similar to that described for the
Corporation.
Due to Dr. Chapman's position as a chief executive officer of a majority-
owned subsidiary of Thermo Electron, from time to time he may receive awards to
purchase shares of the common stock of majority-owned subsidiaries of Thermo
Electron as part of Thermo Electron's stock option program. Awards of stock
options to purchase 4,000 shares of the common stock of The Randers Killam Group
Inc., 2,000 shares of the common stock of
14
Thermedics Detection Inc., 1,000 shares of the common stock of Thermo
Information Solutions Inc., 2,000 shares of the common stock of Thermo Trilogy
Corporation and 2,000 shares of the common stock of Trex Communications
Corporation, were made to Dr. Chapman under this program in fiscal 1998.
Frank Jungers (Chairman)
Michael E. Porter
COMPARATIVE PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Corporation
include in this Proxy Statement a line-graph presentation comparing cumulative,
five-year shareholder returns for the Corporation's Common Stock with a broad-
based market index and either a nationally recognized industry standard or an
index of peer companies selected by the Corporation. The Corporation's Common
Stock has been publicly traded only since March 19, 1996 and, as a result, the
following graph commences as of such date. The Corporation has compared its
performance with the American Stock Exchange Market Value Index and the Dow
Jones Total Return Index for the Diversified Technology Industry Group as of the
last trading day of the Corporation's fiscal year.
Comparison of Total Return Among ThermoQuest Corporation,
the American Stock Exchange Market Value Index and the
Dow Jones Total Return Index for the Diversified
Technology Industry Group from March 19, 1996
to December 31, 1999
[GRAPHIC APPEARS HERE]
3/18/96 12/27/96 1/2/98 12/31/98
- --------------------------------------------------------------------
TMQ 100 85 120 86
- --------------------------------------------------------------------
AMEX 100 103 125 127
- --------------------------------------------------------------------
DJ DTC 100 121 138 140
- --------------------------------------------------------------------
The total return for the Corporation's Common Stock (TMQ), the American
Stock Exchange Market Value Index (AMEX) and the Dow Jones Total Return Index
for the Diversified Technology Industry Group (DJ DTC) assumes the reinvestment
of dividends, although dividends have not been declared on the Corporation's
Common Stock. The American Stock Exchange Market Value Index tracks the
aggregate performance of equity securities of companies listed on the American
Stock Exchange. The Corporation's Common Stock is traded on the American Stock
Exchange under the ticker symbol "TMQ."
RELATIONSHIP WITH AFFILIATES
Thermo Electron has, from time to time, caused certain subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. Thermo Instrument has created the Corporation as
a majority-owned, publicly-held subsidiary. The Corporation and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
15
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Corporation, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others, and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of long-
range planning and providing other banking and credit services. Pursuant to the
Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
certain Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Corporation, can withdraw from participation in the Charter upon
30 days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Corporation and Thermo Electron have
entered into a Corporate Services Agreement (the "Services Agreement") under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and financial and other services to the Corporation. The
Corporation was assessed an annual fee equal to 0.8% of the Corporation's
revenues for these services in fiscal 1998. The annual fee will remain at 0.8%
of the Corporation's revenues for fiscal 1999. The fee is reviewed annually and
may be changed by mutual agreement of the Corporation and Thermo Electron.
During fiscal 1998, Thermo Electron assessed the Corporation $3,469,000 in fees
under the Services Agreement. Management believes that the charges under the
Services Agreement are reasonable and that the terms of the Services Agreement
are fair to the Corporation. During fiscal 1998, the Corporation was billed an
additional $39,226 by Thermo Electron for certain administrative services
required by the Corporation that were not covered by the Services Agreement. The
Services Agreement automatically renews for successive one-year terms, unless
canceled by the Corporation upon 30 days' prior notice. In addition, the
Services Agreement terminates automatically in the event the Corporation ceases
to be a member of the Thermo Group or ceases to be a participant in the Charter.
In the event of a termination of the Services Agreement, the Corporation will be
required to pay a termination fee equal to the fee that was paid by the
Corporation for services under the Services Agreement for the
16
nine-month period prior to termination. Following termination, Thermo Electron
may provide certain administrative services on an as-requested basis by the
Corporation or as required in order to meet the Corporation's obligations under
Thermo Electron's policies and procedures. Thermo Electron will charge the
Corporation a fee equal to the market rate for comparable services if such
services are provided to the Corporation following termination.
The Corporation has entered into a Tax Allocation Agreement with Thermo
Electron which outlines the terms under which the Corporation is to be included
in Thermo Electron's consolidated Federal and state income tax returns. Under
current law, the Corporation will be included in such tax returns so long as
Thermo Electron owns at least 80% of the outstanding common stock of Thermo
Instrument and Thermo Instrument owns at least 80% of the outstanding Common
Stock of the Corporation. In years in which the Corporation has taxable income,
it will pay to Thermo Electron amounts comparable to the taxes the Corporation
would have paid if it had filed its own separate company tax returns. If Thermo
Instrument's equity ownership of the Corporation were to drop below 80%, the
company would file its own tax returns. In 1998, the Corporation was assessed
$15,900,000 by Thermo Electron under the Tax Allocation Agreement. As of
January 2, 1999, the Corporation owed Thermo Electron $6,793,000 for amounts due
under the Tax Allocation Agreement.
From time to time, the Corporation may transact business with other
companies in the Thermo Group.
The Corporation has entered into an arrangement with Thermo BioAnalysis
Corporation ("Thermo BioAnalysis") whereby the Corporation provides assembly
labor for Thermo BioAnalysis' CE products on a contract basis. Under this
arrangement, the Corporation assembles instruments as required by Thermo
BioAnalysis for a charge based on the sum of the Corporation's actual cost of
materials and the allocable portion of its labor, overhead and other indirect
expenses. For the fiscal year ended January 2, 1999, Thermo BioAnalysis paid
the Corporation approximately $312,000 under this arrangement.
The Corporation acts as a distributor of certain of Thermo BioAnalysis'
products, is the exclusive distributor of Thermo BioAnalysis' MALDI-TOF products
in Japan and is the exclusive distributor of Thermo BioAnalysis' CE products in
countries in which it maintains a direct sales force. The Corporation is
responsible for all installation and warranty labor obligations at its expense.
For the fiscal year ended January 2, 1999, the Corporation purchased $1,251,000
of products from Thermo BioAnalysis under these arrangements.
The Corporation purchases and sells other products and/or services in the
ordinary course of business with other subsidiaries of Thermo Electron.
In 1998, the Corporation sold a total of $4,898,000 of other products and/or
services to Thermo Electron subsidiaries and purchased a total of $9,276,000 of
other products and/or services from such companies.
The Corporation, along with certain other Thermo Subsidiaries, participates
in a notional pool arrangement with Barclays Bank, which includes a $71,017,000
credit facility. The Corporation has access to $250,620 under this credit
facility. Only U.K.-based Thermo Subsidiaries participate in this arrangement.
Under this arrangement the Bank notionally combines the positive and negative
cash balances held by the participants to calculate the net interest
yield/expense for the group. The benefit derived from this arrangement is then
allocated based on balances attributable to the respective participants. Thermo
Electron guarantees all of the obligations of each participant in this
arrangement. As of January 2, 1999, the Corporation had a positive cash balance
of approximately $3,520,000, based on an exchange rate of $1.6708/GBP 1.00. For
1998, the average annual interest rate earned on GBP deposits by participants in
this credit arrangement was approximately 7.7225% and the average annual
interest rate paid on overdrafts was approximately 7.485%.
Until mid-December 1998, the Corporation, along with certain other Thermo
Subsidiaries, participated in a notional pool arrangement with ABN AMRO, which
included a $29,719,000 credit facility. The Corporation had access to $796,000
under this credit facility. Only European-based Thermo Subsidiaries
participated in this arrangement. Under this arrangement the Bank notionally
combined the positive and negative cash balances held by the participants to
calculate the net interest yield/expense for the group. The benefit derived
from this arrangement was then allocated based on balances attributable to the
respective participants. Thermo Electron guaranteed all of the obligations of
each participant in this arrangement. For 1998, the average annual interest
rate earned on NLG deposits by participants in this credit arrangement was
approximately 5.00% and the average annual interest rate paid on overdrafts was
approximately 5.00%.
17
As of mid-December 1998, the Corporation, along with certain other Thermo
Subsidiaries, has entered into a modification of the above-described arrangement
with ABN AMRO. Only European-based Thermo Subsidiaries participate in this
arrangement. The new arrangement with ABN AMRO consists of a zero balance
arrangement, which includes a $29,719,000 credit facility. The Corporation has
access to $796,000 under this credit facility. Funds borrowed by the
Corporation under this arrangement pay interest at a rate set by Thermo Finance
B.V., a wholly-owned subsidiary of Thermo Electron, at the beginning of each
month, based on Netherlands market rates. Funds invested by the Corporation
under the arrangement earn a rate set by Thermo Finance B.V. at the beginning of
each month, based on Netherlands market rates, Such invested funds are
collateralized with investments principally consisting of corporate notes,
U.S. government-agency securities, commercial paper, money market funds, and
other marketable securities, in the amount of at least 103% of such obligation.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. As of January 2, 1999, the Corporation had a positive cash balance
of approximately $167,000, based on an exchange rate of $0.5307/NLG 1.00. As of
January 2, 1999, the average annual interest rate earned on NLG deposits by
participants in this credit arrangement was approximately 3.63% and the average
annual interest rate paid on overdrafts was approximately 4.5%.
As of January 2, 1999, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $2,487,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items, net of amounts owed to the Corporation by Thermo
Electron and its other subsidiaries for products, services and miscellaneous
items and excluding amounts owed to Thermo Electron under the Tax Allocation
Agreement. The largest amount of such net indebtedness owed by the Corporation
to Thermo Electron and its other subsidiaries since January 3, 1998 was
$5,536,000. These amounts do not bear interest and are expected to be paid in
the normal course of business.
As of January 2, 1999, $96,906,000 of the Corporation's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Corporation in effect lends excess cash to Thermo Electron which
Thermo Electron collateralizes with investments principally consisting of
corporate notes, U.S. government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. Thermo Electron maintains possession of the underlying
securities and has the right of substitution at its discretion. The
Corporation's funds subject to the repurchase agreement are readily convertible
on demand into cash by the Corporation and have an original maturity of three
months or less. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter.
Stock Holding Assistance Plan
The human resources committee of the Corporation's board of directors (the
"Committee") established a stock holding policy that required executive officers
of the Corporation to acquire and hold a minimum number of shares of Common
Stock. In order to assist the executive officers in complying with this policy,
the Committee also adopted a stock holding assistance plan under which the
Corporation may make interest-free loans to executive officers to enable them to
purchase shares of Common Stock in the open market. The stock holding policy
and the stock holding assistance plan were both subsequently amended to apply
only to the chief executive officer. In 1996, Dr. Richard W. K. Chapman, the
Corporation's chief executive officer, received a loan in the principal amount
of $210,653 under this plan to purchase 15,000 shares of common stock of which
amount $168,522 was outstanding as of the date of January 31, 1999. In 1996,
Mr. Philip L. Warren, the Corporation's former vice president, received a loan
in the principal amount of $139,881 under this plan to purchase 10,000 shares of
common stock of which amount $111,905 remains outstanding as of January 31,
1999. Each loan is repayable upon the earlier of demand or the fifth
anniversary of the date of the loan, unless otherwise determined by the
Committee.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has appointed Arthur Andersen LLP as independent
public accountants for fiscal 1999. Arthur Andersen LLP has acted as independent
public accountants for the Corporation since its inception in 1995.
Representatives of that firm are expected to be present at the Meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to questions. The board of directors has established
18
an Audit committee, presently consisting of two outside directors, the purpose
of which is to review the scope and results of the audit.
OTHER ACTION
Management is not aware at this time of any other matters that will be
presented for action at the Meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of such proxy holders.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be included in the proxy statement
and form of proxy relating to the 2000 Annual Meeting of the Stockholders of the
Corporation and to be presented at such meeting must be received by the
Corporation for inclusion in the proxy statement and form of proxy no later than
December 15, 1999. Notices of Stockholder proposals submitted outside the
processes of Rule 14a-8 of the Securities Exchange Act of 1934, as amended
(relating to proposals to be presented at the meeting but not included in the
Corporation's proxy statement and form of proxy), will be considered untimely,
and thus the Corporation's proxy may confer discretionary voting authority on
the persons named in the proxy with regard to such proposals, if received after
March 2, 2000.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Corporation.
Solicitation will be made primarily by mail, but regular employees of the
Corporation may solicit proxies personally or by telephone, facsimile
transmission or telegram. Brokers, nominees, custodians and fiduciaries are
requested to forward solicitation materials to obtain voting instructions from
beneficial owners of stock registered in their names, and the Corporation will
reimburse such parties for their reasonable charges and expenses in connection
therewith.
Austin, Texas
April 14, 1999
19
FORM OF PROXY
THERMOQUEST CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Richard W. K. Chapman, Earl R. Lewis and
Theo Melas-Kyriazi, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Annual
Meeting of the Stockholders of ThermoQuest Corporation, a Delaware corporation
(the "Company"), to be held on Thursday, May 27, 1999 at 11:00 a.m. at The
Westin Hotel, 70 Third Avenue, Waltham, Massachusetts, and at any adjournment or
postponement thereof, and to vote all shares of common stock of the Company
standing in the name of the undersigned on March 30, 1999, with all of the
powers the undersigned would possess if personally present at such meeting:
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
Please mark your
[ X ] votes as in this
example.
1. ELECTION OF DIRECTORS OF THE COMPANY (see reverse).
FOR [ ] WITHHELD [ ]
______________________________________
FOR all nominees listed at right, except authority to vote withheld for the
following nominees (if any)
Nominees: Richard W. K. Chapman, George N. Hatsopoulos, Frank Jungers, Earl R.
Lewis, Anthony J. Pellegrino and Michael E. Porter.
2. In their discretion on such other matters as may properly come before the
Meeting.
The shares represented by this Proxy will be voted "FOR" the proposals set forth
above if no instruction to the contrary is indicated or if no instruction is
given.
Copies of the Notice of Meeting and of the Proxy Statement have been received
by the undersigned.
SIGNATURE(S) DATE
--------------------------------------- -----------------
Note: This proxy should be dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should
sign.