SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Thermo Optek Corporation
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(Name of Registrant as Specified In Its Charter)
Thermo Optek Corporation
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
[LOGO OF THERMO OPTEK APPEARS HERE]
8 E. Forge Parkway
Franklin, Massachusetts 02038
April 15, 1999
Dear Stockholder:
The enclosed Notice calls the 1999 Annual meeting of the Stockholders of
Thermo Optek 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/ Earl R. Lewis
EARL R. LEWIS
Chairman of the Board
[LOGO OF THERMO OPTEK APPEARS HERE]
8 E. Forge Parkway
Franklin, Massachusetts 02038
April 15, 1999
To the Holders of the Common Stock of
THERMO OPTEK CORPORATION
NOTICE OF ANNUAL MEETING
The 1999 Annual meeting of the Stockholders of Thermo Optek Corporation
(the "Corporation") will be held on Thursday, May 27, 1999 at 1:00 p.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 five 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 Thermo Optek
Corporation (the "Corporation") for use at the 1999 Annual Meeting of the
Stockholders to be held on Thursday, May 27, 1999 at 1:00 p.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 8 E. Forge
Parkway, Franklin, Massachusetts 02038. This proxy statement and the enclosed
proxy were first furnished to Stockholders of the Corporation on or about April
__, 1999.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election of
five 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. Votes of
Stockholders of record who are present at the meeting in person or by proxy,
absentions 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 the 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" will have no effect on the outcome of the vote.
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
49,037,914 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
Five directors are to be elected at the meeting, each to hold office until
his successor is elected and qualified or until his earlier resignation, death
or removal.
1
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.
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GEORGE N. HATSOPOULOS Dr. Hatsopoulos, 72, has been a director of the Corporation since its
inception in August 1995. He has served as chairman and chief executive
officer of Thermo Electron since he founded that company in 1956 and as its
president from 1956 to January 1997. Effective June 1, 1999, Dr.
Hatsopoulos will step down as the chief executive officer of Thermo
Electron and 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, ThermoQuest Corporation and ThermoTrex Corporation.
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BARRY S. HOWE Mr. Howe, 43, has been a director of the Corporation and interim president
since March 1999. Mr. Howe has been a vice president of Thermo Instrument
since 1994 and has been president and chief executive officer of
ThermoSpectra Corporation, a supplier of precision imaging, inspection,
temperature control and test and measurement instruments since March 1998.
He was president and chief executive officer of the Thermo BioAnalysis
Corporation from February 1995 to March 1998. From September 1989 to
December 1995, he served as the president of Thermo Separation Products
Inc. and its predecessor, a manufacturer of chromatography instruments and
a subsidiary of ThermoQuest Corporation. Mr. Howe is also a director of
ThermoSpectra Corporation.
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STEPHEN R. LEVY Mr. Levy, 58, has been a director of the Corporation since November 1995.
Since November 1995, Mr. Levy has been president of The Apogee Group, Inc.,
a company that he founded that provides consulting services in high
technology. Mr. Levy served as chairman of the board and chief executive
officer of BBN Corporation, a high technology company, from 1983 to 1994
and was president and chief executive officer of BBN Corporation from 1976
to 1983. He retired from BBN Corporation in 1995.
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EARL R. LEWIS Mr. Lewis, 55, has been director of the Corporation since its inception in
August 1995. He also served as the Corporation's president from August
1995 to April 1997. He served as the chief executive officer of the
Corporation from August 1995 through January 1998. 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 president of the Corporation's predecessor, Thermo Jarrell
Ash Corporation, for more than five years prior to 1995. Mr. Lewis is a
director of Metrika Systems Corporation, ONIX Systems Inc., SpectRx Inc.,
Thermo BioAnalysis Corporation, Thermo Instrument, ThermoQuest Corporation,
ThermoSpectra Corporation and Thermo Vision Corporation.
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2
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ROBERT A. MCCABE Mr. McCabe, 64, has been a director of the Corporation since March 1996. He
has been the chairman of Pilot Capital Corporation, which is engaged in
private investments, since 1998. Mr. McCabe was the president of Pilot
Capital Corporation from 1987 to 1998. Prior to that time, Mr. McCabe was a
managing director of Lehman Brothers Inc., an investment banking firm. Mr.
McCabe is also a director of Atlantic Bank & Trust Company, Borg-Warner
Security Corporation, Church & Dwight Company and Thermo Electron.
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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 Mr. Levy (Chairman) and Mr. McCabe. 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.
Levy and Mr. McCabe (Chairman). 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 five 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. Hatsopoulos, Mr. Lewis and Dr. Rosenthal were all employees of
Thermo Electron or its subsidiaries during fiscal 1998 and did 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 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
3,033 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
3
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 eligible director was granted an option to
purchase 45,000 shares upon the effective date of the Corporation's initial
public offering. In addition, each new outside director who joined the board of
directors during 1996 was granted an option to purchase 45,000 shares of Common
Stock. 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
another Thermo Electron company prior to that date in which case they expire on
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 another 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 level 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 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
4
(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.
THERMO OPTEK THERMO INSTRUMENT THERMO ELECTRON
NAME (1) CORPORATION (2) SYSTEMS INC. (3) CORPORATION (4)
-------- --------------- ----------------- ---------------
Thermo Electron Corporation (5) 48,621,648 N/A N/A
Gerard Abraham..................... 17,000 0 2,200
George N. Hatsopoulos.............. 113,100 179,141 3,600,811
Roger Herd......................... 29,120 111,194 53,538
Barry S. Howe...................... 15,000 138,389 75,570
Stephen R. Levy.................... 49,242 0 0
Earl R. Lewis...................... 253,000 338,250 204,878
Robert A. McCabe................... 70,962 56,818 48,009
Robert J. Rosenthal............... 368,500 96,790 48,650
Fredric T. Walder.................. 23,000 12,866 1,151
All directors and current executive
officers as a group (11 persons). 959,924 995,159 4,566,557
(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 Mr. Abraham, Dr. Hatsopoulos,
Mr. Herd, Mr. Howe, Mr. Levy, Mr. Lewis, Mr. McCabe, Dr. Rosenthal, Mr.
Walder and all directors and current executive officers as a group include
17,000, 93,100, 24,500, 15,000, 45,000, 225,000, 45,000, 352,500, 21,750,
and 859,850 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 beneficially owned by Mr. Levy, Mr. McCabe and all
directors and current executive officers as a group include 2,242, 791 and
3,033 shares, respectively, allocated through January 2, 1999, to their
respective accounts maintained pursuant to the Deferred Compensation Plan.
Shares of Common Stock beneficially owned by Mr. McCabe include 7,171
shares that he had the right to acquire within 60 days of January 31, 1999
through the conversion of certain 5% convertible debentures of the
Corporation due 2000. Shares of Common Stock beneficially owned by Mr.
Lewis include 2,500 shares owned by his spouse and 1,000 shares owned by
his son. Shares of the Common Stock beneficially owned by Mr. McCabe
include 5,000 shares held by a trust of which he and member of his family
are trustees. 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
1.87% of the Common Stock outstanding as of such date.
(3) Shares of the common stock of Thermo Instrument beneficially owned by Dr.
Hatsopoulos, Mr. Herd, Mr. Howe, Mr. Lewis, Mr. McCabe, Dr. Rosenthal, Mr.
Walder and all directors and current executive officers as a group include
117,187, 34,375, 113,750, 322,085, 10,771, 96,112, 10,500, and 759,856
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 current 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, of which the trustees, who have investment
power over its assets, are executive officers of Thermo Electron (the
"ESOP"). Shares beneficially owned by Dr. Hatsopoulos include 26,710
shares held by his spouse and 63 shares allocated to the account of his
spouse
5
maintained pursuant to the ESOP. Shares beneficially owned by Mr. Howe
include 374 shares held by him as custodian for his two minor children.
Shares beneficially owned by Mr. Lewis include 2,987 shares held by his
spouse. Shares beneficially owned by Mr. Walder include 130 shares held by
his spouse. No director or named executive officer beneficially owned more
than 1% of the common stock of Thermo Instrument outstanding as of January
31, 1999; all directors and current executive officers as a group owned
less than 1% of the common stock of Thermo Instrument outstanding as of
January 31, 1999.
(4) Shares of the common stock of Thermo Electron beneficially owned by Mr.
Abraham, Dr. Hatsopoulos, Mr. Herd, Mr. Howe, Mr. Lewis, Mr. McCabe, Dr.
Rosenthal and all directors and current executive officers as a group
include 2,200, 1,899,500, 20,024, 69,787, 202,350, 9,125, 48,300 and
2,714,058 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 current executive officers as a
group include 2,266 and 4,763 shares, respectively, allocated to accounts
maintained pursuant to the ESOP. Shares of the common stock of Thermo
Electron beneficially owned by Mr. McCabe and all directors and current
executive officers as a group include 34,725 shares allocated to Mr.
McCabe's account under Thermo Electron's deferred compensation plan for
directors. Shares of the common stock of Thermo Electron beneficially
owned by Dr. Hatsopoulos include 158,351 shares held by his spouse, 408,664
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 Dr. Hatsopoulos' spouse is the
trustee, had the right to acquire within 60 days of January 31, 1999,
through the exercise of stock options. Shares beneficially owned by Mr.
Walder include 258 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 Dr. Hatsopoulos
who beneficially owned 2.25% of such stock; all directors and current
executive officers as a group beneficially owned approximately 2.86% 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 94.94% of the
outstanding Common Stock. Shares of the Common Stock beneficially owned by
Thermo Electron include 25,099 shares that Thermo Electron has the right to
acquire within 60 days of January 31, 1999 through the conversion of
certain 5% convertible debentures of the Corporation due 2000. 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
Instrument and its parent company, 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. Thermo
Electron filed six Form 4s late, reporting a total of 24 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 its two other most highly
compensated executive officers. These executive officers are collectively
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.
6
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 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
NAME AND FISCAL OPTIONS (NO. OF SHARES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AND COMPANY) (1) COMPENSATION (2)
------------------ ------ ------ ----- ---------------- ----------------
Robert J. Rosenthal (3) 1998 $175,000 $110,000 240,000 (TOC) $17,927 (4)
Former President and 7,300 (TMO)
Chief Executive Officer 7,500 (MKA)
7,500 (ONX)
4,000 (RGI)
2,000 (TDX)
1,000 (TISI)
20,000 (THI)
2,000 (TRIL)
7,500 (VIZ)
2,000 (TRCC)
1997 $148,500 $135,000 10,100 (TMO) $44,502 (4)
1996 $135,000 $120,000 112,500 (TOC) $ 4,500
150 (TMO)
10,000 (TMQ)
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Gerard Abraham (5) 1998 $144,500 $ 36,000 5,000 (TOC) $ 7,200
Vice President 2,200 (TMO)
- -------------------------------------------------------------------------------------------------------------------------
G. Roger Herd (6) 1998 $132,500 $ 60,000 5,000 (TOC) $ 5,842
Vice President 2,600 (TMO)
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Frederic T. Walder (7) 1998 $115,000 $ 76,000 10,000 (TOC) $ 5,000
Vice President
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(1) Options granted by the Corporation are designated in the table as "TOC."
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 Information Solutions Inc. (designated in the table as TISI), Thermo
Instrument (designated in the table as THI), ThermoQuest Corporation
(designated in the table as TMQ), Thermo Trilogy Corporation (designated in
the table as TRIL), Thermo Vision Corporation (designated in the table as
VIZ) and Trex Communications Corporation (designated in the table as TRCC).
(2) Represents the amount of matching contributions made by the individual's
employer on behalf of named executive officers participating in the Thermo
Electron 401(k) plan or the Nicolet Retirement Savings Plan.
(3) Dr. Rosenthal was appointed president of the Corporation in April 1997 and
chief executive officer of the Corporation in January 1998, and resigned as
president and chief executive officer in March 1999.
(4) In addition to $5,000 and $7,125 of matching contributions referred to in
footnote (2) for 1998 and 1997, this amount includes $12,927 and $458,
respectively, attributable to an interest-free loan to Dr. Rosenthal
pursuant to the Corporation's Stock Holding Assistance Plan (see
"Relationship with Affiliates - Stock Holding Assistance Plan") and $36,919
for expenses associated with Dr. Rosenthal's relocation to Franklin,
Massachusetts in 1997.
7
(5) Mr. Abraham was appointed an officer of the Corporation on January 4, 1998.
The salary reported for fiscal 1998 represents compensation for the entire
fiscal year.
(6) Mr. Herd was appointed an officer of the Corporation on January 4, 1998.
The salary reported for fiscal 1998 represents compensation for the entire
fiscal year.
(7) Mr. Walder was appointed an officer of the Corporation on April 28, 1998.
The salary reported for fiscal 1998 represents compensation for the entire
fiscal year.
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 then chief executive
officer and the other named executive officers. 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
PERCENT OF VALUE AT ASSUMED
NUMBER OF SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE APPRECIATION FOR
GRANTED AND EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM (2)
-----------------------
NAME COMPANY (1) FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ----------- ----- ---- ---------- ----------
Robert J. Rosenthal 100,000 (TOC) 10.8% $16.65 05/20/10 $1,325,000 $3,560,000
140,000 (TOC) 15.1% $ 8.00 09/25/03 $ 309,400 $ 683,200
100 (TMO) 0.03% (3) $34.50 06/02/03 $ 953 $ 2,106
7,200 (TMO) 0.2% (3) $16.20 09/23/03 $ 32,256 $ 71,208
7,500 (MKA) 2.6% (3) $15.86 03/10/05 $ 48,450 $ 112,875
7,500 (ONX) 0.8% (3) $14.25 03/10/05 $ 43,500 $ 101,400
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) 1.8% (3) $ 7.15 03/10/05 $ 21,825 $ 50,850
2,000 (TRCC) 0.2% (3) $ 4.00 01/21/08 $ 5,040 $ 12,740
- ---------------------------------------------------------------------------------------------------------------------
Gerard Abraham 5,000 (TOC) 0.5% $ 8.00 09/25/03 $ 11,050 $ 24,400
2,200 (TMO) 0.1% (3) $16.20 09/23/03 $ 9,856 $ 21,758
- ---------------------------------------------------------------------------------------------------------------------
G. Roger Herd 5,000 (TOC) 0.5% $ 8.00 09/25/03 $ 11,050 $ 24,400
2,600 (TMO) 0.1% (3) $34.50 06/02/03 $ 24,778 $ 54,756
- ---------------------------------------------------------------------------------------------------------------------
Fredric T. Walder 5,000 (TOC) 0.5% $16.88 04/28/03 $ 23,300 $ 51,550
5,000 (TOC) 0.5% $ 8.00 09/25/03 $ 11,050 $ 24,400
- ---------------------------------------------------------------------------------------------------------------------
(1) All of the options granted during fiscal 1998 were immediately exercisable
as of the end of fiscal 1998 except options to purchase the common stock of
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 another Thermo Electron company. The granting company may exercise its
repurchase rights within six months after the termination of the optionee's
employment or the 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 the optionee continues to be
employed by, or serve as a director of, the company 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. The granting company may permit the holder of options to
exercise options and to satisfy tax withholding obligations by surrendering
shares
8
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.
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 officers. No stock appreciation rights were exercised or were
outstanding during fiscal 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998 YEAR-END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------
NUMBER OF VALUE OF
SECURITIES 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)
---- ----------- -------- ------------ ------------------ --------------
Robert J. Rosenthal (TOC) -- -- 352,500 /0 $ 96,320 /--
(TMO) -- -- 48,300 /0 (3) $ 3,514 /--
(MKA) -- -- 7,500 /0 $ 0 /--
(ONX) -- -- 7,500 /0 $ 0 /--
(RGI) -- -- 4,000 /0 $ 0 /--
(TDX) -- -- 2,000 /0 $ 0 /--
(TBA) -- -- 2,000 /0 $ 5,376 /--
(TISI) -- -- 0 /1,000 -- /$0 (4)
(THI) -- -- 96,112 /0 $228,034 /--
(TMQ) -- -- 10,000 /0 $ 3,130 /--
(THS) -- -- 2,500 /0 $ 3,438 /--
(TRIL) -- -- 0 /2,000 -- /$0 (4)
(VIZ) -- -- 7,500 /0 $ 0 /--
(TRCC) -- -- 0 /2,000 -- /$0 (4)
- ------------------------------------------------------------------------------------------------------------
Gerard Abraham (TOC) -- -- 17,000 /0 $ 3,440 /--
(TMO) -- -- 2,200 /0 $ 1,074 /--
- ------------------------------------------------------------------------------------------------------------
G. Roger Herd (TOC) -- -- 24,500 /0 $ 3,440 /--
(TMO) 6,412 $118,153 20,024 /0 $ 40,116 /--
(THI) -- -- 34,375 /0 $ 14,982 /--
(TMQ) -- -- 5,000 /0 $ 1,565 /--
- ------------------------------------------------------------------------------------------------------------
Fredric T. Walder (TOC) -- -- 21,750 /0 $ 3,440 /--
(THI) -- -- 10,500 /0 $ 23,631 /--
(TMQ) -- -- 5,000 /0 $ 1,565 /--
(THS) -- -- 1,000 /0 $ 1,375 /--
- ------------------------------------------------------------------------------------------------------------
9
(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 common stock of 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 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 another 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 granting company or another Thermo Electron
company. For companies that are not publicly-traded, the repurchase rights
generally 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) Options to purchase 15,750 shares of the common stock of Thermo Electron
granted to Dr. Rosenthal are subject to the same terms as described in
footnote (2), except that the repurchase rights of Thermo Electron 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.
(4) 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.
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.
10
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.
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.
The incentive compensation awarded to the named executive officers (other
than the chief executive officer, which is discussed below under the caption
"1998 CEO Compensation") reflected the financial performance is fiscal 1998 of
the businesses of the Corporation for which the executive was responsible.
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.
11
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. Such stock-
based compensation awards were made to the named executive officers in 1998.
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 required executive officers to own a multiple of their
compensation in shares of Common Stock. For the chief executive officer, the
multiple is one times his base salary and reference incentive compensation for
the fiscal year. For all other officers, the multiple was one times the
officer's base salary. The Committee deemed it appropriate to permit executive
officers to achieve these ownership levels over a three-year period. The policy
has been amended to apply only to the chief executive officer.
In order to assist officers in complying with the policy, the Committee
adopted a stock holding assistance plan under which the Corporation was
authorized to make interest-free loans to officers to enable them to purchase
shares of the Common Stock in the open market. This plan has also been amended
to now 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. In 1996, Mr. Lewis, the
Corporation's then chief executive officer, received a loan in the principal
amount of $194,029 under this plan, of which amount $156,223 was outstanding as
of January 31, 1999. In 1997, Dr. Rosenthal, the Corporation's then chief
operating officer, received a loan in the principal amount of $229,616 under
this plan, of which the entire amount was outstanding as of January 31, 1999.
The Committee also has established 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 option.
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).
12
1998 CEO COMPENSATION
Dr. Robert J. Rosenthal served as the Corporation's chief executive officer
from January 1998 until his resignation in March 1999. The compensation of Dr.
Rosenthal prior to his resignation was established using the same criteria as
described above for all executive officers. The Committee approved a salary
increase for Dr. Rosenthal for fiscal 1998 that reflected his promotion and the
other factors described above under "Components of Executive Compensation -
Annual Cash Compensation - Base Salary." In determining Dr. Rosenthal'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 Incentive Compensation." The Committee's
subjective evaluation of Dr. Rosenthal's performance considered, among other
things, his effectiveness in furthering the Corporation's business and financial
objectives.
Awards to Dr. Rosenthal of stock-based compensation in Common Stock were
reviewed and determined periodically by the Committee using the criteria
described above under the caption "Components of Executive Compensation - Long-
term Incentive Compensation." Awards of stock options to purchase 240,000
shares of Common Stock were made by the Committee to Dr. Rosenthal in fiscal
1998 based on the Committee's assessment of Dr. Rosenthal's total compensation.
The awards to Dr. Rosenthal in fiscal 1998 of options to purchase 7,300 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 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. Rosenthal's position as a chief executive officer of a majority-
owned subsidiary of Thermo Electron, from time to time he may have received
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
options to purchase 4,000 shares of the common stock of The Randers Killam Group
Inc., 2,000 shares of the common stock of 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. Rosenthal under this
program in fiscal 1998.
Robert A. McCabe (Chairman)
Stephen R. Levy
13
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 June 7, 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 THERMO OPTEK CORPORATION,
THE AMERICAN STOCK EXCHANGE MARKET VALUE INDEX AND THE DOW JONES TOTAL RETURN
INDEX
FOR THE DIVERSIFIED TECHNOLOGY INDUSTRY GROUP FROM JUNE 7, 1996 TO DECEMBER 31,
1998
[GRAPH APPEARS HERE]
06/07/96 12/27/96 01/02/98 12/31/98
- -------------------------------------------------------------------
TOC 100 83 118 64
- -------------------------------------------------------------------
AMEX 100 97 118 120
- -------------------------------------------------------------------
DJ DTC 100 115 132 133
- -------------------------------------------------------------------
The total return for the Corporation's Common Stock (TOC), 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 total return for the Corporation's Common Stock has been
adjusted for historical periods to reflect a special dividend of the shares of
Thermo Vision Corporation distributed as a tax-free spinoff in December 1997.
The adjustment has been made in the same manner as the adjustment to the
conversion price of the Corporation's outstanding debentures, by determining the
market capitalization of the Corporation prior to the spinoff, using a 15-day
average stock price, and subtracting the market capitalization of the spinoff
entity, using its initial public offering price. The price adjustment yielded
by this methodology was 6.07%. 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 "TOC."
RELATIONSHIP WITH AFFILIATES
Thermo Electron has, from time to time, caused certain of its 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 and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each
14
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
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 certain 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%
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 $3,578,000 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 1998, the Corporation was billed an additional $36,800 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 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
15
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 will 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
$11,500,000 by Thermo Electron Corporate under the Tax Allocation Agreement. As
of January 2, 1999, the Corporation owed Thermo Electron $6,209,000 for amounts
due under the Tax Allocation Agreement.
From time to time, the Corporation may transact business with other
companies in the Thermo Group.
On March 29, 1996, Thermo Instrument acquired a substantial portion of the
businesses constituting the Scientific Instruments Division of Fisons plc
(Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. In August 1998,
the Corporation agreed to acquire Gebrueber Haake GmbH ("Haake"), a business
formerly part of Fisons, from Thermo Instrument for 2,075,342 shares of Common
Stock, valued at $23,814,000 at the time of the transaction, and the assumption
of $10,354,000 of debt. The purchase price for this acquisition was determined
based on the net tangible book value of Haake at March 29, 1996, and a pro rata
allocation of Thermo Instrument's total cost in excess of net assets acquired
associated with its acquisition of the Fisons businesses. The purchase price
for Haake also included $4,781,000 for the increase in the net book value from
the date the business was acquired by Thermo Instrument. Haake is a supplier of
viscometry and rheometry systems used by a wide variety of manufacturers to
measure the properties of liquid substances. The price was approved by the
board of directors of the Corporation and Thermo Instrument.
In April 1998, the Corporation purchased ThermoSpectra Corporation's
interest in a start-up business run by one of ThermoSpectra's divisions, Nicolet
Imaging Systems, for a cash purchase price of approximately $150,000. In
addition, if the Corporation is successful in commercializing the sale of
products based on the technology of this business, the Corporation has agreed to
pay ThermoSpectra a 5% royalty on gross revenues from all such products sold, up
to a maximum royalty payment of $600,000. ThermoSpectra had acquired its
interest in this start-up business in connection with its acquisition of IRT
Corporation in September 1994. The purchase price and royalty arrangement were
negotiated by representatives of management of the Corporation and ThermoSpectra
and reflect the value of ThermoSpectra's investment in the business and the
parties' estimate of the future potential of the business.
To partially fund several acquisitions in August 1997 the Corporation
borrowed $40,000,000 from Thermo Electron pursuant to a promissory note due
August 1998 and bearing interest at the 90-day Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter. This note was
repaid in August 1998. The interest rate on the note at the time it was repaid
was 5.73%
In 1997, Thermo Vision Corporation borrowed $3,947,000 from the Corporation
pursuant to two promissory notes due February 2000 and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. The interest rate for the notes was 5.36% at year-
end 1998.
The Corporation leases office and manufacturing space to ThermoSpectra
Corporation ("ThermoSpectra"), a majority owned subsidiary of Thermo Instrument,
and Nicolet Biomedical Inc. ("Nicolet Biomedical"), a wholly owned subsidiary of
Thermo Electron, pursuant to an arrangement whereby the Corporation charges
ThermoSpectra and Nicolet Biomedical their allocated share of the occupancy
expenses of the Corporation's principal Wisconsin facility, based on the space
ThermoSpectra and Nicolet Biomedical utilize. The Corporation recorded
operating income of $901,000 in 1998 from these affiliates. These leases are
effective until December 31, 2001, but may be terminated by ThermoSpectra and
Nicolet Biomedical upon 90 days' and 30 days' prior notice, respectively, to the
Corporation.
16
The Corporation purchases and sells products and/or services in the
ordinary course of business with other subsidiaries of Thermo Electron. In
1998, the Corporation sold a total of $9,425,000 of products and/or services to
Thermo Electron Subsidiaries and purchased a total of $3,807,000 of 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 $17,677,000 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 $7,812,000, 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
$4,246,000 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%.
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 $4,246,000 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 negative cash balance
of approximately $2,575,000, 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 $350,000
principal amount of its 5% subordinated convertible debentures due 2000. The
debentures are convertible into shares of Common Stock at $13.95 per share.
Excluding the loan described above, as of January 2, 1999, Thermo Electron
and its other subsidiaries owed the Corporation an aggregate of $704,000 for
amounts due in connection with the sales of products, services, and
miscellaneous items. This amount is net of amounts owed by the Corporation to
Thermo Electron and its other subsidiaries under the Services Agreement, for
related administrative charges, and for products, services, and miscellaneous
items. The largest amount of such net indebtedness owed by Thermo Electron and
its other subsidiaries to the Corporation since January 3, 1998 was $5,342,000.
Excluding the debentures described above and amounts owned under the Tax
Allocation Agreement, the largest amount of indebtedness owed by the Corporation
to Thermo Electron and its other subsidiaries since January 3, 1998 for amounts
due under the Services Agreement, for related administrative charges, and for
products, services, and other miscellaneous amounts was $1,572,000. This amount
is net of amounts owed by Thermo Electron and its other subsidiaries for
products, services, and miscellaneous items. These amounts do not bear interest
and are expected to be paid in the normal course of business.
17
As of January 2, 1999, $8,216,000 of the Corporation's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement the Corporation in effect lends cash to Thermo Electron, which Thermo
Electron collateralizes with investments principally consisting of U.S.
government agency securities, corporate notes, 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
to acquire and hold a minimum number of shares of Common Stock. In order to
assist the executive officers in complying with the policy, the Committee also
adopted a stock holding assistance plan under which the Corporation could make
interest-free loans to the executive officers, to enable them to purchase 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, Mr. Lewis received a loan in the principal amount
of $194,029 under this plan to purchase 15,000 shares of the Common Stock, of
which amount $155,223 was outstanding as of January 31, 1999. In 1997, Dr.
Rosenthal received a loan in the principal amount of $229,616 under this plan to
purchase 15,000 shares of the Common Stock, of which the entire amount was
outstanding as of January 31, 1999. The loans are 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.
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 16, 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 5, 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.
Franklin, Massachusetts
April 15, 1999
18
FORM OF PROXY
THERMO OPTEK 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 Earl R. Lewis, Barry S. Howe 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 Thermo Optek 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: George N. Hatsopoulos, Barry S. Howe, Stephen R. Levy, Earl R. Lewis
and Robert A. McCabe.
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.